J.A.B. Bulao & Associates

 LUZON DEVELOPMENT BANK VS. ANGELES CATHERINE ENRIQUEZ (G.R. NO. 168646, 12 JANUARY 2011, DEL CASTILLO, J.); DELTA DEVELOPMENT AND MANAGEMENT SERVICES, INC. VS. ANGELES CATHERINE ENRIQUEZ and LUZON DEVELOPMENT BANK, (G.R. NO. 168666, 12  JANUARY 2011,  DEL CASTILLO, J.) SUBJECTS: MORTAGE, CONTRACT TO SELL, DACION EN PAGO, LOAN OBLIGATIONS. BRIEF TITLE: LUZON DEVELOPMENT BANK VS. ENRIQUEZ.

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DOCTRINES:

MORTGAGING PROPERTY TO THE BANK WITHOUT PRIOR HLURB CLREARANCE IS VOID

            As the HLURB Arbiter and Board of Commissioners both found, DELTA violated Section 18 of PD 957 in mortgaging the properties in Delta Homes I (including Lot 4) to the BANK without prior clearance from the HLURB.  This point need not be belabored since the parties have chosen not to appeal the administrative fine imposed on DELTA for violation of Section 18. 

This violation of Section 18 renders the mortgage executed by DELTA void.  We have held before that “a mortgage contract executed in breach of Section 18 of [PD 957] is null and void.”^[1][61]  Considering that “PD 957 aims to protect innocent subdivision lot and condominium unit buyers against fraudulent real estate practices,” we have construed Section 18 thereof as “prohibitory and acts committed contrary to it are void.”^[2][62] 

CONTRACT TO SELL DOES NOT CONVEY OWNERSHIP. COURT OF APPEALS INVALIDATED DACION IN PAYMENT IN CONNECTION WITH A VOID MORTGAGE ON THE GROUND THAT MORTGAGE SHOULD NOT HAVE TAKEN PLACE BECAUSE THE OWNER HAS ALREADY CONVEYED THE PROPERTY TO ENRIQUEZ BY WAY OF CONTRACT TO SELL. THIS IS ERROR.

Because of the nullity of the mortgage, neither DELTA nor the BANK could assert any right arising therefrom.  The BANK’s loan of P8 million to DELTA has effectively become unsecured due to the nullity of the mortgage.  The said loan, however, was eventually settled by the two contracting parties via a dation in payment.  In the appealed Decision, the CA invalidated this dation in payment on the ground that DELTA, by previously entering into a Contract to Sell, had already conveyed its ownership over Lot 4 to Enriquez and could no longer convey the same to the BANK.  This is error, prescinding from a wrong understanding of the nature of a contract to sell.

Contract to sell does not transfer ownership

            Both parties are correct in arguing that the Contract to Sell executed by DELTA in favor of Enriquez did not transfer ownership over Lot 4 to Enriquez.  A contract to sell is one where the prospective seller reserves the transfer of title to the prospective buyer until the happening of an event, such as full payment of the purchase price.  What the seller obliges himself to do is to sell the subject property only when the entire amount of the purchase price has already been delivered to him.  “In other words, the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer.”^[3][63]  It does not, by itself, transfer ownership to the buyer.^[4][64]

            In the instant case, there is nothing in the provisions of the contract entered into by DELTA and Enriquez that would exempt it from the general definition of a contract to sell.  The terms thereof provide for the reservation of DELTA’s ownership until full payment of the purchase price; such that DELTA even reserved the right to unilaterally void the contract should Enriquez fail to pay three successive monthly amortizations.

            Since the Contract to Sell did not transfer ownership of Lot 4 to Enriquez, said ownership remained with DELTA.  DELTA could then validly transfer such ownership (as it did) to another person (the BANK).  However, the transferee BANK is bound by the Contract to Sell and has to respect Enriquez’s rights thereunder.  This is because the Contract to Sell, involving a subdivision lot, is covered and protected by PD 957.  One of the protections afforded by PD 957 to buyers such as Enriquez is the right to have her contract to sell registered with the Register of Deeds in order to make it binding on third parties.  Thus, Section 17 of PD 957 provides:

Section 17.  Registration.  All contracts to sell, deeds of sale, and other similar instruments relative to the sale or conveyance of the subdivision lots and condominium units, whether or not the purchase price is paid in full, shall be registered by the seller in the Office of the Register of Deeds of the province or city where the property is situated.

x x x x (Emphasis supplied.)

The purpose of registration is to protect the buyers from any future unscrupulous transactions involving the object of the sale or contract to sell, whether the purchase price therefor has been fully paid or not.  Registration of the sale or contract to sell makes it binding on third parties; it serves as a notice to the whole world that the property is subject to the prior right of the buyer of the property (under a contract to sell or an absolute sale), and anyone who wishes to deal with the said property will be held bound by such prior right.

DELTA FAILED TO REGISTER THE CONTRACT TO SELL WITH THE REGISTER OF DEEDS. IS THE BANK STILL BOUND TO RESPECT THE CONTRACT TO SELL? YES. THE BANK KNEW OR SHOULD HAVE KNOWN OF THE POSSIBILITY AND RISK THAT THE ASSIGNED PROPERTIES WERE ALREADY COVERED BY EXISTING CONTRACTS TO SELL IN FAVOR OF SUBDIVISION LOT BUYERS.

            While DELTA, in the instant case, failed to register Enriquez’s Contract to Sell with the Register of Deeds, this failure will not prejudice Enriquez or relieve the BANK from its obligation to respect Enriquez’s Contract to Sell.  Despite the non-registration, the BANK cannot be considered, under the circumstances, an innocent purchaser for value of  Lot 4 when it accepted the latter (together with other assigned properties) as payment for DELTA’s obligation.  The BANK was well aware that the assigned properties, including Lot 4, were subdivision lots and therefore within the purview of PD 957.  It knew that the loaned amounts were to be used for the development of DELTA’s subdivision project, for this was indicated in the corresponding promissory notes.  The technical description of Lot 4 indicates its location, which can easily be determined as included within the subdivision development.  Under these circumstances, the BANK knew or should have known of the possibility and risk that the assigned properties were already covered by existing contracts to sell in favor of subdivision lot buyers.  As observed by the Court in another case involving a bank regarding a subdivision lot that was already subject of a contract to sell with a third party:

[The Bank] should have considered that it was dealing with a property subject of a real estate development project. A reasonable person, particularly a financial institution x x x, should have been aware that, to finance the project, funds other than those obtained from the loan could have been used to serve the purpose, albeit partially. Hence, there was a need to verify whether any part of the property was already intended to be the subject of any other contract involving buyers or potential buyers. In granting the loan, [the Bank] should not have been content merely with a clean title, considering the presence of circumstances indicating the need for a thorough investigation of the existence of buyers x x x. Wanting in care and prudence, the [Bank] cannot be deemed to be an innocent mortgagee.  x x x^[5][65]

Further, as an entity engaged in the banking business, the BANK is required to observe more care and prudence when dealing with registered properties.  The Court cannot accept that the BANK was unaware of the Contract to Sell existing in favor of Enriquez.  In Keppel Bank Philippines, Inc. v. Adao,^[6][66] we held that a bank dealing with a property that is already subject of a contract to sell and is protected by the provisions of PD 957, is bound by the contract to sell (even if the contract to sell in that case was not registered).  In the Court’s words:

It is true that persons dealing with registered property can rely solely on the certificate of title and need not go beyond it.  However, x x x, this rule does not apply to banks.  Banks are required to exercise more care and prudence than private individuals in dealing even with registered properties for their business is affected with public interest.  As master of its business, petitioner should have sent its representatives to check the assigned properties before signing the compromise agreement and it would have discovered that respondent was already occupying one of the condominium units and that a contract to sell existed between [the vendee] and [the developer].  In our view, petitioner was not a purchaser in good faith and we are constrained to rule that petitioner is bound by the contract to sell.^[7][67]

Bound by the terms of the Contract to Sell, the BANK is obliged to respect the same and honor the payments already made by Enriquez for the purchase price of Lot 4.  Thus, the BANK can only collect the balance of the purchase price from Enriquez and has the obligation, upon full payment, to deliver to Enriquez a clean title over the subject property.^[8][68] 

THE BANK ARGUES THAT SINCE LOT 4 IS ORDERED DELIVERED TO ENRIQUEZ, THEN DELTA STILL OWES TO THE EXTENT OF THE VALUE OF LOT 4. AND THUS THE DACION EN PAGO ENTERED WITH DELTA DID NOT EXTINGUISH THE OBLIGATION OF DELTA. THE ARGUMENT IS WITHOUT MERIT. THE DACION EN PAGO CLEARLY INTENDS THAT THE OBLIGATION TO THE BANK IS EXTINGUISHED BY THE ASSIGNMENT OF PROPERTIES. THE BANK TOOK THE RISK WITH REGARDS TO THOSE PROPERTIES THAT WERE COVERED BY CONTRACTS TO SELL.

Dacion en pago extinguished the loan obligation

            The BANK then posits that, if title to Lot 4 is ordered delivered to Enriquez, DELTA has the obligation to pay the BANK the corresponding value of Lot 4.  According to the BANK, the dation in payment extinguished the loan only to the extent of the value of the thing delivered.  Since Lot 4 would have no value to the BANK if it will be delivered to Enriquez, DELTA would remain indebted to that extent.

We are not persuaded.  Like in all contracts, the intention of the parties to the dation in payment is paramount and controlling.  The contractual intention determines whether the property subject of the dation will be considered as the full equivalent of the debt and will therefore serve as full satisfaction for the debt.  “The dation in payment extinguishes the obligation to the extent of the value of the thing delivered, either as agreed upon by the parties or as may be proved, unless the parties by agreement, express or implied, or by their silence, consider the thing as equivalent to the obligation, in which case the obligation is totally extinguished.”^[9][69] 

            In the case at bar, the Dacion en Pago executed by DELTA and the BANK indicates a clear intention by the parties that the assigned properties would serve as full payment for DELTA’s entire obligation:

KNOW ALL MEN BY THESE PRESENTS:

                This instrument, made and executed by and between:

x x x x

                THAT, the ASSIGNOR acknowledges to be justly indebted to the ASSIGNEE in the sum of ELEVEN MILLION EIGHT HUNDRED SEVENTY-EIGHT THOUSAND EIGHT HUNDRED PESOS (P11,878,800.00), Philippine Currency as of August 25, 1998.  Therefore, by virtue of this instrument, ASSIGNOR hereby ASSIGNS, TRANSFERS, and CONVEYS AND SETS OVER [TO] the ASSIGNEE that real estate with the building and improvements existing thereon, more particularly described as follows:

x x x x

of which the ASSIGNOR is the registered owner being evidenced by TCT No. x x x issued by the Registry of Deeds of Trece Martires City.

