Comm Law Cases

G.R. No. 196171 January 15, 2014

RCBC CAPITAL CORPORATION, Petitioner, vs.BANCO DE ORO UNIBANK, INC. (now BDO UNIBANK, INC.), Respondent.

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G.R. No. 199238

BANCO DE ORO UNIBANK, INC., Petitioner, vs.COURT OF APPEALS and RCBC CAPITAL CORPORATION, Respondents.

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G.R. No. 200213

BANCO DE ORO UNIBANK, INC., Petitioner, vs.RCBC CAPITAL CORPORATION and THE ARBITRAL TRIBUNAL IN ICC ARBITRATION REF. NO. 13290/MS/JEM AND/OR RICHARD IAN BARKER, NEIL KAPLAN AND SANTIAGO KAPUNAN, in their official capacity as Members of THE ARBITRATION TRIBUNAL, Respondents.

R E S O L U T I O N

VILLARAMA, JR., J.:

Before the Court are: (1) the Joint Motion and Manifestation dated October 1, 2013 filed in G.R. Nos.196171 & 199238 by RCBC Capital Corporation ("RCBC Capital"), BDO Unibank, Inc. ("BDO"), andGeorge L. Go, in his personal capacity and as attorney-in-fact of the individual stockholders as listed in theShare Purchase Agreement dated May 27, 2000 ("Go/Shareholders"), thru their respective counsels; and(2) the Joint Motion and Manifestation dated October 1, 2013 filed in G.R. No. 200213 by BDO and RCBCCapital thru their respective counsel.

All three petitions emanated from arbitration proceedings commenced by RCBC Capital pursuant to thearbitration clause under its Share Purchase Agreement (SPA) with EPCIB involving the latter’s shares inBankard, Inc. In the course of arbitration conducted by the Tribunal constituted and administered by theInternational Chamber of Commerce-International Commercial Arbitration (ICC-ICA), EPCIB was mergedwith BDO which assumed all its liabilities and obligations.

G.R. No. 196171 is a petition for review under Rule 45 seeking to reverse the Court of Appeals (CA)Decision dated December 23, 2010 in CA-G.R. SP No. 113525 which reversed and set aside the June 24,2009 Order of the Regional Trial Court (RTC) of Makati City, Branch 148 in SP Proc. Case No. M-6046.The RTC confirmed the Second Partial Award issued by the Arbitration Tribunal ordering BDO to payRCBC Capital proportionate share in the advance costs and dismissing BDO’s counterclaims.

G.R. No. 199238 is a petition for certiorari under Rule 65 assailing the September 13, 2011 Resolution inCA-G.R. SP No. 120888 which denied BDO’s application for the issuance of a stay order and/or temporaryrestraining order (TRO)/preliminary injunction against the RTC of Makati City, Branch 148 in Sp. Proc.Case No. M-6046. Acting upon RCBC Capital’s urgent motion, the RTC issued on August 22, 2011 a writ ofexecution for the implementation of the court’s order confirming the Final Award rendered by the ArbitrationTribunal on June 16, 2010.

On the other hand, G.R. No. 200213, filed on February 6, 2012, is a petition for review under Rule 45praying for the reversal of the CA’s Decision dated February 24, 2011 and Resolution dated January 13,2012 in CA-G.R. SP No. 113402. The CA denied BDO’s petition for certiorari and prohibition withapplication for issuance of a TRO and/or writ of preliminary injunction against the RTC of Makati City,Branch 148 in Sp. Proc. Case No. M-6046. By Order dated June 24, 2009, the RTC denied BDO’s motionfor access of the computerized accounting system of Bankard, Inc. after Chairman Richard Ian Barker haddenied BDO’s request that it be given access to the said source of facts or data used in preparing theaccounting summaries submitted in evidence before the Arbitration Tribunal.

G.R. Nos. 196171 & 199238 were consolidated and a Decision was rendered by this Court on December10, 2012, the dispositive portion of which states:

WHEREFORE, premises considered, the petition in G.R. No. 199238 is DENIED. The Resolution datedSeptember 13, 2011 of the Court of Appeals in CA-G.R. SP No. 120888 is AFFIRMED.

The petition in G.R. No. 196171 is DENIED. The Decision dated December 23, 2010 of the Court ofAppeals in CA-G.R. SP No. 113525 is hereby AFFIRMED.

SO ORDERED.1

Both RCBC Capital and BDO filed motions for partial reconsideration of the above decision.

Meanwhile, in G.R. No. 200213, RCBC Capital filed its Comment, to which a Reply was filed by BDO. ByResolution dated July 22, 2013, both parties were directed to submit their respective memoranda within 30days from notice.

In their Joint Motion and Manifestation filed in G.R. Nos. 196171 & 199238, the parties submit and pray that–

5. After negotiations, the Parties have mutually agreed that it is in their best interest and generalbenefit to settle their differences with respect to their respective causes of action, claims orcounterclaims in the RCBC Capital Petition and the BDO Petition, with a view to a renewal of theirbusiness relations.

6. Thus, the parties have reached a complete, absolute and final settlement of their claims,demands, counterclaims and causes of action arising, directly or indirectly, from the facts andcircumstances giving rise to, surrounding or arising from both Petitions, and have agreed to jointlyterminate and dismiss the same in accordance with their agreement.

7. In view of the foregoing compromise between the Parties, BDO, RCBC Capital andGo/Shareholders, with the assistance of their respective counsels, have decided to jointly move forthe termination and dismissal of the above-captioned cases with prejudice.

PRAYER

WHEREFORE, RCBC CAPITAL CORPORATION, BDO UNIBANK, INC. and GEORGE L. GO,IN HIS PERSONAL CAPACITY AND AS ATTORNEY-IN-FACT OF THE INDIVIDUALSTOCKHOLDERS AS LISTED IN THE SHARE PURCHASE AGREEMENT DATED 27 MAY2000 respectfully pray that this Honorable Court order the termination and dismissal of theabove-captioned cases, with prejudice. RCBC Capital BDO and Go/Shareholders respectfullypray for such other relief as may be deemed just or equitable under the premises.2

BDO and RCBC Capital likewise submit and pray in their Joint Motion and Manifestation in G.R. No.200213 that –

3. After negotiations, the Parties have mutually agreed that it is in their best interest and generalbenefit to settle their differences with respect to their respective causes of action, claims orcounterclaims in the above-captioned case, with a view to a renewal of their business relations.

4. Thus, the Parties have reached a complete, absolute and final settlement of their claims,demands, counterclaims and causes of action arising, directly or indirectly, from the facts andcircumstances giving rise to, surrounding or arising from the present Petition, and have agreed tojointly terminate and dismiss the present Petition in accordance with their agreement.

5. In view of the foregoing compromise between the Parties, BDO and RCBC Capital, with theassistance of their respective counsels, have decided to jointly move for the termination anddismissal of the above-captioned case with prejudice. 1âwphi1

PRAYER

WHEREFORE, BDO UNIBANK, INC. and RCBC CAPITAL CORPORATION respectfully praythat this Honorable Court order the termination and dismissal of the above-captioned case,with prejudice.

BDO and RCBC Capital respectfully pray for such other relief as may be deemed just or equitable underthe premises.3

Under this Court s Resolution dated November 27, 2013, G.R. No. 200213 is ordered consolidated withG.R. Nos. 196171 199238.

IN VIEW OF THE FOREGOING and as prayed for, G.R. Nos. 196171, 199238 and 200213 are herebyordered DISMISSED with prejudice and are deemed CLOSED and TERMINATED.

SO ORDERED.

MARTIN S. VILLARAMA, JR.Associate Justice

G.R. No. 201298 February 5, 2014

RAUL C. COSARE, Petitioner, vs.BROADCOM ASIA, INC. and DANTE AREVALO, Respondents.

D E C I S I O N

REYES, J.:

Before the Court is a petition for review on certiorari1 under Rule 45 of the Rules of Court, which assails theDecision2 dated November 24, 2011 and Resolution3 dated March 26, 2012 of the Court of Appeals (CA) inCA-G.R. SP. No. 117356, wherein the CA ruled that the Regional Trial Court (RTC), and not the LaborArbiter (LA), had the jurisdiction over petitioner Raul C. Cosare's (Cosare) complaint for illegal dismissalagainst Broadcom Asia, Inc. (Broadcom) and Dante Arevalo (Arevalo), the President of Broadcom(respondents).

The Antecedents

The case stems from a complaint4 for constructive dismissal, illegal suspension and monetary claims filedwith the National Capital Region Arbitration Branch of the National Labor Relations Commission (NLRC) byCosare against the respondents.

Cosare claimed that sometime in April 1993, he was employed as a salesman by Arevalo, who was then inthe business of selling broadcast equipment needed by television networks and production houses. InDecember 2000, Arevalo set up the company Broadcom, still to continue the business of tradingcommunication and broadcast equipment. Cosare was named an incorporator of Broadcom, having beenassigned 100 shares of stock with par value of P1.00 per share.5 In October 2001, Cosare was promoted tothe position of Assistant Vice President for Sales (AVP for Sales) and Head of the Technical Coordination,having a monthly basic net salary and average commissions of P18,000.00 and P37,000.00, respectively.6

Sometime in 2003, Alex F. Abiog (Abiog) was appointed as Broadcom’s Vice President for Sales and thus,became Cosare’s immediate superior. On March 23, 2009, Cosare sent a confidential memo7 to Arevalo toinform him of the following anomalies which were allegedly being committed by Abiog against thecompany: (a) he failed to report to work on time, and would immediately leave the office on the pretext ofclient visits; (b) he advised the clients of Broadcom to purchase camera units from its competitors, andreceived commissions therefor; (c) he shared in the "under the-table dealings" or "confidentialcommissions" which Broadcom extended to its clients’ personnel and engineers; and (d) he expressed hiscomplaints and disgust over Broadcom’s uncompetitive salaries and wages and delay in the payment ofother benefits, even in the presence of office staff. Cosare ended his memo by clarifying that he was notinterested in Abiog’s position, but only wanted Arevalo to know of the irregularities for the corporation’ssake.

Apparently, Arevalo failed to act on Cosare’s accusations. Cosare claimed that he was instead called for ameeting by Arevalo on March 25, 2009, wherein he was asked to tender his resignation in exchange for"financial assistance" in the amount of P300,000.00.8 Cosare refused to comply with the directive, assignified in a letter9dated March 26, 2009 which he sent to Arevalo.

On March 30, 2009, Cosare received from Roselyn Villareal (Villareal), Broadcom’s Manager for Financeand Administration, a memo10 signed by Arevalo, charging him of serious misconduct and willful breach oftrust, and providing in part:

1. A confidential memo was received from the VP for Sales informing me that you had directed, orat the very least tried to persuade, a customer to purchase a camera from another supplier. Clearly,this action is a gross and willful violation of the trust and confidence this company has given to youbeing its AVP for Sales and is an attempt to deprive the company of income from which you, alongwith the other employees of this company, derive your salaries and other benefits. x x x.

2. A company vehicle assigned to you with plate no. UNV 402 was found abandoned in anotherplace outside of the office without proper turnover from you to this office which had assigned saidvehicle to you. The vehicle was found to be inoperable and in very bad condition, which requiredthat the vehicle be towed to a nearby auto repair shop for extensive repairs.

3. You have repeatedly failed to submit regular sales reports informing the company of youractivities within and outside of company premises despite repeated reminders. However, it hasbeen observed that you have been both frequently absent and/or tardy without proper informationto this office or your direct supervisor, the VP for Sales Mr. Alex Abiog, of your whereabouts.

4. You have been remiss in the performance of your duties as a Sales officer as evidenced by thefact that you have not recorded any sales for the past immediate twelve (12) months. This wasinspite of the fact that my office decided to relieve you of your duties as technical coordinatorbetween Engineering and Sales since June last year so that you could focus and concentrate [on]your activities in sales.11

Cosare was given forty-eight (48) hours from the date of the memo within which to present his explanationon the charges. He was also "suspended from having access to any and all company files/records and useof company assets effective immediately."12 Thus, Cosare claimed that he was precluded from reporting forwork on March 31, 2009, and was instead instructed to wait at the office’s receiving section. Upon thespecific instructions of Arevalo, he was also prevented by Villareal from retrieving even his personalbelongings from the office.

