J.A.B. Bulao & Associates

CASE NO. 2011-0129: ESTATE OF PASTOR M. SAMSON, REPRESENTED BY HIS HEIR ROLANDO B. SAMSON VS. MERCEDES R. SUSANO AND NORBERTO R. SUSANO (G.R. NO. 179024) ; JULIAN C. CHAN VS. MERCEDES R. SUSANO AND NORBERTO R. SUSANO (G.R. NO. 179086, 30 MAY 2011, VILLARAMA, JR., J.) SUBJECTS: OPERATION LAND TRANSFER; P.D. 27; DEFINITION OF TENANT; TENANCY RELATIONSHIP A QUESTION OF FACT. (BRIEF TITLE: ESTATE OF SAMSON VS. SUSANO).

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SUBJECT: INSTANCES WHEN LAND CANNOT BE SUBJECT TO THE OLT PROGRAM OF P.D. NO. 27.

We find in favor of petitioners. Applying our pronouncement in Levardo v. Yatco, we rule that the subject land cannot be subject to the OLT program of P.D. No. 27 for two reasons: first, the subject land is less than seven hectares; and second, respondents failed to show that Pastor owned other agricultural lands in excess of seven hectares or urban land from which he derived adequate income, as required by Letter of Instruction (LOI) No. 474.

. . . . .

SUBJECT: DEFINITION OF TENANT.

R.A. No. 1199,  otherwise known as the Agricultural Tenancy Act of the Philippines, defines a tenant as a person who, himself and with the aid available from within his immediate farm household, cultivates the land belonging to, or possessed by, another, with the latter’s consent for purposes of production, sharing the produce with the landholder under the share tenancy system, or paying the landholder a price certain or ascertainable in produce or in money or both, under a leasehold tenancy system.

For a tenancy relationship to exist between the parties, the following essential elements must be shown: (1) the parties are the landowner and the tenant; (2) the subject matter is agricultural land; (3) there is consent between the parties; (4) the purpose is agricultural production; (5) there is personal cultivation by the tenant; and (6) there is sharing of the harvests between the parties. The presence of all of these elements must be proved by substantial evidence.

. . . . .

SUBJECT: TENANCY RELATIONSHIP IS QUESTION OF FACT.

The question of whether a tenancy relationship exists is basically a question of fact which, as a general rule, is beyond the scope of a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended.  The question of whether there was an implied tenancy and sharing are basically questions of fact and the findings of the Court of Appeals and the Boards a quo are, generally, entitled to respect and nondisturbance, as long as they are supported by substantial evidence.  Such findings of fact may be reviewed by the Court when the conclusion is a finding grounded entirely on speculation, surmises or conjectures, or if the findings of fact are conclusions without citation of specific evidence on which they are based.

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THIRD DIVISION

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DECISION

VILLARAMA, JR., J.:

Before us are two consolidated petitions for review on certiorari seeking to reverse the August 31, 2006 Decision^[1][1] and the July 27, 2007 Resolution^[2][2] of the Court of Appeals (CA) in CA-G.R. SP Nos. 89052 and 89443. The CA dismissed the separate appeals filed by herein petitioners Estate of Pastor M. Samson, represented by Rolando B. Samson, and Julian C. Chan from the November 7, 2003 Decision^[3][3] and December 29, 2004 Resolution^[4][4] of the Department of Agrarian Reform Adjudication Board (DARAB), Central Office.

The Facts

Pastor M. Samson (Pastor) owned a 1.0138-hectare parcel of land known as Lot 1108 of the Tala Estate Subdivision located in Bagumbong, Caloocan City and covered by Transfer Certificate of Title (TCT) No. 65174. In 1959, Pastor was approached by his friend Macario Susano (Macario) who asked for permission to occupy a portion of Lot1108 to build a house for his family. Since Pastor was godfather to one of Macario’s children, Pastor acceded to Macario’s request. Macario and his family occupied 620 square meters of Lot1108 and devoted the rest of the land to palay cultivation. Herein respondents, Macario’s wife Mercedes R. Susano and their son Norberto R. Susano, insist that while no agricultural leasehold contract was executed by Pastor and Macario, Macario religiously paid 15 cavans of palay per agricultural year to Pastor, which rent was reduced by Pastor in 1986 to 8 cavans of palay per agricultural year.^[5][5]

In 1973, Pastor subdivided Lot 1108 into three portions, to wit: Lot 1108-A having an area of 3,172 square meters and covered by TCT No. 52637; Lot 1108-B having an area of 270 square meters and covered by TCT No. 52635; and Lot 1108-C having an area of 6,696 square meters and covered by TCT No. 52638. The first and last parcels, namely Lots 1108-A and 1108-C, remained registered in Pastor’s name while Lot 1108-B was sold to Jimena Novera in 1973 without Macario’s knowledge.^[6][6]

In 1979, Pastor sold 2,552 square meters of Lot1108-A to spouses Felix Pacheco and Juanita Clamor, allegedly also without Macario’s knowledge and consent. As a result of the sale, Lot 1108-A was further subdivided into three portions: (1) Lot 1108-A-1 measuring 620 square meters and covered by TCT No. 137744 in Pastor’s name; (2) Lot 1108-A-2 measuring 2,361 square meters and covered by TCT No. 137745; and (3) Lot 1108-A-3 measuring 191 square meters and covered by TCT No. 137746. The last two parcels are registered in the name of spouses Felix Pacheco and Juanita Clamor.^[7][7]

Lots 1108-A-1 and 1108-C comprising a total area of 7,316 square meters remained occupied and cultivated by Macario and his family.

On February 28, 1989, Pastor sold Lot1108-C to petitioner Julian Chan.^[8][8] Consequently, TCT No. 52638 was cancelled and TCT No. 176758 was issued in Chan’s name.

According to respondents, no written notice was sent by Pastor to Macario prior to the sale to Chan of Lot 1108-C comprising an area of 6,696 square meters. They aver that Macario came to know of the transaction only after Chan visited the property sometime in October 1990 accompanied by an employee from the city government.^[9][9]

Chan, on the other hand, claims that prior to buying Lot1108-C from Pastor, he ascertained the location and condition of the property. He maintains that he knew the property to be a residential lot as indicated in Tax Declaration No. B-026-09768 issued over the said property by the Caloocan City Assessor’s Office.^[10][10]

On November 1990, Macario received a letter from Pastor’s lawyer demanding that he vacate the property within twenty (20) days.^[11][11] Aggrieved, Macario filed a complaint against Pastor before the Municipal Agrarian Reform Office (MARO) of Valenzuela.^[12][12]

Meanwhile, it appears that Chan and Macario tried to settle amicably the dispute as between them. On September 26, 1991, Macario and his wife Mercedes executed a notarized document entitled, “Kusang-Loob na Pagtatalaga” (Deed of Undertaking)^[13][13] wherein Macario, recognizing that Chan is a buyer in good faith, acknowledged the latter’s ownership over the said landholding. The said document provides, viz:

KUSANG-LOOB NA PAGTATALAGA (DEED OF UNDERTAKING)

ALAMIN NG LAHAT:

            Kami na sina MACARIO SUSANO at MERCEDES SUSANO, mag-asawa, Pilipino at naninirahan sa Bagumbong,KalookanCity, ay nagsaysay ng mga sumusunod:

1.      Na kami ang naghain ng reclamo sa Agrarian Reform Office sa Valenzuela, Metro Manila laban kay Ginoong Pastor Samson ngKaloocanCity;

2.      Na ang aming reclamo laban kay Ginoong Pastor Samson ay ng ipagbile niya ang isang lote na may laking 6696 metro cudrados (sic), humigit kumulang, na kami ang nagsasaka na hindi kami pinagsabihan labag sa batas ng Land Reform;

3.      Na ang nasabing lote ay ipinagbile kay Ginoong Jul[ia]n Chan na sa aming pagkakaalam [ay] binile ang nasabing lote in good faith at hindi alam na kami ang nagsasaka;

4.      Amin din [napag-alaman] na si Ginoong Jul[ia]n Chan [ay] binile ang nasabing lote sa kadahilanan na ang ipinakitang Tax Declaration ni Ginoong Pastor Samson ay hindi taniman ng palay kundi isang lugar na tirikan ng mga bahay lamang (residential area) at hindi labag sa Batas ng Land Reform;

5.      Sa kadahilanan na si Ginoong Julian Chan ay binile ang nasabing lote na walang alang-alang (in good faith) at umasa sa Tax Declaration na ipinakita sa kanya, kami at sampo ng aking (sic) mga anak [ay] kinikilala ang kanyang pagmamay[-]ari at aming iginagalang ang kanyang karapatan bilang may[-]ari at kami ay [nangangako] na hindi namin siya o ang kanyang familia gagambalain, tatakutin o bibigyan ng ano mang kaguluhan sa nasabing lote;

6.      Aming din [ipinangangako] na si Ginoong Julian Chan at ang kanyang familia ay may laya na dalawin sa anumang oras ng gabi or (sic) araw ang nasabing lote at ibig naming paabutin sa Agrarian Reform Office sa Valenzuela na huwag isangkot si Ginoong Julian Chan sa aming gusot ni Ginoong Pastor Samson.

            Sa katunayan ng lahat, kami lumagda ngayon ika-26 ng Septiembre, 1991 dito sa Manila.

(signed)                                                                        (thumbmarked)

MACARIO SUSANO                                     MERCEDES SUSANO

Assisted by:    (signed)

                        Atty. Valeriano T. Tolentino

Sa harap nila:

(signed)                                                                        (signed)

FABIAN SUSANO                                         REYNALDO M. JOSON

                        x x x x

Two other similar documents dated September 26, 1991 were executed by Macario and Mercedes in favor of Chan.^[14][14] In one of these documents, Macario and Mercedes acknowledged the receipt of P10,000.00 from Chan,^[15][15] as follows:

ALAMIN NG SINO MANG MAKABASA NITO:

            Kaming mag-asawang Macario at Mercedes Susano ay nagpapasalamat sa malaking tulong na ibinigay sa aming familia ni Ginoong Julian Chan na sa aming kagipitan ay binigyan kami ng halagang P10,000.00 peso (sic) bagaman wa[l]ang pag-kakautang o obligacion sa amin.

            Sa aming malaking pagpapasalamat at kagalakan ay masasabi naming wala siyang ligalig o pa[n]gamba na aming hahadla[n]gan ang kanyang pagkakabile ng isang parcelang lupa kay Ginoong Pastor Samson na aming iginagalang at kinikilala bagaman yoong (sic) nasabing lupa ay aming tinatrabaho nang pag-aari pa ni Ginoong Pastor Samson.

            Sa katunayan ng lahat na nasasaad sa itaas, kaming mag-asawa ay lumagda ngayon[g] ika-26 ng Septiembre, 1991 dito sa Kalookan City.

                (signed)                                                (thumbmarked)

            MACARIO SUSANO                         MERCEDES SUSANO

            SA HARAP NILA:

            (illegible)                                                           (illegible)

On April 9, 1992, Chan and Macario, assisted by their respective counsels, executed a Joint Motion and Manifestation^[16][16] wherein Macario promised to surrender possession of the property to Chan on or before November 30, 1992.

On February 9, 1993, Macario died and was succeeded by respondents in the possession and cultivation of the subject landholding.

Thereafter, on August 17, 1993 respondents filed an action for maintenance of peaceful possession^[17][17] with prayer for the issuance of a restraining order/preliminary injunction and for the redemption of the subject landholding against Pastor and Chan before the Department of Agrarian Reform Adjudication Board (DARAB) of Region IV. Specifically, the complaint prayed for the inclusion of the 7,316-square meter portion of said landholding, or Lots 1108-A-1 and 1108-C, within the Coverage of the Operation Land Transfer (OLT) Program under Presidential Decree (P.D.) No. 27^[18][18] or The Tenant Emancipation Decree. They also asked that an emancipation patent be issued in their favor.  They tendered P12,052.80 in cash representing the reasonable redemption price over the subject landholding based on the highest land valuation prescribed by the DAR on unirrigated rice land.^[19][19] Said amount was accepted by the DAR Regional Cashier per Order^[20][20] of DARAB Regional Adjudicator Fe Arche-Manalang.

In his Answer,^[21][21] Chan maintained that he is a buyer in good faith and that he relied on the tax declaration which stated that the subject property is residential in character. He also averred that agreements were made between him and Macario recognizing his ownership over the said land in exchange for P25,000 paid by him to Macario, P10,000 of which was duly acknowledged by Macario in writing.^[22][22] Chan insisted that Macario also promised to surrender possession of the property to him on or before November 30, 1992.

