[G.R. No. 123817.

December 17, 1999]

IBAAN RURAL BANK INC., petitioner, vs. THE COURT OF APPEALS and
MR. and MRS. RAMON TARNATE, respondents.

DECISION
QUISUMBING, J.:

This petition for review under Rule 45 of the Rules of Court seeks to set aside the
decision of the Court of Appeals in CA-G.R. CV No. 32984 affirming with modification
the decision of the Regional Trial Court of Batangas, Branch 2, in Civil Case No. 534,
as well as the resolution of the Court of Appeals denying petitioners motion for
reconsideration.
The facts are as follows:
Spouses Cesar and Leonila Reyes were the owners of three (3) lots covered by
Transfer Certificate of Title (TCT) Nos. 33206, 33207 and 33208 of the Register of
Deeds of Lipa City. On March 21, 1976, the spouses mortgaged these lots to Ibaan
Rural Bank, Inc. [herein petitioner]. On June 11, 1976, with the knowledge and consent
of the petitioner, the spouses as sellers, and Mr. and Mrs. Ramon Tarnate [herein private
respondents] as buyers, entered into a Deed of Absolute Sale with Assumption of
Mortgage of the lots in question. Private respondents failed to pay the loan and the bank
extra-judicially foreclosed on the mortgaged lots. The Provincial Sheriff conducted a
public auction of the lots and awarded the lots to the bank, the sole bidder. On December
13, 1978, the Provincial Sheriff issued a Certificate of Sale which was registered on
October 16, 1979. The certificate stated that the redemption period expires two (2) years
from the registration of the sale. No notice of the extrajudicial foreclosure was given to
the private respondents.On September 23, 1981, private respondents offered to redeem
the foreclosed lots and tendered the redemption amount of P77,737.45. However,
petitioner Bank refused the redemption on the ground that it had consolidated its titles
over the lots. The Provincial Sheriff also denied the redemption on the ground that
private respondents did not appear on the title to be the owners of the lots.
Private respondents filed a complaint to compel the bank to allow their redemption
of the foreclosed lots. They alleged that the extra-judicial foreclosure was null and void
for lack of valid notice and demand upon them. They further argued that they were
entitled to redeem the foreclosed lots because they offered to redeem and tendered the
redemption price before October 16, 1981, the deadline of the 2-year redemption period.
 The bank opposed the redemption, contending that the private respondents had no
right to redeem the lots because they were not the real parties in interest; that at the time
they offered to redeem on September 23, 1981, the right to redeem had prescribed, as
more than one year had elapsed from the registration of the Certificate of Sale on
October 16, 1979; that there was no need of personal notice to them because under
Section 3 of Act 3135, only the posting of notice of sale at three public places of the
municipality where the properties are located was required.[1]
After trial on the merits, the lower court ruled in favor of herein private respondents
and against the petitioner, thus:

WHEREFORE, in view of the foregoing, the Court renders judgment in favor of the plaintiffs
and against the defendants, to wit:

(a) Ordering the defendant Ibaan Rural Bank Inc., and Provincial Sheriff of Batangas for the
redemption of the foreclosed properties covered by Transfer Certificate of Title Nos. T-33206,
T-33207 and T-33208 of the Registry of Deeds, Lipa City by the plaintiffs by paying the
mortgaged obligation.

(b) Ordering the Provincial Sheriff of Batangas to cancel the Transfer Certificate of Titles issued
to defendant Ibaan Rural Bank, Inc. and its successors-in-interest and to issue the corresponding
Transfer of Certificate of Titles to plaintiffs upon payment of the required legal fees.

(c) Ordering the defendant Ibaan Rural Bank, Inc., to pay plaintiffs moral damages in the amount
of P200,000.00, and attorneys fees in the sum of P20,000.00.

All other claims not having been duly proved are ordered DISMISSED.

Without pronouncement as to costs.

SO ORDERED.[2]

On appeal, the Court of Appeals affirmed with modification the decision of the
lower court. The dispositive portion of the CA decision reads:

WHEREFORE, the decision appealed from is hereby AFFIRMED with the following
modifications:

1. The register of Deeds of Lipa City is hereby ordered to cancel the Certificate of Titles issued
to defendant Ibaan Rural Bank, Inc. and its successor-in-interest and to issue the corresponding
Transfer Certificate of Title to plaintiffs-appellees upon proper redemption of the properties and
payment of the required legal fees.

2. Defendant Ibaan Rural bank, is hereby ordered to pay to plaintiffs the amount of P15,000.00
as attorneys fees.
3. The moral damages awarded in favor of plaintiffs is hereby ordered deleted.

SO ORDERED.[3]

A timely Motion for Reconsideration was filed by the petitioner but the same was
denied in a Resolution dated February 14, 1996. Hence, this petition.
Petitioner assigns the following errors:

1. THE RESPONDENT COURT ERRED AND, ACCORDINGLY, THE PETITIONER IS

ENTITLED TO A REVIEW OF ITS DECISION, WHEN IT SUSTAINED AVAILABILITY
OF REDEMPTION DESPITE THE LAPSE OF ONE YEAR FROM DATE OF
REGISTRATION OF THE CERTIFICATE OF SALE.

2. THE RESPONDENT COURT ERRED AND, ACCORDINGLY, THE PETITIONER IS

ENTITLED TO A REVIEW OF ITS DECISION, WHEN THE RESPONDENT COURT
ALLOWED RECOVERY OF ATTORNEYS FEES SIMPLY BECAUSE THE PETITIONER
DID NOT ALLOW THE PRIVATE RESPONDENTS TO EXERCISE BELATEDLY
REDEMPTION OF THE FORECLOSED PROPERTY.[4]

Essentially, two issues are raised for resolution. What was the period of
redemption: two years as unilaterally fixed by the sheriff in the contract, or one year as
fixed by law? May respondent court properly award attorneys fees solely on the basis
of the refusal of the bank to allow redemption?
We now resolve these issues.
When petitioner received a copy of the Certificate of Sale registered in the Office
of the Register of Deeds of Lipa City, it had actual and constructive knowledge of the
certificate and its contents.[5] For two years, it did not object to the two-year redemption
period provided in the certificate. Thus, it could be said that petitioner consented to the
two-year redemption period specially since it had time to object and did not. When
circumstances imply a duty to speak on the part of the person for whom an obligation
is proposed, his silence can be construed as consent.[6] By its silence and inaction,
petitioner misled private respondents to believe that they had two years within which to
redeem the mortgage. After the lapse of two years, petitioner is estopped from asserting
that the period for redemption was only one year and that the period had already
lapsed. Estoppel in pais arises when one, by his acts, representations or admissions, or
by his own silence when he ought to speak out, intentionally or through culpable
negligence, induces another to believe certain facts to exist and such other rightfully
relies and acts on such belief, so that he will be prejudiced if the former is permitted to
deny the existence of such facts.[7]
In affirming the decision of the trial court, the Court of Appeals relied on Lazo vs.
Republic Surety and Insurance Co., Inc.,[8] where the court held that the one year period
of redemption provided in Act No. 3135 is only directory and can be extended by
agreement of the parties. True, but it bears noting that in Lazo the
parties voluntarily agreed to extend the redemption period. Thus, the concept of legal
redemption was converted by the parties in Lazo into conventional redemption.This is
not so in the instant case. There was no voluntary agreement. In fact, the sheriff
unilaterally and arbitrarily extended the period of redemption to two (2) years in the
Certificate of Sale. The parties were not even privy to the extension made by the
sheriff. Nonetheless, as above discussed, the bank can not after the lapse of two years
insist that the redemption period was one year only.
Additionally, the rule on redemption is liberally interpreted in favor of the original
owner of a property. The fact alone that he is allowed the right to redeem clearly
demonstrates the solicitousness of the law in giving him another opportunity, should
his fortune improve, to recover his lost property.[9]
Lastly, petitioner is a banking institution on whom the public expects diligence,
meticulousness and mastery of its transactions. Had petitioner diligently reviewed the
Certificate of Sale it could have easily discovered that the period was extended one year
beyond the usual period for redemption.Banks, being greatly affected with public
interest, are expected to exercise a degree of diligence in the handling of its affairs
higher than that expected of an ordinary business firm.[10]
On the second issue, the award of attorneys fees must be disallowed for lack of legal
basis. The fact that private respondents were compelled to litigate and incur expenses
to protect and enforce their claim does not justify the award of attorneys fees. The
general rule is that attorneys fees cannot be recovered as part of damages because of the
public policy that no premium should be placed on the right to litigate.[11] The award of
attorneys fees must be deleted where the award of moral and exemplary damages are
eliminated.[12]
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 32984
is AFFIRMED, with the MODIFICATION that the award of attorneys fees is
deleted. No pronouncement as to costs.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.
 [G.R. No. 128568. April 9, 2003]

SPOUSES REYNALDO ALCARAZ and ESMERALDA

ALCARAZ, petitioners, vs. PEDRO M. TANGGA-AN, MENAS R.
TANGGA-AN, VIRGINIA III YVETTE R. TANGGA-AN, CECIL T.
VILLAFLOR, HERMES R. TANGGA-AN, VENUS R. TANGGA-AN,
JUPITER R. TANGGA-AN, YVONNE T. FRI, VIVIEN R. TANGGA-AN
and HON. JUDGE P. BURGOS and THE COURT OF
APPEALS, respondents.

DECISION
CORONA, J.:

Before us is a petition for review of the decision[1] dated January 10, 1997 of the Court
of Appeals[2] affirming the decision[3] dated June 26, 1995 of the Regional Trial Court (RTC)
of Cebu City, Branch 17, which in turn upheld the decision[4] dated January 5, 1995 of the
Municipal Trial Court (MTC) of Cebu City, Branch 2, ordering the ejectment of the
petitioner spouses from the house they were renting from respondents.
On October 4, 1994, respondents Pedro Tangga-an, Menas Tangga-an, Virginia III
Yvette Tangga-an, Cecil Villaflor, Hermes Tangga-an, Venus Tangga-an, Jupiter Tangga-
an, Yvonne Fri and Vivien Tangga-an filed a complaint for unlawful detainer, with
damages, docketed as Civil Case No. R-33928, against petitioner spouses Reynaldo
Alcaraz and Esmeralda Alcaraz.
The complaint alleged that the late Virginia Tangga-an (the spouse of respondent
Pedro Tangaa-an and mother of the rest of the respondents) leased a residential building
(house) located at Premier Street, Hipodromo, Cebu City to the petitioner spouses. The
lease contract was limited to the use and occupancy of the said residential building and
did not include the lot on which it was constructed because the said lot was then owned
by the National Housing Authority (NHA). Under the contract, the petitioner spouses
bound themselves for five years to pay Virginia a monthly rental of P4,000 beginning
November 22, 1991. However, since November 1993, they failed to pay rent. Thus, as of
October, 1994, they were in arrears in the amount of P48,000. Despite repeated demands
by respondents to pay the rentals in arrears and to surrender the possession of the
residential building, the petitioner spouses refused to vacate the same. Respondents
sought to repossess the property for their own use and benefit.
 On the other hand, the petitioner spouses alleged that, on July 23, 1993, the
ownership of the lot on which the house stood was transferred by the NHA to Virgilio and
Angelita D. Tangga-an. Virgilio Tangga-an is the son of the late Virgilia Tangga-an and
respondent Pedro Tangga-an, and the brother of the other respondents. Transfer
Certificate of Title No. 125657 was consequently issued in the name of Virgilio Tangga-
an. According to the petitioner spouses, the subsequent change in ownership of the lot
and the house resulted in the cancellation of the contract of lease between respondents
and petitioner spouses. Thereafter, they paid the rent to the new owners of the lot (Virgilio
and Angelita) and not to respondents since the latter supposedly no longer had the legal
right to collect rentals.
On January 5, 1995, the MTC rendered a decision, the dispositive portion of which
read:

WHEREFORE, Judgment is entered by way of preponderance of evidence in favor of

plaintiffs and against the defendants, Ordering the latter to vacate the premises
immediately, including all those who are occupying the subject house in relation to
them; They are also jointly ordered to pay the sum of P48,000 representing rental
payment in arrears from November, 1993 up to October, 1994 and to update monthly
payment of P4,000 thereafter until their vacation therefrom; They are saddled to pay
attorneys fees in the sum of P5,000 and litigation costs in the amount of P1,000.

SO ORDERED. [5]

In ruling in favor of the respondents, the MTC held that the petitioner spouses clearly
violated the contract of lease due to non-payment of rent. They failed to show that the
subject house belonged to Virgilio alone. On the other hand, the respondents proved that,
after the death of Virgilia, they registered said house in the name of their trustees, co-
respondents Hermes Tangga-an and his wife. Furthermore, considering that Virgilios
claim of ownership over the lot was the subject of a pending litigation for annulment of
deed of sale and reconveyance of property involving the Tangga-ans, the MTC ruled that
it cannot usurp to pass judgment on the issues, as well as the conflicting claims of the
parties therein.[6]
On appeal, the RTC affirmed the decision of the MTC, and held that:

xxx [D]efendants failed to present any documentary evidence modifying or amending

the contract of lease (Annex C, complaint) to justify the transfer of payment of the
monthly rental to Virgilio Tanga-an who claims only as the registered owner of the lot
on which the leased house is located. It appears that Virgilio Tanga-an does not
possess any proof of ownership of the rented house. Clearly, defendants had violated
the lease agreement executed between them and the deceased lessor Virginia R.
Tangga-an (sic) the predecessor in interest of Hermes Tangaa-an and his wife as
shown in the Tax Declaration of the said spouses (Annex A, complaint) whose name
appears under the space for previous owner by stopping payment of rental to the
present owner despite the existence of the contract of lease which expires on
November 22, 1996. The law on contracts basically states:

Obligations arising fro contracts have the force of law between the contracting parties
and should be complied with in good faith. (Article 1159, New Civil Code of the
Philippines).

xxx xxx xxx[7]

In denying the petition for review and affirming the judgments of the courts a quo, the
Court of Appeals ruled that:

We also concur with the holding of both courts that as heirs of Virginia Tangga-an,
private respondents have the right to institute the action for ejectment, in accordance
with Article 487 of the Civil Code; and that the claim of petitioner that Virgilio
Tangga-an owns the lot where the leased residential building stands and occupied by
petitioners is still the subject of a civil action for annulment of the sale of the lot
before the Regional Trial Court of Cebu. It does not follow as a matter of course that
whoever owns the lot owns the building in question. Ownership of the lot cannot
change the nature and ownership of the building, which belongs to the plaintiffs as
heirs of the late Virginia Tangga-an through Ernest Tangga-an and his wife.
Respondent court correctly reasoned out that xxx defendants cannot hide over the
cloak of Virgilio Tangga-an, his claim of ownership over the lot as far as the Court is
concerned being irrelevant to this case xxx. Most importantly, the action involving the
question of ownership of the lot is not a lawful ground to suspend/abate the ejectment
proceeding. The rationale of the rule being that an ejecment suit involves only the
issue of material possession or possession de facto (San Pedro vs. Court of Appeals,
235 SCRA 145, 150, and cases cited). [8]

Hence, this petition on the following assignments of error:

I

THE LEASE CONTRACT EXECUTED BY PETITIONERS WITH VIRGINIA

TANGGA-AN, PLAINTIFFS PREDECESSOR-IN-INTEREST, COVERED NOT
ONLY THE LAND, BUT ALSO THE IMPROVEMENT THEREON, INCLUDING
THE BUILDING.

II

VIRGILIO TANGGA-AN, AS ONE OF THE HEIRS OF VIRGINIA, HAD THE

SAME RIGHTS OVER THE PROPERTY AS THOSE OF THE OTHER HEIRS,
THE PLAINTIFFS. HENCE, VIRGILIO MAY NOT BE EXCLUDED
UNILATERALLY BY THE OTHER HEIRS IN HIS ENJOYMENT OF HIS
HEREDITARY RIGHTS.

III

THE REGISTRATION OF THE LAND, INCLUDING THE IMPROVEMENTS

THEREON, IN THE NAME OF VIRGILIO TANGGA-AN UNDER THE
TORRENS SYSTEM IS INDEFEASIBLE AND MAY NOT BE ATTACKED
COLLATERALLY IN THE PRESENT ILLEGAL DETAINER CASE. [9]

We rule in favor of the respondents.

Section 16 of the 1997 Revised Rules of Civil Procedure provides that:

SEC. 16. Resolving defense of ownership. - When the defendant raises the defense of
ownership in his pleadings and the question of possession cannot be resolved without
deciding the issue of ownership, the issue of ownership shall be resolved only to
determine the issue of possession.