On April 1, 2009, Cosare was totally barred from entering the company premises, and was told to merelywait outside the office building for further instructions. When no such instructions were given by 8:00 p.m.,Cosare was impelled to seek the assistance of the officials of Barangay San Antonio, Pasig City, and hadthe incident reported in the barangay blotter.13

On April 2, 2009, Cosare attempted to furnish the company with a Memo14 by which he addressed anddenied the accusations cited in Arevalo’s memo dated March 30, 2009. The respondents refused to receivethe memo on the ground of late filing, prompting Cosare to serve a copy thereof by registered mail. Thefollowing day, April 3, 2009, Cosare filed the subject labor complaint, claiming that he was constructivelydismissed from employment by the respondents. He further argued that he was illegally suspended, as heplaced no serious and imminent threat to the life or property of his employer and co-employees.15

In refuting Cosare’s complaint, the respondents argued that Cosare was neither illegally suspended nordismissed from employment. They also contended that Cosare committed the following acts inimical to theinterests of Broadcom: (a) he failed to sell any broadcast equipment since the year 2007; (b) he attemptedto sell a Panasonic HMC 150 Camera which was to be sourced from a competitor; and (c) he made anunauthorized request in Broadcom’s name for its principal, Panasonic USA, to issue an invitation forCosare’s friend, one Alex Paredes, to attend the National Association of Broadcasters’ Conference in LasVegas, USA.16 Furthermore, they contended that Cosare abandoned his job17 by continually failing to reportfor work beginning April 1, 2009, prompting them to issue on April 14, 2009 a memorandum18 accusingCosare of absence without leave beginning April 1, 2009.

The Ruling of the LA

On January 6, 2010, LA Napoleon M. Menese (LA Menese) rendered his Decision19 dismissing thecomplaint on the ground of Cosare’s failure to establish that he was dismissed, constructively or otherwise,from his employment. For the LA, what transpired on March 30, 2009 was merely the respondents’issuance to Cosare of a show-cause memo, giving him a chance to present his side on the charges againsthim. He explained:

It is obvious that [Cosare] DID NOT wait for respondents’ action regarding the charges leveled against himin the show-cause memo. What he did was to pre-empt that action by filing this complaint just a day afterhe submitted his written explanation. Moreover, by specifically seeking payment of "Separation Pay"instead of reinstatement, [Cosare’s] motive for filing this case becomes more evident.20

It was also held that Cosare failed to substantiate by documentary evidence his allegations of illegalsuspension and non-payment of allowances and commissions.

Unyielding, Cosare appealed the LA decision to the NLRC.

The Ruling of the NLRC

On August 24, 2010, the NLRC rendered its Decision21 reversing the Decision of LA Menese. Thedispositive portion of the NLRC Decision reads:

WHEREFORE, premises considered, the DECISION is REVERSED and the Respondents are found guiltyof Illegal Constructive Dismissal. Respondents BROADCOM ASIA, INC. and Dante Arevalo are ordered topay [Cosare’s] backwages, and separation pay, as well as damages, in the total amount of P1,915,458.33,per attached Computation.

SO ORDERED.22

In ruling in favor of Cosare, the NLRC explained that "due weight and credence is accorded to [Cosare’s]contention that he was constructively dismissed by Respondent Arevalo when he was asked to resign fromhis employment."23 The fact that Cosare was suspended from using the assets of Broadcom was alsoinconsistent with the respondents’ claim that Cosare opted to abandon his employment.

Exemplary damages in the amount of P100,000.00 was awarded, given the NLRC’s finding that thetermination of Cosare’s employment was effected by the respondents in bad faith and in a wanton,oppressive and malevolent manner. The claim for unpaid commissions was denied on the ground of thefailure to include it in the prayer of pleadings filed with the LA and in the appeal.

The respondents’ motion for reconsideration was denied.24 Dissatisfied, they filed a petition for certiorariwith the CA founded on the following arguments: (1) the respondents did not have to prove just cause forterminating the employment of Cosare because the latter’s complaint was based on an alleged constructivedismissal; (2) Cosare resigned and was thus not dismissed from employment; (3) the respondents shouldnot be declared liable for the payment of Cosare’s monetary claims; and (4) Arevalo should not be heldsolidarily liable for the judgment award.

In a manifestation filed by the respondents during the pendency of the CA appeal, they raised a newargument, i.e., the case involved an intra-corporate controversy which was within the jurisdiction of theRTC, instead of the LA.25 They argued that the case involved a complaint against a corporation filed by astockholder, who, at the same time, was a corporate officer.

The Ruling of the CA

On November 24, 2011, the CA rendered the assailed Decision26 granting the respondents’ petition. Itagreed with the respondents’ contention that the case involved an intra-corporate controversy which,pursuant to Presidential Decree No. 902-A, as amended, was within the exclusive jurisdiction of the RTC. Itreasoned:

Record shows that [Cosare] was indeed a stockholder of [Broadcom], and that he was listed as one of itsdirectors. Moreover, he held the position of [AVP] for Sales which is listed as a corporate office. Generally,the president, vice-president, secretary or treasurer are commonly regarded as the principal or executiveofficers of a corporation, and modern corporation statutes usually designate them as the officers of thecorporation. However, it bears mentioning that under Section 25 of the Corporation Code, the Board ofDirectors of [Broadcom] is allowed to appoint such other officers as it may deem necessary. Indeed,[Broadcom’s] By-Laws provides:

Article IVOfficer

Section 1. Election / Appointment – Immediately after their election, the Board of Directors shallformally organize by electing the President, the Vice-President, the Treasurer, and theSecretary at said meeting.

The Board, may, from time to time, appoint such other officers as it may determine to benecessary or proper. x x x

We hold that [the respondents] were able to present substantial evidence that [Cosare] indeed held acorporate office, as evidenced by the General Information Sheet which was submitted to the Securities andExchange Commission (SEC) on October 22, 2009.27 (Citations omitted and emphasis supplied)

Thus, the CA reversed the NLRC decision and resolution, and then entered a new one dismissing the laborcomplaint on the ground of lack of jurisdiction, finding it unnecessary to resolve the main issues that were

raised in the petition. Cosare filed a motion for reconsideration, but this was denied by the CA via theResolution28 dated March 26, 2012. Hence, this petition.

The Present Petition

The pivotal issues for the petition’s full resolution are as follows: (1) whether or not the case instituted byCosare was an intra-corporate dispute that was within the original jurisdiction of the RTC, and not of theLAs; and (2) whether or not Cosare was constructively and illegally dismissed from employment by therespondents.

The Court’s Ruling

The petition is impressed with merit.

Jurisdiction over the controversy

As regards the issue of jurisdiction, the Court has determined that contrary to the ruling of the CA, it is theLA, and not the regular courts, which has the original jurisdiction over the subject controversy. An intra-corporate controversy, which falls within the jurisdiction of regular courts, has been regarded in its broadsense to pertain to disputes that involve any of the following relationships: (1) between the corporation,partnership or association and the public; (2) between the corporation, partnership or association and thestate in so far as its franchise, permit or license to operate is concerned; (3) between the corporation,partnership or association and its stockholders, partners, members or officers; and (4) among thestockholders, partners or associates, themselves.29 Settled jurisprudence, however, qualifies that when thedispute involves a charge of illegal dismissal, the action may fall under the jurisdiction of the LAs uponwhose jurisdiction, as a rule, falls termination disputes and claims for damages arising from employer-employee relations as provided in Article 217 of the Labor Code. Consistent with this jurisprudence, themere fact that Cosare was a stockholder and an officer of Broadcom at the time the subject controversydeveloped failed to necessarily make the case an intra-corporate dispute.

In Matling Industrial and Commercial Corporation v. Coros,30 the Court distinguished between a "regularemployee" and a "corporate officer" for purposes of establishing the true nature of a dispute or complaintfor illegal dismissal and determining which body has jurisdiction over it. Succinctly, it was explained that"[t]he determination of whether the dismissed officer was a regular employee or corporate officer unravelsthe conundrum" of whether a complaint for illegal dismissal is cognizable by the LA or by the RTC. "In caseof the regular employee, the LA has jurisdiction; otherwise, the RTC exercises the legal authority toadjudicate.31

Applying the foregoing to the present case, the LA had the original jurisdiction over the complaint for illegaldismissal because Cosare, although an officer of Broadcom for being its AVP for Sales, was not a"corporate officer" as the term is defined by law. We emphasized in Real v. Sangu Philippines, Inc.32 thedefinition of corporate officers for the purpose of identifying an intra-corporate controversy. Citing Garcia v.Eastern Telecommunications Philippines, Inc.,33 we held:

" ‘Corporate officers’ in the context of Presidential Decree No. 902-A are those officers of the corporationwho are given that character by the Corporation Code or by the corporation’s by-laws. There are threespecific officers whom a corporation must have under Section 25 of the Corporation Code. These are thepresident, secretary and the treasurer. The number of officers is not limited to these three. A corporationmay have such other officers as may be provided for by its by-laws like, but not limited to, the vice-president, cashier, auditor or general manager. The number of corporate officers is thus limited by law andby the corporation’s by-laws."34 (Emphasis ours)

In Tabang v. NLRC,35 the Court also made the following pronouncement on the nature of corporate offices:

It has been held that an "office" is created by the charter of the corporation and the officer is elected by thedirectors and stockholders. On the other hand, an "employee" usually occupies no office and generally isemployed not by action of the directors or stockholders but by the managing officer of the corporation whoalso determines the compensation to be paid to such employee.36 (Citations omitted)

As may be deduced from the foregoing, there are two circumstances which must concur in order for anindividual to be considered a corporate officer, as against an ordinary employee or officer, namely: (1) thecreation of the position is under the corporation’s charter or by-laws; and (2) the election of the officer is by

the directors or stockholders. It is only when the officer claiming to have been illegally dismissed isclassified as such corporate officer that the issue is deemed an intra-corporate dispute which falls withinthe jurisdiction of the trial courts.

To support their argument that Cosare was a corporate officer, the respondents referred to Section 1,Article IV of Broadcom’s by-laws, which reads:

ARTICLE IVOFFICER

Section 1. Election / Appointment – Immediately after their election, the Board of Directors shallformally organize by electing the President, the Vice-President, the Treasurer, and theSecretary at said meeting.

The Board may, from time to time, appoint such other officers as it may determine to be necessary orproper. Any two (2) or more compatible positions may be held concurrently by the same person, except thatno one shall act as President and Treasurer or Secretary at the same time.37 (Emphasis ours)

This was also the CA’s main basis in ruling that the matter was an intra-corporate dispute that was withinthe trial courts’ jurisdiction.

The Court disagrees with the respondents and the CA. As may be gleaned from the aforequoted provision,the only officers who are specifically listed, and thus with offices that are created under Broadcom’s by-lawsare the following: the President, Vice-President, Treasurer and Secretary. Although a blanket authorityprovides for the Board’s appointment of such other officers as it may deem necessary and proper, therespondents failed to sufficiently establish that the position of AVP for Sales was created by virtue of an actof Broadcom’s board, and that Cosare was specifically elected or appointed to such position by thedirectors. No board resolutions to establish such facts form part of the case records. Further, it was held inMarc II Marketing, Inc. v. Joson38 that an enabling clause in a corporation’s by-laws empowering its boardof directors to create additional officers, even with the subsequent passage of a board resolution to thateffect, cannot make such position a corporate office. The board of directors has no power to create othercorporate offices without first amending the corporate by-laws so as to include therein the newly createdcorporate office.39 "To allow the creation of a corporate officer position by a simple inclusion in thecorporate by-laws of an enabling clause empowering the board of directors to do so can result in thecircumvention of that constitutionally well-protected right [of every employee to security of tenure]."40

The CA’s heavy reliance on the contents of the General Information Sheets41, which were submitted by therespondents during the appeal proceedings and which plainly provided that Cosare was an "officer" ofBroadcom, was clearly misplaced. The said documents could neither govern nor establish the nature of theoffice held by Cosare and his appointment thereto. Furthermore, although Cosare could indeed beclassified as an officer as provided in the General Information Sheets, his position could only be deemed aregular office, and not a corporate office as it is defined under the Corporation Code. Incidentally, the Courtnoticed that although the Corporate Secretary of Broadcom, Atty. Efren L. Cordero, declared under oath thetruth of the matters set forth in the General Information Sheets, the respondents failed to explain why theGeneral Information Sheet officially filed with the Securities and Exchange Commission in 2011 andsubmitted to the CA by the respondents still indicated Cosare as an AVP for Sales, when among theirdefenses in the charge of illegal dismissal, they asserted that Cosare had severed his relationship with thecorporation since the year 2009.

Finally, the mere fact that Cosare was a stockholder of Broadcom at the time of the case’s filing did notnecessarily make the action an intra- corporate controversy. "Not all conflicts between the stockholders andthe corporation are classified as intra-corporate. There are other facts to consider in determining whetherthe dispute involves corporate matters as to consider them as intra-corporate controversies."42 Time andagain, the Court has ruled that in determining the existence of an intra-corporate dispute, the status orrelationship of the parties and the nature of the question that is the subject of the controversy must betaken into account.43 Considering that the pending dispute particularly relates to Cosare’s rights andobligations as a regular officer of Broadcom, instead of as a stockholder of the corporation, the controversy

cannot be deemed intra-corporate. This is consistent with the "controversy test" explained by the Court inReyes v. Hon. RTC, Br. 142,44 to wit:

Under the nature of the controversy test, the incidents of that relationship must also be considered for thepurpose of ascertaining whether the controversy itself is intra-corporate. The controversy must not only berooted in the existence of an intra-corporate relationship, but must as well pertain to the enforcement of theparties’ correlative rights and obligations under the Corporation Code and the internal and intra-corporateregulatory rules of the corporation. If the relationship and its incidents are merely incidental to thecontroversy or if there will still be conflict even if the relationship does not exist, then no intra-corporatecontroversy exists.45 (Citation omitted)

It bears mentioning that even the CA’s finding46 that Cosare was a director of Broadcom when the disputecommenced was unsupported by the case records, as even the General Information Sheet of 2009referred to in the CA decision to support such finding failed to provide such detail.

