J.A.B. Bulao & Associates

CASE 2011-0052: DEVELOPMENT BANK OF THE PHILIPPINES VS. BEN P. MEDRANO AND PRIVATIZATION MANAGEMENT OFFICE [PMO] (G.R. NO. 167004, 7 FEBRUARY 2011, VILLARAMA, JR., J.) SUBJECTS: CONTRACTS, UNJUST ENRICHMENT, ATTORNEY’S FEES. (BRIEF TITLE: DBP VS. MEDRANO ET AL.)

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DECISION

VILLARAMA, JR., J.:

            This petition for review on certiorari assails the Decision^[1] dated December 14, 2004 and Resolution^[2] dated February 8, 2005 of the Court of Appeals (CA) in CA-G.R. CV No. 65436.  The CA affirmed in toto the Decision^[3] dated January 26, 1999 of the Regional Trial Court (RTC) of Pasig City, Branch 158, ordering petitioner Development Bank of the Philippines (DBP) to pay respondent Ben Medrano the following: (1) the amount of P2,449,265.00 representing the value of the purchase price of Medrano’s 37,681 shares in Paragon Paper Industries, Inc. plus legal interest from date of first demand; (2) attorney’s fees in the amount ofP100,000.00; and (3) the cost of suit.

            The facts, as culled from the records, are as follows.

            Respondent Ben Medrano was the President and General Manager of Paragon Paper Industries, Inc. (Paragon) wherein he owned 37,681 shares. Sometime in 1980, petitioner DBP sought to consolidate its ownership in Paragon.  In one of the meetings of the Paragon Executive Committee, the Chairman Jose B. de Ocampo, instructed Medrano, as President and General Manager of Paragon, to contact or sound off the minority stockholders and to convince them to sell their shares to DBP at P65.00 per share, or 65% of the stock’s par value of P100.00.  Medrano followed the instructions and began to contact each member of the minority stockholders. He was able to contact all except one who was in Singapore.  Medrano testified that all, including himself, agreed to sell, and all took steps to have their shares surrendered to DBP for payment.^[4]  They made proposals to DBP and the Board of Directors of DBP approved the sale under DBP Resolution No. 4270 subject to the following terms and conditions: (1) that prior to the implementation of the approval, 57,596 shares of Paragon’s stock issued to the stockholders concerned shall first be surrendered to the DBP; (2) that all the parties concerned shall give their written conformity to the arrangement; and (3) that the transaction shall be implemented within forty-five (45) days from the date of approval (December 24, 1980); otherwise, the same shall be deemed canceled. Medrano then indorsed and delivered to DBP all his 37,681 shares which had a value of P2,449,265.00. DBP accepted said shares and took over Paragon.

            DBP, through Jose de Ocampo, who was also a member of its Board of Governors, also offered Medrano a commission ofP185,010.00 if the latter could persuade all the other Paragon minority stockholders to sell their shares. Medrano was able to convince only two stockholders, Alberto Wong and Gerardo Ledonio III, to sell their respective shares. Thus, his commission was reduced to P155,455.00.

            Thereafter, Medrano demanded that DBP pay the value of his shares, which he had already turned over, and his P155,455.00 commission. When DBP did not heed his demand, Medrano filed a complaint for specific performance and damages against DBP on September 2, 1981.

         DBP filed an Answer arguing that there was no perfected contract of sale as the three conditions in DBP Resolution No. 4270 were not fulfilled. Likewise, certain minority stockholders owning 17,635 shares refused to sell their shares.  Hence, DBP exercised its right to cancel the sale under Resolution No. 4270.

            Later, during the pendency of the case, DBP conveyed the shares to the Asset Privatization Trust (APT) in a Deed of Transfer when the APT took over certain assets, and assumed the liabilities, of government financial institutions including DBP.  As the transferee of the shares, the APT was impleaded as party-defendant. DBP thereafter filed a cross-claim against the APT which was later on substituted by the Privatization Management Office (PMO).  Medrano adopted his evidence against DBP as his evidence against the APT while the APT adopted DBP’s evidence and defenses against Medrano. On the cross-claim, the APT raised the defense that the liabilities assumed by the National Government and referred to in the Deed of Transfer are liabilities to local and foreign intermediaries and guarantees and not to individual persons like Medrano.

            On January 26, 1999, the RTC ruled in Medrano’s favor and dismissed DBP’s cross-claim against the APT, to wit:

            WHEREFORE, in view of the foregoing, judgment is rendered in favor of the plaintiff and against defendant Development Bank of the Philippines ordering the latter to pay the former the following: (1) the amount of P2,449,265.00 representing the value of the purchase price of plaintiff’s 37,681 shares in Paragon plus legal rate of interest from date of first demand; (2) attorney’s fees in the amount of P100,000.00; and (3) the cost of suit.

            The cross-claim of defendant DBP against the other defendant Asset Privatization Trust is dismissed because defendant Development Bank of the Philippines’ accountability to the plaintiff [is] based on act[s] solely imputable to it.

            SO ORDERED.^[5]

            Dissatisfied, DBP elevated the case to the CA.  DBP prayed that the trial court’s decision be reversed and that DBP be absolved from any and all liabilities to Medrano.

            Medrano, for his part, prayed in his appellee’s brief that DBP be ordered to pay his commission of P155,445.00.^[6]

            On December 14, 2004, the CA issued the challenged Decision^[7] and affirmed the decision of the trial court. The CA, however, refused to grant Medrano’s prayer for the payment of commission because Medrano did not appeal the trial court’s decision but instead prayed for the payment of his commission only in his appellee’s brief.

The CA held that there existed between DBP and Medrano a contract of sale and the conditions imposed by Resolution No. 4270 were merely conditions imposed on the performance of an obligation.  Hence, while under Article 1545^[8] of the Civil Code, DBP had the right not to proceed with the agreement upon Medrano’s failure to comply with the conditions, DBP was deemed to have waived the performance of the conditions when it chose to retain Medrano’s shares and later transfer them to the APT.  The CA noted that the retention of the shares was contrary to DBP’s claim of rescission because if indeed DBP rescinded the sale, then it should have returned to Medrano his shares together with their fruits and the price with interests, as provided by Article 1385^[9] of the Civil Code.