The issue of ownership is precisely what the petitioner spouses raised to justify their
non-payment of rent and to resist eviction from the house they leased from respondents.
Being indispensable to the resolution of the issue of possession, we herein render a
provisional ruling on ownership.
Petitioner spouses seek a dismissal of the case for lack of jurisdiction claiming that
the only issue to be resolved is ownership over the house which is improper in an
ejectment case. We disagree. The issue in the case at bar is whether the petitioner
spouses, as lessees, were excused from paying the rent because of the change in the
ownership of the land on which the rented house was built. The main question therefore
is still the lawful possession of the subject premises by the petitioner spouses. To resolve
it, a discussion of the ownership issue is necessary.
The petitioner spouses insist that the courts a quo erred in not finding that Virgilio
Tangga-an became the new owner not only of the lot but also of the residential house.
They claim that, before she died, Virginia, the original owner of the subject house, waived
and ceded her rights over the land in favor of Virgilio. The said transfer allegedly included
the subject house because, pursuant to Article 440 of the Civil Code, the ownership of
the property gives the right of accession to everything which is produced thereby, or which
is incorporated or attached thereto, either naturally or artificially. They also maintain that
the NHA executed a deed of sale of both the house and the lot in favor of Virgilio.
According to the petitioner spouses, the tax declaration over the house in the name of
respondent Hermes Tangga-an, as trustee of the other respondents, was self-serving and
had no probative value compared to the certificate of title over the lot in the name of
Virgilio Tangga-an.
We find no merit in petitioners arguments.
 Pursuant to Section 1, Rule 45 of the 1997 Revised Rules of Civil Procedure, a
petition for review before this Court should only raise questions of law. In the absence of
showing that the case falls under one of the exceptions, [10] factual findings of the Court of
Appeals are conclusive on the parties and not reviewable by this Court. And they carry
even more weight when the Court of Appeals affirms the factual findings of the trial court.
As such, this Court is not duty-bound to analyze and weigh all over again the evidence
already considered in the proceedings below.[11]
The courts a quo were unanimous in holding that the petitioner spouses failed to
substantiate their factual averment that Virgilio not only acquired the lot but also the
house. After examining the records, we found nothing to disprove the facts determined
by the lower courts. All the petitioner spouses presented was Virgilios uncertified xerox
copy of the certificate of title over the lot. No document was ever shown evidencing
cession of the subject house in Virgilios favor. Virgilios title could not be used to prove
ownership over the house built on said lot as it carried no reference at all to the house. A
building by itself is a real or immovable property distinct from the land on which it is
constructed[12] and therefore can be a separate subject of contracts.
On the other hand, the respondents proved that, as compulsory heirs of Virginia, they
were the rightful owners of the subject house. They presented a tax declaration in the
name of their trustees, co-respondent Hermes Tangga-an and his wife, which tax
declaration sufficiently evidences their co-ownership and acquisition of title following the
death of the decedent Virginia. We have ruled that:

Although tax declarations or realty tax payment of property are not conclusive
evidence of ownership, nevertheless, they are good indicia of possession in the
concept of owner for no one in his right mind would be paying taxes for a property
that is not in his actual or at least constructive possession. They constitute at least
proof that the holder has a claim of title over the property. The voluntary declaration
of a piece of property for taxation purposes manifests not only ones sincere and honest
desire to obtain title to the property and announces his adverse claim against the State
and all other interested parties, but also the intention to contribute needed revenues to
the Government. Such an act strengthens ones bona fide claim of acquisition of
ownership. [13]

One of the factual issues raised by the petitioner spouses concerns the alleged waiver
and cession of Virginias rights over the house and lot to Virgilio. But the petitioner spouses
did not mention any consideration received by Virginia for the waiver of the house, in
effect making said waiver a donation thereof to Virgilio. However, in order for a donation
of real property like a house to be valid, a public instrument duly signed by the donor and
accepted by the donee (which acceptance must be known to the donor while alive) must
be executed.[14] Moreover, said donation must not impair the legitime of the forced heirs of
the donor in order for the same not to be inofficious. [15] In the case at bar, no such public
instrument was presented. Neither was it explained why said waiver did not impair the
rights of the other compulsory heirs of Virginia.
 To support their argument that the house necessarily became Virgilios property as a
result of the acquisition of the lot on which the same was built, the petitioner spouses
invoke the principle that the accessory follows the principal. Being an accessory, the
house is necessarily owned by the owner of the lot on which it is built.
There is no need, however, to disturb and analyze the applicability of this well-
entrenched principle because the petitioner spouses are estopped from raising the same.
Both parties knew that their contract pertained only to the lease of the house, without
including the land. The contract states: 1. That the lessor is the owner of a building of
mixed materials situated at Premier St., Mabolo, Hipodromo, Cebu City. [16] At the time of
the perfection of the contract, the petitioner spouses, as lessees, were aware that the
NHA, and not Virginia, the lessor, owned the land on which the rented house stood yet
they signed the same, obliged themselves to comply with the terms thereof for five years
and performed their obligations as lessees for two years.
Now they assume a completely different legal position. They claim that the lease
contract ceased to be effective because Virgilios assumption of ownership of the land
stripped the respondents of ownership of the building. They argue that, under Article 440
of the Civil Code, Virgilios title over the lot necessarily included the house on the said lot,
thus automatically canceling the contract.
Section 2, Rule 131 of the Rules of Court provides as a conclusive presumption that:

Sec. 2. Conclusive presumptions. The following are instances of conclusive

presumptions:

(a) Whenever a party has, by his own declaration, act, or omission, intentionally and
deliberately led another to believe a particular thing true, and to act upon such belief,
he cannot, in any litigation arising out of such declaration, act or omission, be
permitted to falsify it;

xxx xxx xxx

After recognizing the validity of the lease contract for two years, the petitioner
spouses are barred from alleging the automatic cancellation of the contract on the ground
that the respondents lost ownership of the house after Virgilio acquired title over the lot.
We also note that the petitioner spouses rescinded the contract of lease without
judicial approval. Due to the change in ownership of the land, the petitioner spouses
decided to unilaterally cancel the contract because Virgilio supposedly became the new
owner of the house after acquiring title to the lot. They alleged that there was no reason
anymore to perform their obligations as lessees because the lessor had ceased to be the
owner of the house. But there is nothing in their lease contract that allows the parties to
extrajudicially rescind the same in case of violation of the terms thereof.Extrajudicial
rescission of a contract is not possible without an express stipulation to that effect. [17] What
the petitioner spouses should have done was to file a special civil action for interpleader
for the claimants to litigate their claims and to deposit the rentals in court.
 The petitioner spouses aver that their payments to Virgilio beginning November, 1993
were payments made in good faith to a person in possession of the credit, in consonance
with Article 1242 of the Civil Code.[18] This therefore released them from their obligation.
They claim that Virgilio collected the rentals in his capacity as a co-owner. Being a son of
Virginia, he was also entitled to the rent of the subject house. We disagree. Virgilio
collected the rentals not as a co-owner but as the alleged sole owner of the subject house.
The petitioner spouses themselves admitted that Virgilio claimed sole ownership of the
house and lot. It would be incongruous for them to now assert payment in good faith to a
person they believed was collecting in behalf of his co-heirs after admitting that they paid
rent to Virgilio as the sole owner thereof.
Hence, for violating of the terms of the lease contract, i.e., payment of rent,
respondents can legally demand the ejectment of the petitioner spouses.
WHEREFORE, the decision dated January 10, 1997 of the Court of Appeals is hereby
AFFIRMED. With costs against the petitioners.
SO ORDERED.
Puno, (Chairman), Panganiban, Sandoval-Gutierrez, and Carpio-Morales,
JJ., concur.

G.R. No. 194964-65, January 11, 2016

UNIVERSITY OF MINDANAO, INC., Petitioner, v. BANGKO SENTRAL

PILIPINAS, ET AL., Respondents.

DECISION

LEONEN, J.:

Acts of an officer that arc not authorized by the board of directors/trustees do not bind the corporation
unless the corporation ratifies the acts or holds the officer out as a person with authority to transact on its
behalf.

This is a Petition for Review on Certiorari1 of the Court of Appeals' December 17, 2009 Decision2 and
December 20, 2010 Resolution.3 The Court of Appeals reversed the Cagayan De Oro City trial court's and
the Iligan City trial court's Decisions to nullify mortgage contracts involving University of Mindanao's
properties.4

University of Mindanao is an educational institution. For the year 1982, its Board of Trustees was chaired by
Guillermo B. Torres. His wife, Dolores P. Torres, sat as University of Mindanao's Assistant Treasurer.5

Before 1982, Guillermo B. Torres and Dolores P. Torres incorporated and operated two (2) thrift banks: (1)
First Iligan Savings & Loan Association, Inc. (FISLAI); and (2) Davao Savings and Loan Association, Inc.
(DSLAI). Guillermo B. Torres chaired both thrift banks. He acted as FISLAI's President, while his wife,
Dolores P. Torres, acted as DSLAI's President and FISLAI's Treasurer.6
Upon Guillermo B. Torres' request, Bangko Sentral ng Pilipinas issued a P1.9 million standby emergency
credit to FISLAI. The release of standby emergency credit was evidenced by three (3) promissory notes
dated February 8, 1982, April 7, 1982, and May 4, 1982 in the amounts of P500,000.00, P600,000.00, and
P800,000.00, respectively. All these promissory notes were signed by Guillermo B. Torres, and were co-
signed by either his wife, Dolores P. Torres, or FISLAI's Special Assistant to the President, Edmundo G.
Ramos, Jr.7

On May 25, 1982, University of Mindanao's Vice President for Finance, Saturnino Petalcorin, executed a deed
of real estate mortgage over University of Mindanao's property in Cagayan de Oro City (covered by Transfer
Certificate of Title No. T-14345) in favor of Bangko Sentral ng Pilipinas.8 "The mortgage served as security
for FISLAI's PI.9 Million loan[.]"9 It was allegedly executed on University of Mindanao's behalf.10

As proof of his authority to execute a real estate mortgage for University of Mindanao, Saturnino Petalcorin
showed a Secretary's Certificate signed on April 13, 1982 by University of Mindanao's Corporate Secretary,
Aurora de Leon.11 The Secretary's Certificate stated: chanRoblesvi rtual Lawli bra ry

That at the regular meeting' of the Board of Trustees of the aforesaid corporation
[University of Mindanao] duly convened on March 30, 1982, at which a quorum was
present, the following resolution was unanimously adopted: chanRob lesvi rtua lLawl ibra ry

"Resolved that the University of Mindanao, Inc. be and is hereby

authorized, to mortgage real estate properties with the Central Bank of the
Philippines to serve as security for the credit facility of First Iligan Savings
and Loan Association, hereby authorizing the President and/or Vice-
president for Finance, Saturnino R. Petalcorin of the University of
Mindanao,- Inc. to sign, execute and deliver the covering mortgage
document or any other documents which may be proper[l]y required."12
cralawlawl ibra ry

The Secretary's Certificate was supported by an excerpt from the minutes of the January 19, 1982 alleged
meeting of University of Mindanao's Board of Trustees. The excerpt was certified by Aurora de Leon on
March 13, 1982 to be a true copy of University of Mindanao's records on file.13 The excerpt reads: chanRo blesvi rtua lLaw lib rary

3 - Other Matters:

(a) Cagayan de Oro and Iligan properties:

Resolution No. 82-1-8

Authorizing the Chairman to appoint Saturnino R. Petalcorin, Vice-President for Finance, to

represent the University of Mindanao to transact, transfer, convey, lease, mortgage, or
otherwise hypothecate any or all of the following properties situated at Cagayan de Oro and
Iligan City and authorizing further Mr. Petalcorin to sign any or all documents relative
thereto: chanRob lesvi rtua lLawl ibra ry

1. A parcel of land situated at Cagayan de Oro City, covered and technically described
in TRANSFER CERTIFICATE OF TITLE No. T-14345 of the Registry of Deeds of
Cagayan de Oro City;

2. A parcel of land situated at Iligan City, covered and technically described in

TRANSFER CERTIFICATE OF TITLE NO..T-15696 (a.t.) of the Registry of Deeds of
Iligan City; and

3. A parcel of land situated at Iligan City, covered and technically described in

TRANSFER CERTIFICATE OF TITLE NO. T-15697 (a.f.) of the Registry of Deeds of
Iligan City.14
 cralawlawl ibra ry

The mortgage deed executed by Saturnino Petalcorin in favor of Bangko Sentral ng Pilipinas was annotated
on the certificate of title of the Cagayan de Oro City property (Transfer Certificate of Title No. 14345) on
June 25, 1982. Aurora de Leon's'certification was also annotated on the Cagayan de Oro City property's
certificate of title (Transfer Certificate of Title No. 14345).15

On October 21, 1982, Bangko Sentral ng Pilipinas granted FISLAI an additional loan of P620,700.00.
Guillermo B. Torres and Edmundo Ramos executed a promissory note on October 21, 1982 to cover that
amount.16

On November 5, 1982, Saturnino Petalcorin executed another deed of real estate mortgage, allegedly on
behalf of University of Mindanao, over its two properties in Iligan City. This mortgage served as additional
security for FISLAI's loans. The two Iligan City properties were covered by Transfer Certificates of Title Nos,
T-15696 and T-15697.17

On January 17, 1983, Bangko Sentral ng Pilipinas' mortgage lien over the Iligan City properties and Aurora
de Leon's certification were annotated on Transfer Certificates of Title Nos. T-15696 and T-15697.18 On
January 18, 1983, Bangko Sentral ng Pilipinas' mortgage lien over the Iligan City properties was also
annotated on the tax declarations covering the Iligan City properties.19

Bangko Sentral ng Pilipinas also granted emergency advances to DSLAI on May 27, 1983 and on August 20,
1984 in the amounts of P1,633,900.00 and P6,489,000.00, respectively.20

On January 11, 1985, FISLAI, DSLAI, and Land Bank of the Philippines entered into a Memorandum of
Agreement intended to rehabilitate the thrift banks, which had been suffering from their depositors' heavy
withdrawals. Among the terms of the agreement was the merger of FISLAI and DSLAI, with DSLAI as the
surviving corporation. DSLAI later became known as Mindanao Savings and Loan Association, Inc.
(MSLAI).21

Guillermo B. Torres died on March 2, 1989.22

MSLAI failed to recover from its losses and was liquidated on May 24, 1991.23

On June 18, 1999, Bangko Sentral ng Pilipinas sent a letter to University of Mindanao, informing it that the
bank would foreclose its properties if MSLAI's total outstanding obligation of P12,534,907.73 remained
unpaid.24

In its reply to Bangko Sentral ng Pilipinas' June 18, 1999 letter, University of Mindanao, through its Vice
President for Accounting, Gloria E. Detoya, denied that University of Mindanao's properties were mortgaged.
It also denied having received any loan proceeds from Bangko Sentral ng Pilipinas.25 cralaw red

On July 16, 1999, University of Mindanao filed two Complaints for nullification and cancellation of mortgage.
One Complaint was filed before the Regional Trial Court of Cagayan de Oro City, and the other Complaint
was filed before the Regional Trial Court of Iligan City.26

University of Mindanao alleged in its Complaints that it did not obtain any loan from Bangko Sentral ng
Pilipinas. It also did not receive any loan proceeds from the bank.27

University of Mindanao also alleged that Aurora de Leon's certification was anomalous. It never authorized
Saturnino Petalcorin to execute real estate mortgage contracts involving its properties to secure FISLAI's
debts. It never ratified the execution of the mortgage contracts. Moreover, as an educational institution, it
cannot mortgage its properties to secure another person's debts.28

On November 23, 2001, the Regional Trial Court of Cagayan de Oro City rendered a Decision in favor of
University of Mindanao,29 thus:chanRoblesv irt ual Lawlib rary
 WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and
against defendants: chanRoblesvirtual Lawlib rary

1. DECLARING the real estate mortgage Saturnino R. Petalcorin executed in favor of

BANGKO SENTRAL NG PILIPINAS involving Lot 421-A located in Cagayan de Oro City with
an area of 482 square meters covered by TCT No. T-14345 as annuled [sic];

2. ORDERING the Register of Deeds of Cagayan de Oro City to cancel Entry No. 9951 and
Entry No. 9952 annotated at the back of said TCT No. T-14345, Registry of Deeds of
Cagayan de Oro City;

Prayer for attorney's fee [sic] is hereby denied there being no proof that in demanding
payment of the emergency loan, defendant BANGKO SENTRAL NG PILIPINAS was motivated
by evident bad faith,

SO ORDERED.30 (Citation omitted) c ralawlawli bra ry

The Regional Trial Court of Cagayan de Oro City found that there was no board resolution giving Saturnino
Petalcorin authority to execute mortgage contracts on behalf of University of Mindanao. The Cagayan de Oro
City trial court gave weight to Aurora de Leon's testimony that University ofMindanao's Board of Trustees did
not issue a board resolution that would support the Secretary's Certificate she issued. She testified that she
signed the Secretary's Certificate only upon Guillermo B. Torres' orders.31

Saturnino Petalcorin testified that he had no authority to execute a mortgage contract on University
ofMindanao's behalf. He merely executed the contract because of Guillermo B. Torres' request.32

Bangko Sentral ng Pilipinas' witness Daciano Pagui, Jr. also admitted that there was no board resolution
giving Saturnino Petalcorin authority to execute mortgage contracts on behalf of University of Mindanao.33

The Regional Trial Court of Cagayan de Oro City ruled that Saturnino Petalcorin was not authorized to
execute mortgage contracts for University of Mindanao. Hence, the mortgage of University ofMindanao's
Cagayan de Oro City property was unenforceable. Saturnino Petalcorin's unauthorized acts should be
annulled.34

Similarly, the Regional Trial Court of Iligan City rendered a Decision on December 7, 2001 in favor of
University of Mindanao.35 The dispositive portion of the Decision reads: chanRob lesvi rtua lLawl ibra ry

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and
against the defendants, as follows: c hanRoblesv irtual Lawlib rary

1. Nullifying and canceling [sic] the subject Deed of Real Estate Mortgage dated November
5, 1982 for being unenforceable or void contract;

2. Ordering the Office of the Register of Deeds of Iligan City to cancel the entries on TCT
No. T-15696 and TCT No. T- 15697 with respect to the aforesaid Deed of Real Estate
Mortgage dated November 5, 1982 and all other entries related thereto;

3. Ordering the defendant Bangko Sentral ng Pilipinas to return the owner's duplicate
copies of TCT No. T-15696 and TCT No. 15697 to the plaintiff;

4. Nullifying the subject [foreclosure [proceedings and the [a]uction [s]ale conducted by
defendant Atty. Gerardo Paguio, Jr. on October 8, 1999 including all the acts subsequent
thereto and ordering the Register of Deeds of Iligan City not to register any Certificate of
Sale pursuant to the said auction sale nor make any transfer of the corresponding titles,
and if already registered and transferred, to cancel all the said entries in TCT No. T-15696
and TCT No. T-15697 and/or cancel the corresponding new TCTs in the name of defendant
 Bangko Sentral ng Pilipinas;

5. Making the Preliminary Injunction per Order of this Court dated October 13, 2000
permanent.

No pronouncement as to costs.36 (Citation omitted) cralawlawl ibrary

The Iligan City trial court found that the Secretary's Certificate issued by Aurora de Leon was fictitious37and
irregular for being unnumbered.38 It also did not specify the identity, description, or location of the
mortgaged properties.39

The Iligan City trial court gave credence to Aurora de Leon's testimony that the University of Mindanao's
Board of Trustees did not take up the documents in its meetings. Saturnino Petalcorin corroborated her
testimony.40

The Iligan City trial court ruled that the lack of a board resolution authorizing Saturnino Petalcorin to
execute documents of mortgage on behalf of University of Mindanao made the real estate mortgage contract
unenforceable under Article 140341 of the Civil Code.42 The mortgage contract and the subsequent acts of
foreclosure and auction sale were void because the mortgage contract was executed without University of
Mindanao' s authority.43

The Iligan City trial court also ruled that the annotations on the titles of University of Mindanao's properties
do not operate as notice to the University because annotations only bind third parties and not
owners.44Further, Bangko Sentral ng Pilipinas' right to foreclose the University of Mindanao's properties had
already prescribed.45

Bangko Sentral ng Pilipinas separately appealed the Decisions of both the Cagayan de Oro City and the
Iligan City trial courts.46

After consolidating both cases, the Court of Appeals issued a Decision on December 17, 2009 in favor of
Bangko Sentral ng Pilipinas, thus: chanRoblesvi rtua lLawl ibrary

FOR THE REASONS STATED, the Decision dated 23 November 2001 of the Regional Trial
Court of Cagayan de Oro City, Branch 24 in Civil Case No. 99-414 and the Decision dated 7
December 2001 of the Regional Trial Court of Iligan City, Branch 1 in Civil Case No. 4790
are REVERSED and SET ASIDE. The Complaints in both cases before the trial courts are
DISMISSED. The Writ of Preliminary Injunction issued by the Regional Trial Court of Iligan
City, Branch 1 in Civil Case No. 4790 is LIFTED and SET ASIDE.