Pastor, on the other hand, filed a Motion to Dismiss citing the pendency of the complaint filed against him before the MARO of Valenzuela and alleging that the property is not agricultural land but a residential lot as indicated in Tax Declaration No. 10081, dated August 29, 1986, issued by the Caloocan City Assessor’s Office. Pastor also argued that the land involved, Lot1108-A-1 covered by TCT No. 137744, is only 620 square meters, too small to be considered a viable family-size farm or economic family-size farm under Republic Act (R.A.) No. 6657 or the Comprehensive Agrarian Reform Law (CARL) and P.D. No. 27.^[23][23] 

Respondents filed the Opposition^[24][24] to Pastor’s motion to dismiss, which Pastor countered through a Reply.^[25][25] On May 10, 1994, the Regional Agrarian Reform Adjudicator (RARAD) issued an Order^[26][26] denying Pastor’s motion and directing the parties to submit their respective position papers. Pastor filed a Motion for Reconsideration,^[27][27] reiterating his arguments in his motion to dismiss, and claiming that respondents are not entitled to the benefits of the agrarian reform program because they are not landless peasants. Said motion was, however, denied.^[28][28]  Thus, Pastor filed his Answer.^[29][29]

In his Answer, Pastor maintained that no tenancy relationship was established between him and herein respondents because Macario’s occupancy, as well as that of respondents, was only by mere tolerance. He also alleged that respondents’ cause of action, if there be any, is already barred by prescription, estoppel and/or laches.^[30][30]

Pastor likewise filed his Position Paper^[31][31] as directed.  He insisted that the land is not covered by R.A. No. 6657 or by P.D. No. 27 as the land is not agricultural land and no tenancy relationship existed between him and herein respondents, who occupied his land by mere tolerance.  He also reiterated that even assuming that the land is agricultural land, respondents are not entitled to the benefits of said land reform laws as they are not landless tenants to begin with and the subject land is too small to be a viable family-size farm.

Chan for his part argued in his Position Paper^[32][32] that the subject parcel of land cannot be considered as agricultural land due to the enactment in 1981 of Metro Manila Zoning Ordinance No. 81-01 classifying the lands within the Metropolitan Manila area as residential and/or commercial. Chan pointed that the said zoning ordinance preceded R.A. No. 6657, which became effective only on June 15, 1988.^[33][33]

Meanwhile, herein respondents maintained in their Position Paper^[34][34] that their predecessor-in-interest, Macario, was a bona fide agricultural tenant; hence, they are entitled to the rights of pre-emption and redemption.  And having validly exercised their right of redemption through the deposit of the redemption price with the DAR, they are allegedly now the owners of the subject land.  That they have such right of redemption is likewise due to the fact that the subject land is covered by the OLT Program, respondents added.

Up to now, the disputed portion of the subject landholding is still utilized as a rice field by the respondents.^[35][35]

The RARAD’s Ruling

On December 26, 1994, the RARAD issued a Decision^[36][36] declaring that the late Macario validly acquired the status of a bona fide and de jure tenant over the subject land due to Pastor’s implied acquiescence in allowing Macario to discharge the duties of a tenant for a considerable length of time until the latter’s death in 1993. This notwithstanding, respondents’ complaint was dismissed.  The RARAD ruled:

x x x Under the given factual milieu, there can be no question that the Plaintiffs’ predecessor-in-interest[,] the late Macario Susano[,] validly acquired the status of a bona fide and de jure tenant over the subject landholding by reason of Defendant Pastor Samson’s implied acquiescence over the years from the time he discharged the duties of such tenant until his demise in 1993. Estoppel by acquiescence has definitely set in and Petitioner can no longer impugn at this late stage the validity of the said decedent’s acquired tenancy status which is entitled to full judicial protection under the well-recognized principle of security of tenure guaranteed under existing agrarian laws which were established in the light of the social justice precept of the Constitution and in the exercise of the police power of the State to promote the common weal. The expiration of the period of the contract as fixed by the parties, or the sale, alienation or transfer of legal possession of the land does not[,] of itself[,] extinguish the relationship. In the latter case, the purchaser or transferee is simply subrogated to the rights and substituted to the obligations of the agricultural lessor. x x x

x x x x

However, herein lies the quandary.

As early as 1981 with the passage of Metro Manila Zoning Ordinance [No.] 81-01, the land in question has ceased to be agricultural. Judicial notice is taken of the fact that Caloocan City where the subject landholding is located is part of Metro Manila whose updated Comprehensive Development Plan and Accompanying Zoning Ordinance 81-01 was found to be in conformity with the requirements of Presidential Decree No. 922, Letter of Instructions (sic) No. 729 and Execut[i]ve Order No. 648 as specifically set out in the Memorandum of Agreement (MOA) executed on January 11, 1981 between the Metro Manila Commission (now Metro Manila Authority) and the HSRC (Human Settlements Regulatory Commission[,] now HLURB or the Housing and Land Use Regulatory Board). In a clarifying Memorandum dated February 14, 1990, Secretary of Justice Franklin M. Drilon opined that prior to June 15, 1988 which is the date of effectivity of RA 6657 or the Comprehensive Agrarian Reform Law of 1988, the powers of the HLURB and the Department of Finance to recategorize lands for land use and taxation purposes, respectively, were exclusive. The point in this entire discourse is that at the time of Macario Susano’s death in 1993, there was no longer any tenurial relationship to speak of[,] which could devolve upon the [p]laintiffs by right of succession[,] by virtue of the land’s automatic recategorization as non-agricultural [land] in 1981. This does not mean[,] however, that any existing legal rights created prior to the said reclassification may just be automatically shunted aside. On the contrary[,] while [p]laintiffs can no longer insist on physically holding on to the land in question[,] they may still rightfully claim payment of disturbance compensation for and in behalf of the late Macario Susano, their predecessor-in-interest in an amount equivalent to five times the average of the gross harvest on (sic) their landholding during the last five preceding calendar years x x x.

x x x x

WHEREFORE, premises considered, judgment is hereby rendered:

1.      Declaring the subject property more particularly described in paragraph 2 of the Complaint as no longer agricultural by virtue of its reclassification/conversion based on the duly approved Metro Manila Zoning Ordinance 81-01;

2.      Dismissing the Complaint against the [d]efendant Julian Chan for lack of cause of action;

3.      Directing the defendant Pastor Samson to pay to the [p]laintiffs 300 cavans or its money equivalent of P90,000.00 as and by way of disturbance compensation due to the late tenant Macario Susano;

4.      Pending the payment of such disturbance compensation, maintaining the [p]laintiffs in their peaceful possession of the remaining area consisting of 7,316 square meters presently utilized as combination farmlot/homelot (sic);

5.      Upon receipt of the said disturbance compensation, directing the [p]laintiffs to:

a)      surrender peaceful possession of the 6,696 square meter portion of the subject property to the present owner Julian Chan and the homelot (sic) of 620 square meters to [d]efendant Pastor Samson’

b)      remove their dwelling house erected on the said homelot (sic) after the lapse of 45 days following finality of judgment herein;

6.      Allowing the withdrawal by [p]laintiffs of the redemption price deposited with the Office of the DAR Regional Cashier in the amount of P12,052.80;

7.      Denying all other claims for lack of basis; and

8.      Without pronouncement as to costs.

SO ORDERED.^[37][37]

Unsatisfied, all of the parties filed their respective motions for reconsideration. Pastor assailed the Regional Adjudicator’s finding that Macario was a bona fide and de jure tenant in the said landholding, as well as the order directing him to pay respondents disturbance compensation. Chan, for his part, sought reconsideration with respect to the pronouncement allowing respondents to maintain their peaceful possession of the 7,316-square meter property until they have been paid the computed disturbance compensation.

Meanwhile, respondents argued that there is no law authorizing the conversion of agricultural lands by the mere passage of a zoning ordinance. To support their contention, respondents cited the Court’s pronouncement in Co v. Intermediate Appellate Court^[38][38] to the effect that the passage of Metro Manila Zoning Ordinance No. 81-01 does not serve to convert existing agricultural lands in the covered area into residential lands or light industrial use lands nor does it have any retroactive effect as to discontinue all previously acquired rights on said lands. They also posit that the said zoning ordinance did not ipso facto convert agricultural lands into non-agricultural lands but merely provided for a guideline for future land use of affected areas.

On May 18, 1995, the Regional Adjudicator issued an Order^[39][39] modifying her decision as follows:

WHEREFORE, premises considered, the dispositive portion of the questioned decision of December 26, 1994 is PARTIALLY MODIFIED to read as follows:

1.      Declaring the subject property more particularly described in paragraph 2 of the Complaint as no longer agricultural by virtue of its reclassification/conversion based on the duly approved Metro Manila Zoning Ordinance No. 81-01;

2.      Dismissing the Complaint against the Defendant Julian Chan for lack of cause of action;

3.      Directing the Plaintiffs and all persons claiming right[s] under them to immediately vacate the 6,696 sq. m. portion of the subject property and surrender peaceful possession thereof to the present owner Julian Chan;

4.      Directing the Defendant Pastor Samson to pay to the Plaintiffs 300 cavans of palay or its money equivalent of P90,000.00 as and by way of disturbance compensation to the late tenant Macario Susano;

5.      Upon receipt of such payment for disturbance compensation, directing the Plaintiffs and all persons claiming rights under them to vacate the area utilized as homelot (sic) consisting of 620 square meters and surrender peaceful possession thereof to the Defendant Pastor Samson;

6.      Allowing the withdrawal by Plaintiffs of the redemption price deposited with the Office of the DAR Regional Cashier in the amount of P12,052.80;

7.      Denying all other claims for lack of basis; and

8.      Without pronouncement as to costs.

SO ORDERED.^[40][40]

The DARAB’s Ruling

Upon appeal, the DARAB, on November 7, 2003, reversed the ruling of the RARAD.  Anchoring its decision on this Court’s pronouncement in Co v. Intermediate Appellate Court,^[41][41] the DARAB explained that the issuance of an ordinance classifying the subject property into non-agricultural land did not have the effect of automatically converting the said land as non-agricultural land and terminating the tenancy relationship between the parties. The dispositive portion of the DARAB decision reads:

WHEREFORE, premises considered, the assailed decision and order are hereby REVERSED and SET ASIDE. A new judgment is entered:

1)      Declaring the plaintiffs-appellants to be the lawful successors and tenants over the disputed landholding containing an area of 7,316 square meters;

2)   Ordering the defendants to respect and maintain the plaintiffs-appellants in the peaceful possession and cultivation of the subject landholding;

3)   Recognizing the redemption right of [p]laintiffs-[a]ppellants in the 6,696 square-meter (sic) landholding;

4)   Ordering [d]efendant Chan to reconvey the subject property to herein [p]laintiffs-[a]ppellants by executing a deed of reconveyance upon payment of the redemption price of P468,720.00 and allowing [d]efendant Chan to withdraw the amount of P12,052.80 from the DAR Regional Cashier, Region IV representing partial payment of the said price;

5)   In the event that this decision shall have become final and executory, but [d]efendant Chan still refuses to execute the necessary document of reconveyance of the land in issue, the Register of Deeds of Caloocan City is hereby directed to register this decision in connection with the subject land covered by TCT No. 176758; afterwhich (sic) the Register of Deeds is hereby authorized to cancel TCT No. 176758 and in lieu thereof, to issue another Transfer Certificate of Title to and in the name of plaintiffs-appellants;

6)   Directing the plaintiffs-appellants to coordinate with the Regional Director, Region IV or his duly authorized representative who shall initiate steps to obtain from the Land Bank financial assistance for redemption purposes of the subject property, pursuant to Section 12, R.A. 3844, as amended; [and]

7)   Denying all claims and counterclaims for lack of merit.

No pronouncement as to cost.

SO ORDERED.^[42][42]

Aggrieved, Pastor and Chan sought reconsideration of the said decision but their motions were denied for lack of merit.^[43][43]  Thus, they filed their respective petitions for review before the CA. The said appeals were later consolidated upon Pastor and Chan’s motion.

During the pendency of the appeal, Pastor died on July 28, 2006 and was substituted by his estate represented by Rolando B. Samson.

The CA’s Ruling

On August 31, 2006, the CA dismissed the appeal. The CA reasoned:

x x x As borne by the records, Macario’s cultivation of the property as well as [Pastor’s] receipt of a portion of the produce therein lasted for a considerable length of time or more than thirty (30) years with nary a protest on the latter’s part. To our mind, although petitioner [Pastor] did not expressly give his consent to a tenancy relation with Macario, we find that [Pastor’s] acts are indicative of his implied consent to such relationship. Otherwise stated, by allowing Macario Susano to cultivate the subject landholding for a considerable length of time and by receiving a portion of the harvest therein, petitioner is deemed to have impliedly consented to a tenancy relationship with Macario. After all, it is well-settled in law that a tenancy relationship may be established either verbally or in writing, expressly or impliedly.^[44][44]

The CA also held that Pastor and Macario’s tenancy relationship was not extinguished despite the reclassification of the subject land into non-agricultural land in 1981 citing our ruling in Alarcon v. Court of Appeals.^[45][45] The CA concluded that since the subject landholding was sold to Chan who, in turn, failed to notify Macario as required by law, the latter had the right to redeem the said property in accordance with Section 12^[46][46] of R.A. No. 3844, as amended, or the Code of Agrarian Reforms of the Philippines. 