THAT, the ASSIGNEE does hereby accept this ASSIGNMENT IN PAYMENT OF THE TOTAL OBLIGATION owing to him by the ASSIGNOR as above-stated;^[10][70]

Without any reservation or condition, the Dacion stated that the assigned properties served as full payment of DELTA’s “total obligation” to the BANK.  The BANK accepted said properties as equivalent of the loaned amount and as full satisfaction of DELTA’s debt.  The BANK cannot complain if, as it turned out, some of those assigned properties (such as Lot 4) are covered by existing contracts to sell. As noted earlier, the BANK knew that the assigned properties were subdivision lots and covered by PD 957.  It was aware of the nature of DELTA’s business, of the location of the assigned properties within DELTA’s subdivision development, and the possibility that some of the properties may be subjects of existing contracts to sell which enjoy protection under PD 957.  Banks dealing with subdivision properties are expected to conduct a thorough due diligence review to discover the status of the properties they deal with.  It may thus be said that the BANK, in accepting the assigned properties as full payment of DELTA’s “total obligation,” has assumed the risk that some of the assigned properties (such as Lot 4) are covered by contracts to sell which it is bound to honor under PD 957. 

            A dacion en pago is governed by the law of sales.^[11][71]  Contracts of sale come with warranties, either express (if explicitly stipulated by the parties) or implied (under Article 1547 et seq. of the Civil Code).  In this case, however, the BANK does not even point to any breach of warranty by DELTA in connection with the Dation in Payment.  To be sure, the Dation in Payment has no express warranties relating to existing contracts to sell over the assigned properties.  As to the implied warranty in case of eviction, it is waivable^[12][72] and cannot be invoked if the buyer knew of the risks or danger of eviction and assumed its consequences.^[13][73]  As we have noted earlier, the BANK, in accepting the assigned properties as full payment of DELTA’s “total obligation,” has assumed the risk that some of the assigned properties are covered by contracts to sell which must be honored under PD 957. 

CAN ENRIQUEZ CALIM EXEMPLARY DAMAGES AND ATTORNEY’S FEES? NO.

Award of damages

            There is nothing on record that warrants the award of exemplary damages^[14][74] as well as attorney’s fees^[15][75] in favor of the BANK.

Balance to be paid by Enriquez

As already mentioned, the Contract to Sell in favor of Enriquez must be respected by the BANK.  Upon Enriquez’s full payment of the balance of the purchase price, the BANK is bound to deliver the title over Lot 4 to her.  As to the amount of the balance which Enriquez must pay, we adopt the OP’s ruling thereon which sustained the amount stipulated in the Contract to Sell.  We will not review Enriquez’s initial claims about the supposed violation of the price ceiling in BP 220, since this issue was no longer pursued by the parties, not even by Enriquez, who chose not to file the required pleadings^[16][76] before the Court.  The parties were informed in the Court’s September 5, 2007 Resolution that issues that are not included in their memoranda shall be deemed waived or abandoned.  Since Enriquez did not file a memorandum in either petition, she is deemed to have waived the said issue.

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D E C I S I O N

DEL CASTILLO,  J.: 

            The protection afforded to a subdivision lot buyer under Presidential Decree (PD) No. 957 or The Subdivision and Condominium Buyer’s Protective Decree  will not be defeated by someone who is not an innocent purchaser for value.  The lofty aspirations of PD 957 should be read in every provision of the statute, in every contract that undermines its objects, in every transaction which threatens its fruition.  “For a statute derives its vitality from the purpose for which it is enacted and to construe it in a manner that disregards or defeats such purpose is to nullify or destroy the law.”^[1][1]

            These cases involve the separate appeals of Luzon Development Bank^[2][2]  (BANK) and Delta Development and Management Services, Inc.^[3][3] (DELTA) from the November 30, 2004 Decision of the Court of Appeals (CA), as well as its June 22, 2005 Resolution in CA-G.R. SP No. 81280.  The dispositive portion of the assailed Decision reads:

WHEREFORE, premises considered, the Decision dated June 17, 2003 and  Resolution dated November 24, 2003 are AFFIRMED with [m]odification in so far as Delta Development and Management Services, Inc. is liable and directed to pay petitioner Luzon Development Bank the value of the subject lot subject matter of the Contract to Sell between Delta Development and Management Services, Inc. and the private respondent [Catherine Angeles Enriquez].

SO ORDERED.^[4][4]

Factual Antecedents

            The BANK is a domestic financial corporation that extends loans to subdivision developers/owners.^[5][5]

            Petitioner DELTA is a domestic corporation engaged in the business of developing and selling real estate properties, particularly Delta Homes I in Cavite.  DELTA is owned by Ricardo De Leon (De Leon),^[6][6] who is the registered owner of a parcel of land covered by Transfer Certificate of Title (TCT) No. T-637183^[7][7] of the Registry of Deeds of the Province of Cavite, which corresponds to Lot 4 of Delta Homes I.  Said Lot 4 is the subject matter of these cases.

            On July 3, 1995, De Leon and his spouse obtained a P4 million loan from the BANK for the express purpose of developing Delta Homes I.^[8][8]  To secure the loan, the spouses De Leon executed in favor of the BANK a real estate mortgage (REM) on several of their properties,^[9][9] including Lot 4.  Subsequently, this REM was amended^[10][10] by increasing the amount of the secured loan from P4 million to P8 million.  Both the REM and the amendment were annotated on TCT No. T-637183.^[11][11]

            DELTA then obtained a Certificate of Registration^[12][12] and a License to Sell^[13][13] from the Housing and Land Use Regulatory Board (HLURB). 

            Sometime in 1997, DELTA executed a Contract to Sell with respondent Angeles Catherine Enriquez (Enriquez)^[14][14] over the house and lot in Lot 4 for the purchase price of P614,950.00.  Enriquez made a downpayment of P114,950.00.  The Contract to Sell contained the following provisions:

                That the vendee/s offered to buy and the Owner agreed to sell the above-described property subject to the following terms and conditions to wit:

                x x x x

                6.  That the (sic) warning shall be served upon the Vendee/s for failure to pay x x x Provided, however, that for failure to pay three (3) successive monthly installment payments, the Owner may consider this Contract to Sell null and void ab initio without further proceedings or court action and all payments shall be forfeited in favor of the Owner as liquidated damages and expenses for documentations. x x x

                That upon full payment of the total consideration if payable in cash, the Owner shall execute a final deed of sale in favor of the Vendee/s.  However, if the term of the contract is for a certain period of time, only upon full payment of the total consideration that a final deed of sale shall be executed by the Owner in favor of the Vendee/s.^[15][15]

            When DELTA defaulted on its loan obligation, the BANK, instead of foreclosing the REM, agreed to a dation in payment or a dacion en pago.  The Deed of Assignment in Payment of Debt was executed on September 30, 1998 and stated that DELTA “assigns, transfers, and conveys and sets over [to] the assignee that real estate with the building and improvements existing thereon x x x in payment of the total obligation owing to  [the Bank] x x x.”^[16][16]  Unknown to Enriquez, among the properties assigned to the BANK was the house and lot of Lot 4,^[17][17] which is the subject of her Contract to Sell with DELTA.  The records do not bear out and the parties are silent on whether the BANK was able to transfer title to its name.  It appears, however, that the dacion en pago was not annotated on the TCT of Lot 4.^[18][18]

            On November 18, 1999, Enriquez filed a complaint against DELTA and the BANK before the Region IV Office of the HLURB^[19][19] alleging that DELTA violated the terms of its License to Sell by: (a) selling the house and lots for a price exceeding that prescribed in Batas Pambansa (BP) Bilang 220;^[20][20] and (b) failing to get a clearance for the mortgage from the HLURB.  Enriquez sought a full refund of the P301,063.42 that she had already paid to DELTA, award of damages, and the imposition of administrative fines on DELTA and the BANK.

            In his June 1, 2000 Decision,^[21][21] HLURB Arbiter Atty. Raymundo A. Foronda upheld the validity of the purchase price, but ordered DELTA to accept payment of the balance of P108,013.36 from Enriquez, and (upon such payment)  to deliver to Enriquez the title to the house and lot free from liens and encumbrances.  The dispositive portion reads:

                WHEREFORE, premises considered, a decision is hereby rendered as follows:

1.  Ordering [DELTA] to accept complainant[’]s payments in the amount of P108,013.36 representing her balance based on the maximum selling price of P375,000.00;

2.  Upon full payment, ordering Delta to deliver the title in favor of the complainant free from any liens and encumbrances;

3.  Ordering [DELTA] to pay complainant the amount of P50,000.00 as and by way of moral damages;

4.  Ordering [DELTA] to pay complainant the amount of P50,000.00 as and by way of exemplary damages;

5.  Ordering [DELTA] to pay complainant P10,000.00 as costs of suit; and

6.  Respondent DELTA to pay administrative fine of P10,000.00^[[22][22]] for violation of Section 18 of P.D. 957^[[23][23]] and another P10,000.00 for violation of Section 22 of P.D. 957.^[[24][24]]

                SO ORDERED.^[25][25]

            DELTA appealed the arbiter’s Decision to the HLURB Board of Commissioners.^[26][26]  DELTA questioned the imposition of an administrative fine for its alleged violation of Section 18 of PD 957.  It argued that clearance was not required for mortgages that were constituted on a subdivision project prior to registration.   According to DELTA, it did not violate the terms of its license because it did not obtain a new mortgage over the subdivision project.  It likewise assailed the award of moral and exemplary damages to Enriquez on the ground that the latter has no cause of action.^[27][27]

Ruling of the Board of Commissioners (Board)^[28][28] 

            The Board held that all developers should obtain a clearance for mortgage from the HLURB, regardless of the date when the mortgage was secured, because the law does not distinguish. Having violated this legal requirement, DELTA was held liable to pay the administrative fine. 

            The Board upheld the validity of the contract to sell between DELTA and Enriquez despite the alleged violation of the price ceilings in BP 220.  The Board held that DELTA and Enriquez were presumed to have had a meeting of the minds on the object of the sale and the purchase price.  Absent any circumstance vitiating Enriquez’consent, she was presumed to have willingly and voluntarily agreed to the higher purchase price; hence, she was bound by the terms of the contract.

            The Board, however, deleted the arbiter’s award of damages to Enriquez on the ground that the latter was not free from liability herself, given that she was remiss in her monthly amortizations to DELTA. 

            The dispositive portion of the Board’s Decision reads:

            Wherefore, in view of the foregoing, the Office below’s decision dated June 01, 2000 is hereby modified to read as follows:

                1.  Ordering [Enriquez] to pay [DELTA] the amount due from the time she suspended payment up to filing of the complaint with 12% interest thereon per annum; thereafter the provisions of the Contract to Sell shall apply until full payment is made;

                2.  Ordering [DELTA] to pay an [a]dministrative [f]ine of P10,000.00 for violation of its license to sell and for violation of Section 18 of P.D. 957.