DBP filed a motion for reconsideration, but the same was denied by the CA in a Resolution^[10] dated February 8, 2005. Hence, this appeal.

            DBP alleges that the CA erred

I

… WHEN IT REACHED A CONCLUSION WHICH IS NOT A LOGICAL CONSEQUENCE OF ITS FINDING THAT THERE WAS NO PERFECTED CONTRACT OF SALE BETWEEN DBP AND MEDRANO AND PROCEEDED TO MAKE A CONTRACT FOR THE PARTIES IN THE INSTANT CASE.

II

… WHEN IT APPLIED ARTICLE 1545 OF THE CIVIL CODE OF THE PHILIPPINES NOTWITHSTANDING ITS FINDING THAT THERE WAS NO PERFECTED CONTRACT OF SALE BETWEEN MEDRANO AND DBP.

III

… WHEN IT FAILED TO EXERCISE ITS AUTHORITY TO RULE ON MATTERS WHICH ARE THE NATURAL AND LOGICAL CONSEQUENCE OF ITS FINDINGS OF FACTS OR THAT ARE INDISPENSABLE AND NECESSARY TO THE JUST RESOLUTION OF THE PLEADED ISSUES, EVEN IF NOT RAISED AS ISSUES IN THE APPEAL.

IV

… WHEN IT FAILED TO CONSIDER THE ESTABLISHED FACT THAT THE ASSETS OF PARAGON PAPER INDUSTRIES, INC., INCLUDING THE SUBJECT CERTIFICATE OF STOCKS, WERE TRANSFERRED TO THE ASSET PRIVATIZATION TRUST, NOW THE PRIVATIZATION MANAGEMENT OFFICE, HEREIN CO-DEFENDANT.  HENCE, THE PMO SHOULD BE THE PARTY THAT SHOULD BE MADE TO RETURN THE SUBJECT CERTIFICATES OF STOCKS OR PAY THE SAID SHARES OF STOCKS.

V

… WHEN IT AFFIRMED THE AWARD OF ATTORNEY’S FEES, DAMAGES AND COST OF SUIT IN FAVOR OF RESPONDENT MEDRANO CONTRARY TO LAW AND THE PERTINENT DECISIONS OF THIS HONORABLE SUPREME COURT.^[11]

Essentially, the issue in this case is whether the CA erred in applying Article 1545 of the Civil Code and holding that DBP exercised the second option under the said article to justify the order against DBP to pay the value of Medrano’s shares of stock. As a side issue, DBP also questions the award of attorney’s fees in Medrano’s favor.

            In fine, DBP contends that the trial court and the CA both ruled that there was no perfected contract of sale in this case and that accordingly, it was erroneous for them to order DBP to pay Medrano the value or price of the object of the sale.  DBP insists that the proper order was to direct DBP or the PMO, which now has possession of the shares, to return the shares of stock.  By ordering DBP to pay the purchase price of the stocks, DBP argues that the CA in effect created a new contract of sale between the parties.^[12]

            DBP adds that the CA erred in applying Article 1545 of the Civil Code. According to DBP, Article 1545 of the Civil Codeonly applies to a perfected contract of sale and since there is no such perfected contract in this case because of Medrano’s failure to meet all the conditions agreed upon, the application of this article by the CA is misplaced.

         Lastly, DBP questions the award of attorney’s fees to Medrano.  DBP maintains that there was no unjustified refusal to pay for the shares of stock transferred to DBP as there was no perfected contract of sale.

         Medrano, for his part, argues that by retaining the shares of stock transferred to it and later even appropriating and transferring them to the APT, DBP is deemed to have exercised the second option under Article 1545 of the Civil Code, that is, it waived performance of the conditions imposed by Resolution No. 4270.  The original conditional sale was thus converted into, and correctly treated by the courts a quo, as an absolute, unconditional sale where compliance with the obligation of the buyer to pay the purchase price may be demanded.

            As regards the award of attorney’s fees, Medrano maintains that he was constrained to acquire the services of a lawyer and use legal means to enforce his rights over the shares in question.  He argues that since DBP refused to pay for or return the shares that he transferred to it, he was left with no other option but to go to court. Hence, the award of attorney’s fees is legally justified.

            We sustain the CA.

            As a rule, a contract is perfected upon the meeting of the minds of the two parties.  Under Article 1475^[13] of the Civil Code,a contract of sale is perfected the moment there is a meeting of the minds on the thing which is the object of the contract and on the price. 

            In the case of Traders Royal Bank v. Cuison Lumber Co., Inc.,^[14] the Court ruled:

Under the law, a contract is perfected by mere consent, that is, from the moment that there is a meeting of the offer and the acceptance upon the thing and the cause that constitute the contract. The law requires that the offer must be certain and the acceptance absolute and unqualified. An acceptance of an offer may be express and implied; a qualified offer constitutes a counter-offer. Case law holds that an offer, to be considered certain, must be definite, while an acceptance is considered absolute and unqualified when it is identical in all respects with that of the offer so as to produce consent or a meeting of the minds. We have also previously held that the ascertainment of whether there is a meeting of minds on the offer and acceptance depends on the circumstances surrounding the case.

… the offer must be certain and definite with respect to the cause or consideration and object of the proposed contract, while theacceptance of this offer – express or implied – must be unmistakable,  unqualified, and identical in all respects to the offer.  The required concurrence, however, may not always be immediately clear and may have to be read from the attendant circumstances; in fact, a binding contract may exist between the parties whose minds have met, although they did not affix their signatures to any written document.  (Italics supplied.)