On July 27, 2007, the CA denied petitioners’ motions for reconsideration.  Hence, these consolidated petitions.

The Issues

In G.R. No. 179024, the estate of Pastor Samson argues that

The Honorable Court of Appeals gravely erred in rendering its subject Decision affirming the findings of the RARAD a quo and DARAB that a tenancy relationship existed between the late Pastor M. Samson and the late Macario Susano.^[47][47]

          Petitioner Julian Chan, on the other hand, argues in G.R. No. 179086 that

[I.]       The Honorable Court of Appeals grievously erred in recognizing the residential status of the property in question and yet upholding the tenancy relation between Pastor Samson and Macario Susano and in binding herein petitioner thereto[;]

[II.]      The Honorable Court of Appeals grievously erred in misapplying the ruling of this Honorable Court in Alarcon v. Court of Appeals[; and]

[III.]     The Honorable Court of Appeals grievously erred in finding that respondents were entitled to the right of redemption and that the same may still be exercised by respondents.^[48][48]

In sum, at the core of this case is the issue of whether respondents are entitled to the benefits of the OLT Program under P.D. No. 27.

The Court’s Ruling

Respondents contend that the sale of Lot 1108-C to Chan is null and void for being contrary to the provisions of P.D. No. 27 and because at the time of the sale, ownership over the said property was already vested in Macario by virtue of the provisions of P.D. No. 27 on the OLT program.

Chan, for his part, maintained that Macario himself had recognized the validity of the sale of Lot 1108-C to him as shown in the Kusang Loob na Pagtatalaga (Deed of Undertaking), signed by Macario and witnessed by his family members in 1991, and the Joint Motion and Manifestation filed with the MARO of Valenzuela.^[49][49]  Chan also asserts that when he bought the land from Pastor, it was already classified as residential land following the passage of Metro Manila Zoning Ordinance No. 81-01 on March 18, 1981.

Meanwhile, the estate of Pastor Samson, by way of avoidance, insists that Macario was not Pastor’s tenant, reiterating the earlier claim that Macario’s occupancy on the said land was by mere tolerance. The estate also argues that if Macario was a tenant, he should have reacted and asserted his alleged rights under agrarian laws when the land he was cultivating was significantly reduced after portions thereof were sold in 1977 and 1984.^[50][50]

We find in favor of petitioners. Applying our pronouncement in Levardo v. Yatco,^[51][51] we rule that the subject land cannot be subject to the OLT program of P.D. No. 27 for two reasons: first, the subject land is less than seven hectares; and second, respondents failed to show that Pastor owned other agricultural lands in excess of seven hectares or urban land from which he derived adequate income, as required by Letter of Instruction (LOI) No. 474.^[52][52]

Moreover, the DAR Memorandum on the “Interim Guidelines on Retention by Small Landowners” dated July 10, 1975 is explicit:

5. Tenanted rice and/or corn lands seven (7) hectares or less shall not be covered by Operation Land Transfer. The relation of the land owner and tenant-farmers in these areas shall be leasehold x x x^[53][53]

However, while the disputed landholding which had an original aggregate area of only 1.0138 hectares is not covered by the OLT program, the same may still be covered by P.D. No. 27, albeit under its Operation Land Leasehold (OLL) program. The OLL program placed landowners and tenants of agricultural land devoted to rice and corn into a leasehold relationship as of October 21, 1972.^[54][54]  But the fact that Macario, respondents’ predecessor-in-interest, was a de jure tenant must be established.

Chan maintains that the tenancy relationship between Pastor and Macario, if there was any, ceased following the reclassification of the subject land as belonging to the low intensity residential zone (I-1) as of March 18, 1981. His contention, however, lacks merit in light of our ruling in Co v. Intermediate Appellate Court,^[55][55] wherein we said that Metro Manila Zoning Ordinance No. 81-01 did not have the effect of discontinuing rights previously acquired over lands located within the reclassified zone which are neither residential nor light industrial in nature.^[56][56] The zoning ordinance is given prospective operation only.^[57][57]

So was Macario a de jure tenant in the subject landholding entitled to security of tenure?

On this score, we answer in the negative.

R.A. No. 1199,^[58][58]  otherwise known as the Agricultural Tenancy Act of the Philippines, defines a tenant as a person who, himself and with the aid available from within his immediate farm household, cultivates the land belonging to, or possessed by, another, with the latter’s consent for purposes of production, sharing the produce with the landholder under the share tenancy system, or paying the landholder a price certain or ascertainable in produce or in money or both, under a leasehold tenancy system.^[59][59]

For a tenancy relationship to exist between the parties, the following essential elements must be shown: (1) the parties are the landowner and the tenant; (2) the subject matter is agricultural land; (3) there is consent between the parties; (4) the purpose is agricultural production; (5) there is personal cultivation by the tenant; and (6) there is sharing of the harvests between the parties.^[60][60] The presence of all of these elements must be proved by substantial evidence.^[61][61]

Petitioner estate of Pastor Samson contends that the elements of consent and sharing of harvest are lacking since Macario’s occupancy and possession of the subject land was only by mere tolerance.

Respondents, however, counter that there was implied tenancy because Pastor accepted his share of the production for a considerable length of time. To prove their contention, respondents presented the affidavits executed by three farmers from adjoining landholdings, namely Santiago Pacheco,^[62][62] Apolinario Francisco,^[63][63] and Damaso Matias,^[64][64] stating that they knew Macario to be a tenant of Pastor since 1959 and that Macario religiously paid his share of the produce to Pastor.

          The estate of Pastor Samson argues that the said affidavits are insufficient to establish the existence of a tenancy relationship since the affiants failed to provide details as to what the agreed rental was.  No concrete evidence was presented by the respondents to prove their claim.^[65][65]

          We agree with said petitioner.

The question of whether a tenancy relationship exists is basically a question of fact which, as a general rule, is beyond the scope of a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended.^[66][66]  The question of whether there was an implied tenancy and sharing are basically questions of fact and the findings of the Court of Appeals and the Boards a quo are, generally, entitled to respect and nondisturbance, as long as they are supported by substantial evidence.^[67][67]  Such findings of fact may be reviewed by the Court when the conclusion is a finding grounded entirely on speculation, surmises or conjectures,^[68][68] or if the findings of fact are conclusions without citation of specific evidence on which they are based.^[69][69]

In the case at bar, while the RARAD, DARAB and the CA are unanimous in their conclusion that an implied tenancy relationship existed between Pastor Samson and Macario Susano, no specific evidence was cited to support such conclusion other than their observation that Pastor failed to protest Macario’s possession and cultivation over the subject land for more than 30 years. Contrary to what is required by law, however, no independent and concrete evidence were adduced by respondents to prove that there was indeed consent and sharing of harvests between Pastor and Macario.

It has been repeatedly held that occupancy and cultivation of an agricultural land will not ipso facto make one a de jure tenant.^[70][70]  Independent and concrete evidence is necessary to prove personal cultivation, sharing of harvest, or consent of the landowner.^[71][71] Substantial evidence necessary to establish the fact of sharing cannot be satisfied by a mere scintilla of evidence; there must be concrete evidence on record adequate to prove the element of sharing. To prove sharing of harvests, a receipt or any other credible evidence must be presented, because self-serving statements are inadequate.^[72][72] Tenancy relationship cannot be presumed;^[73][73] the elements for its existence are explicit in law and cannot be done away with by conjectures.^[74][74] Leasehold relationship is not brought about by the mere congruence of facts but, being a legal relationship, the mutual will of the parties to that relationship should be primordial.^[75][75]  For implied tenancy to arise it is necessary that all the essential requisites of tenancy must be present.^[76][76]

The affidavits executed by three of respondents’ neighbors are insufficient to establish a finding of tenancy relationship between Pastor and Macario. As correctly observed by the estate of Pastor Samson, the affiants did not provide details based on their personal knowledge as to how the crop-sharing agreement was implemented, how much was given by Macario to Pastor, when and where the payments were made, or whether they have at any instance witnessed Pastor receive his share of the harvest from Macario. Such failure is fatal to respondents’ claim particularly since the respondents have the burden of proving their affirmative allegation of tenancy.^[77][77] In fine, the conclusions of the RARAD, DARAB and the CA respecting the existence of tenancy relationship between Pastor and Macario are not supported by substantial evidence on record.

The sale of the land to Chan likewise did not violate R.A. No. 3844 or the Agricultural Tenancy Act.  Considering that respondents have failed to establish their status as de jure tenants, they have no right of pre-emption or redemption under Sections 11 and 12 of the said law.^[78][78]

WHEREFORE, the petitions for review on certiorari are GRANTED. The assailed Decision dated August 31, 2006 and Resolution dated July 27, 2007 of the Court of Appeals in CA-G.R. SP Nos. 89052 and 89443 are REVERSED and SET ASIDE. Respondents Mercedes and Norberto R. Susano’s action for maintenance of peaceful possession, docketed as DARAB Case No. IV-MM-0063-93, is DISMISSED for lack of merit. They are ordered to SURRENDER peaceful possession and occupation of Lot 1108-A-1, covered by TCT No. 137744, to the Estate of Pastor M. Samson, represented by Rolando B. Samson andLot 1108-C, covered by TCT No. 176758, to petitioner Julian C. Chan.

No pronouncement as to costs.

          SO ORDERED.

A T T E S T A T I O N

          I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

C E R T I F I C A T I O N

          Pursuant to Section 13, Article VIII of the 1987 Constitution and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

CASE 2011-0128: DOLORES ADORA MACASLANG VS. RENATO AND MELBA ZAMORA (G.R. NO. 156375, 30 MAY 2011, BERSAMIN, J.) SUBJECTS: EJECTMENT, UNLAWFUL DETAINER, CAUSE OF ACTION, RTC AS APPELLATE COURT CAN TAKE ACCOUNT OTHER MATTERS NOT RAISED IN MTC. (BRIEF TITLE: MACASLANG VS. ZAMORA).

==========================

SUBJECT: RTC, IN EXERCISING APPELLATE JURISDICTION WAS NOT LIMITED TO THE ERRORS ASSIGNED IN THE PETITIONER’S APPEAL MEMORANDUM BUT COULD DECIDE ON THE BASIS OF THE ENTIRE RECORD AND MEMORANDA OF THE PARTIES.

Butthe petitioner’s appeal herein, being taken from the decision of the MTCC to the RTC, was governed by a different rule, specifically Section 18 of Rule 70 of the Rules of Court, to wit:

Section 18. xxx

xxx

The judgment or final order shall be appealable to the appropriate Regional Trial Court which shall decide the same on the basis of the entire record of the proceedings had in the court of origin and such memoranda and/or briefs as may be submitted by the parties or required by the Regional Trial Court. (7a)

As such,the RTC, in exercising appellate jurisdiction,was not limited to the errors assigned in the petitioner’s appeal memorandum, but could decide on the basis of the entire record of the proceedings had in the trial court and such memoranda and/or briefs as may be submitted by the parties or required by the RTC.

==========================

Republic of thePhilippines

Supreme Court

Manila

THIRD DIVISION

x—————————————————————————————–x

D  E C I S I O N

BERSAMIN, J.:

The Regional Trial Court (RTC) is not limited in its review of the decision of the Municipal Trial Court (MTC) to the issues assigned by the appellant, but can decide on the basis of the entire records of the proceedings of the trial court and such memoranda or briefs as may be submitted by the parties or required by the RTC.

The petitioner appeals the decision promulgated on July 3, 2002,^[1][1] whereby the Court of Appeals (CA) reversed“for having no basis in fact and in law” the decision rendered on May 18, 2000^[2][2] by the Regional Trial Court, Branch 25, in Danao City (RTC) that had dismissed the respondents’ action for ejectment against the petitioner, and reinstated the decision dated September 13, 1999 of the Municipal Trial Court in Cities (MTCC) of Danao City (ordering the petitioner as defendant to vacate the premises and to pay attorney’s fees of P10,000.00 and monthly rental of P5,000.00 starting December 1997 until they vacated the premises).^[3][3]

We grant the petition for review and rule that contrary to the CA’s conclusion, the RTCas an appellate court properly considered and resolved issues even if not raised in the appeal from the decision rendered in an ejectment case by the MTCC.

ANTECEDENTS

          On March 10, 1999, the respondents filed a complaint for unlawful detainer in the MTCC, alleging that “the [petitioner] sold to [respondents] a residential land located in Sabang,DanaoCity” and that “the [petitioner] requested to be allowed to live in the house” with a “promise to vacate as soon as she would be able to find a new residence.” They further alleged that despite their demand after a year, the petitioner failed or refused to vacate the premises.