                So ordered.  Quezon City.^[29][29]

           Enriquez moved for a reconsideration of the Board’s Decision^[30][30] upholding the contractual purchase price.  She maintained that the price for Lot 4 should not exceed the price ceiling provided in BP 220.^[31][31] 

            Finding Enriquez’s arguments as having already been passed upon in the decision, the Board denied reconsideration.  The board, however, modified its decision, with respect to the period for the imposition of interest payments.  The Board’s resolution^[32][32] reads:

                WHEREFORE, premises considered, to [sic] directive No. 1 of the dispositive portion of the decision of our decision [sic] is MODIFIED as follows:

                1.  Ordering complainant to pay respondent DELTA the amount due from the time she suspended (sic) at 12% interest per annum, reckoned from finality of this decision[,] thereafter the provisions of the Contract to Sell shall apply until full payment is made.

                In all other respects, the decision is AFFIRMED.

                SO ORDERED.^[33][33]

            Both Enriquez and the BANK appealed to the Office of the President (OP).^[34][34]  The BANK disagreed with the ruling upholding Enriquez’s Contract to Sell; and insisted on its ownership over Lot 4.  It argued that it has become impossible for DELTA to comply with the terms of the contract to sell and to deliver Lot 4’s title to Enriquez given that DELTA had already relinquished all its rights to Lot 4 in favor of the BANK^[35][35] via the dation in payment. 

            Meanwhile, Enriquez insisted that the Board erred in not applying the ceiling price as prescribed in BP 220.^[36][36]

Ruling of the Office of the President^[37][37] 

       The OP adopted by reference the findings of fact and conclusions of law of the HLURB Decisions, which it affirmed in toto. 

           Enriquez filed a motion for reconsideration, insisting that she was entitled to a reduction of the purchase price, in order to conform to the provisions of BP 220.^[38][38]  The motion was denied for lack of merit.^[39][39] 

            Only the BANK appealed the OP’s Decision to the CA.^[40][40]  The BANK reiterated that DELTA can no longer deliver Lot 4 to Enriquez because DELTA had sold the same to the BANK by virtue of the dacion en pago.^[41][41]  As an alternative argument, in case the appellate court should find that DELTA retained ownership over Lot 4 and could convey the same to Enriquez, the BANK prayed that its REM over Lot 4 be respected such that DELTA would have to redeem it first before it could convey the same to Enriquez in accordance with Section 25^[42][42] of PD 957.^[43][43] 

            The BANK likewise sought an award of exemplary damages and attorney’s fees in its favor because of the baseless suit filed by Enriquez against it.^[44][44]

Ruling of the Court of Appeals^[45][45] 

            The CA ruled against the validity of the dacion en pago executed in favor of the BANK on the ground that DELTA had earlier relinquished its ownership over Lot 4 in favor of Enriquez via the Contract to Sell.^[46][46] 

            Since the dacion en pago is invalid with respect to Lot 4, the appellate court held that DELTA remained indebted to the BANK to the extent of Lot 4’s value.  Thus, the CA ordered DELTA to pay the corresponding value of Lot 4 to the BANK.^[47][47]

            The CA also rejected the BANK’s argument that, before DELTA can deliver the title to Lot 4 to Enriquez, DELTA should first redeem the mortgaged property from the BANK.  The CA held that the BANK does not have a first lien on Lot 4 because its real estate mortgage over the same had already been extinguished by the dacion en pago.  Without a mortgage, the BANK cannot require DELTA to redeem Lot 4 prior to delivery of title to Enriquez.^[48][48] 

            The CA denied the BANK’s prayer for the award of exemplary damages and attorney’s fees for lack of factual and legal basis.^[49][49]

            Both DELTA^[50][50] and the BANK^[51][51] moved for a reconsideration of the CA’s Decision, but both were denied.^[52][52]

            Hence, these separate petitions of the BANK and DELTA.

Petitioner Delta’s arguments^[53][53]

            DELTA assails the CA Decision for holding that DELTA conveyed its ownership over Lot 4 to Enriquez via the Contract to Sell.  DELTA points out that the Contract to Sell contained a condition that ownership shall only be transferred to Enriquez upon the latter’s full payment of the purchase price to DELTA.  Since Enriquez has yet to comply with this suspensive condition, ownership is retained by DELTA.^[54][54]  As the owner of Lot 4, DELTA had every right to enter into a dation in payment to extinguish its loan obligation to the BANK.  The BANK’s acceptance of the assignment, without any reservation or exception, resulted in the extinguishment of the entire loan obligation; hence, DELTA has no more obligation to pay the value of Enriquez’s house and lot to the BANK.^[55][55]

            DELTA prays for the reinstatement of the OP Decision.

The BANK’s arguments^[56][56]

            Echoing the argument of DELTA, the BANK argues that the Contract to Sell did not involve a conveyance of DELTA’s ownership over Lot 4 to Enriquez.  The Contract to Sell expressly provides that DELTA retained ownership over Lot 4 until Enriquez paid the full purchase price.  Since Enriquez has not yet made such full payment, DELTA retained ownership over Lot 4 and could validly convey the same to the BANK via dacion en pago.^[57][57] 

            Should the dacion en pago over Lot 4 be invalidated and the property ordered to be delivered to Enriquez, the BANK contends that DELTA should pay the corresponding value of Lot 4 to the BANK.  It maintains that the loan obligation extinguished by the dacion en pago only extends to the value of the properties delivered; if Lot 4 cannot be delivered to the BANK, then the loan obligation of DELTA remains to the extent of Lot 4’s value.^[58][58]

            The BANK prays to be declared the rightful owner of the subject house and lot and asks for an award of exemplary damages and attorney’s fees.

Enriquez’s waiver

            Enriquez did not file comments^[59][59] or memoranda in both cases; instead, she manifested that she will just await the outcome of the case.^[60][60]

Issues

            The following are the issues raised by the two petitions:

1.  Whether the Contract to Sell conveys ownership;

2.  Whether the dacion en pago extinguished the loan obligation, such that DELTA has no more obligations to the BANK;

3.  Whether the BANK is entitled to damages and attorney’s fees for being compelled to litigate; and

4.  What is the effect of Enriquez’s failure to appeal the OP’s Decision regarding her obligation to pay the balance on the purchase price.

Our Ruling

Mortgage contract void

            As the HLURB Arbiter and Board of Commissioners both found, DELTA violated Section 18 of PD 957 in mortgaging the properties in Delta Homes I (including Lot 4) to the BANK without prior clearance from the HLURB.  This point need not be belabored since the parties have chosen not to appeal the administrative fine imposed on DELTA for violation of Section 18. 

This violation of Section 18 renders the mortgage executed by DELTA void.  We have held before that “a mortgage contract executed in breach of Section 18 of [PD 957] is null and void.”^[61][61]  Considering that “PD 957 aims to protect innocent subdivision lot and condominium unit buyers against fraudulent real estate practices,” we have construed Section 18 thereof as “prohibitory and acts committed contrary to it are void.”^[62][62] 

Because of the nullity of the mortgage, neither DELTA nor the BANK could assert any right arising therefrom.  The BANK’s loan of P8 million to DELTA has effectively become unsecured due to the nullity of the mortgage.  The said loan, however, was eventually settled by the two contracting parties via a dation in payment.  In the appealed Decision, the CA invalidated this dation in payment on the ground that DELTA, by previously entering into a Contract to Sell, had already conveyed its ownership over Lot 4 to Enriquez and could no longer convey the same to the BANK.  This is error, prescinding from a wrong understanding of the nature of a contract to sell.

Contract to sell does not transfer ownership

            Both parties are correct in arguing that the Contract to Sell executed by DELTA in favor of Enriquez did not transfer ownership over Lot 4 to Enriquez.  A contract to sell is one where the prospective seller reserves the transfer of title to the prospective buyer until the happening of an event, such as full payment of the purchase price.  What the seller obliges himself to do is to sell the subject property only when the entire amount of the purchase price has already been delivered to him.  “In other words, the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer.”^[63][63]  It does not, by itself, transfer ownership to the buyer.^[64][64]

            In the instant case, there is nothing in the provisions of the contract entered into by DELTA and Enriquez that would exempt it from the general definition of a contract to sell.  The terms thereof provide for the reservation of DELTA’s ownership until full payment of the purchase price; such that DELTA even reserved the right to unilaterally void the contract should Enriquez fail to pay three successive monthly amortizations.

            Since the Contract to Sell did not transfer ownership of Lot 4 to Enriquez, said ownership remained with DELTA.  DELTA could then validly transfer such ownership (as it did) to another person (the BANK).  However, the transferee BANK is bound by the Contract to Sell and has to respect Enriquez’s rights thereunder.  This is because the Contract to Sell, involving a subdivision lot, is covered and protected by PD 957.  One of the protections afforded by PD 957 to buyers such as Enriquez is the right to have her contract to sell registered with the Register of Deeds in order to make it binding on third parties.  Thus, Section 17 of PD 957 provides:

Section 17.  Registration.  All contracts to sell, deeds of sale, and other similar instruments relative to the sale or conveyance of the subdivision lots and condominium units, whether or not the purchase price is paid in full, shall be registered by the seller in the Office of the Register of Deeds of the province or city where the property is situated.

x x x x (Emphasis supplied.)

The purpose of registration is to protect the buyers from any future unscrupulous transactions involving the object of the sale or contract to sell, whether the purchase price therefor has been fully paid or not.  Registration of the sale or contract to sell makes it binding on third parties; it serves as a notice to the whole world that the property is subject to the prior right of the buyer of the property (under a contract to sell or an absolute sale), and anyone who wishes to deal with the said property will be held bound by such prior right.