SO ORDERED.47 cralawlawlib rary

The Court of Appeals ruled that "[although BSP failed to prove that the UM Board of Trustees actually passed
a Board Resolution authorizing Petalcorin to mortgage the subject real properties,"48 Aurora de Leon's
Secretary's Certificate "clothed Petalcorin with apparent and ostensible authority to execute the mortgage
deed on its behalf[.]"49 Bangko Sentral ng Pilipinas merely relied in good faith on the Secretary's
Certificate.50 University of Mindanao is estopped from denying Saturnino Petalcorin's authority.51

Moreover, the Secretary's Certificate was notarized. This meant that it enjoyed the presumption of regularity
as to the truth of its statements and authenticity of the signatures.52 Thus, "BSP cannot be faulted for
relying on the [Secretary's Certificate.]"53

The Court of Appeals also ruled that since University of Mindanao's officers, Guillermo B. Torres and his wife,
Dolores P. Torres, signed the promissory notes, University of Mindanao was presumed to have knowledge of
the transaction.54 Knowledge of an officer in relation to matters within the scope of his or her authority is
notice to the corporation.55
The annotations on University of Mindanao's certificates of title also operate as constructive notice to it that
its properties were mortgaged.56 Its failure to disown the mortgages for more than a decade was implied
ratification.57

The Court of Appeals also ruled that Bangko Sentral ng Pilipinas' action for foreclosure had not yet
prescribed because the due date extensions that Bangko Sentral ng Pilipinas granted to FISLAI extended the
due date of payment to five (5) years from February 8, 1985.58 The bank's demand letter to Dolores P.
Torres on June 18, 1999 also interrupted the prescriptive period.59

University of Mindanao and Bangko Sentral ng Pilipinas filed a Motion for Reconsideration60 and Motion for
Partial Reconsideration respectively of the Court of Appeals' Decision. On December 20, 2010, the Court of
Appeals issued a Resolution, thus: chanRoblesvi rtua lLawl ibrary

Acting on the foregoing incidents, the Court RESOLVES to: chanRoble svirtual Lawlib ra ry

1. GRANT the appellant's twin motions for extension of time to file

comment/opposition and NOTE the Comment . on the appellee's
Motion for Reconsideration it subsequently filed on June 23, 2010;

2. GRANT the appellee's three (3) motions for extension of time to

file comment/opposition and NOTE the Comment on the
appellant's Motion for Partial Reconsideration it filed on July 26,
2010;

3. NOTE the appellant's "Motion for Leave to File Attached Reply

Dated August 11, 2010" filed on August 13, 2010 and DENY the
attached "Reply to Comment Dated July 26, 2010";

4. DENY the appellee's Motion for Reconsideration as it does' not

offer any arguments sufficiently meritorious to warrant
modification or reversal of the Court's 17 December 2009
Decision. The Court finds that there is no compelling reason to
reconsider its ruling; and

5. GRANT the appellant's Motion for Partial Reconsideration, as the

Court finds it meritorious, considering that it ruled in its Decision
that "BSP can still foreclose on the UM's real property in Cagayan
de Oro City covered by TCT No. T- 14345." It then follows that the
injunctive writ issued by the RTC of Cagayan de Oro City, Branch
24 must be lifted. The Court's 17 December 2009 Decision is
accordingly MODIFIED and AMENDED to read as follows: chanRoble svirtual Lawlib ra ry

"FOR THE REASONS STATED, the Decision

dated 23 November 2001 of the Regional Trial
Court of Cagayan de Oro City, Branch 24 in Civil
Case No. 99-414 and the Decision dated 7
December 2001 of the Regional Trial Court of
Iligan City, Branch 1 in Civil Case No. 4790
are REVERSED and SET ASIDE. The Complaints
in both cases before the trial courts are
DISMISSED. The Writs of Preliminary Injunction
issued by the Regional Trial Court of Iligan City,
Branch 1 in Civil Case No. 4790 and in the
Regional Trial Court of Cagayan de Oro City,
Branch 24 in Civil Case No. 99-414
are LIFTED and SET ASIDE."
 SO ORDERED.61 (Citation omitted)
cralawlawl ibra ry

Hence, University of Mindanao filed this Petition for Review. The issues for resolution are: chanRoble svirtual Lawlib ra ry

First, whether respondent Bangko Sentral ng Pilipinas' action to foreclose the mortgaged properties had
already prescribed; and

Second, whether petitioner University of Mindanao is bound by the real estate mortgage contracts executed
by Saturnino Petalcorin.

We grant the Petition.

Petitioner argues that respondent's action to foreclose its mortgaged properties had already prescribed.

Petitioner is mistaken.

Prescription is the mode of acquiring or losing rights through the lapse of time.62 Its purpose is "to protect
the diligent and vigilant, not those who sleep on their rights."63

The prescriptive period for actions on mortgages is ten (10) years from the day they may be
brought.64Actions on mortgages may be brought not upon the execution of the mortgage contract but upon
default in payment of the obligation secured by the mortgage.65

A debtor is considered in default when he or she fails to pay the obligation on due date and, subject to
exceptions, after demands for payment were made by the creditor. Article 1169 of the Civil Code
provides: c hanRoble svirtual Lawli bra ry

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

However, the demand by the creditor shall not be necessary in order that delay may
exist: chanRob lesvi rtua lLawl ibrary

(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his power
to perform. cralawlaw lib rary

Article 1193 of the Civil'Code provides that an obligation is demandable only upon due date. It provides: chanRoble svirtual Lawli bra ry

ART. 1193. Obligations for whose fulfillment a day certain has been fixed, shall be
demandable only when that day comes.

Obligations with a resolutory period take effect at once, but terminate upon arrival of the
day certain.
 A day certain is understood to be that which must necessarily come, although it may not be
known when.

If the uncertainty consists in whether the day will come or not, the obligation is conditional,
and it shall be regulated by the rules of the preceding Section.cralawlawl ib rary

In other words, as a general rule, a person defaults and prescriptive period for action runs when (1) the
obligation becomes due and demandable; and (2) demand for payment has been made.

The prescriptive period neither runs from the date of the execution of a contract nor does the prescriptive
period necessarily run on the date when the loan becomes due and demandable.66 Prescriptive period runs
from the date of demand,67 subject to certain exceptions.

In other words, ten (10) .years may lapse from the date of the execution of contract, without barring a
cause of action on the mortgage when there is a gap between the period of execution of the contract and
the due date or between the due date and the demand date in cases when demand is necessary.68

The mortgage contracts in this case were executed by Saturnino Petalcorin in 1982. The maturity dates of
FISLAI's loans were repeatedly extended until the loans became due and demandable only in 1990.
Respondent informed petitioner of its decision to foreclose its properties and demanded payment in 1999.

The running of the prescriptive period of respondent's action on the mortgages did not start when it
executed the mortgage contracts with Saturnino Petalcorin in 1982.

The prescriptive period for filing an action may run either (1) from 1990 when the loan became due, if the
obligation was covered by the exceptions under Article 1169 of the Civil Code; (2) or from 1999 when
respondent demanded payment, if the obligation was not covered by the exceptions under Article 1169 of
the Civil Code.

In either case, respondent's Complaint with cause of action based on the mortgage contract was filed well
within the prescriptive period.

Given the termination of all traces of FISLAI's existence,70 demand may have been rendered unnecessary
under Article 1169(3)71 of the Civil Code. Granting that this is the case,.respondent would have had ten (10)
years from due date in 1990 or until 2000 to institute an action on the mortgage contract.

However, under Article 115572 of the Civil Code, prescription of actions may be interrupted by (1) the filing
of a court action; (2) a written extrajudicial demand; and (3) the written acknowledgment of the debt by the
debtor.

Therefore, the running of the prescriptive period was interrupted when respondent sent its demand letter to
petitioner on June 18, 1999. This eventually led to petitioner's filing of its annulment of mortgage complaints
before the Regional Trial Courts of Iligan City and Cagayan De Oro City on July 16, 1999.

Assuming that demand was necessary, respondent's action was within the ten (10)-year prescriptive period.
Respondent demanded payment of the loans in 1999 and filed an action in the same year.

II

Petitioner argues that the execution of the mortgage contract was ultra vires. As an educational institution,
it may not secure the loans of third persons.73 Securing loans of third persons is not among the purposes for
which petitioner was established.74

Petitioner, is correct.
Corporations are artificial entities granted legal personalities upon their creation by their incorporators in
accordance with law. Unlike natural persons, they have no inherent powers. Third persons dealing with
corporations cannot assume that corporations have powers. It is up to those persons dealing with
corporations to determine their competence as expressly defined by the law and their articles of
incorporation.75

A corporation may exercise its powers only within those definitions. Corporate acts that are outside those
express definitions under the law or articles of incorporation or those "committed outside the object for
which a corporation is created"76 are ultra vires.

The only exception to this, rule is when acts are necessary and incidental to carry out a corporation's
purposes, and to the exercise of powers conferred by the Corporation Code and under a corporation's
articles of incorporation.77 This exception is specifically included in the general powers of a corporation under
Section 36 of the Corporation Code: chanRoblesvi rt ualLaw lib rary

SEC. 36. Corporate powers and capacity.—Every corporation incorporated under this Code
has the power and capacity: chanRoblesvi rtua lLawl ibra ry

1. To sue and be sued in its corporate name;

2. Of succession by its corporate name for the period of time stated in the articles of
incorporation and the certificate of incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with the provisions of this
Code;
5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or
repeal the same in accordance with this Code;
6. In case of stock corporations, to issue or sell stocks to subscribers and to sell
treasury stocks in accordance with the provisions of this Code; and to admit
members to the corporation if it be a non stock corporation;
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage
and otherwise deal with such real and personal property, including securities and
bonds of other corporations, as the transaction of the lawful business of the
corporation may reasonably and necessarily require, subject to the limitations
prescribed by law and the Constitution;
8. To enter into merger or consolidation with other corporations as provided in this
Code;
9. To make reasonable donations, including those for the public welfare or for
hospital, charitable, cultural, scientific, civic, or similar purposes: Provided, That no
corporation, domestic or foreign, shall give donations in aid of any political party or
candidate or for purposes of partisan political activity;
10. To establish pension, retirement, and other plans for the benefit of its directors,
trustees, officers and employees; and
11. To exercise such other powers as may be essential or necessary to carry out its
purpose or purposes as stated in its articles of incorporation. (Emphasis supplied)
cralawlawl ibra ry

Montelibano, et al. v. Bacolod-Murcia Milling Co., Inc.78 stated the test to determine if a corporate act is in
accordance with its purposes: chanRoble svirtual Lawlib ra ry

It is a question, therefore, in each case, of the logical relation of the act to the corporate
purpose expressed in the charter. If that act is one which is lawful in itself, and not
otherwise prohibited, is done for the purpose of serving corporate ends, and is reasonably
tributary to the promotion of those ends, in a substantial, and not in a remote and fanciful,
sense, it may fairly be considered within charter powers. The test to be applied is whether
the act in question is in direct and immediate furtherance of the corporation's business,
fairly incident to the express powers and reasonably necessary to their exercise. If so, the
corporation has the power to do it; otherwise, not.79 (Emphasis supplied) c ralawlawl ibra ry
As an educational institution, petitioner serves: chanRob lesvi rtua lLawl ibra ry

a. To establish, conduct and operate a college or colleges, and/or university;

b. To acquire properties,, real and/or personal, in connection with the establishment
and operation of such college or colleges;
c. To do and perform the various and sundry acts and things permitted by the laws of
the Philippines unto corporations like classes and kinds;
d. To engage in agricultural, industrial, and/or commercial pursuits in line with
educational program of the corporation and to acquire all properties, real and
personal [,] necessary for the purposes[;]
e. To establish, operate, and/or acquire broadcasting and television stations also in
line with the educational program of the corporation and for such other purposes as
the Board of Trustees may determine from time to time;
f. To undertake housing projects of faculty members and employees, and to acquire
real estates for this purpose;
g. To establish, conduct and operate and/or invest in educational foundations; [As
amended on December 15, 1965][;]
h. To establish, conduct and operate housing and dental schools, medical facilities and
other related undertakings;
i. To invest in other corporations. [As amended on December 9, 1998]. [Amended
Articles of Incorporation of the University of Mindanao, Inc. - the Petitioner].80
cralawlawl ibra ry

Petitioner does not have the power to mortgage its properties in order to secure loans of other persons. As
an educational institution, it is limited to developing human capital thrpugh formal instruction. It is not a
corporation engaged in the business of securing loans of others.

Hiring professors, instructors, and personnel; acquiring equipment and real estate; establishing housing
facilities for personnel and students; hiring a concessionaire; and other activities that can be directly
connected to the operations and conduct of the education business may constitute the necessary and
incidental acts of an educational institution.

Securing FISLAI's loans by mortgaging petitioner's properties does not appear to have even the remotest
connection to the operations of petitioner as an educational institution. Securing loans is not an adjunct of
the educational institution's conduct of business.81 It does not appear that securing third-party loans was
necessary to maintain petitioner's business of providing instruction to individuals.

This court upheld the validity of corporate acts when those acts were shown to be clearly within the
corporation's powers or were connected to the corporation's purposes.

In Pirovano, et al. v. De la Rama Steamship Co.,82 this court declared valid the donation given to the
children of a deceased person who contributed to the growth of the corporation.83 This court found that this
donation was within the broad scope of powers and purposes of the corporation to "aid in any other manner
any person . . . in which any interest is held by this corporation or in the affairs or prosperity of which this
corporation has a lawful interest."84

In Twin Towers Condominium Corporation v. Court of Appeals, et al.,85 this court declared valid a rule by
Twin Towers Condominium denying delinquent members the right to use condominium facilities. This court
ruled that the condominium's power to promulgate rules on the use of facilities and to enforce provisions of
the Master Deed was clear in the Condominium Act, Master Deed, and By-laws of the
condominium.87Moreover, the promulgation of such rule was "reasonably necessary" to attain the purposes
of the condominium project.88

This court has, in effect, created a presumption that corporate acts are valid if, on their face, the acts were
within the corporation's powers or purposes. This presumption was explained as early as in 1915 in Coleman
v. Hotel De France,89 where this court ruled that contracts entered into by corporations in the exercise of
their incidental powers are not ultra vires.90

Coleman involved a hotel's cancellation of an employment contract it executed with a gymnast. One of the
hotel's contentions was the supposed ultra vires nature of the contract.- It was executed outside its express
and implied powers under the articles of incorporation.91

In ruling in favor of the contract's validity, this court considered the incidental powers of the hotel to include
the execution of employment contracts with entertainers for the purpose of providing its guests
entertainment and increasing patronage.92

This court ruled that a contract executed by a corporation shall be presumed valid if on its face its execution
was not beyond the powers of the corporation to do.93 Thus: chanRoblesvi rt ual Lawlib rary

When a contract is not on its face necessarily beyond the scope of the power of the
corporation by which it was made, it will, in the absence of proof to the contrary, be
presumed to be valid. Corporations are presumed to contract within their powers. The
doctrine of ultra vires, when invoked for or against a corporation, should not be allowed to
prevail where it would defeat the ends of justice or work a legal wrong.94 cralaw lawlib rary

However, this should not be interpreted to mean that such presumption applies to all cases, even when the
act in question is on its face beyond the corporation's power to do or when the evidence contradicts the
presumption.

Presumptions are "inference[s] as to the existence of a fact not actually known, arising from its usual
connection with another which is known, or a conjecture based on past experience as to what course human
affairs ordinarily take."95 Presumptions embody values and revealed behavioral expectations under a given
set of circumstances.

Presumptions may be conclusive96 or disputable.97

Conclusive presumptions are presumptions that may not be overturned by evidence, however strong the
evidence is.98 They are made conclusive not because there is an established uniformity in behavior
whenever identified circumstances arise. They are conclusive because they are declared as such under the
law or the rules. Rule 131, Section 2 of the Rules of Court identifies two (2) conclusive presumptions: cha nRoblesvi rt ualLaw lib rary

SEC. 2. Conclusive presumptions.— The following are instances of conclusive

presumptions: chanRo blesvi rtua lLawl ib rary

(a) Whenever a party has, by his own declaration, act, or omission, intentionally and
deliberately led another to believe a particular thing true, and to act upon such belief, he
cannot, in any litigation arising out of such declaration, act or omission, be permitted to
falsify it;

(b) The tenant is not permitted to deny the title of his landlord at the time of the
commencement of the relation of landlord and tenant between them. cralawlawli bra ry

On the other hand, disputable, presumptions are presumptions that may be overcome by contrary
evidence.99 They are disputable in recognition of the variability of human behavior. Presumptions are not
always true. They may be wrong under certain circumstances, and courts are expected to apply them,
keeping in mind the nuances of every experience that may render the expectations wrong.

Thus, the application of disputable presumptions on a given circumstance must be based on the existence of
certain facts on which they are meant to operate. "[Presumptions are not allegations, nor do they supply
their absence[.]"100 Presumptions are conclusions. They do not apply when there are no facts or allegations
to support them.

If the facts exist to set in motion the operation of a disputable presumption, courts may accept the
presumption. However, contrary evidence may be presented to rebut the presumption.