         Also, in Manila Metal Container Corporation v. Philippine National Bank,^[15] the Court ruled,

            A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a rejection of the original offer. A counter-offer is considered in law, a rejection of the original offer and an attempt to end the negotiation between the parties on a different basis. Consequently,when something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to guarantee consent because any modification or variation from the terms of the offer annuls the offer.  The acceptance must be identical in all respects with that of the offer so as to produce consent or meeting of the minds.  (Italics supplied.)

            In the present case, Medrano’s offer to sell the shares of the minority stockholders at the price of 65% of the par value wasnot absolutely and unconditionally accepted by DBP.  DBP imposed several conditions to its acceptance and it is clear that Medrano indeed tried in good faith to comply with the conditions given by DBP but unfortunately failed to do so. Hence, there was no birth of a perfected contract of sale between the parties. 

            The petitioner is also correct that Paragraph 1, Article 1545 of the Civil Code speaks of a perfected contract of sale. Paragraph 1, Article 1545 of the Civil Code provides:

            ART. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is not performed, such party may refuse to proceed with the contract or he may waive performance of the condition. If the other party has promised that the condition should happen or be performed, such first mentioned party may also treat the nonperformance of the condition as a breach of warranty.

            x x x x (Italics supplied.)

            It is clear from a plain reading of this article that it speaks of a party to a contract of sale who fails in the performance of his/her obligation.  The application of this article presupposes that there is a perfected contract between the parties and that one of them fails in the performance of an obligation under the contract.

            The present case does not fall under this article because there is no perfected contract of sale to speak of. Medrano’s failure to comply with the conditions set forth by DBP prevented the perfection of the contract of sale. Hence, Medrano and DBP remained as prospective-seller and prospective-buyer and not parties to a contract of sale.

         This notwithstanding, however, we cannot simply agree with DBP’s argument that since there is no perfected contract of sale, DBP should not be ordered to pay Medrano any amount. 

            The factual scenario of this case took place in 1980 or over thirty (30) years ago.  Medrano had turned over and delivered his own shares of stock to DBP in his attempt to comply with the conditions given by DBP.  DBP then accepted the shares of stock as partial fulfillment of the conditions that it imposed on Medrano.  However, after the lapse of some time and after it became clear that Medrano would not be able to comply with the conditions, DBP decided to retain Medrano’s shares of stock without paying Medrano.  After the realization that DBP would in fact not pay him for his shares of stock, Medrano was constrained to file a suit to enforce his rights.^[16]

            In civil law, DBP’s act of keeping the shares delivered by Medrano without paying for them constitutes unjust enrichment. As we held in Car Cool Philippines, Inc. v. Ushio Realty and Development Corporation^[17],

         … “[t]here is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience.” Article 22 of the Civil Code provides that “[e]very person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.” The principle of unjust enrichment under Article 22 requires two conditions: (1) that a person is benefited without a valid basis or justification, and (2) that such benefit is derived at another’s expense or damage.

            It was not proper for DBP to hold on to Medrano’s shares of stock after it became obvious that he will not be able to comply with the conditions for the contract of sale.  From that point onwards, the prudent and fair thing to do for DBP was to return Medrano’s shares because DBP had no just or legal ground to retain them.

         We find that equitable considerations militate against DBP’s claimed right over the subject shares.  First, it is clear that DBP did not buy the shares from Medrano as it even asserts there was no perfected contract of sale because of the failure of the latter to comply with DBP’s conditions. Second, it cannot be said that Medrano voluntarily donated his shares of stock as he is in fact still trying to recover them 30 years later.  Third, it cannot be said that DBP was merely holding the shares of stock for safekeeping as DBP even claims that the shares were transferred to the APT (now PMO).  In fine, there is no reason whatsoever for DBP to continue in the possession of the shares of stock against Medrano. For nearly 30 years, Medrano was deprived of his shares without any compensation at all from DBP.  To this Court, such situation is tantamount to the loss of respondent’s shares of stock, by reason of DBP’s unjustified retention. 

            As to the issue of attorney’s fees, it is well settled that the law allows the courts discretion as to the determination of whether or not attorney’s fees are appropriate.  The surrounding circumstances of each case are to be considered in order to determine if such fees are to be awarded.  In the case of Servicewide Specialists, Incorporated v. Court of Appeals,^[18] the Court ruled:

Article 2208 of the Civil Code allows attorney’s fees to be awarded by a court when its claimant is compelled to litigate with third persons or to incur expenses to protect his interest by reason of an unjustified act or omission on the part of the party from whom it is sought….

            In the present case, it is clear that Medrano was constrained to use legal means to recover his shares of stock. Records showed that indeed respondent Medrano followed up^[19] the payment of his shares of stock that were transferred to DBP.  After some time, he became convinced that DBP will not pay for the shares of stock for reasons unknown to him. That was when he decided to bring the matter to court. 

            DBP’s unjustified refusal to pay for the shares or even offer an explanation to Medrano why payment was being withheld indicates bad faith on its part.  Besides having no legal or just reason to hold on to Medrano’s shares of stock, DBP also refused to enlighten Medrano of the reason why he was being denied payment.  Further, Medrano’s failure to comply with the conditions of the acceptance should have prompted DBP either to return the shares of Medrano or accept the shares of Medrano as a sale and pay a fair price or at least communicate to Medrano why his shares were being withheld. Instead, DBP did nothing but to hold on to the shares.  Because of this, Medrano was left with no other option but to seek redress from the courts.

            WHEREFORE, the Decision dated December 14, 2004 and Resolution dated February 8, 2005 of the Court of Appeals in CA-G.R. CV No. 65436 are hereby AFFIRMED. 

         No pronouncement as to costs.

SO ORDERED.

A T T E S T A T I O N

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

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

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

^[1]       Rollo, pp. 51-56. Penned by Associate Justice Jose Catral Mendoza (now a member of this Court) with Associate Justices Godardo A. Jacinto and Edgardo P. Cruz concurring.

^[2]          Id. at 58-59.

^[3]       Id. at 101-106.