            While DELTA, in the instant case, failed to register Enriquez’s Contract to Sell with the Register of Deeds, this failure will not prejudice Enriquez or relieve the BANK from its obligation to respect Enriquez’s Contract to Sell.  Despite the non-registration, the BANK cannot be considered, under the circumstances, an innocent purchaser for value of  Lot 4 when it accepted the latter (together with other assigned properties) as payment for DELTA’s obligation.  The BANK was well aware that the assigned properties, including Lot 4, were subdivision lots and therefore within the purview of PD 957.  It knew that the loaned amounts were to be used for the development of DELTA’s subdivision project, for this was indicated in the corresponding promissory notes.  The technical description of Lot 4 indicates its location, which can easily be determined as included within the subdivision development.  Under these circumstances, the BANK knew or should have known of the possibility and risk that the assigned properties were already covered by existing contracts to sell in favor of subdivision lot buyers.  As observed by the Court in another case involving a bank regarding a subdivision lot that was already subject of a contract to sell with a third party:

[The Bank] should have considered that it was dealing with a property subject of a real estate development project. A reasonable person, particularly a financial institution x x x, should have been aware that, to finance the project, funds other than those obtained from the loan could have been used to serve the purpose, albeit partially. Hence, there was a need to verify whether any part of the property was already intended to be the subject of any other contract involving buyers or potential buyers. In granting the loan, [the Bank] should not have been content merely with a clean title, considering the presence of circumstances indicating the need for a thorough investigation of the existence of buyers x x x. Wanting in care and prudence, the [Bank] cannot be deemed to be an innocent mortgagee.  x x x^[65][65]

Further, as an entity engaged in the banking business, the BANK is required to observe more care and prudence when dealing with registered properties.  The Court cannot accept that the BANK was unaware of the Contract to Sell existing in favor of Enriquez.  In Keppel Bank Philippines, Inc. v. Adao,^[66][66] we held that a bank dealing with a property that is already subject of a contract to sell and is protected by the provisions of PD 957, is bound by the contract to sell (even if the contract to sell in that case was not registered).  In the Court’s words:

It is true that persons dealing with registered property can rely solely on the certificate of title and need not go beyond it.  However, x x x, this rule does not apply to banks.  Banks are required to exercise more care and prudence than private individuals in dealing even with registered properties for their business is affected with public interest.  As master of its business, petitioner should have sent its representatives to check the assigned properties before signing the compromise agreement and it would have discovered that respondent was already occupying one of the condominium units and that a contract to sell existed between [the vendee] and [the developer].  In our view, petitioner was not a purchaser in good faith and we are constrained to rule that petitioner is bound by the contract to sell.^[67][67]

Bound by the terms of the Contract to Sell, the BANK is obliged to respect the same and honor the payments already made by Enriquez for the purchase price of Lot 4.  Thus, the BANK can only collect the balance of the purchase price from Enriquez and has the obligation, upon full payment, to deliver to Enriquez a clean title over the subject property.^[68][68] 

Dacion en pago extinguished the loan obligation

            The BANK then posits that, if title to Lot 4 is ordered delivered to Enriquez, DELTA has the obligation to pay the BANK the corresponding value of Lot 4.  According to the BANK, the dation in payment extinguished the loan only to the extent of the value of the thing delivered.  Since Lot 4 would have no value to the BANK if it will be delivered to Enriquez, DELTA would remain indebted to that extent.

We are not persuaded.  Like in all contracts, the intention of the parties to the dation in payment is paramount and controlling.  The contractual intention determines whether the property subject of the dation will be considered as the full equivalent of the debt and will therefore serve as full satisfaction for the debt.  “The dation in payment extinguishes the obligation to the extent of the value of the thing delivered, either as agreed upon by the parties or as may be proved, unless the parties by agreement, express or implied, or by their silence, consider the thing as equivalent to the obligation, in which case the obligation is totally extinguished.”^[69][69] 

            In the case at bar, the Dacion en Pago executed by DELTA and the BANK indicates a clear intention by the parties that the assigned properties would serve as full payment for DELTA’s entire obligation:

KNOW ALL MEN BY THESE PRESENTS:

                This instrument, made and executed by and between:

x x x x

                THAT, the ASSIGNOR acknowledges to be justly indebted to the ASSIGNEE in the sum of ELEVEN MILLION EIGHT HUNDRED SEVENTY-EIGHT THOUSAND EIGHT HUNDRED PESOS (P11,878,800.00), Philippine Currency as of August 25, 1998.  Therefore, by virtue of this instrument, ASSIGNOR hereby ASSIGNS, TRANSFERS, and CONVEYS AND SETS OVER [TO] the ASSIGNEE that real estate with the building and improvements existing thereon, more particularly described as follows:

x x x x

of which the ASSIGNOR is the registered owner being evidenced by TCT No. x x x issued by the Registry of Deeds of Trece Martires City.

THAT, the ASSIGNEE does hereby accept this ASSIGNMENT IN PAYMENT OF THE TOTAL OBLIGATION owing to him by the ASSIGNOR as above-stated;^[70][70]

Without any reservation or condition, the Dacion stated that the assigned properties served as full payment of DELTA’s “total obligation” to the BANK.  The BANK accepted said properties as equivalent of the loaned amount and as full satisfaction of DELTA’s debt.  The BANK cannot complain if, as it turned out, some of those assigned properties (such as Lot 4) are covered by existing contracts to sell. As noted earlier, the BANK knew that the assigned properties were subdivision lots and covered by PD 957.  It was aware of the nature of DELTA’s business, of the location of the assigned properties within DELTA’s subdivision development, and the possibility that some of the properties may be subjects of existing contracts to sell which enjoy protection under PD 957.  Banks dealing with subdivision properties are expected to conduct a thorough due diligence review to discover the status of the properties they deal with.  It may thus be said that the BANK, in accepting the assigned properties as full payment of DELTA’s “total obligation,” has assumed the risk that some of the assigned properties (such as Lot 4) are covered by contracts to sell which it is bound to honor under PD 957. 

            A dacion en pago is governed by the law of sales.^[71][71]  Contracts of sale come with warranties, either express (if explicitly stipulated by the parties) or implied (under Article 1547 et seq. of the Civil Code).  In this case, however, the BANK does not even point to any breach of warranty by DELTA in connection with the Dation in Payment.  To be sure, the Dation in Payment has no express warranties relating to existing contracts to sell over the assigned properties.  As to the implied warranty in case of eviction, it is waivable^[72][72] and cannot be invoked if the buyer knew of the risks or danger of eviction and assumed its consequences.^[73][73]  As we have noted earlier, the BANK, in accepting the assigned properties as full payment of DELTA’s “total obligation,” has assumed the risk that some of the assigned properties are covered by contracts to sell which must be honored under PD 957. 

Award of damages

            There is nothing on record that warrants the award of exemplary damages^[74][74] as well as attorney’s fees^[75][75] in favor of the BANK.

Balance to be paid by Enriquez

As already mentioned, the Contract to Sell in favor of Enriquez must be respected by the BANK.  Upon Enriquez’s full payment of the balance of the purchase price, the BANK is bound to deliver the title over Lot 4 to her.  As to the amount of the balance which Enriquez must pay, we adopt the OP’s ruling thereon which sustained the amount stipulated in the Contract to Sell.  We will not review Enriquez’s initial claims about the supposed violation of the price ceiling in BP 220, since this issue was no longer pursued by the parties, not even by Enriquez, who chose not to file the required pleadings^[76][76] before the Court.  The parties were informed in the Court’s September 5, 2007 Resolution that issues that are not included in their memoranda shall be deemed waived or abandoned.  Since Enriquez did not file a memorandum in either petition, she is deemed to have waived the said issue.

            WHEREFORE, premises considered, the appealed November 30, 2004 Decision of the Court of Appeals, as well as its June 22, 2005 Resolution in CA-G.R. SP No. 81280 are hereby AFFIRMED with the MODIFICATIONS that Delta Development and Management Services, Inc. is NOT LIABLE TO PAY Luzon Development Bank the value of the subject lot; and respondent Angeles Catherine Enriquez is ordered to PAY the balance of the purchase price and the interests accruing thereon, as decreed by the Court of Appeals, to the Luzon Development Bank, instead of Delta Development and Management Services, Inc., within thirty (30) days from finality of this Decision.    The Luzon Development Bank is ordered to DELIVER a CLEAN TITLE to Angeles Catherine Enriquez upon the latter’s full payment of the balance of the purchase price and the accrued interests.

            SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice

WE CONCUR:

RENATO C. CORONA

Chief Justice

Chairperson

JOSE PORTUGAL PEREZ

Associate Justice

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

            Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified 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

ANTONIO A. ABOC VS. METROPOLITAN BANK AND TRUST COMPANY (G.R. NOS. 170542-43); METROPOLITAN BANK AND TRUST COMPANY VS. ANTONIO A. ABOC (G.R. NO. 176460) (13 DECEMBER 21010, MENDOZA, J.)

X —————————————————————————- X

D E C I S I O N

MENDOZA, J.:

Assailed in these consolidated petitions for review is the October 28, 2005 Decision^[1][1] of the Court of Appeals-Cebu City (CA) disposing two consolidated cases, CA-G.R. SP. No. 80747 and CA-G.R. SP. No. 81363. The CA Decision affirmed the Decision^[2][2] of the National Labor Relations Commission (NLRC) which reversed the Decision^[3][3] of the Labor Arbiter (LA) finding Antonio A. Aboc (Aboc) to have been illegally dismissed by the Metropolitan Bank and Trust Company (Metrobank).

These two cases stemmed from a complaint for illegal dismissal and damages filed by Aboc against Metrobank on October 1, 1998. 

In his position paper,^[4][4] Aboc, the Regional Operations Coordinator of Metrobank in Cebu City with a monthly salary of  P11,980.00, alleged that on August 29, 1988, he started working as a loans clerk. He was given merit increases and awarded promotions during his employment because of his highly satisfactory performance. For nine years, he maintained an unblemished employment record until he received an inter-office letter^[5][5] on January 29, 1998, requiring him to explain in writing the charges that he had actively participated in the lending activities of his immediate supervisor, Wynster Y. Chua (Chua), the Branch Manager of Metrobank where he was assigned.

Aboc wrote a letter^[6][6] to Metrobank explaining that he had no interest whatsoever in the lending business of Chua because it was solely owned by the latter.  He admitted, however, that he did some acts for Chua in connection with his lending activity. He did so because he could not say “no” to Chua because of the latter’s influence and ascendancy over him and because of his “utang na loob” (debt of gratitude).^[7][7]

His participation in the lending activity was limited to ministerial acts such as the preparation of deposit and withdrawal slips and the typing of statement of accounts for some clients of Chua.  In fact, Chua wrote a letter to Metrobank absolving him of any responsibility and participation in his lending activities. Despite the same, Metrobank still dismissed him on February 12, 1998.

Metrobank, on the other hand, replied that sometime in November 1995, Chua, Judith Eva Cabrido (assistant manager), Arthur Arcepi (accountant), and Aboc organized a credit union known as Cebu North Road Investment (CNRI). Said officers and employees used Metrobank’s premises, equipment and facilities in their lending business. Apparently, its head office was not informed of the organization of CNRI. Had it been informed of the organization of said credit union, it would not have tolerated or approved of it because the nature of its business would be in conflict, inimical, and in competition with its banking business.  Moreover, they did not register CNRI with the Securities and Exchange Commission (SEC) and with the Department of Trade and Industry (DTI). The lending and investment business of CNRI was confined not only to the employees of Metrobank but also to outsiders, including clients of the bank.^[8][8]

Metrobank also disclosed that on August 13, 1996, Aboc and his companions created another credit union, the First Fund Access (FFA), which opened accounts with Metrobank under fictitious names. Again, it was not informed of the existence of this credit union.

In September 1997, Chua and Aboc were observed to have openly convinced outsiders and clients of Metrobank to patronize their lending and investment business. During the investigation conducted by Metrobank on January 15, 1998, it was discovered that Aboc solicited investors including its clients for said credit union. He also induced bank clients to withdraw their accounts and invest them in CNRI.  He even signed as one of the signatories in the trust receipts of some bank clients.