All told, it is then evident that the CA erred in reversing the NLRC’s ruling that favored Cosare solely on theground that the dispute was an intra-corporate controversy within the jurisdiction of the regular courts.

The charge of constructive dismissal

Towards a full resolution of the instant case, the Court finds it appropriate to rule on the correctness of theNLRC’s ruling finding Cosare to have been illegally dismissed from employment.

In filing his labor complaint, Cosare maintained that he was constructively dismissed, citing among othercircumstances the charges that were hurled and the suspension that was imposed against him viaArevalo’s memo dated March 30, 2009. Even prior to such charge, he claimed to have been subjected tomental torture, having been locked out of his files and records and disallowed use of his office computerand access to personal belongings.47 While Cosare attempted to furnish the respondents with his reply tothe charges, the latter refused to accept the same on the ground that it was filed beyond the 48-hour periodwhich they provided in the memo.

Cosare further referred to the circumstances that allegedly transpired subsequent to the service of thememo, particularly the continued refusal of the respondents to allow Cosare’s entry into the company’spremises. These incidents were cited in the CA decision as follows:

On March 31, 2009, [Cosare] reported back to work again. He asked Villareal if he could retrieve hispersonal belongings, but the latter said that x x x Arevalo directed her to deny his request, so [Cosare]again waited at the receiving section of the office. On April 1, 2009, [Cosare] was not allowed to enter theoffice premises. He was asked to just wait outside of the Tektite (PSE) Towers, where [Broadcom] had itsoffices, for further instructions on how and when he could get his personal belongings. [Cosare] waited until8 p.m. for instructions but none were given. Thus, [Cosare] sought the assistance of the officials ofBarangay San Antonio, Pasig who advised him to file a labor or replevin case to recover his personalbelongings. x x x.48 (Citation omitted)

It is also worth mentioning that a few days before the issuance of the memo dated March 30, 2009, Cosarewas allegedly summoned to Arevalo’s office and was asked to tender his immediate resignation from thecompany, in exchange for a financial assistance of P300,000.00.49 The directive was said to be founded onArevalo’s choice to retain Abiog’s employment with the company.50 The respondents failed to refute theseclaims.

Given the circumstances, the Court agrees with Cosare’s claim of constructive and illegal dismissal."[C]onstructive dismissal occurs when there is cessation of work because continued employment isrendered impossible, unreasonable, or unlikely as when there is a demotion in rank or diminution in pay orwhen a clear discrimination, insensibility, or disdain by an employer becomes unbearable to the employeeleaving the latter with no other option but to quit."51 In Dimagan v. Dacworks United, Incorporated,52 it wasexplained:

The test of constructive dismissal is whether a reasonable person in the employee’s position would havefelt compelled to give up his position under the circumstances. It is an act amounting to dismissal but ismade to appear as if it were not. Constructive dismissal is therefore a dismissal in disguise. The law

recognizes and resolves this situation in favor of employees in order to protect their rights and interestsfrom the coercive acts of the employer.53 (Citation omitted)

It is clear from the cited circumstances that the respondents already rejected Cosare’s continuedinvolvement with the company. Even their refusal to accept the explanation which Cosare tried to tender onApril 2, 2009 further evidenced the resolve to deny Cosare of the opportunity to be heard prior to anydecision on the termination of his employment. The respondents allegedly refused acceptance of theexplanation as it was filed beyond the mere 48-hour period which they granted to Cosare under the memodated March 30, 2009. However, even this limitation was a flaw in the memo or notice to explain which onlyfurther signified the respondents’ discrimination, disdain and insensibility towards Cosare, apparentlyresorted to by the respondents in order to deny their employee of the opportunity to fully explain hisdefenses and ultimately, retain his employment. The Court emphasized in King of Kings Transport, Inc. v.Mamac54 the standards to be observed by employers in complying with the service of notices prior totermination:

[T]he first written notice to be served on the employees should contain the specific causes or grounds fortermination against them, and a directive that the employees are given the opportunity to submit theirwritten explanation within a reasonable period. "Reasonable opportunity" under the Omnibus Rules meansevery kind of assistance that management must accord to the employees to enable them to prepareadequately for their defense. This should be construed as a period of at least five (5) calendar days fromreceipt of the notice to give the employees an opportunity to study the accusation against them, consult aunion official or lawyer, gather data and evidence, and decide on the defenses they will raise against thecomplaint. Moreover, in order to enable the employees to intelligently prepare their explanation anddefenses, the notice should contain a detailed narration of the facts and circumstances that will serve asbasis for the charge against the employees. A general description of the charge will not suffice. Lastly, thenotice should specifically mention which company rules, if any, are violated and/or which among thegrounds under Art. 282 is being charged against the employees.55 (Citation omitted, underscoring ours, andemphasis supplied)

In sum, the respondents were already resolute on a severance of their working relationship with Cosare,notwithstanding the facts which could have been established by his explanations and the respondents’ fullinvestigation on the matter. In addition to this, the fact that no further investigation and final dispositionappeared to have been made by the respondents on Cosare’s case only negated the claim that theyactually intended to first look into the matter before making a final determination as to the guilt or innocenceof their employee. This also manifested from the fact that even before Cosare was required to present hisside on the charges of serious misconduct and willful breach of trust, he was summoned to Arevalo’s officeand was asked to tender his immediate resignation in exchange for financial assistance.

The clear intent of the respondents to find fault in Cosare was also manifested by their persistentaccusation that Cosare abandoned his post, allegedly signified by his failure to report to work or file a leaveof absence beginning April 1, 2009. This was even the subject of a memo56 issued by Arevalo to Cosare onApril 14, 2009, asking him to explain his absence within 48 hours from the date of the memo. As therecords clearly indicated, however, Arevalo placed Cosare under suspension beginning March 30, 2009.The suspension covered access to any and all company files/records and the use of the assets of thecompany, with warning that his failure to comply with the memo would be dealt with drastic managementaction. The charge of abandonment was inconsistent with this imposed suspension. "Abandonment is thedeliberate and unjustified refusal of an employee to resume his employment. To constitute abandonment ofwork, two elements must concur: ‘(1) the employee must have failed to report for work or must have beenabsent without valid or justifiable reason; and (2) there must have been a clear intention on the part of theemployee to sever the employer- employee relationship manifested by some overt act.’"57 Cosare’s failureto report to work beginning April 1, 2009 was neither voluntary nor indicative of an intention to sever hisemployment with Broadcom. It was illogical to be requiring him to report for work, and imputing fault whenhe failed to do so after he was specifically denied access to all of the company’s assets. As correctlyobserved by the NLRC:

[T]he Respondent[s] had charged [Cosare] of abandoning his employment beginning on April 1, 2009.However[,] the show-cause letter dated March 3[0], 2009 (Annex "F", ibid) suspended [Cosare] from usingnot only the equipment but the "assets" of Respondent [Broadcom]. This insults rational thinking because

the Respondents tried to mislead us and make [it appear] that [Cosare] failed to report for work when theyhad in fact had [sic] placed him on suspension. x x x.58

Following a finding of constructive dismissal, the Court finds no cogent reason to modify the NLRC'smonetary awards in Cosare's favor. In Robinsons Galleria/Robinsons Supermarket Corporation v.Ranchez,59 the Court reiterated that an illegally or constructively dismissed employee is entitled to: (1)either reinstatement, if viable, or separation pay, if reinstatement is no longer viable; and (2)backwages.60 The award of exemplary damages was also justified given the NLRC's finding that therespondents acted in bad faith and in a wanton, oppressive and malevolent manner when they dismissedCosare. It is also by reason of such bad faith that Arevalo was correctly declared solidarily liable for themonetary awards.

WHEREFORE, the petition is GRANTED. The Decision dated November 24, 2011 and Resolution datedMarch 26, 2012 of the Court of Appeals in CA-G.R. SP. No. 117356 are SET ASIDE. The Decision datedAugust 24, 2010 of the National Labor Relations Commission in favor of petitioner Raul C. Cosare isAFFIRMED.

SO ORDERED.

BIENVENIDO L. REYESAssociate Justice

G.R. No. 179597 February 3, 2014

IGLESIA FILIPINA INDEPENDIENTE, Petitioner, vs.HEIRS of BERNARDINO TAEZA, Respondents.

D E C I S I O N

PERALTA, J.:

This deals with the Petition for Review on Certiorari under Rule 45 of the Rules of Court praying that theDecision1of the Court of Appeals (CA), promulgated on June 30, 2006, and the Resolution2 dated August23, 2007, denying petitioner's motion for reconsideration thereof, be reversed and set aside.

The CA's narration of facts is accurate, to wit:

The plaintiff-appellee Iglesia Filipina Independiente (IFI, for brevity), a duly registered religious corporation,was the owner of a parcel of land described as Lot 3653, containing an area of 31,038 square meters,situated at Ruyu (now Leonarda), Tuguegarao, Cagayan, and covered by Original Certificate of Title No. P-8698. The said lot is subdivided as follows: Lot Nos. 3653-A, 3653-B, 3653-C, and 3653-D.

Between 1973 and 1974, the plaintiff-appellee, through its then Supreme Bishop Rev. Macario Ga, sold Lot3653-D, with an area of 15,000 square meters, to one Bienvenido de Guzman.

On February 5, 1976, Lot Nos. 3653-A and 3653-B, with a total area of 10,000 square meters, werelikewise sold by Rev. Macario Ga, in his capacity as the Supreme Bishop of the plaintiff-appellee, to thedefendant Bernardino Taeza, for the amount of P100,000.00, through installment, with mortgage to securethe payment of the balance. Subsequently, the defendant allegedly completed the payments.

In 1977, a complaint for the annulment of the February 5, 1976 Deed of Sale with Mortgage was filed bythe Parish Council of Tuguegarao, Cagayan, represented by Froilan Calagui and Dante Santos, thePresident and the Secretary, respectively, of the Laymen's Committee, with the then Court of First Instanceof Tuguegarao, Cagayan, against their Supreme Bishop Macario Ga and the defendant Bernardino Taeza.

The said complaint was, however, subsequently dismissed on the ground that the plaintiffs therein lackedthe personality to file the case.

After the expiration of Rev. Macario Ga's term of office as Supreme Bishop of the IFI on May 8, 1981,Bishop Abdias dela Cruz was elected as the Supreme Bishop. Thereafter, an action for the declaration ofnullity of the elections was filed by Rev. Ga, with the Securities and Exchange Commission (SEC).

In 1987, while the case with the SEC is (sic) still pending, the plaintiff-appellee IFI, represented bySupreme Bishop Rev. Soliman F. Ganno, filed a complaint for annulment of the sale of the subject parcelsof land against Rev. Ga and the defendant Bernardino Taeza, which was docketed as Civil Case No. 3747.The case was filed with the Regional Trial Court of Tuguegarao, Cagayan, Branch III, which in its orderdated December 10, 1987, dismissed the said case without prejudice, for the reason that the issue as towhom of the Supreme Bishops could sue for the church had not yet been resolved by the SEC.

On February 11, 1988, the Securities and Exchange Commission issued an order resolving the leadershipissue of the IFI against Rev. Macario Ga.

Meanwhile, the defendant Bernardino Taeza registered the subject parcels of land. Consequently, TransferCertificate of Title Nos. T-77995 and T-77994 were issued in his name.

The defendant then occupied a portion of the land. The plaintiff-appellee allegedly demanded thedefendant to vacate the said land which he failed to do.

In January 1990, a complaint for annulment of sale was again filed by the plaintiff-appellee IFI, this timethrough Supreme Bishop Most Rev. Tito Pasco, against the defendant-appellant, with the Regional TrialCourt of Tuguegarao City, Branch 3.

