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Source of Case Doctrines: Lexoterica: A Philippine Blawg (philippineblawg@gmail.

com)
Collated by: Leslie Raguindin for Barristers-2014
CIVIL CODE p. 1
SPECIAL LAW p. 216
Philippine Supreme Court Decisions on CIVIL LAW from 2010 to 2014
2010
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SYLLABI
Agency; Accounting.

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2014
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I. CIVIL CODE
CASE TITLE / DOCTRINES
Caridad Segarra Sazon vs. Letecia Vasquez-Menancio, G.R. No. 192085. February 22,
2012
Article 1891 of the Civil Code contains a few of the obligations owed by an agent to his
principal Every agent is bound to render an account of his transactions and to deliver to
the principal whatever he may have received by virtue of the agency, even though it may
not be owing to the principal. Every stipulation exempting the agent from the obligation
to render an account shall be void.
It is evident that the reason behind the failure of petitioner to render an accounting to
respondent is immaterial. What is important is that the former fulfill her duty to render
an account of the relevant transactions she entered into as respondents agent.

Agency; apparent
authority of an agent
based on estoppel;
concept.

Reman Recio v. Heirs of Spouses Aguego and Maria Altamirano, G.R. No.182349,
July 24, 2013
In Woodchild Holdings, Inc. v. Roxas Electric and Construction Company, Inc. the Court
stated that persons dealing with an assumed agency, whether the assumed agency be a
general or special one, are bound at their peril, if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and extent of authority, and in
case either is controverted, the burden of proof is upon them to establish it. In other
words, when the petitioner relied only on the words of respondent Alejandro without
securing a copy of the SPA in favor of the latter, the petitioner is bound by the risk
accompanying such trust on the mere assurance of Alejandro.
The same Woodchild case stressed that apparent authority based on estoppel can arise
from the principal who knowingly permit the agent to hold himself out with authority
and from the principal who clothe the agent with indicia of authority that would lead a
reasonably prudent person to believe that he actually has such authority. Apparent
authority of an agent arises only from acts or conduct on the part of the principal and
such acts or conduct of the principal must have been known and relied upon in good
faith and as a result of the exercise of reasonable prudence by a third person as claimant
and such must have produced a change of position to its detriment. In the instant case,
the sale to the Spouses Lajarca and other transactions where Alejandro allegedly
represented a considerable majority of the co- owners transpired after the sale to the
petitioner; thus, the petitioner cannot rely upon these acts or conduct to believe that
Alejandro had the same authority to negotiate for the sale of the subject property to him.

Agency; definition
under the Civil Code;
form of contract.

Sally Yoshizaki v. Joy Training Center of Aurora, Inc., G.R. No. 174978, July 31, 2013
Article 1868 of the Civil Code defines a contract of agency as a contract whereby a

person binds himself to render some service or to do something in representation or on


behalf of another, with the consent or authority of the latter. It may be express, or
implied from the acts of the principal, from his silence or lack of action, or his failure to
repudiate the agency, knowing that another person is acting on his behalf without
authority.
As a general rule, a contract of agency may be oral.
However, it must be written when the law requires a specific form. Specifically, Article
1874 of the Civil Code provides that the contract of agency must be written for the
validity of the sale of a piece of land or any interest therein. Otherwise, the sale shall be
void. A related provision, Article 1878 of the Civil Code, states that special powers of
attorney are necessary to convey real rights over immovable properties.
Agency; doctrine of
apparent authority.

Philippine Realty and Holding Corp. vs. Ley Const. and Dev. Corp./Ley Cons. and
Dev. Corp. vs. Philippine Realty and Holding Corp., G.R. No. 165548/G.R. No.
167879. June 13, 2011
The Court finds that the signature of Abcede is sufficient to bind PRHC. As its
construction manager, his very act of signing a letter embodying the P 36 million
escalation agreement produced legal effect, even if there was a blank space for a higher
officer of PHRC to indicate approval thereof. At the very least, he indicated authority to
make such representation on behalf of PRHC. On direct examination, Abcede admitted
that, as the construction manager, he represented PRHC in running its affairs with regard
to the execution of the aforesaid projects. Abcede had signed, on behalf of PRHC, other
documents that were almost identical to the questioned letter-agreement. PRHC does not
question the validity of these agreements; it thereby effectively admits that this
individual had actual authority to sign on its behalf with respect to these construction
projects.

Agency; Fruits.

Caridad Segarra Sazon vs. Letecia Vasquez-Menancio, G.R. No. 192085. February 22,
2012
Every agent is bound to deliver to the principal whatever the former may have received
by virtue of the agency, even though that amount may not be owed to the principal.

Agency; general
power of attorney; an
agency couched in
general terms
comprises only acts of
administration.

Sally Yoshizaki v. Joy Training Center of Aurora, Inc., G.R. No. 174978, July 31, 2013

Agency; principalagent relationship.

Sps. Fernando and Lourdes Viloria vs. Continental Airlines, Inc.,G.R. No. 188288.
January 16, 2012

The certification is a mere general power of attorney which comprises all of Joy
Trainings business. Article 1877 of the Civil Code clearly states that [a]n agency
couched in general terms comprises only acts of administration, even if the principal
should state that he withholds no power or that the agent may execute such acts as he
may consider appropriate, or even though the agency should authorize a general and
unlimited management.

The relationship of agency is one where one party called the principal (mandante),
authorizes another, called the agent (mandatario), to act for and in his behalf in
transactions with third persons. The essential elements of agency are: (1) there is
consent, express or implied of the parties to establish the relationship; (2) the object is
the execution of a juridical act in relation to a third person; (3) the agent acts as a
representative and not for himself, and (4) the agent acts within the scope of his
authority.
Agency is basically personal, representative, and derivative in nature. The authority of
the agent to act emanates from the powers granted to him by his principal; his act is the
act of the principal if done within the scope of the authority. Qui facit per alium facit se.
He who acts through another acts himself.
As provided under Article 1869 of the Civil Code, agency may be express, or implied
from the acts of the principal, from his silence or lack of action, or his failure to
repudiate the agency, knowing that another person is acting on his behalf without
authority.

The guidelines that would aid in differentiating sale and an agency has been formulated
by the Court since 1970. The primordial differentiating consideration between the two
(2) contracts is the transfer of ownership or title over the property subject of the contract.
In an agency, the principal retains ownership and control over the property and the agent
merely acts on the principals behalf and under his instructions in furtherance of the
objectives for which the agency was established. On the other hand, the contract is
clearly a sale if the parties intended that the delivery of the property will effect a
relinquishment of title, control and ownership in such a way that the recipient may do
with the property as he pleases.
Agency; principle of
apparent
authority;
agency
relationship
between hospital and
doctors who practice
in its premises.

Professional Services, Inc. vs. The Court of Appeals, et al./Natividad (substituted by


her children Marcelino Agana III, Enrique Agana, Jr. Emma Agana-Andaya, Jesus
Agana and Raymund Agana and Errique Agana) vs. The Court of Appeals and Juan
Fuentes Miguel Ampil vs. Natividad and Enrique Agana, G.R. Nos. 126297/G.R. No.
126467/G.R. No. 127590, February 2, 2010
This Court holds that PSI (the owner of the hospital) is liable to the Aganas, not under
the principle of respondeat superior for lack of evidence of an employment relationship
with a Dr. Ampil (who had left two pieces of gauze in the body of a patient he had
operated on) but under the principle of ostensible agency for the negligence of Dr. Ampil
and, pro hac vice, under the principle of corporate negligence for its failure to perform
its duties as a hospital.
While in theory a hospital as a juridical entity cannot practice medicine, in reality it
utilizes doctors, surgeons and medical practitioners in the conduct of its business of
facilitating medical and surgical treatment. Within that reality, three legal relationships
crisscross: (1) between the hospital and the doctor practicing within its premises; (2)
between the hospital and the patient being treated or examined within its premises and
(3) between the patient and the doctor. The exact nature of each relationship determines
the basis and extent of the liability of the hospital for the negligence of the doctor.
Where an employment relationship exists, the hospital may be held vicariously liable
under Article 2176 in relation to Article 2180 of the Civil Code or the principle of
respondeat superior. Even when no employment relationship exists but it is shown that
the hospital holds out to the patient that the doctor is its agent, the hospital may still be
vicariously liable under Article 2176 in relation to Article 1431 and Article 1869 of the
Civil Code or the principle of apparent authority. Moreover, regardless of its relationship
with the doctor, the hospital may be held directly liable to the patient for its own
negligence or failure to follow established standard of conduct to which it should
conform as a corporation.
The concurrent finding of the RTC and the CA that PSI was not the employer of Dr.
Ampil is correct. Consequently, PSI cannot be held vicariously liable for the negligence
of Dr. Ampil under the principle of respondeat superior. There is, however, ample
evidence that the hospital (PSI) held out to the patient (Natividad) that the doctor (Dr.
Ampil) was its agent. Present are the two factors that determine apparent authority: first,
the hospitals implied manifestation to the patient which led the latter to conclude that
the doctor was the hospitals agent; and second, the patients reliance upon the conduct
of the hospital and the doctor, consistent with ordinary care and prudence. [Digesters
Note: Here, the Supreme Court sets out what it believes are the indications of agency.
We have numbered the premises.] (1) Enrique, the husband of the patient, testified that
he consulted Dr. Ampil regarding the condition of his wife; that after the meeting and as
advised by Dr. Ampil, he asked [his] wife to go to Medical City to be examined by [Dr.
Ampil]; and that the next day, he told his daughter to take her mother to Dr. Ampil. This
timeline indicates that it was Enrique who actually made the decision on whom
Natividad should consult and where, and that the latter merely acceded to it. It explains
the testimony of Natividad that she consulted Dr. Ampil at the instigation of her
daughter. (2) Moreover, when asked what impelled him to choose Dr. Ampil, Enrique
testified that he had known Ampil to be a specialist on that part of the body as a surgeon,
and he had known him to be a staff member of the Medical City which is a prominent
and known hospital. Ampil was also a neighbor so Enrique had expected more than the
usual medical service to be given to us, than his ordinary patients. Clearly, the decision
made by Enrique for Natividad to consult Dr. Ampil was significantly influenced by the
impression that

Dr. Ampil was a staff member of Medical City General Hospital, and that said hospital
was well known and prominent. Enrique looked upon Dr. Ampil not as independent of
but as integrally related to Medical City. (3) PSIs acts tended to confirm and reinforce,
rather than negate, Enriques view. It is of record that PSI required a consent for
hospital care to be signed preparatory to the surgery of Natividad. The form reads:
Permission is hereby given to the medical, nursing and laboratory staff of the Medical
City General Hospital to perform such diagnostic procedures and to administer such
medications and treatments as may be deemed necessary or advisable by the physicians
of this hospital for and during the confinement of xxx. (emphasis supplied). By such
statement, PSI virtually reinforced the public impression that Dr. Ampil was a physician
of its hospital, rather than one independently practicing in it; that the medications and
treatments he prescribed were necessary and desirable; and that the hospital staff was
prepared to carry them out. (4) PSI pointed out in its memorandum that Dr. Ampils
hospital affiliation was not the exclusive basis of the Aganas decision to have Natividad
treated in Medical City General Hospital, meaning that, had Dr. Ampil been affiliated
with another hospital, he would still have been chosen by the Aganas as Natividads
surgeon. The Court cannot speculate on what could have been behind the Aganas
decision but would rather adhere strictly to the fact that, under the circumstances at that
time, Enrique decided to consult Dr. Ampil for he believed him to be a staff member of a
prominent and known hospital. After his meeting with Dr. Ampil, Enrique advised his
wife Natividad to go to the Medical City General Hospital to be examined by said
doctor, and the hospital acted in a way that fortified Enriques belief. The court must
therefore maintain the ruling that PSI is vicariously liable for the negligence of Dr.
Ampil as its ostensible agent.
[Digesters Note: The courts explanation of its agency ruling is set out above almost
verbatim. It is not clear, at least not to this writer, how the court arrived at the conclusion
that Enrique was actually choosing and relying on Medical City rather than Ampil when
based on Enriques testimony it appears to be the other way around. In any case, this
ruling has a significant impact on hospitals despite the qualifications made by the court
(see rest of digest of this case under Corporate responsibility). While it appears to
work to require much closer monitoring of patients and doctors, the ruling may also
allow the possibility of abuse. Hospitals cannot, and do not practice medicine, and
should not be seen as somehow practicing medicine indirectly through credentialed
doctors (who somehow then become agents). Most physicians that practice in hospital
premises are independent contractors over whom hospitals have very little control, and
indeed, no possibility of control when they practice medicine. They would have some
control in approving or accepting or maintaining affiliation, and managing the systems
supporting the care and treatment of patients. In this sense, PSI may have been, and
based on the case narration, was liable but it is not clear to me that it should be under an
agency concept. See rest of digest of this case under Corporate responsibility heading;
below. Reading the case, I am of the impression that the court saw that equities were
clearly on the side of the Aganas and applied such legal concepts as would ensure that
the Aganas would be able to recover significant damages, if not from Ampil, then from
PSI.]
Agency; ratification

Marcos V. Prieto vs. Court of Appeals, et al.; G.R. No. 158597, June 18, 2012
The complaint was anchored on the supposed failure of FEBTC to duly investigate the
authority of Antonio in contracting the exceptionally and relatively immense loans
amounting to P5,000,000.00. Marcos alleged therein that his property had thereby
become unlawfully burdened by unauthorized real estate mortgage contracts, because
the loans and the mortgage contracts had been incurred by Antonio and his wife only for
themselves, to the exclusion of petitioner. Yet, Marcos could not deny that under the
express terms of the SPA, he had precisely granted to Antonio as his agent the authority
to borrow money, and to transfer and convey the property by way of mortgage to
FEBTC; to sign, execute and deliver promissory notes; and to receive the proceeds of the
loans on the formers behalf. In other words, the mortgage contracts were valid and
enforceable against petitioner, who was consequently fully bound by their terms.
Moreover, even if it was assumed that Antonios obtaining the loans in his own name,
and executing the mortgage contracts also in his own name had exceeded his express
authority under the SPA, Marcos was still liable to FEBTC by virtue of his express
ratification of Antonios act. Under Article 1898 of the Civil Code, the acts of an agent
done beyond the scope of his authority do not bind the principal unless the latter

expressly or impliedly ratifies the same.


In agency, ratification is the adoption or confirmation by one person of an act performed
on his behalf by another without authority. The substance of ratification is the
confirmation after the act, amounting to a substitute for a prior authority. Here, there was
such a ratification by Marcos, as borne out by his execution of the letter of
acknowledgement on September 12, 1996.
But Marcos insists that the letter of acknowledgment was only a mere letter (written) on
a mimeographic paper ... a mere scrap of paper, a document by adhesion. The Court is
confounded by Marcos dismissal of his own express written ratification of Antonios
act. Being himself a lawyer, Marcos was aware of the import and consequences of the
letter of acknowledgment. The Court cannot agree with his insistence that the letter was
worthless due to its being a contract of adhesion. The letter was not a contract, to begin
with, because it was only a unilateral act of his. Secondly, his insistence was fallacious
and insincere because he knew as a lawyer that even assuming that the letter could be
treated as a contract of adhesion it was nonetheless effective and binding like any other
contract. The Court has consistently held that a contract of adhesion was not prohibited
for that reason. In Pilipino Telephone Corporation v. Tecson,for instance, the Court said
that contracts of adhesion were valid but might be occasionally struck down only if there
was a showing that the dominant bargaining party left the weaker party without any
choice as to be completely deprived of an opportunity to bargain effectively. That
exception did not apply here, for, verily, Marcos, being a lawyer, could not have been the
weaker party. As the tenor of the of acknowledgment indicated, he was fully aware of the
meaning and sense of every written word or phrase, as well as of the legal effect of his
confirmation thereby of his agents act. It is axiomatic that a mans act, conduct and
declaration, wherever made, if voluntary, are admissible against him, for the reason that
it is fair to presume that they correspond with the truth, and it is his fault if they do not.
Agency; ratification

Marcos V. Prieto vs. Court of Appeals, et al.; G.R. No. 158597, June 18, 2012
The complaint was anchored on the supposed failure of FEBTC to duly investigate the
authority of Antonio in contracting the exceptionally and relatively immense loans
amounting to P5,000,000.00. Marcos alleged therein that his property had thereby
become unlawfully burdened by unauthorized real estate mortgage contracts, because
the loans and the mortgage contracts had been incurred by Antonio and his wife only for
themselves, to the exclusion of petitioner. Yet, Marcos could not deny that under the
express terms of the SPA, he had precisely granted to Antonio as his agent the authority
to borrow money, and to transfer and convey the property by way of mortgage to
FEBTC; to sign, execute and deliver promissory notes; and to receive the proceeds of the
loans on the formers behalf. In other words, the mortgage contracts were valid and
enforceable against petitioner, who was consequently fully bound by their terms.
Moreover, even if it was assumed that Antonios obtaining the loans in his own name,
and executing the mortgage contracts also in his own name had exceeded his express
authority under the SPA, Marcos was still liable to FEBTC by virtue of his express
ratification of Antonios act. Under Article 1898 of the Civil Code, the acts of an agent
done beyond the scope of his authority do not bind the principal unless the latter
expressly or impliedly ratifies the same.
In agency, ratification is the adoption or confirmation by one person of an act performed
on his behalf by another without authority. The substance of ratification is the
confirmation after the act, amounting to a substitute for a prior authority. Here, there was
such a ratification by Marcos, as borne out by his execution of the letter of
acknowledgement on September 12, 1996.
But Marcos insists that the letter of acknowledgment was only a mere letter (written) on
a mimeographic paper ... a mere scrap of paper, a document by adhesion. The Court is
confounded by Marcos dismissal of his own express written ratification of Antonios
act. Being himself a lawyer, Marcos was aware of the import and consequences of the
letter of acknowledgment. The Court cannot agree with his insistence that the letter was
worthless due to its being a contract of adhesion. The letter was not a contract, to begin
with, because it was only a unilateral act of his. Secondly, his insistence was fallacious
and insincere because he knew as a lawyer that even assuming that the letter could be
treated as a contract of adhesion it was nonetheless effective and binding like any other

contract. The Court has consistently held that a contract of adhesion was not prohibited
for that reason. In Pilipino Telephone Corporation v. Tecson,for instance, the Court said
that contracts of adhesion were valid but might be occasionally struck down only if there
was a showing that the dominant bargaining party left the weaker party without any
choice as to be completely deprived of an opportunity to bargain effectively. That
exception did not apply here, for, verily, Marcos, being a lawyer, could not have been the
weaker party. As the tenor of the of acknowledgment indicated, he was fully aware of the
meaning and sense of every written word or phrase, as well as of the legal effect of his
confirmation thereby of his agents act. It is axiomatic that a mans act, conduct and
declaration, wherever made, if voluntary, are admissible against him, for the reason that
it is fair to presume that they correspond with the truth, and it is his fault if they do not.
Agency; ratification;
agency by estoppel.

Country Bankers Insurance Corporation vs. Keppel Cebu Shipyard, Inc., et al.; G.R.
No. 166044, June 18, 2012
Under Articles 1898 and 1910, an agents act, even if done beyond the scope of his
authority, may bind the principal if he ratifies them, whether expressly or tacitly. It must
be stressed though that only the principal, and not the agent, can ratify the unauthorized
acts, which the principal must have knowledge of.
Neither Unimarine nor Cebu Shipyard was able to repudiate CBICs testimony that it
was unaware of the existence of Surety Bond No. G (16) 29419 and Endorsement No.
33152. There were no allegations either that CBIC should have been put on alert with
regard to Quinains business transactions done on its behalf. It is clear, and undisputed
therefore, that there can be no ratification in this case, whether express or implied.
Article 1911, on the other hand, is based on the principle of estoppel, which is necessary
for the protection of third persons. It states that the principal is solidarily liable with the
agent even when the latter has exceeded his authority, if the principal allowed him to act
as though he had full powers. However, for an agency by estoppel to exist, the following
must be established:
1. The principal manifested a representation of the agents authority or knowingly
allowed the agent to assume such authority;
2. The third person, in good faith, relied upon such representation; and3. Relying
upon such representation, such third person has changed his position to his
detriment.
In Litonjua, Jr. v. Eternit Corp., this Court said that [a]n agency by estoppel, which is
similar to the doctrine of apparent authority, requires proof of reliance upon the
representations, and that, in turn, needs proof that the representations predated the action
taken in reliance.
This Court cannot agree with the Court of Appeals pronouncement of negligence on
CBICs part. CBIC not only clearly stated the limits of its agents powers in their
contracts, it even stamped its surety bonds with the restrictions, in order to alert the
concerned parties. Moreover, its company procedures, such as reporting requirements,
show that it has designed a system to monitor the insurance contracts issued by its
agents. CBIC cannot be faulted for Quinains deliberate failure to notify it of his
transactions with Unimarine. In fact, CBIC did not even receive the premiums paid by
Unimarine to Quinain.
Furthermore, nowhere in the decisions of the lower courts was it stated that CBIC let the
public, or specifically Unimarine, believe that Quinain had the authority to issue a surety
bond in favor of companies other than the Department of Public Works and Highways,
the National Power Corporation, and other government agencies. Neither was it shown
that CBIC knew of the existence of the surety bond before the endorsement extending
the life of the bond, was issued to Unimarine. For one to successfully claim the benefit
of estoppel on the ground that he has been misled by the representations of another, he
must show that he was not misled through his own want of reasonable care and
circumspection.

Agency; ratification;
agency by estoppel.