Courts cannot disregard contrary evidence offered to rebut disputable presumptions. Disputable
presumptions apply only in the absence of contrary evidence or explanations. This court explained
in Philippine Agila Satellite Inc. v. Usec. Trinidad-Lichauco:101
chan roble svi rtual lawlib rary

We do not doubt the existence of the presumptions of "good faith" or "regular performance
of official duty," yet these presumptions are disputable and may be contradicted and
overcome by other evidence. Many civil actions are oriented towards overcoming any
number of these presumptions, and a cause of action can certainly be geared towards such
effect. The very purpose of trial is to allow a party to present evidence to overcome the
disputable presumptions involved. Otherwise, if trial is deemed irrelevant or unnecessary,
owing to the perceived indisputability of the presumptions, the judicial exercise would be
relegated to a mere ascertainment of what presumptions apply in a given case, nothing
more. Consequently, the entire Rules of Court is rendered as excess verbiage, save perhaps
for the provisions laying down the legal presumptions.

If this reasoning of the Court of Appeals were ever adopted as a jurisprudential rule, no
public officer could ever be sued for acts executed beyond their official functions or
authority, or for tortious conduct or behavior, since such acts would "enjoy the presumption
of good faith and in the regular performance of official duty." Indeed, few civil actions of
any nature would ever reach the trial stage, if a case can be adjudicated by a mere
determination from the complaint or answer as to which legal presumptions are applicable.
For-example, the presumption that a person is innocent of a wrong is a disputable
presumption on the same level as that of the regular performance of official duty. A civil
complaint for damages necessarily alleges that the defendant committed a wrongful act or
omission that would serve as basis for the award of damages. With the rationale of the
Court of Appeals, such complaint can be dismissed upon a motion to dismiss solely on the
ground that the presumption is that a person is innocent of a wrong.102 (Emphasis supplied,
citations omitted)cra lawlawlib rary

In this case, the presumption that the execution of mortgage contracts was within petitioner's corporate
powers does not apply. Securing third-party loans is not connected to petitioner's purposes as an
educational institution.

III

Respondent argues that petitioner's act of mortgaging its properties to guarantee FISLAI's loans was
consistent with petitioner's business interests, since petitioner was presumably a FISLAI shareholder whose
officers and shareholders interlock with FISLAI. Respondent points out that petitioner and its key officers
held substantial shares in MSLAI when DSLAI and FISLAI merged. Therefore, it was safe to assume that
when the mortgages were executed in 1982, petitioner held substantial shares in FISLAI.103

Parties dealing with corporations cannot simply assume that their transaction is within the corporate powers.
The acts of a corporation are still limited by its powers and purposes as provided in the law and its articles of
incorporation.

Acquiring shares in another corporation is not a means to create new powers for the acquiring corporation.
Being a shareholder of another corporation does not automatically change the nature and purpose of a
corporation's business. Appropriate amendments must be made either to the law or the articles of
incorporation before a corporation can validly exercise powers outside those provided in law or the articles of
incorporation. In other words, without an amendment, what is ultra vires before a corporation acquires
shares in other corporations is still ultra vires after such acquisition.

Thus, regardless of the number of shares that petitioner had with FISLAI, DSLAI, or MSLAI, securing loans
of third persons is still beyond petitioner's power to do. It is still inconsistent with its purposes under the
law104 and its articles of incorporation.105

In attempting to show petitioner's interest in securing FISLAI's loans by adverting to their interlocking,
directors and shareholders, respondent disregards petitioner's separate personality from its officers,
shareholders, and other juridical persons.

The separate personality of corporations means that they are "vest[ed] [with] rights, powers, and attributes
[of their own] as if they were natural persons[.]"106 Their assets and liabilities are their own and not their
officers', shareholders', or another corporation's. In the same vein, the assets and liabilities of their officers
and shareholders are not the corporations'. Obligations incurred by corporations are not obligations of their
officers and shareholders. Obligations of officers and shareholders are not obligations of corporations.107 In
other words, corporate interests are separate from the personal interests of the natural persons that
comprise corporations.

Corporations are given separate personalities to allow natural persons to balance the risks of business as
they accumulate capital. They are, however, given limited competence as a means to protect the public from
fraudulent acts that may be committed using the separate juridical personality given to corporations.

Petitioner's key officers, as shareholders of FISLAI, may have an interest in ensuring the viability of FISLAI
by obtaining a loan from respondent and securing it by whatever means. However, having interlocking
officers and stockholders with FISLAI does not mean that petitioner, as an educational institution, is or must
necessarily be interested in the affairs of FISLAI.

Since petitioner is an entity distinct and separate not only from its own officers and shareholders but also
from FISLAI, its interests as an educational institution may not be consistent with FISLAI's.

Petitioner and FISLAI have different constituencies. Petitioner's constituents comprise persons who have
committed to developing skills and acquiring knowledge in their chosen fields by availing the formal
instruction provided by petitioner. On the other hand, FISLAI is a thrift bank, which constituencies comprise
investors.

While petitioner and FISLAI exist ultimately to benefit their stockholders, their constituencies affect the
means by which they can maintain their existence. Their interests are congruent with sustaining their
constituents' needs because their existence depends on that. Petitioner can exist only if it continues to
provide for the kind and quality of instruction that is needed by its constituents. Its operations and existence
are placed at risk when resources are used on activities that are not geared toward the attainment of its
purpose. Petitioner has no business in securing FISLAI, DSLAI, or MSLAI's loans. This activity is not
compatible with its business of providing quality instruction to its constituents.

Indeed, there are instances when we disregard the separate corporate personalities of the corporation and
its stockholders, directors, or officers. This is called piercing of the corporate veil.

Corporate veil is pierced when the separate personality of the corporation is being used to perpetrate fraud,
illegalities, and injustices.108 In Lanuza, Jr. v. BF Corporation:109
chan roble svirtual lawlib rary

Piercing the corporate veil is warranted when "[the separate personality of a corporation] is
used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an
existing obligation, the circumvention of statutes, or to confuse legitimate issues." It is also
warranted in alter ego cases "where a corporation is merely a farce since it is a mere alter
ego or business conduit of a person, or where the corporation is so organized and controlled
and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or
adjunct of another corporation."110 cralawlawlib ra ry
These instances have not been shown in this case. There is no evidence pointing to the possibility that
petitioner used its separate personality to defraud third persons or commit illegal acts. Neither is there
evidence to show that petitioner was merely a farce of a corporation. What has been shown instead was that
petitioner, too, had been victimized by fraudulent and unauthorized acts of its own officers and directors.

In this case, instead of guarding against fraud, we perpetuate fraud if we accept respondent's contentions.

IV

Petitioner argues that it did not authorize Saturnino Petalcorin to mortgage its properties on its behalf. There
was no board resolution to that effect. Thus, the mortgages executed by Saturnino Petalcorin were
unenforceable.111

The mortgage contracts executed in favor of respondent do not bind petitioner. They were executed without
authority from petitioner.

Petitioner must exercise its.powers and conduct its business through its Board of Trustees. Section 23 of the
Corporation Code provides: chanRob l esvirt ual Lawlib rary

SEC. 23. The board of directors or trustees—Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by the board of
directors or trustees to be elected from among the holders of stocks, or where there is no
stock, from among the members of the corporation, who shall hold office for one (1) year
and until their successors are elected and qualified. cralaw lawlib rary

Being a juridical person, petitioner cannot conduct its business, make decisions, or act in any manner
without action from its Board of Trustees. The Board of Trustees must act as a body in order to exercise
corporate powers. Individual trustees are not clothed with corporate powers just by being a trustee. Hence,
the individual trustee cannot bind the corporation by himself or herself.

The corporation may, however, delegate through a board resolution its corporate powers or functions to a
representative, subject to limitations under the law and the corporation's articles of incorporation.112

The relationship between a corporation and its representatives is governed by the general principles of
agency.113 Article 1317 of the Civil Code provides that there must be authority from the principal before
anyone can act in his or her name: chanRoblesvi rt ualLaw lib rary

ART. 1317. No one may contract in the name of another without being authorized by the
latter, or unless he has by law a right to represent him. cralaw lawlib ra ry

Hence, without delegation by the board of directors or trustees, acts of a person—including those of the
corporation's directors, trustees, shareholders, or officers—executed on behalf of the corporation are
generally not binding on the corporation.114

Contracts entered into in another's name without authority or valid legal representation are generally
unenforceable. The Civil Code provides: chanRoble svi rtual Lawli bra ry

ART. 1317. . . .

A contract entered into in the name of another by one who has no authority or legal
 representation, or who has acted beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on whose behalf it has been executed, before
it is revoked by the other contracting party.
....

ART. 1403. The following contracts are unenforceable, unless they are ratified: cha nRoblesv irt ual Lawlib rary

(1) Those entered into in the name of another person by one who has been given no
authority or legal representation, or who has acted beyond his powers[.] cra lawlawlib ra ry

The unenforceable status of contracts entered into by an unauthorized person on behalf of another is based
on the basic principle that contracts must be consented to by both parties.115 There is no contract without
meeting of the minds as to the subject matter and cause of the obligations created under the contract.116

Consent of a person cannot be presumed from representations of another, especially if obligations will be
incurred as a result. Thus, authority is required to make actions made on his or her behalf binding on a
person. Contracts entered into by persons without authority from the corporation shall generally be
considered ultra vires and unenforceable117 against the corporation.

Two trial courts118 found that the Secretary's Certificate and the board resolution were either non-existent or
fictitious. The trial courts based their findings on the testimony of the Corporate Secretary, Aurora de Leon
herself. She signed the Secretary's Certificate and the excerpt of the minutes of the alleged board meeting
purporting to authorize Saturnino Petalcorin to mortgage petitioner's properties. There was no board
meeting to that effect. Guillermo B. Torres ordered the issuance of the Secretary's Certificate. Aurora de
Leon's testimony was corroborated by Saturnino Petalcorin.

Even the Court of Appeals, which reversed the trial courts' decisions, recognized that "BSP failed to prove
that the UM Board of Trustees actually passed a Board Resolution authorizing Petalcorin to mortgage the
subject real properties[.]"119

Well-entrenched is the rule that this court, not being a trier of facts, is bound by the findings of fact of the
trial courts and the Court of Appeals when such findings are supported by evidence on record.120 Hence, not
having the proper board resolution to authorize Saturnino Petalcorin to execute the mortgage contracts for
petitioner, the contracts he executed are unenforceable against petitioner. They cannot bind petitioner.

However, personal liabilities may be incurred by directors who assented to such unauthorized act121 and by
the person who contracted in excess of the limits of his or her authority without the corporation's
knowledge.122

Unauthorized acts that are merely beyond the powers of the corporation under its articles of incorporation
are not void ab initio.

In Pirovano, et al, this court explained that corporate acts may be ultra vires but not void.123 Corporate acts
may be capable of ratification:124chan roble svirtual lawlib rary

[A] distinction should be made between corporate acts or contracts which are illegal and
those which are merely ultra vires. The former contemplates the doing of an act which is
contrary to law, morals, or public order, or contravene some rules of public policy or public
duty, and are, like similar transactions between individuals, void. They cannot serve as
basis of a court action, nor acquire validity by performance, ratification, or estoppel. Mere
ultra vires acts, on the other hand, or those which are not illegal and void ab initio, but are
not merely within the scope of the articles of incorporation, are merely voidable and may
become binding and enforceable when ratified by the stockholders.125 c ralawlawli bra ry
Thus, even though a person did not give another person authority to act on his or her behalf, the action may
be enforced against him or her if it is shown that he or she ratified it or allowed the other person to act as if
he or she had full authority to do so. The Civil Code provides: cha nRoblesv irt ual Lawlib rary

ART. 1910. The principal must comply with all the obligations which the agent may have
contracted within the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not bound
except when he ratifies it expressly or tacitly.

ART. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable
with the agent if the former allowed the latter to act as though he had full
powers. (Emphasis supplied) cralawlaw lib rary

Ratification is a voluntary and deliberate confirmation or adoption of a previous unauthorized act. It.converts
the unauthorized act of an agent into an act of the principal.127 It cures the lack of consent at the time of the
execution of the contract entered into by the representative, making the contract valid and enforceable.128 It
is, in essence, consent belatedly given through express or implied acts that are deemed a confirmation or
waiver of the right to impugn the unauthorized act.129 Ratification has the effect of placing the principal in a
position as if he or she signed the original contract. In Board of Liquidators v. Heirs ofM. Kalaw, et al.:130 chanrob lesvi rtua llawli bra ry

Authorities, great in number, are one in the idea that "ratification by a corporation of an
unauthorized act or contract by its officers or others relates back to the time of the act or
contract ratified, and is equivalent to original authority;" and that "[t]he corporation and
the other party to the transaction are in precisely the same position as if the act or contract
had been authorized at the time." The language of one case is expressive: "The adoption or
ratification of a contract by a corporation is nothing more nor less than the making of an
original contract. The theory of corporate ratification is predicated on the right of a
corporation to contract, and any ratification or adoption is equivalent to a grant of prior
authority."131 (Citations omitted) cra lawlawlib rary

Implied ratification may take the form of silence, acquiescence, acts consistent with approval of the act,, or
acceptance or retention of benefits.132 However, silence, acquiescence, retention of benefits, and acts that
may be interpreted as approval of the act do not by themselves constitute implied ratification. For an act to
constitute an implied ratification, there must be no acceptable explanation for the act-other than that there
is an intention to adopt the act as his or her own.133 "[It] cannot be inferred from acts that a principal has a
right to do independently of the unauthorized act of the agent."134

No act by petitioner can be interpreted as anything close to ratification. It was not shown that it issued a
resolution ratifying the execution of the mortgage contracts. It was not shown that it received proceeds of
the loans secured by the mortgage contracts. There was also no showing that it received any consideration
for the execution of the mortgage contracts. It even appears that petitioner was unaware of the mortgage
contracts until respondent notified it of its desire to foreclose the mortgaged properties.

Ratification must be knowingly and voluntarily done.135 Petitioner's lack of knowledge about the mortgage
executed in its name precludes an interpretation that there was any ratification on its part.

Respondent further argues that petitioner is presumed to have knowledge of its transactions with
respondent because its officers, the Spouses Guillermo and Dolores Torres, participated in obtaining the
loan.136

Indeed, a corporation, being a person created by mere fiction of law, can act only through natural persons
such as its directors, officers, agents, and representatives. Hence, the general rule is that knowledge of an
officer is considered knowledge of the corporation.

However, even though the Spouses Guillermo and Dolores Torres were officers of both the thrift banks and
petitioner, their knowledge of the mortgage contracts cannot be considered as knowledge of the corporation.

The rule that knowledge of an officer is considered knowledge of the corporation applies only when the
officer is acting within the authority given to him or her by the corporation. In Francisco v. Government
Service Insurance System:137 chan roblesv irt uallawl ibrary

Knowledge of facts acquired or possessed by an officer or agent of a corporation in the

course of his employment, and in relation to matters within the scope of his authority, is
notice to the corporation, whether he communicates such knowledge or not.138 cra lawlawlib rary

The public should be able to rely on and be protected from the representations of a corporate representative
acting within the scope of his or her authority. This is why an authorized officer's knowledge is considered
knowledge of corporation. However, just as the public should be able to rely on and be protected from
corporate representations, corporations should also be able to expect that they will not be bound by
unauthorized actions made on their account.

Thus, knowledge should be actually communicated to the corporation through its authorized representatives.
A corporation cannot be expected to act or not act on a knowledge that had not been communicated to it
through an authorized representative. There can be no implied ratification without actual communication.
Knowledge of the existence of contract must be brought to the corporation's representative who has
authority to ratify it. Further, "the circumstances must be shown from which such knowledge may be
presumed."139

The Spouses Guillermo and Dolores Torres' knowledge cannot be interpreted as knowledge of petitioner.
Their knowledge was not obtained as petitioner's representatives. It was not shown that they were acting for
and within the authority given by petitioner when they acquired knowledge of the loan transactions and the
mortgages. The knowledge was obtained in the interest of and as representatives of the thrift banks.

VI

Respondent argues that Satnrnino Petalcorin was clothed with the authority to transact on behalf of
petitioner, based on the board resolution dated March 30, 1982 and Aurora de Leon's notarized Secretary's
Certificate.140 According to respondent, petitioner is bound by the mortgage contracts executed by Saturnino
Petalcorin.141

This court has recognized presumed or apparent authority or capacity to bind corporate representatives in
instances when the corporation, through its silence or other acts of recognition, allowed others to believe
that persons, through their usual exercise of corporate powers, were conferred with authority to deal on the
corporation's behalf.142

The doctrine of apparent authority does not go into the question of the corporation's competence or power
to do a particular act. It involves the question of whether the officer has the power or is clothed with the
appearance of having the power to act for the corporation. A finding that there is apparent authority is not
the same as a finding that the corporate act in question is within the corporation's limited powers.

The rule on apparent authority is based on the principle of estoppel. The Civil Code provides: c hanRoble svirtual Lawlib ra ry

ART. 1431. Through estoppel an admission or representation is rendered conclusive upon

the person making it, and cannot be denied or disproved as against the person relying
thereon.
....
 ART, 1869. Agency may be express, or implied from the acts of the principal, from his
silence or lack of action, or his failure to repudiate the agency, knowing that another person
is acting on his behalf without authority.

Agency may be oral, unless the law requires a specific form. cralawlawl ibra ry

A corporation is estopped by its silence and acts of recognition because we recognize that there is
information asymmetry between third persons who have little to no information as to what happens during
corporate meetings, and the corporate officers, directors, and representatives who are insiders to corporate
affairs.143

In People's Air car go and Warehousing Co. Inc. v. Court of Appeals,144 this court held that the contract
entered into by the corporation's officer without a board resolution was binding upon the corporation
because it previously allowed the officer to contract on its behalf despite the lack of board resolution.145

In Francisco, this court ruled that Francisco's proposal for redemption of property was accepted by and
binding upon the Government Service Insurance System. This court did not appreciate the Government
Service Insurance System's defense that since it was the Board Secretary and not the General Manager who
sent Francisco the acceptance telegram, it could not be made binding upon the Government Service
Insurance System. It did not authorize the Board Secretary to sign for the General Manager. This court
appreciated the Government Service Insurance System's failure to disown the telegram sent by the Board
Secretary and its silence while it accepted all payments made by Francisco for the redemption of property.146

There can be no apparent authority and the corporation cannot be estopped from denying the binding affect
of an act when there is no evidence pointing to similar acts and other circumstances that can be interpreted
as the corporation holding out a representative as having authority to contract on its behalf. In Advance
Paper Corporation v. Arma Traders Corporation,147 this court had the occasion to say: chanRoble svirtual Lawli bra ry

The doctrine of apparent authority does not apply if the principal did not commit any acts or
conduct which a third party knew and relied upon in good faith as a result of the exercise of
reasonable prudence. Moreover, the agent's acts or conduct must have produced a change
of position to the third party's detriment. (Citation omitted)cra lawlawlib ra ry

Saturnino Petalcorin's authority to transact on behalf of petitioner cannot be presumed based on a

Secretary's Certificate and excerpt from the minutes of the alleged board meeting that were found to have
been simulated. These documents cannot be considered as the corporate acts that held out Saturnino
Petalcorin as petitioner's authorized representative for mortgage transactions. They were not supported by
an actual board meeting.149

VII

Respondent argues that it may rely on the Secretary's Certificate issued by Aurora de Leon because it was
notarized.