On November 6, 2001, the court a quo rendered judgment in favor of the plaintiff-appellee. 1âwphi1 It held that thedeed of sale executed by and between Rev. Ga and the defendant-appellant is null and void.3

The dispositive portion of the Decision of Regional Trial Court of Tuguegarao City (RTC) reads as follows:

WHEREFORE, judgment is hereby rendered:

1) declaring plaintiff to be entitled to the claim in the Complaint;

2) declaring the Deed of Sale with Mortgage dated February 5, 1976 null and void;

3) declaring Transfer Certificates of Title Numbers T-77995 and T-77994 to be null and void ab initio;

4) declaring the possession of defendant on that portion of land under question and ownership thereof as unlawful;

5) ordering the defendant and his heirs and successors-in-interest to vacate the premises inquestion and surrender the same to plaintiff; [and]

6) condemning defendant and his heirs pay (sic) plaintiff the amount of P100,000.00 asactual/consequential damages and P20,000.00 as lawful attorney's fees and costs of the amount(sic).4

Petitioner appealed the foregoing Decision to the CA. On June 30, 2006, the CA rendered its Decisionreversing and setting aside the RTC Decision, thereby dismissing the complaint.5 The CA ruled thatpetitioner, being a corporation sole, validly transferred ownership over the land in question through itsSupreme Bishop, who was at the time the administrator of all properties and the official representative ofthe church. It further held that "[t]he authority of the then Supreme Bishop Rev. Ga to enter into a contractand represent the plaintiff-appellee cannot be assailed, as there are no provisions in its constitution andcanons giving the said authority to any other person or entity."6

Petitioner then elevated the matter to this Court via a petition for review on certiorari, wherein the followingissues are presented for resolution:

A.) WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING THE FEBRUARY5, 1976 DEED OF SALE WITH MORTGAGE AS NULL AND VOID;

B.) ASSUMING FOR THE SAKE OF ARGUMENT THAT IT IS NOT VOID, WHETHER OR NOTTHE COURT OF APPEALS ERRED IN NOT FINDING THE FEBRUARY 5, 1976 DEED OF SALEWITH MORTGAGE AS UNENFORCEABLE, [and]

C.) WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING RESPONDENTTAEZA HEREIN AS BUYER IN BAD FAITH.7

The first two issues boil down to the question of whether then Supreme Bishop Rev. Ga is authorized toenter into a contract of sale in behalf of petitioner.

Petitioner maintains that there was no consent to the contract of sale as Supreme Bishop Rev. Ga had noauthority to give such consent. It emphasized that Article IV (a) of their Canons provides that "All realproperties of the Church located or situated in such parish can be disposed of only with the approval andconformity of the laymen's committee, the parish priest, the Diocesan Bishop, with sanction of the SupremeCouncil, and finally with the approval of the Supreme Bishop, as administrator of all the temporalities of theChurch." It is alleged that the sale of the property in question was done without the required approval andconformity of the entities mentioned in the Canons; hence, petitioner argues that the sale was null andvoid.

In the alternative, petitioner contends that if the contract is not declared null and void, it shouldnevertheless be found unenforceable, as the approval and conformity of the other entities in their churchwas not obtained, as required by their Canons.

Section 113 of the Corporation Code of the Philippines provides that:

Sec. 113. Acquisition and alienation of property. - Any corporation sole may purchase and hold real estateand personal property for its church, charitable, benevolent or educational purposes, and may receivebequests or gifts for such purposes. Such corporation may mortgage or sell real property held by it uponobtaining an order for that purpose from the Court of First Instance of the province where the property issituated; x x x Provided, That in cases where the rules, regulations and discipline of the religiousdenomination, sect or church, religious society or order concerned represented by such corporation sole

regulate the method of acquiring, holding, selling and mortgaging real estate and personal property, suchrules, regulations and discipline shall control, and the intervention of the courts shall not be necessary.8

Pursuant to the foregoing, petitioner provided in Article IV (a) of its Constitution and Canons of thePhilippine Independent Church,9 that "[a]ll real properties of the Church located or situated in such parishcan be disposed of only with the approval and conformity of the laymen's

committee, the parish priest, the Diocesan Bishop, with sanction of the Supreme Council, and finally withthe approval of the Supreme Bishop, as administrator of all the temporalities of the Church."

Evidently, under petitioner's Canons, any sale of real property requires not just the consent of the SupremeBishop but also the concurrence of the laymen's committee, the parish priest, and the Diocesan Bishop, assanctioned by the Supreme Council. However, petitioner's Canons do not specify in what form theconformity of the other church entities should be made known. Thus, as petitioner's witness stated, inpractice, such consent or approval may be assumed as a matter of fact, unless some opposition isexpressed.10

Here, the trial court found that the laymen's committee indeed made its objection to the sale known to theSupreme Bishop.11 The CA, on the other hand, glossed over the fact of such opposition from the laymen'scommittee, opining that the consent of the Supreme Bishop to the sale was sufficient, especially since theparish priest and the Diocesan Bishop voiced no objection to the sale.12

The Court finds it erroneous for the CA to ignore the fact that the laymen's committee objected to the saleof the lot in question. The Canons require that ALL the church entities listed in Article IV (a) thereof shouldgive its approval to the transaction. Thus, when the Supreme Bishop executed the contract of sale ofpetitioner's lot despite the opposition made by the laymen's committee, he acted beyond his powers.

This case clearly falls under the category of unenforceable contracts mentioned in Article 1403, paragraph(1) of the Civil Code, which provides, thus:

Art. 1403. The following contracts are unenforceable, unless they are ratified:

(1) Those entered into in the name of another person by one who has been given no authority or legalrepresentation, or who has acted beyond his powers;

In Mercado v. Allied Banking Corporation,13 the Court explained that:

x x x Unenforceable contracts are those which cannot be enforced by a proper action in court, unless theyare ratified, because either they are entered into without or in excess of authority or they do not comply with

the statute of frauds or both of the contracting parties do not possess the required legal capacity. x x x.14

Closely analogous cases of unenforceable contracts are those where a person signs a deed of extrajudicialpartition in behalf of co-heirs without the latter's authority;15 where a mother as judicial guardian of herminor children, executes a deed of extrajudicial partition wherein she favors one child by giving him morethan his share of the estate to the prejudice of her other children;16 and where a person, holding a specialpower of attorney, sells a property of his principal that is not included in said special power of attorney.17

In the present case, however, respondents' predecessor-in-interest, Bernardino Taeza, had alreadyobtained a transfer certificate of title in his name over the property in question. Since the personsupposedly transferring ownership was not authorized to do so, the property had evidently been acquiredby mistake. In Vda. de Esconde v. Court of Appeals,18 the Court affirmed the trial court's ruling that theapplicable provision of law in such cases is Article 1456 of the Civil Code which states that "[i]f property isacquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of animplied trust for the benefit of the person from whom the property comes." Thus, in Aznar Brothers RealtyCompany v. Aying,19 citing Vda. de Esconde,20 the Court clarified the concept of trust involved in saidprovision, to wit:

Construing this provision of the Civil Code, in Philippine National Bank v. Court of Appeals, the Courtstated:

A deeper analysis of Article 1456 reveals that it is not a trust in the technical sense for in a typical trust,confidence is reposed in one person who is named a trustee for the benefit of another who is called thecestui que trust, respecting property which is held by the trustee for the benefit of the cestui que trust. A

constructive trust, unlike an express trust, does not emanate from, or generate a fiduciary relation. While inan express trust, a beneficiary and a trustee are linked by confidential or fiduciary relations, in aconstructive trust, there is neither a promise nor any fiduciary relation to speak of and the so-called trusteeneither accepts any trust nor intends holding the property for the beneficiary.

The concept of constructive trusts was further elucidated in the same case, as follows:

. . . implied trusts are those which, without being expressed, are deducible from the nature of thetransaction as matters of intent or which are superinduced on the transaction by operation of law asmatters of equity, independently of the particular intention of the parties. In turn, implied trusts are eitherresulting or constructive trusts. These two are differentiated from each other as follows:

Resulting trusts are based on the equitable doctrine that valuable consideration and not legal titledetermines the equitable title or interest and are presumed always to have been contemplated by theparties. They arise from the nature of circumstances of the consideration involved in a transaction wherebyone person thereby becomes invested with legal title but is obligated in equity to hold his legal title for thebenefit of another. On the other hand, constructive trusts are created by the construction of equity in orderto satisfy the demands of justice and prevent unjust enrichment. They arise contrary to intention againstone who, by fraud, duress or abuse of confidence, obtains or holds the legal right to property which heought not, in equity and good conscience, to hold. (Italics supplied)

A constructive trust having been constituted by law between respondents as trustees and petitioner asbeneficiary of the subject property, may respondents acquire ownership over the said property? The Courtheld in the same case of Aznar,21 that unlike in express trusts and resulting implied trusts where a trusteecannot acquire by prescription any property entrusted to him unless he repudiates the trust, in constructiveimplied trusts, the trustee may acquire the property through prescription even if he does not repudiate therelationship. It is then incumbent upon the beneficiary to bring an action for reconveyance beforeprescription bars the same.

In Aznar,22 the Court explained the basis for the prescriptive period, to wit:

x x x under the present Civil Code, we find that just as an implied or constructive trust is an offspring of thelaw (Art. 1456, Civil Code), so is the corresponding obligation to reconvey the property and the title theretoin favor of the true owner. In this context, and vis-á-vis prescription, Article 1144 of the Civil Code isapplicable.

Article 1144. The following actions must be brought within ten years from the time the right of actionaccrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment.

x x x x x x x x x

An action for reconveyance based on an implied or constructive trust must perforce prescribe in ten yearsand not otherwise. A long line of decisions of this Court, and of very recent vintage at that, illustrates thisrule. Undoubtedly, it is now well-settled that an action for reconveyance based on an implied or constructivetrust prescribes in ten years from the issuance of the Torrens title over the property.

It has also been ruled that the ten-year prescriptive period begins to run from the date of registration of thedeed or the date of the issuance of the certificate of title over the property, x x x.23

Here, the present action was filed on January 19, 1990,24 while the transfer certificates of title over thesubject lots were issued to respondents' predecessor-in-interest, Bernardino Taeza, only on February 7,1990.25

Clearly, therefore, petitioner's complaint was filed well within the prescriptive period stated above, and it isonly just that the subject property be returned to its rightful owner.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals, dated June 30, 2006, andits Resolution dated August 23, 2007, are REVERSED and SET ASIDE. A new judgment is hereby entered:

(1) DECLARING petitioner Iglesia Filipina Independiente as the RIGHTFUL OWNER of the lotscovered by Transfer Certificates of Title Nos. T-77994 and T-77995;

(2) ORDERING respondents to execute a deed reconveying the aforementioned lots to petitioner;

(3) ORDERING respondents and successors-in-interest to vacate the subject premises andsurrender the same to petitioner; and

(4) Respondents to PAY costs of suit.

SO ORDERED.

DIOSDADO M. PERALTAAssociate Justice

G.R. No. 191189 January 29, 2014

MANLAR RICE MILL, INC., Petitioner, vs.LOURDES L. DEYTO, doing business under the trade name "J.D. Grains Center" and JENNELITA DEYTO ANG, a.k.a. "JANET ANG," Respondents.

D E C I S I O N

DEL CASTILLO, J.:

As a general rule, a contract affects only the parties to it, and cannot be enforced by or against a personwho is not a party thereto.

This Petition for Review on Certiorari1 seeks to set aside the October 30, 2009 Decision2 of the Court ofAppeals (CA) in CA-G.R. CV No. 91239, entitled "Maniar Rice Mill, Inc., Plaintiff-Appellee, versus LourdesL. Deyto, doing business under the trade name JD Grains Center, Defendant-Appellant," as well as itsFebruary 9, 2010 Resolution3 denying reconsideration of the assailed judgment.

Factual Antecedents

Petitioner Maniar Rice Mill, Inc. (Maniar), organized and existing under Philippine laws, is engaged in thebusiness of rice milling and selling of grains. Respondent Lourdes L. Deyto (Deyto) does business underthe trade name "JD Grains Center" and is likewise engaged in the business of milling and selling of grains.Respondent Jennelita Deyto Ang or Janet Ang (Ang) is Deyto’s daughter and, prior to her allegedabsconding, operated her own rice trading business through her own store, "Janet Commercial Store".4

It appears that in October 2000, Ang entered into a rice supply contract with Manlar, with the formerpurchasing rice from the latter amounting to P3,843,220.00. The transaction was covered by ninepostdated checks issued by Ang from her personal bank/checking account with Chinabank,5 to wit:

Check Number Date Amount (PhP)

146514 October 19, 2000 P 204,660.00

146552 October 20, 2000 472,200.00

146739 October 27, 2000 327,600.00

146626 October 26, 2000 212,460.00

1466276 October 27, 2000 565,600.00

146740 October 30, 2000 515,000.00

146628 October 31, 2000 358,500.00

146630 November 4, 2000 593,600.00

146555 November 6, 2000 593,600.00

TOTAL P 3,843,220.00

Upon presentment, the first two checks were dishonored for having been drawn against insufficient funds;the remaining seven checks were dishonored for being drawn against a closed account. Manlar made oraland written demands upon both Deyto and Ang, which went unheeded.7 It appears that during the timedemand was being made upon Deyto, she informed Manlar, through its Sales Manager Pablo Pua (Pua),that Ang could not be located.8

On November 24, 2000,9 Manlar filed a Complaint10 for sum of money against Deyto and Ang before theRegional Trial Court (RTC) of Quezon City. The case was docketed as Civil Case No. Q-00-42527 andassigned to Branch 215. The Complaint essentially sought to hold Deyto and Ang solidarily liable on therice supply contract. Manlar prayed for actual damages in the total amount of P3,843,220.00, withinterest; P300,000.00 attorney’s fees, with charges for appearance fees; and attachment bond andattachment expenses.