During the administrative investigation, Metrobank likewise discovered that Aboc committed the following acts:

1.     Preparation of all necessary documents on deposits/placements and loans of said lending activities.

2.     Preparation of checks and acting as co-signatory of Chua in payment for matured deposits/placements or proceeds of loans to the damage and prejudice of Metrobank.

 Metrobank required Aboc to submit a written explanation why he should not be dismissed for cause and attend a conference in the morning of February 10, 1998 at the Visayas Regional Office, Fuente Osmeña Center, Cebu City, in which he was allowed to bring a counsel of his own choice. On February 6, 1998, he submitted his written explanation. On February 10, 1998, he attended the conference.

Thereafter, Metrobank found that Aboc’s actions constituted serious misconduct and a breach of trust and confidence. On February 12, 1998, Metrobank terminated  his services.

Ruling of the Labor Arbiter

After the parties had submitted their respective position papers, the LA rendered her decision on July 12, 1999, finding that Aboc was illegally dismissed from the service by Metrobank. The dispositive portion of her decision reads:

WHEREFORE, VIEWED FROM THE FOREGOING, judgment is hereby rendered declaring complainant Antonio Aboc to have been illegally dismissed from the service by respondent Metropolitan Bank and Trust Company (Metrobank). Consequently, same respondent Metrobank is hereby ordered to reinstate complainant Aboc to his former position or to a substantially equivalent position without loss of seniority rights and other privileges, and to pay said complainant the following, to wit:

1.       Backwages

February 12, 1998 to July 12, 1999

P11, 980.00 x 18 months …………………..P215, 640.00

13^th month = 1 yr ……….P11, 980.00

                     5 mons ……P  4, 991.66

                                         P 16, 971.66

Service Incentive Leave (P11, 980.00 divided

by 26 = P460.76 x 5 ………………2,303.80   P19,275.46   P234, 915.46

2. 10% Attorney’s Fees……………………………………..P  23, 491.54

GRAND TOTAL AWARD———————————P258, 407.00^[9][9]

The LA reasoned out that Metrobank failed to prove by clear and convincing evidence the charges of serious misconduct, breach of trust and loss of confidence against Aboc. His lending activities were not foreign to Metrobank in the sense that credit unions commonly existed in its other branches and that said credit unions were handled by its high ranking employees.

The LA added that Aboc’s participation in the lending activities was due to “force of circumstance.” He was an “unwilling participant” in the business of his superior because  he could not just say “no” to Chua in view of the latter’s moral ascendancy over him. In fact, Chua vouched for his non-participation in the lending business. According to the LA, to sanction the penalty of dismissal against Aboc would be unfair.^[10][10]

Moreover, the LA ruled that Metrobank did not comply with the due process requirement in dismissing Aboc because no hearing was conducted after he was required to explain. He was never informed that he was going to be investigated in connection with the charges being leveled against him. The conference set up by Metrobank could not be considered a substitute to the actual holding of a hearing.

Ruling of the National

Labor Relations Commission

            On December 11, 2002, the NLRC set aside the decision of the LA but ordered Metrobank to pay Aboc reinstatement wages from July 12, 1999 to September 16, 1999; salary increase from January 2000 to June 2001; Christmas bonus for the year 2000; 13^th month pay differential for the year 2000; and salary differential for July and August 2001. The dispositive portion of the NLRC Decision reads:

WHEREFORE, premises considered, the decision of the Labor Arbiter is hereby set aside and vacated and a new one entered dismissing the complaint. However, respondent Metropolitan Bank and Trust Company is hereby ordered to pay the following amounts with respect to complainant’s reinstatement pending appeal:

1.       Reinstatement Wages (July 12, 1999 to

      September 16, 1999 at P11, 980.00)                          P23, 960.00

2.      Salary Increase from January 2000 to

June 2001 at P1, 500.00/month                                   27, 000.00

            3.   Christmas Bonus CY 2000                                               18, 030.00

            4.   13^th Month Pay Differential for CY 2000                        1, 500.00

            5.   Salary Diff’l for July & Aug. 2001                                      7, 200.00

                                                                                                Total     P77, 690.00

SO ORDERED.^[11][11]

            The NLRC ruled that Aboc was guilty of serious misconduct and breach of trust and loss of confidence based on the following overt acts:

1.     Complainant (Aboc) was an organizer of both CNRI and FFA, business entities which directly competed with the line of business of respondent (Metrobank);

2.     Complainant was a responsible officer of both credit unions and actively participated in their transactions, using the respondent bank’s office, facilities, and equipments.

3.     Complainant, as bank officer, had the serious responsibility of reporting to respondent the establishment of CNRI and FFA but he deliberately failed to do so.

4.     Petitioner admits having opened new accounts bearing fictitious names knowing fully well that it was against bank policy.

The NLRC wrote that Aboc’s loyalty should be first and foremost to Metrobank. This consideration should be over and above whatever personal debts of gratitude he owed Chua.

On due process, the NLRC ruled that Metrobank fully complied with the two-notice rule under the Labor Code.  It sent an inter-office letter dated July 16, 1998 to Aboc asking him to explain why his services should not be terminated for cause. Subsequently, Aboc submitted a written explanation dated February 6, 1998.  He was likewise invited to a conference, which he attended on February 10, 1998, purposely to give him the chance to explain his side and to adduce evidence in his behalf.

On the monetary awards, the NLRC explained that Aboc was entitled to receive them because he was included in the payroll by Metrobank as he was ordered reinstated by the LA.

Both Aboc and Metrobank were not satisfied with the NLRC Decision. The former filed a motion for reconsideration^[12][12] while the latter filed a motion for partial reconsideration^[13][13] on the monetary award.

On September 17, 2003, the NLRC issued a resolution^[14][14] affirming its finding of valid dismissal but modifying the monetary award by directing Metrobank to pay Aboc his CBA benefits during his reinstatement pending appeal and his salary during the period stated therein, thereby partially granting Aboc’s motion for reconsideration and denying Metrobank’s motion for partial consideration.

Aggrieved, Metrobank challenged the grant of monetary award in a petition^[15][15] before the CA, docketed as CA-G.R. SP. No. 80747, while Aboc questioned the validity of his dismissal in a petition,^[16][16] docketed as CA-G.R.SP. No. 81363. The two petitions were consolidated by the CA because they involved the same parties and intertwined issues.

Ruling of the Court of Appeals

On October 28, 2005, the CA rendered its decision affirming the decision of the NLRC, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered as follows:

1. In CA-G.R. No. 807407, the petition is partially granted insofar as the finding of public respondent on the validity and legality of the dismissal of private respondent Antonio A. Aboc.

2. In CA-G.R. No. 81363, the petition is partially granted insofar as the grant of the monetary award in favor of petitioner Antonio A. Aboc.

No pronouncement as to costs.

SO ORDERED.^[17][17]

 The CA wrote that Aboc’s participation in the organization of two (2) credit unions operating inside Metrobank without its knowledge and consent was inimical to the welfare of the bank. The lending and investment transactions of the credit unions directly competed with the business of Metrobank.  Aboc held a position that required loyalty and exercise of sound judgment.

The CA also agreed with the NLRC that Aboc was duly afforded ample opportunity to defend himself during the conference conducted on February 10, 1998 reasoning that a formal trial-type hearing was not, at all times, essential to due process. Aboc was able to explain his side and submit evidence during the conference.

On the monetary award, as Aboc was ordered reinstated as an employee of Metrobank pending appeal, the CA held that he was entitled to receive his monetary claims.

Dissatisfied with the assailed CA Decision, both parties filed their respective petitions before this Court. Aboc’s petition was docketed as G.R. No. 170542-43 and Metrobank’s petition as G.R. No. 176460. On June 4, 2007, this Court issued a resolution^[18][18] consolidating the two petitions because they have the same set of facts and involve the same parties and issues.

ISSUES

1.     Whether or not the Court of Appeals erred in ruling that Antonio A. Aboc was validly dismissed by the Metropolitan Bank and Trust Company.

2.     Whether or not the Court of Appeals erred in ruling that the Metropolitan Bank and Trust Company was liable to pay the monetary award claimed by Antonio A. Aboc.

Position of Aboc

Aboc basically contends that:

1. Metrobank’s CA petition should have been dismissed for being filed out of time and for failing to comply with the procedural requirements. Metrobank’s counsel of record, E.F. Rosello and Associates Law Office, received a copy of the September 17, 2003 CA Resolution on September 26, 2003.  Therefore, it had until November 25, 2003 within which to file its petition. The petition, however, was filed after November 25, 2003 only because the Verification and Certification of Non-Forum Shopping therein was notarized only on November 27, 2003.  Moreover, the petition did not contain a Statement of Material Dates and Proof of Service thereof on the opposing party.

2. He was illegally dismissed as he was not guilty of serious misconduct and breach of trust.  Being “an organizer” of credit unions like CNRI and FFA did not necessarily make him guilty of serious misconduct or breach of trust and confidence because the operation of credit unions and cooperatives were not prohibited or, at the very least, tolerated by Metrobank. In fact, all Metrobank branches practically maintained credit unions of their own. Metrobank even “failed to present a single written rule or regulation that suggested even remotely that credit unions were prohibited.”^[19][19]

3.  He was effectively deprived of his rights to due process because the interrogation conducted by Metrobank’s representatives at its head office in Manila clearly smacked of oppression, intimidation and coercion. Metrobank exerted moral coercion, undue ascendancy and undue influence over him, a hapless and helpless employee.

Position of Metrobank

Metrobank argues that:

1. The date of the filing of its petition should be reckoned from September 29, 2003, the date the law firm of Rayala Alonso and Partners received the September 17, 2003 CA Resolution because said law firm took active participation in the proceedings while the law office of E.F. Rosello and Associates had already ceased taking active part.

2. Bank employees, as per Bank Policy, were prohibited from engaging in informal credit union activities. Aboc engaged in an irregular activity for profit, which directly competed with Metrobank’s business. The acts committed by Aboc – organizing and acting as auditor of the CNRI and FFA credit unions; opening the accounts of CNRI and FFA with Metrobank under his name and his companions; soliciting investors including the clients of Metrobank; opening accounts for the credit unions under fictitious names to hide the lending and investment activities of said credit unions; and inducing a respondent bank’s client to withdraw her account with Metrobank and to invest it instead with CNRI- constituted wrong and improper conduct warranting dismissal for serious misconduct and loss of trust and confidence.

3. The dispositive portion of the reversed decision of the LA merely made mention of reinstatement, payment of backwages, 13th month pay, service incentive leave pay, and attorney’s fees. It was silent on the salary increase from January 2000 to June 2001, salary increase differentials, 13th month pay, and award of bonuses. Therefore, these should have been deleted and no other monetary awards should have been given to Aboc.