The Secretary's Certificate was void whether or not it was notarized.

Notarization creates a presumption of regularity and authenticity on the document. This presumption may
be rebutted by "strong, complete and conclusive proof"150 to the contrary. While notarial acknowledgment
"attaches full faith and credit to the document concerned[,]"151 it does not give the document its validity or
binding effect. When there is evidence showing that the document is invalid, the presumption of regularity
or authenticity is not applicable.

In Basilio v. Court of Appeals152 this court was convinced that the purported signatory on a deed of sale was
not as represented, despite testimony from the notary public that the signatory appeared before him and
signed the instrument.153 Apart from finding that there was forgery,154 this court noted: chanRob lesvi rtual Lawl ibra ry

The notary public, Atty. Ruben Silvestre, testified that he was the one who notarized the
document and that Dionisio Z. Basilio appeared personally before him and signed the.
instrument himself. However, he admitted that he did not know Dionisio Z. Basilio
personally to ascertain if the person who signed the document was actually Dionisio Z.
Basilio himself, or another person who stood in his place. He could not even recall whether
the document had been executed in his office or not.

Thus, considering the testimonies of various witnesses and a comparison of the signature in
question with admittedly genuine signatures, the Court is convinced that Dionisio Z. Basilio
did not execute the questioned deed of sale. Although the questioned deed of sale was a
public document having in its favor the presumption of regularity, such presumption was
adequately refuted by competent witnesses showing its forgery and the Court's own visual
analysis of the document. (Emphasis supplied, citations omitted) c ralawlawli bra ry

In Suntay v. Court of Appeals,156 this court held that a notarized deed of sale was void because it was a
mere sham.157 It was not intended to have any effect between the parties.158 This court said: chanRoble svirtual Lawlib ra ry

[I]t is not the intention nor the function of the notary public to validate and make binding'
an instrument never, in the first place, intended to have any binding legal effect upon the
parties thereto.159c ralawlawli bra ry

Since the notarized Secretary's Certificate was found to have been issued without a supporting board
resolution, it produced no effect. It is not binding upon petitioner. It should not have been relied on by
respondent especially given its status as a bank.

VIII

The banking institution is "impressed with public interest"160 such that the public's faith is "of paramount
importance."161 Thus, banks are required to exercise the highest degree of diligence in their
transactions.162 In China Banking Corporation v. Lagon,163 this court found that the bank was not a
mortgagee in good faith for its failure to question the due execution of a Special Power of Attorney that was
presented to it in relation to a mortgage contract.164 This court said:
chanRoblesv irt ual Lawlib rary

Though petitioner is not expected to conduct an exhaustive investigation on the history of

the mortgagor's title, it cannot be excused from the duty of exercising the due diligence
required of a banking institution. Banks are expected to exercise more care and prudence
than private individuals in their dealings, even those that involve registered lands, for their
business is affected with public interest.165 (Citations omitted) cra lawlawlib ra ry

For its failure to exercise the degree of diligence required of banks, respondent cannot claim good faith in
the execution of the mortgage contracts with Saturnino Petalcorin. Respondent's witness, Daciano Paguio,
Jr., testified that there was no board resolution authorizing Saturnino Petalcorin to act on behalf of
petitioner.166 Respondent did not inquire further as to Saturnino Petalcorin's authority.

Banks cannot rely on assumptions. This will be contrary to the high standard of diligence required of them.

VI
According to respondent, the annotations of respondent's mortgage interests on the certificates of titles of
petitioner's properties operated as constructive notice to petitioner of the existence of such
interests.167Hence, petitioners are now estopped from claiming that they did not know about the mortgage.

Annotations of adverse claims on certificates of title to properties operate as constructive notice only to third
parties—not to the court or the registered owner. In Sajonas v. Court of Appeals:168 chan roblesvi rtual lawlib rary

[Annotation of an adverse claim is a measure designed to protect the interest of a person

over a piece of real property where the registration of such interest or right is not otherwise
provided for by the Land Registration Act or Act 496 (now [Presidential Decree No.] 1529 or
the Property Registration Decree), and serves a warning to third parties dealing with said
property that someone is claiming an interest on the same or a better right than that of the
registered owner thereof.169 (Emphasis supplied) c ralawlawl ibra ry

Annotations are merely claims of interest or claims of the legal nature and incidents of relationship between
the person whose name appears on the document and the person who caused the annotation. It does not
say anything about the validity of the claim or convert a defective claim or document into a valid
one.170 These claims may be proved or disproved during trial.

Thus, annotations are not conclusive upon courts or upon owners who may not have reason to doubt the
security of their claim as their properties' title holders.

WHEREFORE, the Petition is GRANTED. The Court of Appeals' Decision dated December 17, 2009
is REVERSED and SET ASIDE. The Regional Trial Courts' Decisions of November 23, 2001 and December 7,
2001 are REINSTATED.

SO ORDERED.

G.R. No. 170598 October 9, 2013

FAR EAST BANK TRUST COMPANY, Petitioner,

vs.
ROBERTO MAR CHANTE, a.k.a. ROBERT MAR G. CHAN, Respondents.

DECISION

BERSAMIN, J.:

In this dispute between a. bank and its depositor over liability for several supposedly fraudulent
withdrawals from the latter s account through an automated tellering machine (ATM), we hereby
resolve the issue of liability against the bank because of the intervention of a system bug that
facilitated the purported withdrawals.

The Case

Under review on certiorari is the decision promulgated on August l, 2005,1 whereby the Court of
Appeals (CA) reversed the judgment the Regional Trial Court, Branch 51, in Manila (RTC) rendered
in favor of the petitioner on May 14, 1998 in Civil Case No. 92-61706.2 Thereby, the CA relieved the
depositor of any liability for the supposedly fraudulent withdrawals.

Antecedents

Robert Mar Chante, also known as Robert Mar G. Chan (Chan), was a current account depositor of
petitioner Far East Bank & Trust Co. (FEBTC) at its Ongpin Branch (Current Account No. 5012-
00340-3). FEBTC issued to him Far East Card No. 05-01120-5-0 with July 1993 as the expiry date.
The card, known as a "Do-It-All" card to handle credit card and ATM transactions, was tagged in his
current account. As a security feature, a personal identification number (PIN), known only to Chan
as the depositor, was required in order to gain access to the account. Upon the card’s issuance,
FEBTC required him as the depositor to key in the six-digit PIN. Thus, with the use of his card and
the PIN, he could then deposit and withdraw funds from his current account from any FEBTC ATM
facility, including the MEGALINK facilities of other member banks that included the Philippine
National Bank (PNB).

Civil Case No. 92-61706 sprang from the complaint brought by petitioner Far East Bank & Trust Co.
(FEBTC) on July 1, 1992 in the RTC,3 to recover from Chan the principal sum of ₱770,488.30
representing the unpaid balance of the amount fraudulently withdrawn from Chan’s Current Account
No. 5012-00340-3 with the use of Far East Card No. 05-01120-5-0.

FEBTC alleged that between 8:52 p.m. of May 4, 1992 and 4:06 a.m. of May 5, 1992, Chan had
used Far East Card No. 05-01120-5-0 to withdraw funds totaling ₱967,000.00 from the PNB-
MEGALINK ATM facility at the Manila Pavilion Hotel in Manila; that the withdrawals were done in a
series of 242 transactions with the use of the same machine, at ₱4,000.00/withdrawal, except for
transaction No. 108 at 3:51 a.m. of May 5, 1992, when the machine dispensed only ₱3,000.00; that
MEGALINK’S journal tapes showed that Far East Card No. 05-01120-5-0 had been used in all the
242 transactions; and that the transactions were processed and recorded by the respective
computer systems of PNB and MEGALINK despite the following circumstances, namely: (a) the
offline status of the branch of account (FEBTC Ongpin Branch); (b) Chan’s account balance being
only ₱198,511.70 at the time, as shown in the bank statement; (c) the maximum withdrawal limit of
the ATM facility being ₱50,000.00/day; and (d) his withdrawal transactions not being reflected in his
account, and no debits or deductions from his current account with the FEBTC Ongpin Branch being
recorded.

FEBTC added that at the time of the ATM withdrawal transactions, there was an error in its computer
system known as "system bug" whose nature had allowed Chan to successfully withdraw funds in
excess of his current credit balance of ₱198,511.70; and that Chan had taken advantage of the
system bug to do the withdrawal transactions.

On his part, Chan denied liability. Although admitting his physical possession of Far East Card No.
05-01120-5-0 on May 4 and May 5, 1992, he denied making the ATM withdrawals totaling
₱967,000.00, and instead insisted that he had been actually home at the time of the withdrawals. He
alluded to a possible "inside job" as the cause of the supposed withdrawals, citing a newspaper
report to the effect that an employee of FEBTC’s had admitted having debited accounts of its
depositors by using his knowledge of computers as well as information available to him. Chan
claimed that it would be physically impossible for any human being like him to stand long hours in
front of the ATM facility just to withdraw funds. He contested the debiting of his account, stating that
the debiting had affected his business and had caused him to suffer great humiliation after the
dishonor of his sufficiently-funded checks by FEBTC.
The records show that FEBTC discovered the system bug only after its routine reconciliation of the
ATM-MEGALINK transactions on May 7, 1992; that it immediately adopted remedial and corrective
measures to protect its interest in order to avoid incurring further damage as well as to prevent a
recurrence of the incident; that one of the measures it adopted pursuant to its ATM Service
Agreement with Chan was to program its computer system to repossess his ATM card; that his ATM
card was repossessed at the Ermita Branch of FEBTC when he again attempted to withdraw at the
ATM facility there; that the ATM facility retained his ATM card until its recovery by the bank; and that
FEBTC conducted an in-depth investigation and a time-and-motion study of the withdrawals in
question.

On May 14, 1992, FEBTC debited his current account in the amount of ₱192,517.20 pursuant to
Chan’s ATM Service Agreement. It debited the further sum of ₱3,000.00 on May 18, 1992, leaving
the unrecovered portion of the funds allegedly withdrawn by him at ₱770,488.30. Thus, on May 14
and May 18, 1992, FEBTC sent to Chan letters demanding the reimbursement of the unrecovered
balance of ₱770,488.30, but he turned a deaf ear to the demands, impelling it to bring this case on
July 1, 1992.4

Ruling of the RTC

As reflected in the pre-trial order of October 19, 1992, the issues to be resolved were, firstly, whether
or not Chan had himself withdrawn the total sum of ₱967,000.00 with the use of his Far East Card
No. 05-01120-5-0 at the PNB-MEGALINK ATM facility; and, secondly, if the answer to the first issue
was that he did, whether or not he was liable to reimburse to FEBTC the amount of ₱770,488.30 as
actual damages, plus interest.5

On May 14, 1998, the RTC rendered judgment in favor of FEBTC, pertinently holding and ruling as
follows:6

In the instant case, what happened was that the defendant who was at the U.N. Branch of the PNB
used his card. He entered his PIN to have access to a withdrawal transaction from his account in Far
East Bank, Ongpin Branch. However, after recognizing the card and went to the path of his account
it could not get a signal to proceed with the transaction so it proceeded to the other path who gave
the signal to go on and dispense money. But there was a computer error as it did not only dispense
the money limit for the day buty it continued to dispense a lot more until it reached the amount of
₱967,000.00 which took the defendant till the hours of the morning to obtain. But defendant says he
did not use his card. He alleges that it could be an inside job just like what happened to the said
bank which was published in the newspaper wherein the bank employee admitted having done the
theft through his knowledge of the computer. Could this be true?

The Court opines that it is not far-fetched. However why did this Court state that plaintiff’s cause of
action will survive? The action of the defendant after the incident gave him away. Merely two days
after the heavy withdrawal, the defendant returned not at the exact scene of the incident but at a
nearby branch which is also in Ermita and tried again to withdraw. But at this time the bank already
knew what happened so it blocked the card and retained it being a hot card. The defendant was not
successful this time so what he did was to issue a check almost for the whole amount of his balance
in his account leaving only a minimal amount. This incident puzzles the Court. Maybe the defendant
was hoping that the machine nearby may likewise dispense so much amount without being detected.
He will not definitely go back to the U.N. branch as he may think that it is being watched and so he
went to a nearby branch. Unfortunately, luck was not with him this time and his card was taken by
the bank. The fact that he hastily withdrew the balance of his account after his card was retained by
the bank only showed his knowledge that the bank may debit his account. It also showed his intent
to do something further other than first inquire why his card was considered a hot card if he is really
innocent. When he went to the Ermita branch to withdraw from the ATM booth he was intending to
withdraw not more than ₱50,000.00 as it is the bank’s limit for the day and if ever he needed a
bigger amount than ₱50,000.00 immediately he should have gone to the branch for an over the
counter transaction but he did not do so and instead issued a check for ₱190,000.00 dated May 7,
1992 and another check for ₱5,000.00 dated May 13, 1992. To the mind of the Court, to take
advantage of a computer error, to gain sudden and undeserved amount of money should be
condemned in the strongest terms.

There are no available precedents in this case regarding computer errors, but the Court feels that
defendant should be held liable for the mistaken amount he was able to get from the machine based
on the following provisions of the law.

Articles 19, 21, 22 and 23 of the Civil Code x x x.

xxxx

There is likewise one point that the Court would like to discuss about the allegation of the defendant
that it was impossible for him to withdraw the money in such long period and almost minute after
minute. This Court believes that money is the least of all, a person may give priority in life. There are
many who would sacrifice a lot just to have lots of it, so it would not be impossible for one to take
time, stand for several hours and just enter some items in the computer if the return would be
something like a million or close to a million. In fact, the effort exerted was just peanuts compared to
other legitimate ways of earning a living as the only capital or means used to obtain it was the
defendant’s loss of sleep and the time spent in withdrawing the same. Moreover, though the cause
of action in this case may be the erroneous dispensation of money due to computer bug which is not
of defendant’s wrong doing, the Court sees that what was wrong was the failure to return the amount
in excess of what was legally his. There is such a thing as JUSTICE. Justice means rendering to
others their due. A person is just when he is careful about respecting the rights of others, and who
knows too, how to claim what he rightfully deserves as a consequence of fulfilling his duties.

From the foregoing, the conclusion is manifest that plaintiff is within its right in initiating the instant
suit, as defendant’s refusal to pay the claim constitutes the cause of action for sum of money.

xxxx

WHEREFORE, judgment is hereby rendered in favor of the plaintiff Far East Bank and Trust
Company and against the defendant Robert Mar Chante a.k.a. Robert Mar G. Chan ordering the
latter to pay the former the following:

1. the amount of ₱770,488.30 as actual damages representing the unrecovered balance of

the amounts withdrawn by defendant;

2. interest of 24% per annum on the actual damages from July 1, 1992, the date of the filing
of the complaint until fully paid;

3. the amount of ₱100,000.00 as exemplary damages;

4. the sum of ₱30,000.00 as and for attorney’s fees; and

5. the costs of the suit. Defendant’s counterclaim is hereby dismissed for lack of merit.
SO ORDERED.

Ruling of the CA

Chan appealed,7 assigning the following errors to the RTC, to wit:

1. THE TRIAL COURT ERRED IN HOLDING DEFENDANT-APPELLANT LIABLE FOR THE

ALLEGED WITHDRAWAL OF THE AMOUNT OF ₱967,000.00 WITH INTEREST AT THE
RATE OF 24% PER ANNUM BASED MERELY ON CONJECTURES AND SUSPICIONS
NOT ESTABLISHED BY SOLID EVIDENCE;

2. THE TRIAL COURT ERRED IN AWARDING IN FAVOR OF APPELLEE EXEMPLARY

DAMAGES IN THE AMOUNT OF ₱100,000.00 AND ATTORNEY’S FEES IN THE AMOUNT
OF ₱30,000.00;

3. THE TRIAL COURT ERRED IN NOT ORDERING THE RESTITUTION OF THE AMOUNT
OF ₱196,521.30 ILLEGALLY DEBITED BY APPELLEE FROM APPELLANT’S ACCOUNT.

On August 1, 2005, the CA promulgated the assailed decision, reversing the RTC’s judgment, to wit:

x x x. The issues really before us are issues of contract application and issues of fact that would
require an examination and appreciation of the evidence presented. The first order therefore in our
review of the trial court’s decision is to take stock of the established and undisputed facts, and of the
evidence the parties have presented. We say this at the outset as we believe that it was in this
respect that the lower court failed in its consideration and appreciation of the case.

xxxx

An evidentiary dilemma we face in this case is the fact that there is no direct evidence on the issue
of who made the actual withdrawals. Chan correctly claims that the bank failed to present any
witness testifying that he (Chan) made the actual withdrawals. At the same time, Chan can only rely
on his own uncorroborated testimony that he was at home on the night that withdrawals were made.
We recognize that the bank can claim that no other evidence of actual withdrawal is necessary
because the PIN unique to Chan is already evidence that only Chan or his authorized representative
– and none other – could have accessed his account. But at the same time, we cannot close our
eyes to the fact that computers and the ATM system is not perfect as shown by an incident cited by
Chan involving the FEBTC itself. Aside from the vulnerability to inside staff members, we take
judicial notice that no less than our own Central Bank has publicly warned banks about other
nefarious schemes involving ATM machines. In a March 7, 2003 letter, the Central Bank stated:

March 7, 2003

BSP CIRCULAR LETTER

TO : All Banks

SUBJECT : Technology Fraud on ATM Systems

Please be advised that there were incidents in other countries regarding technology
fraud in ATM systems perpetrated by unscrupulous individuals and/ or syndicates.
 These acts are carried out by:

1. A specialized scanner attached to the ATM card slot, and;

2. A pinhole camera

xxxx

In light of the absence of conclusive direct evidence of actual withdrawal that we can rely upon, we
have to depend on evidence "other than direct" to reach verdict in this case.

xxxx

WHEREFORE , premises considered, we hereby GRANT the appeal and accordingly REVERSE
and SET ASIDE the Decision dated May 14, 1998 of the Regional Trial Court of Manila, Branch 51,
in Civil Case No. 92-61706. We accordingly ORDER plaintiff-appellee Far East Bank and Trust
Company (FEBTC) to return to Chan the amount of Php196,571.30 plus 12% interest per annum
computed from August 7, 1992 – the time Chan filed his counterclaim – until the obligation is
satisfied. Costs against the plaintiff-appellee FEBTC.