^[4]       TSN, June 16, 1983, pp. 10-13, 30.

^[5]       Rollo, pp. 105-106.

^[6]       CA rollo, p. 100.

^[7]       Supra note 1.

^[8]       ART. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is not performed, such party may refuse to proceed with the contract or he may waive performance of the condition.  If the other party has promised that the condition should happen or be performed, such first mentioned party may also treat the nonperformance of the condition as a breach of warranty.

                Where the ownership in the things has not passed, the buyer may treat the fulfillment by the seller of his obligation to deliver the same as described and as warranted expressly or by implication in the contract of sale as a condition of the obligation of the buyer to perform his promise to accept and pay for the thing.

^[9]       ART. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore.

                Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith.

                In this case, indemnity for damages may be demanded from the person causing the loss.

^[10]     Supra note 2.

^[11]     Id. at 34.

^[12]     Id. at 36-37.

^[13]     Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.

             From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.

^[14]     G.R. No. 174286, June 5, 2009, 588 SCRA 690, 701, 703.

^[15]     G.R. No. 166862, December 20, 2006, 511 SCRA 444, 465-466, citing Logan v. Philippine Acetylene Co., 33 Phil. 177, 183-184 (1916) and ABS-CBN Broadcasting Corporation v. Court of Appeals, G.R. No. 128690, January 21, 1999, 301 SCRA 572, 592-593.

^[16]     TSN, June 16, 1983, pp. 22-25.

^[17]     G.R. No. 138088, January 23, 2006, 479 SCRA 404, 412, citing Reyes v. Lim, G.R. No. 134241, August 11, 2003, 408 SCRA 560 and 1 J. Vitug, CIVIL LAW 30 (2003).

^[18]     G.R. No. 110597, May 8, 1996, 256 SCRA 649, 655, citing Gonzales v. National Housing Corporation, No. L-50092, December 18, 1979, 94 SCRA 786.

^[19]     TSN, June 16, 1983, p. 24.

CASE 2011-0051: ADELIA C. MENDOZA AND AS ATTORNEY-IN-FACT OF ALICE MALLETA VS. UNITED COCONUT PLANTERS BANK, INC. (G.R. NO.  165575, 2 FEBRUARY 2011, PERALTA, J.) (SUBJECT: FAILURE TO COMPLY WITH THE REQUIREMENTS ON APPELLANT’S BRIEF). (BRIEF TITLE: MENDOZA VS. UCPB)

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DECISION

PERALTA, J.:

This is a petition for review on certiorari^[1] of the Court of Appeals’ Resolution dated July 2, 2004, in CA-G.R. CV No. 79796, and its Resolution dated September 9, 2004, denying petitioners’ motion for reconsideration. The Court of Appeals dismissed the Appellants’ Brief filed by petitioners for failure to comply with the requirements under Section 13, Rule 44 of the 1997 Revised Rules of Civil Procedure. 

The facts are as follows:

On November 5, 2001, petitioner Adelia Mendoza, attorney-in-fact of petitioner Alice Malleta, filed a Complaint^[2] for annulment of titles, foreclosure proceedings and certificate of sale with the Regional Trial Court (RTC) of Lipa City, Fourth Judicial Region.  

In their Complaint, herein petitioners stated that on October 6, 1995, they entered into a Real Estate Mortgage Contract with respondent United Coconut Planters Bank (UCPB) in the amount of P4,925,000.00.^[3]  On August 27, 1998, the properties were sold at public auction in the total amount of P31,300,00.00 to UCPB.  On September 17, 2001, an Affidavit of Consolidation was executed by UCPB. 

Petitioners contended that the foreclosure proceedings violated due process and the legal requirements under Act No. 3135, as amended, on the following grounds:

a)                 There was no valid and legal notice to petitioner Adelia Mendoza of the foreclosure proceedings;

b)                There was no valid and legal notice of the auction sale;

c)                 There was no valid and legal notice of the consolidation of ownership;

d)                There was no valid publication and notice as required by law;

e)                 There was a violation of Republic Act No. 3765,  “An Act to Require the Disclosure of Finance Charges in Connection with Extensions of Credit,” specifically Section 6 of the law;

f)                  There was no clear and accurate financial statement showing the application of payments of the plaintiffs (petitioners herein); and

g)                 There was no valid letter of demand showing the clear finance charges.

 Petitioners prayed that the foreclosure proceedings and Certificate of Sale be annulled, and that if ever any new title is issued in lieu of their Transfer Certificates of Titles,^[4]  the same should be cancelled and annulled; that respondent be ordered to pay petitioners attorney’s fees of P50,000.00 and litigation expenses of P20,000.00.    

In its Answer with Compulsory Counterclaim,^[5] respondent UCPB denied that petitioners entered into a Real Estate Mortgage Contract with it in the amount of P4,925,000.00, the truth being that petitioner Adelia Mendoza executed several promissory notes in the total principal amount of P27,500,000.00, and to secure these obligations she executed, together with petitioner Alice Malleta, several real estate mortgages over several parcels of land in favor of UCPB.

Respondent denied that the foreclosure proceedings were legally defective, as the said proceedings were done in accordance with the provisions of Act No. 3135, as amended.  It countered that the law does not require personal notice to the mortgagor of the foreclosure proceedings and the auction sale, as the publication of the notice of sale in a newspaper of general circulation constitutes constructive notice to the whole world.  Moreover, there is no legal requirement of personal notice to the mortgagor of the consolidation of ownership, as the registration of the certificate of sale with the Register of Deeds constitutes notice to the whole world that the mortgagor or any interested party has one year from the date of such registration to redeem the foreclosed properties. Respondent claimed that it complied with the posting requirements, and that it had also complied with the provisions of Republic Act No. 3765 and had regularly furnished petitioners with statements of account pursuant to standard banking practice.        