Despite the due service of the summons and copy of the complaint, the petitioner did not file heranswer. The MTCC declared her in defaultupon the respondents’ motion to declare her in default, and proceeded to receivethe respondents’oral testimony and documentary evidence. Thereafter, onSeptember 13, 1999, the MTCC rendered judgment against her, disposing:

WHEREFORE, considering the foregoing, Judgment is hereby rendered in favor [of] plaintiffs (sic) spouses Renato Zamora and Melba Zamora and against defendant Dolores AdoraMacaslang, ordering defendant to vacate the properties in question, to pay to plaintiffs Attorney’s Fees in the sum of P10,000.00 and monthly rental of P5,000.00 starting December, 1997 until the time the defendant shall have vacated the properties in question.

SO ORDERED.^[4][4]

          The petitioner appealed to the RTC, averring the following as reversible errors, namely:

1.      Extrinsic Fraud was practiced upon defendant-appellant which ordinary prudence could not have guarded against and by reason of which she has been impaired of her rights.

2.      Defendant-Appellant has a meritorious defense in that there was no actual sale considering that the absolute deed of sale relied upon by the plaintiff-appell[ees] is a patent-nullity as her signature therein was procured through fraud and trickery.^[5][5]

and praying through her appeal memorandum as follows:

       Wherefore, in view of the foregoing, it is most respectfully prayed for that judgment be rendered in favor of defendant-appellant ordering that this case be remanded back to the Court of Origin, Municipal Trial Court of Danao City, for further proceedings to allow the defendant to present her evidence, and thereafter, to render a judgment anew.^[6][6]

          On May 18, 2000, the RTC resolved the appeal, to wit:^[7][7]

WHEREFORE,judgment is hereby rendered dismissing the complaint for failure to state a cause of action.

The same may, however, be refiled in the same Court, by alleging plaintiffs’ cause of action, if any.

Plaintiffs’ Motion for Execution of Judgment of the lower court is rendered moot by this judgment.

SO ORDERED.

          The respondents appealed to the CA, assailing the RTC’s decision for “disregarding the allegations in the complaint” in determining the existence or non-existence of a cause of action.

OnJuly 3, 2002, the CA reversed and set aside the RTC’s decision and reinstated the MTCC’s decision in favor of the respondents, disposing:

       WHEREFORE,foregoing premises considered, the Petition is hereby GIVEN DUE COURSE. Resultantly, the impugned decision of the Regional Trial Court is hereby REVERSED and SET ASIDE for having no basis in fact and in law, and the Decision of the Municipal Trial Court in Cities REINSTATED and AFFIRMED. No costs.

         SO ORDERED.^[8][8]

          The petitioner’smotion for reconsideration was denied onNovember 19, 2002.

ISSUES

          Hence, the petitioner appeals the CA’s adverse decision, submitting legal issues, as follows:

1.      Whether or not the Regional Trial Court in the exercise of its Appellate Jurisdiction is limited to the assigned errors in the Memorandum or brief filed before it or whether it can decide the case based on the entire records of the case, as provided for in Rule 40, Sec. 7. This is a novel issue which, we respectfully submit, deserves a definitive ruling by this Honorable Supreme Court since it involves the application of a new provision, specifically underlined now under the 1997 Revised Rules on Civil procedure.

2.      Whether or not in an action for unlawful detainer, where there was no prior demand to vacate and comply with the conditions of the lease made, a valid cause of action exists?

1. ^3.        Whether or not in reversing the Regional Trial Court Decision and reinstating and affirming the decision of the Municipal Circuit Trial Court, which was tried and decided by the MCTC in violation of the Rules on Summary Procedure, the Court of Appeals sanctioned a gross departure from the usual course of judicial proceedings?^[9][9]
2.  

          The issues that this Court has to resolve are stated thuswise:

1.     Whether or not the CA correctly found that the RTC committed reversible error in ruling on issues not raised by the petitioner in her appeal;

2.     Whether or not the CA correctly found that the complaint stated a valid cause of action;

3.     Whether or not the CA erred in finding that there was a valid demand to vacate made by the respondents on the petitioner; and

4.     Whether or not the petitioner’s defense of ownership was meritorious.

RULING

We grant the petition for review.

A.

As an appellate court, RTC may rule

upon an issue not raised on appeal

In its decision, the CA ruled that the RTC could not resolve issues that were not assigned by the petitioner in her appeal memorandum, explaining:

         Indeed(,) We are rather perplexed why the Regional Trial Court, in arriving at its decision, discussed and ruled on issues or grounds which were never raised, assigned, or argued on by the Defendant-appellee in her appeal to the former. A careful reading of the Defendant-appellee’s appeal memorandum clearly shows that it only raised two (2) grounds, namely (a) alleged extrinsic fraud, (b) meritorious defenses based on nullity of the Deed of Sale Instrument. And yet the Trial Court, in its decision, ruled on issues not raised such as lack of cause of action and no prior demand to vacate having been made.

         Only errors assigned and properly argued on the brief and those necessarily related thereto, may be considered by the appellate court in resolving an appeal in a civil case. Based on said clear jurisprudence, the court a quo committed grave abuse of discretion amounting to lack of jurisdiction when it resolved Defendant-appellee’s appeal based on grounds or issues not raised before it, much less assigned by Defendant-appellee as an error.

         Not only that. It is settled that an issue which was not raised during the Trial in the court below would not be raised for the first time on appeal as to do so would be offensive to the basic rules of fair play, justice and due process (Victorias Milling Co., Inc. vs. CA, 333 SCRA 663). We can therefore appreciate Plaintiffs-appellants’ dismay caused by the Regional Trial Court’s blatant disregard of a basic and fundamental right to due process.^[10][10]

The petitioner disagrees with the CA and contends that the RTC as an appellate court could rule on the failure of the complaint to state a cause of action and the lack of demand to vacate even if not assigned in the appeal.

We concur with the petitioner’s contention.

The CA might have been correct had the appeal been a first appeal from the RTC to the CA or another proper superior court, in which instance Section 8 of Rule 51, which applies to appeals from the RTC to the CA, imposes the express limitation of the review to only those specified in the assignment of errors or closely related to or dependent on an assigned error and properly argued in the appellant’s brief, viz:

Section 8. Questions that may be decided. – No error which does not affect the jurisdiction over the subject matter or the validity of the judgment appealed from or the proceeding therein will be considered unless stated in the assignment of errors, or closely related to or dependent on an assigned error and properly argued in the brief, save as the court may pass upon plain errors and clerical errors.

Butthe petitioner’s appeal herein, being taken from the decision of the MTCC to the RTC, was governed by a different rule, specifically Section 18 of Rule 70 of the Rules of Court, to wit:

Section 18. xxx

xxx

The judgment or final order shall be appealable to the appropriate Regional Trial Court which shall decide the same on the basis of the entire record of the proceedings had in the court of origin and such memoranda and/or briefs as may be submitted by the parties or required by the Regional Trial Court. (7a)

As such,the RTC, in exercising appellate jurisdiction,was not limited to the errors assigned in the petitioner’s appeal memorandum, but could decide on the basis of the entire record of the proceedings had in the trial court and such memoranda and/or briefs as may be submitted by the parties or required by the RTC.

The difference between the procedures for deciding on review is traceable to Section 22 of Batas PambansaBlg. 129,^[11][11]which provides:

Section 22. Appellate Jurisdiction. – Regional Trial Courts shall exercise appellate jurisdiction over all cases decided by Metropolitan Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts in their respective territorial jurisdictions.Such cases shall be decided on the basis of the entire record of the proceedings had in the court of origin [and] such memoranda and/or briefs as may be submitted by the parties or required by the Regional Trial Courts. The decision of the Regional Trial Courts in such cases shall be appealable by petition for review to the Court of Appeals which may give it due course only when the petition shows prima facie that the lower court has committed an error of fact or law that will warrant a reversal or modification of the decision or judgment sought to be reviewed.^[12][12]

As its compliance with the requirement of Section 36 of Batas PambansaBlg. 129to “adopt special rules or procedures applicable to such cases in order to achieve an expeditious and inexpensive determination thereof without regard to technical rules,” the Court promulgated the 1991 Revised Rules on Summary Procedure, whereby it institutionalized the summary procedure for all the first level courts. Section 21 of the 1991 Revised Rules on Summary Procedurespecifically stated:

Section 21. Appeal. – Thejudgment or final order shall be appealable to the appropriate Regional Trial Court which shall decide the same in accordance with Section 22 of Batas PambansaBlg. 129. The decision of the Regional Trial Court in civil cases governed by this Rule, including forcible entry and unlawful detainer shall be immediately executory, without prejudice to a further appeal that may be taken therefrom. Section 10 of Rule 70 shall be deemed repealed.

Later on, the Court promulgated the 1997 Rules of Civil Procedure, effective on July 1, 1997, and incorporated in Section 7 of Rule 40 thereof the directive to the RTC to decide appealed cases“on the basis of the entire record of the proceedings had in the court of origin and such memoranda as are filed,”viz:

Section 7. Procedure in the Regional Trial Court. –

(a) Upon receipt of the complete record or the record on appeal, the clerk of court of the Regional Trial Court shall notify the parties of such fact.

(b) Within fifteen (15) days from such notice, it shall be the duty of the appellant to submit a memorandum which shall briefly discuss the errors imputed to the lower court, a copy of which shall be furnished by him to the adverse party. Within fifteen (15) days from receipt of the appellant’s memorandum, the appellee may file his memorandum. Failure of the appellant to file a memorandum shall be a ground for dismissal of the appeal.

(c) Upon the filing of the memorandum of the appellee, or the expiration of the period to do so, the case shall be considered submitted for decision. The Regional Trial Court shall decide the case on the basis of the entire record of the proceedings had in the court of origin and such memoranda as are filed. (n)

As a result, the RTC presently decides all appeals from the MTC based on the entire record of the proceedings had in the court of origin and such memoranda or briefs as are filed in the RTC.

Yet, even without the differentiation in the procedures of deciding appeals, the limitation of the review to only the errors assigned and properly argued in the appeal brief or memorandum and the errors necessarily related to such assigned error sought not to have obstructed the CA from resolving the unassigned issues by virtue of their coming under one or several of the following recognized exceptions to the limitation, namely:

(a) When the question affects jurisdiction over the subject matter;

(b) Matters that are evidently plain or clerical errors within contemplation of law;

(c) Matters whose consideration is necessary in arriving at a just decision and complete resolution of the case or in serving the interests of justice or avoiding dispensing piecemeal justice;

(d) Matters raised in the trial court and are of record having some bearing on the issue submitted that the parties failed to raise or that the lower court ignored;

(e) Matters closely related to an error assigned; and

(f) Matters upon which the determination of a question properly assigned is dependent.^[13][13]

Consequently, the CA improperly disallowed the consideration and resolution of the two errors despite their being: (a)necessary in arriving at a just decision and acomplete resolution of the case; and (b) matters of record having some bearing on the issues submitted that the lower court ignored.

B.

CA correctly delved into and determined

whether or not complaint stated a cause of action

The RTC opined that the complaint failed to state a cause of action because the evidence showed that there was no demand to vacate made upon the petitioner.

The CA disagreed, observing in its appealed decision:

         But what is worse is that a careful reading of Plaintiffs-appellants’ Complaint would readily reveal that they have sufficiently established (sic) a cause of action against Defendant-appellee. It is undisputed that as alleged in the complaint and testified to by Plaintiffs-appellants, a demand to vacate was made before the action for unlawful detainer was instituted.

         A complaint for unlawful detainer is sufficient if it alleges that the withholding of possession or the refusal is unlawful without necessarily employing the terminology of the law (Jimenez vs. Patricia, Inc., 340 SCRA 525). In the case at bench, par. 4 of the Complaint alleges, thus:

      “4. After a period of one (1) year living in the aforementioned house, Plaintiff demanded upon defendant to vacate but she failed and refused;”

         From the foregoing allegation, it cannot be disputed that a demand to vacate has not only been made but that the same was alleged in the complaint. How the Regional Trial Court came to the questionable conclusion that Plaintiffs-appellants had no cause of action is beyond Us.^[14][14]

We concur with the CA.