Country Bankers Insurance Corporation vs. Keppel Cebu Shipyard, Inc., et al.; G.R.
No. 166044, June 18, 2012
Under Articles 1898 and 1910, an agents act, even if done beyond the scope of his

authority, may bind the principal if he ratifies them, whether expressly or tacitly. It must
be stressed though that only the principal, and not the agent, can ratify the unauthorized
acts, which the principal must have knowledge of.
Neither Unimarine nor Cebu Shipyard was able to repudiate CBICs testimony that it
was unaware of the existence of Surety Bond No. G (16) 29419 and Endorsement No.
33152. There were no allegations either that CBIC should have been put on alert with
regard to Quinains business transactions done on its behalf. It is clear, and undisputed
therefore, that there can be no ratification in this case, whether express or implied.
Article 1911, on the other hand, is based on the principle of estoppel, which is necessary
for the protection of third persons. It states that the principal is solidarily liable with the
agent even when the latter has exceeded his authority, if the principal allowed him to act
as though he had full powers. However, for an agency by estoppel to exist, the following
must be established:
1. The principal manifested a representation of the agents authority or knowingly
allowed the agent to assume such authority;
2. The third person, in good faith, relied upon such representation; and
3. Relying upon such representation, such third person has changed his position to
his detriment.
In Litonjua, Jr. v. Eternit Corp., this Court said that [a]n agency by estoppel, which is
similar to the doctrine of apparent authority, requires proof of reliance upon the
representations, and that, in turn, needs proof that the representations predated the action
taken in reliance.
This Court cannot agree with the Court of Appeals pronouncement of negligence on
CBICs part. CBIC not only clearly stated the limits of its agents powers in their
contracts, it even stamped its surety bonds with the restrictions, in order to alert the
concerned parties. Moreover, its company procedures, such as reporting requirements,
show that it has designed a system to monitor the insurance contracts issued by its
agents. CBIC cannot be faulted for Quinains deliberate failure to notify it of his
transactions with Unimarine. In fact, CBIC did not even receive the premiums paid by
Unimarine to Quinain.
Furthermore, nowhere in the decisions of the lower courts was it stated that CBIC let the
public, or specifically Unimarine, believe that Quinain had the authority to issue a surety
bond in favor of companies other than the Department of Public Works and Highways,
the National Power Corporation, and other government agencies. Neither was it shown
that CBIC knew of the existence of the surety bond before the endorsement extending
the life of the bond, was issued to Unimarine. For one to successfully claim the benefit
of estoppel on the ground that he has been misled by the representations of another, he
must show that he was not misled through his own want of reasonable care and
circumspection.
Agency; sale of land
by an unauthorized
agent.

Sps. Joselina Alcantara and Antonio Alcantara, et al. vs. Brigida L. Nido, as attorneyin-fact of Revelen Srivastava, G.R. No. 165133, April 19, 2010
Respondent sold land owned by her daughter without any written authority. Article 1874
of the Civil Code explicitly requires a written authority before an agent can sell an
immovable property. Based on a review of the records, there is absolutely no proof of
respondents written authority to sell the lot to petitioners. In fact, during the pre-trial
conference, petitioners admitted that at the time of the negotiation for the sale of the lot,
petitioners were of the belief that respondent was the owner of lot. Consequently, the
sale of the lot by respondent who did not have a written authority from the real owner is
void. A void contract produces no effect either against or in favor of anyone and cannot
be ratified.

Agency; sale of
property by a
supposed agent is
unenforceable if there
is really no agency to
sell such property;
persons dealing with

Sally Yoshizaki v. Joy Training Center of Aurora, Inc., G.R. No. 174978, July 31, 2013
Necessarily, the absence of a contract of agency renders the contract of sale
unenforceable; Joy Training effectively did not enter into a valid contract of sale with the
spouses Yoshizaki. Sally cannot also claim that she was a buyer in good faith. She
misapprehended the rule that persons dealing with a registered land have the legal right
to rely on the face of the title and to dispense with the need to inquire further, except

an agent must
ascertain not only the
fact of agency, but also
the nature and extent
of the agents
authority.

when the party concerned has actual knowledge of facts and circumstances that would
impel a reasonably cautious man to make such inquiry. This rule applies when the
ownership of a parcel of land is disputed and not when the fact of agency is contested.

Agency; special power


of attorney for sale of
property; must
expressly mention a
sale or include a sale
as a necessary
ingredient of the
authorized act.

Sally Yoshizaki v. Joy Training Center of Aurora, Inc., G.R. No. 174978, July 31, 2013

Agency; special power


of attorney; must
express the powers of
the agent in clear and
unmistakable
language; when there
is any reasonable
doubt that the
language so used
conveys such power,
no such construction
shall be given the
document.

Sally Yoshizaki v. Joy Training Center of Aurora, Inc., G.R. No. 174978, July 31, 2013

Agency; special power


of attorney; required
for an agent to sell an
immovable property;
authority must be in
writing, otherwise sale
is void.

Reman Recio v. Heirs of Spouses Aguego and Maria Altamirano, G.R. No.182349,
July 24, 2013

Agency.

Pacific Rehouse Corporation, et al. vs. EIB Securities, Inc.;G.R. No. 184036, October
13, 2010

The special power of attorney mandated by law must be one that expressly mentions a
sale or that includes a sale as a necessary ingredient of the authorized act. We
unequivocably declared in Cosmic Lumber Corporation v. Court of Appeals that a
special power of attorney must express the powers of the agent in clear and unmistakable
language for the principal to confer the right upon an agent to sell real estate. When there
is any reasonable doubt that the language so used conveys such power, no such
construction shall be given the document. The purpose of the law in requiring a special
power of attorney in the disposition of immovable property is to protect the interest of an
unsuspecting owner from being prejudiced by the unwarranted act of another and to
caution the buyer to assure himself of the specific authorization of the putative agent.

We unequivocably declared in Cosmic Lumber Corporation v. Court of Appeals that a


special power of attorney must express the powers of the agent in clear and unmistakable
language for the principal to confer the right upon an agent to sell real estate. When there
is any reasonable doubt that the language so used conveys such power, no such
construction shall be given the document. The purpose of the law in requiring a special
power of attorney in the disposition of immovable property is to protect the interest of an
unsuspecting owner from being prejudiced by the unwarranted act of another and to
caution the buyer to assure himself of the specific authorization of the putative agent.

In Alcantara v. Nido, the Court emphasized the requirement of an SPA before an agent
may sell an immovable property. In the said case, Revelen was the owner of the subject
land. Her mother, respondent Brigida Nido accepted the petitioners offer to buy
Revelens land at Two Hundred Pesos (P200.00) per sq m. However, Nido was only
authorized verbally by Revelen. Thus, the Court declared the sale of the said land null
and void under Articles 1874 and 1878 of the Civil Code.

The sale of the DMCI shares made by EIB is null and void for lack of authority to do so,
for petitioners never gave their consent or permission to the sale. Moreover, Article 1881
of the Civil Code provides that the agent must act within the scope of his authority.
Pursuant to the authority given by the principal, the agent is granted the right to affect
the legal relations of his principal by the performance of acts effectuated in accordance
with the principals manifestation of consent. In the case at bar, the scope of authority
of EIB as agent of petitioners is to retain, apply, sell or dispose of all or any of the
clients [petitioners] property, if all or any indebtedness or other obligations of
petitioners to EIB are not discharged in full by petitioners when due or on demand in or
towards the payment and discharge of such obligation or liability. The right to sell or
dispose of the properties of petitioners by EIB is unequivocally confined to payment of
the obligations and liabilities of petitioners to EIB and none other. Thus, when EIB sold
the DMCI shares to buy back the KKP shares, it paid the proceeds to the vendees of said
shares, the act of which is clearly an obligation to a third party and, hence, is beyond the
ambit of its authority as agent. Such act is surely illegal and does not bind petitioners as
principals of EIB.
Antichresis.

Aniceto Bangis, substituted by his heirs, namely Rodolfo B. Bangis, et al. vs. Heirs of

Serafin and Salud Adolfo, namely: Luz A. Banniester, et al.; G.R. No. 190875, June
13, 2012
For the contract of antichresis to be valid, Article 2134 of the Civil Code requires that
the amount of the principal and of the interest shall be specified in writing; otherwise
the contract of antichresis shall be void. In this case, the Heirs of Adolfo were
indisputably unable to produce any document in support of their claim that the contract
between Adolfo and Bangis was an antichresis, hence, the CA properly held that no such
relationship existed between the parties.
Arrastre operator;
functions; duty to take
good care of goods
and to turn them over
to the party entitled to
their possession.

Asian Terminals, Inc. v. Philam Insurance Co., Inc. (now Chartis Philippines
Insurance Inc.)/ Philam Insurance Co., Inc. (now Chartis Philippines Insurance Inc.)
v. Westwind Shipping Corporation and Asian Terminals, Inc./ Westwind Shipping
Corporation v. Philam Insurance Co., Inc. and Asian Terminals, Inc., G.R. Nos.
181163/181262/181319, July 24, 2013
The functions of an arrastre operator involve the handling of cargo deposited on the
wharf or between the establishment of the consignee or shipper and the ships tackle.
Being the custodian of the goods discharged from a vessel, an arrastre operators duty is
to take good care of the goods and to turn them over to the party entitled to their
possession. Handling cargo is mainly the arrastre operators principal work so its
drivers/operators or employees should observe the standards and measures necessary to
prevent losses and damage to shipments under its custody.

Arrastre
liability;
liability.

operator;
extent of

Asian Terminals, Inc. vs. Daehan Fire and Marine Insurance Co., Ltd., G.R. No.
171194, February 4, 2010
The contract with the arrastre operator provided for a limitation on recovery for
damages. But such limitation does not apply if the value of the cargo shipment is
communicated to the arrastre operator before the discharge of the cargoes. It is
undisputed that Access International, upon arrival of the shipment, declared the same for
taxation purposes, as well as for the assessment of arrastre charges and other fees. For
the purpose, the invoice, packing list and other shipping documents were presented to
the Bureau of Customs as well as to petitioner for the proper assessment of the arrastre
charges and other fees. Such manifestation satisfies the condition of declaration of the
actual invoices of the value of the goods before their arrival, to overcome the limitation
on the liability of the arrastre operator. Then, the arrastre operator, by reason of the
payment to it of a commensurate charge based on the higher declared value of the
merchandise, could and should take extraordinary care of the special or valuable cargo.
What would, indeed, be unfair and arbitrary is to hold the arrastre operator liable for the
full value of the merchandise after the consignee has paid the arrastre charges only on a
basis much lower than the true value of the goods. What is essential is knowledge
beforehand of the extent of the risk to be undertaken by the arrastre operator, as
determined by the value of the property committed to its care. This defines its
responsibility for loss of or damage to such cargo and ascertains the compensation
commensurate to such risk assumed. Having been duly informed of the actual invoice
value of the merchandise under its custody and having received payment of arrastre
charges based thereon, petitioner cannot therefore insist on a limitation of its liability
under the contract to less than the value of each lost cargo. The stipulation requiring the
consignee to inform the arrastre operator and to give advance notice of the actual invoice
value of the goods to be put in its custody is adopted for the purpose of determining its
liability, that it may obtain compensation commensurate to the risk it assumes, not for
the purpose of determining the degree of care or diligence it must exercise as a
depositary or warehouseman.

Arrastre
liability.

operator;

Asian Terminals, Inc. vs. Daehan Fire and Marine Insurance Co., Ltd., G.R. No.
171194, February 4, 2010
The relationship between the consignee and the arrastre operator is akin to that existing
between the consignee and/or the owner of the shipped goods and the common carrier, or
that between a depositor and a warehouseman. In the performance of its obligations, an
arrastre operator should observe the same degree of diligence as that required of a
common carrier and a warehouseman. Being the custodian of the goods discharged from
a vessel, an arrastre operators duty is to take good care of the goods and to turn them
over to the party entitled to their possession. The loss of 14 out of 26 boxes of printed

aluminum sheets is undisputed. Records show that the subject shipment was discharged
from the vessel and placed under the custody of petitioner for a period of seven days.
Thereafter, the same was withdrawn from the container yard by the customs broker, then
delivered to the consignee. It was after such delivery that the loss of 14 boxes was
discovered. Hence, the complaint against both the arrastre operator and the customs
broker. In a claim for loss filed by the consignee (or the insurer), the burden of proof to
show compliance with the obligation to deliver the goods to the appropriate party
devolves upon the arrastre operator. Since the safekeeping of the goods is its
responsibility, it must prove that the losses were not due to its negligence or to that of its
employees. To prove the exercise of diligence in handling the subject cargoes, petitioner
must do more than merely show the possibility that some other party could be
responsible for the loss or the damage. It must prove that it exercised due care in the
handling thereof. Petitioner failed to do this. Instead, it insists that it be exonerated from
liability, because the customs brokers representative received the subject shipment in
good order and condition without exception. The appellate courts conclusion on this
matter is instructive. The signature of the person/broker representative merely signifies
that said person thereby frees the ATI from any liability for loss or damage to the cargo
so withdrawn while the same was in the custody of such representative to whom the
cargo was released. It does not foreclose any remedy or right of the consignee to prove
that any loss or damage to the subject shipment occurred while the same was under the
custody, control and possession of the arrastre operator. Considering that both petitioner
and V. Reyes Lazo were negligent in the performance of their duties in the handling,
storage and delivery of the subject shipment to the consignee, resulting in the loss of 14
boxes of printed aluminum sheets, both shall be solidarily liable for such loss.
Assignment of credit;
dation in payment.

Sps. Godfrey and Gerardina Serfino vs. Far East Bank and Trust Company, Inc., now
Bank of the Philippine Islands.G.R. No. 171845. October 10, 2012
An assignment of credit is an agreement by virtue of which the owner of a credit, known
as the assignor, by a legal cause, such as sale, dation in payment, exchange or donation,
and without the consent of the debtor, transfers his credit and accessory rights to another,
known as the assignee, who acquires the power to enforce it to the same extent as the
assignor could enforce it against the debtor. It may be in the form of sale, but at times it
may constitute a dation in payment, such as when a debtor, in order to obtain a release
from his debt, assigns to his creditor a credit he has against a third person. As a dation in
payment, the assignment of credit operates as a mode of extinguishing the obligation; the
delivery and transmission of ownership of a thing (in this case, the credit due from a
third person) by the debtor to the creditor is accepted as the equivalent of the
performance of the obligation.
The terms of the compromise judgment of the parties, however, did not convey an intent
to equate the assignment of Magdalenas retirement benefits as the equivalent of the
payment of the debt due the spouses Serfino. There was actually no assignment of credit;
if at all, the compromise judgment merely identified the fund from which payment for
the judgment debt would be sourced. Only when Magdalena has received and turned
over to the spouses Serfino the portion of her retirement benefits corresponding to the
debt due would the debt be deemed paid. Since no valid assignment of credit took place,
the spouses Serfino cannot validly claim ownership of the retirement benefits that were
deposited with FEBTC. Without ownership rights over the amount, they suffered no
pecuniary loss that has to be compensated by actual damages.

Assignment of credits.

Sps. Antonio and Leticia Vega vs. Social Security System, et al., G.R. No. 181672,
September 20, 2010
Was Reyes sale of the property to the Vegas binding on PDC (one of Reyes creditors)
which tried to enforce the judgment credit against Reyes in its favor on the property?
The CA ruled that Reyes assignment of the property to the Vegas did not bind PDC,
which had a judgment credit against Reyes, since such assignment neither appeared in a
public document nor was registered with the register of deeds as Article 1625 of the
Civil Code required. Article 1625 reads:
Art. 1625. An assignment of a credit, right or action shall produce no effect as against
third persons, unless it appears in a public instrument, or the instrument is recorded in
the Registry of Property in case the assignment involves real property. (1526)

But Article 1625 referred to assignment of credits and other incorporeal rights. Reyes did
not assign any credit or incorporeal right to the Vegas. She sold the Vegas her house and
lot. They became owner of the property from the time she executed the deed of
assignment covering the same in their favor. PDC had a judgment for money against
Reyes only. A courts power to enforce its judgment applies only to the properties that
are indisputably owned by the judgment obligor. Here, the property had long ceased to
belong to Reyes when she sold it to the Vegas in 1981.
Attorneys fees for
professional services
rendered; may be
claimed in the very
action itself or in a
separate action;
prescription for oral
contract of attorneys
fees is 6 years; concept
of quantum meruit;
guidelines under the
Code of Professional
Responsibility.

Francisco L. Rosario, Jr. v. Lellani De Guzman, Arleen De Guzman, et al., G.R. No.
191247, July 10, 2013
The Court now addresses two important questions: (1) How can attorneys fees for
professional services be recovered? (2) When can an action for attorneys fees for
professional services be filed? The case of Traders Royal Bank Employees UnionIndependent v. NLRC is instructive:
As an adjunctive episode of the action for the recovery of bonus differentials in NLRCNCR Certified Case No. 0466, private respondents present claim for attorneys fees may
be filed before the NLRC even though or, better stated, especially after its earlier
decision had been reviewed and partially affirmed. It is well settled that a claim for
attorneys fees may be asserted either in the very action in which the services of a lawyer
had been rendered or in a separate action.
With respect to the first situation, the remedy for recovering attorneys fees as an
incident of the main action may be availed of only when something is due to the client.
Attorneys fees cannot be determined until after the main litigation has been decided and
the subject of the recovery is at the disposition of the court. The issue over attorneys
fees only arises when something has been recovered from which the fee is to be paid.
While a claim for attorneys fees may be filed before the judgment is rendered, the
determination as to the propriety of the fees or as to the amount thereof will have to be
held in abeyance until the main case from which the lawyers claim for attorneys fees
may arise has become final. Otherwise, the determination to be made by the courts will
be premature. Of course, a petition for attorneys fees may be filed before the judgment
in favor of the client is satisfied or the proceeds thereof delivered to the client.
It is apparent from the foregoing discussion that a lawyer has two options as to when to
file his claim for professional fees. Hence, private respondent was well within his rights
when he made his claim and waited for the finality of the judgment for holiday pay
differential, instead of filing it ahead of the awards complete resolution. To declare that
a lawyer may file a claim for fees in the same action only before the judgment is
reviewed by a higher tribunal would deprive him of his aforestated options and render
ineffective the foregoing pronouncements of this Court.
In this case, petitioner opted to file his claim as an incident in the main action, which is
permitted by the rules. As to the timeliness of the filing, this Court holds that the
questioned motion to determine attorneys fees was seasonably filed.
The records show that the August 8, 1994 RTC decision became final and executory on
October 31, 2007. There is no dispute that petitioner filed his Motion to Determine
Attorneys Fees on September 8, 2009, which was only about one (1) year and eleven
(11) months from the finality of the RTC decision. Because petitioner claims to have had
an oral contract of attorneys fees with the deceased spouses, Article 1145 of the Civil
Code16 allows him a period of six (6) years within which to file an action to recover
professional fees for services rendered. Respondents never asserted or provided any
evidence that Spouses de Guzman refused petitioners legal representation. For this
reason, petitioners cause of action began to run only from the time the respondents
refused to pay him his attorneys fees, as similarly held in the case of Anido v. Negado.
With respect to petitioners entitlement to the claimed attorneys fees, it is the Courts
considered view that he is deserving of it and that the amount should be based on
quantum meruit. Quantum meruit literally meaning as much as he deserves is used as
basis for determining an attorneys professional fees in the absence of an express
agreement. The recovery of attorneys fees on the basis of quantum meruit is a device
that prevents an unscrupulous client from running away with the fruits of the legal
services of counsel without paying for it and also avoids unjust enrichment on the part of
the attorney himself. An attorney must show that he is entitled to reasonable

compensation for the effort in pursuing the clients cause, taking into account certain
factors in fixing the amount of legal fees.
Rule 20.01 of the Code of Professional Responsibility lists the guidelines for
determining the proper amount of attorney fees, to wit:
Rule 20.1 A lawyer shall be guided by the following factors in determining his fees:
a) The time spent and the extent of the services rendered or required;
b) The novelty and difficulty of the questions involved;
c) The importance of the subject matter;
d) The skill demanded;
e) The probability of losing other employment as a result of acceptance of the
proffered case;
f) The customary charges for similar services and the schedule of fees of the IBP
chapter to which he belongs;
g) The amount involved in the controversy and the benefits resulting to the client
from the service; h) The contingency or certainty of compensation;
i) The character of the employment, whether occasional or established; and
j) The professional standing of the lawyer.
Attorneys fees; dual
concept.

Francisco L. Rosario, Jr. v. Lellani De Guzman, Arleen De Guzman, et al., G.R. No.
191247, July 10, 2013
In order to resolve the issues in this case, it is necessary to discuss the two concepts of
attorneys fees ordinary and extraordinary. In its ordinary sense, it is the reasonable
compensation paid to a lawyer by his client for legal services rendered. In its
extraordinary concept, it is awarded by the court to the successful litigant to be paid by
the losing party as indemnity for damages.

Attorneys fees;
quantum meruit.

Hicoblo M. Catly (deceased), subtituted by his wife, Lourdes A. Catly vs. William
Navarro, et al., G.R. No. 167239, May 5, 2010
The principle of quantum meruit (as much as he deserves) may be a basis for
determining the reasonable amount of attorneys fees. Quantum meruit is a device to
prevent undue enrichment based on the equitable postulate that it is unjust for a person to
retain benefit without paying for it. It is applicable even if there was a formal written
contract for attorneys fees as long as the agreed fee was found by the court to be
unconscionable. In fixing a reasonable compensation for the services rendered by a
lawyer on the basis of quantum meruit, factors such as the time spent, and extent of
services rendered; novelty and difficulty of the questions involved; importance of the
subject matter; skill demanded; probability of losing other employment as a result of
acceptance of the proferred case; customary charges for similar services; amount
involved in the controversy and the benefits resulting to the client; certainty of
compensation; character of employment; and professional standing of the lawyer, may
be considered. Indubitably entwined with a lawyers duty to charge only reasonable fee
is the power of the Court to reduce the amount of attorneys fees if the same is excessive
and unconscionable in relation to Sec. 24, Rule 138 of the Rules. Attorneys fees are
unconscionable if they affront ones sense of justice, decency or unreasonableness. The
determination of the amount of reasonable attorneys fees requires the presentation of
evidence and a full-blown trial. It would be only after due hearing and evaluation of the
evidence presented by the parties that the trial court can render judgment as to the
propriety of the amount to be awarded.