4. The computation of  Aboc’s backwages should be limited to the rate of wage at the time of his separation from the service, excluding the salary increases and those under the collective bargaining agreement.  Since the salary increase from January 2000 to June 2001 would have the effect of increasing  Aboc’s base salary, it should not have been awarded.  If he was not entitled to salary increases, he should not be awarded salary increase differentials or wage differentials as well as 13th month pay differentials.

5. The granting of a bonus is a management prerogative.  Aboc is not entitled to receive bonuses because he participated in activities competing with Metrobank’s main business instead of remaining loyal to it.

The Court’s Ruling 

After an assiduous assessment of the records, the Count finds no cogent reason to disturb the subject decision of the CA.

On the procedural issue raised by Aboc regarding Metrobank’s alleged belated filing of its petition before the CA, the records show that all pleadings filed by Metrobank, since the filing of its Motion For Partial Reconsideration dated January 15, 2003, was prepared and filed by Rayala Alonso and Partners. Aboc knew all along that Metrobank was being represented by said firm since his counsel furnished the latter a copy of his motion for reconsideration.

It appears that Rayala Alonso and Partners received a copy of the September 17, 2003 NLRC decision on September 29, 2003. For said reason, Metrobank is correct in asserting that it timely filed its petition on November 7, 2004.

Nonetheless, granting that Metrobank belatedly filed its petition, a delay of just two (2) days should not be fatal. Litigations should be decided on the merits of the case, not on mere technicalities.

The court has the discretion to dismiss or not to dismiss an appellant’s appeal. It is a power conferred on the court, not a duty. The discretion must be a sound one, to be exercised in accordance with the tenets of justice and fair play, having in mind the circumstances obtaining in each case. Technicalities, however, must be avoided. The law abhors technicalities that impede the cause of justice. The court’s primary duty is to render or dispense justice.

Litigations must be decided on their merits and not on technicality. Every party litigant must be afforded the amplest opportunity for the proper and just determination of his cause, free from the unacceptable plea of technicalities. Thus, dismissal of appeals purely on technical grounds is frowned upon where the policy of the court is to encourage hearings of appeals on their merits and the rules of procedure ought not to be applied in a very rigid, technical sense; rules of procedure are used only to help secure, not override substantial justice. It is a far better and more prudent course of action for the court to excuse a technical lapse and afford the parties a review of the case on appeal to attain the ends of justice rather than dispose of the case on technicality and cause a grave injustice to the parties, giving a false impression of speedy disposal of cases while actually resulting in more delay, if not a miscarriage of justice.^[20][20]

On Aboc’s termination, Article 282 of the Labor Code states:

ART. 282. TERMINATION BY EMPLOYER. – An employer may terminate an employment for any of the following causes:

(a) Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or representative in connection with his work;
(b) Gross and habitual neglect by the employee of his duties;
(c) Fraud or willful breach by the employee of the trust reposed in him by his employer or duly authorized representative;
(d) Commission of a crime or offense by the employee against the person of his employer or any immediate member of his family or his duly authorized representative; and
(e) Other causes analogous to the foregoing.

In termination cases, the burden of proof rests on the employer to show that the dismissal was for a just cause or authorized cause. An employee’s dismissal due to serious misconduct and loss of trust and confidence must be supported by substantial evidence. Substantial evidence is that amount of relevant evidence as a reasonable mind might accept as adequate to support a conclusion, even if other minds, equally reasonable, might conceivably opine otherwise.^[21][21]

In the case at bench, Metrobank’s evidence clearly shows that the acts of Aboc in helping Chua organize the CNRI and FFA credit unions and in the operations thereof constituted serious misconduct or  breach of trust and confidence. In response to the inter-office letter^[22][22] sent by Metrobank on January 29, 1998, Aboc submitted his Explanation^[23][23] dated February 6, 1998, admitting having committed said acts but claiming that he was only an “unwilling participant” doing a ministerial job.

During the investigation conducted on January 15, 1998 at Metrobank’s head office in Makati City, however, the following facts were established:

1. He was one of the organizers of the CNRI and FFA credit unions and acted as auditor of said credit unions.

2. He and his co-organizers did not inform Metrobank about the existence of said credit unions.

3. CNRI and FFA opened an account with Metrobank under the names Wynster Chua, Judith Eva Cabrido and Antonio Aboc.

4. He solicited investors including Metrobank clients for said credit unions, and signed as one of the signatories in the Trust Certificate of Marlyn Belleza and Grace Lim.

5. He and Chua opened accounts for the said credit unions under the fictitious names of Vicente Belocura and Romeo Gonzales, respectively.

6. He induced a certain Nerinilda Arcipe (Nerinilda), a non-employee of Metrobank, to withdraw her UNISA account with Metrobank and invest it with CNRI.

7. The regional and local checks in the names of Belocura, John BK Chua, John AJ. Jazal, and Wynster Chua, issued in connection with the business activities of CNRI and FFA were treated as bills purchases and the proceeds thereof were immediately withdrawn without waiting for three (3) to five (5) days clearing in violation of Metrobank’s control system.

Indeed, Aboc’s participation in the lending and investment activities of CNRI and FFA was highly irregular and clearly in conflict with Metrobank’s business. The irregularity of his act was evident from the fact that he deliberately failed to inform Metrobank about the existence of CNRI and FFA. Though he expressed apprehension and was not pleased with the way Chua was running the lending business, he never informed or, at least, sought advice from his employer. Instead of doing so, he actively participated in the business of Chua which competed against that of Metrobank.

Moreover, Aboc knew about the subject credit union’s non-registration with the Central Bank or any proper government institution. Being an experienced banker, he should have known that the lending activities of the subject credit unions were questionable, if not, illegal, due to its non-registration. Again, Aboc chose not to inform his employer about this and, instead, participated in the operations of the subject credit unions.

The fact that Aboc opened accounts for the subject credit unions under fictitious names can only mean that the group had something to hide. 

Under the above circumstances, the Court cannot subscribe to the assertion that he was just an “unwilling participant” doing a “ministerial” job for the subject credit unions. Certainly, the acts of 1) opening an account under fictitious names; 2) solicitation of Metrobank clients to invest in their credit union; 3) co-signing of trust receipts; and 4) inducement of an investor to withdraw her account and transfer it to the subject credit unions, were certainly not “ministerial” tasks of an “unwilling participant.”  He was just not a runner doing errands for Chua; he was the auditor for CNRI and FFA and actively participated in their lending activities.

Aboc cannot be saved by Chua’s letter^[24][24] dated February 17, 1998 explaining that Aboc had no participation whatsoever in said lending activities. Metrobank was his employer, not Chua. Most important, Metrobank was paying his salary and other benefits in exchange for his services. Therefore, Aboc’s loyalty should first and foremost be to Metrobank. Ironically, Aboc did not return the favor. He chose his personal interest over that of Metrobank.

The Court cannot give weight to the argument that Metrobank was aware of the proliferation of credit unions in practically all of its branches and did not prohibit the operation thereof. Contrary to Aboc’s position, Metrobank issued notices to all its employees regarding the prohibition on the practice of borrowing and lending money among its officers, employees, and bank clients.  Metrobank’s notices were dated June 15, 1988^[25][25] and August 30, 1995.^[26][26] 

 Aboc’s highly irregular participation in the lending business of CNRI and FFA jeopardized the business of Metrobank. CNRI and FFA were practically competing with the business of Metrobank by soliciting investors including clients of the bank for their credit unions.  Aboc admitted that he was able to induce Nerinilda, the widow of a former branch accountant of Metrobank, to withdraw her UNISA account with Metrobank and invest it with their credit union. This was confirmed by Nerinilda herself in her affidavit^[27][27] dated December 11, 1997.

 To extricate himself, Aboc also argues that Metrobank failed to comply with the requirements of due process in dismissing him because he was not properly investigated. According to him, the interrogation conducted by Metrobank was done in an atmosphere of fear, oppression, intimidation, and coercion.

The Court is not persuaded.

The evidence shows that he was afforded due process. The essence of due process is an opportunity to be heard or, as applied to administrative proceedings, an opportunity to explain one’s side. A formal or trial-type hearing is not essential.^[28][28]  In this regard, the Court agrees with the CA when it wrote:

Regarding the procedural requirements of notice and hearing, records show Aboc was duly notified through the letter dated 29 January 1998 asking him to explain why his services should not be terminated. In fact, Aboc replied to the same by submitting a written explanation on 6 February 1998. We likewise find that he was duly afforded ample opportunity to defend himself during the conference conducted on 10 February. Aboc’s contention that the conference he attended cannot substitute the “hearing mandated by the Labor Code is bereft of merit. A formal trial-type hearing is not at all times and in all instances essential to due process. It is enough that the parties are given a fair and reasonable opportunity to explain their respective sides of the controversy and to present supporting evidence on which a fair decision can be based.^[29][29]

 The Court, however, cannot also accommodate Metrobank.

The monetary award granted to Aboc was warranted under the law and jurisprudence. Article 223 of the Labor Code reads, in part:

In any event, the decision of the Labor Arbiter reinstating a dismissed or separated employee, insofar as the reinstatement aspect is concerned, shall immediately be executory, pending appeal. The employee shall either be admitted back to work under the same terms and conditions prevailing prior to his dismissal or separation or, at the option of the employer, merely reinstated in the payroll. The posting of a bond by the employer shall not stay the execution for reinstatement provided herein.

In the case at bench, it cannot be denied that Metrobank opted to reinstate Aboc in its payroll. Since Metrobank chose payroll reinstatement for Aboc, the Court agrees with the CA that he then became a reinstated regular employee.  This means that he was restored to his previous position as a regular employee without loss of seniority rights and other privileges appurtenant thereto. His payroll reinstatement put him on equal footing with the other regular Metrobank employees insofar as entitlement to the benefits given under the Collective Bargaining Agreement is concerned.

The fact that the decision of the LA was reversed on appeal has no controlling significance. The rule is that even if the order of reinstatement of the LA is reversed on appeal, it is obligatory on the part of the employer to reinstate and pay the wages of the dismissed employee during the period of appeal until final reversal by the higher court.^[30][30]

WHEREFORE, the October 28, 2005 Decision of the Court of Appeals is AFFIRMED. 

SO ORDERED.

JOSE CATRAL MENDOZA

                                                                                       Associate Justice

WE CONCUR:

ANTONIO T. CARPIO

Associate Justice

Chairperson

ANTONIO EDUARDO B. NACHURA     DIOSDADO M. PERALTA

               Associate Justice                                    Associate Justice

ROBERTO A. ABAD

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.

