The document summarizes a court case regarding the cancellation of a Notice of Levy inscription on a property title. The Sajonas spouses purchased land from the Uychocdes and registered an adverse claim on the title, but later a Notice of Levy was annotated by Pilares, a judgment creditor of the Uychocdes, to collect debt. The Sajonas sued to cancel the Notice of Levy, arguing they bought the land in good faith prior to the levy. The trial court agreed and canceled the Notice of Levy, but the Court of Appeals reversed, upholding the annotation. The case is now before the Supreme Court to rule on construing the words of the new
The document summarizes a court case regarding the cancellation of a Notice of Levy inscription on a property title. The Sajonas spouses purchased land from the Uychocdes and registered an adverse claim on the title, but later a Notice of Levy was annotated by Pilares, a judgment creditor of the Uychocdes, to collect debt. The Sajonas sued to cancel the Notice of Levy, arguing they bought the land in good faith prior to the levy. The trial court agreed and canceled the Notice of Levy, but the Court of Appeals reversed, upholding the annotation. The case is now before the Supreme Court to rule on construing the words of the new
The document summarizes a court case regarding the cancellation of a Notice of Levy inscription on a property title. The Sajonas spouses purchased land from the Uychocdes and registered an adverse claim on the title, but later a Notice of Levy was annotated by Pilares, a judgment creditor of the Uychocdes, to collect debt. The Sajonas sued to cancel the Notice of Levy, arguing they bought the land in good faith prior to the levy. The trial court agreed and canceled the Notice of Levy, but the Court of Appeals reversed, upholding the annotation. The case is now before the Supreme Court to rule on construing the words of the new
ALFREDO SAJONAS and CONCHITA SAJONAS, petitioners, vs. THE COURT OF APPEALS, DOMINGO A. PILARES, SHERIFF ROBERTO GARCIA OF QUEZON CITY and REGISTER OF DEEDS OF MARIKINA,respondents. D E C I S I O N TORRES, JR., J .: A word or group of words conveys intentions. When used truncatedly, its meaning disappears and breeds conflict. Thus, it is written - By thy words shalt thou be justified, and by thy words shalt thou be condemned. (Matthew, 12:37) Construing the new words of a statute separately is the raison detre of this appeal. Essentially, the case before us is for cancellation of the inscription of a Notice of Levy on Execution from a certificate of Title covering a parcel of real property. The inscription was caused to be made by the private respondent on Transfer Certificate of Title No. N-79073 of the Register of Deeds of Marikina, issued in the name of the spouses Ernesto B. Uychocde and Lucita Jarin, and was later carried over to and annotated on Transfer Certificate of Title No. N-109417 of the same registry, issued in the name of the spouses Alfredo Sajonas and Conchita R. Sajonas, who purchased the parcel of land from the Uychocdes, and are now the petitioners in this case. The facts are not disputed, and are hereby reproduced as follows: On September 22, 1983, the spouses Ernesto Uychocde and Lucita Jarin agreed to sell a parcel of residential land located in Antipolo, Rizal to the spouses Alfredo Sajonas and Conchita R. Sajonas on installment basis as evidenced by a Contract to Sell dated September 22, 1983. The property was registered in the names of the Uychocde spouses under TCT No. N-79073 of the Register of Deeds of Marikina, Rizal. On August 27, 1984, the Sajonas couple caused the annotation of an adverse claim based on the said Contract to Sell on the title of the subject property, which was inscribed as Entry No. 116017. Upon full payment of the purchase price, the Uychocdes executed a Deed of Sale involving the property in question in favor of the Sajonas couple on September 4, 1984. The deed of absolute sale was registered almost a year after, or on August 28, 1985. Meanwhile, it appears that Domingo Pilares (defendant-appellant) filed Civil Case No. Q-28850 for collection of sum of money against Ernesto Uychocde. On June 25, 1980, a Compromise Agreement was entered into by the parties in the said case under which Ernesto Uychocde acknowledged his monetary obligation to Domingo Pilares amounting to P27,800 and agreed to pay the same in two years from June 25, 1980. When Uychocde failed to comply with his undertaking in the compromise agreement, defendant-appellant Pilares moved for the issuance of a writ of execution to enforce the decision based on the compromise agreement, which the court granted in its order dated August 3, 1982. Accordingly, a writ of execution was issued on August 12, 1982 by the CFI of Quezon City where the civil case was pending. Pursuant to the order of execution dated August 3, 1982, a notice of levy on execution was issued on February 12, 1985. On February 12, 1985, defendant sheriff Roberto Garcia of Quezon City presented said notice of levy on execution before the Register of Deeds of Marikina and the same was annotated at the back of TCT No. 79073 as Entry No. 123283. When the deed of absolute sale dated September 4 1984 was registered on August 28, 1985, TCT No. N-79073 was cancelled and in lieu thereof, TCT No. N-109417 was ssued in the name of the Sajonas couple. The notice of levy on execution annotated by defendant sheriff was carried over to the new title. On October 21, 1985, the Sajonas couple filed a Third Party Claim with the sheriff of Quezon City, hence the auction sale of the subject property did not push through as scheduled. On January 10, 1986, the Sajonas spouses demanded the cancellation of the notice of levy on execution upon defendant-appellant Pilares, through a letter to their lawyer, Atty. Melchor Flores. Despite said demand, defendant-appellant Pilares refused to cause the cancellation of said annotation. In view thereof, plaintiffs-appellees filed this complaint dated January 11, 1986 on February 5, 1986. [1]
The Sajonases filed their complaint [2] in the Regional Trial Court of Rizal, Branch 71, against Domingo Pilares, the judgment creditor of the Uychocdes. The relevant portion of the complaint alleges: 7. That at the time the notice of levy was annotated by the defendant, the Uychocde spouses, debtors of the defendant, have already transferred, conveyed and assigned all their title, rights and interests to the plaintiffs and there was no more title, rights or interests therein which the defendant could levy upon; 8. That the annotation of the levy on execution which was carried over to the title of said plaintiffs is illegal and invalid and was made in utter bad faith, in view of the existence of the Adverse Claim annotated by the plaintiffs on the corresponding title of the Uychocde spouses; 9. That a demand was made by the plaintiffs upon the defendant Domingo A. Pilares, to cause the cancellation of the said notice of levy but the latter, without justifiable reason and with the sole purpose of harassing and embarrassing the plaintiffs ignored and refused plaintiffs demand; 10. That in view of the neglect, failure and refusal of the defendant to cause the cancellation of the notice of levy on execution, the plaintiffs were compelled to litigate and engage the services of the undersigned counsel, to protect their rights and interests, for which they agreed to pay attorneys fees in the amount of P10,000 and appearance fees of P500 per day in court. [3]
Pilares filed his answer with compulsory counterclaim [4] on March 8, 1986, raising special and affirmative defenses, the relevant portions of which are as follows: 10. Plaintiff has no cause of action against herein defendants; 11. Assuming, without however admitting that they filed an adverse claim against the property covered by TCT No. 79073 registered under the name of spouses Ernesto Uychocde on August 27, 1984, the same ceases to have any legal force and effect (30) days thereafter pursuant to Section 70 of P.D. 1529; 12. The Notice of Levy annotated at the back of TCT No. 79073 being effected pursuant to the Writ of Execution dated August 31, 1982, duly issued by the CFI (now RTC) of Quezon City proceeding from a decision rendered in Civil Case No. 28859 in favor of herein defendant against Ernesto Uychocde, is undoubtedly proper and appropriate because the property is registered in the name of the judgment debtor and is not among those exempted from execution; 13. Assuming without admitting that the property subject matter of this case was in fact sold by the registered owner in favor of the herein plaintiffs, the sale is the null and void (sic) and without any legal force and effect because it was done in fraud of a judgment creditor, the defendant Pilares. [5]