A complaint sufficiently alleges a cause of action for unlawful detainer if it states the following:

(a)Initially, the possession of the property by the defendant was by contract with or by tolerance of the plaintiff;

(b)Eventually, such possession became illegal upon notice by the plaintiff to the defendant about the termination of the latter’s right of possession;

(c)Thereafter, the defendant remained in possession of the property and deprived the plaintiff of its enjoyment; and

(d)Within one year from the making of the last demand to vacate the propertyon the defendant, the plaintiff instituted the complaint for ejectment.^[15][15]

In resolving whether the complaint states a cause of action or not, only the facts alleged in the complaint are considered.  The test is whether the court can render a valid judgment on the complaint based on the facts alleged and the prayer asked for.^[16][16] Only ultimate facts, not legal conclusions or evidentiary facts, are considered for purposes of applying the test.^[17][17]

To resolve the issue, therefore, a look at the respondents’ complaint is helpful:

2. On September 10, 1997, defendant sold to plaintiffs a residential land located in Sabang, Danao City, covered by Tax Dec.0312417 RB with an area of 400 square meters, including a residential house where defendant was then living covered by Tax Dec. 0312417 RB, a copy of the deed of absolute [sale] of these properties is hereto attached as Annex “A”;

3. After the sale, defendant requested to be allowed to live in the house which plaintiff granted on reliance of defendant’s promise to vacate as soon as she would be able to find a new residence;

4. After a period of one (1) year living in the aforementioned house, plaintiffs demanded upon defendant to vacate but she failed or refused.

5. Plaintiffs sought the aid of the barangay Lupon of Sabang, Danao City for arbitration but no settlement was reached as shown by a certification to file action hereto attached as Annex “B”;

6. Plaintiffs were compelled to file this action and hire counsel for P10,000 by way of attorney’s fee;

7. Defendant agreed to pay plaintiffs a monthly rental of P5,000 for the period of time that the former continued to live in the said house in question.

WHEREFORE, it is respectfully prayed of this Honorable Court to render judgment ordering the defendant to vacate the properties in question, ordering the defendant to pay plaintiffs attorney’s fees in the sum of P10,000, ordering the defendant to pay the plaintiffs a monthly rental of P5,000 starting in October 1997, until the time that defendant vacates the properties in question. Plaintiffs pray for such other refiefs consistent with justice and equity.^[18][18]

Based on its allegations, the complaint sufficiently stated a cause of action for unlawful detainer. Firstly, it averred that the petitioner possessed the property by the mere tolerance of the respondents. Secondly, the respondents demanded that the petitioner vacate the property, thereby rendering her possession illegal. Thirdly,she remained in possession of the property despite the demand to vacate. And, fourthly, the respondents instituted the complaint onMarch 10, 1999,which was well within a year after the demand to vacate was made around September of 1998 or later.

Yet, even as we rule that the respondents’ complaint stated a cause of action, we must find and hold that both the RTC and the CA erroneously appreciated the real issue to be about the complaint’s failure to state a cause of action. It certainly was not so, but the respondents’ lack of cause of action. Their erroneous appreciation expectedly prevented the correct resolution of the action.

Failure to state a cause of action and lack of cause of action are really different from each other. On the one hand, failure to state a cause of action refers to the insufficiency of the pleading, and is a ground for dismissal under Rule 16 of the Rules of Court. On the other hand, lack of cause action refers to a situation where the evidence does not prove the cause of action alleged in the pleading. Justice Regalado, a recognized commentator on remedial law, has explained the distinction:^[19][19]

xxx What is contemplated, therefore, is a failure to state a cause of action which is provided in Sec. 1(g) of Rule 16. This is a matter of insufficiency of the pleading. Sec. 5 of Rule 10, which was also included as the last mode for raising the issue to the court, refers to the situation where the evidence does not prove a cause of action. This is, therefore, a matter of insufficiency of evidence. Failure to state a cause of action is different from failure to prove a cause of action. The remedy in the first is to move for dismissal of the pleading, while the remedy in the second is to demur to the evidence, hence reference to Sec. 5 of Rule 10 has been eliminated in this section. The procedure would consequently be to require the pleading to state a cause of action, by timely objection to its deficiency; or, at the trial, to file a demurrer to evidence, if such motion is warranted.

A complaint states a cause of action if it avers the existence of the three essential elements of a cause of action, namely:

(a) The legal right of the plaintiff;

(b) The correlative obligation of the defendant; and

(c) The act or omission of the defendant in violation of said legal right. 

If the allegations of the complaint do not aver the concurrence of these elements, the complaint becomes vulnerable to a motion to dismiss on the ground of failure to state a cause of action. Evidently, it is not the lack or absence of a cause of action that is a ground for the dismissal of the complaint but the fact that the complaint states no cause of action. Failure to state a cause of action may be raised at the earliest stages of an action through a motion to dismiss, but lack of cause of action may be raised at any time after the questions of fact have been resolved on the basis of the stipulations, admissions, or evidence presented.^[20][20]

Having found that neither Exhibit C nor Exhibit E was a proper demand to vacate,^[21][21] considering that Exhibit C (the respondents’ letter dated February 11, 1998)demanded the payment of P1,101,089.90, and Exhibit E (theirletter dated January 21, 1999) demandedthe payment of P1,600,000.00, the RTC concluded that the demand alleged in the complaint did not constitute a demand to pay rent and to vacate the premises necessary in an action for unlawful detainer. It was this conclusion that caused the RTC to confuse the defect as failure of the complaint to state a cause of action for unlawful detainer.

The RTC erred even in that regard.

To begin with, it was undeniable that Exhibit D (the respondents’ letter dated April 28, 1998) constituted the demand to vacate that validly supported their action for unlawful detainer, because of its unmistakable tenor as a demand to vacate, which the following portion indicates:^[22][22]

This is to give notice that since the mortgage to your property has long expired and that since the property is already in my name, I will be taking over the occupancy of said property two (2) months from date of this letter.

Exhibit D, despite not explicitly using the wordvacate, relayed to the petitioner the respondents’ desire to take over the possession of the property by giving her no alternative exceptto vacate.The word vacate, according to Golden Gate Realty Corporation v. Intermediate Appellate Court,^[23][23]is not a talismanic word that must be employed in all notices to vacate.The tenantsin Golden Gate Realty Corporationhad defaulted in the payment of rents, leading theirlessorto notify them to pay with a warning that a case of ejectment would be filed against themshould they not do so. The Court held that the lessor had thereby given strong notice that “you either pay your unpaid rentals or I will file a court case to have you thrown out of my property,”for therewas no other interpretation of the import of the notice due to the alternatives being clear cut, in that the tenants must pay rentals that had been fixed and had become payable in the past, failing in which they must move out.^[24][24]

Also, the demand not being to pay rent and to vacate did not render the cause of action deficient. Based on the complaint, the petitioner’s possession was allegedly based on the respondents’ tolerance, not on any contract between them. Hence, thedemand to vacate sufficed.

C.

Ejectment was not proper due

to defense of ownership being established

The respondents’ cause of action for unlawful detainer was based on their supposed right to possession resulting from their having acquired it through sale.

The RTCdismissed the complaint based on its following findings, to wit:

In the case at bench, there is conflict between the allegation of the complaint and the document attached thereto.

Simply stated, plaintiff alleged that she bought the house of the defendant for P100,000.00 onSeptember 10, 1997 as stated in an alleged Deed of Absolute Sale marked as Exhibit “A” to the complaint. Insofar as plaintiff is concerned, the best evidence is the said Deed of Absolute Sale.

The Court is surprised why in plaintiff’s letter dated February 11, 1998, marked as Exhibit “C” and attached to the same complaint, she demanded from the defendant the whooping sum of P1,101,089.90. It must be remembered that this letter was written five (5) months after the deed of absolute sale was executed.

The same letter (Exhibit “C”) is not a letter of demand as contemplated by law and jurisprudence. The plaintiff simply said that she will appreciate payment per notarized document. There is no explanation what this document is.

Plaintiff’s letter datedApril 28, 1998(Exhibit “D”) contradicts her allegation that she purchased the house and lot mentioned in the complaint. Exhibit “D”, which is part of the pleading and a judicial admission clearly shows that the house and lot of the defendant was not sold but mortgaged.

Again, for purposes of emphasis and clarity, a portion of the letter (Exhibit “D”) reads:

‘This is to give notice that since the mortgage to your property has long expired and that since the property is already in my name, I will be taking over the occupancy of said property two (2) months from date of this letter.’

x xxx

Exhibit “E”, which is a letter dated January 21, 1999, shows the real transaction between the parties in their case. To reiterate, the consideration in the deed of sale (Exhibit “A”) is P100,000.00 but in their letter (Exhibit “E”) she is already demanding the sum of P1,600,000.00 because somebody was going to buy it for P2,000,000.00.

There are indications that point out that the real transaction between the parties is one of equitable mortgage and not sale.^[25][25]

Despite holding herein that the respondents’ demand to vacate sufficed, we uphold the result of the RTC decision in favor of the petitioner. This we do,because therespondents’ Exhibit Cand Exhibit E, by demandingpayment from the petitioner, respectively,of P1,101,089.90 and P1,600,000.00, revealedthe true nature of the transaction involving the property in question as one of equitable mortgage, not a sale.

Our upholding of the result reached by the RTC rests on the following circumstancesthat tended to show that the petitioner had not really sold the property to the respondents, contrary to the latter’s averments, namely:

(a)The petitioner, as the vendor, was paid the amount of only P100,000.00,^[26][26] a price too inadequate in comparison with the sum of P1,600,000.00 demanded in Exhibit E;^[27][27]

(b) The petitioner retained possession of the property despite the supposed sale; and

(c) The deed of sale wasexecuted as a result or by reason of the loan the respondents extended to the petitioner,because they still allowed the petitioner to “redeem” the property by paying her obligation under the loan.^[28][28]

Submissions of the petitioner further supported the findings of the RTCon the equitable mortgage. Firstly, there was the earlier dated instrument (deed of pactode retro)involving the same property, albeit the consideration was only P480,000.00, executed between the petitioner as vendor a retro and the respondent Renato Zamora as vendee a retro.^[29][29] Secondly, there were two receipts for the payments the petitioner had made to the respondentstotaling P300,000.00.^[30][30] And, thirdly, the former secretary of respondent Melba Zamora executed an affidavit acknowledging that the petitioner had already paid a total of P500,000.00 to the respondents.^[31][31] All these confirmed the petitioner’s claim that she remained the owner of the property and was still entitled to its possession.

Article 1602 of the Civil Codeenumerates the instances when a contract, regardless of its nomenclature, may be presumed to be an equitable mortgage, namely:

(a) When the price of a sale with right to repurchase is unusually inadequate;

(b) When the vendor remains in possession as lessee or otherwise;

(c) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed;

(d)When the purchaser retains for himself a part of the purchase price;

(e)When the vendor binds himself to pay the taxes on the thing sold; and,

(f) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

The circumstances earlier mentioned were, indeed, badges of an equitable mortgage within the context ofArticle 1602 of the Civil Code.

Nonetheless, the findingsfavorable to the petitioner’s ownership are neitherfinally determinative of the title in the property, nor conclusive in any other proceeding where ownership of the property involved herein may be more fittingly adjudicated.Verily, where the cause of action in an ejectment suit is based on ownership of the property, the defense that the defendantretainedtitle or ownership is a proper subject for determination by the MTC but only for the purpose of adjudicating the rightful possessor of the property.^[32][32]This is based on Rule 70 of the Rules of Court, viz:

Section 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.(4a)

D.

MTC committed procedural lapses

that must be noted and corrected

The Court seizes theopportunity to note and to correctseveralnoticeable procedural lapses on the part of the MTCC, to avoid the impression that the Court condones or tolerates the lapses.

The first lapse wasthe MTCC’s granting of the respondents’ motion to declare the petitioner in default following her failure to file an answer. The proper procedurewas not for the plaintiffs to move for the declaration in default of the defendant who failed to file the answer. Such a motion to declare in default has been expressly prohibited under Section 13, Rule 70 of  the Rules of Court.^[33][33]Instead, the trial court, either motuproprio or on motion of the plaintiff, should render judgment as the facts alleged in the complaint might warrant.^[34][34]In other words, the defendant’s failure to file an answer under Rule 70 of the Rules of Courtmight result to a judgment by default, not to a declaration of default.

The second lapse wasthe MTCC’sreception of the oral testimony of respondent Melba Zamora. Rule 70 of the Rules of Courthas envisioned the submission only of affidavits of the witnesses (not oral testimony) and other proofs on the factual issues defined in the order issued within five days from the termination of the preliminary conference;^[35][35]and has permittedthe trial court, should it find the need to clarify material facts, to thereafterissue an order during the 30-day period from submission of the affidavits and other proofs specifying the matters to be clarified, and requiring the parties to submit affidavits or other evidence upon such matters within ten days from receipt of the order.^[36][36]

The procedural lapses committed in this case are beyond comprehension.The MTCC judge could not have been unfamiliar with the prevailing procedure, considering that therevised version of Rule 70, although taking effect only on July 1, 1997,was derived from the 1991 Revised Rule on Summary Procedure, in effect since November 15, 1991. It was not likely, therefore, that the MTCC judge committed the lapses out of his unfamiliarity with the relevant rule. We discern thatthe cause of the lapses was his lack of enthusiasm in implementingcorrect procedures in this case. If that was the true reason, the Court can only be alarmed and concerned, for a judge should not lack enthusiasm in applying the rules of procedure lest the worthy objectives of their promulgation be unwarrantedly sacrificed and brushed aside. The MTCC judge should not forget that the rules of procedure were always meant to be implemented deliberately, not casually, and their non-compliance should only be excused in the higher interest of the administration of justice.