                   ANTONIO T. CARPIO

                          Associate Justice

                                                                 Chairperson, Second Division

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 2011-0242: BAGUIO TRINITY DEVELOPERS, INC., HEREIN REPRESENTED BY RICARDO JULIAN VS. THE HEIRS OF JOSE RAMOS AND THE HEIRS OF LEOPOLDO AND VICTORINA NEPA; AND THE           HONORABLE COURT OF APPEALS (G.R. NO. 188381, 14 DECEMBER 2011, ABAD, J.) SUBJECT: REQUIREMENT IN A PETITION FOR ANNULMENT OF JUDGMENT OF THE SUBMISSION OF A CERTIFIED TRUE COPY OF THE ASSAILED JUDGMENT OR ORDER;  LACHES AS A BAR TO A PROPERTY OWNER’S ACTION TO ANNUL A RECONSTITUTED VERSION OF HIS TITLE REGISTERED IN ANOTHER PERSON’S NAME. (BRIEF TITLE: BAGUIO TRINITY VS. HEIRS OF RAMON).

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

DISPOSITIVE:

WHEREFORE, the Court GRANTS the petition and sets aside the Court of Appeals Resolutions dated May 8, 2008 and November 7, 2008 and directs such court to hear and decide the merits of the petition for annulment of judgment.

        SO ORDERED.

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

SUBJECT/ DOCTRINE/DIGEST:

A PIECE OF LAND WAS TITLED TO TWO OWNERS.  BAGUIO TRINITY DEVELOPERS INC. WAS ONE OF THEM. IT FILED A CASE AT MTC TO ANNUL AN RTC DECISION RECONSTITUTING THE TITLE TO THE OTHER OWNER. MTC DISMISSED THE CASE ON THE GROUND THAT IT CANNOT ANNUL AN ORDER OF AN RTC, A HIGHER COURT. BAGUIO TRINITY FILED A CASE AT RTC WHICH DISMISSED ALSO THE CASE BECAUSE IT CANNOT ANNUL AN ORDER OF A CO-EQUAL COURT. IT FILED A CASE AT CA BUT CA DISMISSED IT BECAUSE BAGUIO TRINITY DID NOT ATTACH TO ITS PETITION AN ORIGINAL COPY OF THE DECISION SOUGHT TO BE ANNULLED AND BECAUSE OF LACHES. IS CA DECISION CORRECT?

NO. THE 1990 EARTHQUAKE RESULTED IN THE LOSS OR DESTRUCTION OF THE RTC RECORDS OF THE CASE.  THE ADMINISTRATION OF JUSTICE CANNOT STOP TO GRIND BECAUSE OF SUCH LOSS AND NO ONE SHOULD SUFFER OR BENEFIT FROM IT.

XXXXXXXXXXXXXXXXX

WHAT IS THE PURPOSE OF SECTION 4, RULE 47 OF THE RULES OF COURT WHICH PROVIDES THAT “A CERTIFIED COPY OF THE JUDGMENT OR FINAL ORDER OR RESOLUTION SHALL BE ATTACHED TO THE ORIGINAL COPY OF THE PETITION INTENDED FOR THE COURT AND INDICATED AS SUCH BY THE PETITIONER,”

TO ENSURE THAT THE COURT IS SHOWN A GENUINE COPY OF THE CHALLENGED JUDGMENT OR FINAL ORDER BEFORE IT ACTS ON THE PETITION.

        Evidently, when Section 4, Rule 47 of the Rules of Civil Procedure provided that “a certified copy of the judgment or final order or resolution shall be attached to the original copy of the petition intended for the court and indicated as such by the petitioner,” it wanted to ensure that the Court is shown a genuine copy of the challenged judgment or final order before it acts on the petition.

        The Court is aware of the necessity of mandating strict compliance with procedural rules. Here, however, the 1990 earthquake resulted in the loss or destruction of the RTC records of the case.  The administration of justice cannot stop to grind because of such loss and no one should suffer or benefit from it.

XXXXXXXXXXXXXXXX

WHO CAN ISSUE A CERTIFIED COPY OF THE LOST ORDERS?

THE PUBLIC OFFICER IN CUSTODY OF THE ORIGINAL DOCUMENT. IN THIS CASE THE CLERK OF COURT.

XXXXXXXXXXXXXX

THE CLERK OF COURT ISSUED A CERTIFICATION THAT THE RELEVANT RECORDS ARE NO LONGER AVAILABLE HAVING BEEN LOST TO AN EARTHQUAKE. SINCE A CERTIFIED COPY CANNOT BE ISSUED, IS THERE A REMEDY?

YES. THAT THE RECORD CUSTODIAN COULD NO LONGER ISSUE A CERTIFIED COPY SHOULD NOT OF COURSE PREVENT AN AGGRIEVED PARTY FROM PURSUING HIS PETITION.  THE RULES ALLOW SUCH PARTY TO SUBMIT APPROPRIATE SECONDARY EVIDENCE.

XXXXXXXXXXXXXXXXXXXXXXX

DID BAGUIO TRINITY SUBMIT SECONDARY EVIDENCE?

YES. IT SUBMITTED  FAITHFUL COPIES OF THE  CHALLENGED RECONSTITUTION ORDERS, AUTHENTICATED BY A VERIFIED STATEMENT THAT THESE ARE COPIES OF THE ORIGINAL ORDERS. 

        And who can issue a certified copy of the lost orders?  The answer is that it can be issued by the public officer in custody of the original of the document.^[1][4]  Here, it is the clerk of court of the RTC that issued the challenged reconstitution orders.  But the clerk of court issued a certification, conformably with Section 28 of Rule 132, that the relevant records are no longer available having been lost to an earthquake.  That the record custodian could no longer issue a certified copy should not of course prevent an aggrieved party from pursuing his petition.  The rules allow such party to submit appropriate secondary evidence.

        Section 5, Rule 130 of the Rules of Evidence provides that when the original document has been lost and its unavailability has been established, a party “may prove its contents by a copy or by a recital of its contents in some authentic document or by the testimony of witnesses in the order stated.”  Copies of the challenged reconstitution orders from the LRA or the Register of Deeds are of course available to petitioner Baguio Trinity.  But it could just as validly submit faithful copies of its challenged reconstitution orders, authenticated by a verified statement that these are copies of the original orders.  The Baguio Trinity did.  Consequently, the CA had no valid reason denying its petition for failure to attach a copy of the assailed reconstitution orders. 

XXXXXXXXXXXXX

CA REQUIRED ALSO COPIES OF DOCUMENTS AND PLEADINGS FILED DURING THE RECONSTITUTION PROCEEDINGS. ARE THESE NECESSARY?

NOT AT THIS STAGE. THEY COULD BE VERY WELL ADDUCED DURING THE HEARING SINCE THEIR RELEVANCE COULD HARDLY BE DISCERNED UNTIL THE ISSUES HAVE BEEN JOINED.

        As for copies of documents and pleadings filed during the reconstitution proceedings, the notices of hearing, and the titles issued to petitioner’s predecessors-in-interest, which the CA wanted petitioner Baguio Trinity to submit, these could very well be adduced during the hearing since their relevance could hardly be discerned until the issues have been joined.

XXXXXXXXXXXXXXXX

THE CA ALSO DISMISSED THE PETITION ON THE GROUND OF LACHES. IT WAS FILED ONLY 12 YEARS FROM 1995 WHEN IT LEARNED OF THE RECONSTITUTION ORDERS. IS CA CORRECT?

NO. IT IS NOT RIGHT FOR THE CA TO DISMISS SUCH ACTION BY REASON OF LACHES SIMPLY BECAUSE NO INACTION IS EVIDENT ON BAGUIO TRINITY’S PART.  IN FACT, IT HAD BEEN AN UNINTENTIONAL OBJECT OF RELAY BETWEEN THE LOWER COURTS WHICH CONTRIBUTED TO THE DELAY IN THE PROCEEDINGS. 

ALSO, THERE IS  CONFLICT BETWEEN THE TWO SETS OF TITLES. IT MUST BE RESOVED.  THE PRESENT STANDOFF CANNOT REMAIN INDEFINITELY UNDER A TITLING SYSTEM THAT ASSURES THE EXISTENCE OF ONLY ONE VALID TITLE FOR EVERY PIECE OF REGISTERED LAND.  EVIDENTLY, LACHES CANNOT BAR AN ACTION SOUGHT TO RELIEVE SUCH INTOLERABLE STANDOFF. 

        Two.  The CA also dismissed petitioner’s action for annulment of final orders on the further ground that such action is already barred by laches.  The CA pointed out that petitioner Baguio Trinity learned of the reconstitution orders as early as 1995.  Still, the action for the annulment of those orders was filed only 12 years later on December 21, 2007. 

The RTC of Agoo ordered the reconstitution of the Grabiles title when, if Baguio Trinity’s allegations were to be believed, the original of such title actually existed and had since been replaced through subsequent sales, terminating their ownership of the property.  As things now stand, two sets of titles covering the same property, one based on transactions emanating from the original and another based on the reconstituted titles exist.  One has to give way to the other.

Petitioner Baguio Trinity initially brought an action to annul the reconstituted versions of the Grabiles’ title before the MTC of Rosario, La Union, on September 14, 1995 but that court dismissed the same for lack of jurisdiction and opined that it should be filed with the RTC.

  Baguio Trinity filed a second action on December 3, 1997 for recovery of property, declaration of nullity of the titles, and damages before the RTC of Agoo, Branch 32, against the Ramos and Nepa heirs who held the reconstituted titles.  But the RTC dismissed the action on May 31, 2004 saying that it cannot annul the orders issued by a co-equal court. This, the CA Sixth Division affirmed and held that Baguio Trinity should have availed itself of a petition for annulment under Rule 47.

 Baguio Trinity finally filed before the CA an action for annulment of the reconstitution orders on the ground that the RTC did not have jurisdiction to issue them.  It is not right for the CA to dismiss such action by reason of laches simply because no inaction is evident on Baguio Trinity’s part.  In fact, it had been an unintentional object of relay between the lower courts which contributed to the delay in the proceedings. 

The petition for annulment alleged serious charges which if true can invalidate respondents’ title. Such title had been subjected to two reconstitution proceedings that could have divested the true owner of title over his property. The conflict between the two sets of titles has to be resolved.  The present standoff cannot remain indefinitely under a titling system that assures the existence of only one valid title for every piece of registered land.  Evidently, laches cannot bar an action sought to relieve such intolerable standoff. 

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

THIRD DIVISION

BAGUIO TRINITY DEVELOPERS,  G.R. No. 188381

INC., herein represented by

RICARDO JULIAN,

                        Petitioner,                        Present:

                                                  VELASCO, JR., J., Chairperson,

        – versus –                                   PERALTA,

  ABAD,

  SERENO,^* and

  PERLAS-BERNABE, JJ.

THE HEIRS OF JOSE RAMOS

and THE HEIRS OF LEOPOLDO

and VICTORINA NEPA; and the             Promulgated:

HONORABLE COURT OF APPEALS,

                        Respondents.              December 14, 2011

x ————————————————————————————— x

DECISION

ABAD, J.:

The case is about a) the requirement in a petition for annulment of judgment of the submission of a certified true copy of the assailed judgment or order and b) laches as a bar to a property owner’s action to annul a reconstituted version of his title registered in another person’s name.