SO ORDERED.8

FEBTC moved for reconsideration, but the CA denied its motion on November 24, 2005.9

Issues

Hence, FEBTC has appealed, urging the reversal of the CA’s adverse decision, and praying that
Chan be held liable for the withdrawals made from his account on May 4 and May 5, 1992; and that
it should not be held liable to return to Chan the sum of ₱196,571.30 debited from his account.

Ruling

The appeal lacks merit.

FEBTC would want us to hold that Chan had authored the May 4 and May 5, 1992 ATM withdrawals
based on the following attendant factors, namely: (a) ATM transactions were processed and
identified by the PIN, among others; (b) the PIN was exclusive and known only to the account
holder; (c) the ATM was tagged in the cardholder’s account where the ATM transactions were
debited or credited; (d) the account number tagged in the ATM card identified the cardholder; (e) the
ATM withdrawals were documented transactions; and (f) the transactions were strictly monitored and
recorded not only by FEBTC as the bank of account but also by the ATM machine and MEGALINK.
In other words, the ATM transactions in question would not be processed unless the PIN, which was
known only to Chan as the cardholder, had been correctly entered, an indication both that it was his
ATM card that had been used, and that all the transactions had been processed successfully by the
PNB-MEGALINK ATM facility at the Manila Pavilion Hotel with the use of the correct PIN.

We disagree with FEBTC.

Although there was no question that Chan had the physical possession of Far East Card No. 05-
01120-5-0 at the time of the withdrawals, the exclusive possession of the card alone did not suffice
to preponderantly establish that he had himself made the withdrawals, or that he had caused the
withdrawals to be made. In his answer, he denied using the card to withdraw funds from his account
on the dates in question, and averred that the withdrawals had been an "inside job." His denial
effectively traversed FEBTC’s claim of his direct and personal liability for the withdrawals, that it
would lose the case unless it competently and sufficiently established that he had personally made
the withdrawals himself, or that he had caused the withdrawals. In other words, it carried the burden
of proof.

Burden of proof is a term that refers to two separate and quite different concepts, namely: (a) the risk
of non-persuasion, or the burden of persuasion, or simply persuasion burden; and (b) the duty of
producing evidence, or the burden of going forward with the evidence, or simply the production
burden or the burden of evidence.10 In its first concept, it is the duty to establish the truth of a given
proposition or issue by such a quantum of evidence as the law demands in the case at which the
issue arises.11 In its other concept, it is the duty of producing evidence at the beginning or at any
subsequent stage of trial in order to make or meet a prima facie case. Generally speaking, burden of
proof in its second concept passes from party to party as the case progresses, while in its first
concept it rests throughout upon the party asserting the affirmative of the issue.12

The party who alleges an affirmative fact has the burden of proving it because mere allegation of the
fact is not evidence of it.13 Verily, the party who asserts, not he who denies, must prove.14

In civil cases, the burden of proof is on the party who would be defeated if no evidence is given on
either side.15 This is because our system frees the trier of facts from the responsibility of investigating
and presenting the facts and arguments, placing that responsibility entirely upon the respective
parties.16 The burden of proof, which may either be on the plaintiff or the defendant, is on the plaintiff
if the defendant denies the factual allegations of the complaint in the manner required by the Rules
of Court; or on the defendant if he admits expressly or impliedly the essential allegations but raises
an affirmative defense or defenses, that, if proved, would exculpate him from liability.17

Section 1, Rule 133 of the Rules of Court sets the quantum of evidence for civil actions, and
delineates how preponderance of evidence is determined, viz :

Section 1. In civil cases, the party having the burden of proof must establish his case by a
preponderance of evidence. In determining where the preponderance or superior weight of evidence
on the issues involved lies, the court may consider all the facts and circumstances of the case, the
witnesses’ manner of testifying, their intelligence, their means and opportunity of knowing the facts
to which they are testifying, the nature of the facts to which they testify, the probability or
improbability of their testimony, their interest or want of interest, and also their personal credibility so
far as the same may legitimately appear upon the trial. The court may also consider the number of
witnesses, though the preponderance is not necessarily with the greater number. (Emphasis
supplied)

As the rule indicates, preponderant evidence refers to evidence that is of greater weight, or more
convincing, than the evidence offered in opposition to it.18 It is proof that leads the trier of facts to find
that the existence of the contested fact is more probable than its nonexistence.19

Being the plaintiff, FEBTC must rely on the strength of its own evidence instead of upon the
weakness of Chan’s evidence. Its burden of proof thus required it to preponderantly demonstrate
that his ATM card had been used to make the withdrawals, and that he had used the ATM card and
PIN by himself or by another person to make the fraudulent withdrawals. Otherwise, it could not
recover from him any funds supposedly improperly withdrawn from the ATM account. We remind
that as a banking institution, FEBTC had the duty and responsibility to ensure the safety of the funds
it held in trust for its depositors. It could not avoid the duty or evade the responsibility because it
alone should bear the price for the fraud resulting from the system bug on account of its exclusive
control of its computer system.

Did FEBTC discharge its burden of proof?

The CA ruled that FEBTC did not because –

After a review of the records of this case, we find the totality of evidence submitted by FEBTC
insufficient to establish the crucial facts that would justify a judgment in its favor.

To our mind, the fact that Chan’s account number and ATM card number were the ones used for the
withdrawals, by itself, is not sufficient to support the conclusion that he should be deemed to have
made the withdrawals.

FEBTC offers in this regard the PNB ATM’s journal tapes to prove the withdrawals and their details –
the time of the transactions; the account number used; the ATM card number; and the amount
withdrawn – and at the same time declared that these tapes are authentic and genuine. These
tapes, however, are not as reliable as FEBTC represented them to be as they are not even internally
consistent. A disturbing internal discrepancy we note relates to the amounts reflected as "ledger
balance" and "available balance". We find it strange that for every 4,000.00 pesos allegedly
withdrawn by Chan, the available balance increased rather than diminished. Worse, the amount of
available balance as reflected in the tapes was way above the actual available balance of less than
Php200,000.00 that Chan’s current account had at that time. These discrepancies must inevitably
reflect on the integrity of the journal tapes; the proven inconsistencies in some aspects of these
tapes leave the other aspects suspect and uncertain.

But more than this, we are not convinced that the tapes lead us to the inevitable conclusion that
Chan’s card, rather than a replacement card containing Chan’s PIN and card number or some other
equivalent scheme, was used. To our mind, we cannot discount this possibility given the available
technology making computer fraud a possibility, the cited instances of computer security breaches,
the admitted system bug, and – most notably – the fact that the withdrawals were made under
circumstances that took advantage of the system bug. System errors of this kind, when taken
advantage of to the extent that had happened in this case, are planned for. Indeed, prior preparation
must take place to avoid suspicion and attention where the withdrawal was made for seven (7) long
hours in a place frequented by hundreds of guests, over 242 transactions where the physical volume
of the money withdrawn was not insignificant. To say that this was done by the owner of the account
based solely on the records of the transactions, is a convenient but not a convincing explanation.20

In our view, the CA’s ruling was correct.

To start with, Edgar Munarriz, FEBTC’s very own Systems Analyst, admitted that the bug infecting
the bank’s computer system had facilitated the fraudulent withdrawals.21 This admission impelled the
CA to thoroughly dissect the situation in order to determine the consequences of the intervention of
the system bug in FEBTC’s computer system. It ultimately determined thusly:

Significantly, FEBTC made the admission that there was a program bug in its computer system. To
digress, computers are run based on specific pre-arranged instructions or "programs" that act on
data or information that computer users input. Computers can only process these inputted data or
information according to the installed programs. Thus, computers are as efficient, as accurate and
as convenient to use as the instructions in their installed programs. They can count, sort, compute
and arrive at decisions but they do so only and strictly in accordance with the programs that make
them work. To cite an easy example, a computer can be programmed to sort a stack of cards
prepared by male and female clients, into male and female stacks, respectively. To do this, the
computer will first scan a card and look at the place ("a field") where the male/female information can
be found. This information may be in an appropriate box which the bank client checks or shades to
indicate if he/she is male or female. The computer will check if the box beside the word "Female" is
shaded. If it is, it will send the card to the "Female" bin. If the box beside the "male" is shaded, it will
send the card to the "Male" bin. If both the squares are shaded or none is shaded or the card cannot
be read, it will send the card to the "Unknown" bin. This way, the female cards and the male cards
can be sorted efficiently. However, the program instructions can be written in such a way that the
computer can only make two decisions, that is, if the Female box is shaded, then the card goes to
the "Female" bin; otherwise, the card goes to the "Male" bin. In this program, all the Female cards
will be sorted correctly but the Male bin will contain all the other cards, that is, the Male cards, the
cards with no shading at all, and all the other cards that cannot be classified.

The imperfect results arose from the imperfect program instructions or from a program "bug".
Something very close to this example happened in the present case.

According to the testimony of the FEBTC’s systems analyst, there were two computer programs that
were involved in the transactions: CAPDROTH and SCPUP 900. CAPDROTH is the program that
validates if the account exists in the FEBTC files, if the transaction is valid, and if the branch where
the account is maintained is ON-LINE (i.e. continuously sending data). When the Chan transaction
entered the system, it was validated by CAPDROTH which, on seeing that the FEBTC-Ongpin
branch was off-line, returned a decision code passing on the decision to authorize the transaction to
the SCPUP 900, another module. However, SCPUP 900 was not expecting this type of response or
decision code. As the SCPUP 900 program was originally written, it will send back an error message
and abort a requested transaction if it receives an error message from any other module; otherwise,
it will send a message authorizing the transaction. In other words, SCPUP 900 had only two
decisions to make: check if the message is an error message, if not then, authorize. Since what it
received in the disputed transactions were not error messages and were not also authorizations, it
sent back authorization messages allowing the cash withdrawals. It kept on sending authorization
messages for the 242 cash withdrawal transactions made from Chan’s account between the evening
of May 4 and early morning of May 5, 1992. This program bug was the reason the 242 cash
withdrawals were allowed by the PNB ATM-Megalink machine.

The program bug occurred because of the simultaneous presence of three conditions that allowed it
to happen: (1) the withdrawal transactions involved a current account; (2) the current account was
with a branch that at that time was off-line; and (3) the transaction originated from MEGALINK (i.e.,
through MEGALINK through a member bank other than FEBTC). Because of the bug, Chan’s
account was not accessed at the time of the transactions so that withdrawals in excess of what the
account contained were allowed. Additionally, FEBTC’s rule that only a maximum withdrawable
amount per day (in the present case ₱50,000.00 per day) can be made from an ATM account, was
by-passed. Thus, 242 withdrawals were made over an eight hour period, in the total amount of
₱967,000.00.22

Secondly, the RTC’s deductions on the cause of the withdrawals were faulty. In holding against
Chan, the RTC chiefly relied on inferences drawn from his acts subsequent to the series of
withdrawals, specifically his attempt to withdraw funds from his account at an FEBTC ATM facility in
Ermita, Manila barely two days after the questioned withdrawals; his issuance of a check for
₱190,000.00 immediately after the capture of his ATM card by the ATM facility; his failure to
immediately report the capture of his ATM card to FEBTC; and his going to FEBTC only after the
dishonor of the check he had issued following the freezing of his account. The inferences were not
warranted, however, because the subsequent acts would not persuasively establish his actual
participation in the withdrawals due to their being actually susceptible of other interpretations
consistent with his innocence.
We join the CA’s observation that Chan’s subsequent acts "could have been impelled by so many
reasons and motivations, and cannot simply be given the meaning that the lower court attributed to
them," and, instead, were even consistent with the purpose and nature of his maintaining the current
account deposit with FEBTC, rendering the acts "not unusual nor … illegal."23 Although he was
expected to forthwith bring his card’s capture to FEBTC’s attention, that he did not do so could have
other plausible explanations consistent with good faith, among them his being constantly occupied
as a businessman to attend to the multifarious activities of his business. He might have also honestly
believed that he still had the sufficient funds in his current account, as borne out by his issuance of a
check instead after the capture of the card so as not for him to undermine any financial obligation
then becoming due. Nor should his opting to withdraw funds from his account at the ATM facility in
Ermita in less than two days after the questioned withdrawals manifest responsibility on his part, for
he could also be properly presumed to be then still unaware of the situation involving his account.
We note that his letters24 written in response to FEBTC’s written demands to him disclosed honest
intentions rather than malice.

Thirdly, the RTC ignored the likelihood that somebody other than Chan familiar with the bug infection
of FEBTC’s computer system at the time of the withdrawals and adept with the workings of the
computer system had committed the fraud. This likelihood was not far-fetched considering that
FEBTC had immediately adopted corrective measures upon its discovery of the system bug, by
which FEBTC admitted its negligence in ensuring an error-free computer system; and that the
system bug had affected only the account of Chan.25 Truly, the trial court misapprehended the extent
to which the system bug had made the computer system of FEBTC stumble in serious error.

Fourthly, and perhaps the most damaging lapse, was that FEBTC failed to establish that the PNB-
MEGALINK’s ATM facility at the Manila Pavilion Hotel had actually dispensed cash in the very
significantly large amount alleged during the series of questioned withdrawals. For sure, FEBTC
should have proved the actual dispensing of funds from the ATM facility as the factual basis for its
claim against Chan. It did require PNB to furnish a validated showing of the exact level of cash then
carried by the latter’s ATM facility in the Manila Pavilion Hotel on May 4, 1992.26Yet, when PNB
employee Erwin Arellano stood as a witness for FEBTC, he confirmed the authenticity of the journal
tapes that had recorded Chan’s May 4 and May 5, 1992 supposed ATM transactions but did not
categorically state how much funds PNB-MEGALINK’s ATM facility at the Manila Pavilion Hotel had
exactly carried at the time of the withdrawals, particularly the amounts immediately preceding and
immediately following the series of withdrawals. The omission left a yawning gap in the evidence
against Chan.

And lastly, Chan’s allegation of an "inside job" accounting for the anomalous withdrawals should not
be quickly dismissed as unworthy of credence or weight. FEBTC employee Manuel Del Castillo,
another witness for FEBTC, revealed that FEBTC had previously encountered problems of bank
accounts being debited despite the absence of any withdrawal transactions by their owners. He
attributed the problems to the erroneous tagging of the affected accounts as somebody else’s
account, allowing the latter to withdraw from the affected accounts with the use of the latter’s own
ATM card, and to the former’s account being debited.27 The revelation of Del Castillo tended to
support Chan’s denial of liability, as it showed the possibility of withdrawals being made by another
person despite the PIN being an exclusive access number known only to the cardholder.28

It is true that Del Castillo also declared that FEBTC did not store the PINs of its clients’ ATM
cards. However, he mentioned that FEBTC had stored the opposite numbers corresponding to the
1âwphi1

PINs, which meant that the PINs did not remain entirely irretrievable at all times and in all cases by
any of its officers or employees with access to the bank’s computer system. Accordingly, Del
Castillo’s assertion that the PINs were rendered useless upon being entered in the bank’s computer
system did not entirely disclose how the information on the PINs of the depositors was stored or
discarded as to become useless for any purpose.
In view of the foregoing, FEBTC did not present preponderant evidence proving Chan’s liability for
the supposedly fraudulent withdrawals. It thus failed in discharging its burden of persuasion.

WHEREFORE, the Court AFFIRMS the decision of the Court of Appeals; and DIRECTS the
petitioner to pay the costs of suit.

SO ORDERED.

G.R. No. 194846 June 19, 2013

*HOSPICIO D. ROSAROSO, ANTONIO D. ROSAROSO, MANUEL D. ROSAROSO, ALGERICA D.

ROSAROSO, and CLEOFE R. LABINDAO,Petitioners,
vs.
LUCILA LABORTE SORIA, SPOUSES HAM SOLUTAN and **LAILA SOLUTAN, and MERIDIAN
REALTY CORPORATION, Respondents.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the December
4, 2009 Decision1 of the Court of Appeals (CA). in CA G.R. CV No. 00351, which reversed and set
aside the July 30, 2004 Decision2 of the Regional Trial Court, Branch 8, 7th Judicial Region, Cebu
City (RTC), in Civil Case No. CEB-16957, an action for declaration of nullity of documents.

The Facts

Spouses Luis Rosaroso (Luis) and Honorata Duazo (Honorata) acquired several real properties in
Daan Bantayan, Cebu City, including the subject properties. The couple had nine (9) children
namely: Hospicio, Arturo, Florita, Lucila, Eduardo, Manuel, Cleofe, Antonio, and Angelica. On April
25, 1952, Honorata died. Later on, Luis married Lourdes Pastor Rosaroso (Lourdes).