Deyto filed her Answer with Compulsory Counterclaim,11 claiming that she did not contract with Manlar orany of its representatives regarding the purchase and delivery of rice; that JD Grains Center was solelyowned by her, and Ang had no participation therein, whether as employee, consultant, agent or othercapacity; that JD Grains Center was engaged in rice milling and not in the buying and selling of rice; andthat one of her customers was her daughter Ang, who was engaged in the buying and selling of rice underthe trade name "Janet Commercial Store." Deyto prayed among others that the Complaint be dismissed.

For her part, Ang failed to file an Answer despite summons by publication; for this reason, she wasdeclared in default.

On June 7, 2001, Manlar submitted to the trial court a notarized minutes of a special meeting of its board ofdirectors12 dated November 8, 2000, indicating that Pua was authorized to file and prosecute the Complaintin Civil Case No. Q-00-42527.

In a July 31, 2001 Resolution,13 the trial court resolved to deny Deyto’s special/affirmative defensescontained in her Answer. Regarding her objection to Pua’s authority to prosecute the case for lack of theproper board resolution to such effect, the trial court held that the issue had been rendered moot byManlar’s submission on June 7, 2001 of the notarized board resolution.

During trial, Manlar presented its lone witness, Pua, who testified that he knew Deyto and Ang since 1995;that Ang was the Operations Manager of JD Grains Center; that they (Deyto and Ang) bought rice fromManlar on "cash on delivery" basis from 1995 up to 2000; that since 2000, they increased the volume oftheir purchases and requested that they pay Manlar by postdated checks on a weekly basis, to whichManlar acceded; that Manlar agreed to this arrangement because Deyto induced Pua to deliver rice on theassurance that Deyto had extensive assets, financial capacity and a thriving business, and Deyto providedPua with copies of JD Grains Center’s certificate of registration, business permit, business card, andcertificates of title covering property belonging to Deyto; that when rice deliveries were made by Manlar,Deyto was not around; that it was solely Ang who issued the subject checks and delivered them to Pua orManlar; that initially, they (Deyto and Ang) faithfully complied with the arrangement; that later on, theydefaulted in their payments thus resulting in the dishonor of the subject nine checks previously issued toManlar; that by then, Manlar had delivered rice to them totaling P3,843,220.00; that he went to theresidence of Deyto at No. 93 Bulusan Street, La Loma, Quezon City on five occasions to demand paymentfrom Deyto; and that he likewise went to Ang’s residence at No. 4 Sabucoy14 Street, San Francisco delMonte, Quezon City to demand payment.15

On cross-examination, Pua testified that no rice deliveries were in fact made by Manlar at Deyto’s BulusanStreet residence; that Deyto guaranteed Ang’s checks, although the guarantee was made verbally; thatalthough he ordered Manlar’s drivers to deliver rice at Deyto’s residence at Bulusan Street, the deliverieswould actually end up at Ang’s Sabucoy residence.16

On the other hand, the defense presented three witnesses: Deyto, her son Jose D. Ang, and HomerPetallano (Petallano), Chinabank del Monte branch Operations Head. Deyto testified that she did not knowPua; that Pua was a liar and that she did not enter into a contract with him for the purchase and delivery ofrice; that she did not receive at any time any rice delivery from Manlar; that while she had a house at No.93 Bulusan Street, La Loma, Quezon City, she actually resided in Santiago City, Isabela; that she met Puafor the first time when the latter went to her La Loma residence sometime in November or December 2000looking for Ang, and claiming that Ang was indebted to Manlar; that she had nothing to do with theobligations of Ang incurred for rice deliveries made to her or JD Grains Center, as Ang was not connectedwith JD Grains Center, and it was her son, Jose D. Ang, who managed and ran the business; that all thechecks issued to Manlar were drawn by Ang from her own bank account, as a businessperson in her ownright and with her own business and receipts; that as of 2000, Ang was the proprietress of JaneCommercial with address at No. 49 Corumi Street, Masambong, San Francisco del Monte, Quezon City,and not at No. 93 Bulusan Street, La Loma, Quezon City; that the last time she saw Ang was in June 2000,during the blessing of Ang’s Sabucoy residence; that she was not on talking terms with her daughter asearly as June 2000 on account of Ang’s activities and involvements; that one of Ang’s children was livingwith her after the child was recovered from a kidnapping perpetrated by Ang’s best friend; that Ang’s otherchild lived with the child’s father; and that Ang’s whereabouts could not be ascertained.17

Jose D. Ang, on the other hand, testified that he is Deyto’s son; that from the start, JD Grains Center hasbeen under his supervision and control as Manager and Deyto had no participation in the actual operationthereof; that JD Grains Center was registered in the name of Deyto for convenience, to avoid jealousy orintrigue among his siblings, and because they used Deyto’s properties as collateral to borrow money for thebusiness; that Ang was originally an agent of JD Grains Center, but was removed in 1997 for failure to remither collections.18

Finally, Petallano testified that he was the Operations Head of Chinabank del Monte branch and that Ang isthe sole owner and depositor of the account from which the subject checks were drawn.19

Ruling of the Trial Court

On November 22, 2007, a Decision20 was rendered by the trial court in Civil Case No. Q-00-42527, thedispositive portion of which reads, as follows:

WHEREFORE, premises considered, judgment is hereby rendered finding the defendants liable to theplaintiff jointly and severally and ordering them as follows:

1. To pay plaintiff actual damages in the sum of P3,843,200.0021 plus interest [thereon] at 6% perannum reckoned from the time of demand up to the time of payment thereof;

2. To pay plaintiff attorney’s fees in the sum of P200,000.00 plus P2,500.00 as per appearance fee;and

3. To pay the costs of this suit.

SO ORDERED.22

Essentially, the trial court believed Pua’s declarations that both Deyto and Ang personally transacted withhim in purchasing rice from Manlar for JD Grains Center – with Ang paying for the deliveries with herpersonal checks and his testimony that both Deyto and Ang received Manlar’s rice deliveries. For thesereasons, the trial court ruled that both defendants should be held solidarily liable for the unpaid andoutstanding Manlar account.

Ruling of the Court of Appeals

Deyto went up to the CA on appeal, assailing the Decision of the trial court and claiming that there was noevidence to show her participation in the transactions between Manlar and Ang, or that rice deliveries wereeven made to her; that she had no legal obligation to pay Manlar what Ang owed the latter in her personalcapacity; that the evidence proved that Ang had overpaid Manlar; that the Complaint in Civil Case No. Q-00-42527 was defective for lack of the required board resolution authorizing Pua to sign the Complaint,verification, and certification against forum shopping on behalf of Manlar; and that the trial court erred in notawarding damages in her favor.

On October 30, 2009, the CA issued the assailed Decision, which held thus:

WHEREFORE, premises considered, the assailed Decision dated November 22, 2007 in Civil Case No. Q-00-42527 of the Regional Trial Court, Branch 215, Quezon City is REVERSED and SET ASIDE, and a newone entered, DISMISSING the complaint for lack of merit.

SO ORDERED.23

The CA held that in the absence of a board resolution from Manlar authorizing Pua to sign the verificationand certification against forum shopping, the Complaint in Civil Case No. Q-00-42527 should have beendismissed; the subsequent submission on June 7, 2001 – or six months after the filing of the case – of thenotarized minutes of a special meeting of Manlar’s board of directors cannot have the effect of curing oramending the defective Complaint, as Revised Supreme Court Circular No. 28-9124 enjoins strictcompliance. Substantial compliance does not suffice.

The CA added that the trial court’s Decision overlooked, misapprehended, and failed to appreciateimportant facts and circumstances of the case. Specifically, it held that Manlar failed to presentdocumentary evidence to prove deliveries of rice to Deyto, yet the trial court sweepingly concluded that shetook actual delivery of Manlar’s rice. Likewise, Pua’s declaration that Manlar delivered rice to Deyto at herLa Loma residence was not based on personal knowledge or experience, but on Manlar’s drivers’

supposed accounts of events. Because these drivers were not called to testify on such fact or claim, the CAheld that Pua’s testimony regarding Deyto’s alleged acceptance of rice deliveries from Manlar was hearsay.

The appellate court conceded that if Ang indeed contracted with Manlar, she did so on her own; theevidence failed to indicate that Deyto had any participation in the supposed transactions between herdaughter and Manlar. The record reveals that Deyto and Ang owned separate milling and grainsbusinesses: JD Grains Center and Janet Commercial Store. If Ang did business with Manlar, it is likely thatshe did so on her own or in her personal capacity, and not for and in behalf of Deyto’s JD Grains Center.Besides, the subject checks were drawn against Ang’s personal bank account, therefore Ang, not Deyto isbound to make good on the dishonored checks.

Thus, the CA concluded that there is no legal basis to hold Deyto solidarily liable with Ang for what thelatter may owe Manlar.

Manlar moved for reconsideration, but in its February 9, 2010 Resolution, the CA stood its ground. Hence,Manlar took the present recourse.

Issues

Manlar raises the following issues in its Petition:

1. THE COURT OF APPEALS COMMITTED CLEAR REVERSIBLE ERROR WHEN IT SET ASIDETHE JUDGMENT OF THE TRIAL COURT BY SWEEPINGLY AND BASELESSLY CONCLUDINGTHAT THE VERIFICATION AND CERTIFICATE AGAINST FORUM SHOPPING IN THECOMPLAINT WERE ALLEGEDLY "DEFECTIVE" IN THAT PABLO PUA, THE SALES MANAGER,WAS SUPPOSEDLY "NOT AUTHORIZED" TO SIGN THE VERIFICATION AND CERTIFICATE OFNON-FORUM SHOPPING FOR MANLAR RICE MILL, INC.

2. THE CONCLUSION OF THE COURT OF APPEALS THAT THE ALL-ENCOMPASSING PHRASEIN THE BOARD RESOLUTION THAT "MR. PABLO PUA IS AUTHORIZED TO SIGN ANYDOCUMENT, PAPERS, FOR AND IN BEHALF OF THE COMPANY, AND TO REPRESENT THECOMPANY IN ANY SUCH CASE OR CASES" IS ALLEGEDLY "NOT SUFFICIENT" AUTHORITYFOR PABLO PUA TO SIGN THE VERIFICATION AND CERTIFICATE AGAINST FORUMSHOPPING IS GROSSLY ERRONEOUS AND MANIFESTLY MISTAKEN BECAUSE IT ISDIRECTLY NEGATED AND DISPROVED BY THE EXPRESS TERMS OF HIS AUTHORITY.

3. FURTHER, THE SERIOUS AND GLARING ERROR OF THE COURT OF APPEALS INCONCLUDING THAT PABLO PUA WAS ALLEGEDLY NOT AUTHORIZED TO SIGN THEVERIFICATION AND CERTIFICATE OF NON-FORUM SHOPPING HAD BEEN PREVIOUSLYRAISED AND SQUARELY RESOLVED BY THE TRIAL COURT AND ITS RESOLUTION ON THISISSUE HAD LONG BECOME FINAL AND EXECUTORY WITHOUT LOURDES L. DEYTO TAKINGANY APPELLATE REMEDY.

4. THE COURT OF APPEALS ALSO COMMITTED REVERSIBLE ERROR IN SAYING THAT"THERE WAS NO DOCUMENTARY EVIDENCE TO PROVE ACTUAL DELIVERIES OF RICE" ASBASIS FOR THE DISMISSAL OF THE CASE BECAUSE THIS IS MANIFESTLY MISTAKEN ANDNEGATED BY THE RECORDS SINCE RESPONDENTS (MOTHER AND DAUGHTER) ISSUEDNINE (9) POSTDATED CHECKS TO PETITIONER THRU PABLO PUA IN THE TOTAL AMOUNTOF P3,843,2[2]0.00 IN PAYMENT OF THE RICE DELIVERED TO THEM.

5. THE CONTRACTS OF SALE OF RICE WERE PERFECTED BY THE DELIVERY OF RICE TORESPONDENTS MOTHER AND DAUGHTER AND THEIR ISSUANCE OF NINE (9) POSTDATEDCHECKS (P3,843,220.00) AS PAYMENT THEREOF BY RESPONDENTS, BUT THAT THE NINE(9) POSTDATED CHECKS OF RESPONDENTS WERE LATER DISHONORED.

6. THE SWEEPING STATEMENT OF THE COURT OF APPEALS THAT ALLEGEDLY "THEPARTICIPATION OF APPELLANT (LOURDES L. DEYTO) TO WHATEVER BUSINESSTRANSACTIONS HER DAUGHTER (CO-RESPONDENT JENNELITA DEYTO ANG) HAD WITHMANLAR RICE MILL INC. WAS NOT DULY PROVEN" IS NOT ONLY A PURE SPECULATION BUTIS SQUARELY NEGATED AND DISPROVED BY THE OVERWHELMING EVIDENCE OF THE

CONSPIRACY AND COLLABORATIVE EFFORTS OF BOTH MOTHER AND DAUGHTER INKNOWINGLY DEFRAUDING PETITIONER.25

Petitioner’s Arguments

In its Petition and Reply,26 Manlar insists that the CA’s findings and conclusions are not supported by theevidence on record. On the procedural issue, it reiterates the trial court’s pronouncement that itssubsequent submission – on June 7, 2001, or six months after the filing of Civil Case No. Q-00-42527 – ofthe notarized minutes of a special meeting of its board of directors authorizing Pua to file and prosecuteCivil Case No. Q-00-42527, effectively cured the defective Complaint, or rendered the issue of lack ofproper authority moot and academic, and should not result in the dismissal of the case. Because Deyto didnot question this ruling through the proper petition or appeal, it should stand; besides, the trial court’sdisposition on the matter is sound and just.