Pilares likewise sought moral and exemplary damages in a counterclaim against the Sajonas spouses. The parties appeared at pre-trial proceedings on January 21, 1987, [6] after which, trial on the merits ensued. The trial court rendered its decision on February 15, 1989. [7] It found in favor of the Sajonas couple, and ordered the cancellation of the Notice of Levy from Transfer Certificate of Title No. N-109417. The court a quo stated, thus: After going over the evidence presented by the parties, the court finds that although the title of the subject matter of the Notice of Levy on Execution was still in the name of the Spouses Uychocde when the same was annotated on the said title, an earlier Affidavit of Adverse Claim was annotated on the same title by the plaintiffs who earlier bought said property from the Uychocdes. It is a well settled rule in this jurisdiction (Guidote vs. Maravilla, 48 Phil. 442) that actual notice of an adverse claim is equivalent to registration and the subsequent registration of the Notice of Levy could not have any legal effect in any respect on account of prior inscription of the adverse claim annotated on the title of the Uychocdes. xxx xxx xxx On the issue of whether or not plaintiffs are buyers in good faith of the property of the spouses Uychocde even notwithstanding the claim of the defendant that said sale executed by the spouses was made in fraud of creditors, the Court finds that the evidence in this instance is bare of any indication that said plaintiffs as purchasers had notice beforehand of the claim of the defendant over said property or that the same is involved in a litigation between said spouses and the defendant. Good faith is the opposite of fraud and bad faith, and the existence of any bad faith must be established by competent proof. [8] (Cai vs. Henson, 51 Phil 606) xxx xxx xxx In view of the foregoing, the Court renders judgment in favor of the plaintiffs and against the defendant Pilares, as follows: 1. Ordering the cancellation of the Notice of Levy on Execution annotated on Transfer Certificate of Title No. N-109417. 2. Ordering said defendant to pay the amount of P5,000 as attorneys fees. 3. Dismissing the Counterclaim interposed by said defendant. Said defendant is likewise ordered to pay the costs. Dissatisfied, Pilares appealed to the Court of Appeals [9] , assigning errors on the part of the lower court. The appellate court reversed the lower courts decision, and upheld the annotation of the levy on execution on the certificate of title, thus: WHEREFORE, the decision of the lower court dated February 15, 1989 is reversed and set aside and this complaint is dismissed. Costs against the plaintiffs-appellees." [10]
The Sajonas couple are now before us, on a Petition for Review on Certiorari [11] , praying inter alia to set aside the Court of Appeals decision, and to reinstate that of the Regional Trial Court. Private respondent filed his Comment [12] on March 5, 1992, after which, the parties were ordered to file their respective Memoranda. Private respondent complied thereto on April 27, 1994 [13] , while petitioners were able to submit their Memorandum on September 29, 1992. [14]
Petitioner assigns the following as errors of the appellate court, to wit: I THE LOWER COURT ERRED IN HOLDING THAT THE RULE ON THE 30-DAY PERIOD FOR ADVERSE CLAIM UNDER SECTION 70 OF P.D. NO. 1529 IS ABSOLUTE INASMUCH AS IT FAILED TO READ OR CONSTRUE THE PROVISION IN ITS ENTIRETY AND TO RECONCILE THE APPARENT INCONSISTENCY WITHIN THE PROVISION IN ORDER TO GIVE EFFECT TO IT AS A WHOLE. II THE LOWER COURT ERRED IN INTERPRETING SECTION 70 OF P.D. NO. 1529 IN SUCH WISE ON THE GROUND THAT IT VIOLATES PETITIONERS SUBSTANTIAL RIGHT TO DUE PROCESS. Primarily, we are being asked to ascertain who among the parties in suit has a better right over the property in question. The petitioners derive their claim from the right of ownership arising from a perfected contract of absolute sale between them and the registered owners of the property, such right being attested to by the notice of adverse claim [15] annotated on TCT No. N-79073 as early as August 27, 1984. Private respondent on the other hand, claims the right to levy on the property, and have it sold on execution to satisfy his judgment credit, arising from Civil Case No. Q-28850 [16] against the Uychocdes, from whose title, petitioners derived their own. Concededly, annotation of an adverse claim is a measure designed to protect the interest of a person over a piece of real property where the registration of such interest or right is not otherwise provided for by the Land Registration Act or Act 496 (now P.D. 1529 or the Property Registration Decree), and serves a warning to third parties dealing with said property that someone is claiming an interest on the same or a better right than that of the registered owner thereof. Such notice is registered by filing a sworn statement with the Register of Deeds of the province where the property is located, setting forth the basis of the claimed right together with other dates pertinent thereto. [17]
The registration of an adverse claim is expressly recognized under Section 70 of P.D. No. 1529. *
Noting the changes made in the terminology of the provisions of the law, private respondent interpreted this to mean that a Notice of Adverse Claim remains effective only for a period of 30 days from its annotation, and does not automatically lose its force afterwards. Private respondent further maintains that the notice of adverse claim was annotated on August 27, 1984, hence, it will be effective only up to September 26, 1984, after which it will no longer have any binding force and effect pursuant to Section 70 of P.D. No. 1529. Thus, the sale in favor of the petitioners by the Uychocdes was made in order to defraud their creditor (Pilares), as the same was executed subsequent to their having defaulted in the payment of their obligation based on a compromise agreement. [18]
The respondent appellate court upheld private respondents theory when it ruled: The above stated conclusion of the lower court is based on the premise that the adverse claim filed by plaintiffs-appellees is still effective despite the lapse of 30 days from the date of registration. However, under the provisions of Section 70 of P.D. 1529, an adverse claim shall be effective only for a period of 30 days from the date of its registration. The provision of this Decree is clear and specific. xxx xxx xxx It should be noted that the adverse claim provision in Section 110 of the Land Registration Act (Act 496) does not provide for a period of effectivity of the annotation of an adverse claim. P.D. No. 1529, however, now specifically provides for only 30 days. If the intention of the law was for the adverse claim to remain effective until cancelled by petition of the interested party, then the aforecited provision in P.D. No. 1529 stating the period of effectivity would not have been inserted in the law. Since the adverse claim was annotated On August 27, 1984, it was effective only until September 26, 1984. Hence, when the defendant sheriff annotated the notice of levy on execution on February 12, 1985, said adverse claim was already ineffective. It cannot be said that actual or prior knowledge of the existence of the adverse claim on the Uychocdes title is equivalent to registration inasmuch as the adverse claim was already ineffective when the notice of levy on execution was annotated. Thus, the act of defendant sheriff in annotating the notice of levy on execution was proper and justified. The appellate court relied on the rule of statutory construction that Section 70 is specific and unambiguous and hence, needs no interpretation nor construction. [19] Perforce, the appellate court stated, the provision was clear enough to warrant immediate enforcement, and no interpretation was needed to give it force and effect. A fortiori, an adverse claim shall be effective only for a period of thirty (30) days from the date of its registration, after which it shall be without force and effect. Continuing, the court further stated; . . . clearly, the issue now has been reduced to one of preference- which should be preferred between the notice of levy on execution and the deed of absolute sale. The Deed of Absolute Sale was executed on September 4, 1984, but was registered only on August 28, 1985, while the notice of levy on execution was annotated six (6) months prior to the registration of the sale on February 12, 1985. In the case of Landig vs. U.S. Commercial Co., 89 Phil 638 it was held that where a sale is recorded later than an attachment, although the former is of an earlier date, the sale must give way to the attachment on the ground that the act of registration is the operative act to affect the land. A similar ruling was restated inCampillo vs. Court of Appeals (129 SCRA 513). xxx xxx xxx The reason for these rulings may be found in Section 51 of P.D. 1529, otherwise known as the Property Registration Decree, which provides as follows: Section 51. Conveyance and other dealings by the registered owner.- An owner of registered land may convey, mortgage, lease, charge, or otherwise deal with the same in accordance with existing laws. He may use such forms of deeds, mortgages, leases or other voluntary instruments as are sufficient in law. But no deed, mortgage, lease or other voluntary instrument, except a will purporting to convey or affect registered land shall take effect as a conveyance or bind the land, but shall operate only as a contract between the parties and as evidence of authority to the Register of Deeds to make registration. The act of registration shall be the operative act to convey or affect the land in so far as third persons are concerned, and in all cases under the Decree, the registration shall be made in the office of the Register of Deeds for the province or city where the land lies. (Italics supplied by the lower court.) Under the Torrens system, registration is the operative act which gives validity to the transfer or creates a lien upon the land. A person dealing with registered land is not required to go behind the register to determine the condition of the property. He is only charged with notice of the burdens on the property which are noted on the face of the register or certificate of title. [20]