The Facts and the Case

        Spouses Meliton Grabiles and Leona Calderon (the Grabiles) were the original registered owners of a 2,933-square-meter lot in Rosario, La Union.^[2][1]  After a number of successive transfers the lot was eventually sold to petitioner Baguio Trinity Developers, Inc. on January 3, 1994, resulting in the issuance of Transfer Certificate of Title T-38340 in its name.

        It appears, however, that in 1985 Anastacio Laroco and Leona Javier filed a reconstitution proceeding before Branch 31 of the Regional Trial Court (RTC) of Agoo, La Union, covering the Grabiles’ original title.  But for some reasons, the RTC’s order of October 20, 1986 directed the reconstitution of the title in the name of one Maria Bernal.  This order was annotated on the Grabiles’ Original Certificate of Title (OCT) 1082 issued by the Register of Deeds of La Union. 

In 1986, Melicia Silva filed a second petition purportedly on behalf of the Grabiles for the reconstitution of their original title also before Branch 31 of the RTC of Agoo.  In its order of October 28, 1986, the RTC ordered the reconstitution of the title in the name of the Grabiles as OCT RO-4717.  Entry 89953 of this reconstituted original title stated that the property had been sold in 1939 to a certain Jose Ramos.  So, too, in 1944, the southern portion of the lot, covering 1,372 square meters, was sold to Quirini Parrocha who in turn sold it in 1955 to the spouses Leopoldo and Victorina Nepa (the Nepas).  Respondents in this case are the heirs of these two buyers, Jose Ramos and the Nepas (the Ramos and Nepa heirs).

        On September 14, 1995 petitioner Baguio Trinity filed a complaint for recovery and declaration of nullity of title and damages before the Municipal Trial Court (MTC) of Rosario, La Union, against the Ramos and Nepa heirs who held reconstituted titles over the property.  Since Baguio Trinity presented the issue on the validity of the reconstituted titles issued by the RTC, a superior court, the MTC dismissed the complaint for lack of jurisdiction.

        On December 3, 1997 petitioner Baguio Trinity filed a second complaint for recovery of property, declaration of nullity of title, and damages before the RTC of Agoo, Branch 32. But, by Order of May 31, 2004, the RTC dismissed the complaint for lack of jurisdiction after finding that the assessed value of the subject property was below P20,000.00.  Moreover, the court said that it could not annul an order issued by a co-equal court. The RTC also denied Baguio Trinity’s motion for reconsideration, prompting it to file a petition for certiorari with the Court of Appeals (CA) on October 13, 2004.  On September 13, 2007^[3][2] the CA dismissed the petition, stating that Baguio Trinity’s remedy should have been a petition to annul judgment under Rule 47 of the Rules of Court.

Three years later from the time the RTC dismissed the complaint or on December 20, 2007 petitioner Baguio Trinity filed with the CA a petition for annulment of the reconstitution orders that the RTC of Agoo, Branch 31, issued on October 20, 1986 and October 28, 1986, impleading the Ramos and Nepa heirs. Baguio Trinity claimed that the RTC had no jurisdiction to order reconstitution for the Grabiles’ title since this was not lost. Further, the Grabiles could not have authorized anyone to institute the proceedings on their behalf since they had been long dead. Thus, the orders should be annulled for lack of jurisdiction.

        On May 8, 2008 the CA^[4][3] dismissed the petition on the grounds that it failed to attach a) a certified copy of the RTC Order dated October 20, 1986, and b) copies of the affidavits of witnesses and the documents, and the pleadings filed during the reconstitution proceedings, the notices of hearing, and the titles issued to petitioner’s predecessors-in-interest in support of petitioner’s cause of action. Further, petitioner paid insufficient docket fees.

        Petitioner Baguio Trinity filed a motion for reconsideration and attached a copy of the affidavit of Cresencio Aspiras, their immediate predecessor, together with copies of reconstituted titles issued to previous owners to show the chain of ownership before Baguio Trinity acquired title to the property.  It also paid the deficiency in the docket fees and explained that a certified true copy of the assailed Order cannot be obtained because the records were destroyed during the July 16, 1990 earthquake per RTC Certification of November 14, 2007.

        But the CA denied petitioner’s motion of November 7, 2008, citing Section 4, par. 2 of Rule 47 which provides that a “certified copy of the judgment or final order shall be attached to the original copy of the petition.”   The mandatory tenor of the requirement, said the CA, precluded Baguio Trinity’s submission of some other copy of such judgment or final order. 

        In any event, the CA held that the petition was barred by laches since Baguio Trinity had notice of the reconstitution orders as early as 1995 when it filed an action (the first that it filed) for declaration of nullity of titles and damages before the MTC, a wrong court.  Baguio Trinity filed its action to annul the orders of reconstitution with the CA only on December 21, 2007 or 12 years after that court affirmed the RTC order dismissing the complaint (the second action filed) before the RTC of Agoo, Branch 32. 

        Because the CA denied petitioner Baguio Trinity’s motion for reconsideration of its ruling in its resolution of April 24, 2009, petitioner has taken recourse to this Court.

The Issue

        The only issue before this Court is whether or not the CA erred in dismissing petitioner Baguio Trinity’s action for annulment of judgment a) by reason of its failure to comply with the requirement of submission of certified true copies of the assailed RTC orders; and b) on ground of laches.

The Court’s Rulings

One.  In denying the petition before it, one of the grounds the CA gave was that petitioner Baguio Trinity failed to attach to its petition for annulment of judgment a “certified copy of the judgment or final order,” which requirement is mandatory.  Without it, the court “would have no bases to form a decision.”  Besides, said the CA, petitioner could have obtained a certified copy of the same from the Land Registration Authority (LRA) which is usually furnished a copy, just as petitioner was able to secure a copy of the October 28, 1986 Order from the LRA.  The Register of Deeds is also usually furnished a copy of such order.

        Evidently, when Section 4, Rule 47 of the Rules of Civil Procedure provided that “a certified copy of the judgment or final order or resolution shall be attached to the original copy of the petition intended for the court and indicated as such by the petitioner,” it wanted to ensure that the Court is shown a genuine copy of the challenged judgment or final order before it acts on the petition.

        The Court is aware of the necessity of mandating strict compliance with procedural rules. Here, however, the 1990 earthquake resulted in the loss or destruction of the RTC records of the case.  The administration of justice cannot stop to grind because of such loss and no one should suffer or benefit from it.

        And who can issue a certified copy of the lost orders?  The answer is that it can be issued by the public officer in custody of the original of the document.^[5][4]  Here, it is the clerk of court of the RTC that issued the challenged reconstitution orders.  But the clerk of court issued a certification, conformably with Section 28 of Rule 132, that the relevant records are no longer available having been lost to an earthquake.  That the record custodian could no longer issue a certified copy should not of course prevent an aggrieved party from pursuing his petition.  The rules allow such party to submit appropriate secondary evidence.

        Section 5, Rule 130 of the Rules of Evidence provides that when the original document has been lost and its unavailability has been established, a party “may prove its contents by a copy or by a recital of its contents in some authentic document or by the testimony of witnesses in the order stated.”  Copies of the challenged reconstitution orders from the LRA or the Register of Deeds are of course available to petitioner Baguio Trinity.  But it could just as validly submit faithful copies of its challenged reconstitution orders, authenticated by a verified statement that these are copies of the original orders.  The Baguio Trinity did.  Consequently, the CA had no valid reason denying its petition for failure to attach a copy of the assailed reconstitution orders. 

        Notably, the respondent Ramos and Nepa heirs have not questioned the authenticity of the submitted copies.  At any rate, the Court notes that petitioner Baguio Trinity attached certified machine copies of the assailed Orders supplied by the LRA as annexes to the present petition.

        As for copies of documents and pleadings filed during the reconstitution proceedings, the notices of hearing, and the titles issued to petitioner’s predecessors-in-interest, which the CA wanted petitioner Baguio Trinity to submit, these could very well be adduced during the hearing since their relevance could hardly be discerned until the issues have been joined.

        Two.  The CA also dismissed petitioner’s action for annulment of final orders on the further ground that such action is already barred by laches.  The CA pointed out that petitioner Baguio Trinity learned of the reconstitution orders as early as 1995.  Still, the action for the annulment of those orders was filed only 12 years later on December 21, 2007. 

The RTC of Agoo ordered the reconstitution of the Grabiles title when, if Baguio Trinity’s allegations were to be believed, the original of such title actually existed and had since been replaced through subsequent sales, terminating their ownership of the property.  As things now stand, two sets of titles covering the same property, one based on transactions emanating from the original and another based on the reconstituted titles exist.  One has to give way to the other.

Petitioner Baguio Trinity initially brought an action to annul the reconstituted versions of the Grabiles’ title before the MTC of Rosario, La Union, on September 14, 1995 but that court dismissed the same for lack of jurisdiction and opined that it should be filed with the RTC.

  Baguio Trinity filed a second action on December 3, 1997 for recovery of property, declaration of nullity of the titles, and damages before the RTC of Agoo, Branch 32, against the Ramos and Nepa heirs who held the reconstituted titles.  But the RTC dismissed the action on May 31, 2004 saying that it cannot annul the orders issued by a co-equal court. This, the CA Sixth Division affirmed and held that Baguio Trinity should have availed itself of a petition for annulment under Rule 47.

 Baguio Trinity finally filed before the CA an action for annulment of the reconstitution orders on the ground that the RTC did not have jurisdiction to issue them.  It is not right for the CA to dismiss such action by reason of laches simply because no inaction is evident on Baguio Trinity’s part.  In fact, it had been an unintentional object of relay between the lower courts which contributed to the delay in the proceedings. 

The petition for annulment alleged serious charges which if true can invalidate respondents’ title. Such title had been subjected to two reconstitution proceedings that could have divested the true owner of title over his property. The conflict between the two sets of titles has to be resolved.  The present standoff cannot remain indefinitely under a titling system that assures the existence of only one valid title for every piece of registered land.  Evidently, laches cannot bar an action sought to relieve such intolerable standoff. 

        WHEREFORE, the Court GRANTS the petition and sets aside the Court of Appeals Resolutions dated May 8, 2008 and November 7, 2008 and directs such court to hear and decide the merits of the petition for annulment of judgment.

        SO ORDERED.

ROBERTO A. ABAD

                                                    Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.

Associate Justice

Chairperson

      DIOSDADO M. PERALTA       MA. LOURDES P. A. SERENO

                Associate Justice                              Associate Justice

ESTELA M. PERLAS-BERNABE

Associate Justice

ATTESTATION

        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.

                                              PRESBITERO J. VELASCO, JR.

                                                     Associate Justice

                                    Chairperson, Third Division               

CERTIFICATION

        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