Attorneys fees;
recoverable in actions
for indemnity under
workmens
compensation and
employers liability
laws.

Camilo A. Esguerra v. United Philippines Lines, Inc., et al., G.R. No. 199932, July 3,
2013

Attorneys fees; When


payable.

Manila International Airport vs. Avia Filipinas International, Inc., G.R. No. 180168.
February 27, 2012

However, the Court finds that the petitioner is entitled to attorneys fees pursuant to
Article 2208(8) of the Civil Code which states that the award of attorneys fees is
justified in actions for indemnity under workmens compensation and employers
liability laws.

With respect to attorneys fees, it is proper on the ground that petitioners act of denying
respondent and its employees access to the leased premises has compelled respondent to

litigate and incur expenses to protect its interest. Also, under the circumstances
prevailing in the present case, attorneys fees may be granted on grounds of justice and
equity.
Attorneys fees; when
recoverable.

Zuellig Freight and Cargo Systems v. National Labor Relations Commission, et al.,
G.R. No. 157900, July 22, 2013
The Court of Appeals rightfully upheld the NLRCs affirmance of the grant of attorneys
fees to San Miguel. Thereby, the NLRC did not commit any grave abuse of its discretion,
considering that San Miguel had been compelled to litigate and to incur expenses to
protect his rights and interest. In Producers Bank of the Philippines v. Court of Appeals,
the Court ruled that attorneys fees could be awarded to a party whom an unjustified act
of the other party compelled to litigate or to incur expenses to protect his interest. It was
plain that petitioners refusal to reinstate San Miguel with backwages and other benefits
to which he had been legally entitled was unjustified, thereby entitling him to recover
attorneys fees.

Attorneys fees; when


recoverable.

Joyce V. Ardiente v. Spouses Javier and Ma. Theresa Pastofide, G.R. No. 161921, July
17, 2013
With respect to the award of attorneys fees, Article 2208 of the Civil Code provides,
among others, that such fees may be recovered when exemplary damages are awarded,
when the defendants act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest, and where the defendant acted in
gross and evident bad faith in refusing to satisfy the plaintiffs plainly valid, just and
demandable claim.

Attorneys fees.

Bad faith cannot be


presumed; it is a
question of fact that
must be proven by
clear and convincing
evidence.

Metropolitan Bank & trust Company, Inc. vs. The Board of Trustees of Riverside
Mills Corp. Provident and Retirement Fund, et al., G.R. No. 176959, September 8,
2010
Article 2208(2) of the Civil Code allows the award of attorneys fees in cases where the
defendants act or omission has compelled the plaintiff to litigate with third persons or to
incur expenses to protect his interest. Attorneys fees may be awarded by a court to one
who was compelled to litigate with third persons or to incur expenses to protect his or
her interest by reason of an unjustified act or omission of the party from whom it is
sought.
Sps. Bernadette and Rodulfo Vilbar v. Angelito L. Opinion, G.R. No. 176043. January
15, 2014
It is worth stressing at this point that bad faith cannot be presumed. It is a question of
fact that must be proven by clear and convincing evidence. [T]he burden of proving
bad faith rests on the one alleging it. Sadly, spouses Vilbar failed to adduce the
necessary evidence. Thus, this Court finds no error on the part of the CA when it did not
find bad faith on the part of Gorospe, Sr.

Banks; exercise the


highest degree of
diligence, as well as to
observe the high
standards of integrity
and performance in all
its transactions
because its business
was imbued with
public interest.

Development Bank of the Philippines (DBP) v. Guarina Agricultural and Realty


Development Corporation, G.R. No. 160758. January 15, 2014

Civil Code; Moral


damages; Exemplary
damages; Attorneys
fees.

Skippers United Pacific, Inc. and Skippers Maritime Services, Inc. Ltd. vs Nathaniel
Doza, et al., G.R. No. 175558. February 8, 2012.

Being a banking institution, DBP owed it to Guarina Corporation to exercise the highest
degree of diligence, as well as to observe the high standards of integrity and performance
in all its transactions because its business was imbued with public interest. The high
standards were also necessary to ensure public confidence in the banking system, for,
according to Philippine National Bank v. Pike: The stability of banks largely depends
on the confidence of the people in the honesty and efficiency of banks.

Article 2219 of the Civil Code of the Philippines provides for recovery of moral
damages in certain cases:
Art. 2219. Moral damages may be recovered in the following and analogous cases:
(1) A criminal offense resulting in physical injuries;
(2) Quasi-delicts causing physical injuries;

(3) Seduction, abduction, rape, or other lascivious acts;


(4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest;
(6) Illegal search;
(7) Libel, slander or any other form of defamation;
(8) Malicious prosecution;
(9) Acts mentioned in Article 309;
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
The parents of the female seduced, abducted, raped, or abused, referred to in No. 3 of
this article, may also recover moral damages.
The spouse, descendants, ascendants, and brothers and sisters may bring the action
mentioned in No. 9 of this article, in the order named.
Article 2229 of the Civil Code, on the other hand, provides for recovery of exemplary
damages:
Art. 2229. Exemplary or corrective damages are imposed, by way of example or
correction for the public good, in addition to the moral, temperate, liquidated or
compensatory damages.
In this case, we agree with the CA in not awarding moral and exemplary damages for
lack of factual basis.
Lastly, Article 2208 of the Civil Code provides for recovery of attorneys fees and
expenses of litigation:
Art. 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other
than judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendants act or omission has compelled the plaintiff to litigate with
third persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;(4) In case of a
clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiffs plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled
workers;
(8) In actions for indemnity under workmens compensation and employers liability
laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorneys fees
and expenses of litigation should be recovered.
In all cases, the attorneys fees and expenses of litigation must be reasonable.
Article 111 of the Labor Code provides for a maximum award of attorneys fees in cases
of recovery of wages:
Art. 111. Attorneys fees.
a. In cases of unlawful withholding of wages, the culpable party may be assessed
attorneys fees equivalent to ten percent of the amount of wages recovered.
b. It shall be unlawful for any person to demand or accept, in any judicial or
administrative proceedings for the recovery of wages, attorneys fees which exceed
ten percent of the amount of wages recovered.
Since De Gracia, et al. had to secure the services of the lawyer to recover their unpaid
salaries and protect their interest, we agree with the CAs imposition of attorneys fees in
the amount of ten percent (10%) of the total claims.
Civil registry; nature
of civil register books;
books making up the
civil register and all
documents relating
thereto are public
documents and shall
be prima facie

In Yasuo Iwasawa v. Felisa Custodio Gangan (a.k.a. Felisa Gangan Arambulo and
Felisa Gangan Iwasawa), et al., G.R. No. 204169, September 11, 2013
There is no question that the documentary evidence submitted by petitioner are all public
documents. As provided in the Civil Code:
ART. 410. The books making up the civil register and all documents relating thereto
shall be considered public documents and shall be prima facie evidence of the facts

evidence of the facts


therein contained; as
public documents,
they are admissible in
evidence even without
further proof of their
due execution and
genuineness.

therein contained.

Co-ownership; action
for ejectment.

Heirs of Albina G. Ampil, namely Precious A. Zavalla, Eduardo Ampil, et al. vs.
Teresa Manahan and Mario Manahan G.R. No. 175990. October 11, 2012

As public documents, they are admissible in evidence even without further proof of their
due execution and genuineness. Thus, the RTC erred when it disregarded said documents
on the sole ground that the petitioner did not present the records custodian of the NSO
who issued them to testify on their authenticity and due execution since proof of
authenticity and due execution was not anymore necessary. Moreover, not only are said
documents admissible, they deserve to be given evidentiary weight because they
constitute prima facie evidence of the facts stated therein. And in the instant case, the
facts stated therein remain unrebutted since neither the private respondent nor the public
prosecutor presented evidence to the contrary.

Article 487 of the Civil Code provides that anyone of the co-owners may bring an action
for ejectment without joining the others. The action is not limited to ejectment cases but
includes all kinds of suits for recovery of possession because the suit is presumed to
have been instituted for the benefit of all. A co-owner is not even a necessary party to an
action for ejectment, for complete relief could be afforded even in his absence, Hence,
Exequiel, a co-owner, may bring the action for unlawful detainer even without the
special power of attorney of his coheirs.
Co-ownership;
prescription; for
prescription to set in,
the repudiation must
be done by a coowner; requisites.

Antipolo Ining (deceased), survived by Manuel Villanueva, Teodora VillanuevaFrancisco, Camilo Francisco, Adolfo Francisco, Lucimo Francisco, Jr., Milagros
Francisco,Celedonio Francisco, Herminigildo Francisco; Ramon Tresvalles, Roberto
Tajonera, Natividad Ining-Ibea (deceased) survived by Edilberto Ibea, Josefa Ibea,
Martha Ibea, Carmen Ibea, Amparo Ibea-Fernandez, Henry Ruiz, Eugenio Ruiz and
Pastor Ruiz; Dolores Ining-Rimon (deceased) survived by Jesus Rimon, Cesaria
Rimon Gonzales and Remedios Rimon Cordero; and Pedro Ining (deceased) survived
by Elisa Tan Ining (wife) and Pedro Ining, Jr. v. Leonardo R. Vega, substituted by
Lourdes Vega, Restonilo I. Vega, Crispulo M. Vega, Milbuena Vega-Restituto and
Lenard Vega, G.R. No. 174727, August 12, 2013
Time and again, it has been held that a co-owner cannot acquire by prescription the
share of the other co-owners, absent any clear repudiation of the co-ownership. In order
that the title may prescribe in favor of a co-owner, the following requisites must concur:
(1) the co-owner has performed unequivocal acts of repudiation amounting to an ouster
of the other co-owners; (2) such positive acts of repudiation have been made known to
the other co-owners; and (3) the evidence thereof is clear and convincing. In fine, since
none of the co-owners made a valid repudiation of the existing co-ownership, Leonardo
could seek partition of the property at any time.

Co-ownership; rights
of co-owners.

Antipolo Ining (deceased), survived by Manuel Villanueva, Teodora VillanuevaFrancisco, Camilo Francisco, Adolfo Francisco, Lucimo Francisco, Jr., Milagros
Francisco,Celedonio Francisco, Herminigildo Francisco; Ramon Tresvalles, Roberto
Tajonera, Natividad Ining-Ibea (deceased) survived by Edilberto Ibea, Josefa Ibea,
Martha Ibea, Carmen Ibea, Amparo Ibea-Fernandez, Henry Ruiz, Eugenio Ruiz and
Pastor Ruiz; Dolores Ining-Rimon (deceased) survived by Jesus Rimon, Cesaria
Rimon Gonzales and Remedios Rimon Cordero; and Pedro Ining (deceased) survived
by Elisa Tan Ining (wife) and Pedro Ining, Jr. v. Leonardo R. Vega, substituted by
Lourdes Vega, Restonilo I. Vega, Crispulo M. Vega, Milbuena Vega-Restituto and
Lenard Vega, G.R. No. 174727, August 12, 2013
Having succeeded to the property as heirs of Gregoria and Romana, petitioners and
respondents became co-owners thereof. As co-owners, they may use the property owned
in common, provided they do so in accordance with the purpose for which it is intended
and in such a way as not to injure the interest of the co-ownership or prevent the other
co-owners from using it according to their rights. They have the full ownership of their
parts and of the fruits and benefits pertaining thereto, and may alienate, assign or
mortgage them, and even substitute another person in their enjoyment, except when
personal rights are involved. Each co-owner may demand at any time the partition of the
thing owned in common, insofar as his share is concerned. Finally, no prescription shall
run in favor of one of the co-heirs against the others so long as he expressly or impliedly
recognizes the co-ownership.

Co-ownership; validity
of partition contracts.

Rupeta Cano Vda. De Viray and Jesus Carlo Gerard Viray v. Spouses Jose Usi and
Amelita Usi, G.R.No.192486. November 21,2012
Contrary to the finding of the Court of Appeals, the subdivision agreements forged by
Mendoza and her alleged co-owners were not for the partition of pro- indiviso shares of
co-owners of Lot 733 but were actually conveyances, disguised as partitions, of portions
of Lot 733 specifically Lots 733-A and 733-B, and portions of the subsequent
subdivision of Lot 733-C. It cannot be overemphasized enough that the two deeds of
absolute sale over portions of substantially the same parcel of land antedated the
subdivision agreements in question and their execution acknowledged too before a
notary public.

Co-ownership.

Co Giok Lun vs. Jose Co; G.R. No. 184454, August 3, 2011
Article 484 of the Civil Code which defines co-ownership, states:
Art. 484. There is co-ownership whenever the ownership of an undivided thing or right
belongs to different persons. . .
In the present case, petitioners insist that their predecessor-in-interest Lun co-owned the
Gubat and Barcelona properties with his brother Fieng. To prove co-ownership over the
Gubat property, petitioners presented: (1) tax declarations from 1929 to 1983 under the
name of Fieng but paid by Lun; (2) the renewal certificate from Malayan Insurance
Company Inc.; (3) the insurance contract; and (4) the statements of account from
Supreme Insurance Underwriters which named Lun as administrator of the property.
Likewise, to prove their right over the Barcelona property as legal heirs under intestate
succession, petitioners presented a Deed of Sale dated 24 August 1923 between Chaco,
as buyer, and Gabriel Gredona and Engracia Legata, as sellers, involving a price
consideration of P1,200.
On the other hand, respondents presented notarized documents: (1) Deed of Sale dated
13 October 1935, and (2) Sale of Real Property dated 6 August 1936 showing that the
former owners of the Gubat property entered into a sale transaction with Fieng, as buyer
and Lun, as a witness to the sale. They also presented tax declarations in the name of
Fieng from 1937 to 1958. After Fiengs death, Co declared the Gubat property in his
name in the succeeding tax declarations. Likewise, the respondents presented documents
proving the declaration of the Barcelona property in the name of Co.
After a careful scrutiny of the records, we hold that the evidence of petitioners were
insufficient or immaterial to warrant a positive finding of co-ownership over the Gubat
and Barcelona properties. The CA correctly observed that petitioners failed to
substantiate with reasonable certainty that (1) Chaco gave Fieng a start-up capital of
P8,000 to be used by Lun and Fieng in setting up a business, (2) that the Philippine
Honest and Company was a partnership between Lun and Fieng, and (3) that the Deed of
Sale dated 24 August 1923 involving the Barcelona property is sufficient to establish coownership. Also, petitioners were not able to prove the existence of the alleged Chinese
custom of placing properties in the name of the eldest child as provided under Article 12
of the Civil Code.
In contrast, respondents were able to show documents of sale from the original owners
of the Gubat property rendering the claim of custom as immaterial. Also, respondents
sufficiently established that Fieng was the registered owner of the Gubat and Barcelona
properties while Lun was merely an administrator.

Common carrier;
cargoes while being
unloaded generally
remain under the
custody of the carrier.

Eastern Shipping Lines, Inc. v. BPI/MS Insurance Corp., and Mitsui Sumitomo
Insurance Co., Ltd.,G.R. No. 193986, January 15, 2014

Common carrier;
extraordinary
diligence.

Eastern Shipping Lines, Inc. v. BPI/MS Insurance Corp., and Mitsui Sumitomo
Insurance Co., Ltd.,G.R. No. 193986, January 15, 2014

It is settled in maritime law jurisprudence that cargoes while being unloaded generally
remain under the custody of the carrier. As hereinbefore found by the RTC and affirmed
by the CA based on the evidence presented, the goods were damaged even before they
were turned over to ATI. Such damage was even compounded by the negligent acts of
petitioner and ATI which both mishandled the goods during the discharging operations.

Common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence in the vigilance over the goods transported by
them. Subject to certain exceptions enumerated under Article 1734 of the Civil Code,
common carriers are responsible for the loss, destruction, or deterioration of the goods.
The extraordinary responsibility of the common carrier lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier for transportation
until the same are delivered, actually or constructively, by the carrier to the consignee, or
to the person who has a right to receive them. Owing to this high degree of diligence
required of them, common carriers, as a general rule, are presumed to have been at fault
or negligent if the goods they transported deteriorated or got lost or destroyed. That is,
unless they prove that they exercised extraordinary diligence in transporting the goods.
In order to avoid responsibility for any loss or damage, therefore, they have the burden
of proving that they observed such high level of diligence.
Common carrier.

Common carriers;
extraordinary
diligence in vigilance
of goods transported;
cargoes while being
unloaded generally
remain under the
custody of the carrier.

Compensation;
Concept; Requisites.

See heading Arrastre Operator and the case of Asian Terminals, Inc. vs. Daehan Fire
and Marine Insurance Co., Ltd. where it was observed that the relationship between the
consignee and the arrastre operator is akin to that existing between the consignee and/or
the owner of the shipped goods and the common carrier, or that between a depositor and
a warehouseman.
Asian Terminals, Inc. v. Philam Insurance Co., Inc. (now Chartis Philippines
Insurance Inc.)/ Philam Insurance Co., Inc. (now Chartis Philippines Insurance Inc.)
v. Westwind Shipping Corporation and Asian Terminals, Inc./ Westwind Shipping
Corporation v. Philam Insurance Co., Inc. and Asian Terminals, Inc., G.R. Nos.
181163/181262/181319, July 24, 2013
Common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence in the vigilance over the goods transported by
them. Subject to certain exceptions enumerated under Article 1734 of the Civil Code,
common carriers are responsible for the loss, destruction, or deterioration of the goods.
The extraordinary responsibility of the common carrier lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier for transportation
until the same are delivered, actually or constructively, by the carrier to the consignee, or
to the person who has a right to receive them.
Adelaida Soriano v. People of the Philippines, G.R. No. 181692, August 14, 2013
Compensation is a mode of extinguishing to the concurrent amount, the debts of persons
who in their own right are creditors and debtors of each other. The object of
compensation is the prevention of unnecessary suits and payments through the mutual
extinction by operation of law of concurring debts. Article 1279 of the Civil Code
provides for the requisites for compensation to take effect:
Article 1279. In order that compensation may be proper, it is necessary:
(1)That each one of the obligors be bound principally, and that he be at the same time
a principal creditor of the other;
(2)That both debts consist in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been stated;
(3)That the two debts be due;
(4)That they be liquidated and demandable;
(5)That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.

Compensation; partial
set-off.

Spouses Victoriano chung and Debbie Chung vs. Ulanday Construction, Inc.;G.R. No.
156038, October 11, 2010
Under the circumstances, fairness and reason dictate that we simply order the set-off of
the petitioners contractual liabilities totaling P575,922.13 against the repair cost for the
defective gutter, pegged at P717,524.00, leaving the amount of P141,601.87 still due
from the respondent. Support in law for this ruling for partial legal compensation
proceeds from Articles 1278, 1279, 1281, and 1283 of the Civil Code. In short, both
parties are creditors and debtors of each other, although in different amounts that are
already due and demandable.

Compensation; when
both debts are

Adelaida Soriano v. People of the Philippines, G.R. No. 181692, August 14, 2013

liquidated and
demandable.

A debt is liquidated when the amount is known or is determinable by inspection of the


terms and conditions of relevant documents.

Compensation.

For legal compensation to take place, the requirements set forth in Articles 1278 and
1279 of the Civil Code, quoted below, must be present.
ARTICLE 1278. Compensation shall take place when two persons, in their own right,
are creditors and debtors of each other.
ARTICLE 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.
A debt is liquidated when its existence and amount are determined. It is not necessary
that it be admitted by the debtor. Nor is it necessary that the credit appear in a final
judgment in order that it can be considered as liquidated; it is enough that its exact
amount is known. And a debt is considered liquidated, not only when it is expressed
already in definite figures which do not require verification, but also when the
determination of the exact amount depends only on a simple arithmetical operation.
In the instant case, both obligations are liquidated. Vicente has the obligation to pay his
debt due to Jesus in the amount of P300,000.00 with interest at the rate of 12% per
annum counted from the filing of the instant complaint on August 17, 1993 until fully
paid. Jesus, on the other hand, has the obligation to pay attorneys fees which the RTC
had already determined to be equivalent to whatever amount recoverable from Vicente.
The said attorneys fees were awarded by the RTC on the counterclaim of Vicente on the
basis of quantum meruit for the legal services he previously rendered to Jesus.

Compensation.

Selwyn F. Lao, et al. vs. Special Plans, Inc., G.R. No. 164791, June 29, 2010
The Civil Code provides that compensation shall take place when two persons, in their
own right, are creditors and debtors of each other. In order for compensation to be
proper, it is necessary that: (i) each one of the obligors is bound principally and that he
be at the same time a principal creditor of the other; (ii) both debts consist in a sum of
money, or if the things due are consumable, they be of the same kind, and also of the
same quality if the latter has been stated; (iii) the two debts are due: (iv) the debts are
liquidated and demandable; and (v) over neither of them be any retention or controversy,
commenced by third parties and communicated in due time to the debtor.
In this case, petitioners failed to properly discharge their burden to show that the debts
are liquidated and demandable. Consequently, legal compensation is inapplicable.
A claim is liquidated when the amount and time of payment is fixed. If acknowledged by
the debtor, although not in writing, the claim must be treated as liquidated. When the
defendant, who has an unliquidated claim, sets it up by way of counterclaim, and a
judgment is rendered liquidating such claim, it can be compensated against the plaintiffs
claim from the moment it is liquidated by judgment.

Compensation/set-off;
requisites.