On January 16, 1995, a complaint for Declaration of Nullity of Documents with Damages was filed by
Luis, as one of the plaintiffs, against his daughter, Lucila R. Soria (Lucila); Lucila’s daughter, Laila S.
Solutan (Laila); and Meridian Realty Corporation (Meridian). Due to Luis’ untimely death, however,
an amended complaint was filed on January 6, 1996, with the spouse of Laila, Ham Solutan (Ham);
and Luis’ second wife, Lourdes, included as defendants.3

In the Amended Complaint, it was alleged by petitioners Hospicio D. Rosaroso, Antonio D. Rosaroso
(Antonio), Angelica D. Rosaroso (Angelica), and Cleofe R. Labindao (petitioners) that on November
4, 1991, Luis, with the full knowledge and consent of his second wife, Lourdes, executed the Deed of
Absolute Sale4 (First Sale) covering the properties with Transfer Certificate of Title (TCT) No. 31852
(Lot No. 8); TCT. No. 11155 (Lot 19); TCT No. 10885 (Lot No. 22); TCT No. 10886 (Lot No. 23); and
Lot Nos. 5665 and 7967, all located at Daanbantayan, Cebu, in their favor.5
They also alleged that, despite the fact that the said properties had already been sold to them,
respondent Laila, in conspiracy with her mother, Lucila, obtained the Special Power of Attorney
(SPA),6 dated April 3, 1993, from Luis (First SPA); that Luis was then sick, infirm, blind, and of
unsound mind; that Lucila and Laila accomplished this by affixing Luis’ thumb mark on the SPA
which purportedly authorized Laila to sell and convey, among others, Lot Nos. 8, 22 and 23, which
had already been sold to them; and that on the strength of another SPA7 by Luis, dated July 21,
1993 (Second SPA), respondents Laila and Ham mortgaged Lot No. 19 to Vital Lending Investors,
Inc. for and in consideration of the amount of ₱150,000.00 with the concurrence of Lourdes.8

Petitioners further averred that a second sale took place on August 23, 1994, when the respondents
made Luis sign the Deed of Absolute Sale9conveying to Meridian three (3) parcels of residential land
for ₱960,500.00 (Second Sale); that Meridian was in bad faith when it did not make any inquiry as to
who were the occupants and owners of said lots; and that if Meridian had only investigated, it would
have been informed as to the true status of the subject properties and would have desisted in
pursuing their acquisition.

Petitioners, thus, prayed that they be awarded moral damages, exemplary damages, attorney’s fees,
actual damages, and litigation expenses and that the two SPAs and the deed of sale in favor of
Meridian be declared null and void ab initio.10

On their part, respondents Lucila and Laila contested the First Sale in favor of petitioners. They
submitted that even assuming that it was valid, petitioners were estopped from questioning the
Second Sale in favor of Meridian because they failed not only in effecting the necessary transfer of
the title, but also in annotating their interests on the titles of the questioned properties. With respect
to the assailed SPAs and the deed of absolute sale executed by Luis, they claimed that the
documents were valid because he was conscious and of sound mind and body when he executed
them. In fact, it was Luis together with his wife who received the check payment issued by Meridian
where a big part of it was used to foot his hospital and medical expenses.11

Respondent Meridian, in its Answer with Compulsory Counterclaim, averred that Luis was fully
aware of the conveyances he made. In fact, Sophia Sanchez (Sanchez), Vice-President of the
corporation, personally witnessed Luis affix his thumb mark on the deed of sale in its favor. As to
petitioners’ contention that Meridian acted in bad faith when it did not endeavor to make some
inquiries as to the status of the properties in question, it countered that before purchasing the
properties, it checked the titles of the said lots with the Register of Deeds of Cebu and discovered
therein that the First Sale purportedly executed in favor of the plaintiffs was not registered with the
said Register of Deeds. Finally, it argued that the suit against it was filed in bad faith.12

On her part, Lourdes posited that her signature as well as that of Luis appearing on the deed of sale
in favor of petitioners, was obtained through fraud, deceit and trickery. She explained that they
signed the prepared deed out of pity because petitioners told them that it was necessary for a loan
application. In fact, there was no consideration involved in the First Sale. With respect to the Second
Sale, she never encouraged the same and neither did she participate in it. It was purely her
husband’s own volition that the Second Sale materialized. She, however, affirmed that she received
Meridian’s payment on behalf of her husband who was then bedridden.13

RTC Ruling

After the case was submitted for decision, the RTC ruled in favor of petitioners. It held that when
Luis executed the second deed of sale in favor of Meridian, he was no longer the owner of Lot Nos.
19, 22 and 23 as he had already sold them to his children by his first marriage. In fact, the subject
properties had already been delivered to the vendees who had been living there since birth and so
had been in actual possession of the said properties. The trial court stated that although the deed of
sale was not registered, this fact was not prejudicial to their interest. It was of the view that the actual
registration of the deed of sale was not necessary to render a contract valid and effective because
where the vendor delivered the possession of the parcel of land to the vendee and no superior rights
of third persons had intervened, the efficacy of said deed was not destroyed. In other words, Luis
lost his right to dispose of the said properties to Meridian from the time he executed the first deed of
sale in favor of petitioners. The same held true with his alleged sale of Lot 8 to Lucila
Soria.14 Specifically, the dispositive portion of the RTC decision reads:

IN VIEW OF THE FOREGOING, the Court finds that a preponderance of evidence exists in favor of
the plaintiffs and against the defendants. Judgment is hereby rendered:

a. Declaring that the Special Power of Attorney, Exhibit "K," for the plaintiffs and Exhibit "3"
for the defendants null and void including all transactions subsequent thereto and all
proceedings arising therefrom;

b. Declaring the Deed of Sale marked as Exhibit "E" valid and binding;

c. Declaring the Deed of Absolute Sale of Three (3) Parcels of Residential Land marked as
Exhibit "F" null and void from the beginning;

d. Declaring the Deed of Sale, Exhibit "16" (Solutan) or Exhibit "FF," null and void from the
beginning;

e. Declaring the vendees named in the Deed of Sale marked as Exhibit "E" to be the lawful,
exclusive and absolute owners and possessors of Lots Nos. 8, 19, 22, and 23;

f. Ordering the defendants to pay jointly and severally each plaintiff ₱50,000.00 as moral
damages; and

g. Ordering the defendants to pay plaintiffs ₱50,000.00 as attorney’s fees; and ₱20,000.00
as litigation expenses.

The crossclaim made by defendant Meridian Realty Corporation against defendants Soria and
Solutan is ordered dismissed for lack of sufficient evidentiary basis.

SO ORDERED."15

Ruling of the Court of Appeals

On appeal, the CA reversed and set aside the RTC decision. The CA ruled that the first deed of sale
in favor of petitioners was void because they failed to prove that they indeed tendered a
consideration for the four (4) parcels of land. It relied on the testimony of Lourdes that petitioners did
not pay her husband. The price or consideration for the sale was simulated to make it appear that
payment had been tendered when in fact no payment was made at all.16

With respect to the validity of the Second Sale, the CA stated that it was valid because the
documents were notarized and, as such, they enjoyed the presumption of regularity. Although
petitioners alleged that Luis was manipulated into signing the SPAs, the CA opined that evidence
was wanting in this regard. Dr. Arlene Letigio Pesquira, the attending physician of Luis, testified that
while the latter was physically infirmed, he was of sound mind when he executed the first SPA.17
With regard to petitioners’ assertion that the First SPA was revoked by Luis when he executed the
affidavit, dated November 24, 1994, the CA ruled that the Second Sale remained valid. The Second
Sale was transacted on August 23, 1994, before the First SPA was revoked. In other words, when
the Second Sale was consummated, the First SPA was still valid and subsisting. Thus, "Meridian
had all the reasons to rely on the said SPA during the time of its validity until the time of its actual
filing with the Register of Deeds considering that constructive notice of the revocation of the SPA
only came into effect upon the filing of the Adverse Claim and the aforementioned Letters addressed
to the Register of Deeds on 17 December 1994 and 25 November 1994, respectively, informing the
Register of Deeds of the revocation of the first SPA."18 Moreover, the CA observed that the affidavit
revoking the first SPA was also revoked by Luis on December 12, 1994.19

Furthermore, although Luis revoked the First SPA, he did not revoke the Second SPA which
authorized respondent Laila to sell, convey and mortgage, among others, the property covered by
TCT T-11155 (Lot No. 19). The CA opined that had it been the intention of Luis to discredit the

Second Sale, he should have revoked not only the First SPA but also the Second SPA. The latter
being valid, all transactions emanating from it, particularly the mortgage of Lot 19, its subsequent
redemption and its second sale, were valid.20 Thus, the CA disposed in this wise:

WHEREFORE, the appeal is hereby GRANTED. The Decision dated 30 July 2004 is hereby
REVERSED AND SET ASIDE, and in its stead a new decision is hereby rendered:

1. DECLARING the Special Power of Attorney, dated 21 July 1993, as valid;

2. DECLARING the Special Power of Attorney, dated 03 April 1993, as valid up to the time of
its revocation on 24 November 1994;

3. DECLARING the Deed of Absolute sale, dated 04 November 1991, as ineffective and
without any force and effect;

4. DECLARING the Deed of Absolute Sale of Three (3) Parcels of Residential Land, dated
23 August 1994, valid and binding from the very beginning;

5. DECLARING the Deed of Absolute Sale, dated 27 September 1994, also valid and binding
from the very beginning;

6. ORDERING the substituted plaintiffs to pay jointly and severally the defendant-appellant
Meridian Realty Corporation the sum of Php100,000.00 as moral damages, Php100,000.00
as attorney’s fee and Php100,000.00 as litigation expenses; and

7. ORDERING the substituted plaintiffs to pay jointly and severally the defendant-appellants
Leila Solutan et al., the sum of Php50,000.00 as moral damages.

SO ORDERED.21

Petitioners filed a motion for reconsideration, but it was denied in the CA Resolution,22 dated
November 18, 2010. Consequently, they filed the present petition with the following ASSIGNMENT
OF ERRORS

I.
 THE HONORABLE COURT OF APPEALS (19TH DIVISION) GRAVELY ERRED
WHEN IT DECLARED AS VOID THE FIRST SALE EXECUTED BY THE LATE LUIS
ROSAROSO IN FAVOR OF HIS CHILDREN OF HIS FIRST MARRIAGE.

II.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT

SUSTAINING AND AFFIRMING THE RULING OF THE TRIAL COURT DECLARING
THE MERIDIAN REALTY CORPORATION A BUYER IN BAD FAITH, DESPITE THE
TRIAL COURT’S FINDINGS THAT THE DEED OF SALE (First Sale), IS GENUINE
AND HAD FULLY COMPLIED WITH ALL THE LEGAL FORMALITIES.

III.

THE HONORABLE COURT OF APPEALS FURTHER ERRED IN NOT HOLDING

THE SALE (DATED 27 SEPTEMBER 1994), NULL AND VOID FROM THE VERY
BEGINNING SINCE LUIS ROSAROSO ON NOVEMBER 4, 1991 WAS NO
LONGER THE OWNER OF LOTS 8, 19, 22 AND 23 AS HE HAD EARLIER
DISPOSED SAID LOTS IN FAVOR OF THE CHILDREN OF HIS (LUIS
ROSAROSO) FIRST MARRIAGE.23

Petitioners argue that the second deed of sale was null and void because Luis could not have validly
transferred the ownership of the subject properties to Meridian, he being no longer the owner after
selling them to his children. No less than Atty. William Boco, the lawyer who notarized the first deed
of sale, appeared and testified in court that the said deed was the one he notarized and that Luis
and his second wife, Lourdes, signed the same before him. He also identified the signatures of the
subscribing witnesses.24 Thus, they invoke the finding of the RTC which wrote:

In the case of Heirs of Joaquin Teves, Ricardo Teves versus Court of Appeals, et al., G.R. No.
109963, October 13, 1999, the Supreme Court held that a public document executed [with] all the
legal formalities is entitled to a presumption of truth as to the recitals contained therein. In order to
overthrow a certificate of a notary public to the effect that a grantor executed a certain document and
acknowledged the fact of its execution before him, mere preponderance of evidence will not suffice.
Rather, the evidence must (be) so clear, strong and convincing as to exclude all reasonable dispute
as to the falsity of the certificate. When the evidence is conflicting, the certificate will be upheld x x x
.

A notarial document is by law entitled to full faith and credit upon its face. (Ramirez vs. Ner, 21
SCRA 207). As such it … must be sustained in full force and effect so long as he who impugns it
shall not have presented strong, complete and conclusive proof of its falsity or nullity on account of
some flaw or defect provided against by law (Robinson vs. Villafuerte, 18 Phil. 171, 189-190).25

Furthermore, petitioners aver that it was erroneous for the CA to say that the records of the case
were bereft of evidence that they paid the price of the lots sold to them. In fact, a perusal of the
records would reveal that during the cross-examination of Antonio Rosaroso, when asked if there
was a monetary consideration, he testified that they indeed paid their father and their payment
helped him sustain his daily needs.26

Petitioners also assert that Meridian was a buyer in bad faith because when its representative visited
the site, she did not make the necessary inquiries. The fact that there were already houses on the
said lots should have put Meridian on its guard and, for said reason, should have made inquiries as
to who owned those houses and what their rights were over the same.27
Meridian’s assertion that the Second Sale was registered in the Register of Deeds was a falsity. The
subject titles, namely: TCT No. 11155 for Lot 19, TCT No. 10885 for Lot 22, and TCT No. 10886 for
Lot 23 were free from any annotation of the alleged sale.28

After an assiduous assessment of the records, the Court finds for the petitioners.

The First Deed Of Sale Was Valid

The fact that the first deed of sale was executed, conveying the subject properties in favor of
petitioners, was never contested by the respondents. What they vehemently insist, though, is that
the said sale was simulated because the purported sale was made without a valid consideration.

Under Section 3, Rule 131 of the Rules of Court, the following are disputable presumptions: (1)
private transactions have been fair and regular; (2) the ordinary course of business has been
followed; and (3) there was sufficient consideration for a contract.29 These presumptions operate
against an adversary who has not introduced proof to rebut them. They create the necessity of
presenting evidence to rebut the prima facie case they created, and which, if no proof to the contrary
is presented and offered, will prevail. The burden of proof remains where it is but, by the
presumption, the one who has that burden is relieved for the time being from introducing evidence in
support of the averment, because the presumption stands in the place of evidence unless rebutted.30

In this case, the respondents failed to trounce the said presumption. Aside from their bare allegation
that the sale was made without a consideration, they failed to supply clear and convincing evidence
to back up this claim. It is elementary in procedural law that bare allegations, unsubstantiated by
evidence, are not equivalent to proof under the Rules of Court.31

The CA decision ran counter to this established rule regarding disputable presumption. It relied
heavily on the account of Lourdes who testified that the children of Luis approached him and
convinced him to sign the deed of sale, explaining that it was necessary for a loan application, but
they did not pay the purchase price for the subject properties.32 This testimony, however, is self-
serving and would not amount to a clear and convincing evidence required by law to dispute the said
presumption. As such, the presumption that there was sufficient consideration will not be disturbed.

Granting that there was no delivery of the consideration, the seller would have no right to sell again
what he no longer owned. His remedy would be to rescind the sale for failure on the part of the buyer
to perform his part of their obligation pursuant to Article 1191 of the New Civil Code. In the case of
Clara M. Balatbat v. Court Of Appeals and Spouses Jose Repuyan and Aurora Repuyan,33 it was
written:

The failure of the buyer to make good the price does not, in law, cause the ownership to revest to
the seller unless the bilateral contract of sale is first rescinded or resolved pursuant to Article 1191 of
the New Civil Code. Non-payment only creates a right to demand the fulfillment of the obligation or
to rescind the contract. [Emphases supplied]

Meridian is Not a
Buyer in Good Faith

Respondents Meridian and Lucila argue that, granting that the First Sale was valid, the properties
belong to them as they acquired these in good faith and had them first recorded in the Registry of
Property, as they were unaware of the First Sale.34
Again, the Court is not persuaded.

The fact that Meridian had them first registered will not help its cause. In case of double sale, Article
1544 of the Civil Code provides:

ART. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first possession thereof in good faith, if it should be movable
property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first
in possession; and, in the absence thereof; to the person who presents the oldest title, provided
there is good faith.

Otherwise stated, ownership of an immovable property which is the subject of a double sale shall be
transferred: (1) to the person acquiring it who in good faith first recorded it in the Registry of
Property; (2) in default thereof, to the person who in good faith was first in possession; and (3) in
default thereof, to the person who presents the oldest title, provided there is good faith. The
requirement of the law then is two-fold: acquisition in good faith and registration in good faith. Good
faith must concur with the registration. If it would be shown that a buyer was in bad faith, the alleged
registration they have made amounted to no registration at all.

The principle of primus tempore, potior jure (first in time, stronger in right) gains greater significance
in case of a double sale of immovable property. When the thing sold twice is an immovable, the one
who acquires it and first records it in the Registry of Property, both made in good faith, shall be
deemed the owner. Verily, the act of registration must be coupled with good faith— that is, the
registrant must have no knowledge of the defect or lack of title of his vendor or must not have been
aware of facts which should have put him upon such inquiry and investigation as might be necessary
to acquaint him with the defects in the title of his vendor.)35 [Emphases and underlining supplied]

When a piece of land is in the actual possession of persons other than the seller, the buyer must be
wary and should investigate the rights of those in possession. Without making such inquiry, one
cannot claim that he is a buyer in good faith. When a man proposes to buy or deal with realty, his
duty is to read the public manuscript, that is, to look and see who is there upon it and what his rights
are. A want of caution and diligence, which an honest man of ordinary prudence is accustomed to
exercise in making purchases, is in contemplation of law, a want of good faith. The buyer who has
failed to know or discover that the land sold to him is in adverse possession of another is a buyer in
bad faith.36 In the case of Spouses Sarmiento v. Court of Appeals,37 it was written:

Verily, every person dealing with registered land may safely rely on the correctness of the certificate
of title issued therefor and the law will in no way oblige him to go behind the certificate to determine
the condition of the property. Thus, the general rule is that a purchaser may be considered a
purchaser in good faith when he has examined the latest certificate of title. An exception to this rule
is when there exist important facts that would create suspicion in an otherwise reasonable man to go
beyond the present title and to investigate those that preceded it. Thus, it has been said that a
person who deliberately ignores a significant fact which would create suspicion in an otherwise
reasonable man is not an innocent purchaser for value. A purchaser cannot close his eyes to facts
which should put a reasonable man upon his guard, and then claim that he acted in good faith under
the belief that there was no defect in the title of the vendor. As we have held:
The failure of appellees to take the ordinary precautions which a prudent man would have taken
under the circumstances, specially in buying a piece of land in the actual, visible and public
possession of another person, other than the vendor, constitutes gross negligence amounting to bad
faith.

In this connection, it has been held that where, as in this case, the land sold is in the possession of a
person other than the vendor, the purchaser is required to go beyond the certificate of title to make
inquiries concerning the rights of the actual possessor. Failure to do so would make him a purchaser
in bad faith. (Citations omitted).