Although we have relied on the foregoing rule, in many cases coming before us, the same, however, does not fit in the case at bar. While it is the act of registration which is the operative act which conveys or affects the land insofar as third persons are concerned, it is likewise true, that the subsequent sale of property covered by a Certificate of Title cannot prevail over an adverse claim, duly sworn to and annotated on the certificate of title previous to the sale. [21] While it is true that under the provisions of the Property Registration Decree, deeds of conveyance of property registered under the system, or any interest therein only take effect as a conveyance to bind the land upon its registration, and that a purchaser is not required to explore further than what the Torrens title, upon its face, indicates in quest for any hidden defect or inchoate right that may subsequently defeat his right thereto, nonetheless, this rule is not absolute. Thus, one who buys from the registered owner need not have to look behind the certificate of title, he is, nevertheless, bound by the liens and encumbrances annotated thereon. One who buys without checking the vendors title takes all the risks and losses consequent to such failure. [22]
In PNB vs. Court of Appeals, we held that the subsequent sale of the property to the De Castro spouses cannot prevail over the adverse claim of Perez, which was inscribed on the banks certificate of title on October 6, 1958. That should have put said spouses on notice, and they can claim no better legal right over and above that of Perez. The TCT issued in the spouses names on July, 1959 also carried the said annotation of adverse claim. Consequently, they are not entitled to any interest on the price they paid for the property. [23]
Then again, in Gardner vs. Court of Appeals, we said that the statement of respondent court in its resolution of reversal that until the validity of an adverse claim is determined judicially, it cannot be considered a flaw in the vendors title contradicts the very object of adverse claims. As stated earlier, the annotation of an adverse claim is a measure designed to protect the interest of a person over a piece of real property, and serves as a notice and warning to third parties dealing with said property that someone is claiming an interest on the same or has a better right than the registered owner thereof. A subsequent sale cannot prevail over the adverse claim which was previously annotated in the certificate of title over the property. [24]
The question may be posed, was the adverse claim inscribed in the Transfer Certificate of Title No. N-109417 still in force when private respondent caused the notice of levy on execution to be registered and annotated in the said title, considering that more than thirty days had already lapsed since it was annotated? This is a decisive factor in the resolution of this instant case. If the adverse claim was still in effect, then respondents are charged with knowledge of pre-existing interest over the subject property, and thus, petitioners are entitled to the cancellation of the notice of levy attached to the certificate of title. For a definitive answer to this query, we refer to the law itself. Section 110 of Act 496 or the Land Registration Act reads: Sec. 110. Whoever claims any part or interest in registered lands adverse to the registered owner, arising subsequent to the date of the original registration, may, if no other provision is made in this Act for registering the same, make a statement in writing setting forth fully his alleged right or interest, and how or under whom acquired, and a reference to the volume and page of the certificate of title of the registered owner, and a description of the land in which the right or interest is claimed. The statement shall be signed and sworn to, and shall state the adverse claimants residence, and designate a place at which all notices may be served upon him. The statement shall be entitled to registration as an adverse claim, and the court, upon a petition of any party in interest, shall grant a speedy hearing upon the question of the validity of such adverse claim and shall enter such decree therein as justice and equity may require. If the claim is adjudged to be invalid, the registration shall be cancelled. If in any case, the court after notice and hearing shall find that a claim thus registered was frivolous or vexatious, it may tax the adverse claimant double or treble the costs in its discretion. The validity of the above-mentioned rules on adverse claims has to be reexamined in the light of the changes introduced by P.D. 1529, which provides: Sec. 70 Adverse Claim- Whoever claims any part or interest in registered land adverse to the registered owner, arising subsequent to the date of the original registration, may, if no other provision is made in this decree for registering the same, make a statement in writing setting forth fully his alleged right or interest, and how or under whom acquired, a reference to the number of certificate of title of the registered owner, the name of the registered owner, and a description of the land in which the right or interest is claimed. The statement shall be signed and sworn to, and shall state the adverse claimants residence, and a place at which all notices may be served upon him. This statement shall be entitled to registration as an adverse claim on the certificate of title. The adverse claim shall be effective for a period of thirty days from the date of registration. After the lapse of said period, the annotation of adverse claim may be cancelled upon filing of a verified petition therefor by the party in interest: Provided, however, that after cancellation, no second adverse claim based on the same ground shall be registered by the same claimant. Before the lapse of thirty days aforesaid, any party in interest may file a petition in the Court of First Instance where the land is situated for the cancellation of the adverse claim, and the court shall grant a speedy hearing upon the question of the validity of such adverse claim, and shall render judgment as may be just and equitable. If the adverse claim is adjudged to be invalid, the registration thereof shall be ordered cancelled. If, in any case, the court, after notice and hearing shall find that the adverse claim thus registered was frivolous, it may fine the claimant in an amount not less than one thousand pesos, nor more than five thousand pesos, in its discretion. Before the lapse of thirty days, the claimant may withdraw his adverse claim by filing with the Register of Deeds a sworn petition to that effect. (Italics ours) In construing the law aforesaid, care should be taken that every part thereof be given effect and a construction that could render a provision inoperative should be avoided, and inconsistent provisions should be reconciled whenever possible as parts of a harmonious whole. [25] For taken in solitude, a word or phrase might easily convey a meaning quite different from the one actually intended and evident when a word or phrase is considered with those with which it is associated. [26] In ascertaining the period of effectivity of an inscription of adverse claim, we must read the law in its entirety. Sentence three, paragraph two of Section 70 of P.D. 1529 provides: The adverse claim shall be effective for a period of thirty days from the date of registration. At first blush, the provision in question would seem to restrict the effectivity of the adverse claim to thirty days. But the above provision cannot and should not be treated separately, but should be read in relation to the sentence following, which reads: After the lapse of said period, the annotation of adverse claim may be cancelled upon filing of a verified petition therefor by the party in interest. If the rationale of the law was for the adverse claim to ipso facto lose force and effect after the lapse of thirty days, then it would not have been necessary to include the foregoing caveat to clarify and complete the rule. For then, no adverse claim need be cancelled. If it has been automatically terminated by mere lapse of time, the law would not have required the party in interest to do a useless act. A statutes clauses and phrases must not be taken separately, but in its relation to the statutes totality. Each statute must, in fact, be construed as to harmonize it with the pre-existing body of laws. Unless clearly repugnant, provisions of statutes must be reconciled. The printed pages of the published Act, its history, origin, and its purposes may be examined by the courts in their construction. [27] An eminent authority on the subject matter states the rule candidly: A statute is passed as a whole and not in parts or sections, and is animated by one general purpose and intent. Consequently, each part or section should be construed in connection with every other part or section so as to produce a harmonious whole. It is not proper to confine its intention to the one section construed. It is always an unsafe way of construing a statute or contract to divide it by a process of etymological dissection, into separate words, and then apply to each, thus separated from the context, some particular meaning to be attached to any word or phrase usually to be ascertained from the context. [28]
Construing the provision as a whole would reconcile the apparent inconsistency between the portions of the law such that the provision on cancellation of adverse claim by verified petition would serve to qualify the provision on the effectivity period. The law, taken together, simply means that the cancellation of the adverse claim is still necessary to render it ineffective, otherwise, the inscription will remain annotated and shall continue as a lien upon the property. For if the adverse claim has already ceased to be effective upon the lapse of said period, its cancellation is no longer necessary and the process of cancellation would be a useless ceremony. [29]