Insular Investment and Trust Corporation vs. Capital One Equities Corp. and
Planters Development Bank; G.R. No. 183308, April 25, 2012
The applicable provisions of law are Articles 1278, 1279 and 1290 of the Civil Code of
the Philippines:
Art. 1278. Compensation shall take place when two persons, in their own right, are
creditors and debtors of each other.
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;


(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.
Art. 1290. When all the requisites mentioned in Article 1279 are present, compensation
takes effect by operation of law, and extinguishes both debts to the concurrent amount,
even though the creditors and debtors are not aware of the compensation.
Based on the foregoing, in order for compensation to be valid, the five requisites
mentioned in the above- quoted Article 1279 should be present, as in the case at bench.
Compromise
agreement

Coca-Cola Bottlers Philippines, Inc. vs. Rodrigo Mercado, et al.; G.R. No. 190381.
October 6, 2010
Under the Civil Code of the Philippines, contracting parties may establish such
stipulations, clauses, terms, and conditions, as they deem convenient, so long as they are
not contrary to law, morals, good customs, public order, or public policy. A compromise
agreement is a contract whereby the parties undertake reciprocal obligations to resolve
their differences in order to avoid litigation or put an end to one already instituted. It is a
judicial covenant having the force and effect of a judgment, subject to execution in
accordance with the Rules of Court, and having the effect and authority of res judicata
upon its approval by the court where the litigation is pending.

Compromise
agreement; contracts;
novation.

United Pulp and Paper Co., Inc. vs. Acropolis Central Guaranty Corporation; G.R.
No. 171750. January 25, 2012
In order for novation to extinguish an obligation, it must be shown that there is
incompatibility between the compromise agreement and the terms of the counter- bond,
as required by Article 1292 of the Civil Code. Nothing in the compromise agreement
indicates, or even hints at, releasing Acropolis from its obligation as a surety to pay
United Pulp and Paper Co. Inc. after the latter has obtained a favorable judgment.
Clearly, there is no incompatibility between the compromise agreement and the counterbond. Neither can novation be presumed. Novation by presumption has never been
favored. To be sustained, it need be established that the old and new contracts are
incompatible in all points, or that the will to novate appears by express agreement of the
parties or in acts of similar import.

Compromise
Agreement; definition
and nature; distinction
between judicial and
extrajudicial.

Land Bank of the Philippines vs. Heirs of Spouses Jorja Rigor Soriano and Magin
Soriano; G.R. No. 178312. January 30, 2013

Compromise
agreement; relation to
original agreement;
interest.

Arthur F. Mechavez vs. Marlyn M, Bermudez G.R. No. 185368. October 11, 2012

Under Article 2028 of the Civil Code, a compromise is a contract whereby the parties, by
making reciprocal concessions, avoid a litigation or put an end to one already
commenced. Accordingly, a compromise is either judicial, if the objective is to put an
end to a pending litigation, or extrajudicial, if the objective is to avoid a litigation. As a
contract, a compromise is perfected by mutual consent. However, a judicial compromise,
while immediately binding between the parties upon its execution, is not executory until
it is approved by the court and reduced to a judgment. The validity of a compromise is
dependent upon its compliance with the requisites and principles of contracts dictated by
law. Also, the terms and conditions of a compromise must not be contrary to law, morals,
good customs, public policy and public order.

Petitioner argues that the compromise agreement created an obligation separate from the
original loan, for which respondent is now liable. By stating that the compromise
agreement and the original loan transaction are distinct, petitioner would now attempt to
exact payment on both. This goes against the very purpose of the parties entering into a
compromise agreement, which was to extinguish the obligation under the loan. Petitioner
may not seek the enforcement of both the compromise agreement and payment of the
loan, even in the event that the compromise agreement remains unfulfilled.
The Court had previously tagged a 5% monthly interest rate agreed upon as excessive,
iniquitous, unconscionable and exorbitant, contrary to morals, and the law. We need not
unsettle the principle we had affirmed in a plethora of cases that stipulated interest rates

of 3% per month and higher are excessive, iniquitous, unconscionable, and exorbitant.
Compromise
agreement; rescission.

Crisanta Alcaraz Miguel vs. Jerry D. Montanez, G.R. No. 191336. January 25, 2012
An amicable settlement reached at the barangay conciliation proceedings is binding
between the contracting parties and, upon its perfection, is immediately executory
insofar as it is not contrary to law, good morals, good customs, public order and public
policy. Being a by-product of mutual concessions and good faith of the parties, an
amicable settlement has the force and effect of res judicata even if not judicially
approved. It is akin to a judgment subject to execution in accordance with the Rules.
However, the enforcement by execution of the amicable settlement by the Barangay
Lupon within six months from the date of settlement, or by filing an action to enforce
such settlement in the appropriate city or municipal court, if beyond the six-month
period, is only applicable if the contracting parties have not repudiated such settlement
within ten days from the date thereof in accordance with Section 416 of the Local
Government Code. If the amicable settlement is repudiated by one party, either expressly
or impliedly, the other party has two options: (1) to enforce the compromise in
accordance with the Local Government Code or Rules of Court as the case may be, or
(2) to consider it rescinded and insist upon his original demand. This is in accord with
Article 2041 of the Civil Code, which qualifies the broad application of Article 2037.
Article 2041 does not require an action for rescission, and the aggrieved party, by the
breach of the compromise agreement, may just consider it already rescinded. A partys
noncompliance with the amicable settlement pave the way for the application of Article
2041 under which the other party may either enforce the compromise, following the
procedure laid out in the Revised Katarungang Pambarangay Law, or consider it as
rescinded and insist upon his original demand. The respondents non-compliance with
the terms and conditions of the Kasunduang Pag-aayos, may be construed as repudiation
because it denotes that the respondent did not intend to be bound by the terms thereof,
thereby negating the very purpose for which it was executed. Thus, the petitioner has the
option either to enforce the Kasunduang Pag-aayos, or to regard it as rescinded and
insist upon his original demand, in accordance with Article 2041 of the Civil Code.
Having instituted an action for collection of sum of money, the petitioner obviously
chose to rescind the Kasunduang Pag-aayos. It was error on the part of the Court of
Appeals to rule that the enforcement by execution of said agreement is the appropriate
remedy under the circumstances.

Compromise
agreement.

Heirs of Alfredo Zabala, etc. et al. vs. Hon. Court of Appeals, et al., G.R. No. 189602,
May 6, 2010
Under Article 2028 of the Civil Code, a compromise agreement is a contract whereby the
parties, by making reciprocal concessions, avoid litigation or put an end to one already
commenced. Compromise is a form of amicable settlement that is not only allowed, but
also encouraged in civil cases. Contracting parties may establish such stipulations,
clauses, terms, and conditions as they deem convenient, provided that these are not
contrary to law, morals, good customs, public order, or public policy.

Conjugal partnership
property;
mortgage;
consent of spouse.

Joe A. Ros and Estrella Aguete v. Philippine National Bank, Laoag Branch, G.R. No.
170166. April 6, 2011
The husband cannot alienate or encumber any conjugal real property without the
consent, express or implied, of the wife. Should the husband do so, then the contract is
voidable. Article 173 of the Civil Code allows Aguete to question Ros encumbrance of
the subject property. However, the same article does not guarantee that the courts will
declare the annulment of the contract. Annulment will be declared only upon a finding
that the wife did not give her consent. In the present case, we follow the conclusion of
the appellate court and rule that Aguete gave her consent to Ros encumbrance of the
subject property.
The application for loan shows that the loan would be used exclusively for additional
working [capital] of buy & sell of garlic & virginia tobacco. In her testimony, Aguete
confirmed that Ros engaged in such business, but claimed to be unaware whether it
prospered. Aguete was also aware of loans contracted by Ros, but did not know where he
wasted the money. Debts contracted by the husband for and in the exercise of the
industry or profession by which he contributes to the support of the family cannot be

deemed to be his exclusive and private debts.


Conjugal partnership;
effects of legal
separation; forfeiture
of share in profits.

Mario Siochi vs. Alfredo Gozon, et al./Inter-Dimensional Realty, Inc. Vs. Mario
Siochi, et al., G.R. No. 169900/G.R. No. 169977, March 18, 2010

Conjugal partnership;
presumption of
conjugal nature; need
for marital consent.

Titan Construction Corporation Vs. Manuel A. David, Sr. and Martha S. David, G.R.
No. 169548, March 15, 2010

Conjugal partnership;
sole administration.

Mario Siochi vs. Alfredo Gozon, et al./Inter-Dimensional Realty, Inc. Vs. Mario
Siochi, et al., G.R. No. 169900/G.R. No. 169977, March 18, 2010

Among the effects of the decree of legal separation is that the conjugal partnership is
dissolved and liquidated and the offending spouse would have no right to any share of
the net profits earned by the conjugal partnership. Thus it is only the offending spouses
share in the net profits, and not the share in the property, which is forfeited. Article
102(4) of the Family Code provides that [f]or purposes of computing the net profits
subject to forfeiture in accordance with Article 43, No. (2) and 63, No. (2), the said
profits shall be the increase in value between the market value of the community
property at the time of the celebration of the marriage and the market value at the time of
its dissolution.

The Civil Code of the Philippines, the law in force at the time of the celebration of the
marriage between Martha and Manuel in 1957, provides all property of the marriage is
presumed to belong to the conjugal partnership, unless it be proved that it pertains
exclusively to the husband or to the wife. This includes property which is acquired by
onerous title during the marriage at the expense of the common fund, whether the
acquisition be for the partnership, or for only one of the spouses. The court is not
persuaded by Titans arguments that the property was Marthas exclusive property
because Manuel failed to present before the RTC any proof of his income in 1970, hence
he could not have had the financial capacity to contribute to the purchase of the property
in 1970; and that Manuel admitted that it was Martha who concluded the original
purchase of the property. In consonance with its ruling in Spouses Castro v. Miat,
Manuel was not required to prove that the property was acquired with funds of the
partnership. Rather, the presumption applies even when the manner in which the
property was acquired does not appear. Here, we find that Titan failed to overturn the
presumption that the property, purchased during the spouses marriage, was part of the
conjugal partnership. Since the property was undoubtedly part of the conjugal
partnership, the sale to Titan required the consent of both spouses. Article 165 of the
Civil Code expressly provides that the husband is the administrator of the conjugal
partnership. Likewise, Article 172 of the Civil Code ordains that (t)he wife cannot
bind the conjugal partnership without the husbands consent, except in cases provided by
law.

In this case, Alfredo was the sole administrator of the property because Elvira, with
whom Alfredo was separated in fact, was unable to participate in the administration of
the conjugal property. However, as sole administrator of the property, Alfredo still
cannot sell the property without the written consent of Elvira or the authority of the
court. Without such consent or authority, the sale is void. The absence of the consent of
one of the spouse renders the entire sale void, including the portion of the conjugal
property pertaining to the spouse who contracted the sale. Even if the other spouse
actively participated in negotiating for the sale of the property, that other spouses
written consent to the sale is still required by law for its validity. The Agreement entered
into by Alfredo and Mario was without the written consent of Elvira. Thus, the
Agreement is entirely void. As regards Marios contention that the Agreement is a
continuing offer which may be perfected by Elviras acceptance before the offer is
withdrawn, the fact that the property was subsequently donated by Alfredo to Winifred
and then sold to IDRI clearly indicates that the offer was already withdrawn.
Conjugal property and
sale thereof; various
rules.

Sps. Rex and Concepcion Aggabao vs. Dionisio Z. Parulan, Jr. and Ma. Elena
Parulan, G.R. No. 165803, September 1, 2010
(1) What law applies to a sale or purported sale of a conjugal property entered into after
the Family Codes effectivity? The Family Code, even if the couple owning the conjugal
property were married before the Family Code took effect. (2) Under the Family Code,
conjugal property can only be sold with the consent of both spouses. (3) For a buyer of

conjugal property to be considered a purchaser in good faith, he must observe two kinds
of requisite diligence, namely: (a) the diligence in verifying the validity of the title
covering the property; and (b) the diligence in inquiring into the authority of the
transacting spouse to sell conjugal property in behalf of the other spouse.
Consignation.

Soledad Dalton vs. FGR Fealty and Development Corporation, et al.; G.R. No.
172577, January 19, 2011.
There must be full compliance with the requisites of consignation for consignation to be
valid. Substantial compliance is not enough. In Insular Life Assurance Company, Ltd. v.
Toyota Bel-Air, Inc., the Court enumerated the requisites of a valid consignation: (1) a
debt due; (2) the creditor to whom tender of payment was made refused without just
cause to accept the payment, or the creditor was absent, unknown or incapacitated, or
several persons claimed the same right to collect, or the title of the obligation was lost;
(3) the person interested in the performance of the obligation was given notice before
consignation was made; (4) the amount was placed at the disposal of the court; and (5)
the person interested in the performance of the obligation was given notice after the
consignation was made.
The giving of notice to the persons interested in the performance of the obligation is
mandatory. Failure to notify the persons interested in the performance of the obligation
will render the consignation void.

Construction contract;
progress billing; unjust
enrichment.

R.V. Santos Company, Inc. vs. Belle Corporation G.R. Nos. 159561-62. October 3,
2012
The owners approval of progress billing is merely provisional. Progress billings are but
preliminary estimates of the value of the periodic accomplishments of the contractor. It is
the right of every owner to reevaluate or re-measure the work of its contractor during the
progress of the work.
The rationale underlying the owners right to seek an evaluation of the contractors work
is the right to pay only the true value of the work as may be reasonably determined under
the circumstances. This is consistent with the law against unjust enrichment under
Article 22 of the Civil Code which states that every person who through an act of
performance by another, or any other means, acquires or comes into possession of
something at the expense of the latter without just or legal ground, shall return the same
to him.

Constructive delivery;
execution of public
instrument only prima
facie presumption of
delivery.

Sps. Erosto Santiago and Nelsi Santiago v. Mancer Villamor, et al.; G.R. No. 168499.
November 26,2012

Contract of adhesion.

Aniceto G. Saludo, Jr. vs. Security Bank Corporation; G.R. No. 184041, October 13,
2010

Article 1477 of the Civil Code recognizes that the ownership of the thing sold shall be
transferred to the vendee upon the actual or constructive delivery thereof. Related to
this article is Article 1497 which provides that [t]he thing sold shall be understood as
delivered, when it is placed in the control and possession of the vendee. With respect to
incorporeal property, Article 1498 of the Civil Code lays down the general rule: the
execution of a public instrument shall be equivalent to the delivery of the thing which is
the object of the contract, if from the deed the contrary does not appear or cannot clearly
be inferred. However, the execution of a public instrument gives rise only to a prima
facie presumption of delivery, which is negated by the failure of the vendee to take
actual possession of the land sold. [A] person who does not have actual possession of
the thing sold cannot transfer constructive possession by the execution and delivery of a
public instrument. In this case, no constructive delivery of the land transpired upon the
execution of the deed of sale since it was not the spouses Villamor, Sr. but the
respondents who had actual possession of the land. The presumption of constructive
delivery is inapplicable and must yield to the reality that the petitioners were not placed
in possession and control of the land.

A contract of adhesion is defined as one in which one of the parties imposes a readymade form of contract, which the other party may accept or reject, but which the latter
cannot modify. One party prepares the stipulation in the contract, while the other party

merely affixes his signature or his adhesion thereto, giving no room for negotiation and
depriving the latter of the opportunity to bargain on equal footing. A contract of adhesion
presupposes that the party adhering to the contract is a weaker party. That cannot be said
of petitioner. He is a lawyer. He is deemed knowledgeable of the legal implications of
the contract that he is signing.
It must be borne in mind, however, that contracts of adhesion are not invalid per se.
Contracts of adhesion, where one party imposes a ready-made form of contract on the
other, are not entirely prohibited. The one who adheres to the contract is, in reality, free
to reject it entirely; if he adheres, he gives his consent.
Contract of carriage;
damages.

Northwest Airlines, Inc. vs. Spouses Edward J. Heshan and Neilia L. Heshan, et al.,
G.R. No. 179117, February 3, 2010
An examination of the evidence presented by petitioner shows that it consisted only of
depositions of its witnesses. It had in its possession and disposition pertinent documents
such as the flight manifest and the planes actual seating capacity and layout which could
have clearly refuted respondents claims that there were not enough passenger seats
available for them. It inexplicably failed to offer even a single piece of documentary
evidence. The Court thus believes that if at least the cited documentary evidence had
been produced, it would have been adverse to petitioners case. Moreover, petitioner
failed to satisfactorily explain why it did not issue boarding passes to respondents who
were confirmed passengers, even after they had checked-in their luggage three hours
earlier. That respondents did not reserve seats prior to checking-in did not excuse the
non-issuance of boarding passes. From Carns following testimony, it is gathered that
respondents were made to wait for last-minute cancellations before they were
accommodated onto the plane. This, coupled with petitioners failure to issue
respondents their boarding passes and the eleventh-hour directive for them to embark,
reinforces the impression that the flight was overbooked. Petitioners assertion that
respondents disembarked from the plane when their request to be seated together was
ignored does not impress.
The fact that the respondents still boarded the plane ten minutes prior to the departure
time, despite knowing that they would be seated apart, shows they were willing to
abandon their request to be seated together. But as it turns out, there were not enough
seats for the three of them. Respondents are correct that petitioner was guilty of breach
of contract. They cite Singapore Airlines v. Fernandez, which ruled that when an airline
issues a ticket to a passenger, confirmed for a particular flight on a certain date, a
contract of carriage arises. The passenger then has every right to expect that he be
transported on that flight and on that date. If he does not, then the carrier opens itself to a
suit for a breach of contract of carriage.

Contract of sale;
elements.

Reman Recio v. Heirs of Spouses Aguego and Maria Altamirano, G.R. No.182349,
July 24, 2013
A valid contract of sale requires: (a) a meeting of minds of the parties to transfer
ownership of the thing sold in exchange for a price; (b) the subject matter, which must be
a possible thing; and (c) the price certain in money or its equivalent.

Contract to sell;
payment of the price;
positive suspension
condition; effect of
failure to pay.

Sps. Nameal and Lourdes Bonrostro v. Sps. Juan and Constacia Luna, G.R.
No.172346, July 24, 2013
Clearly, the RTC arrived at the above-quoted conclusion based on its mistaken premise
that rescission is applicable to the case. Hence, its determination of whether there was
substantial breach. As may be recalled, however, the CA, in its assailed Decision, found
the contract between the parties as a contract to sell, specifically of a real property on
installment basis, and as such categorically declared rescission to be not the proper
remedy. This is considering that in a contract to sell, payment of the price is a positive
suspensive condition, failure of which is not a breach of contract warranting rescission
under Article 1191 of the Civil Code but rather just an event that prevents the supposed
seller from being bound to convey title to the supposed buyer. Also, and as correctly
ruled by the CA, Article 1191 cannot be applied to sales of real property on installment
since they are governed by the Maceda Law.
There being no breach to speak of in case of non-payment of the purchase price in a

contract to sell, as in this case, the RTCs factual finding that Lourdes was willing and
able to pay her obligation a conclusion arrived at in connection with the said courts
determination of whether the non-payment of the purchase price in accordance with the
terms of the contract was a substantial breach warranting rescission therefore loses
significance. The spouses Bonrostros reliance on the said factual finding is thus
misplaced. They cannot invoke their readiness and willingness to pay their obligation on
November 24, 1993 as an excuse from being made liable for interest beyond the said
date.
Contract; absolutely
simulated contracts;
void from the
beginning.

Dr. Lorna C. Formaran v. Dr. Glenda B. Ong and Solomon S. Ong, G.R. No. 186264,
July 8, 2013 (http://sc.judiciary.gov.ph/jurisprudence/2013/july2013/186264.pdf).

Contract; contract of
carriage; definition;
common carrier;
definition; breach of
contract of carriage;
entitlement to
damages; contract of
services; standard of
care required;
damages; when
recoverable; quasidelict; solidary
liability of joint
tortfeasors.

Cathay Pacific Airways v. Juanita Reyes, et al., G.R. No. 185891, June 26, 2013

The Court is in accord with the observation and findings of the (RTC, Kalibo, Aklan)
thus:
The amplitude of foregoing undisputed facts and circumstances clearly shows that
the sale of the land in question was purely simulated. It is void from the very
beginning (Article 1346, New Civil Code). If the sale was legitimate, defendant
Glenda should have immediately taken possession of the land, declared in her name
for taxation purposes, registered the sale, paid realty taxes, introduced improvements
therein and should not have allowed plaintiff to mortgage the land. These omissions
properly militated against defendant Glendas submission that the sale was legitimate
and the consideration was paid.