Respondent contended that petitioners knew that the foreclosure was forthcoming due to their default in the payment of their obligations. Petitioners had been sent several verbal and written demands to pay their obligations and had been warned that failure to settle their obligations would result in the foreclosure of their properties.  Further, petitioners had one year from the date of registration of the certificate of sale to redeem their property, but they failed to do so. 

Respondent denied that there was “non-disclosure of finance charges without lawful and legal demand,” since it had regularly sent petitioners statements of account and had regularly given verbal and written notices to pay their obligations.  It also denied the allegations of lack of reconciliation and verification of accounts.  In this regard, respondent stated that petitioners could have easily verified their account with the account officers of UCPB, but they failed to do so.

As special and affirmative defenses, respondent stated that on August 9, 1994, petitioner Mendoza applied for and was granted a credit line in the amount of P25 million, which is supported by a Loan Agreement.^[6]  On October 9, 1995, the credit line was increased by P2.5 million, as evidenced by a Loan Agreement.^[7]  Petitioner Mendoza availed of the said credit line in the aggregate principal amount of Twenty-Seven Million Five Hundred Thousand Pesos (P27.5 million) and executed promissory notes^[8] therefor. Among other conditions, the promissory notes carried acceleration clauses, making these notes immediately due and payable even before maturity in case an event of default occurred, including, but not limited to, payment of principal and interest amortizations.

Moreover, respondent stated that on August 10, 1995, as partial security for the promissory notes, petitioner Malleta, through her attorney-in-fact, petitioner Adelia Mendoza, executed a real estate mortgage in favor of UCPB over several parcels of land registered under the name of Alice B. Malleta with the Register of Deeds of Lipa City.  Later, pursuant to petitioner Mendoza’s commitment with UCPB, the titles of the mortgaged properties were transferred under the name of Adelia B. Mendoza upon release of the loan proceeds and the mortgage annotation was carried over to the new titles. 

According to respondent, on October 6, 1995,  petitioner Mendoza executed a real estate mortgage over 12 parcels of land,^[9]all registered in her name, as additional security for the said promissory notes.

Respondent stated that petitioner Mendoza failed to discharge her obligations under the promissory notes, despite written and verbal demands made by UCPB upon her, the latest of which was the demand letter dated January 29, 1998.^[10]  Hence, it had no other recourse but to initiate foreclosure proceedings on the aforementioned securities.

Respondent averred that on May 6, 1998, it filed a Petition^[11] for Extrajudicial Foreclosure of the mortgaged properties before the Ex Officio Sheriff of Lipa City. 

On July 21, 1998, the Sheriff prepared a Notice of Sale^[12] and set the date of the public sale on August 27, 1998.^[13]  OnJuly 28, 1998, the Sheriff posted the Notice of Sale in three public places and the Notice was, likewise, published in Tambuling Batangas, a newspaper of general circulation, on July 22 and 29, 1998, and on August 5, 1998.  The certificate of posting and publisher’s affidavit of publication were attached as Annexes “12,”^[14] and “13,”^[15] respectively.

The public sale was conducted on August 28, 1998.  The mortgaged properties were sold in the amount of P31,300,000.00  to UCPB as  the highest and winning bidder.  A Certificate of Sale^[16] was issued in favor of UCPB, which was duly registered in July 2000 at the back of the certificates of title of the mortgaged properties with the Register of Deeds of Lipa City.

Petitioners failed to redeem the foreclosed properties within the one-year redemption period that expired on July 21, 2001. Consequently, UCPB consolidated its ownership over the said properties and new certificates of title were issued under its name.

Respondent stated that on August 27, 1998, the date of the auction sale, petitioners’ outstanding obligation wasP58,692,538.63, as evidenced by a Statement of Account.^[17]

According to respondent, the proceeds of the foreclosure sale amounted to P31,300,000.00, leaving a deficiency ofP27,392,538.63, an amount which it is entitled to payment from petitioner Mendoza, together with penalties and interest due thereon.

Respondent prayed that, after hearing, judgment be rendered (1) dismissing the Complaint for lack of merit; (2) on the counterclaim, ordering petitioners to pay the deficiency claim of P27,392,538.63, including the penalties and interests due thereon from August 27, 1998, and P1 million as attorney’s fees and P200,000.00 as litigation expenses.

On March 25, 2003, respondent filed a Motion to Dismiss^[18] for failure to prosecute.  Respondent contended that petitioners, through counsel, received a copy of its Answer on August 26, 2002, as shown by the photocopy of the registry return receipt.   It stated that under Section 1, Rule 18 of the 1997 Rules of Civil Procedure, petitioners have the positive duty to promptly set the case for pre-trial after the last pleading had been filed.  It stated that the Answer was the last pleading, since petitioners failed to file a Reply thereon within the reglementary period.

Respondent stated that since August 26, 2002, or almost a period of six months, petitioners had not taken steps to set the case for pre-trial as mandated by the rules.   Respondent submitted that the case should be dismissed for failure to prosecute for an unreasonable period of time as provided by Section 3, Rule 17 of the 1997 Rules of Civil Procedure.  It asserted that failure to set the case for pre-trial for almost six (6) months is an unreasonable period of time, as a period of three (3) months had been found to constitute an unreasonable period of time in Montejo v. Urotia.^[19]

Petitioners, through counsel Atty. Jose P. Malabanan, filed an Opposition to the Motion to Dismiss and Motion to Set the Case for Pre-trial,^[20] and stated therein that their counsel on record is Atty. Monchito C. Rosales, who died on December 22, 2002; that Atty. Jose P. Malabanan forgot the case because of the death of Atty. Rosales (who is his law partner), and that he was setting the case for pre-trial.  Petitioners prayed that the Opposition and motion to set the case for pre-trial be granted.

On April 15, 2003, the RTC of Lipa City, Branch 12 issued an Order^[21] dismissing the case.  The court found the Motion to Dismiss (for failure to prosecute) to be in accordance with the rules.  It stated that the records of the case showed that since August 20, 2002, the issues in this case had already been joined, and that Atty. Monchito C. Rosales was still alive then, yet he did not take any step to have the case set for pre-trial.  It found the claim of Atty. Jose P. Malabanan, that he forgot about the case because of the death of Atty. Rosales, as unpardonable, flimsy and an invalid excuse. 