It should be noted that the law employs the phrase may be cancelled, which obviously indicates, as inherent in its decision making power, that the court may or may not order the cancellation of an adverse claim, notwithstanding such provision limiting the effectivity of an adverse claim for thirty days from the date of registration. The court cannot be bound by such period as it would be inconsistent with the very authority vested in it. A fortiori, the limitation on the period of effectivity is immaterial in determining the validity or invalidity of an adverse claim which is the principal issue to be decided in the court hearing. It will therefore depend upon the evidence at a proper hearing for the court to determine whether it will order the cancellation of the adverse claim or not. [30]
To interpret the effectivity period of the adverse claim as absolute and without qualification limited to thirty days defeats the very purpose for which the statute provides for the remedy of an inscription of adverse claim, as the annotation of an adverse claim is a measure designed to protect the interest of a person over a piece of real property where the registration of such interest or right is not otherwise provided for by the Land Registration Act or Act 496 (now P.D. 1529 or the Property Registration Decree), and serves as a warning to third parties dealing with said property that someone is claiming an interest or the same or a better right than the registered owner thereof. [31]
The reason why the law provides for a hearing where the validity of the adverse claim is to be threshed out is to afford the adverse claimant an opportunity to be heard, providing a venue where the propriety of his claimed interest can be established or revoked, all for the purpose of determining at last the existence of any encumbrance on the title arising from such adverse claim. This is in line with the provision immediately following: Provided, however, that after cancellation, no second adverse claim shall be registered by the same claimant. Should the adverse claimant fail to sustain his interest in the property, the adverse claimant will be precluded from registering a second adverse claim based on the same ground. It was held that validity or efficaciousness of the claim may only be determined by the Court upon petition by an interested party, in which event, the Court shall order the immediate hearing thereof and make the proper adjudication as justice and equity may warrant. And it is only when such claim is found unmeritorious that the registration of the adverse claim may be cancelled, thereby protecting the interest of the adverse claimant and giving notice and warning to third parties. [32]
In sum, the disputed inscription of adverse claim on the Transfer Certificate of Title No. N-79073 was still in effect on February 12, 1985 when Quezon City Sheriff Roberto Garcia annotated the notice of levy on execution thereto. Consequently, he is charged with knowledge that the property sought to be levied upon on execution was encumbered by an interest the same as or better than that of the registered owner thereof. Such notice of levy cannot prevail over the existing adverse claim inscribed on the certificate of title in favor of the petitioners. This can be deduced from the pertinent provision of the Rules of Court, to wit: Section 16. Effect of levy on execution as to third persons- The levy on execution shall create a lien in favor of the judgment creditor over the right, title and interest of the judgment debtor in such property at the time of the levy, subject to liens or encumbrances then existing. (Italics supplied) To hold otherwise would be to deprive petitioners of their property, who waited a long time to complete payments on their property, convinced that their interest was amply protected by the inscribed adverse claim. As lucidly observed by the trial court in the challenged decision: True, the foregoing section provides that an adverse claim shall be effective for a period of thirty days from the date of registration. Does this mean however, that the plaintiffs thereby lost their right over the property in question? Stated in another, did the lapse of the thirty day period automatically nullify the contract to sell between the plaintiffs and the Uychocdes thereby depriving the former of their vested right over the property? It is respectfully submitted that it did not. [33]
As to whether or not the petitioners are buyers in good faith of the subject property, the same should be made to rest on the findings of the trial court. As pointedly observed by the appellate court, there is no question that plaintiffs-appellees were not aware of the pending case filed by Pilares against Uychocde at the time of the sale of the property by the latter in their favor. This was clearly elicited from the testimony of Conchita Sajonas, wife of plaintiff, during cross-examination on April 21, 1988. [34]
ATTY. REYES Q - Madam Witness, when Engr. Uychocde and his wife offered to you and your husband the property subject matter of this case, they showed you the owners transfer certificate, is it not? A - Yes, sir. Q - That was shown to you the very first time that this lot was offered to you for sale? A - Yes. Q - After you were shown a copy of the title and after you were informed that they are desirous in selling the same, did you and your husband decide to buy the same? A - No, we did not decide right after seeing the title. Of course, we visited... Q - No, you just answer my question. You did not immediately decide? A - Yes. Q - When did you finally decide to buy the same? A - After seeing the site and after verifying from the Register of Deeds in Marikina that it is free from encumbrances, that was the time we decided. Q - How soon after you were offered this lot did you verify the exact location and the genuineness of the title, as soon after this was offered to you? A - I think its one week after they were offered. [35]
A purchaser in good faith and for value is one who buys property of another without notice that some other person has a right to or interest in such property and pays a full and fair price for the same, at the time of such purchase, or before he has notice of the claims or interest of some other person in the property. [36] Good faith consists in an honest intention to abstain from taking any unconscientious advantage of another. [37] Thus, the claim of the private respondent that the sale executed by the spouses was made in fraud of creditors has no basis in fact, there being no evidence that the petitioners had any knowledge or notice of the debt of the Uychocdes in favor of the private respondents, nor of any claim by the latter over the Uychocdes properties or that the same was involved in any litigation between said spouses and the private respondent. While it may be stated that good faith is presumed, conversely, bad faith must be established by competent proof by the party alleging the same. Sanssuch proof, the petitioners are deemed to be purchasers in good faith, and their interest in the subject property must not be disturbed. At any rate, the Land Registration Act (Property Registration Decree) guarantees to every purchaser of registered land in good faith that they can take and hold the same free from any and all prior claims, liens and encumbrances except those set forth on the Certificate of Title and those expressly mentioned in the ACT as having been preserved against it. Otherwise, the efficacy of the conclusiveness of the Certificate of Title which the Torrens system seeks to insure would be futile and nugatory. [38]
ACCORDINGLY, the assailed decision of the respondent Court of Appeals dated October 17, 1991 is hereby REVERSED and SET ASIDE. The decision of the Regional Trial Court dated February 15, 1989 finding for the cancellation of the notice of levy on execution from Transfer Certificate of Title No. N-109417 is hereby REINSTATED. The inscription of the notice of levy on execution on TCT No. N-109417 is hereby CANCELLED. Costs against private respondent.
Republic of the Philippines SUPREME COURT Baguio City THIRD DIVISION G.R. No. 167022 April 4, 2011 LICOMCEN INCORPORATED, Petitioner, vs. FOUNDATION SPECIALISTS, INC., Respondent. x - - - - - - - - - - - - - - - - - - - - - - -x G.R. No. 169678 FOUNDATION SPECIALISTS, INC., Petitioner, vs. LICOMCEN INCORPORATED, Respondent. D E C I S I O N BRION, J .: THE FACTS The petitioner, LICOMCEN Incorporated (LICOMCEN), is a domestic corporation engaged in the business of operating shopping malls in the country. In March 1997, the City Government of Legaspi awarded to LICOMCEN, after a public bidding, a lease contract over a lot located in the central business district of the city. Under the contract, LICOMCEN was obliged to finance the construction of a commercial complex/mall to be known as the LCC Citimall (Citimall). It was also granted the right to operate and manage Citimall for 50 years, and was, thereafter, required to turn over the ownership and operation to the City Government. 1
For the Citimall project, LICOMCEN hired E.S. de Castro and Associates (ESCA) to act as its engineering consultant. Since the Citimall was envisioned to be a high-rise structure, LICOMCEN contracted respondent Foundation Specialists, Inc. (FSI) to do initial construction works, specifically, the construction and installation of bored piles foundation. 2 LICOMCEN and FSI signed the Construction Agreement, 3 and the accompanying Bid Documents 4 and General Conditions of Contract 5 (GCC) on September 1, 1997. Immediately thereafter, FSI purchased the materials needed for the Citimall 6 project and began working in order to meet the 90-day deadline set by LICOMCEN. On December 16, 1997, LICOMCEN sent word to FSI that it was considering major design revisions and the suspension of work on the Citimall project. FSI replied on December 18, 1997, expressing concern over the revisions and the suspension, as it had fully mobilized its manpower and equipment, and had ordered the delivery of steel bars. FSI also asked for the payment of accomplished work amounting to P3,627,818.00. 7 A series of correspondence between LICOMCEN and FSI then followed. ESCA wrote FSI on January 6, 1998, stating that the revised design necessitated a change in the bored piles requirement and a substantial reduction in the number of piles. Thus, ESCA proposed to FSI that only 50% of the steel bars be delivered to the jobsite and the rest be shipped back to Manila. 8 Notwithstanding this instruction, all the ordered steel bars arrived in Legaspi City on January 14, 1998. 9