A contract of carriage is defined as one whereby a certain person or association of


persons obligate themselves to transport persons, things, or news from one place to
another for a fixed price. On its face, the airplane ticket is a valid written contract of
carriage. This Court has held that when an airline issues a ticket to a passenger
confirmed on a particular flight, on a certain date, a contract of carriage arises, and the
passenger has every right to expect that he would fly on that flight and on that date. If he
does not, then the carrier opens itself to a suit for breach of contract of carriage.
Under Article 1732 of the Civil Code, this persons, corporations, firms, or associations
engaged in the business of carrying or transporting passengers or goods or both, by land,
water, or air, for compensation, offering their services to the public is called a common
carrier.
In contrast, the contractual relation between Sampaguita Travel and respondents is a
contract for services. ... Since the contract between the parties is an ordinary one or
services, the standard of care required of respondent is that of a good father of a family
under Article 1173 of the Civil Code. This connotes reasonable care consistent with that
which an ordinarily prudent person would have observed when confronted with a similar
situation. The test to determine whether negligence attended the performance of an
obligation is: did the defendant in doing the alleged negligent act use that reasonable
care and caution which an ordinarily prudent person would have used in the same
situation? If not, then he is guilty of negligence.
For one to be entitled to actual damages, it is necessary to prove the actual amount of
loss with a reasonable degree of certainty, premised upon competent proof and the best
evidence obtainable by the injured party. To justify an award of actual damages, there
must be competent proof of the actual amount of loss. Credence can be given only to
claims which are duly supported by receipts.
Under Article 2220 of the Civil Code of the Philippines, an award of moral damages, in
breaches of contract, is in order upon a showing that the defendant acted fraudulently or
in bad faith. What the law considers as bad faith which may furnish the ground for an
award of moral damages would be bad faith in securing the contract and in the execution
thereof, as well as in the enforcement of its terms, or any other kind of deceit. In the
same vein, to warrant the award of exemplary damages, defendant must have acted in
wanton, fraudulent, reckless, oppressive, or malevolent manner.
Nominal damages are recoverable where a legal right is technically violated and must be
vindicated against an invasion that has produced no actual present loss of any kind or
where there has been a breach of contract and no substantial injury or actual damages

whatsoever have been or can be shown. Under Article 2221 of the Civil Code, 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, not for indemnifying
the plaintiff for any loss suffered.
The amount to be awarded as nominal damages shall be equal or at least commensurate
to the injury sustained by respondents considering the concept and purpose of such
damages. The amount of nominal damages to be awarded may also depend on certain
special reasons extant in the case. The amount of such damages is addressed to the sound
discretion of the court and taking into account the relevant circumstances, such as the
failure of some respondents to board the flight on schedule and the slight breach in the
legal obligations of the airline company to comply with the terms of the contract, i.e., the
airplane ticket and of the travel agency to make the correct bookings.
Cathay Pacific and Sampaguita Travel acted together in creating the confusion in the
bookings which led to the erroneous cancellation of respondents bookings. Their
negligence is the proximate cause of the technical injury sustained by respondents.
Therefore, they have become joint tortfeasors, whose responsibility for quasi-delict,
under Article 2194 of the Civil Code, is solidary.
Contract; contract of
sale; disputable
presumptions; failure
to pay the price; effect
of; double sale; effect;
registration in good
faith; buyer in good
faith; duty of a buyer
when a piece of land is
in the actual
possession of third
persons.

Hospicio D. Rosaroso, et al. v. Lucila Laborte Soria, et al., G.R. No. 194846, June 19,
2013
Under Section 3, Rule 131 of the Rules of Court, the following are disputable
presumptions: (1) private transactions have been fair and regular; (2) the ordinary course
of business has been followed; and (3) there was sufficient consideration for a contract.
These presumptions operate against an adversary who has not introduced proof to rebut
them. They create the necessity of presenting evidence to rebut the prima facie case they
created, and which, if no proof to the contrary is presented and offered, will prevail. The
burden of proof remains where it is but, by the presumption, the one who has that burden
is relieved for the time being from introducing evidence in support of the averment,
because the presumption stands in the place of evidence unless rebutted.
Granting that there was no delivery of the consideration, the seller would have no right
to sell again what he no longer owned. His remedy would be to rescind the sale for
failure on the part of the buyer to perform his part of their obligation pursuant to Article
1191 of the New Civil Code. In the case of Clara M. Balatbat v. Court Of Appeals and
Spouses Jose Repuyan and Aurora Repuyan, it was written:
The failure of the buyer to make good the price does not, in law, cause the
ownership to revest to the seller unless the bilateral contract of sale is first
rescinded or resolved pursuant to Article 1191 of the New Civil Code. Non-payment
only creates a right to demand the fulfillment of the obligation or to rescind the
contract.
Ownership of an immovable property which is the subject of a double sale shall be
transferred: (1) to the person acquiring it who in good faith first recorded it in the
Registry of Property; (2) in default thereof, to the person who in good faith was first in
possession; and (3) in default thereof, to the person who presents the oldest title,
provided there is good faith. The requirement of the law then is two-fold: acquisition in
good faith and registration in good faith. Good faith must concur with the registration. If
it would be shown that a buyer was in bad faith, the alleged registration they have made
amounted to no registration at all.
When a piece of land is in the actual possession of persons other than the seller, the
buyer must be wary and should investigate the rights of those in possession. Without
making such inquiry, one cannot claim that he is a buyer in good faith. When a man
proposes to buy or deal with realty, his duty is to read the public manuscript, that is, to
look and see who is there upon it and what his rights are. A want of caution and
diligence, which an honest man of ordinary prudence is accustomed to exercise in
making purchases, is in contemplation of law, a want of good faith. The buyer who has
failed to know or discover that the land sold to him is in adverse possession of another is
a buyer in bad faith.
If a vendee in a double sale registers the sale after he has acquired knowledge of a

Contract; contract of
sale; disqualification
of a lawyer to buy
under Article 1491;
elements of a contract;
autonomous nature;
obligatory nature of
contract;
interpretation; courts
have no authority to
alter a contract by
construction or to
make a new contract
for the parties; penal
clause; generally
substitutes the
indemnity for damages
and the payment of
interests in case of
non-compliance.

previous sale, the registration constitutes a registration in bad faith and does not confer
upon him any right. If the registration is done in bad faith, it is as if there is no
registration at all, and the buyer who has first taken possession of the property in good
faith shall be preferred.
Heirs of Manuel Uy Ek Liong v. Mauricia Meer Castillo, Heirs of Buenaflor C.
Umali, represented by Nancy Umali, et al., G.R. No. 176425, June 5, 2013.
Admittedly, Article 1491 (5) of the Civil Code prohibits lawyers from acquiring by
purchase or assignment the property or rights involved which are the object of the
litigation in which they intervene by virtue of their profession. The CA lost sight of the
fact, however, that the prohibition applies only during the pendency of the suit and
generally does not cover contracts for contingent fees where the transfer takes effect
only after the finality of a favorable judgment.
Defined as a meeting of the minds between two persons whereby one binds himself, with
respect to the other to give something or to render some service, a contract requires the
concurrence of the following requisites: (a) consent of the contracting parties; (b) object
certain which is the subject matter of the contract; and, (c) cause of the obligation which
is established.
Viewed in the light of the autonomous nature of contracts enunciated under Article 1306
of the Civil Code, on the other hand, we find that the Kasunduan was correctly found by
the RTC to be a valid and binding contract between the parties.
Obligations arising from contracts, after all, have the force of law between the
contracting parties who are expected to abide in good faith with their contractual
commitments, not weasel out of them. Moreover, when the terms of the contract are
clear and leave no doubt as to the intention of the contracting parties, the rule is settled
that the literal meaning of its stipulations should govern. In such cases, courts have no
authority to alter a contract by construction or to make a new contract for the parties.
Since their duty is confined to the interpretation of the one which the parties have made
for themselves without regard to its wisdom or folly, it has been ruled that courts cannot
supply material stipulations or read into the contract words it does not contain. Indeed,
courts will not relieve a party from the adverse effects of an unwise or unfavorable
contract freely entered into.
An accessory undertaking to assume greater liability on the part of the obligor in case of
breach of an obligation, the foregoing stipulation is a penal clause which serves to
strengthen the coercive force of the obligation and provides for liquidated damages for
such breach. The obligor would then be bound to pay the stipulated indemnity without
the necessity of proof of the existence and the measure of damages caused by the
breach.
In obligations with a penal clause, the penalty generally substitutes the indemnity for
damages and the payment of interests in case of non-compliance. Usually incorporated
to create an effective deterrent against breach of the obligation by making the
consequences of such breach as onerous as it may be possible, the rule is settled that a
penal clause is not limited to actual and compensatory damages.

Contract; contract of
sale; elements;
contract to sell;
elements; difference
between a contract of
sale and a contract to
sell; effect of nonpayment in a contract
of sale; laches;
definition; Torrens
system; exception to
general rule that action
to recover registered
land covered by the
Torrens System may
not be barred bylaches.

Ali Akang v. Municipality of Isulan, Sultan Kudarat Province, G.R. No. 186014, June
26, 2013
A contract of sale is defined under Article 1458 of the Civil Code:
By the contract of sale, one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefore a price
certain in money or its equivalent.
The elements of a contract of sale are: (a) consent or meeting of the minds, that is,
consent to transfer ownership in exchange for the price; (b) determinate subject matter;
and (c) price certain in money or its equivalent.
A contract to sell, on the other hand, is defined by Article 1479 of the Civil Code:
A bilateral contract whereby the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof to the prospective buyer,
binds himself to sell the said property exclusively to the prospective buyer upon
fulfillment of the condition agreed upon, that is, full payment of the purchase price.

In a contract of sale, the title to the property passes to the buyer upon the delivery of the
thing sold, whereas in a contract to sell, the ownership is, by agreement, retained by the
seller and is not to pass to the vendee until full payment of the purchase price.
Even assuming, arguendo, that the petitioner was not paid, such non payment is
immaterial and has no effect on the validity of the contract of sale. A contract of sale is a
consensual contract and what is required is the meeting of the minds on the object and
the price for its perfection and validity. In this case, the contract was perfected the
moment the petitioner and the respondent agreed on the object of the sale the twohectare parcel of land, and the price Three Thousand Pesos (P3,000.00). Non- payment
of the purchase price merely gave rise to a right in favor of the petitioner to either
demand specific performance or rescission of the contract of sale.
Laches has been defined as the failure or neglect, for an unreasonable and unexplained
length of time, to do that which, by exercising due diligence could or should have been
done earlier. It should be stressed that laches is not concerned only with the mere lapse
of time. As a general rule, an action to recover registered land covered by the Torrens
System may not be barred by laches. Neither can laches be set up to resist the
enforcement of an imprescriptible legal right. In exceptional cases, however, the Court
allowed laches as a bar to recover a titled property. Thus, in Romero v. Natividad, the
Court ruled that laches will bar recovery of the property even if the mode of transfer was
invalid. Likewise, in Vda. de Cabrera v. CA, the Court ruled:
In our jurisdiction, it is an enshrined rule that even registered owners of property
may be barred from recovering possession of property by virtue of laches. Under
the Land Registration Act (now the Property Registration Decree), no title to
registered land in derogation to that of the registered owner shall be acquired by
prescription or adverse possession. The same is not true with regard to laches.
More particularly, laches will bar recovery of a property, even if the mode of transfer
used by an alleged member of a cultural minority lacks executive approval. Thus, in
Heirs of Dicman v. Carino, the Court upheld the Deed of Conveyance of Part Rights and
Interests in Agricultural Land executed by Ting-el Dicman in favor of Sioco Carino
despite lack of executive approval. The Court stated that despite the judicial
pronouncement that the sale of real property by illiterate ethnic minorities is null and
void for lack of approval of competent authorities, the right to recover possession has
nonetheless been barred through the operation of the equitable doctrine of laches.
Contract; contract of
suretyship; definition;
nature of liability of
surety; suretys
liability is direct,
primary and absolute
as well as joint and
several.

The Manila Insurance Company, Inc. vs. Spouses Roberto and Aida Amurao; G.R.
No. 179628. January 16, 2013

Contract; contract to
sell; sellers obligation
to deliver the
corresponding
certificates of title is
simultaneous and
reciprocal to the
buyers full payment
of the purchase price;
rescission; effects;
requires mutual

Gotesco Properties, Inc., et al. vs. Sps. Eugenio and Angelina Fajardo; G.R. No.
201167. February 27, 2013

A contract of suretyship is defined as an agreement whereby a party, called the surety,


guarantees the performance by another party, called the principal or obligor, of an
obligation or undertaking in favor of a third party, called the obligee. It includes official
recognizances, stipulations, bonds or undertakings issued by any company by virtue of
and under the provisions of Act No. 536, as amended by Act No. 2206 (An Act Relative
to Recognizances, Stipulations, Bonds and Undertakings, and to Allow Certain
Corporations to be Accepted as Surety Thereon). We have consistently held that a
suretys liability is joint and several, limited to the amount of the bond, and determined
strictly by the terms of contract of suretyship in relation to the principal contract between
the obligor and the obligee. It bears stressing, however, that although the contract of
suretyship is secondary to the principal contract, the suretys liability to the obligee is
nevertheless direct, primary, and absolute.

It is settled that in a contract to sell, the sellers obligation to deliver the corresponding
certificates of title is simultaneous and reciprocal to the buyers full payment of the
purchase price. In this relation, Section 25 of PD 957 (Regulating the Sale of
Subdivision Lots and Condominiums, Providing Penalties for Violations Thereof), which
regulates the subject transaction, imposes on the subdivision owner or developer the
obligation to cause the transfer of the corresponding certificate of title to the buyer upon
full payment, to wit:
Sec. 25. Issuance of Title. The owner or developer shall deliver the title of the lot

restitution;
Subdivision and
Condominium Buyers
Protective Decree (PD
957); intent of PD 957
to protect the buyer
against unscrupulous
developers, operators
and/or sellers;
damages; when moral
damages may be
awarded; when
exemplary damages
may be awarded;
propriety of award of
attorneys fees

or unit to the buyer upon full payment of the lot or unit. No fee, except those
required for the registration of the deed of sale in the Registry of Deeds, shall be
collected for the issuance of such title. In the event a mortgage over the lot or unit is
outstanding at the time of the issuance of the title to the buyer, the owner or
developer shall redeem the mortgage or the corresponding portion thereof within six
months from such issuance in order that the title over any fully paid lot or unit may
be secured and delivered to the buyer in accordance herewith.
The long delay in the performance of GPIs obligation from date of demand on
September 16, 2002 was unreasonable and unjustified. It cannot therefore be denied that
GPI substantially breached its contract to sell with Sps. Fajardo which thereby accords
the latter the right to rescind the same pursuant to Article 1191 of the Code, viz:
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
Rescission does not merely terminate the contract and release the parties from further
obligations to each other, but abrogates the contract from its inception and restores the
parties to their original positions as if no contract has been made. Consequently, mutual
restitution, which entails the return of the benefits that each party may have received as
a result of the contract, is thus required.
To be sure, it has been settled that the effects of rescission as provided for in Article
1385 of the Code are equally applicable to cases under Article 1191, to wit:
x x x Mutual restitution is required in cases involving rescission under Article 1191.
This means bringing the parties back to their original status prior to the inception of the
contract. Article 1385 of the Civil Code provides, thus:
ART. 1385. Rescission creates the obligation to return the things which were the
object of the contract, together with their fruits, and the price with its interest;
consequently, it can be carried out only when he who demands rescission can
return whatever he may be obligated to restore.
Neither shall rescission take place when the things which are the object of the
contract are legally in the possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the
loss.
The Court has consistently ruled that this provision applies to rescission under
Article 1191:
[S]ince Article 1385 of the Civil Code expressly and clearly states that rescission
creates the obligation to return the things which were the object of the contract,
together with their fruits, and the price with its interest, the Court finds no
justification to sustain petitioners position that said Article 1385 does not apply to
rescission under Article 1191. x x x
As a necessary consequence, considering the propriety of the rescission as earlier
discussed, Sps. Fajardo must be able to recover the price of the property pegged at its
prevailing market value consistent with the Courts pronouncement in Solid Homes, viz:
Indeed, there would be unjust enrichment if respondents Solid Homes, Inc. & Purita
Soliven are made to pay only the purchase price plus interest. It is definite that the
value of the subject property already escalated after almost two decades from the
time the petitioner paid for it. Equity and justice dictate that the injured party should
be paid the market value of the lot, otherwise, respondents Solid Homes, Inc. &
Purita Soliven would enrich themselves at the expense of herein lot owners when
they sell the same lot at the present market value. Surely, such a situation should not
be countenanced for to do so would be contrary to reason and therefore,

unconscionable. Over time, courts have recognized with almost pedantic adherence
that what is inconvenient or contrary to reason is not allowed in law.
On this score, it is apt to mention that it is the intent of PD 957 (Regulating the Sale of
Subdivision Lots and Condominiums, Providing Penalties for Violations Thereof) to
protect the buyer against unscrupulous developers, operators and/or sellers who reneged
on their obligations. Thus, in order to achieve this purpose, equity and justice dictate that
the injured party should be afforded full recompense and as such, be allowed to recover
the prevailing market value of the undelivered lot which had been fully paid for.
Furthermore, the Court finds that there is proper legal basis to accord moral and
exemplary damages and attorneys fees, including costs of suit. Verily, GPIs unjustified
failure to comply with its obligations as above discussed caused Sps. Fajardo serious
anxiety, mental anguish and sleepless nights, thereby justifying the award of moral
damages. In the same vein, the payment of exemplary damages remains in order so as to
prevent similarly minded subdivision developers to commit the same transgression. And
finally, considering that Sps. Fajardo were constrained to engage the services of counsel
to file this suit, the award of attorneys fees must be likewise sustained.
Contract; damages
arising from breach of
contract.

Spouses Luigi Guanio and Anna Guanio v. Makati Shangri-la Hotel and Resort, Inc.;
G.R. No. 190601. February 7, 2011
The Court finds that since petitioners complaint arose from a contract, the doctrine of
proximate cause, which is relevant only in actions for quasi-delicts, finds no application
to it. What applies in the present case is Article 1170 of the Civil Code which reads:
[T]hose who in the performance of their obligations are guilty of fraud, negligence or
delay, and those who in any manner contravene the tenor thereof, are liable for
damages. Breach of contract is defined as the failure without legal reason to comply
with the terms of a contract. It is also defined as the failure, without legal excuse, to
perform any promise which forms the whole or part of the contract. As for petitioners
claim that respondent departed from its verbal agreement with petitioners, the same fails,
given that the written contract which the parties entered into the day before the event,
being the law between them.

Contract; default of
debtor; definition;
requisites; liquidated
damages; stipulation
therefor; double
function; penalty
clause; definition;
function.

J Plus Asia Development Corporation v. Utility Assurance Corporation, G.R. No.


199650, June 26, 2013
Default or mora on the part of the debtor is the delay in the fulfillment of the prestation
by reason of a cause imputable to the former. It is the nonfulfillment of an obligation
with respect to time.
It is a general rule that one who contracts to complete certain work within a certain time
is liable for the damage for not completing it within such time, unless the delay is
excused or waived.
In this jurisdiction, the following requisites must be present in order that the debtor may
be in default: (1) that the obligation be demandable and already liquidated; (2) that the
debtor delays performance; and (3) that the creditor requires the performance judicially
or extrajudicially.
Liability for liquidated damages is governed by Articles 2226 to 2228 of the Civil Code.
A stipulation for liquidated damages is attached to an obligation in order to ensure
performance and has a double function: (1) to provide for liquidated damages, and (2) to
strengthen the coercive force of the obligation by the threat of greater responsibility in
the event of breach. The amount agreed upon answers for damages suffered by the owner
due to delays in the completion of the project. As a precondition to such award, however,
there must be proof of the fact of delay in the performance of the obligation.
A penalty clause, expressly recognized by law, is an accessory undertaking to assume
greater liability on the part of the obligor in case of breach of an obligation. It functions
to strengthen the coercive force of obligation and to provide, in effect, for what could be
the liquidated damages resulting from such a breach. The obligor would then be bound
to pay the stipulated indemnity without the necessity of proof on the existence and on the
measure of damages caused by the breach. It is well-settled that so long as such
stipulation does not contravene law, morals, or public order, it is strictly binding upon

the obligor.
Contract; determinacy
of object.

Domingo Carabeo v. Spouses Dingco, G.R. No. 190823, April 4, 2011


That the kasunduan did not specify the technical boundaries of the property did not
render the sale a nullity. The requirement that a sale must have for its object a
determinate thing is satisfied as long as, at the time the contract is entered into, the object
of the sale is capable of being made determinate without the necessity of a new or further
agreement between the parties. As portion of the kasunduan shows, there is no doubt that
the object of the sale is determinate.

Contract; law between


the parties; rules on
interpretation;
easement of right of
way; just
compensation;
attorneys fees;
exception rather than
the general rule.

Jesus L. Cabahug and Coronacion M. Cabahug vs. National Power Corporation; G.R.
No. 186069. January 30, 2013
Indeed, the rule is settled that a contract constitutes the law between the parties who are
bound by its stipulations which, when couched in clear and plain language, should be
applied according to their literal tenor. Courts cannot supply material stipulations, read
into the contract words it does not contain or, for that matter, read into it any other
intention that would contradict its plain import. Neither can they rewrite contracts
because they operate harshly or inequitably as to one of the parties, or alter them for the
benefit of one party and to the detriment of the other, or by construction, relieve one of
the parties from the terms which he voluntarily consented to, or impose on him those
which he did not.
Where the right of way easement, as in this case, similarly involves transmission lines
which not only endangers life and limb but restricts as well the owners use of the land
traversed thereby, the ruling in Gutierrez remains doctrinal and should be applied. It has
been ruled that the owner should be compensated for the monetary equivalent of the land
if, as here, the easement is intended to perpetually or indefinitely deprive the owner of
his proprietary rights through the imposition of conditions that affect the ordinary use,
free enjoyment and disposal of the property or through restrictions and limitations that
are inconsistent with the exercise of the attributes of ownership, or when the introduction
of structures or objects which, by their nature, create or increase the probability of injury,
death upon or destruction of life and property found on the land is necessary. Measured
not by the takers gain but the owners loss, just compensation is defined as the full and
fair equivalent of the property taken from its owner by the expropriator.
The determination of just compensation in eminent domain proceedings is a judicial
function and no statute, decree, or executive order can mandate that its own
determination shall prevail over the courts findings. Any valuation for just
compensation laid down in the statutes may serve only as a guiding principle or one of
the factors in determining just compensation, but it may not substitute the courts own
judgment as to what amount should be awarded and how to arrive at such amount.
Hence, Section 3A of R.A. No. 6395, as amended (An Act Revising the Charter of the
National Power Corporation), is not binding upon this Court.
For want of a statement of the rationale for the award in the body of the RTCs 14 March
2000 Decision, we are constrained, however, to disallow the grant of attorneys fees in
favor of the Spouses Cabahug in an amount equivalent to 5% of the just compensation
due as well as the legal interest thereon. Considered the exception rather than the general
rule, the award of attorneys fees is not due every time a party prevails in a suit because
of the policy that no premium should be set on the right to litigate.

Contract; novation;
requirements; novation
cannot be presumed.