The Motion for Reconsideration of the Order dated April 15, 2003 was denied for lack of merit by the trial court in an Order dated May 26, 2003.^[22]

Thereafter, petitioners appealed the trial court’s Orders to the Court of Appeals, and filed an Appellant’s Brief on April 5, 2004. 

On May 20, 2004, respondent filed a Motion to Dismiss Appeal on the ground that the Appellant’s Brief failed to comply with the requirements under Section 13, Rule 44 of the 1997 Rules of Civil Procedure.  Respondent contended that the Appellant’s Brief contained only the following topics:  (1) Prefaratory Statement; (2) Statement of Facts and Antecedent Proceedings; (3) Parties; (4) Statement of the Case; (5) Issues; (6) Arguments/Discussion; and (7) Prayer.  The Appellants’ Brief did not have the following items:  (1) A subject index of the matter in the brief with a digest of the arguments and page references, and  a table of cases alphabetically arranged, textbooks and statutes cited with references to the pages where they are cited; (2) an assignment of errors; (3) on the authorities cited, references to the page of the report at which the case begins and page of the report on which the citation is found; (4) page references to the  record in the Statement of Facts and Statement of the Case.

Respondent contended that the absence of a specific assignment of errors or of page references to the record in the Appellants’ Brief is a ground for dismissal of the appeal under Section 1 (f), Rule 50 of the 1997 Rules of Civil Procedure.^[23]  

On June 4, 2004, petitioners filed an Opposition to Motion to Dismiss Appeal.^[24]  They contended that the assignment of errors were only designated as “Issues” in their Appellants’ Brief; and although the designation of the “Assignment of Error” may vary, the substance thereof remains.  Moreover,  petitioners stated that  the textbooks and statutes were cited immediately after the portion where they are quoted, which is more convenient and facilitates ready reference of the legal and jurisprudential basis of the arguments. They claimed that the absence of a subject index does not substantially deviate from the requirements of the Rules of Court, because one can easily go over the Appellants’ Brief and can designate the parts with nominal prudence.  They pointed out that Section 6 of the Rules of Court provides for a liberal construction of the Rules in order to promote their objective of securing a just, speedy and inexpensive disposition of every action and proceeding.  

On July 2, 2004, the Court of Appeals issued a Resolution dismissing the appeal.  The dispositive portion of the Resolution reads:

WHEREFORE, in view of the foregoing, the defendant-appellee UCPB’s Motion to Dismiss Appeal is hereby GRANTED. This appeal is ordered DISMISSED for failure to comply with Section 13, Rule 44 of the 1997 Revised Rules of Civil Procedure.^[25]     

The Court of Appeals held that the right to appeal is a statutory right and a party who seeks to avail of the right must faithfully comply with the rules.  It found that the Appellants’ Brief failed to comply with Section 13, Rule 44 of the 1997 Revised Rules of Civil Procedure, thus:

In this case, the plaintiff-appellant’s brief failed to provide an index, like a table of contents, to facilitate the review of appeals by providing ready references to the records and documents referred to therein.  This Court has to thumb through the brief page after page to locate the party’s arguments, or a particular citation, or whatever else needs to be found and considered.  In so doing, the plaintiff-appellant unreasonably abdicated her duty to assist this Court in the appreciation and evaluation of the issues on appeal.

Further, the statement of facts is not supported by page references to the record.  Instead of reasonably complying with the requirements of the rules, plaintiff-appellant annexed the plain photocopy of the documents being referred to in the statements of facts.  Thus, if only to verify the veracity of the allegations in the brief and the existence of the attached documents, this Court has to pore over the entire records of this case.

There is no merit in the plaintiff-appellant’s argument that the “Assignment of Error” was merely designated as “Issues” but the substance thereof remains and should not cause the dismissal of the appeal.  The Supreme Court categorically stated in De Liano vs. Court of Appeals that the statement of issues is not to be confused with the assignment of errors because they are not one and the same, for otherwise, the rules would not have required a separate statement of each.^[26]

Petitioners’ motion for reconsideration was denied for lack of merit by the Court of Appeals in its Resolution dated September 9, 2004.  The appellate court held that petitioners merely reiterated the arguments raised in their Opposition to Motion to Dismiss Appeal, which arguments were already passed upon by the court.  Moreover, the  Court of Appeals noted that despite ample opportunity, petitioners never attempted to remedy the deficiency in their Appellants’ Brief by filing another brief in conformity with the rules, but obstinately maintained that their Appellants’ Brief substantially complied with the rules.

Hence, petitioners filed this petition raising the following issues:  

I

THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING THE APPEAL NOTWITHSTANDING THE PETITIONERS’ SUBSTANTIAL COMPLIANCE [WITH] SECTION 13, RULE 44 [OF] THE 1997 RULES OF CIVIL PROCEDURE.

II

THE HONORABLE REGIONAL TRIAL COURT OF LIPA CITY, BRANCH 12 ERRED IN ORDERING THE DISMISSAL OF PETITIONERS’ COMPLAINT ON THE GROUND OF FAILURE TO PROSECUTE THEIR CAUSE OF ACTION FOR AN UNREASONABLE PERIOD OF TIME.

III

THE HONORABLE REGIONAL TRIAL COURT OF LIPA CITY, BRANCH 12 ERRED IN NOT HOLDING THAT RESPONDENT’S NON-COMPLIANCE WITH THE POSTING REQUIREMENT UNDER SECTION 3, ACT NO. 3135 IS FATAL TO THE VALIDITY OF THE FORECLOSURE PROCEEDINGS.