It is timely, therefore, to remind all MTC judges to display full and enthusiastic compliance with all the rules of procedure, especially those intended for expediting proceedings.

WHEREFORE,we grant the petition for review on certiorari; set aside the decision promulgated on July 3, 2002 by the Court of Appeals; and dismiss the complaint for unlawful detainer for lack of a cause of action.

The respondents shall pay the costs of suit.

          SO  ORDERED.

                                                                   LUCAS P. BERSAMIN

                                                                   Associate Justice

WE CONCUR:

CONCHITA CARPIO MORALES

Associate Justice

Chairperson

ARTURO D. BRION                MARTIN S. VILLARAMA, JR.

        Associate Justice                                        Associate Justice

MARIA LOURDES P. A. SERENO

Associate Justice

A T T E S T A T I O N

          I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

                                         CONCHITA CARPIO MORALES

                                                                   Associate Justice

                                                                   Chairperson

C E R T I F I C A T I O N

          Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

                                                          RENATO C. CORONA

                                                                    Chief Justice

CASE NO. 2011-0127: DONNINA C. HALLEY VS. PRINTWELL, INC. (G.R. No. 157549, 30 MAY 2011, BERSAMIN, J) SUBJECTS: TRUST FUND DOCTRINE, JUDGE COPYING MEMORANDUM OF PARTY. CHECK AS PAYMENT.  (BRIEF TITLE: HALLEY VS. PRINTWELL).

==========================

SUBJECT: TRUST FUND DOCTRINE

The trust fund doctrineenunciates a –

xxx rule that the property of a corporation is a trust fund for the payment of creditors, but such property can be called a trust fund ‘only by way of analogy or metaphor.’ As between the corporation itself and its creditors it is a simple debtor, and as between its creditors and stockholders its assets are in equity a fund for the payment of its debts.^[1][32]

The trust fund doctrine, first enunciated in the American case of Wood v. Dummer,^[2][33]was adopted in our jurisdiction in Philippine Trust Co. v. Rivera,^[3][34]where thisCourt declared that:

It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts. (Velasco vs. Poizat, 37 Phil., 802) xxx^[4][35]

We clarify that the trust fund doctrineis not limited to reaching the stockholder’s unpaid subscriptions. The scope of the doctrine when the corporation is insolvent encompasses not only the capital stock, but also other property and assets generally regarded in equity as a trust fund for the payment of corporate debts.^[5][36]All assets and property belonging to the corporation held in trust for the benefit of creditors thatwere distributed or in the possession of the stockholders, regardless of full paymentof their subscriptions, may be reached by the creditor in satisfaction of its claim.

SUBJECT: PROPRIETY OF COPYING PORTIONS OF MEMORANDUM OF A PARTY BY A JUDGE IN HIS DECISION

It is to be observed in this connection that a trial or appellate judge may occasionally viewa party’s memorandum or brief as worthy of due consideration either entirely or partly. When he does so, the judgemay adopt and incorporatein his adjudicationthe memorandum or the parts of it he deems suitable,and yet not be guilty of the accusation of lifting or copying from the memorandum.^[6][24] This isbecause ofthe avowed objective of the memorandum to contribute in the proper illumination and correct determination of the controversy.Nor is there anything untoward in the congruence of ideas and views about the legal issues between himself and the party drafting the memorandum.The frequency of similarities in argumentation, phraseology, expression, and citation of authorities between the decisions of the courts and the memoranda of the parties, which may be great or small, can be fairly attributable tothe adherence by our courts of law and the legal profession to widely knownor universally accepted precedents set in earlier judicial actions with identical factual milieus or posing related judicial dilemmas.

SUBJECT: CHECK IS NOT PAYMENT IF NO PROOF IS PRESENTED THAT IT WAS ENCASHED

The petitioner’s ORNo. 227,presentedto prove the payment of the balance of her subscription, indicated that her supposed payment had beenmade by means of a check. Thus, to discharge theburden to prove payment of her subscription, she had to adduce evidence satisfactorily proving that her payment by check wasregardedas payment under the law.

Paymentis defined as the delivery of money.^[7][45]Yet, because a check is not money and only substitutes for money, the delivery of a check does not operate as payment and does not discharge the obligation under a judgment.^[8][46] The delivery of a bill of exchange only produces the fact of payment when the bill has been encashed.^[9][47]The following passage fromBank of Philippine Islands v. Royeca^[10][48]is enlightening:

Settled is the rule that payment must be made in legal tender. A check is not legal tender and, therefore, cannot constitute a valid tender of payment. Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized.

To establish their defense, the respondents therefore had to present proof, not only that they delivered the checks to the petitioner, but also that the checks were encashed. The respondents failed to do so. Had the checks been actually encashed, the respondents could have easily produced the cancelled checks as evidence to prove the same. Instead, they merely averred that they believed in good faith that the checks were encashed because they were not notified of the dishonor of the checks and three years had already lapsed since they issued the checks.

Because of this failure of the respondents to present sufficient proof of payment, it was no longer necessary for the petitioner to prove non-payment, particularly proof that the checks were dishonored. The burden of evidence is shifted only if the party upon whom it is lodged was able to adduce preponderant evidence to prove its claim.

Ostensibly, therefore, the petitioner’s mere submission of the receipt issued in exchange of the check did not satisfactorily establish her allegation of full payment of her subscription. Indeed, she could not even inform the trial court about the identity of her drawee bank,^[11][49]and about whether the check was cleared and its amount paid to BMPI.^[12][50]In fact, she did not present the check itself.

=================================

Republic of thePhilippines

Supreme Court

Manila

THIRD DIVISION

x—————————————————————————————–x

D E C I S I O N

BERSAMIN, J:

          Stockholders of a corporation are liable for the debts of the corporation up to the extent of their unpaid subscriptions. They cannot invoke the veil of corporate identity as a shield from liability, because the veil may be lifted to avoid defrauding corporate creditors.

Weaffirm with modification the decisionpromulgated on August 14, 2002,^[13][1]whereby the Court of Appeals(CA) upheld thedecision of the Regional Trial Court, Branch 71, in Pasig City (RTC),^[14][2]ordering the defendants (including the petitioner)to pay to Printwell, Inc. (Printwell) the principal sum of P291,342.76 plus interest.

Antecedents

The petitioner wasan incorporator and original director of Business Media Philippines, Inc. (BMPI), which, at its incorporation on November 12, 1987,^[15][3]had an authorized capital stock of P3,000,000.00 divided into 300,000 shares each with a par value of P10.00,of which 75,000 were initially subscribed, to wit:

Printwellengaged in commercial and industrial printing.BMPI commissioned Printwell for the printing of the magazine Philippines, Inc. (together with wrappers and subscription cards) that BMPI published and sold. For that purpose, Printwell extended 30-day credit accommodations to BMPI.

In the period from October 11, 1988 until July 12, 1989, BMPI placedwith Printwell several orders on credit, evidenced byinvoices and delivery receipts totalingP316,342.76.Considering that BMPI paidonlyP25,000.00,Printwell suedBMPIon January 26, 1990 for the collection of the unpaid balance of P291,342.76 in the RTC.^[16][4]

On February 8, 1990,Printwell amended thecomplaint in order to implead as defendants all the original stockholders and incorporators to recover on theirunpaid subscriptions, as follows:^[17][5]

          The defendants filed a consolidated answer,^[18][6]averring that they all had paid their subscriptions in full; that BMPI had a separate personality from those of its stockholders; thatRizalino C. Viñeza had assigned his fully-paid up sharesto a certain Gerardo R. Jacinto in 1989; andthat the directors and stockholders of BMPI had resolved to dissolve BMPI during the annual meetingheld on February 5, 1990.

          To prove payment of their subscriptions, the defendantstockholderssubmitted in evidenceBMPI official receipt (OR) no. 217, OR no. 218, OR no. 220,OR no. 221, OR no. 222, OR no. 223, andOR no. 227,to wit:

          In addition, the stockholderssubmitted other documentsin evidence, namely:(a) an audit report dated March 30, 1989 prepared by Ilagan, Cepillo & Associates (submitted to the SEC and the BIR);^[19][7](b) BMPIbalance sheet^[20][8] and income statement^[21][9]as of December 31, 1988; (c) BMPI income tax return for the year 1988 (stamped “received” by the BIR);^[22][10](d) journal vouchers;^[23][11](e) cash deposit slips;^[24][12] and(f)Bank of the Philippine Islands (BPI) savings account passbookin the name of BMPI.^[25][13]

Ruling of the RTC

          On November 3, 1993, the RTC rendereda decision in favor of Printwell, rejecting the allegation of payment in full of the subscriptions in view of an irregularity in the issuance of the ORs and observingthat the defendants had used BMPI’s corporate personality to evade payment and create injustice, viz:

The claim of individual defendants that they have fully paid their subscriptions to defend[a]nt corporation, is not worthy of consideration, because: —

a)      in the case of defendants-spouses Albert and Zenaida Yu, it will be noted that the alleged payment made on May 13, 1988amounting to P135,000.00, is covered by Official Receipt No. 218 (Exh. “2”), whereas the alleged payment made earlier on November 5, 1987, amounting to P5,000.00, is covered by Official Receipt No. 222 (Exh. “3”). This is cogent proof that said receipts were belatedly issued just to suit their theory since in the ordinary course of business, a receipt issued earlier must have serial numbers lower than those issued on a later date. But in the case at bar, the receipt issued on November 5, 1987 has serial numbers (222) higher than those issued on a later date (May 13, 1988).

b)      The claim that since there was no call by the Board of Directors of defendant corporation for the payment of unpaid subscriptions will not be a valid excuse to free individual defendants from liability. Since the individual defendants are members of the Board of Directors of defendantcorporation, it was within their exclusive power to prevent the fulfillment of the condition, by simply not making a call for the payment of the unpaid subscriptions. Their inaction should not work to their benefit and unjust enrichment at the expense of plaintiff.

Assuming arguendo that the individual defendants have paid their unpaid subscriptions, still, it is very apparent that individual defendants merely used the corporate fiction as a cloak or cover to create an injustice; hence, the alleged separate personality of defendant corporation should be disregarded (Tan Boon Bee & Co., Inc. vs. Judge Jarencio, G.R. No. 41337, 30 June 1988).^[26][14]

          Applying the trust fund doctrine, the RTC declared the defendant stockholders liable to Printwell pro rata, thusly:

Defendant Business Media, Inc. is a registered corporation (Exhibits “A”, “A-1” to “A-9”), and, as appearing from the Articles of Incorporation, individual defendants have the following unpaid subscriptions:

                  Names                         Unpaid Subscription

                  Donnina C. Halley                    P262,500.00

                  Roberto V. Cabrera, Jr.              135.000.00

                  Albert T. Yu                               135,000.00

                  Zenaida V. Yu                          15,000.00

                  Rizalino V. Vineza                        15,000.00

                                                                  ——————–

                              Total                            P562,500.00

and it is an established doctrine that subscriptions to the capital stock of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims (Philippine National Bank vs. Bitulok Sawmill, Inc., 23 SCRA 1366) and, in fact, a corporation has no legal capacity to release a subscriber to its capital stock from the obligation to pay for his shares, and any agreement to this effect is invalid (Velasco vs. Poizat, 37 Phil. 802).

The liability of the individual stockholders in the instant case shall be pro-rated as follows:

                  Names                         Amount

                  Donnina C. Halley                    P149,955.65

                  Roberto V. Cabrera, Jr.                77,144.55

                  Albert T. Yu                                 77,144.55

                  Zenaida V. Yu                               8,579.00

                  Rizalino V. Vineza                          8,579.00

                                                                  ——————

                              Total                            P321,342.75^[27][15]

The RTC disposed as follows:

       WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants, ordering defendants to pay to plaintiff the amount of P291,342.76, as principal, with interest thereon at 20% per annum, from date of default, until fully paid, plus P30,000.00 as attorney’s fees, plus costs of suit.

         Defendants’ counterclaims are ordered dismissed for lack of merit.

         SO ORDERED.^[28][16]

Ruling of the CA

          All the defendants, except BMPI, appealed.

Spouses Donnina and Simon Halley, andRizalinoViñeza defined the following errors committed by the RTC, as follows:

I.

THE TRIAL COURT ERRED IN HOLDING APPELLANTS-STOCKHOLDERS LIABLE FOR THE LIABILITIES OF THE DEFENDANT CORPORATION.

II.