St. James College of Paranaque; Jaime T. Torres, represented by his legal


representative, James Kenley M. Torres; and Myrna M. Torres vs. Equitable PCI Bank,
G.R. No. 179441, August 9, 2010
As a civil law concept, novation is the extinguishment of an obligation by the
substitution or change of the obligation by a subsequent one which terminates it, either
by changing its objects or principal conditions, or by substituting a new debtor in place
of the old one, or by subrogating a third person to the rights of the creditor. Novation
may be extinctive or modificatory. It is extinctive when an old obligation is terminated
by the creation of a new one that takes the place of the former; it is merely modificatory
when the old obligation subsists to the extent that it remains compatible with the
amendatory agreement. Novation may either be express, when the new obligation

declares in unequivocal terms that the old obligation is extinguished, or implied, when
the new obligation is on every point incompatible with the old one. The test of
incompatibility lies on whether the two obligations can stand together, each one with its
own independent existence.
For novation, as a mode of extinguishing or modifying an obligation, to apply, the
following requisites must concur:
1) There must be a previous valid obligation.
2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract.
Novatio non praesumitur, or novation is never presumed, is a well-settled principle.
Consequently, that which arises from a purported modification in the terms and
conditions of the obligation must be clear and express. On petitioners thus rests the onus
of showing clearly and unequivocally that novation has indeed taken place.
It has often been said that the minds that agree to contract can agree to novate. And the
agreement or consent to novate may well be inferred from the acts of a creditor, since
volition may as well be expressed by deeds as by words. In the instant case, however, the
acts of EPCIB before, simultaneously to, and after its acceptance of payments from
petitioners argue against the idea of its having acceded or acquiesced to petitioners
request for a change of the terms of payments of the secured loan. Far from it. Thus, a
novation through an alleged implied consent by EPCIB, as proffered and argued by
petitioners, cannot be given imprimatur by the Court.
Contract; perfection of
contracts; consent;
offer and acceptance;
contract of sale;
consensual in nature.

Heirs of Fausto C. Ignacio vs. Home Bankers Savings and Trust Co., et al.; G.R. No.
177783. January 23, 2013
Contracts are perfected by mere consent, which is manifested by the meeting of the offer
and the acceptance upon the thing and the cause which are to constitute the contract. The
requisite acceptance of the offer is expressed in Article 1319 of the Civil Code which
states:
ART. 1319. Consent is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract. The offer must be
certain and the acceptance absolute. A qualified acceptance constitutes a counteroffer.
In Palattao v. Court of Appeals, this Court held that if the acceptance of the offer was not
absolute, such acceptance is insufficient to generate consent that would perfect a
contract. Thus:
Contracts that are consensual in nature, like a contract of sale, are perfected upon
mere meeting of the minds. Once there is concurrence between the offer and the
acceptance upon the subject matter, consideration, and terms of payment, a contract
is produced. The offer must be certain. To convert the offer into a contract, the
acceptance must be absolute and must not qualify the terms of the offer; it must be
plain, unequivocal, unconditional, and without variance of any sort from the
proposal. A qualified acceptance, or one that involves a new proposal, constitutes a
counter-offer and is a rejection of the original offer. Consequently, when something is
desired which is not exactly what is proposed in the offer, such acceptance is not
sufficient to generate consent because any modification or variation from the terms
of the offer annuls the offer.
The acceptance must be identical in all respects with that of the offer so as to produce
consent or meeting of the minds. Where a party sets a different purchase price than the
amount of the offer, such acceptance was qualified which can be at most considered as a
counter-offer; a perfected contract would have arisen only if the other party had
accepted this counteroffer. In Villanueva v. Philippine National Bank this Court further
elucidated on the meaning of unqualified acceptance, as follows:
...While it is impossible to expect the acceptance to echo every nuance of the offer, it
is imperative that it assents to those points in the offer which, under the operative
facts of each contract, are not only material but motivating as well. Anything short of
that level of mutuality produces not a contract but a mere counter-offer awaiting
acceptance. More particularly on the matter of the consideration of the contract,
the offer and its acceptance must be unanimous both on the rate of the payment

and on its term. An acceptance of an offer which agrees to the rate but varies the
term is ineffective.
A contract of sale is consensual in nature and is perfected upon mere meeting of the
minds. When there is merely an offer by one party without acceptance of the other, there
is no contract. When the contract of sale is not perfected, it cannot, as an independent
source of obligation, serve as a binding juridical relation between the parties.
Contract; rescission
under Article 1191;
mutual restitution;
contracts; definition.

Fil-Estate Gold and Development, Inc., et al. v. Vertex Sales and Trading, Inc., G.R.
No. 202079, June 10, 2013.
Mutual restitution is required in cases involving rescission under Article 1191 of the
Civil Code; such restitution is necessary to bring back the parties to their original
situation prior to the inception of the contract.
As a general rule, a contract is a meeting of minds between two persons. The Civil Code
upholds the spirit over the form; thus, it deems an agreement to exist, provided the
essential requisites are present. A contract is upheld as long as there is proof of consent,
subject matter and cause. Moreover, it is generally obligatory in whatever form it may
have been entered into. From the moment there is a meeting of minds between the
parties, [the contract] is perfected.

Contract; Rescission;
effect.

Sandoval Shipyards, Inc. v. Philippine Merchant Marine Academy (PMMA); G.R. No.
188633. April 10, 2013
Rescission entails a mutual restitution of benefits received. An injured party who has
chosen rescission is also entitled to the payment of damages.

Contract; validity of
bidding rules.

South Pacific Sugar Corporation, et al. v. Court of Appeals and Sugar Regulatory
Administration G.R. No. 180462. February 9, 2011
In joining the bid for sugar importation, the sugar corporations are deemed to have
assented to the Bidding Rules, including the forfeiture provision under paragraph G.1.
The Bidding Rules bind the sugar corporations. The latter cannot rely on the lame excuse
that they are not aware of the forfeiture provision. At the trial, Teresita Tan testified that
the Bidding Rules were duly published in a newspaper of general circulation. Vicente
Cenzon, a sugar importer who participated in the bidding for the 3rd tranche, testified
that he attended the pre-bid conference where the Bidding Rules were discussed and
copies of the same were distributed to all the bidders.
The Bidding Rules passed through a consultative process actively participated by various
government agencies and their counterpart in the private sector: the Department of
Agriculture, the National Economic Development Authority, the Department of Trade
and Industry, the Department of Finance, the Sugar Regulatory Administration, and a
representative each from the sugar planters group and the sugar millers group.
We find nothing in the forfeiture provision of the Bidding Rules that is contrary to law,
morals, good customs, public order, or public policy. On the contrary, the forfeiture
provision fully supports government efforts to aid the countrys ailing sugar industry.
Conversion fees, including those that are forfeited under paragraph G.1 of the Bidding
Rules, are automatically remitted to the Bureau of Treasury and go directly to the
Agricultural Competitiveness Enhancement Fund.

Contract; void
contract;
consequences.

Queensland-Tokyo Commodities, Inc., et al. vs. Thomas George, G.R. No. 172727,
September 8, 2010
It is settled that a void contract is equivalent to nothing; it produces no civil effect. It
does not create, modify, or extinguish a juridical relation. Parties to a void agreement
cannot expect the aid of the law; the courts leave them as they are, because they are
deemed in pari delicto or in equal fault. This rule, however, is not absolute. Article 1412
of the Civil Code provides an exception, and permits the return of that which may have
been given under a void contract. Thus:
Art. 1412. If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be observed:
(1) When the fault is on the part of both contracting parties, neither may recover what

he has given by virtue of the contract, or demand the performance of the others
undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover what he has
given by reason of the contract, or ask for the fulfillment of what has been promised
him. The other, who is not at fault, may demand the return of what he has given
without any obligation to comply with his promise.
The evidence on record established that petitioners indeed permitted an unlicensed trader
and salesman, like Mendoza, to handle respondents account. On the other hand, the
record is bereft of proof that respondent had knowledge that the person handling his
account was not a licensed trader. Respondent can, therefore, recover the amount he had
given under the contract. The SEC Hearing Officer and the CA, therefore, committed no
reversible error in holding that respondent is entitled to a full recovery of his
investments.
Contract; void
contracts; effect.

Joselito C. Borromeo v. Juan T. Mina, G.R. No. 193747, June 5, 2013


A void contract is equivalent to nothing; it produces no civil effect; and it does not
create, modify or extinguish a juridical relation.

Contract; voidable.

Cornelia M. Hernandez, substituted by Lourdes H. Castillo v. Cecilio F. Hernandez,


G.R. No. 158576, March 9, 2011
A contract where consent is given through mistake, violence, intimidation, undue
influence, or fraud is voidable. In determining whether consent is vitiated by any of the
circumstances mentioned, courts are given a wide latitude in weighing the facts or
circumstances in a given case and in deciding in their favor what they believe to have
actually occurred, considering the age, physical infirmity, intelligence, relationship, and
the conduct of the parties at the time of the making of the contract and subsequent
thereto, irrespective of whether the contract is in public or private writing. And, in order
that mistake may invalidate consent, it should refer to the substance of the thing which is
the object of the contract, or those conditions which have principally moved one or both
parties to enter the contract.

Contracts; annulment.

Fontana Resort and Country Club, Inc. and RN Development Corporation vs. Spouses
Roy S. Tan and Susan C. Tan; G.R. No. 154670. January 30, 2012
There is fraud when one party is induced by the other to enter into a contract, through
and solely because of the latters insidious words or machinations. But not all forms of
fraud can vitiate consent. Under Article 1330 of the Civil Code, this fraud refers to dolo
causante or causal fraud, in which, prior to or simultaneous with the execution of a
contract, one party secures the consent of the other by using deception, without which
such consent would not have been given. The fraud must be the determining cause of the
contract, or must have caused the consent to be given.
One who alleges fraud or mistake in a transaction must substantiate his allegation since
the presumption is that a person takes ordinary care for his concerns and private dealings
have been entered into fairly and regularly. Thus, one who alleges defect or lack of valid
consent to a contract by reason of fraud or undue influence must establish by full, clear
and convincing evidence such specific acts that vitiated a partys consent; otherwise the
presumed consent to the contract prevails. In this case, the Tan spouses failed to prove
how fraud was employed to induce them to buy the FRCCI shares. There was no
showing that insidious words or machinations were used by the petitioners, without
which, the spouses would not have bought the shares.
The right to rescind a contract arises once the other party defaults in the performance of
his obligation. However, rescission will not be permitted for a slight or casual breach,
but only for substantial and fundamental breach as would defeat the very object of the
parties in making the agreement. Like fraud, the burden of establishing the default lies
upon the party who alleges that default was committed. There was no evidence presented
that petitioners defaulted on any of their obligations. Therefore, although the Complaint
in this case sufficiently alleged a cause of action for the annulment or rescission of the
contract of sale of FRCCI shares, however, there was failure on the part of the Tan
spouses to establish by preponderance of evidence that they are entitled to the said
annulment or rescission.

Contracts; Autonomy
of Parties; Contract of
Adhesion.

Asian Construction and Development Corporation vs. Cathay Pacific Steel


Corporation, G.R. No. 167942, June 29, 2010.
Article 1306 of the Civil Code provides that the contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order, or public policy. In the
present case, the sales invoices expressly stipulated the payment of interest and
attorneys fees in case of overdue accounts and collection suits, to wit: Interest at 24%
per annum is to be charged to all accounts overdue plus 25% additional on unpaid
invoice for attorneys fees aside from court cost, the parties expressly submit themselves
to the venue of the courts in Rizal, in case of legal proceeding.
The sales invoices are in the nature of contracts of adhesion. The court has repeatedly
held that contracts of adhesion are as binding as ordinary contracts. Those who adhere to
the contract are in reality free to reject it entirely and if they adhere, they give their
consent. It is true that in some occasions the Court struck down such contracts as void
when the weaker party is imposed upon in dealing with the dominant party and is
reduced to the alternative of accepting the contract or leaving it, completely deprived of
the opportunity to bargain on equal footing.
Considering that petitioner is not a small time construction company, having such
construction projects as the MRT III and the Mauban Power Plant, petitioner is
presumed to have full knowledge and to have acted with due care or, at the very least, to
have been aware of the terms and conditions of the contract.
Petitioner was free to contract the services of another supplier if respondents terms were
not acceptable. By contracting with respondent for the supply of the reinforcing steel
bars and not interposing any objection to the stipulations in the sales invoice, petitioner
did not only bind itself to pay the stated selling price, it also bound itself to pay (1)
interest of 24% per annum on overdue accounts and (2) 25% of the unpaid invoice for
attorneys fees. Thus, the lower courts did not err in using the invoices as basis for the
award of interest.

Contracts; Autonomy
of Parties.

Felicidad T. Martin, et al. vs. DBS Bank Philippines, Inc., et al. G.R. No. 174632 & G.R.
No. 174804, June 16, 2010.
Unless the terms of a contract are against the law, morals, good customs, and public
policy, such contract is law between the parties and its terms bind them. In Felsan Realty
& Development Corporation v. Commonwealth of Australia, the Court regarded as valid
and binding a provision in the lease contract that allowed the lessee to pre-terminate the
same when fire damaged the leased building, rendering it uninhabitable or unsuitable for
living. In this case, paragraph VIII of the lease contract between DBS and the Martins
permitted rescission by either party should the leased property become untenantable
because of natural causes. The Court similarly found the following provision
enforeceable and binding: `In case of damage to the leased premises or any portion
thereof by reason of fault or negligence attributable to the LESSEE, its agents,
employees, customers, or guests, the LESSEE shall be responsible for undertaking such
repair or reconstruction. In case of damage due to fire, earthquake, lightning, typhoon,
flood, or other natural causes, without fault or negligence attributable to the LESSEE, its
agents, employees, customers or guests, the LESSOR shall be responsible for
undertaking such repair or reconstruction. In the latter case, if the leased premises
become untenantable, either party may demand for the rescission of this contract and in
such case, the deposit referred to in paragraph III shall be returned to the LESSEE
immediately.

Contracts; bad faith,


fraud.

R.S. Tomas, Inc. v. Rizal Cement Company, Inc.; G.R. No. 173155. March 21, 2012
Bad faith does not simply connote bad judgment or negligence; it imports a dishonest
purpose or some moral obliquity and conscious doing of a wrong, a breach of a known
duty through some motive or interest or ill will that partakes of the nature of fraud. Fraud
has been defined to include an inducement through insidious machination. Insidious
machination refers to a deceitful scheme or plot with an evil or devious purpose. Deceit
exists where the party, with intent to deceive, conceals or omits to state material facts
and, by reason of such omission or concealment, the other party was induced to give
consent that would not otherwise have been given. These are allegations of fact that

demand clear and convincing proof. They are serious accusations that can be so
conveniently and casually invoked, and that is why they are never presumed. In this
case, the evidence presented is insufficient to prove that respondent acted in bad faith or
fraudulently in dealing with petitioner.
Contracts; binding
effect.

Consolidated Industrial Gases, Inc. v. Alabang Medical Center, G.R. No. 181983,
November 13, 2013
It is hornbook doctrine in the law on contracts that the parties are bound by the
stipulations, clauses, terms and conditions they have agreed to provided that such
stipulations, clauses, terms and conditions are not contrary to law, morals, public order
or public policy.

Contracts; both parties


at fault; rule not
applicable to simulated
contract.

Heirs of Policronio M. Ureta, Sr., namely: Conrado B. Ureta, et al. vs. Heirs of
Liberato M. Ureta, namely: Teresa F. Ureta, et al./Heirs of Liberato M. Ureta, namely:
Teresa F. Ureta, et al. vs. Heirs of Policronio M. Ureta, Sr., namely: Conrado B.
Ureta, et al.; G.R. No. 165748/G.R. No. 165930, September 14, 2011
The Heirs of Policronio contended that even assuming that the contract was simulated,
the Heirs of Alfonso would still be barred from recovering the properties by reason of
Article 1412 of the Civil Code, which provides that if the act in which the unlawful or
forbidden cause does not constitute a criminal offense, and the fault is both on the
contracting parties, neither may recover what he has given by virtue of the contract or
demand the performance of the others undertaking. As the Heirs of Alfonso alleged that
the purpose of the sale was to avoid the payment of inheritance taxes, they cannot take
from the Heirs of Policronio what had been given to their father.
On this point, the Court again disagrees. Article 1412 of the Civil Code is as follows:
Art. 1412. If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be observed:
(1) When the fault is on the part of both contracting parties, neither may recover what
he has given by virtue of the contract, or demand the performance of the others
undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover what he has
given by reason of the contract, or ask for the fulfillment of what has been promised
him. The other, who is not at fault, may demand the return of what he has given
without any obligation to comply with his promise.
Article 1412 is not applicable to fictitious or simulated contracts, because they refer to
contracts with an illegal cause or subject-matter. This article presupposes the existence
of a cause, it cannot refer to fictitious or simulated contracts which are in reality nonexistent. As it has been determined that the Deed of Sale is a simulated contract, the
provision cannot apply to it.
Granting that the Deed of Sale was not simulated, the provision would still not apply.
Since the subject properties were included as properties of Alfonso in the Deed of ExtraJudicial Partition, they are covered by corresponding inheritance and estate taxes.
Therefore, tax evasion, if at all present, would not arise, and Article 1412 would again be
inapplicable.

Contracts; breach of
contract; petitioner is
guilty of breach of
contract when it
unjustifiably refused to
release respondents
deposit despite
demand; liable for
damages.

Metropolitan Bank & Trust Company v. Ana Grace Rosales and Yo Yuk To, G.R. No.
183204, January 13, 2014
In cases of breach of contract, moral damages may be recovered only if the defendant
acted fraudulently or in bad faith, or is guilty of gross negligence amounting to bad
faith, or in wanton disregard of his contractual obligations.
In this case, a review of the circumstances surrounding the issuance of the Hold Out
order reveals that petitioner issued the Hold Out order in bad faith. First of all, the
order was issued without any legal basis. Second, petitioner did not inform respondents
of the reason for the Hold Out. Third, the order was issued prior to the filing of the
criminal complaint. Records show that the Hold Out order was issued on July 31,
2003, while the criminal complaint was filed only on September 3, 2003. All these taken
together lead us to conclude that petitioner acted in bad faith when it breached its
contract with respondents. As we see it then, respondents are entitled to moral damages.

Contracts; breach of;


damages; exemplary
damages; concept.

Alejandro V. Tankeh v. Development Bank of the Philippines, et al., G.R. No. 171428,
November 11, 2013
Exemplary damages are discussed in Article 2229 of the Civil Code, as follows:
ART. 2229. Exemplary or corrective damages are imposed, by way of example or
correction of the public good, in addition to moral, temperate, liquidated or
compensatory damages.
Exemplary damages are further discussed in Articles 2233 and 2234, particularly
regarding the pre- requisites of ascertaining moral damages and the fact that it is
discretionary upon this Court to award them or not:
ART. 2233. Exemplary damages cannot be recovered as a matter of right; the court
will decide whether or not they should be adjudicated.
ART. 2234. While the amount of the exemplary damages need not be proven, the
plaintiff must show that he is entitled to moral, temperate or compensatory damages
before the court may consider the question of whether or not exemplary damages
should be awarded x x x
The purpose of exemplary damages is to serve as a deterrent to future and subsequent
parties from the commission of a similar offense. The case of People v. Rante citing
People v. Dalisay held that:
Also known as punitive or vindictive damages, exemplary or corrective damages
are intended to serve as a deterrent to serious wrong doings, and as a vindication of
undue sufferings and wanton invasion of the rights of an injured or a punishment for
those guilty of outrageous conduct. These terms are generally, but not always, used
interchangeably. In common law, there is preference in the use of exemplary
damages when the award is to account for injury to feelings and for the sense of
indignity and humiliation suffered by a person as a result of an injury that has been
maliciously and wantonly inflicted, the theory being that there should be
compensation for the hurt caused by the highly reprehensible conduct of the
defendantassociated with such circumstances as willfulness, wantonness, malice,
gross negligence or recklessness, oppression, insult or fraud or gross fraudthat
intensifies the injury. The terms punitive or vindictive damages are often used to
refer to those species of damages that may be awarded against a person to punish him
for his outrageous conduct. In either case, these damages are intended in good
measure to deter the wrongdoer and others like him from similar conduct in the
future.
To justify an award for exemplary damages, the wrongful act must be accompanied by
bad faith, and an award of damages would be allowed only if the guilty party acted in a
wanton, fraudulent, reckless or malevolent manner.

Contracts; breach of;


rebus sic stantibus.
Contracts; breach of;
when moral damages
may be awarded.

Daniel T. So vs. Food Fest Land, Inc./Food Fest Land, Inc. vs. Daniel T. So, G.R. Nos.
183628 & 183670, April 7, 2010 below.
Alejandro V. Tankeh v. Development Bank of the Philippines, et al., G.R. No. 171428,
November 11, 2013
In Francisco v. Ferrer,this Court ruled that moral damages may be awarded on the
following bases:
To recover moral damages in an action for breach of contract, the breach must be
palpably wanton, reckless, malicious, in bad faith, oppressive or abusive.
Under the provisions of this law, in culpa contractual or breach of contract, moral
damages may be recovered when the defendant acted in bad faith or was guilty of gross
negligence (amounting to bad faith) or in wanton disregard of his contractual obligation
and, exceptionally, when the act of breach of contract itself is constitutive of tort
resulting in physical injuries.
Moral damages may be awarded in breaches of contracts where the defendant acted
fraudulently or in bad faith.
Bad faith does not simply connote bad judgment or negligence, it imports a dishonest
purpose or some moral obliquity and conscious doing of a wrong, a breach of known
duty through some motive or interest or ill will that partakes of the nature of fraud.