IV

THE EXTRAJUDICIAL FORECLOSURE PROCEEDINGS AND AUCTION SALE OF THE SUBJECT REALTIES VIOLATE THE PROVISIONS OF ARTICLE XVII OF THE CONTRACT OF MORTGAGE ENTERED INTO BY AND BETWEEN THE PETITIONERS AND RESPONDENT ON 06 OCTOBER 1995.

V

RESPONDENT UNITED COCONUT PLANTERS BANK VIOLATED SECTION 4 OF REPUBLIC ACT NO. 3765 ON THE REQUIREMENT OF FULL DISCLOSURE OF FINANCE CHARGES IN CONNECTION WITH THE EXTENSIONS OF CREDIT.

VI

PETITIONERS ARE ENTITLED TO REASONABLE ATTORNEY’S FEES.^[27]

The main issue is whether or not the Court of Appeals erred in dismissing petitioners’ appeal on the ground that their Appellants’ Brief failed to comply with Section 13, Rule 44 of the 1997 Rules of Civil Procedure as the said brief did not have a subject index, an assignment of errors, and page references to the record in the Statement of Facts.

Petitioners argue that the absence of a subject index in their Appellants’ Brief is not a material deviation from the requirements of Section 13, Rule 44 of the 1997 Revised Rules of Civil Procedure, and that each portion of the 12-page brief was boldly designated to separate each portion.

Moreover, petitioners contend that while the “assignment of errors” was not designated as such in their Appellants’ Brief, the assignment of errors were clearly embodied in the “Issues” thereof, which substantially complies with the rules.

The petition is without merit. 

The right to appeal is neither a natural right nor a part of due process; it is merely a statutory privilege, and may be exercised only in the manner and in accordance with the provisions of law.^[28] An appeal being a purely statutory right, an appealing party must strictly comply with the requisites laid down in the Rules of Court.^[29]  

In regard to ordinary appealed cases to the Court of Appeals, such as this case, Section 13, Rule 44 of the 1997 Rules of Civil Procedure provides for the contents of an Appellant’s Brief, thus:

Sec. 13. Contents of appellant’s brief.—The appellant’s brief shall contain, in the order herein indicated, the following:

(a)        A subject index of the matter in the brief with a digest of the arguments and page references, and a table of cases alphabetically arranged, textbooks and statutes cited with references to the pages where they are cited;

(b)        An assignment of errors intended to be urged, which errors shall be separately, distinctly and concisely stated without repetition and numbered consecutively;

(c)        Under the heading “Statement of the Case,” a clear and concise statement of the nature of the action, a summary of the proceedings, the appealed rulings and orders of the court, the nature of the judgment and any other matters necessary to an understanding of the nature of the controversy, with page references to the record;

(d)       Under the heading “Statement of Facts,” a clear and concise statement in a narrative form of the facts admitted by both parties and of those in controversy, together with the substance of the proof relating thereto in sufficient detail to make it clearly intelligible, with page references to the record;

(e)        A clear and concise statement of the issues of fact or law to be submitted to the court for its judgment;

(f)        Under the heading “Argument,” the appellant’s arguments on each assignment of error with page references to the record.  The authorities relied upon shall be cited by the page of the report at which the case begins and the page of the report on which the citation is found;

(g)        Under the heading “Relief,” a specification of the order or judgment which the appellant seeks; and

(h)        In cases not brought up by record on appeal, the appellant’s brief shall contain, as an appendix, a copy of the judgment or final order appealed from.

In this case, the Appellants’ Brief of petitioners did not have a subject index.  The importance of a subject index should not be underestimated.  De Liano v. Court of Appeals^[30] declared that the subject index functions like a table of contents, facilitating the review of appeals by providing ready reference.  It held that:

[t]he first requirement of an appellant’s brief is a subject index.  The index is intended to facilitate the review of appeals by providing ready reference, functioning much like a table of contents.  Unlike in other jurisdictions, there is no limit on the length of appeal briefs or appeal memoranda filed before appellate courts.  The danger of this is the very real possibility that the reviewing tribunal will be swamped with voluminous documents.  This occurs even though the rules consistently urge the parties to be “brief” or “concise” in the drafting of pleadings, briefs, and other papers to be filed in court.  The subject index makes readily available at one’s fingertips the subject of the contents of the brief so that the need to thumb through the brief page after page to locate a party’s arguments, or a particular citation, or whatever else needs to be found and considered, is obviated.^[31]

Moreover, the Appellants’ Brief had no assignment of errors, but petitioners insist that it is embodied in the “Issues” of the brief.  The requirement under Section 13, Rule 44 of the 1997 Rules of Civil Procedure for an “assignment of errors” in paragraph (b) thereof is different from a “statement of the issues of fact or law” in paragraph (e) thereof.  The statement of issues is not to be confused with the assignment of errors, since they are not one and the same; otherwise, the rules would not require a separate statement for each.^[32]  An assignment of errors is an enumeration by the appellant of the errors alleged to have been committed by the trial court for which he/she seeks to obtain a reversal of the judgment, while the statement of issues puts forth the questions of fact or law to be resolved by the appellate court.^[33] 

Further, the Court of Appeals found that the Statement of Facts was not supported by page references to the record. De Liano v. Court of  Appeals held:

x x x The facts constitute the backbone of a legal argument; they are determinative of the law and jurisprudence applicable to the case, and consequently, will govern the appropriate relief.  Appellants should remember that the Court of Appeals is empowered to review both questions of law and of facts.  Otherwise, where only a pure question of law is involved, appeal would pertain to this Court.  An appellant, therefore, should take care to state the facts accurately though it is permissible to present them in a manner favorable to one party.  x x x  Facts which are admitted require no further proof, whereas facts in dispute must be backed by evidence.  Relative thereto, the rule specifically requires that one’s statement of facts should be supported by page references to the record.  Indeed, disobedience therewith has been punished by dismissal of the appeal. Page references to the record are not an empty requirement.  If a statement of fact is unaccompanied by a page reference to the record, it may be presumed to be without support in the record and may be stricken or disregarded altogether.^[34]

The assignment of errors and page references to the record in the statement of facts are important in an Appellant’s Brief as the absence thereof is a basis for the dismissal of an appeal under Section 1 (f), Rule 50, of the 1997 Rules of Civil Procedure, thus:  

SECTION 1.  Grounds for dismissal of appeal. —  An appeal may be dismissed by the Court of Appeals, on its own motion or on that of the appellee, on the following grounds:

x x x x

(f ) Absence of specific assignment of errors in the appellant’s brief, or of page references to the record as required in section 13, paragraphs (a), (c), (d) and (f) of Rule 44.