On January 15, 1998, LICOMCEN instructed FSI to "hold all construction activities on the project," 10 in view of a pending administrative case against the officials of the City Government of Legaspi and LICOMCEN filed before the Ombudsman (OMB-ADM-1-97-0622). 11 On January 19, 1998, ESCA formalized the suspension of construction activities and ordered the constructions demobilization until the case was resolved. 12 In response, FSI sent ESCA a letter, dated February 3, 1998, requesting payment of costs incurred on account of the suspension which totaledP22,667,026.97. 13 FSI repeated its demand for payment on March 3, 1998. 14
ESCA replied to FSIs demands for payment on March 24, 1998, objecting to some of the claims. 15 It denied the claim for the cost of the steel bars that were delivered, since the delivery was done in complete disregard of its instructions. It further disclaimed liability for the other FSI claims based on the suspension, as its cause was not due to LICOMCENs fault. FSI rejected ESCAs evaluation of its claims in its April 15, 1998 letter. 16
On March 14, 2001, FSI sent a final demand letter to LICOMCEN for payment of P29,232,672.83. 17 Since LICOMCEN took no positive action on FSIs demand for payment, 18 FSI filed a petition for arbitration with the Construction Industry Arbitration Commission (CIAC) on October 2, 2002, docketed as CIAC Case No. 37-2002. 19 In the arbitration petition, FSI demanded payment of the following amounts: a. Unpaid accomplished work billings. P 1,264,404.12 b. Material costs at site.. 15,143,638.51 c. Equipment and labor standby costs.. 3,058,984.34 d. Unrealized gross profit.. 9,023,575.29 e. Attorneys fees.. 300,000.00 f. Interest expenses ... equivalent to 15% of the total claim LICOMCEN again denied liability for the amounts claimed by FSI. It justified its decision to indefinitely suspend the Citimall project due to the cases filed against it involving its Lease Contract with the City Government of Legaspi. LICOMCEN also assailed the CIACs jurisdiction, contending that FSIs claims were matters not subject to arbitration under GC-61 of the GCC, but one that should have been filed before the regular courts of Legaspi City pursuant to GC-05. 20
During the preliminary conference of January 28, 2003, LICOMCEN reiterated its objections to the CIACs jurisdiction, which the arbitrators simply noted. Both FSI and LICOMCEN then proceeded to draft the Terms of Reference. 21
On February 4, 2003, LICOMCEN, through a collaborating counsel, filed its Ex Abundati Ad Cautela Omnibus Motion, insisting that FSIs petition before the CIAC should be dismissed for lack of jurisdiction; thus, it prayed for the suspension of the arbitration proceedings until the issue of jurisdiction was finally settled. The CIAC denied LICOMCENs motion in its February 20, 2003 order, 22 finding that the question of jurisdiction depends on certain factual conditions that have yet to be established by ample evidence. As the CIACs February 20, 2003 order stood uncontested, the arbitration proceedings continued, with both parties actively participating. The CIAC issued its decision on July 7, 2003, 23 ruling in favor of FSI and awarding the following amounts: a. Unpaid accomplished work billings. P 1,264,404.12 b. Material costs at site 14,643,638.51 c. Equipment and labor standby costs 2,957,989.94 d. Unrealized gross profit 5,120,000.00 LICOMCEN was also required to bear the costs of arbitration in the total amount of P474,407.95. LICOMCEN appealed the CIACs decision before the Court of Appeals (CA). On November 23, 2004, the CA upheld the CIACs decision, modifying only the amounts awarded by (a) reducing LICOMCENs liability for material costs at site to P5,694,939.87, and (b) deleting its liability for equipment and labor standby costs and unrealized gross profit; all the other awards were affirmed. 24 Both parties moved for the reconsideration of the CAs Decision; LICOMCENs motion was denied in the CAs February 4, 2005 Resolution, while FSIs motion was denied in the CAs September 13, 2005 Resolution. Hence, the parties filed their own petition for review on certiorari before the Court. 25
LICOMCENs Arguments LICOMCEM principally raises the question of the CIACs jurisdiction, insisting that FSIs claims are non-arbitrable. In support of its position, LICOMCEN cites GC-61 of the GCC: GC-61. DISPUTES AND ARBITRATION Should any dispute of any kind arise between the LICOMCEN INCORPORATED and the Contractor [referring to FSI] or the Engineer [referring to ESCA] and the Contractor in connection with, or arising out of the execution of the Works, such dispute shall first be referred to and settled by the LICOMCEN, INCORPORATED who shall within a period of thirty (30) days after being formally requested by either party to resolve the dispute, issue a written decision to the Engineer and Contractor. Such decision shall be final and binding upon the parties and the Contractor shall proceed with the execution of the Works with due diligence notwithstanding any Contractor's objection to the decision of the Engineer. If within a period of thirty (30) days from receipt of the LICOMCEN, INCORPORATED's decision on the dispute, either party does not officially give notice to contest such decision through arbitration, the said decision shall remain final and binding. However, should any party, within thirty (30) days from receipt of the LICOMCEN, INCORPORATED's decision, contest said decision, the dispute shall be submitted for arbitration under the Construction Industry Arbitration Law, Executive Order 1008. The arbitrators appointed under said rules and regulations shall have full power to open up, revise and review any decision, opinion, direction, certificate or valuation of the LICOMCEN, INCORPORATED. Neither party shall be limited to the evidence or arguments put before the LICOMCEN, INCORPORATED for the purpose of obtaining his said decision. No decision given by the LICOMCEN, INCORPORATED shall disqualify him from being called as a witness and giving evidence in the arbitration. It is understood that the obligations of the LICOMCEN, INCORPORATED, the Engineer and the Contractor shall not be altered by reason of the arbitration being conducted during the progress of the Works. 26
LICOMCEN posits that only disputes "in connection with or arising out of the execution of the Works" are subject to arbitration. LICOMCEN construes the phrase "execution of the Works" as referring to the physical construction activities, since "Works" under the GCC specifically refer to the "structures and facilities" required to be constructed and completed for the Citimall project. 27 It considers FSIs claims as mere contractual monetary claims that should be litigated before the courts of Legaspi City, as provided in GC-05 of the GCC: GC-05. JURISDICTION Any question between the contracting parties that may arise out of or in connection with the Contract, or breach thereof, shall be litigated in the courts of Legaspi City except where otherwise specifically stated or except when such question is submitted for settlement thru arbitration as provided herein. 28
LICOMCEN also contends that FSI failed to comply with the condition precedent for arbitration laid down in GC-61 of the GCC. An arbitrable dispute under GC-61 must first be referred to and settled by LICOMCEN, which has 30 days to resolve it. If within a period of 30 days from receipt of LICOMCENs decision on the dispute, either party does not officially give notice to contest such decision through arbitration, the said decision shall remain final and binding. However, should any party, within 30 days from receipt of LICOMCENs decision, contest said decision, the dispute shall be submitted for arbitration under the Construction Industry Arbitration Law. LICOMCEN considers its March 24, 1998 letter as its final decision on FSIs claims, but declares that FSIs reply letter of April 15, 1998 is not the "notice to contest" required by GC-61 that authorizes resort to arbitration before the CIAC. It posits that nothing in FSIs April 15, 1998 letter states that FSI will avail of arbitration as a mode to settle its dispute with LICOMCEN. While FSIs final demand letter of March 14, 2001 mentioned its intention to refer the matter to arbitration, LICOMCEN declares that the letter was made three years after its March 24, 1998 letter, hence, long after the 30-day period provided in GC-61. Indeed, FSI filed the petition for arbitration with the CIAC only on October 2, 2002. 29 Considering FSIs delays in asserting its claims, LICOMCEN also contends that FSIs action is barred by laches. With respect to the monetary claims of FSI, LICOMCEM alleges that the CA erred in upholding its liability for material costs at site for the reinforcing steel bars in the amount of P5,694,939.87, computed as follows 30 : 2nd initial rebar requirements purchased from Pag-Asa Steel Works, Inc.. P 799,506.83 Reinforcing steel bars purchased from ARCA Industrial Sales (total net weight of 744,197.66 kilograms) 50% of net amount due. 5,395,433.04 Subtotal.
6,194,939.87 Less Purchase cost of steel bars by Ramon Quinquileria.. (500,000.00) TOTAL LIABILITY OF LICOMCEN TO FSI FOR MATERIAL COSTS AT SITE...