One who purchases real property which is in the actual possession of another should, at least make
some inquiry concerning the right of those in possession. The actual possession by other than the
vendor should, at least put the purchaser upon inquiry. He can scarely, in the absence of such
inquiry, be regarded as a bona fide purchaser as against such possessors. (Emphases supplied)

Prescinding from the foregoing, the fact that private respondent RRC did not investigate the
Sarmiento spouses' claim over the subject land despite its knowledge that Pedro Ogsiner, as their
overseer, was in actual possession thereof means that it was not an innocent purchaser for value
upon said land. Article 524 of the Civil Code directs that possession may be exercised in one's name
or in that of another. In herein case, Pedro Ogsiner had informed RRC that he was occupying the
subject land on behalf of the Sarmiento spouses. Being a corporation engaged in the business of
buying and selling real estate, it was gross negligence on its part to merely rely on Mr. Puzon's
assurance that the occupants of the property were mere squatters considering the invaluable
information it acquired from Pedro Ogsiner and considering further that it had the means and the
opportunity to investigate for itself the accuracy of such information. [Emphases supplied]

In another case, it was held that if a vendee in a double sale registers the sale after he has acquired
knowledge of a previous sale, the registration constitutes a registration in bad faith and does not
confer upon him any right. If the registration is done in bad faith, it is as if there is no registration at
all, and the buyer who has first taken possession of the property in good faith shall be preferred.38

In the case at bench, the fact that the subject properties were already in the possession of persons
other than Luis was never disputed. Sanchez, representative and witness for Meridian, even testified
as follows:

x x x; that she together with the two agents, defendant Laila Solutan and Corazon Lua, the president
of Meridian Realty Corporation, went immediately to site of the lots; that the agents brought with
them the three titles of the lots and Laila Solutan brought with her a special power of attorney
executed by Luis B. Rosaroso in her favor but she went instead directly to Luis Rosaroso to be sure;
that the lots were pointed to them and she saw that there were houses on it but she did not have any
interest of the houses because her interest was on the lots; that Luis Rosaroso said that the houses
belonged to him; that he owns the property and that he will sell the same because he is very sickly
and he wanted to buy medicines; that she requested someone to check the records of the lots in the
Register of Deeds; that one of the titles was mortgaged and she told them to redeem the mortgage
because the corporation will buy the property; that the registered owner of the lots was Luis
Rosaroso; that in more or less three months, the encumbrance was cancelled and she told the
prospective sellers to prepare the deed of sale; that there were no encumbrances or liens in the title;
that when the deed of absolute sale was prepared it was signed by the vendor Luis Rosaroso in their
house in Opra x x x.39 (Underscoring supplied)

From the above testimony, it is clear that Meridian, through its agent, knew that the subject
properties were in possession of persons other than the seller. Instead of investigating the rights and
interests of the persons occupying the said lots, however, it chose to just believe that Luis still owned
them. Simply, Meridian Realty failed to exercise the due diligence required by law of purchasers in
acquiring a piece of land in the possession of person or persons other than the seller.

In this regard, great weight is accorded to the findings of fact of the RTC. Basic is the rule that the
trial court is in a better position to examine real evidence as well as to observe the demeanor of
witnesses who testify in the case.40

WHEREFORE, the petition is GRANTED. The December 4, 2009 Decision and the November 18,
201 0 Resolution of the Court of Appeals, in CA-G.R. CV No. 00351, are REVERSED and SET
ASIDE. The July 30, 2004 Decision of the Regional Trial Court, Branch 8, 7th Judicial Region, Cebu
City, in Civil Case No. CEB-16957, is hereby REINSTATED.

SO ORDERED.

G.R. No. 175874 December 11, 2013

HEIRS OF CIPRIANO TRAZONA, Namely: FRANCISCA T. MATBAGON, NATIVIDAD T.

ABADIANO, CARLITO C. TRAZONA; and Heirs of EDELBERTO C. TRAZONA represented by
his daughter DOMICINA T. ARANAS, ELADIA T. ALICAMEN (Now Deceased) Substituted by
DOMINGO ALICAMEN, LUPECIO ALICAMEN, REBECCA ALICAMEN-BALBUTIN, ELSEI
ALICAMEN, GLENN ALICAMEN, LENNEI ALICAMEN-GEONZON, DANILO ALICAMEN,
JOVELYN ALICAMEN-VILLETA, JIMBIE ALICAMEN and HERMOGENES C. TRAZONA (Now
Deceased) Substituted by LILYBETH TRAZONA-MANGILA, GEMMA TRAZONA, ELIZALDE
TRAZONA, BOBBY TRAZONA, and PALABIANA B. TRAZONA,Petitioners,
vs.
HEIRS OF DIONISIO CANADA, Namely: ROSITA C. GERSALINA, CONCEPTION C. GEONZON,
DANIEL CANADA, GORGONIO CANADA, LEOPOLDO CANADA, SUSANA C. DUNGOG,
LUZVIMINDA C. TABUADA, AND CEFERINA CANADA; PROVINCIAL ASSESSOR of Cebu and
MUNICIPAL ASSESSOR of Minglanilla, Cebu, Respondents.

DECISION

SERENO, CJ.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the
Decision1 and Resolution2 of the Court of Appeals Cebu City (CA) in CA-G.R. CV No. 00099. The CA
reversed the Decision3of the Regional Trial Court of Cebu City, Branch 57 (RTC) in Civil Case No.
CEB-20620, which annulled the Deed of Absolute Sale dated 27 June 1956 and ordered the
cancellation of Tax Declaration No. 23959 in the name of Dionisio Cañada (Dionisio), predecessor of
respondents.

Petitioners are heirs of Cipriano Trazona (Cipriano), who owned an untitled parcel of land referred to
as Lot No. 5053-H. The property, located in Minglanilla, Cebu, is covered by Tax Declaration No.
07764 and has an area of 9,515 square meters.4 The land was purchased from the government in
1940.5 Since then, Cipriano had taken possession of the land, cultivated it and diligently paid taxes
thereon.6

In 1949, Dionisio bought the adjacent parcel of land from Pilar Diaz.7 It was later found that he had
encroached on a small portion of Lot No. 5053-H. He was then summoned by Cipriano for a
confrontation before the barangay captain in 1952.8 Dionisio offered to buy the encroached portion,
but Cipriano refused the offer.9 In 1956, the latter gave Dionisio permission to temporarily build a
house on said portion, where it still stands.10 No action for ejectment was filed against Dionisio during
the lifetime of Cipriano,11 who eventually died on 18 May 1982.12 The latter’s son Hermogenes, one of
the petitioners herein who had cultivated the lot since 1972, took over.13 On 24 March 1992, Dionisio
died.14

The present controversy arose in 1997. Petitioners went to the Office of the Municipal Assessor to
secure a copy of Tax Declaration No. 07764, as they intended to sell Lot No. 5053-H to an interested
buyer.15 To their surprise, they were informed that Tax Declaration No. 07764 had been cancelled
and, in lieu thereof, Tax Declaration No. 23959 was issued on 24 June 1996 in the name of
Dionisio.16 Apparently, respondents had caused the issuance of Tax Declaration No. 23959 by
submitting a Deed of Absolute Sale dated 27 June 1956 supposedly executed by Cipriano in favor of
Dionisio.17 That sale involved a portion of Lot No. 5053-H described as follows:

x x x that portion of land of Lot No. FIVE THOUSAND FIFTY THREE-H (5053-H) under subdivision
plan FLR-133 approved by the Director of Lands Jose P. Dans on September 5, 1953, covered by
monuments No. 7, 8, 9, 10, 11, of said Lot No. 5053 bounded on the North by Lot No. 5954 & portion
of Lot 5053-H; East by portion of Lot 5053-H; South by Lot no. 5053-J of Domingo Ababon; West by
Lot no. 9479; x x x.18

Petitioners summoned respondents before the Lupon Tagapamayapa, but the conciliation was not
successful.19 On 28 July 1997, petitioners filed a Complaint20 against respondents for quieting of title,
annulment of deed of sale, cancellation of Tax Declaration No. 23959, recovery of possession and
ownership, damages, and payment of attorney’s fees. Petitioners alleged therein that the Deed of
Absolute Sale dated 27 June 1956 was a forgery. Respondents, in their Answer,21 alleged that the
assailed deed was a genuine document and asked for the payment of moral and exemplary
damages, and attorney’s fees, as counterclaims.

During trial, among the witnesses presented by petitioners was Romeo O. Varona, document
examiner of the Philippine National Police Crime Laboratory, Region VII. He testified that according
to his comparative analysis of Cipriano’s signature on the assailed deed and standard signatures on
other documents, Cipriano’s signature on the deed in question was a forgery.22

For their part, respondents presented Dionisio’s son Gorgonio, who testified that he was present
when the assailed deed was executed.23 He also stated that they had enjoyed the fruits of the lot in
question from 1956 until 1960, when they were confronted by petitioners. Respondents were asked
to show proof of ownership, but could not present any.24Thus, from 1960 onwards, petitioners
enjoyed the fruits of the property.25 Later, respondents were able to find a copy of the assailed deed
in the National Archives, thereby enabling them to cause the issuance of Tax Declaration No.
23959.26

In the presentation of their rebuttal evidence, petitioners presented a Deed of Absolute Sale dated
11 April 1953,27 executed by Pilar Diaz in favor of Dionisio. This prior sale involved the exact same
1âwphi1

portion allegedly sold to him by Cipriano – except that in the date of approval of the subdivision plan
by the Director of Lands, two figures were interchanged. Whereas the assailed deed showed the
date as "September 5, 1953," the Deed of Absolute Sale dated 11 April 1953 showed the date as
"September 5, 1935."

In its Decision dated 6 April 2004, the RTC annulled the assailed deed and ordered the cancellation
of Tax Declaration No. 23959, as well as the reinstatement of Tax Declaration No.
07764.28 Respondents were also ordered to demolish their residential house on Lot No. 5053-H and
to pay petitioners attorney’s fees and litigation expenses.29

The RTC found that respondents’ failure to present the deed for 40 years from its alleged execution
had not been satisfactorily and convincingly explained.30 It also found that the assailed deed was
indeed a forgery for the following reasons:

1. It would have been pointless for Dionisio to buy the same property twice from different
owners.

2. Cipriano’s residence certificate, whose number was indicated in the assailed deed, as well
as in the notarial register where the deed was recorded, was allegedly issued in Minglanilla,
Cebu. The other persons’ residence certificates, whose numbers were indicated on the same
page of the notarial register, appear to have come from the same booklet as the residence
certificate of Cipriano, judging from their numerical sequence. However, the residence
certificates of these other persons had been issued in Sogod, Cebu.

3. There was indeed a glaring difference between the alleged signature of Cipriano in the
assailed deed and in his standard signatures in 10 other documents submitted by plaintiffs.

Respondents filed a Notice of Appeal dated 30 April 2004.

RULING OF THE CA

On 25 May 2006, the CA issued a Decision reversing that of the RTC. The appellate court ruled that
petitioners had failed to prove by requisite evidence their allegation that the assailed deed was a
forgery.31 The deed, being a notarized document, enjoyed the presumption of authenticity and due
execution. Also, the fact that it was an ancient document that "remained unaltered after so many
years, bodes well for its authenticity."32

The CA also concluded that the document examiner was not able to determine the forgery with
certainty. What he had examined was a mere machine copy of the assailed deed.33 Furthermore,
even he admitted that the standard signatures of Cipriano had shown variations among themselves.

Finally, the CA ruled that respondents were the actual possessors of Lot No. 5053-H, since it was
their house that was standing on the property.34Thus, the CA granted the appeal and consequently
dismissed the Complaint of petitioners.

ISSUES

Petitioners come before us on a Petition for Review on Certiorari35

alleging that the CA erred as follows:

1. Ruling that petitioners were not able to overturn the presumption of regularity of the
assailed deed;
 2. Finding that the document examiner was not able to establish the forgery with certainty;

3. Finding that respondents were in actual possession of Lot No. 5053-H;

4. Ruling that there was no merit in petitioners’ prayer for the award of attorney’s fees and
litigation expenses.

OUR RULING

Petitioners presented clear and convincing

evidence that the assailed deed is a forgery.

Well-settled is the rule that petitions for review on certiorari under Rule 45 before this Court should
involve only questions of law.36 A reading of the issues raised by petitioners readily show that they
are questions of fact, which are generally not within the purview of this Court. When a question
involves facts, the findings of the CA, including the probative weight accorded to certain pieces of
evidence, are binding on this Court. Also well-settled, however, are exceptions to this rule,37 such as
when the findings of fact of the CA are contrary to those of the RTC, as in this case.

We sustain the findings of the RTC.

At the outset, it is worth pointing out that the sale of a mere portion of Lot No. 5053-H was what
brought about the cancellation of Tax Declaration No. 07764 and the consequent issuance of Tax
Declaration No. 23959, each of which covered the entire lot. The fact that the assailed deed covers
only a portion of Lot No. 5053-H becomes clearer still when one considers that it was bounded on
the north and the east by portions of Lot No. 5053-H itself.

As will be shown below, the assailed deed is a forgery. Assuming it were genuine, petitioners have a
right to the rest of the property not covered by the purported sale. If the procedure for the issuance
of tax declarations was followed – if care had been observed to make sure that all papers were in
order and understood – this irregularity would not have taken place.

It is true that notarized documents are accorded evidentiary weight as regards their due
execution.38 Nevertheless, while notarized documents enjoy the presumption of regularity, this
presumption is disputable. They can be contradicted by evidence that is clear, convincing, and more
than merely preponderant.39 Here, contrary to the conclusion of the CA, we find clear and convincing
evidence that is enough to overturn the presumption of regularity of the assailed deed.

First, the document examiner determined that the signature of Cipriano in the assailed deed had
been forged. No issue has been raised about his expertise. The finding of the CA that he had
examined a mere machine copy of the assailed deed was erroneous. The pertinent portion of his
testimony clearly shows otherwise, to wit:

ATTY. DURANO:

Q: Now you made mention of the standard documents, could you kindly tell the Honorable Court
what is [the] questioned document stated in your report?

[ROMEO O. VARONA]
[A]: The questioned document is the Deed of Absolute Sale dated June 27, 1956.

Q: Do you have a copy of that Deed of Sale as examined by you?

A: Well, I have a machine copy. I have examined the original copy at the archive’s office,
Mandaue City.40 (Emphasis supplied)

In concluding that the signature of Cipriano in the assailed deed was a forgery, the document
examiner found that there were "significant differences in letter formation, construction and other
individual handwriting characteristics" between the assailed and the standard signatures of
Cipriano.41

The fact that the document examiner himself admitted that even the standard signatures of Cipriano
showed variations among themselves does not make the former’s determination any less
convincing. He explained that while every signature of the same person varies, the individual
handwriting characteristics of the person remain the same.42In Cesar v. Sandiganbayan,43 we
recognized that there is bound to be some variation in the different samples of genuine signatures of
the same person.

Second, the RTC did not just rely on expert testimony in ruling that the signature was forged. It
likewise supported its finding that the signature was forged through independent observation:

Finally, a scrutiny of the signature on the questioned deed of sale compared to the eleven (11)
signatures on the ten (10) standard documents there exists a glaring difference in the letter
formation of capital letters "C" in Cipriano and "T" in Trazona. The capital C in questioned signature,
the initial stroke stopped at the upper curve of the letter C while in the standard signatures, it
overlaps from the upper curve. In the word Trazona, the capital T in the questioned signature is
disconnected from the T bar to the body of the questioned signature whereas, in the standard
signatures, the capital T is connected. These discrepancies can easily be noticed by mere physical
appearance that the letters C and T were written.44

Third, the existence of the Deed of Absolute Sale dated 11 April 1953 brings into question the
regularity of the assailed deed. This deed was never disputed by respondents at any stage of the
proceedings, and was in fact admitted by them in their Comments to Plaintiffs’ Additional Formal
Offer of Exhibits.45 Indeed, the RTC was correct in its observation that no one in complete
possession of one’s mental faculties would buy the same property twice from different owners.
Respondents never provided any explanation for this anomalous situation. In any case, it has been
established that Lot No. 5053-H is in the name of Cipriano, who bought it from the government in
1940. Thus, only Cipriano had the right to dispose of the property, or portions thereof.

Fourth, Cipriano had cultivated the property and paid taxes thereon since the time he acquired it
from the government, and even after its purported sale to Dionisio, until his death.46 Petitioners
continued paying the taxes thereon even after Cipriano had died.47 Respondents started paying taxes
on the property only after Tax Declaration No. 23959 was issued in Dionisio’s name in 1997.48 It
would be absurd for petitioners to pay taxes on a property they do not own.

Fifth, as admitted by Gorgonio himself, petitioners were the ones enjoying the fruits of the property
from 1960 until the present controversy.49 Again, it is incongruous for petitioners to enjoy the fruits if
respondents owned the property.
Sixth, as the RTC noted, there was an irregularity regarding the place of issuance of Cipriano’s
residence certificate indicated in the assailed deed, as compared with the residence certificates of
the other persons indicated on the same page of the notarial register.

Finally, when the record management analyst from the Bureau of Archives presented the assailed
deed, the paper was noted to be white, while its supposed contemporaries in the bunch from where
it was taken had turned yellow with age. 50 Further, when the analyst was asked the question of
when- the assailed deed was received by the Bureau of Archives, she answered that it was
forwarded to them only on 28 September 1987 by RTC Region 7, Notarial Division.51

Clearly, the evidence adduced fully supports the position of petitioners that the assailed deed of sale
is forged and that they are the owners of the property. Having been forced to litigate in order to
protect their interest therein, the award of attorney's fees and litigation expenses to them is in order.

The actual possession of Lot No. 5053-H by petitioners has been properly ruled on by the
RTC. Much has been made by the CA of the fact that respondents' house was standing on the
1âwphi1

property. However, petitioners have explained that the house was erected only after Cipriano
permitted it.

Dionisio was then well aware that this temporary arrangement may be terminated at any time.
Respondents cannot now refuse to vacate the property or eventually demand reimbursement of
necessary and useful expenses under Articles 448 and 546 of the New Civil Code, because the
provisions apply only to a possessor in good faith, i.e., one who builds on land with the belief that he
is the owner thereof. 52 Persons who occupy land by virtue of tolerance of the owners are not
possessors in good faith. 53 Thus, the directive of the RTC for respondents to demolish their
residential house on Lot No. 5053-H was also proper.

WHEREFORE, the Decision and Resolution of the Court of Appeals Cebu City in CA-G.R. CV No.
00099 are REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Cebu City,
Branch 57, in Civil Case No. CEB-20620 is REINSTATED in all respects.

SO ORDERED.

MARIA LOURDES P. A. SERENO