The person claiming moral damages must prove the existence of bad faith by clear and
convincing evidence for the law always presumes good faith. It is not enough that one
merely suffered sleepless nights, mental anguish, serious anxiety as the result of the
actuations of the other party. Invariably such action must be shown to have been
willfully done in bad faith or will ill motive. Mere allegations of besmirched reputation,
embarrassment and sleepless nights are insufficient to warrant an award for moral
damages. It must be shown that the proximate cause thereof was the unlawful act or
omission of the [private respondent] petitioners.
An award of moral damages would require certain conditions to be met, to wit: (1) first,
there must be an injury, whether physical, mental or psychological, clearly sustained by
the claimant; (2) second, there must be culpable act or omission factually established; (3)
third, the wrongful act or omission of the defendant is the proximate cause of the injury
sustained by the claimant; and (4) fourth, the award of damages is predicated on any of
the cases stated in Article 2219 of the Civil Code.
Contracts; buyer in
good faith.

Sps. Bernadette and Rodulfo Vilbar v. Angelito L. Opinion, G.R. No. 176043. January
15, 2014
It is settled that a party dealing with a registered land does not have to inquire beyond
the Certificate of Title in determining the true owner thereof, and in guarding or
protecting his interest, for all that he has to look into and rely on are the entries in the
Certificate of Title.
Inarguably, Opinion acted in good faith in dealing with the registered owners of the
properties. He relied on the titles presented to him, which were confirmed by the
Registry of Deeds to be authentic, issued in accordance with the law, and without any
liens or encumbrances.

Contracts;
consequences of
breach.

Continental Cement Corporation vs. Asea Brown Boveri, et al.;G.R. No. 171660.
October 17, 2011
Having breached the contract it entered with petitioner, respondent ABB is liable for
damages pursuant to Articles 1167, 1170, and 2201 of the Civil Code. Accordingly, a
repairman who fails to perform his obligation is liable to pay for the cost of the
execution of the obligation plus damages. Though entitled, petitioner in this case is not
claiming reimbursement for the repair allegedly done by Newton Contractor, but is
instead asking for damages for the delay caused by respondent ABB.
As per Purchase Order Nos. 17136-37, petitioner is entitled to penalties in the amount of
P987.25 per day from the time of delay, August 30, 1990, up to the time the Kiln Drive
Motor was finally returned to petitioner. Records show that although the testing of Kiln
Drive Motor was done on March 13, 1991, the said motor was actually delivered to
petitioner as early as January 7, 1991. The installation and testing was done only on
March 13, 1991 upon the request of petitioner because the Kiln was under repair at the
time the motor was delivered; hence, the load testing had to be postponed.
Under Article 1226 of the Civil Code, the penalty clause takes the place of indemnity for
damages and the payment of interests in case of non-compliance with the obligation,
unless there is a stipulation to the contrary. In this case, since there is no stipulation to
the contrary, the penalty in the amount of P987.25 per day of delay covers all other
damages (i.e. production loss, labor cost, and rental of the crane) claimed by petitioner.
Article 1226 of the Civil Code further provides that if the obligor refuses to pay the
penalty, such as in the instant case,damages and interests may still be recovered on top of
the penalty. Damages claimed must be the natural and probable consequences of the
breach, which the parties have foreseen or could have reasonably foreseen at the time the
obligation was constituted. Thus, in addition to the penalties, petitioner seeks to recover
as damages production loss, labor cost and the rental of the crane. The petitioner,
however, was not able to prove with reasonable certainty that it indeed incurred
production losses during the relevant period. It may not be amiss to say that competent
proof and a reasonable degree of certainty are needed to justify a grant of actual or
compensatory damages; speculations, conjectures, assertions or guesswork are not
sufficient. Besides, consequential damages, such as loss of profits on account of delay or
failure of delivery, may be recovered only if such damages were reasonably foreseen or

have been brought within the contemplation of the parties as the probable result of a
breach at the time of or prior to contracting. Considering the nature of the obligation in
the instant case, respondent ABB, at the time it agreed to repair petitioners Kiln Drive
Motor, could not have reasonably foreseen that it would be made liable for production
loss, labor cost and rental of the crane in case it fails to repair the motor or incurs delay
in delivering the same, especially since the motor under repair was a spare motor. For the
foregoing reasons, petitioner is not entitled to recover production loss, labor cost and the
rental of the crane.
Contracts;
Consideration;
Adequacy of Price.

Anthony Orduna, et al. vs. Eduardo J. Fuentebella, et al., G.R. No. 176841, June 29,
2010.
Without directly saying so, the trial court held that the petitioners cannot sue upon the
oral sale since in its own words: [petitioners] have not paid in full Armando Gabriel, Sr.
or his estate, so that the sale transaction between Armando Gabriel Sr. and [petitioners]
[has] no adequate consideration.
The trial courts posture is patently flawed. For starters, they equated incomplete
payment of the purchase price with inadequacy of price or what passes as lesion, when
both are different civil law concepts with differing legal consequences, the first being a
ground to rescind an otherwise valid and enforceable contract. Perceived inadequacy of
price, on the other hand, is not a sufficient ground for setting aside a sale freely entered
into, save perhaps when the inadequacy is shocking to the conscience.

Contracts; contract of
loan; interest
stipulated; reduced for
being iniquitous and
unconscionable.

Florpina Benvidez v. Nestor Salvador, G.R. No. 173331, December 11, 2013.

Contracts; contract of
sale vs. contract to
sell.

Virgilio S. David vs. Misamis Occidental II Electric Cooperative, Inc., G.R. No.
194785, July 11, 2012.

Parties to a loan contract have wide latitude to stipulate on any interest rate in view of
the Central Bank Circular No. 905 s. 1982 which suspended the Usury Law ceiling on
interest effective January 1, 1983. It is, however, worth stressing that interest rates
whenever unconscionable may still be declared illegal. There is nothing in the circular
which grants lenders carte blanche authority to raise interest rates to levels which will
either enslave their borrowers or lead to a hemorrhaging of their assets.In Menchavez v.
Bermudez, the interest rate of 5% per month, which when summed up would reach 60%
per annum, is null and void for being excessive, iniquitous, unconscionable and
exorbitant, contrary to morals, and the law.

The elements of a contract of sale are, to wit: a) Consent or meeting of the minds, that is,
consent to transfer ownership in exchange for the price; b) Determinate subject matter;
and c) Price certain in money or its equivalent. It is the absence of the first element
which distinguishes a contract of sale from that of a contract to sell.
In a contract to sell, the prospective seller explicitly reserves the transfer of title to the
prospective buyer, meaning, the prospective seller does not as yet agree or consent to
transfer ownership of the property subject of the contract to sell until the happening of an
event, such as, in most cases, the full payment of the purchase price. What the seller
agrees or obliges himself to do is to fulfill his promise to sell the subject property when
the entire amount of the purchase price is delivered to him. In other words, the full
payment of the purchase price partakes of a suspensive condition, the non-fulfillment of
which prevents the obligation to sell from arising and, thus, ownership is retained by the
prospective seller without further remedies by the prospective buyer.
In a contract of sale, on the other hand, the title to the property passes to the vendee upon
the delivery of the thing sold. Unlike in a contract to sell, the first element of consent is
present, although it is conditioned upon the happening of a contingent event which may
or may not occur. If the suspensive condition is not fulfilled, the perfection of the
contract of sale is completely abated. However, if the suspensive condition is fulfilled,
the contract of sale is thereby perfected, such that if there had already been previous
delivery of the property subject of the sale to the buyer, ownership thereto automatically
transfers to the buyer by operation of law without any further act having to be performed
by the seller. The vendor loses ownership over the property and cannot recover it until
and unless the contract is resolved or rescinded.

Contracts; contract of
sale; delivery.

Virgilio S. David vs. Misamis Occidental II Electric Cooperative, Inc.; G.R. No.
194785, July 11, 2012.
Among the terms and conditions of the proposal to which MOELCI agreed, it was
stated:
3. Delivery Ninety (90) working days upon receipt of your purchase order and
downpayment. C&F Manila, freight, handling, insurance, custom duties and
incidental expenses shall be for the account of MOELCI II.
On this score, it is clear that MOELCI agreed that the power transformer would be
delivered and that the freight, handling, insurance, custom duties, and incidental
expenses shall be shouldered by it.
On the basis of this express agreement, Article 1523 of the Civil Code becomes
applicable. It provides:
Where, in pursuance of a contract of sale, the seller is authorized or required to
send the goods to the buyer delivery of the goods to a carrier, whether named by
the buyer or not, for the purpose of transmission to the buyer is deemed to be a
delivery of the goods to the buyer, except in the cases provided for in Article 1503,
first, second and third paragraphs, or unless a contrary intent appears.
Thus, the delivery made by David to William Lines, Inc., as evidenced by the Bill of
Lading, was deemed to be a delivery to MOELCI. David was authorized to send the
power transformer to the buyer pursuant to their agreement. When David sent the item
through the carrier, it amounted to a delivery to MOELCI.
Furthermore, in the case of Behn, Meyer & Co. (Ltd.) v. Yangco it was pointed out that a
specification in a contract relative to the payment of freight can be taken to indicate the
intention of the parties with regard to the place of delivery. So that, if the buyer is to pay
the freight, as in this case, it is reasonable to suppose that the subject of the sale is
transferred to the buyer at the point of shipment. In other words, the title to the goods
transfers to the buyer upon shipment or delivery to the carrier.
Of course, Article 1523 provides a mere presumption and in order to overcome said
presumption, MOELCI should have presented evidence to the contrary. The burden of
proof was shifted to MOELCI, who had to show that the rule under Article 1523 was not
applicable. In this regard, however, MOELCI failed.

Contracts; contract of
sale; perfection;
essential elements;
stages.

Robern Development Corporation, et al. vs. Peoples Landless Association represented


by Florida Ramos, et al.; G.R. No. 173622. March 11, 2013
A contract of sale is perfected at the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price. Thus, for a contract of sale to be
valid, all of the following essential elements must concur: a) consent or meeting of the
minds; b) determinate subject matter; and c) price certain in money or its equivalent.
As for the price, fixing it can never be left to the decision of only one of the contracting
parties. But a price fixed by one of the contracting parties, if accepted by the other, gives
rise to a perfected sale.
As regards consent, when there is merely an offer by one party without acceptance of the
other, there is no contract. The decision to accept a bidders proposal must be
communicated to the bidder. However, a binding contract may exist between the parties
whose minds have met, although they did not affix their signatures to any written
document, as acceptance may be expressed or implied. It can be inferred from the
contemporaneous and subsequent acts of the contracting parties. Thus, the Supreme
Court has held:
x x x The rule is that except where a formal acceptance is so required, although the
acceptance must be affirmatively and clearly made and must be evidenced by some
acts or conduct communicated to the offeror, it may be made either in a formal or an
informal manner, and may be shown by acts, conduct, or words of the accepting
party that clearly manifest a present intention or determination to accept the offer to
buy or sell. Thus, acceptance may be shown by the acts, conduct, or words of a party
recognizing the existence of the contract of sale.

Contracts undergo three stages: (a) negotiation that begins from the time the prospective
contracting parties indicate interest in the contract and ends at the moment of their
agreement; (b) perfection or birth that which takes place when the parties agree upon all
the essential elements of the contract; and (c) consummation that occurs when the parties
fulfill or perform the terms agreed upon, culminating in the extinguishment thereof.
Contracts; contract to
sell distinguished from
contract of sale; in a
contract to sell,
ownership remains
with the vendor and
does not pass to the
vendee until full
payment of the
purchase price; a deed
of sale is absolute
when there is no
stipulation in the
contract that title to the
property remains with
the seller until the full
payment of the
purchase price.

Manuel Uy & Sons, Inc. v. Valbueco, Incorporated, G.R. No. 179594, September 11,
2013

Contracts;
denominated in
foreign currency.

Union Bank of the Philippines vs. Spouses Rodolfo T. Tiu and Victoria N. Tiu; G.R.
Nos. 173090-91. September 7, 2011

In a conditional sale, as in a contract to sell, ownership remains with the vendor and does
not pass to the vendee until full payment of the purchase price. The full payment of the
purchase price partakes of a suspensive condition, and non-fulfillment of the condition
prevents the obligation to sell from arising. To differentiate, a deed of sale is absolute
when there is no stipulation in the contract that title to the property remains with the
seller until full payment of the purchase price. Ramos v. Heruela held that Articles 1191
and 1592 of the Civil Code are applicable to contracts of sale, while R.A. No. 6552
applies to contracts to sell.

Such stipulation of payment in dollars is not prohibited by any prevailing law or


jurisprudence at the time the loans were taken. In this regard, Article 1249 of the Civil
Code provides:
Art. 1249. The payment of debts in money shall be made in the currency stipulated,
and if it is not possible to deliver such currency, then in the currency which is legal
tender in the Philippines.
Although the Civil Code took effect on August 30, 1950, jurisprudence had upheld the
continued effectivity of Republic Act No. 529, which took effect earlier on June 16,
1950. Pursuant to Section 1 of Republic Act No. 529, any agreement to pay an obligation
in a currency other than the Philippine currency is void; the most that could be
demanded is to pay said obligation in Philippine currency to be measured in the
prevailing rate of exchange at the time the obligation was incurred. On June 19, 1964,
Republic Act No. 4100 took effect, modifying Republic Act No. 529 by providing for
several exceptions to the nullity of agreements to pay in foreign currency.
On April 13, 1993, Central Bank Circular No. 1389 was issued, lifting foreign exchange
restrictions and liberalizing trade in foreign currency. In cases of foreign borrowings and
foreign currency loans, however, prior Bangko Sentral approval was required. On July
5, 1996, Republic Act No. 8183 took effect, expressly repealing Republic Act No. 529 in
Section 2 thereof. The same statute also explicitly provided that parties may agree that
the obligation or transaction shall be settled in a currency other than Philippine currency
at the time of payment.
Although the Credit Line Agreement between the spouses Tiu and Union Bank was
entered into on November 21, 1995, when the agreement to pay in foreign currency was
still considered void under Republic Act No. 529, the actual loans, as shown in the
promissory notes, were taken out from September 22, 1997 to March 26, 1998, during
which time Republic Act No. 8183 was already in effect. In United Coconut Planters
Bank v. Beluso, we held that:
[O]pening a credit line does not create a credit transaction of loan or mutuum, since the
former is merely a preparatory contract to the contract of loan or mutuum. Under such
credit line, the bank is merely obliged, for the considerations specified therefor, to lend
to the other party amounts not exceeding the limit provided. The credit transaction thus
occurred not when the credit line was opened, but rather when the credit line was
availed of. x x x.

Having established that Union Bank and the spouses Tiu validly entered into dollar
loans, the conclusion of the Court of Appeals that there were no dollar loans to novate
into peso loans must necessarily fail.
Contracts;
determination of
nature of contract

Hur Tin Yang v. People of the Philippines, G.R. No. 195117, August 14, 2013

Contracts; Doctrine of
in pari delicto;
exception.

Domingo Gonzalo v. John Tarnate, Jr., G.R. No. 160600, January 15, 2014

In determining the nature of a contract, courts are not bound by the title or name given
by the parties. The decisive factor in evaluating such agreement is the intention of the
parties, as shown not necessarily by the terminology used in the contract but by their
conduct, words, actions and deeds prior to, during and immediately after executing the
agreement. As such, therefore, documentary and parol evidence may be submitted and
admitted to prove such intention.

According to Article 1412 (1) of the Civil Code, the guilty parties to an illegal contract
cannot recover from one another and are not entitled to an affirmative relief because they
are in pari delicto or in equal fault. The doctrine of in pari delicto is a universal doctrine
that holds that no action arises, in equity or at law, from an illegal contract; no suit can
be maintained for its specific performance, or to recover the property agreed to be sold
or delivered, or the money agreed to be paid, or damages for its violation; and where the
parties are in pari delicto, no affirmative relief of any kind will be given to one against
the other.
Nonetheless, the application of the doctrine of in pari delicto is not always rigid. An
accepted exception arises when its application contravenes well-established public
policy. In this jurisdiction, public policy has been defined as that principle of the law
which holds that no subject or citizen can lawfully do that which has a tendency to be
injurious to the public or against the public good.

Contracts; double
sales; possession;
actual and physical
delivery.

The Roman Catholic Church vs. Pante; G.R. No. 174118, April 11, 2012
A double sale calls for the application of the rules in Article 1544 of the Civil Code, to
wit:
If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if
it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring
it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good
faith was first in the possession; and, in the absence thereof, to the person who
presents the oldest title, provided there is good faith.
Jurisprudence has interpreted possession in Article 1544 of the Civil Code to mean both
actual physical delivery and constructive delivery. Actual delivery of a thing sold occurs
when it is placed under the control and possession of the vendee. Delivery of a thing sold
may also be made constructively. Article 1498 of the Civil Code states that: When the
sale is made through a public instrument, the execution thereof shall be equivalent to the
delivery of the thing which is the object of the contract, if from the deed the contrary
does not appear or cannot clearly be inferred.

Contracts; elements;
stages.

Sargasso Construction & Development Corporation / Pick & Shovel, Inc./Atlantic


Erectors, Inc./ Joint Venture vs. Philippine Ports Authority, G.R. No. 170530, July 5,
2010
Every contract has the following essential elements: (i) consent, (ii) object certain and
(iii) cause. Consent has been defined as the concurrence of the wills of the contracting
parties with respect to the object and cause which shall constitute the contract. In
general, contracts undergo three distinct stages, to wit: negotiation, perfection or birth,
and consummation. Negotiation begins from the time the prospective contracting parties
manifest their interest in the contract and ends at the moment of their agreement.
Perfection or birth of the contract takes place when the parties agree upon the essential
elements of the contract, i.e., consent, object and price. Consummation occurs when the

parties fulfill or perform the terms agreed upon in the contract, culminating in the
extinguishment thereof. The birth or the perfection of the contract, which is the crux of
the present controversy, refers to that moment in the life of a contract when there is
finally a concurrence of the wills of the contracting parties with respect to the object and
the cause of the contract.
Contracts;
enforceability; Statute
of Frauds.

The Municipality of Hagonoy, Bulacan, represented by the Hon. Felix V. Ople,


Municipal Mayor, and Felix V. Ople, in his capacity vs. Hon. Simeon P. Dumdum, Jr.
in his capacity as Presiding Judge of the Regional Trial Court, Branch 7, Cebu City,
et al., G.R. No. 168289, March 22, 2010
The Statute of Frauds found in paragraph (2), Article 1403 of the Civil Code, requires for
enforceability certain contracts enumerated therein to be evidenced by some note or
memorandum. The term Statute of Frauds is descriptive of statutes that require certain
classes of contracts to be in writing; and that do not deprive the parties of the right to
contract with respect to the matters therein involved, but merely regulate the formalities
of the contract necessary to render it enforceable. In other words, the Statute of Frauds
only lays down the method by which the enumerated contracts may be proved. But it
does not declare them invalid because they are not reduced to writing inasmuch as, by
law, contracts are obligatory in whatever form they may have been entered into,
provided all the essential requisites for their validity are present. The object is to prevent
fraud and perjury in the enforcement of obligations depending, for evidence thereof, on
the unassisted memory of witnesses by requiring certain enumerated contracts and
transactions to be evidenced by a writing signed by the party to be charged. The effect of
noncompliance with this requirement is simply that no action can be enforced under the
given contracts. If an action is nevertheless filed in court, it shall warrant a dismissal
under Section 1(i), Rule 16 of the Rules of Court, unless there has been, among others,
total or partial performance of the obligation on the part of either party. It has been
private respondents consistent stand, since the inception of the instant case that she has
entered into a contract with petitioners. As far as she is concerned, she has already
performed her part of the obligation under the agreement by undertaking the delivery of
the 21 motor vehicles contracted for by Ople in the name of petitioner municipality. This
claim is well substantiated at least for the initial purpose of setting out a valid cause
of action against petitioners by copies of the bills of lading attached to the complaint,
naming petitioner municipality as consignee of the shipment. Petitioners have not at any
time expressly denied this allegation and, hence, the same is binding on the trial court for
the purpose of ruling on the motion to dismiss. In other words, since there exists an
indication by way of allegation that there has been performance of the obligation on the
part of respondent, the case is excluded from the coverage of the rule on dismissals
based on unenforceability under the statute of frauds, and either party may then enforce
its claims against the other.

Contracts; estoppel in
pais.

Spouses Victoriano chung and Debbie Chung vs. Ulanday Construction, Inc.; G.R.
No. 156038, October 11, 2010
The petitioners payment of Change Order Nos. 1, 16, and 17 and their non- objection to
the other change orders effected by the respondent cannot give rise to estoppel in pais
that would render the petitioners liable for the payment of all change orders. Estoppel in
pais, or equitable estoppel, arises when one, by his acts, representations or admissions or
by his silence when he ought to speak out, intentionally or through culpable negligence,
induces another to believe certain facts to exist and the other rightfully relies and acts on
such beliefs so that he will be prejudiced if the former is permitted to deny the existence
of such facts. The real office of the equitable norm of estoppel is limited to supplying
deficiency in the law, but it should not supplant positive law.
In this case, the requirement for the petitioners written consent to any change or
alteration in the specifications, plans, and works is explicit in Article 1724 of the Civil
Code and is deemed written in the contract between the parties. The contract also
expressly provides that a mere act of tolerance does not constitute approval. Thus, the
petitioners did not, by accepting and paying for Change Order Nos. 1, 16, and 17, do
away with the contractual term on change orders, nor with the application of Article
1724. The payments for Change Order Nos. 1, 16, and 17 are, at best, acts of tolerance
on the petitioners part that could not modify the contract.

Contracts; extension;

Archbishop Fernando R. Capalla, et al. vs. The Hon. Commission on

performance security;
public bidding.