5,694,939.87 Citing GC-42(2) of the GCC, LICOMCEN says it shall be liable to pay FSI "[t]he cost of materials or goods reasonably ordered for the Permanent or Temporary Works which have been delivered to the Contractor but not yet used, and which delivery has been certified by the Engineer." 31 None of these requisites were allegedly complied with. It contends that FSI failed to establish that the steel bars delivered in Legaspi City, on January 14, 1998, were for the Citimall project. In fact, the steel bars were delivered not at the site of the Citimall project, but at FSIs batching plant called Tuanzon compound, a few hundred meters from the site. Even if delivery to Tuanzon was allowed, the delivery was done in violation of ESCAs instruction to ship only 50% of the materials. Advised as early as December 1997 to suspend the works, FSI proceeded with the delivery of the steel bars in January 1998. LICOMCEN declared that it should not be made to pay for costs that FSI willingly incurred for itself. 32
Assuming that LICOMCEN is liable for the costs of the steel bars, it argues that its liability should be minimized by the fact that FSI incurred no actual damage from the purchase and delivery of the steel bars. During the suspension of the works, FSI sold 125,000 kg of steel bars for P500,000.00 to a third person (a certain Ramon Quinquileria). LICOMCEN alleges that FSI sold the steel bars for a ridiculously low price of P 4.00/kilo, when the prevailing rate was P20.00/kilo. The sale could have garnered a higher price that would offset LICOMCENs liability. LICOMCEN also wants FSI to account for and deliver to it the remaining 744 metric tons of steel bars not sold. Otherwise, FSI would be unjustly enriched at LICOMCENs expense, receiving payment for materials not delivered to LICOMCEN. 33
LICOMCEN also disagrees with the CA ruling that declared it solely liable to pay the costs of arbitration. The ruling was apparently based on the finding that LICOMCENs "failure or refusal to meet its obligations, legal, financial, and moral, caused FSI to bring the dispute to arbitration." 34 LICOMCEN asserts that it was FSIs decision to proceed with the delivery of the steel bars that actually caused the dispute; it insists that it is not the party at fault which should bear the arbitration costs. 35
FSIs Arguments FSI takes exception to the CA ruling that modified the amount for material costs at site, and deleted the awards for equipment and labor standby costs and unrealized profits. Proof of damage to FSI is not required for LICOMCEN to be liable for the material costs of the steel bars. Under GC-42, it is enough that the materials were delivered to the contractor, although not used. FSI said that the 744 metric tons of steel bars were ordered and paid for by it for the Citimall project as early as November 1997. If LICOMCEN contends that these were procured for other projects FSI also had in Legaspi City, it should have presented proof of this claim, but it failed to do so. 36
ESCAs January 6, 1998 letter simply suggested that only 50% of the steel bars be shipped to Legaspi City; it was not a clear and specific directive. Even if it was, the steel bars were ordered and paid for long before the notice to suspend was given; by then, it was too late to stop the delivery. FSI also claims that since it believed in good faith that the Citimall project was simply suspended, it expected work to resume soon after and decided to proceed with the shipment. 37
Contrary to LICOMCENs arguments, GC-42 of the GCC does not require delivery of the materials at the site of the Citimall project; it only requires delivery to the contractor, which is FSI. Moreover, the Tuanzon compound, where the steel bars were actually delivered, is very close to the Citimall project site. FSI contends that it is a normal construction practice for contractors to set up a "staging site," to prepare the materials and equipment to be used, rather than stock them in the crowded job/project site. FSI also asserts that it was useless to have the delivery certified by ESCA because by then the Citimall project had been suspended. It would be unfair to demand FSI to perform an act that ESCA and LICOMCEN themselves had prevented from happening. 38
The CA deleted the awards for equipment and labor standby costs on the ground that FSIs documentary evidence was inadequate. FSI finds the ruling erroneous, since LICOMCEN never questioned the list of employees and equipments employed and rented by FSI for the duration of the suspension. 39
FSI also alleges that LICOMCEN maliciously and unlawfully suspended the Citimall project. While LICOMCEN cited several other cases in its petition for review on certiorari as grounds for suspending the works, its letters/notices of suspension only referred to one case, OMB-ADM-1-97- 0622, an administrative case before the Ombudsman that was dismissed as early as October 12, 1998. LICOMCEN never notified FSI of the dismissal of this case. More importantly, no restraining order or injunction was issued in any of these cases to justify the suspension of the Citimall project. 40 FSI posits that LICOMCENs true intent was to terminate its contract with it, but, to avoid paying damages for breach of contract, simply declared it as "indefinitely suspended." That LICOMCEN conducted another public bidding for the "new designs" is a telling indication of LICOMCENs intent to ease out FSI. 41 Thus, FSI states that LICOMCENs bad faith in indefinitely suspending the Citimall project entitles it to claim unrealized profit. The restriction under GC-41 that "[t]he contractor shall have no claim for anticipated profits on the work thus terminated," 42 will not apply because the stipulation refers to a contract lawfully and properly terminated. FSI seeks to recover unrealized profits under Articles 1170 and 2201 of the Civil Code. THE COURTS RULING The jurisdiction of the CIAC The CIAC was created through Executive Order No. 1008 (E.O. 1008), in recognition of the need to establish an arbitral machinery that would expeditiously settle construction industry disputes. The prompt resolution of problems arising from or connected with the construction industry was considered of necessary and vital for the fulfillment of national development goals, as the construction industry provides employment to a large segment of the national labor force and is a leading contributor to the gross national product. 43 Section 4 of E.O. 1008 states: Sec. 4. Jurisdiction. The CIAC shall have original and exclusive jurisdiction over disputes arising from, or connected with, contracts entered into by parties involved in construction in the Philippines, whether the dispute arises before or after the completion of the contract, or after the abandonment or breach thereof. These disputes may involve government or private contracts. For the Board to acquire jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration. The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and workmanship; violation of the terms of agreement; interpretation and/or application of contractual time and delays; maintenance and defects; payment, default of employer or contractor and changes in contract cost. Excluded from the coverage of this law are disputes arising from employer-employee relationships which shall continue to be covered by the Labor Code of the Philippines. The jurisdiction of courts and quasi-judicial bodies is determined by the Constitution and the law. 44 It cannot be fixed by the will of the parties to a dispute; 45 the parties can neither expand nor diminish a tribunals jurisdiction by stipulation or agreement. The text of Section 4 of E.O. 1008 is broad enough to cover any dispute arising from, or connected with construction contracts, whether these involve mere contractual money claims or execution of the works. 46 Considering the intent behind the law and the broad language adopted, LICOMCEN erred in insisting on its restrictive interpretation of GC- 61. The CIACs jurisdiction cannot be limited by the parties stipulation that only disputes in connection with or arising out of the physical construction activities (execution of the works) are arbitrable before it. In fact, all that is required for the CIAC to acquire jurisdiction is for the parties to a construction contract to agree to submit their dispute to arbitration. Section 1, Article III of the 1988 CIAC Rules of Procedure (as amended by CIAC Resolution Nos. 2-91 and 3-93) states: Section 1. Submission to CIAC Jurisdiction. An arbitration clause in a construction contract or a submission to arbitration of a construction dispute shall be deemed an agreement to submit an existing or future controversy to CIAC jurisdiction, notwithstanding the reference to a different arbitration institution or arbitral body in such contract or submission. When a contract contains a clause for the submission of a future controversy to arbitration, it is not necessary for the parties to enter into a submission agreement before the claimant may invoke the jurisdiction of CIAC. An arbitration agreement or a submission to arbitration shall be in writing, but it need not be signed by the parties, as long as the intent is clear that the parties agree to submit a present or future controversy arising from a construction contract to arbitration. In HUTAMA-RSEA Joint Operations, Inc. v. Citra Metro Manila Tollways Corporation, 47 the Court declared that "the bare fact that the parties x x x incorporated an arbitration clause in [their contract] is sufficient to vest the CIAC with jurisdiction over any construction controversy or claim between the parties. The arbitration clause in the construction contract ipso facto vested the CIAC with jurisdiction." Under GC-61 and GC-05 of the GCC, read singly and in relation with one another, the Court sees no intent to limit resort to arbitration only to disputes relating to the physical construction activities. First, consistent with the intent of the law, an arbitration clause pursuant to E.O. 1008 should be interpreted at its widest signification. Under GC-61, the voluntary arbitration clause covers any dispute of any kind, not only arising of out the execution of the works but also