Next, Manlar disputes the CA ruling that Manlar failed to present documentary evidence to prove deliveriesof rice to Deyto, apart from that delivered to Ang in her personal capacity. It points to "compelling andconvincing evidence" that both Deyto and Ang induced it to deliver rice to them, and that both of themissued the subject postdated checks. It claims that it was Deyto who delivered the checks to Pua at hisoffice in Manila; that Deyto induced Pua to deliver rice to respondents on the assurance that Deyto hadextensive assets, financial capacity and a thriving business; and that Deyto provided Pua with copies of JDGrains Center’s certificate of registration, business permit, business card, and certificates of title coveringproperty belonging to Deyto.

Manlar adds that Deyto disposed of some of her personal properties – specifically delivery/cargo trucks – infraud of her creditors, including Manlar. It is also argued that the fact that Deyto was in possession of Ang’snegotiated checks proved that both of them connived to defraud Manlar by using the said checks toconvince and induce Pua to contract with them.

Manlar goes on to argue that Ang and another of Deyto’s children, Judith Ang Yu (Judith), were chargedand the latter convicted of estafa for defrauding another rice trader, a certain Sergio Casaclang,of P3,800,000.00 – attaching a certified true copy of the Decision of Branch 215 of the RTC of Quezon Cityin Criminal Case No. Q-01-105698, indicating that Judith was sentenced to three months of arresto mayorand to pay a fine and indemnity.

Next, Manlar argues that it is not necessary to further show proof of deliveries of rice to Deyto and Ang inorder to prove the existence of their obligation; the issuance of the subject postdated checks as paymentestablished the obligation.

Manlar thus prays that the Court annul and set aside the assailed CA dispositions and thus reinstate thetrial court’s November 22, 2007 Decision finding Deyto liable under the rice supply contract.

Respondent’s Arguments

Praying that the Petition be denied, respondent Deyto in her Comment27 essentially argues that petitionerManlar’s claims are "products of pure imagination", having no factual and legal basis, and that Manlar’simpleading her is simply a desperate strategy or attempt to recover its losses from her, considering thatAng can no longer be located. Furthermore, Deyto claims that Manlar’s alleged rice deliveries are notcovered by sufficient documentary evidence, and while it may appear that Ang had transacted with Manlar,she did so in her sole capacity; thus, Deyto may not be held liable under a transaction in which she took nopart.

Deyto adds that Pua’s basis for claiming that deliveries were made at her Bulusan Street residence isunfounded, considering that it springs from hearsay, or on the mere affirmation of Manlar’s drivers – whowere not presented in court to testify on such fact. Pua himself had no personal knowledge of such fact,and thus could not be believed in testifying that rice was indeed delivered to Deyto at her Bulusan Streetresidence. She argues further that overall, Pua – Manlar’s lone witness – proved to be an unreliablewitness, constantly changing his testimony when the inconsistencies of his previous declarations werecalled out.

Finally, Deyto reiterates the CA ruling that Manlar’s Complaint in Civil Case No. Q-00-42527 was defectivefor lack of the required board resolution authorizing Pua to sign the verification and certification against

forum shopping, characterizing the belated submission of the required resolution six months later as amere afterthought.

Our Ruling

The Court denies the Petition.

It is a basic rule in evidence that he who alleges must prove his case or claim by the degree of evidencerequired.

x x x Ei incumbit probatio qui dicit, non qui negat. This Court has consistently applied the ancient rule that"if the plaintiff, upon whom rests the burden of proving his cause of action, fails to show in a satisfactorymanner the facts upon which he bases his claim, the defendant is under no obligation to prove hisexception or defense."28

In civil cases, the quantum of proof required is preponderance of evidence, which connotes "that evidencethat is of greater weight or is more convincing than that which is in opposition to it. It does not meanabsolute truth; rather, it means that the testimony of one side is more believable than that of the other side,and that the probability of truth is on one side than on the other."29

The CA is correct in concluding that there is no legal basis to hold Deyto solidarily liable with Ang for whatthe latter may owe Manlar. The evidence does not support Manlar’s view that both Deyto and Angcontracted with Manlar for the delivery of rice on credit; quite the contrary, the preponderance of evidenceindicates that it was Ang alone who entered into the rice supply agreement with Manlar. Pua’s own directtestimony indicated that whenever rice deliveries were made by Manlar, Deyto was not around; that it wassolely Ang who issued the subject checks and delivered them to Pua or Manlar. On cross-examination, hetestified that no rice deliveries were in fact made by Manlar at Deyto’s Bulusan Street residence; thatalthough Deyto guaranteed Ang’s checks, this guarantee was made verbally; and that while he orderedManlar’s drivers to deliver rice at Deyto’s residence at Bulusan Street, the deliveries would actually end upat Ang’s Sabucoy residence.

The documentary evidence, on the other hand, shows that the subject checks were issued from a bankaccount in Chinabank del Monte branch belonging to Ang alone. They did not emanate from an accountthat belonged to both Ang and Deyto. This is supported by no less than the testimony of Chinabank delMonte branch Operations Head Petallano. 1âwphi1

The evidence on record further indicates that Deyto was an old lady who owned vast tracts of land inIsabela province, and other properties in Metro Manila; that she is a reputable businessperson in Isabela;that Ang originally worked for JD Grains Center, but was removed in 1997 for failure to remit collections;that as early as June 2000, or prior to the alleged transaction with Manlar, Ang and Deyto were no longeron good terms as a result of Ang’s activities; that Deyto took custody of one of Ang’s children, who waspreviously recovered from a kidnapping perpetrated by no less than Ang’s best friend; and that Angappears to have abandoned her own family and could no longer be located. This shows not only what kindof person Ang is; it likewise indicates the improbability of Deyto’s involvement in Ang’s activities, noting herage, condition, reputation, and the extent of her business activities and holdings.

This Court cannot believe Manlar’s claims that Deyto induced Pua to transact with her and Ang byproviding him with copies of JD Grains Center’s certificate of registration, business permit, business card,and certificates of title covering property belonging to Deyto to show her creditworthiness, extensive assets,financial capacity and a thriving business. The documents presented by Manlar during trial – copies of JDGrains Center’s certificate of registration, business permit, and certificates of title covering Deyto’slandholdings – are public documents which Manlar could readily obtain from appropriate governmentagencies; it is improbable that Deyto provided Manlar with copies of these documents in order to induce thelatter to contract with her. Considering that both Manlar and Deyto were in the same line of business in thesame province, it may be said that Manlar knew Deyto all along without the latter having to supply it withactual proof of her creditworthiness.

The allegations that Deyto guaranteed Ang’s checks and that she consented to be held solidarily liable withAng under the latter’s rice supply contract with Manlar are hardly credible. Pua in fact admitted that thiswas not in writing, just a verbal assurance. But this will not suffice. "Well-entrenched is the rule that solidary

obligation cannot lightly be inferred. There is a solidary liability only when the obligation expressly sostates, when the law so provides or when the nature of the obligation so requires."30

What this Court sees is an attempt to implicate Deyto in a transaction between Manlar and Ang so that theformer may recover its losses, since it could no longer recover them from Ang as a result of herabsconding; this conclusion is indeed consistent with what the totality of the evidence on record appears toshow. This, however, may not be allowed. As a general rule, a contract affects only the parties to it, andcannot be enforced by or against a person who is not a party thereto. "It is a basic principle in law thatcontracts can bind only the parties who had entered into it; it cannot favor or prejudice a thirdperson."31 Under Article 1311 of the Civil Code, contracts take effect only between the parties, their assignsand heirs. Thus, Manlar may sue Ang, but not Deyto, who the Court finds to be not a party to the ricesupply contract.

Having decided the case in the foregoing manner, the Court finds no need to resolve the other issuesraised by the parties.

WHEREFORE, the Petition is DENIED. The assailed dispositions of the Court of Appeals are AFFIRMED.

SO ORDERED.

MARIANO C. DEL CASTILLOAssociate Justice

G.R. No. 195872 March 12, 2014

FORTUNE MEDICARE, INC., Petitioner, vs.DAVID ROBERT U. AMORIN, Respondent.

D E C I S I O N

REYES, J.:

This is a petition for review on certiorari1 under Rule 45 of the Rules of Court, which challenges theDecision2dated September 27, 2010 and Resolution3 dated February 24, 2011 of the Court of Appeals (CA)in CA-G.R. CV No. 87255.

The Facts

David Robert U. Amorin (Amorin) was a cardholder/member of Fortune Medicare, Inc. (Fortune Care), acorporation engaged in providing health maintenance services to its members. The terms of Amorin'smedical coverage were provided in a Corporate Health Program Contract4 (Health Care Contract) whichwas executed on January 6, 2000 by Fortune Care and the House of Representatives, where Amorin was apermanent employee.

While on vacation in Honolulu, Hawaii, United States of America (U.S.A.) in May 1999, Amorin underwentan emergency surgery, specifically appendectomy, at the St. Francis Medical Center, causing him to incurprofessional and hospitalization expenses of US$7,242.35 and US$1,777.79, respectively. He attempted torecover from Fortune Care the full amount thereof upon his return to Manila, but the company merelyapproved a reimbursement of P12,151.36, an amount that was based on the average cost ofappendectomy, net of medicare deduction, if the procedure were performed in an accredited hospital inMetro Manila.5 Amorin received under protest the approved amount, but asked for its adjustment to coverthe total amount of professional fees which he had paid, and eighty percent (80%) of the approvedstandard charges based on "American standard", considering that the emergency procedure occurred inthe U.S.A. To support his claim, Amorin cited Section 3, Article V on Benefits and Coverages of the HealthCare Contract, to wit:

A. EMERGENCY CARE IN ACCREDITED HOSPITAL. Whether as an in-patient or out-patient, themember shall be entitled to full coverage under the benefits provisions of the Contract at anyFortuneCare accredited hospitals subject only to the pertinent provision of Article VII(Exclusions/Limitations) hereof. For emergency care attended by non affiliated physician (MSU),the member shall be reimbursed 80% of the professional fee which should have been paid, had themember been treated by an affiliated physician. The availment of emergency care from anunaffiliated physician shall not invalidate or diminish any claim if it shall be shown to have beenreasonably impossible to obtain such emergency care from an affiliated physician.

B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the total hospitalization costincluding the professional fee (based on the total approved charges) to a member who receives emergencycare in a non-accredited hospital. The above coverage applies only to Emergency confinement withinPhilippine Territory. However, if the emergency confinement occurs in a foreign territory, Fortune Care willbe obligated to reimburse or pay eighty (80%) percent of the approved standard charges which shall coverthe hospitalization costs and professional fees. x x x6

Still, Fortune Care denied Amorin’s request, prompting the latter to file a complaint7 for breach of contractwith damages with the Regional Trial Court (RTC) of Makati City.

For its part, Fortune Care argued that the Health Care Contract did not cover hospitalization costs andprofessional fees incurred in foreign countries, as the contract’s operation was confined to Philippineterritory.8Further, it argued that its liability to Amorin was extinguished upon the latter’s acceptance from thecompany of the amount of P12,151.36.

The RTC Ruling

On May 8, 2006, the RTC of Makati, Branch 66 rendered its Decision9 dismissing Amorin’s complaint.Citing Section 3, Article V of the Health Care Contract, the RTC explained:

Taking the contract as a whole, the Court is convinced that the parties intended to use the Philippinestandard as basis. Section 3 of the Corporate Health Care Program Contract provides that:

x x x x

On the basis of the clause providing for reimbursement equivalent to 80% of the professional fee whichshould have been paid, had the member been treated by an affiliated physician, the Court concludes thatthe basis for reimbursement shall be Philippine rates. That provision, taken with Article V of the healthprogram contract, which identifies affiliated hospitals as only those accredited clinics, hospitals and medicalcenters located "nationwide" only point to the Philippine standard as basis for reimbursement.

The clause providing for reimbursement in case of emergency operation in a foreign territory equivalent to80% of the approved standard charges which shall cover hospitalization costs and professional fees, canonly be reasonably construed in connection with the preceding clause on professional fees to give meaningto a somewhat vague clause. A particular clause should not be studied as a detached and isolatedexpression, but the whole and every part of the contract must be considered in fixing the meaning of itsparts.10

In the absence of evidence to the contrary, the trial court considered the amount of P12,151.36 alreadypaid by Fortune Care to Amorin as equivalent to 80% of the hospitalization and professional fees payableto the latter had he been treated in an affiliated hospital.11

Dissatisfied, Amorin appealed the RTC decision to the CA.