ASSUMING ARGUENDO THAT APPELLANTS MAY BE LIABLE TO THE EXTENT OF THEIR UNPAID SUBSCRIPTION OF SHARES OF STOCK, IF ANY, THE TRIAL COURT NONETHELESS ERRED IN NOT FINDING THAT APPELLANTS-STOCKHOLDERS HAVE, AT THE TIME THE SUIT WAS FILED, NO SUCH UNPAID SUBSCRIPTIONS.

          On their part, Spouses Albert and Zenaida Yu averred:

I.

THE RTC ERRED IN REFUSING TO GIVE CREDENCE AND WEIGHT TO DEFENDANTS-APPELLANTS SPOUSES ALBERT AND ZENAIDA YU’S EXHIBITS 2 AND 3 DESPITE THE UNREBUTTED TESTIMONY THEREON BY APPELLANT ALBERT YU AND THE ABSENCE OF PROOF CONTROVERTING THEM.

II.

THE RTC ERRED IN HOLDING DEFENDANTS-APPELLANTS SPOUSES ALBERT AND ZENAIDA YU PERSONALLY LIABLE FOR THE CONTRACTUAL OBLIGATION OF BUSINESS MEDIA PHILS., INC. DESPITE FULL PAYMENT BY SAID DEFENDANTS-APPELLANTS OF THEIR RESPECTIVE SUBSCRIPTIONS TO THE CAPITAL STOCK OF BUSINESS MEDIA PHILS., INC.

          Roberto V. Cabrera, Jr. argued:

I.

IT IS GRAVE ERROR ON THE PART OF THE COURT A QUO TO APPLY THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE PERSONALITY IN ABSENCE OF ANY SHOWING OF EXTRA-ORDINARY CIRCUMSTANCES THAT WOULD JUSTIFY RESORT THERETO.

II.

IT IS GRAVEERRORONTHE PART OF THE COURT A QUO TO RULE THAT INDIVIDUAL DEFENDANTS ARE LIABLE TO PAY THE PLAINTIFF-APPELLEE’S CLAIM BASED ON THEIR RESPECTIVE SUBSCRIPTION. NOTWITHSTANDING OVERWHELMING EVIDENCE SHOWING FULL SETTLEMENT OF SUBSCRIBED CAPITAL BY THE INDIVIDUAL DEFENDANTS.

          On August 14, 2002, the CA affirmed the RTC, holding that the defendants’ resort to the corporate personality would createan injustice becausePrintwell would thereby be at a loss against whom it would assert the right to collect, viz:

       Settled is the rule that when the veil of corporate fiction is used as a means of perpetrating fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievements or perfection of monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals (First Philippine International Bank vs. Court of Appeals, 252 SCRA 259). Moreover, under this doctrine, the corporate existence may be disregarded where the entity is formed or used for non-legitimate purposes, such as to evade a just and due obligations or to justify wrong (Claparols vs. CIR, 65 SCRA 613).

         In the case at bench, it is undisputed that BMPI made several orders on credit from appellee PRINTWELL involving the printing of business magazines, wrappers and subscription cards, in the total amount of P291,342.76 (Record pp. 3-5, Annex “A”) which facts were never denied by appellants’ stockholders that they owe appellee the amount of P291,342.76. The said goods were delivered to and received by BMPI but it failed to pay its overdue account to appellee as well as the interest thereon, at the rate of 20% per annum until fully paid. It was also during this time that appellants stockholders were in charge of the operation of BMPI despite the fact that they were not able to pay their unpaid subscriptions to BMPI yet greatly benefited from said transactions. In view of the unpaid subscriptions, BMPI failed to pay appellee of its liability, hence appellee in order to protect its right can collect from the appellants’ stockholders regarding their unpaid subscriptions. To deny appellee from recovering from appellants would place appellee in a limbo on where to assert their right to collect from BMPI since the stockholders who are appellants herein are availing the defense of corporate fiction to evade payment of its obligations.^[29][17]

          Further, the CA concurred with the RTC on theapplicability of thetrust fund doctrine, under which corporate debtors might look to the unpaid subscriptions for the satisfaction of unpaid corporate debts, stating thus:

       It is an established doctrine that subscription to the capital stock of a corporation constitute a fund to which creditors have a right to look up to for satisfaction of their claims, and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts (PNB vs. Bitulok Sawmill, 23 SCRA 1366).

         Premised on the above-doctrine, an inference could be made that the funds, which consists of the payment of subscriptions of the stockholders, is where the creditors can claim monetary considerations for the satisfaction of their claims. If these funds which ought to be fully subscribed by the stockholders were not paid or remain an unpaid subscription of the corporation then the creditors have no other recourse to collect from the corporation of its liability. Such occurrence was evident in the case at bar wherein the appellants as stockholders failed to fully pay their unpaid subscriptions, which left the creditors helpless in collecting their claim due to insufficiency of funds of the corporation. Likewise, the claim of appellants that they already paid the unpaid subscriptions could not be given weight because said payment did not reflect in the Articles of Incorporations of BMPI that the unpaid subscriptions were fully paid by the appellants’ stockholders. For it is a rule that a stockholder may be sued directly by creditors to the extent of their unpaid subscriptions to the corporation (Keller vs. COB Marketing, 141 SCRA 86).

         Moreover, a corporation has no power to release a subscription or its capital stock, without valuable consideration for such releases, and as against creditors, a reduction of the capital stock can take place only in the manner and under the conditions prescribed by the statute or the charter or the Articles of Incorporation. (PNB vs. Bitulok Sawmill, 23 SCRA 1366).^[30][18]

          The CAdeclared thatthe inconsistency in the issuance of the ORs rendered the claim of full payment of the subscriptions to the capital stock unworthy of consideration; andheld that the veil of corporate fiction could be pierced when it was used as a shield to perpetrate a fraud or to confuse legitimate issues, to wit:

Finally, appellants SPS YU, argued that the fact of full payment for the unpaid subscriptions was incontrovertibly established by competent testimonial and documentary evidence, namely – Exhibits “1”, “2”, “3” & “4”, which were never disputed by appellee, clearly shows that they should not be held liable for payment of the said unpaid subscriptions of BMPI.

The reliance is misplaced.

We are hereby reproducing the contents of the above-mentioned exhibits, to wit:

Exh: “1” – YU – Official Receipt No. 217 dated November 5, 1987amounting to P45,000.00 allegedly representing the initial payment of subscriptions of stockholder Albert Yu.

Exh: “2” – YU – Official Receipt No. 218 dated May 13, 1988 amounting to P135,000.00 allegedly representing full payment of balance of subscriptions of stockholder Albert Yu. (Record p. 352).

Exh: “3” – YU – Official Receipt No. 222 dated November 5, 1987amounting to P5,000.00 allegedly representing the initial payment of subscriptions of stockholder Zenaida Yu.

Exh: “4” – YU – Official Receipt No. 223 dated May 13, 1988amounting to P15,000.00 allegedly representing the full payment of balance of subscriptions of stockholder Zenaida Yu. (Record p. 353).

Based on the above exhibits, we are in accord with the lower court’s findings that the claim of the individual appellants that they fully paid their subscription to the defendant BMPI is not worthy of consideration, because, in the case of appellants SPS. YU, there is an inconsistency regarding the issuance of the official receipt since the alleged payment made on May 13, 1988 amounting to P135,000.00 was covered by Official Receipt No. 218 (Record, p. 352), whereas the alleged payment made earlier on November 5, 1987 amounting to P5,000.00 is covered by Official Receipt No. 222 (Record, p. 353). Such issuance is a clear indication that said receipts were belatedly issued just to suit their claim that they have fully paid the unpaid subscriptions since in the ordinary course of business, a receipt is issued earlier must have serial numbers lower than those issued on a later date. But in the case at bar, the receipt issued on November 5, 1987 had a serial number (222) higher than those issued on May 13, 1988 (218). And even assuming arguendo that the individual appellants have paid their unpaid subscriptions, still, it is very apparent that the veil of corporate fiction may be pierced when made as a shield to perpetuate fraud and/or confuse legitimate issues. (Jacinto vs. Court of Appeals, 198 SCRA 211).^[31][19]

          Spouses Halley and Viñeza moved for a reconsideration, but the CA denied their motion for reconsideration.

Issues

Only Donnina Halley has come to the Court to seek a further review, positing the following for our consideration and resolution, to wit:

I.

THE COURT OF APPEALS ERRED IN AFFIRMING IN TOTO THE DECISION THAT DIDNOTSTATETHE FACTS AND THE LAW UPON WHICH THE JUDGMENT WAS BASED BUT MERELY COPIED THE CONTENTS OF RESPONDENT’S MEMORANDUM ADOPTING THE SAME AS THE REASON FOR THE DECISION

II.

THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE REGIONAL TRIAL COURT WHICH ESSENTIALLY ALLOWED THE PIERCING OF THE VEIL OF CORPORATE FICTION

III.

THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE TRUST FUND DOCTRINE WHEN THE GROUNDS THEREFOR HAVE NOT BEEN SATISFIED.

          On the first error, the petitioner contends that the RTC lifted verbatim from the memorandum of Printwell; and submits that the RTCthereby violatedthe requirement imposed in Section 14, Article VIII of the Constitution^[32][20] as well as in Section 1,Rule 36 of the Rules of Court,^[33][21]to the effect that a judgment or final order of a court should state clearly and distinctly the facts and the law on which it is based. The petitioner claims that the RTC’s violation indicated that the RTC did not analyze the case before rendering its decision, thus denying her the opportunity to analyze the decision; andthat a suspicion of partiality arose from the fact that the RTC decision was but a replica of Printwell’s memorandum.She cites Francisco v. Permskul,^[34][22] in which the Court has stated that the reason underlying the constitutional requirement, that every decision should clearly and distinctly state the facts and the law on which it is based, is to inform the reader of how the court has reached its decision and thereby give the losing party an opportunity to study and analyze the decision and enable such party to appropriately assign the errors committed therein on appeal.

          On the second and third errors, the petitioner maintains that the CA and the RTC erroneously pierced the veil of corporate fiction despite the absence of cogent proof showing that she, as stockholder of BMPI, had any hand in transacting with Printwell; thatthe CA and the RTC failed to appreciate the evidence that she had fully paid her subscriptions; and the CA and the RTCwrongly relied on the articles of incorporation in determining the current list of unpaid subscriptions despite the articles of incorporationbeing at best reflectiveonly of the pre-incorporation status of BMPI.

          As her submissions indicate, the petitioner assails the decisions of the CA on: (a) the propriety of disregarding the separate personalities of BMPI and its stockholdersby piercing the thin veil that separated them; and (b) the application of the trust fund doctrine.

Ruling

          The petition for review fails.

I

The RTC did not violate

the Constitution and the Rules of Court

The contention of the petitioner, that the RTC merely copied the memorandum of Printwell in writing its decision, and did not analyze the records on its own, thereby manifesting a bias in favor of Printwell, is unfounded.

It is noted that the petition for review merely generally alleges that starting from its page 5, the decision of the RTC “copied verbatim the allegations of herein Respondents in its Memorandum before the said court,” as if “the Memorandum was the draft of the Decision of the Regional Trial Court of Pasig,”^[35][23]but fails to specify either the portions allegedly lifted verbatim from the memorandum, or why she regards the decision as copied. The omission renders thepetition for review insufficient to support her contention, considering that the mere similarityin language or thought between Printwell’s memorandum and the trial court’s decisiondid not necessarily justify the conclusion that the RTC simply lifted verbatim or copied from thememorandum.

It is to be observed in this connection that a trial or appellate judge may occasionally viewa party’s memorandum or brief as worthy of due consideration either entirely or partly. When he does so, the judgemay adopt and incorporatein his adjudicationthe memorandum or the parts of it he deems suitable,and yet not be guilty of the accusation of lifting or copying from the memorandum.^[36][24] This isbecause ofthe avowed objective of the memorandum to contribute in the proper illumination and correct determination of the controversy.Nor is there anything untoward in the congruence of ideas and views about the legal issues between himself and the party drafting the memorandum.The frequency of similarities in argumentation, phraseology, expression, and citation of authorities between the decisions of the courts and the memoranda of the parties, which may be great or small, can be fairly attributable tothe adherence by our courts of law and the legal profession to widely knownor universally accepted precedents set in earlier judicial actions with identical factual milieus or posing related judicial dilemmas.

We also do not agree with the petitioner that the RTC’s manner of writing the decisiondeprivedher ofthe opportunity to analyze its decisionas to be able to assign errors on appeal. The contrary appears, considering that she was able to impute and assignerrors to the RTCthat she extensively discussed in her appeal in the CA, indicating her thorough analysis ofthe decision of the RTC.

Our own readingof the trial court’s decision persuasively shows that the RTC did comply with the requirements regarding the content and the manner of writing a decision prescribed in the Constitution and the Rules of Court. The decision of the RTC contained clear and distinct findings of facts, and stated the applicablelaw and jurisprudence, fully explaining why the defendants were being held liable to the plaintiff.  In short, the reader was at once informed of the factual and legal reasons for the ultimate result.