in connection therewith. The payments, demand and disputed issues in this case namely, work billings, material costs, equipment and labor standby costs, unrealized profits all arose because of the construction activities and/or are connected or related to these activities. In other words, they are there because of the construction activities. Attorneys fees and interests payment, on the other hand, are costs directly incidental to the dispute. Hence, the scope of the arbitration clause, as worded, covers all the disputed items. Second and more importantly, in insisting that contractual money claims can be resolved only through court action, LICOMCEN deliberately ignores one of the exceptions to the general rule stated in GC-05: GC-05. JURISDICTION Any question between the contracting parties that may arise out of or in connection with the Contract, or breach thereof, shall be litigated in the courts of Legaspi City except where otherwise specifically stated or except when such question is submitted for settlement thru arbitration as provided herein. The second exception clause authorizes the submission to arbitration of any dispute between LICOMCEM and FSI, even if the dispute does not directly involve the execution of physical construction works. This was precisely the avenue taken by FSI when it filed its petition for arbitration with the CIAC. If the CIACs jurisdiction can neither be enlarged nor diminished by the parties, it also cannot be subjected to a condition precedent. GC-61 requires a party disagreeing with LICOMCENs decision to "officially give notice to contest such decision through arbitration" within 30 days from receipt of the decision. However, FSIs April 15, 1998 letter is not the notice contemplated by GC-61; it never mentioned FSIs plan to submit the dispute to arbitration and instead requested LICOMCEN to reevaluate its claims. Notwithstanding FSIs failure to make a proper and timely notice, LICOMCENs decision (embodied in its March 24, 1998 letter) cannot become "final and binding" so as to preclude resort to the CIAC arbitration. To reiterate, all that is required for the CIAC to acquire jurisdiction is for the parties to agree to submit their dispute to voluntary arbitration: [T]he mere existence of an arbitration clause in the construction contract is considered by law as an agreement by the parties to submit existing or future controversies between them to CIAC jurisdiction, without any qualification or condition precedent. To affirm a condition precedent in the construction contract, which would effectively suspend the jurisdiction of the CIAC until compliance therewith, would be in conflict with the recognized intention of the law and rules to automatically vest CIAC with jurisdiction over a dispute should the construction contract contain an arbitration clause. 48
The CIAC is given the original and exclusive jurisdiction over disputes arising from, or connected with, contracts entered into by parties involved in construction in the Philippines. 49 This jurisdiction cannot be altered by stipulations restricting the nature of construction disputes, appointing another arbitral body, or making that bodys decision final and binding. The jurisdiction of the CIAC to resolve the dispute between LICOMCEN and FSI is, therefore, affirmed. The validity of the indefinite suspension of the works on the Citimall project Before the Court rules on each of FSIs contractual monetary claims, we deem it important to discuss the validity of LICOMCENs indefinite suspension of the works on the Citimall project. We quote below two contractual stipulations relevant to this issue: GC-38. SUSPENSION OF WORKS The Engineer [ESCA] through the LICOMCEN, INCORPORATED shall have the authority to suspend the Works wholly or partly by written order for such period as may be deemed necessary, due to unfavorable weather or other conditions considered unfavorable for the prosecution of the Works, or for failure on the part of the Contractor to correct work conditions which are unsafe for workers or the general public, or failure or refusal to carry out valid orders, or due to change of plans to suit field conditions as found necessary during construction, or to other factors or causes which, in the opinion of the Engineer, is necessary in the interest of the Works and to the LICOMCEN, INCORPORATED. The Contractor [FSI] shall immediately comply with such order to suspend the work wholly or partly directed. In case of total suspension or suspension of activities along the critical path of the approved PERT/CPM network and the cause of which is not due to any fault of the Contractor, the elapsed time between the effective order for suspending work and the order to resume work shall be allowed the Contractor by adjusting the time allowed for his execution of the Contract Works. The Engineer through LICOMCEN, INCORPORATED shall issue the order lifting the suspension of work when conditions to resume work shall have become favorable or the reasons for the suspension have been duly corrected. 50
GC-41 LICOMCEN, INCORPORATED's RIGHT TO SUSPEND WORK OR TERMINATE THE CONTRACT x x x x 2. For Convenience of LICOMCEN, INCORPORATED If any time before completion of work under the Contract it shall be found by the LICOMCEN, INCORPORATED that reasons beyond the control of the parties render it impossible or against the interest of the LICOMCEN, INCORPORATED to complete the work, the LICOMCEN, INCORPORATED at any time, by written notice to the Contractor, may discontinue the work and terminate the Contract in whole or in part. Upon the issuance of such notice of termination, the Contractor shall discontinue to work in such manner, sequence and at such time as the LICOMCEN, INCORPORATED/Engineer may direct, continuing and doing after said notice only such work and only until such time or times as the LICOMCEN, INCORPORATED/Engineer may direct. 51
Under these stipulations, we consider LICOMCENs initial suspension of the works valid. GC-38 authorizes the suspension of the works for factors or causes which ESCA deems necessary in the interests of the works and LICOMCEN. The factors or causes of suspension may pertain to a change or revision of works, as cited in the December 16, 1997 and January 6, 1998 letters of ESCA, or to the pendency of a case before the Ombudsman (OMB-ADM-1-97-0622), as cited in LICOMCENs January 15, 1998 letter and ESCAs January 19, 1998 and February 17, 1998 letters. It was not necessary for ESCA/LICOMCEN to wait for a restraining or injunctive order to be issued in any of the cases filed against LICOMCEN before it can suspend the works. The language of GC-38 gives ESCA/LICOMCEN sufficient discretion to determine whether the existence of a particular situation or condition necessitates the suspension of the works and serves the interests of LICOMCEN.1avvphi 1 Although we consider the initial suspension of the works as valid, we find that LICOMCEN wrongfully prolonged the suspension of the works (or "indefinite suspension" as LICOMCEN calls it). GC-38 requires ESCA/LICOMCEN to "issue an order lifting the suspension of work when conditions to resume work shall have become favorable or the reasons for the suspension have been duly corrected." The Ombudsman case (OMB-ADM-1-97-0622), which ESCA and LICOMCEN cited in their letters to FSI as a ground for the suspension, was dismissed as early as October 12, 1998, but neither ESCA nor LICOMCEN informed FSI of this development. The pendency of the other cases 52 may justify the continued suspension of the works, but LICOMCEN never bothered to inform FSI of the existence of these cases until the arbitration proceedings commenced. By May 28, 2002, the City Government of Legaspi sent LICOMCEN a notice instructing it to proceed with the Citimall project; 53 again, LICOMCEN failed to relay this information to FSI. Instead, LICOMCEN conducted a rebidding of the Citimall project based on the new design. 54 LICOMCENs claim that the rebidding was conducted merely to get cost estimates for the new design goes against the established practice in the construction industry. We find the CIACs discussion on this matter relevant: But what is more appalling and disgusting is the allegation x x x that the x x x invitation to bid was issued x x x solely to gather cost estimates on the redesigned [Citimall project] x x x. This Arbitral Tribunal finds said act of asking for bids, without any intention of awarding the project to the lowest and qualified bidder, if true, to be extremely irresponsible and highly unprofessional. It might even be branded as fraudulent x x x [since] the invited bidders [were required] to pay P2,000.00 each for a set of the new plans, which amount was non-refundable. The presence of x x x deceit makes the whole story repugnant and unacceptable. 55
LICOMCENs omissions and the imprudent rebidding of the Citimall project are telling indications of LICOMCENs intent to ease out FSI and terminate their contract. As with GC-31, GC-42(2) grants LICOMCEN ample discretion to determine what reasons render it against its interest to complete the work in this case, the pendency of the other cases and the revised designs for the Citimall project. Given this authority, the Court fails to the see the logic why LICOMCEN had to resort to an "indefinite suspension" of the works, instead of outrightly terminating the contract in exercise of its rights under GC-42(2). We now proceed to discuss the effects of these findings with regard to FSIs monetary claims against LICOMCEN. The claim for material costs at site GC-42 of the GCC states: GC-42 PAYMENT FOR TERMINATED CONTRACT If the Contract is terminated as aforesaid, the Contractor will be paid for all items of work executed, satisfactorily completed and accepted by the LICOMCEN, INCORPORATED up to the date of termination, at the rates and prices provided for in the Contract and in addition: 1. The cost of partially accomplished items of additional or extra work agreed upon by the LICOMCEN, INCORPORATED and the Contractor. 2. The cost of materials or goods reasonably ordered for the Permanent or Temporary Works which have been delivered to the Contractor but not yet used and which delivery has been certified by the Engineer. 3. The reasonable cost of demobilization For any payment due the Contractor under the above conditions, the LICOMCEN, INCORPORATED, however, shall deduct any outstanding balance due from the Contractor for advances in respect to mobilization and materials, and any other sum the LICOMCEN, INCORPORATED is entitled to be credited. 56