The CA Ruling

On September 27, 2010, the CA rendered its Decision12 granting the appeal. Thus, the dispositive portionof its decision reads:

WHEREFORE, all the foregoing premises considered, the instant appeal is hereby GRANTED. The May 8,2006 assailed Decision of the Regional Trial Court (RTC) of Makati City, Branch 66 is hereby REVERSEDand SET ASIDE, and a new one entered ordering Fortune Medicare, Inc. to reimburse [Amorin] 80% of thetotal amount of the actual hospitalization expenses of $7,242.35 and professional fee of $1,777.79 paid byhim to St. Francis Medical Center pursuant to Section 3, Article V of the Corporate Health Care ProgramContract, or their peso equivalent at the time the amounts became due, less the [P]12,151.36 already paidby Fortunecare.

SO ORDERED.13

In so ruling, the appellate court pointed out that, first, health care agreements such as the subject HealthCare Contract, being like insurance contracts, must be liberally construed in favor of the subscriber. In caseits provisions are doubtful or reasonably susceptible of two interpretations, the construction conferringcoverage is to be adopted and exclusionary clauses of doubtful import should be strictly construed againstthe provider.14Second, the CA explained that there was nothing under Article V of the Health Care Contractwhich provided that the Philippine standard should be used even in the event of an emergencyconfinement in a foreign territory.15

Fortune Care’s motion for reconsideration was denied in a Resolution16 dated February 24, 2011. Hence,the filing of the present petition for review on certiorari.

The Present Petition

Fortune Care cites the following grounds to support its petition:

I. The CA gravely erred in concluding that the phrase "approved standard charges" is subject tointerpretation, and that it did not automatically mean "Philippine Standard"; and

II. The CA gravely erred in denying Fortune Care’s motion for reconsideration, which in effectaffirmed its decision that the American Standard Cost shall be applied in the payment of medicaland hospitalization expenses and professional fees incurred by the respondent.17

The Court’s Ruling

The petition is bereft of merit.

The Court finds no cogent reason to disturb the CA’s finding that Fortune Care’s liability to Amorin underthe subject Health Care Contract should be based on the expenses for hospital and professional feeswhich he actually incurred, and should not be limited by the amount that he would have incurred had hisemergency treatment been performed in an accredited hospital in the Philippines.

We emphasize that for purposes of determining the liability of a health care provider to its members,jurisprudence holds that a health care agreement is in the nature of non-life insurance, which is primarily acontract of indemnity. Once the member incurs hospital, medical or any other expense arising fromsickness, injury or other stipulated contingent, the health care provider must pay for the same to the extentagreed upon under the contract.18

To aid in the interpretation of health care agreements, the Court laid down the following guidelines inPhilamcare Health Systems v. CA19:

When the terms of insurance contract contain limitations on liability, courts should construe them in such away as to preclude the insurer from non-compliance with his obligation. Being a contract of adhesion, theterms of an insurance contract are to be construed strictly against the party which prepared the contract –the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology ofthe insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of theinsured, especially to avoid forfeiture. This is equally applicable to Health Care Agreements. Thephraseology used in medical or hospital service contracts, such as the one at bar, must be liberallyconstrued in favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations theconstruction conferring coverage is to be adopted, and exclusionary clauses of doubtful import should bestrictly construed against the provider.20 (Citations omitted and emphasis ours)

Consistent with the foregoing, we reiterated in Blue Cross Health Care, Inc. v. Spouses Olivares21:

In Philamcare Health Systems, Inc. v. CA, we ruled that a health care agreement is in the nature of a non-life insurance. It is an established rule in insurance contracts that when their terms contain limitations onliability, they should be construed strictly against the insurer. These are contracts of adhesion the terms ofwhich must be interpreted and enforced stringently against the insurer which prepared the contract. Thisdoctrine is equally applicable to health care agreements.

x x x x

x x x [L]imitations of liability on the part of the insurer or health care provider must be construed in such away as to preclude it from evading its obligations. Accordingly, they should be scrutinized by the courts with"extreme jealousy" and "care" and with a "jaundiced eye." x x x.22 (Citations omitted and emphasissupplied)

In the instant case, the extent of Fortune Care’s liability to Amorin under the attendant circumstances wasgoverned by Section 3(B), Article V of the subject Health Care Contract, considering that theappendectomy which the member had to undergo qualified as an emergency care, but the treatment wasperformed at St. Francis Medical Center in Honolulu, Hawaii, U.S.A., a non-accredited hospital. We restatethe pertinent portions of Section 3(B):

B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the total hospitalization costincluding the professional fee (based on the total approved charges) to a member who receives emergencycare in a non-accredited hospital. The above coverage applies only to Emergency confinement withinPhilippine Territory. However, if the emergency confinement occurs in foreign territory, Fortune Care will beobligated to reimburse or pay eighty (80%) percent of the approved standard charges which shall cover thehospitalization costs and professional fees. x x x23 (Emphasis supplied)

The point of dispute now concerns the proper interpretation of the phrase "approved standard charges",which shall be the base for the allowable 80% benefit. The trial court ruled that the phrase should beinterpreted in light of the provisions of Section 3(A), i.e., to the extent that may be allowed for treatments

performed by accredited physicians in accredited hospitals. As the appellate court however held, this mustbe interpreted in its literal sense, guided by the rule that any ambiguity shall be strictly construed againstFortune Care, and liberally in favor of Amorin.

The Court agrees with the CA. As may be gleaned from the Health Care Contract, the parties theretocontemplated the possibility of emergency care in a foreign country. As the contract recognized FortuneCare’s liability for emergency treatments even in foreign territories, it expressly limited its liability onlyinsofar as the percentage of hospitalization and professional fees that must be paid or reimbursed wasconcerned, pegged at a mere 80% of the approved standard charges.

The word "standard" as used in the cited stipulation was vague and ambiguous, as it could be susceptibleof different meanings. Plainly, the term "standard charges" could be read as referring to the "hospitalizationcosts and professional fees" which were specifically cited as compensable even when incurred in a foreigncountry. Contrary to Fortune Care’s argument, from nowhere in the Health Care Contract could it bereasonably deduced that these "standard charges" referred to the "Philippine standard", or that cost whichwould have been incurred if the medical services were performed in an accredited hospital situated in thePhilippines. The RTC ruling that the use of the "Philippine standard" could be inferred from the provisionsof Section 3(A), which covered emergency care in an accredited hospital, was misplaced. Evidently, theparties to the Health Care Contract made a clear distinction between emergency care in an accreditedhospital, and that obtained from a non-accredited hospital. 1âwphi1The limitation on payment based on "Philippinestandard" for services of accredited physicians was expressly made applicable only in the case of anemergency care in an accredited hospital.

The proper interpretation of the phrase "standard charges" could instead be correlated with and reasonablyinferred from the other provisions of Section 3(B), considering that Amorin’s case fell under the secondcase, i.e., emergency care in a non-accredited hospital. Rather than a determination of Philippine orAmerican standards, the first part of the provision speaks of the full reimbursement of "the totalhospitalization cost including the professional fee (based on the total approved charges) to a member whoreceives emergency care in a non-accredited hospital" within the Philippines. Thus, for emergency care innon-accredited hospitals, this cited clause declared the standard in the determination of the amount to bepaid, without any reference to and regardless of the amounts that would have been payable if the treatmentwas done by an affiliated physician or in an affiliated hospital. For treatments in foreign territories, the onlyqualification was only as to the percentage, or 80% of that payable for treatments performed in non-accredited hospital.

All told, in the absence of any qualifying word that clearly limited Fortune Care's liability to costs that areapplicable in the Philippines, the amount payable by Fortune Care should not be limited to the cost oftreatment in the Philippines, as to do so would result in the clear disadvantage of its member. If, as FortuneCare argued, the premium and other charges in the Health Care Contract were merely computed onassumption and risk under Philippine cost and, that the American cost standard or any foreign country'scost was never considered, such limitations should have been distinctly specified and clearly reflected inthe extent of coverage which the company voluntarily assumed. This was what Fortune Care foundappropriate when in its new health care agreement with the House of Representatives, particularly in their2006 agreement, the provision on emergency care in non-accredited hospitals was modified to read asfollows:

However, if the emergency confinement occurs in a foreign territory, Fortunecare will be obligated toreimburse or pay one hundred (100%) percent under approved Philippine Standard covered charges forhospitalization costs and professional fees but not to exceed maximum allowable coverage, payable inpesos at prevailing currency exchange rate at the time of availment in said territory where he/she isconfined. x x x24

Settled is the rule that ambiguities in a contract are interpreted against the party that caused the ambiguity."Any ambiguity in a contract whose terms are susceptible of different interpretations must be read againstthe party who drafted it."25

WHEREFORE, the petition is DENIED. The Decision dated September 27, 2010 and Resolution datedFebruary 24, 2011 of the Court of Appeals in CA-G.R. CV No. 87255 are AFFIRMED.

SO ORDERED.

BIENVENIDO L. REYESAssociate Justice

G.R. No. 200468 March 19, 2014

MACARIA ARGUELLES and the HEIRS OF THE DECEASED PETRONIO ARGUELLES, Petitioners, vs.MALARAYAT RURAL BANK, INC., Respondent.

D E C I S I O N

VILLARAMA, JR., J.:

Before us is a petition for review on certiorari assailing the Decision1 dated December 19, 2011 andResolution2dated February 6, 2012 of the Court of Appeals (CA) in CA-G.R . CV No. 92555. The CA hadreversed and set aside the July 29, 2008 Decision3 of the Regional Trial Court (RTC) Branch 86, of Taal,Batangas, in Civil Case No. 66.

The facts, as culled from the records, follow:

The late Fermina M. Guia was the registered owner of Lot 3, a parcel of agricultural land in BarrioPinagkurusan, Alitagtag, Batangas, with an area of 4,560 square meters, as evidenced by OriginalCertificate of Title (OCT) No. P-129304 of the Register of Deeds of Batangas. On December 1, 1990,Fermina M. Guia sold the south portion of the land with an approximate area of 1,350 square meters to thespouses Petronio and Macaria Arguelles.5Although the spouses Arguelles immediately acquiredpossession of the land, the Deed of Sale was neither registered with the Register of Deeds nor annotatedon OCT No. P-12930. At the same time, Fermina M. Guia ordered her son Eddie Guia and the latter's wifeTeresita Guia to subdivide the land covered by OCT No. P-12930 into three lots and to apply for theissuance of separate titles therefor, to wit: Lot 3-A, Lot 3-B, and Lot 3-C. Thereafter, she directed thedelivery of the Transfer Certificate of Title (TCT) corresponding to Lot 3-C to the vendees of theunregistered sale or the spouses Arguelles. However, despite their repeated demands, the spousesArguelles claimed that they never received the TCT corresponding to Lot 3-C from the spouses Guia.

Nevertheless, in accordance with the instructions of Fermina M. Guia, the spouses Guia succeeded incancelling OCT No. P-12930 on August 15, 1994 and in subdividing the lot in the following manner:

Lot No. TCT No. Registered Owner

3-A T-83943 Fermina M. Guia

3-B T-83945 Spouses Datingaling

3-C T-83944 Fermina M. Guia6

On August 18, 1997, the spouses Guia obtained a loan in the amount of P240,000 from the respondentMalarayat Rural Banlc and secured the loan with a Deed of Real Estate Mortgage7 over Lot 3-C. The loanand Real Estate Mortgage were made pursuant to the Special Power of Attorney8 purportedly executed bythe registered owner of Lot 3-C, Fermina M. Guia, in favor of the mortgagors, spouses Guia. Moreover, theReal Estate

Mortgage and Special Power of Attorney were duly annotated in the memorandum of encumbrances ofTCT No. T-83944 covering Lot 3-C.

The spouses Arguelles alleged that it was only in 1997 or after seven years from the date of theunregistered sale that they discovered from the Register of Deeds of Batangas City the following facts: (1)subdivision of Lot 3 into Lots 3-A, 3-B, and 3-C; (2) issuance of separate TCTs for each lot; and (3) theannotation of the Real Estate Mortgage and Special Power of Attorney over Lot 3-C covered by TCT No. T-83944. Two years thereafter, or on June 17, 1999, the spouses Arguelles registered their adverseclaim9 based on the unregistered sale dated December 1, 1990 over Lot 3-C.

On July 22, 1999, the spouses Arguelles filed a complaint10 for Annulment of Mortgage and Cancellation ofMortgage Lien with Damages against the respondent Malarayat Rural Banlc with the RTC, Branch 86, ofTaal, Batangas. In asserting the nullity of the mortgage lien, the spouses Arguelles alleged ownership overthe land that had been mortgaged in favor of the respondent Malarayat Rural Bank. On August 16, 1999,the respondent Malarayat Rural Bank filed an Answer with Counterclaim and Cross-claim11 against cross-

claim-defendant spouses Gui a wherein it argued that the failure of the spouses Arguelles to register theDeed of Sale dated December 1, 1990 was fatal to their claim of ownership.