II

Corporate personality not to be used to foster injustice

Printwell impleaded the petitioner and the other stockholders of BMPI for two reasons, namely: (a) to reach the unpaid subscriptions because it appeared that such subscriptions were the remaining visible assets of BMPI; and (b) to avoid multiplicity of suits.^[37][25]

The petitionersubmits that she had no participation in the transaction between BMPI and Printwell;that BMPI acted on its own; and that shehad no hand in persuading BMPI to renege on its obligation to pay. Hence, she should not be personally liable.

We rule against the petitioner’s submission.

Although a corporation has a personality separate and distinct from those of its stockholders, directors, or officers,^[38][26]such separate and distinct personality is merely a fiction created by law for the sake of convenience and to promote the ends of justice.^[39][27]The corporate personality may be disregarded, and the individuals composing the corporation will be treated as individuals, if the corporate entity is being used as a cloak or cover for fraud or illegality;as a justification for a wrong; as an alter ego, an adjunct, or a business conduit for the sole benefit of the stockholders.^[40][28] As a general rule, a corporation is looked upon as a legal entity, unless and until sufficient reason to the contrary appears. Thus,the courts always presume good faith, andfor that reason accord prime importance to the separate personality of the corporation, disregarding the corporate personality only after the wrongdoing is first clearly and convincingly established.^[41][29]It thus behooves the courts to be careful in assessing the milieu where the piercing of the corporate veil shall be done.^[42][30]

Although nowhere in Printwell’s amended complaint or in the testimonies Printwell offered can it be read or inferred from that the petitioner was instrumental in persuading BMPI to renege onits obligation to pay; or that sheinduced Printwell to extend the credit accommodation by misrepresenting the solvency of BMPI toPrintwell, her personal liability, together with that of her co-defendants, remainedbecause the CA found her and the other defendant stockholders to be in charge of the operations of BMPI at the time the unpaid obligation was transacted and incurred, to wit:

In the case at bench, it is undisputed that BMPI made several orders on credit from appellee PRINTWELL involving the printing of business magazines, wrappers and subscription cards, in the total amount of P291,342.76 (Record pp. 3-5, Annex “A”) which facts were never denied by appellants’ stockholders that they owe(d) appellee the amount of P291,342.76. The said goods were delivered to and received by BMPI but it failed to pay its overdue account to appellee as well as the interest thereon, at the rate of 20% per annum until fully paid. It was also during this time that appellants stockholders were in charge of the operation of BMPI despite the fact that they were not able to pay their unpaid subscriptions to BMPI yet greatly benefited from said transactions. In view of the unpaid subscriptions, BMPI failed to pay appellee of its liability, hence appellee in order to protect its right can collect from the appellants stockholders regarding their unpaid subscriptions. To deny appellee from recovering from appellants would place appellee in a limbo on where to assert their right to collect from BMPI since the stockholders who are appellants herein are availing the defense of corporate fiction to evade payment of its obligations.^[43][31]

It follows, therefore, that whether or not the petitioner persuaded BMPI to renege on its obligations to pay, and whether or not she induced Printwell to transact with BMPI were not gooddefensesin the suit.

III

Unpaid creditor may satisfy its claim from

unpaid subscriptions;stockholders must

prove full payment oftheir subscriptions

Both the RTC and the CA applied the trust fund doctrineagainst the defendant stockholders, including the petitioner.

The petitionerargues, however,that the trust fund doctrinewas inapplicablebecause she had already fully paid her subscriptions to the capital stock of BMPI. She thus insiststhat both lower courts erred in disregarding the evidence on the complete payment of the subscription, like receipts, income tax returns, and relevant financial statements.

The petitioner’s argumentis devoid of substance.

          The trust fund doctrineenunciates a –

xxx rule that the property of a corporation is a trust fund for the payment of creditors, but such property can be called a trust fund ‘only by way of analogy or metaphor.’ As between the corporation itself and its creditors it is a simple debtor, and as between its creditors and stockholders its assets are in equity a fund for the payment of its debts.^[44][32]

The trust fund doctrine, first enunciated in the American case of Wood v. Dummer,^[45][33]was adopted in our jurisdiction in Philippine Trust Co. v. Rivera,^[46][34]where thisCourt declared that:

It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts. (Velasco vs. Poizat, 37 Phil., 802) xxx^[47][35]

We clarify that the trust fund doctrineis not limited to reaching the stockholder’s unpaid subscriptions. The scope of the doctrine when the corporation is insolvent encompasses not only the capital stock, but also other property and assets generally regarded in equity as a trust fund for the payment of corporate debts.^[48][36]All assets and property belonging to the corporation held in trust for the benefit of creditors thatwere distributed or in the possession of the stockholders, regardless of full paymentof their subscriptions, may be reached by the creditor in satisfaction of its claim.

Also, under the trust fund doctrine,a corporation has no legal capacity to release an original subscriber to its capital stock from the obligation of paying for his shares, in whole or in part,^[49][37] without a valuable consideration,^[50][38] or fraudulently, to the prejudice of creditors.^[51][39]The creditor is allowed to maintain an action upon any unpaid subscriptions and thereby steps into the shoes of the corporation for the satisfaction of its debt.^[52][40]To make out a prima facie case in a suit against stockholders of an insolvent corporation to compel them to contribute to the payment of its debts by making good unpaid balances upon their subscriptions, it is only necessary to establish that thestockholders have not in good faith paid the par value of the stocks of the corporation.^[53][41]

The petitionerposits that the finding of irregularity attending the issuance of the receipts (ORs) issued to the other stockholders/subscribers should not affect her becauseher receipt did not suffer similar irregularity.

Notwithstanding that the RTC and the CA did not find any irregularity in the OR issued in her favor,we still cannot sustain the petitioner’s defense of full payment of her subscription.

In civil cases, theparty who pleads payment has the burden of proving it, that even where the plaintiff must allege nonpayment, the general rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to prove nonpayment.  In other words, the debtor bears the burden of showing with legal certainty that the obligation has been discharged by payment.^[54][42]

Apparently, the petitioner failed to discharge her burden.

A receipt is the written acknowledgment of the fact of payment in money or other settlement between the seller and the buyer of goods, thedebtor or thecreditor, or theperson rendering services, and theclient or thecustomer.^[55][43]Althougha receipt is the best evidence of the fact of payment, it isnot conclusive, but merely presumptive;nor is it exclusive evidence,considering thatparole evidence may also establishthe fact of payment.^[56][44]

The petitioner’s ORNo. 227,presentedto prove the payment of the balance of her subscription, indicated that her supposed payment had beenmade by means of a check. Thus, to discharge theburden to prove payment of her subscription, she had to adduce evidence satisfactorily proving that her payment by check wasregardedas payment under the law.

Paymentis defined as the delivery of money.^[57][45]Yet, because a check is not money and only substitutes for money, the delivery of a check does not operate as payment and does not discharge the obligation under a judgment.^[58][46] The delivery of a bill of exchange only produces the fact of payment when the bill has been encashed.^[59][47]The following passage fromBank of Philippine Islands v. Royeca^[60][48]is enlightening:

Settled is the rule that payment must be made in legal tender. A check is not legal tender and, therefore, cannot constitute a valid tender of payment. Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized.

To establish their defense, the respondents therefore had to present proof, not only that they delivered the checks to the petitioner, but also that the checks were encashed. The respondents failed to do so. Had the checks been actually encashed, the respondents could have easily produced the cancelled checks as evidence to prove the same. Instead, they merely averred that they believed in good faith that the checks were encashed because they were not notified of the dishonor of the checks and three years had already lapsed since they issued the checks.

Because of this failure of the respondents to present sufficient proof of payment, it was no longer necessary for the petitioner to prove non-payment, particularly proof that the checks were dishonored. The burden of evidence is shifted only if the party upon whom it is lodged was able to adduce preponderant evidence to prove its claim.

Ostensibly, therefore, the petitioner’s mere submission of the receipt issued in exchange of the check did not satisfactorily establish her allegation of full payment of her subscription. Indeed, she could not even inform the trial court about the identity of her drawee bank,^[61][49]and about whether the check was cleared and its amount paid to BMPI.^[62][50]In fact, she did not present the check itself.

Theincome tax return (ITR) and statement of assets and liabilities of BMPI, albeit presented, had no bearing on the issue of payment of the subscription because they did not by themselves prove payment. ITRsestablish ataxpayer’s liability for taxes or a taxpayer’s claim for refund. In the same manner, the deposit slips and entries in the passbook issued in the name of BMPI were hardly relevant  due to their not reflecting the alleged payments.

It is notable, too, that the petitioner and her co-stockholders did not support their allegation of complete payment of their respective subscriptions with the stock and transfer book of BMPI. Indeed, books and records of a corporation (including the stock and transfer book) are admissible in evidence in favor of or against the corporation and its members to prove the corporate acts, its financial status and other matters (like the status of the stockholders), and are ordinarily the best evidence of corporate acts and proceedings.^[63][51]Specifically, a stock and transfer book is necessary as a measure of precaution, expediency, and convenience because it provides the only certain and accurate method of establishing the various corporate acts and transactions and of showing the ownership of stock and like matters.^[64][52]That she tendered no explanation why the stock and transfer book was not presented warrants the inference that the book did not reflect the actual payment of her subscription.

Nor did the petitioner present any certificate of stock issued by BMPI to her. Such a certificate covering her subscription might have been a reliable evidence of full payment of the subscriptions, considering that under Section 65 of the Corporation Code a certificate of stock issues only to a subscriber who has fully paid his subscription. The lack of any explanation for the absence of a stock certificate in her favor likewise warrants an unfavorable inference on the issue of payment.

Lastly, the petitioner maintains that both lower courts erred in relying on the articles of incorporationas proof of the liabilities of the stockholders subscribing to BMPI’s stocks, averring that the articles of incorporationdid not reflect the latest subscription status of BMPI.

Although the articles of incorporation may possibly reflect only the pre-incorporation status of a corporation, the lower courts’ reliance on that document to determine whether the original subscribersalready fully paid their subscriptions or not was neither unwarranted nor erroneous. As earlier explained, the burden of establishing the fact of full payment belonged not to Printwell even if it was the plaintiff, but to the stockholders like the petitioner who, as the defendants, averredfull payment of their subscriptions as a defense. Their failure to substantiate their averment of full payment, as well as their failure to counter the reliance on the recitals found in the articles of incorporation simply meant their failure or inability to satisfactorily prove their defense of full payment of the subscriptions.

To reiterate, the petitionerwas liablepursuant to the trust fund doctrine for the corporate obligation of BMPI by virtue of her subscription being still unpaid. Printwell, as BMPI’s creditor,had a right to reachher unpaid subscription in satisfaction of its claim.

IV

Liability of stockholders for corporate debts isup

to the extentof their unpaid subscription

The RTC declared the stockholders pro rata liable for the debt(based on the proportion to their shares in the capital stock of BMPI); and held the petitionerpersonally liable onlyin the amount of P149,955.65.

We do not agree. The RTC lacked the legal and factual support for its prorating the liability. Hence, we need to modify the extent of the petitioner’s personal liability to Printwell. The prevailing rule is that a stockholder is personally liable for the financial obligations of the corporation to the extent of his unpaid subscription.^[65][53]In view ofthe petitioner’s unpaid subscription being worth P262,500.00, shewas liable up to that amount.

Interest is also imposable on the unpaid obligation. Absent any stipulation, interest is fixed at 12% per annum from the date the amended complaint was filed on February 8, 1990 until the obligation (i.e., to the extent of the petitioner’s personal liability of P262,500.00) is fully paid.^[66][54]

Lastly, we find no basis togrant attorney’s fees, the award for which must be supported by findings of fact and of law as provided under Article 2208 of the Civil Code^[67][55]incorporated in the body of decision of the trial court. The absence of the requisite findings from the RTC decision warrants the deletion of the attorney’s fees.

ACCORDINGLY, we deny the petition for review on certiorari;and affirm with modification the decision promulgated on August 14, 2002by ordering the petitionerto pay to Printwell, Inc. the sum of P262,500.00, plus interest of 12% per annum to be computed from February 8, 1990 until full payment.

The petitioner shall paycost of suit in this appeal.

SO ORDERED.

                                                                    LUCAS P. BERSAMIN

                                                                          Associate Justice

WE CONCUR:

                                                                                                                                                CONCHITA CARPIOMORALES                             

Associate Justice

 Chairperson

          ARTURO D. BRION                                MARTIN S. VILLARAMA

    Associate Justice                                               Associate Justice

MARIA LOURDES P. A. SERENO

Associate Justice

A T T E S T A T I O N

          I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

                                                CONCHITA CARPIO MORALES

                                                               Associate Justice

                                                                   Chairperson

C E R T I F I C A T I O N

          Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

                                                RENATO C. CORONA

                                                          Chief Justice