For LICOMCEN to be liable for the cost of materials or goods, item two of GC-42 requires that a. the materials or goods were reasonably ordered for the Permanent or Temporary Works; b. the materials or goods were delivered to the Contractor but not yet used; and c. the delivery was certified by the Engineer. Both the CIAC and the CA agreed that these requisites were met by FSI to make LICOMCEN liable for the cost of the steel bars ordered for the Citimall project; the two tribunals differed only to the extent of LICOMCENs liability because the CA opined that it should be limited only to 50% of the cost of the steel bars. A review of the records compels us to uphold the CAs finding. Prior to the delivery of the steel bars, ESCA informed FSI of the suspension of the works; ESCAs January 6, 1998 letter reads: As per our information to you on December 16, 1997, a major revision in the design of the Legaspi Citimall necessitated a change in the bored piles requirement of the project. The change involved a substantial reduction in the number and length of piles. We expected that you would have suspended the deliveries of the steel bars until the new design has been approved. According to you[,] the steel bars had already been paid and loaded and out of Manila on said date. In order to avoid double handling, storage, security problems, we suggest that only 50% of the total requirement of steel bars be delivered at jobsite. The balance should be returned to Manila where storage and security is better. In order for us to consider additional cost due to the shipping of the excess steel bars, we need to know the actual dates of purchase, payments and loading of the steel bars. Obviously, we cannot consider the additional cost if you have had the chance to delay the shipping of the steel bars. 57
From the above, it appears that FSI was informed of the necessity of suspending the works as early as December 16, 1997. Pursuant to GC-38 of the GCC, FSI was expected to immediately comply with the order to suspend the work. 58 Though ESCAs December 16, 1997 notice may not have been categorical in ordering the suspension of the works, FSIs reply letter of December 18, 1997 indicated that it actually complied with the notice to suspend, as it said, "We hope for the early resolution of the new foundation plan and the resumption of work." 59 Despite the suspension, FSI claimed that it could not stop the delivery of the steel bars (nor found the need to do so) because (a) the steel bars were ordered as early as November 1997 and were already loaded in Manila and expected to arrive in Legaspi City by December 23, 1997, and (b) it expected immediate resumption of work to meet the 90-day deadline. 60
Records, however, disclose that these claims are not entirely accurate. The memorandum of agreement and sale covering the steel bars specifically stated that these would be withdrawn from the Cagayan de Oro depot, not Manila 61 ; indeed, the bill of lading stated that the steel bars were loaded in Cagayan de Oro on January 11, 1998, and arrived in Legaspi City within three days, on January 14, 1998. 62 The loading and delivery of the steel bar thus happened after FSI received ESCAs December 16, 1997 and January 6, 1998 letters days after the instruction to suspend the works. Also, the same stipulation that authorizes LICOMCEN to suspend the works allows the extension of the period to complete the works. The relevant portion of GC-38 states: In case of total suspension x x x and the cause of which is not due to any fault of the Contractor [FSI], the elapsed time between the effective order for suspending work and the order to resume work shall be allowed the Contractor by adjusting the time allowed for his execution of the Contract Works. 63
The above stipulation, coupled with the short period it took to ship the steel bars from Cagayan de Oro to Legaspi City, thus negates both FSIs argument and the CIACs ruling 64 that there was no necessity to stop the shipment so as to meet the 90-day deadline. These circumstances prove that FSI acted imprudently in proceeding with the delivery, contrary to LICOMCENs instructions. The CA was correct in holding LICOMCEN liable for only 50% of the costs of the steel bars delivered. The claim for equipment and labor standby costs The Court upholds the CAs ruling deleting the award for equipment and labor standby costs. We quote in agreement pertinent portions of the CA decision: The CIAC relied solely on the list of 37 pieces of equipment respondent allegedly rented and maintained at the construction site during the suspension of the project with the prorated rentals incurred x x x. To the mind of this Court, these lists are not sufficient to establish the fact that indeed [FSI] incurred the said expenses. Reliance on said lists is purely speculative x x x the list of equipments is a mere index or catalog of the equipments, which may be utilized at the construction site. It is not the best evidence to prove that said equipment were in fact rented and maintained at the construction site during the suspension of the work. x x x [FSI] should have presented the lease contracts or any similar documents such as receipts of payments x x x. Likewise, the list of employees does not in anyway prove that those employees in the list were indeed at the construction site or were required to be on call should their services be needed and were being paid their salaries during the suspension of the project. Thus, in the absence of sufficient evidence, We deny the claim for equipment and labor standby costs. 65
The claim for unrealized profit FSI contends that it is not barred from recovering unrealized profit under GC-41(2), which states: GC-41. LICOMCEN, INCORPORATEDs RIGHT TO SUSPEND WORK OR TERMINATE THE CONTRACT x x x x 2. For Convenience of the LICOMCEN, INCORPORATED x x x. The Contractor [FSI] shall not claim damages for such discontinuance or termination of the Contract, but the Contractor shall receive compensation for reasonable expenses incurred in good faith for the performance of the Contract and for reasonable expenses associated with termination of the Contract. The LICOMCEN, INCORPORATED will determine the reasonableness of such expenses. The Contractor [FSI] shall have no claim for anticipated profits on the work thus terminated, nor any other claim, except for the work actually performed at the time of complete discontinuance, including any variations authorized by the LICOMCEN, INCORPORATED/Engineer to be done. The prohibition, FSI posits, applies only where the contract was properly and lawfully terminated, which was not the case at bar. FSI also took pains in differentiating its claim for "unrealized profit" from the prohibited claim for "anticipated profits"; supposedly, unrealized profit is "one that is built-in in the contract price, while anticipated profit is not." We fail to see the distinction, considering that the contract itself neither defined nor differentiated the two terms. [A] contract must be interpreted from the language of the contract itself, according to its plain and ordinary meaning." 66 If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of the stipulations shall control. 67
Nonetheless, on account of our earlier discussion of LICOMCENs failure to observe the proper procedure in terminating the contract by declaring that it was merely indefinitely suspended, we deem that FSI is entitled to the payment of nominal damages. Nominal damages may be awarded to a plaintiff whose right has been violated or invaded by the defendant, for the purpose of vindicating or recognizing that right, and not for indemnifying the plaintiff for any loss suffered by him. 68 Its award is, thus, not for the purpose of indemnification for a loss but for the recognition and vindication of a right. A violation of the plaintiffs right, even if only technical, is sufficient to support an award of nominal damages. 69 FSI is entitled to recover the amount of P100,000.00 as nominal damages. The liability for costs of arbitration Under the parties Terms of Reference, executed before the CIAC, the costs of arbitration shall be equally divided between them, subject to the CIACs determination of which of the parties shall eventually shoulder the amount. 70 The CIAC eventually ruled that since LICOMCEN was the party at fault, it should bear the costs. As the CA did, we agree with this finding. Ultimately, it was LICOMCENs imprudent declaration of indefinitely suspending the works that caused the dispute between it and FSI. LICOMCEN should bear the costs of arbitration. WHEREFORE, premises considered, the petition for review on certiorari of LICOMCEN INCORPORATED, docketed as G.R. No. 167022, and the petition for review on certiorari of FOUNDATION SPECIALISTS, INC., docketed as G.R. No. 169678, are DENIED. The November 23, 2004 Decision of the Court of Appeals in CA-G.R. SP No. 78218 is MODIFIED to include the award of nominal damages in favor of FOUNDATION SPECIALISTS, INC. Thus, LICOMCEN INCORPORATED is ordered to pay FOUNDATION SPECIALISTS, INC. the following amounts: a. P1,264,404.12 for unpaid balance on FOUNDATION SPECIALISTS, INC. billings; b. P5,694,939.87 for material costs at site; and c. P100,000.00 for nominal damages. LICOMCEN INCORPORATED is also ordered to pay the costs of arbitration. No costs. SO ORDERED. ARTURO D. BRION Associate Justice WE CONCUR: CONCHITA CARPIO MORALES Associate Justice LUCAS P. BERSAMIN Associate Justice MARTIN S. VILLARAMA, JR. Associate Justice MA. LOURDES P.A. SERENO Associate Justice A T T E S T A T I O N I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. CONCHITA CARPIO MORALES Associate Justice Chairperson
In the Matter of Calpa Products Company, Bankrupt. Betty G. Zion, Ruth Zion Bressler and Victor A. Bressler, Co-Executors Under the Will of Peter P. Zion, Esquire, Deceased, 411 F.2d 1373, 3rd Cir. (1969)