On July 29, 2008, the RTC rendered a Decision, the dispositive portion of which reads as follows:

WHEREFORE, premises considered judgment is hereby rendered:

1) declaring the mortgage made by the defendants spouses Eddie Guia and Teresita Guia in favorof defendant Malarayat Rural Bank null and void;

2) setting aside the foreclosure sale had on December 6, 1999 and the corresponding certificate ofsale issued by this Court dated May 12, 2000;

3) ordering the Register of Deeds of the Province of Batangas to cancel the annotation pertaining tothe memorandum of encumbrances (entries no. 155686 and 155688) appearing in TCT No. T-839[4]4;

4) ordering cross defendants spouses Eddie and Teresita Guia to pay the amount ofPhp240,000.00 to cross claimant Malarayat Rural [B]ank corresponding to the total amount of theloan obligation, with interest herein modified at 12% per annum computed from default;

5) ordering defendants spouses Eddie and Teresita Guia to pay plaintiffs Arguelles the amount ofPhp100,000.00 as moral damages. However, the prayer of the plaintiffs to order the registration ofthe deed of sale in their favor as well as the subsequent issuance of a new title in their names asthe registered owners is denied considering that there are other acts that the plaintiffs ought to dowhich are administrative in nature, and are dependent upon compliance with certain requirementspertaining to land acquisition and transfer.

SO ORDERED.12

The RTC found that the spouses Guia were no longer the absolute owners of the land described as Lot 3-Cand covered by TCT No. T-83944 at the time they mortgaged the same to the respondent Malarayat RuralBank in view of the unregistered sale in favor of the vendee spouses Arguelles. Thus, the RTC annulled thereal estate mortgage, the subsequent foreclosure sale, and the corresponding issuance of the certificate oftitle. Moreover, the RTC declared that the respondent Malarayat Rural Bank was not a mortgagee in goodfaith as it failed to exercise the exacting degree of diligence required from banking institutions.

On September 16, 2008, the respondent filed a notice of appeal with the CA.

On December 19, 2011, the CA reversed and set aside the decision of the court a quo:

IN LIGHT OF THE FOREGOING, premises considered, the instant appeal is GRANTED. Accordingly, theDecision of the RTC of Taal, Batangas, Branch 86 promulgated on July 29, 2008 in Civil Case No. 66 ishereby REVERSED AND SET ASIDE and the complaint below dismissed.

SO ORDERED.13

In granting the appeal, the CA held that because of the failure of the spouses Arguelles to register theirdeed of sale, the unregistered sale could not affect the respondent Malarayat Rural Bank. Thus, therespondent Malarayat Rural Bank has a better right to the land mortgaged as compared to spousesArguelles who were the vendees in the unregistered sale. In addition, the CA found that the respondentMalarayat Rural Bank was a mortgagee in good faith as it sufficiently demonstrated due diligence inapproving the loan application of the spouses Guia. Aggrieved, the petitioners filed the instant petitionraismg the following issues for resolution:

A

THE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF SALE EXECUTED BYFERMINA GUIA IN FAVOR OF THE SPOUSES PETRONIO AND MACARIA ARGUELLESCANNOT BE ENFORCED AGAINST APPELLANT BANK FOR NOT BEING REGISTERED ANDANNOTATED IN THE CERTIFICATE OF TITLE, DESPITE THE FACT THAT THE BANK HADACTUAL KNOWLEDGE THEREOF.

B

THE COURT OF APPEALS COMMITTED A MISTAKE IN FINDING THAT APPELLANT BANK IS AMORTGAGEE IN GOOD FAITH NOTWITHSTANDING CONCLUSIVE EVIDENCE ON RECORDTHAT IT WAS GROSSLY NEGLIGENT IN NOT ASCERTAINING THE REAL CONDITION OF THEPROPERTY IN THE POSSESSION OF THE SPOUSES ARGUELLES BEFORE ACCEPTING ITAS COLLATERAL FOR THE LOAN APPLIED FOR BY A MERE ATTORNEY-IN-FACT.

C

THE COURT OF APPEALS COMMITTED AN ERROR IN DECLARING APPELLANT BANK HASBECOME THE ABSOLUTE OWNER OF THE SUBJECT PROPERTY NOTWITHSTANDING THENULLITY OF THE REAL ESTATE MORTGAGE EXTRAJUDICIALL Y FORECLOSED BY IT.

D

THE COURT OF APPEALS ERRED IN HOLDING THAT THE SPOUSES ARGUELLES DID NOTPUT IN ISSUE THAT APPELLANT BANK HAD CONSTRUCTIVE NOTICE AND POSSESSION OFTHE SUBJECT LOT.14

In fine, the issue in this case is whether the respondent Malarayat Rural Bank is a mortgagee in good faithwho is entitled to protection on its mortgage lien.

Petitioners imputed negligence on the part of respondent Malarayat Rural Bank when it approved the loanapplication of the spouses Guia. They pointed out that the bank failed to conduct a thorough ocularinspection of the land mortgaged and an extensive investigation of the title of the registered owner. Andsince the respondent Malarayat Rural Bank cannot be considered a mortgagee in good faith, petitionersargued that the unregistered sale in their favor takes precedence over the duly registered mortgage lien.On the other hand, respondent Malarayat Rural Bank claimed that it exercised the required degree ofdiligence before granting the loan application. In particular, it asserted the absence of any facts orcircumstances that can reasonably arouse suspicion in a prudent person. Thus, the respondent MalarayatRural Bank argued that it is a mortgagee in good faith with a better right to the mortgaged land ascompared to the vendees to the unregistered sale.

The petition is meritorious.

At the outset, we note that the issue of whether a mortgagee is in good faith generally cannot beentertained in a petition filed under Rule 45 of the 1997 Rules of Civil Procedure, as amended.15 This isbecause the ascertainment of good faith or the lack thereof, and the determination of negligence arefactual matters which lay outside the scope of a petition for review on certiorari.16 However, a recognizedexception to this rule is when the RTC and the CA have divergent findings of fact17 as in the case at bar.We find that the respondent Malarayat Rural Bank is not a mortgagee in good faith. Therefore, the spousesArguelles as the vendees to the unregistered sale have a superior right to the mortgaged land.

In Cavite Development Bank v. Spouses Lim,18 the Court explained the doctrine of mortgagee in good faith,thus:

There is, however, a situation where, despite the fact that the mortgagor is not the owner of the mortgagedproperty, his title being fraudulent, the mortgage contract and any foreclosure sale arising therefrom aregiven effect by reason of public policy. This is the doctrine of "mortgagee in good faith" based on the rulethat all persons dealing with the property covered by a Torrens Certificate of Title, as buyers or mortgagees,are not required to go beyond what appears on the face of the title. The public interest in upholding theindefeasibility of a certificate of title, as evidence of lawful ownership of the land or of any encumbrancethereon, protects a buyer or mortgagee who, in good faith, relied upon what appears on the face of thecertificate of title.

In Bank of Commerce v. Spouses San Pablo, Jr.,19 we declared that indeed, a mortgagee has a right to relyin good faith on the certificate of title of the mortgagor of the property offered as security, and in theabsence of any sign that might arouse suspicion, the mortgagee has no obligation to undertake furtherinvestigation.

However, in Bank of Commerce v. Spouses San Pablo, Jr.,20 we also ruled that "[i]n cases where themortgagee does not directly deal with the registered owner of real property, the law requires that a higherdegree of prudence be exercised by the mortgagee." Specifically, we cited Abad v. Sps. Guimbci 21 where

we held, "x x x While one who buys from the registered owner does not need to look behind the certificateof title, one who buys from one who is not the registered owner is expected to examine not only thecertificate of title but all factual circumstances necessary for [one] to determine if there are any flaws in thetitle of the transferor, or in [the] capacity to transfer the land. " Although the instant case does not involve asale but only a mortgage, the same rule applies inasmuch as the law itself includes a mortgagee in theterm "purchaser."

Thus, where the mortgagor is not the registered owner of the property but is merely an attorney-in-fact ofthe same, it is incumbent upon the mortgagee to exercise greater care and a higher degree of prudence indealing with such mortgagor.22 Recently, in Land Bank of the Philippines v. Poblete,23 we affirmed Bank ofCommerce v. Spouses San Pablo, Jr.:

Based on the evidence, Land Bank processed Maniego's loan application upon his presentation of OCTNo. P-12026, which was still under the name of Poblete. Land Bank even ignored the fact that Kapantaypreviously used Poblete's title as collateral in its loan account with Land Bank. In Bank of Commerce v. SanPablo, Jr., we held that when "the person applying for the loan is other than the registered owner of the realproperty being mortgaged, [such fact] should have already raised a red flag and which should haveinduced the Bank xx x to make inquiries into and confirm x x x [the] authority to mortgage x x x. A personwho deliberately ignores a significant fact that could create suspicion in an otherwise reasonable person isnot an innocent purchaser for value."

Moreover, in a long line of cases, we have consistently enjoined banks to exert a higher degree ofdiligence, care, and prudence than individuals in handling real estate transactions.

In Cruz v. Bancom Finance Corporation,24 we declared:

Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike privateindividuals, it is expected to exercise greater care and prudence in its dealings, including those involvingregistered lands. A banking institution is expected to exercise due diligence before entering into a mortgagecontract. The ascertainment of the status or condition of a property offered to it as security for a loan mustbe a standard and indispensable part of its operations.

In Ursal v. Court of Appeals,25 we held that where the mortgagee is a bank, it cannot rely merely on thecertificate of title offered by the mortgagor in ascertaining the status of mortgaged properties. Since itsbusiness is impressed with public interest, the mortgagee-bank is duty-bound to be more cautious even indealing with registered lands.26 Indeed, the rule that person dealing with registered lands can rely solely onthe certificate of title does not apply to banks. Thus, before approving a loan application, it is a standardoperating practice for these institutions to conduct an ocular inspection of the property offered for mortgageand to verify the genuineness of the title to determine the real owners thereof. The apparent purpose of anocular inspection is to protect the "true owner" of the property as well as innocent third parties with a right,interest or claim thereon from a usurper who may have acquired a fraudulent certificate of title thereto.27

In Metropolitan Bank and Trust Co. v. Cabilzo,28 we explained the socio-economic role of banks and thereason for bestowing public interest on the banking system:

We never fail to stress the remarkable significance of a banking institution to commercial transactions, inparticular, and to the country's economy in general. The banking system is an indispensable institution inthe modem world and plays a vital role in the economic life of every civilized nation. Whether as merepassive entities for the safekeeping and saving of money or as active instruments of business andcommerce, banks have become an ubiquitous presence among the people, who have come to regard themwith respect and even gratitude and, most of all, confidence.

In this case, we find that the respondent Malarayat Rural Bank fell short of the required degree of diligence,prudence, and care in approving the loan application of the spouses Guia.

Respondent should have diligently conducted an investigation of the land offered as collateral. 1âwphi1 Althoughthe Report of Inspection and Credit Investigation found at the dorsal portion of the Application forAgricultural Loan29proved that the respondent Malarayat Rural Bank inspected the land, the respondentturned a blind eye to the finding therein that the "lot is planted [with] sugarcane with annual yield (crops) inthe amount of P15,000."30

We disagree with respondent's stance that the mere planting and harvesting of sugarcane cannot reasonably trigger suspicion that there is adverse possession over the land offered as mortgage. Indeed, such fact should have immediately prompted the respondent to conduct further inquiries, especially since the spouses Guia were not the registered owners of the land being mortgaged. They merely derived the authority to mortgage the lot from the Special Power of Attorney allegedly executed by the late Fermina M. Guia. Hence, it was incumbent upon the respondent Malarayat Rural Bank to be more cautious in dealing with the spouses Guia, and inquire further regarding the identity and possible adverse claim of those in actual possession of the property.

Pertinently, in Land Bank of the Philippines v. Poblete,31 we ruled that "[w]here the mortgagee acted withhaste in granting the mortgage loan and did not ascertain the ownership of the land being mortgaged, aswell as the authority of the supposed agent executing the mortgage, it cannot be considered an innocentmortgagee."

Since the subject land was not mortgaged by the owner thereof and since the respondent Malarayat RuralBank is not a mortgagee in good faith, said bank is not entitled to protection under the law. Theunregistered sale in favor of the spouses Arguelles must prevail over the mortgage lien of respondentMalarayat Rural Bank.

WHEREFORE, the petition for review on certiorari is GRANTED. The Decision dated December 19, 2011and Resolution dated February 6, 2012 of the Court of Appeals in CA-G.R. CV No. 92555 are REVERSEDand SET ASIDE. The Decision dated July 29, 2008 of the Regional Trial Court, Branch 86, of Taal,Batangas, in Civil Case No. 66 is REINSTATED and UPHELD.

No pronouncement as to costs.

SO ORDERED.

MARTIN S. VILLARAMA, JR.Associate Justice