Rules 44 and 50 of the 1997 Rules of Civil Procedure are designed for the proper and prompt disposition of cases before the Court of Appeals.^[35]  Rules of procedure exist for a noble purpose, and to disregard such rules in the guise of liberal construction would be to defeat such purpose.^[36]  The Court of Appeals noted in its Resolution denying petitioners’ motion for reconsideration that despite ample opportunity, petitioners never attempted  to file an amended appellants’ brief correcting the deficiencies of their brief, but obstinately clung to their  argument that their Appellants’ Brief substantially complied with the rules.  Such obstinacy is incongruous with their plea for liberality in construing the rules on appeal.^[37]

De Liano v. Court of Appeals held:

Some may argue that adherence to these formal requirements serves but a meaningless purpose, that these may be ignored with little risk in the smug certainty that liberality in the application of procedural rules can always be relied upon to remedy the infirmities.  This misses the point.  We are not martinets; in appropriate instances, we are prepared to listen to reason, and to give relief as the circumstances may warrant.  However, when the error relates to something so elementary as to be inexcusable, our discretion becomes nothing more than an exercise in frustration.  It comes as an unpleasant shock to us that the contents of an appellant’s brief should still be raised as an issue now.  There is nothing arcane or novel about the provisions of Section 13, Rule 44. The rule governing the contents of appellants’ briefs has existed since the old Rules of Court, which took effect onJuly 1, 1940, as well as the Revised Rules of Court, which took effect on January 1, 1964, until they were superseded by the present 1997 Rules of Civil Procedure.  The provisions were substantially preserved, with few revisions.^[38]

In fine, the Court upholds the Resolutions of the Court of Appeals dismissing the appeal of petitioners on the ground that their Appellants’ Brief does not comply with the requirements provided in Section 13, Rule 44 of the 1997 Rules of Civil Procedure, as the dismissal is supported by Section 1 (f), Rule 50 of the 1997 Rules of Civil Procedure and jurisprudence.^[39]  With the dismissal of the appeal, the other issues raised by petitioners need not be discussed by the Court.

WHEREFORE, the petition is DENIED.  The Court of Appeals’ Resolutions dated July 2, 2004 and September 9, 2004, in CA-G.R. CV No. 79796, are hereby AFFIRMED.

Costs against petitioners.

SO ORDERED. 

DIOSDADO M. PERALTA

                                                                             Associate Justice

WE CONCUR:

ANTONIO T. CARPIO

Associate Justice

Chairperson

   ANTONIO EDUARDO B. NACHURA            ROBERTO A. ABAD

                 Associate Justice                                       Associate Justice

JOSE CATRAL MENDOZA

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.

                                      ANTONIO T. CARPIO

                                    Associate Justice

                                    Second Division, Chairperson

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

^[1]               Under Rule 45 of  the Rules of Court.

^[2]               Rollo, pp. 41-91.

^[3]               Annex “A,” id. at 47.

^[4]               Annexes “A-1” to “A-63,” records, pp. 14-76.

^[5]               Records, p. 96.

^[6]               Annex “1,” id. at 107.

^[7]               Annex “2,” id. at 113.

^[8]               Annexes, “3,” “4,” “5,” id. at 119, 120, 121.

^[9]               Annex “8,” id. at 133.

^[10]             Annex “9,” id. at 143.

^[11]             Annex “10,” id. at 145.

^[12]             Annex “11,” id. at 148.

^[13]             Annexes “10” and “11,” id. at 145, 148.

^[14]             Records, p. 149.

^[15]             Id. at 150.

^[16]             Annex “15,” id. at 169.

^[17]             Annex “17,” id. at 238.

^[18]             Records, p. 239.

^[19]             148-B Phil. 43, 50 (1971).

^[20]             Records, p. 245.

^[21]             Id. at 248.

^[22]             Id. at 257.

^[23]             Rule 50, Section 1.  Grounds for dismissal of appeal. —  An appeal may be dismissed by the Court of Appeals, on its own motion or on that of the appellee, on the following grounds:

x x x x

(f ) Absence of specific assignment of errors in the appellant’s brief, or of page references to the record as required in section 13, paragraphs (a), (c), (d) and (f) of Rule 44.

^[24]             CA rollo, p. 135.

^[25]             Id. at 147.

^[26]            Id. at 162-163.

^[27]             Rollo, pp. 7-8.

^[28]             Mejillano v. Lucillo, G.R. No. 154717, June 19, 2009, 590 SCRA 1, 9-10.

^[29]             Id. at 10.

^[30]              421 Phil. 1033 (2001).

^[31]              Id. at 1042.

^[32]              Id. at 1044.  (Emphasis supplied.)

^[33]             Id. at 1042, 1044.

^[34]             Id. at 1044.

^[35]             Lumbre v. Court of Appeals, G.R. No. 160717, July 23, 2008, 559 SCRA 419, 431.

^[36]             Id. at 434.

^[37]             Del Rosario v. Court of Appeals, G.R. No. 113890, February 22, 1995, 241 SCRA 553.

^[38]             De Liano v. Court of Appeals, supra note 30, at 1046-1047.

^[39]             Id.; Estate of Tarcila Vda. de Villegas v. Gaboya, G.R. No. 143006, July 14, 2006, 495 SCRA 30, 41, citing Del Rosario v. Court of Appeals, supra note 37 and  Bucad v. Court of Appeals, 216 SCRA 423 (1993).