Elections/Solidarity for Sovereignty etc. G.R. No. 201112/G.R. No. 201121/G.R. No.
201127/G.R. No. 201413. October 23, 2012
The extension of the option period means that the Comelec had more time to determine
the propriety of exercising the option. With the extension, the Comelec could acquire the
subject PCOS machines under the same terms and conditions as earlier agreed upon. The
end result is that the Comelec acquired the subject PCOS machines with its meager
budget and was able to utilize the rentals paid for the 2010 elections as part of the
purchase price.
It must be pointed out that public biddings are held for the best protection of the public
and to give the public the best possible advantages by means of open competition
between the bidders. What are prohibited are modifications or amendments which give
the winning bidder an edge or advantage over the other bidders who took part in the
bidding, or which make the signed contract unfavorable to the government. In this case,
the extension of the option period and the eventual purchase of the subject goods
resulted in more benefits and advantages to the government and to the public in general.
The advantage to the government, time and budget constraints, the application of the
rules on valid amendment of government contracts, and the successful conduct of the
May 2010 elections are among the factors looked into in arriving at the conclusion that
the assailed Resolutions issued by the Comelec and the agreement and deed entered into
between the Comelec and Smartmatic-TIM, are valid.

Contracts; fraud;
concept; dolo
incidente distinguished
from dolo causante.

Contracts; fraud; dolo


incidente and dolo
causante; effect on
contracts.

Alejandro V. Tankeh v. Development Bank of the Philippines, et al., G.R. No. 171428,
November 11, 2013
In Solidbank Corporation v. Mindanao Ferroalloy Corporation, et al.,this Court
elaborated on the distinction between dolo causante and dolo incidente: Fraud refers to
all kinds of deception whether through insidious machination, manipulation,
concealment or misrepresentation that would lead an ordinarily prudent person into
error after taking the circumstances into account. In contracts, a fraud known as dolo
causante or causal fraud is basically a deception used by one party prior to or
simultaneous with the contract, in order to secure the consent of the other. Needless to
say, the deceit employed must be serious. In contradistinction, only some particular or
accident of the obligation is referred to by incidental fraud or dolo incidente, or that
which is not serious in character and without which the other party would have entered
into the contract anyway.
Alejandro V. Tankeh v. Development Bank of the Philippines, et al., G.R. No. 171428,
November 11, 2013
The distinction between fraud as a ground for rendering a contract voidable or as basis
for an award of damages is provided in Article 1344: In order that fraud may make a
contract voidable, it should be serious and should not have been employed by both
contracting parties. Incidental fraud only obliges the person employing it to pay
damages. (1270) There are two types of fraud contemplated in the performance of
contracts: dolo incidente or incidental fraud and dolo causante or fraud serious enough to
render a contract voidable.
This fraud or dolo which is present or employed at the time of birth or perfection of a
contract may either be dolo causante or dolo incidente. The first, or causal fraud referred
to in Article 1338, are those deceptions or misrepresentations of a serious character
employed by one party and without which the other party would not have entered into
the contract. Dolo incidente, or incidental fraud which is referred to in Article 1344, are
those which are not serious in character and without which the other party would still
have entered into the contract. Dolo causante determines or is the essential cause of the
consent, while dolo incidente refers only to some particular or accident of the obligation.
The effects of dolo causante are the nullity of the contract and the indemnification of
damages, and dolo incidente also obliges the person employing it to pay damages.

Contracts; fraud;
quantum of evidence
required to prove
existence of; clear and
convincing evidence.

Alejandro V. Tankeh v. Development Bank of the Philippines, et al., G.R. No. 171428,
November 11, 2013
Neither law nor jurisprudence distinguishes whether it is dolo incidente or dolo causante
that must be proven by clear and convincing evidence. It stands to reason that both dolo
incidente and dolo causante must be proven by clear and convincing evidence. The only

question is whether this fraud, when proven, may be the basis for making a contract
voidable (dolo causante), or for awarding damages (dolo incidente), or both.
The standard of proof required is clear and convincing evidence. This standard of proof
is derived from American common law. It is less than proof beyond reasonable doubt
(for criminal cases) but greater than preponderance of evidence (for civil cases). The
degree of believability is higher than that of an ordinary civil case. Civil cases only
require a preponderance of evidence to meet the required burden of proof. However,
when fraud is alleged in an ordinary civil case involving contractual relations, an entirely
different standard of proof needs to be satisfied. The imputation of fraud in a civil case
requires the presentation of clear and convincing evidence. Mere allegations will not
suffice to sustain the existence of fraud. The burden of evidence rests on the part of the
plaintiff or the party alleging fraud. The quantum of evidence is such that fraud must be
clearly and convincingly shown.
Contracts; fraud.

Sps. Fernando and Lourdes Viloria vs. Continental Airlines, Inc.,G.R. No. 188288.
January 16, 2012
Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of
the contracting parties was obtained through fraud, the contract is considered voidable
and may be annulled within four (4) years from the time of the discovery of the fraud.
Once a contract is annulled, the parties are obliged under Article 1398 of the same Code
to restore to each other the things subject matter of the contract, including their fruits and
interest.
Under Article 1338 of the Civil Code, there is fraud when, through insidious words or
machinations of one of the contracting parties, the other is induced to enter into a
contract which, without them, he would not have agreed to. In order that fraud may
vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo
incidente), inducement to the making of the contract. Causal fraud has been defined as a
deception employed by one party prior to or simultaneous to the contract in order to
secure the consent of the other. Fraud must be serious and its existence must be
established by clear and convincing evidence, mere preponderance of evidence is not
adequate. Quoting Tolentino, the Court ruled that the misrepresentation constituting the
fraud must be established by full, clear, and convincing evidence, and not merely by a
preponderance thereof. The deceit must be serious. The fraud is serious when it is
sufficient to impress, or to lead an ordinarily prudent person into error; that which cannot
deceive a prudent person cannot be a ground for nullity. The circumstances of each case
should be considered, taking into account the personal conditions of the victim.

Contracts; freedom to
stipulate.

P.L. Uy Realty Corporation vs. ALS Management and Development Corporation and
Antonio K. Litonjua G.R. No. 166642. October 24, 2012
Art. 1306 of the Civil Code guarantees the freedom of parties to stipulate the terms of
their contract provided that they are not contrary to law, morals, good customs, public
order, or public policy. Here, both parties knew for a fact that the property subject of
their contract was occupied by informal settlers, whose eviction would entail court
actions that in turn, would require some amount of time. They also knew that the length
of time that would take to conclude such court actions was not within their power to
determine. Despite such knowledge, both parties still agreed to the stipulation that the
payment of the balance of the purchase price will be deferred until the informal settlers
are ejected. Thus, PLU cannot be allowed to renege on its agreement. The parties
intended the performance of the obligation until the squatters are duly evicted.

Contracts; fulfillment
of condition.

Raymundo S. De Leon vs. Benita T. Ong, G.R. No. 170405, February 2, 2010
Even assuming arguendo that the agreement of the parties was subject to the condition
that RSLAI had to approve the assumption of mortgage, the said condition was
considered fulfilled as petitioner prevented its fulfillment by paying his outstanding
obligation and taking back the certificates of title without even notifying respondent. In
this connection, Article 1186 of the Civil Code provides: Article 1186. The condition
shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.

Contracts; future
inheritance;

De Belen Vda. de Cabalu, et al. v. Tabu, et al.; G.R. No. 188417. September 24, 2012

contractual capacity

Under Article 1347 of the Civil Code, no contract may be entered into upon future
inheritance except in cases expressly authorized by law. Paragraph 2 of Article 1347
characterizes a contract entered into upon future inheritance as void. The law applies
when the following requisites concur: (1) the succession has not yet been opened; (2) the
object of the contract forms part of the inheritance; and (3) the promissor has, with
respect to the object, an expectancy of a right which is purely hereditary in nature.

Contracts; government
contracts; when
perfected.

Sargasso Construction & Development Corporation / Pick & Shovel, Inc./Atlantic


Erectors, Inc./ Joint Venture vs. Philippine Ports Authority, G.R. No. 170530, July 5,
2010
A government or public contract has been defined as a contract entered into by state
officers acting on behalf of the state, and in which the entire people of the state are
directly interested. It relates wholly to matter of public concern, and affects private rights
only so far as the statute confers such rights when its provisions are carried out by the
officer to whom it is confided to perform.
A government contract is essentially similar to a private contract contemplated under the
Civil Code. The legal requisites of consent of the contracting parties, an object certain
which is the subject matter, and cause or consideration of the obligation must likewise
concur. Otherwise, there is no government contract to speak of. On the matter of entering
into negotiated contracts by government-owned and controlled corporations, the
provisions of existing laws are crystal clear in requiring the governing boards approval
thereof.
Petitioner neither disputes nor admits the application of the foregoing statutory
provisions but insists, nonetheless, that the Notice of Award itself already embodies a
perfected contract having passed the negotiation stage] despite the clear absence thereon
of a condition requiring the prior approval of respondents higher authority.
Petitioners argument is untenable. Contracts to which the government is a party are
generally subject to the same laws and regulations which govern the validity and
sufficiency of contracts between private individuals. A government contract, however, is
perfected only upon approval by a competent authority, where such approval is required.

Contracts; Hold-out
clause; applies only if
there is a valid and
existing obligation
arising from any of the
sources of obligation
enumerated in Article
1157.

Metropolitan Bank & Trust Company v. Ana Grace Rosales and Yo Yuk To, G.R. No.
183204, January 13, 2014

Contracts; inadequacy
of consideration does
not render the contract
void; need not be
monetary.

Eduardo M. Cojuangco, Jr. vs. Republic of the Philippines; G.R. No. 180705.
November 27, 2012

Contracts; insufficient
consideration.

Golden Apple Realty & Development Corporation and Rosvibon Realty Corporation
vs. Sierra Grande Realty Corporation, Manphil Investment Corporation, Renan V.
Santos and Patricio Mamaril, G.R. No. 119857, July 28, 2010

Considering that respondent Rosales is not liable under any of the five sources of
obligation, there was no legal basis for petitioner to issue the Hold Out order.
The Hold Out clause applies only if there is a valid and existing obligation arising
from any of the sources of obligation enumerated in Article 1157 of the Civil Code, to
wit: law, contracts, quasi-contracts, delict, and quasi-delict. In this case, petitioner failed
to show that respondents have an obligation to it under any law, contract, quasi-contract,
delict, or quasi-delict. And although a criminal case was filed by petitioner against
respondent Rosales, this is not enough reason for petitioner to issue a Hold Out order
as the case is still pending and no final judgment of conviction has been rendered against
respondent Rosales. In fact, it is significant to note that at the time petitioner issued the
Hold Out order, the criminal complaint had not yet been filed. Thus, considering that
respondent Rosales is not liable under any of the five sources of obligation, there was no
legal basis for petitioner to issue the Hold Out order.

Inadequacy of consideration does not vitiate a contract unless it is proven which in the
case at bar was not, that there was fraud, mistake or undue influence. While
consideration is usually in the form of money or property, it need not be monetary.

The Supreme Court upheld the finding of the Court of Appeals that there was insufficient

of consideration, and that while inadequacy of price does not invalidate a contract, the
said rule is not without an exception. As provided in the Civil Code:
Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not
invalidate a contract, unless there has been fraud, mistake or undue influence.
The Court of Appeals was clear as to its main reason for invalidating the contracts in
question there was fraud. The inadequacy of price was merely one of the
circumstances upon which the Court of Appeals was able to find the existence of fraud
and was not the main cause for the invalidation of the subject contracts.
For the readers information, heres a portion of the decision showing the circumstances
which led the court to determine there was inadequacy of consideration: It must be
noted that the property in question, subject of the Contract to Sell for the sum of
P441,032.00, is a land with a contained area of, more or less, One Thousand Nine
Hundred and One (1,901) sq. m. with a two-storey residential building located in Pasay
City. In claiming that the said price of the property is not inadequate, petitioners stated
that the payment of Elmer Tan to pre-terminate Hayaris obligation amounting to Three
Million One Hundred Thirty-Four Thousand Nine Hundred Twenty-One Pesos
(P3,134,921.00) as part of the consideration paid for the property should be included.
However, as correctly argued by respondent Sierra Grande, the amortizations paid by
Elmer Tan to Manphil was for a loan incurred by Hayari and not by respondent Sierra
Grande; thus, any payment of the amortizations on the loan of Hayari cannot be
considered as part of the consideration for the sale of the land owned by respondent
Sierra Grande. It is then safe to declare that respondent Sierra Grande did not benefit
from the loan or from its pre- termination. Moreover, the records are bereft of any
evidence to support the claim of petitioners that the sum of money paid by Elmer Tan, on
behalf of Hayari, was part of the consideration for the same property. What only appears
is that the only consideration paid for the sale of the Roberts property was the sum
contained in the Contract to Sell, which was P441,032.00 which, considering the size
and location of the property, is inadequate. What prompted Elmer Tan to pay the total
amount of P3,134,921.00 cannot be gleaned from the records, except that it was for the
loan incurred by Hayari, which is an independent juridical entity, separate and distinct
from Sierra Grande. Hence, the Court of Appeals did not commit any error in declaring
that there was an insufficiency of consideration or price as the same is shown on the very
face of the Contract to Sell.
Contracts; interest rate
applicable.

Pan Pacific Service Contractors, Inc. et al. vs. Equitable PCI Bank, etc., G.R. No.
169975, March 18, 2010
The issue in this case is the interest rate applicable for respondents delay in the payment
of the balance of the price adjustment.
Petitioners submit that the CA, in awarding the unpaid balance of the price adjustment,
erred in fixing the interest rate at 12% instead of the 18% bank lending rate. In this
appeal, petitioners allege that the contract between the parties consists of two parts, the
Agreement and the General Conditions, both of which provide for interest at the bank
lending rate on any unpaid amount due under the contract. Petitioners further claim that
there is nothing in the contract which requires the consent of the respondent to be given
in order that petitioners can charge the bank lending rate. In this case, the CA already
settled that petitioners consulted respondent on the imposition of the price adjustment,
and held respondent liable for the balance of P1,516,015.07. Respondent did not appeal
from the decision of the CA; hence, respondent is estopped from contesting such fact.
However, the CA went beyond the intent of the parties by requiring respondent to give
its consent to the imposition of interest before petitioners can hold respondent liable for
interest at the current bank lending rate.
This is erroneous. A review of Section 2.6 of the Agreement and Section 60.10 of the
General Conditions shows that the consent of the respondent is not needed for the
imposition of interest at the current bank lending rate, which occurs upon any delay in
payment. When the terms of a contract are clear and leave no doubt as to the intention of
the contracting parties, the literal meaning of its stipulations governs. In these cases,
courts have no authority to alter a contract by construction or to make a new contract for
the parties. The Courts duty is confined to the interpretation of the contract which the
parties have made for themselves without regard to its wisdom or folly as the court
cannot supply material stipulations or read into the contract words which it does not

contain. It is only when the contract is vague and ambiguous that courts are permitted to
resort to construction of its terms and determine the intention of the parties. The
escalation clause must be read in conjunction with Section 2.5 of the Agreement and
Section 60.10 of the General Conditions which pertain to the time of payment. Once the
parties agree on the price adjustment after due consultation in compliance with the
provisions of the escalation clause, the agreement is in effect an amendment to the
original contract, and gives rise to the liability of respondent to pay the adjusted costs.
Under Section 60.10 of the General Conditions, the respondent shall pay such liability to
the petitioner within 28 days from issuance of the interim certificate. Upon respondents
failure to pay within the time provided (28 days), then it shall be liable to pay the
stipulated interest. This is the logical interpretation of the agreement of the parties on the
imposition of interest. To provide a contrary interpretation, as one requiring a separate
consent for the imposition of the stipulated interest, would render the intentions of the
parties nugatory. As to the applicable rate, under Article 2209 of the Civil Code, the
appropriate measure for damages in case of delay in discharging an obligation consisting
of the payment of a sum of money is the payment of penalty interest at the rate agreed
upon in the contract of the parties. In the absence of a stipulation of a particular rate of
penalty interest, payment of additional interest at a rate equal to the regular monetary
interest becomes due and payable. Finally, if no regular interest had been agreed upon by
the contracting parties, then the damages payable will consist of payment of legal
interest which is 6%, or in the case of loans or forbearances of money, 12% per annum.
It is only when the parties to a contract have failed to fix the rate of interest or when such
amount is unwarranted that the Court will apply the 12% interest per annum on a loan or
forbearance of money. The written agreement entered into between petitioners and
respondent provides for an interest at the current bank lending rate in case of delay in
payment and the promissory note charged an interest of 18%. To prove petitioners
entitlement to the 18% bank lending rate of interest, petitioners presented the promissory
note prepared by respondent bank itself. This promissory note, although declared void by
the lower courts because it did not express the real intention of the parties, is substantial
proof that the bank lending rate at the time of default was 18% per annum. Absent any
evidence of fraud, undue influence or any vice of consent exercised by petitioners
against the respondent, the interest rate agreed upon is binding on them.
Contracts;
interpretation thereof;
intention of the
parties; relativity of
contracts; credit line;
definition; trust
receipt; characteristics;
coverage; contract of
adhesion; generally
not a one-sided
document; interest
rate; parties have the
right to agree on rate
of interest; interest rate
must not be excessive,
iniquitous,
unconscionable and
exorbitant; attorneys
fees; award must rest
on a factual basis and
legal justification
stated in the body of
the decision under
review.

Sps. Dela Cruz vs. Planters Products, Inc.; G.R. No. 158649. February 18, 2013
If the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control. In determining
their intention, their contemporaneous and subsequent acts shall be principally
considered.
Under the notion of relativity of contracts embodied in Article 1311 of the Civil Code,
contracts take effect only between the parties, their assigns and heirs. Hence, the farmerparticipants, not being themselves parties to the contractual documents signed by Gloria,
were not to be thereby liable.
A credit line is really a loan agreement between the parties. According to Rosario Textile
Mills Corporation v. Home Bankers Savings and Trust Co.:
x x x [A] credit line is that amount of money or merchandise which a banker, a
merchant, or supplier agrees to supply to a person on credit and generally agreed to in
advance. It is a fixed limit of credit granted by a bank, retailer, or credit card issuer to a
customer, to the full extent of which the latter may avail himself of his dealings with the
former but which he must not exceed and is usually intended to cover a series of
transactions in which case, when the customers line of credit is nearly exhausted, he is
expected to reduce his indebtedness by payments before making any further drawings.
A trust receipt is a security transaction intended to aid in financing importers and retail
dealers who do not have sufficient funds or resources to finance the importation or
purchase of merchandise, and who may not be able to acquire credit except through
utilization, as collateral, of the merchandise imported or purchased. It is a security
agreement that secures an indebtedness and there can be no such thing as security
interest that secures no obligation.
The contract, its label notwithstanding, was not a trust receipt transaction in legal
contemplation or within the purview of the Trust Receipts Law (Presidential Decree No.

115) such that its breach would render Gloria criminally liable for estafa. Under Section
4 of the Trust Receipts Law, the sale of goods by a person in the business of selling
goods for profit who, at the outset of the transaction, has, as against the buyer, general
property rights in such goods, or who sells the goods to the buyer on credit, retaining
title or other interest as security for the payment of the purchase price, does not
constitute a trust receipt transaction and is outside the purview and coverage of the law.
In Land Bank v. Perez, the Court has elucidated on the coverage of Section 4 (of the
Trust Receipts Law), to wit:
There are two obligations in a trust receipt transaction. The first is covered by the
provision that refers to money under the obligation to deliver it (entregarla) to the owner
of the merchandise sold. The second is covered by the provision referring to
merchandise received under the obligation to return it (devolverla) to the owner. Thus,
under the Trust Receipts Law, intent to defraud is presumed when (1) the entrustee fails
to turn over the proceeds of the sale of goods covered by the trust receipt to the entruster;
or (2) when the entrustee fails to return the goods under trust, if they are not disposed of
in accordance with the terms of the trust receipts.
In all trust receipt transactions, both obligations on the part of the trustee exist in the
alternative the return of the proceeds of the sale or the return or recovery of the goods,
whether raw or processed. When both parties enter into an agreement knowing that
the return of the goods subject of the trust receipt is not possible even without any
fault on the part of the trustee, it is not a trust receipt transaction penalized under
Section 13 of P.D. 115; the only obligation actually agreed upon by the parties
would be the return of the proceeds of the sale transaction. This transaction
becomes a mere loan, where the borrower is obligated to pay the bank the amount
spent for the purchase of the goods.
A contract of adhesion prepared by one party, usually a corporation, is generally not a
one-sided document as long as the signatory is not prevented from studying it before
signing. ... At any rate, the social stature of the parties, the nature of the transaction, and
the amount involved were also factors to be considered in determining whether the
aggrieved party exercised adequate care and diligence in studying the contract prior to
its execution. Thus, [u]nless a contracting party cannot read or does not understand the
language in which the agreement is written, he is presumed to know the import of his
contract and is bound thereby.
The Usury Law allowed the parties in a loan agreement to exercise discretion on the
interest rate to be charged. Once a judicial demand for payment has been made, however,
Article 2212 of the Civil Code should apply, that is: Interest due shall earn legal interest
from the time it is judicially demanded, although the obligation may be silent upon this
point.
The Central Bank circulars on interest rates granted to the parties leeway on the rate of
interest agreed upon. In this regard, the Court has said:
The Usury Law had been rendered legally ineffective by Resolution No. 224 dated 3
December 1982 of the Monetary Board of the Central Bank, and later by Central
Bank Circular No. 905 (Amendment of Books I to IV of the Manual of Regulations
for Banks and Other Financial Intermediaries) which took effect on 1 January 1983.
These circulars removed the ceiling on interest rates for secured and unsecured loans
regardless of maturity. The effect of these circulars is to allow the parties to agree on
any interest that may be charged on a loan. The virtual repeal of the Usury Law is
within the range of judicial notice which courts are bound to take into account.
Although interest rates are no longer subject to a ceiling, the lender does not have an
unbridled license to impose increased interest rates. The lender and the borrower
should agree on the imposed rate, and such imposed rate should be in writing.
Accordingly, the interest rate agreed upon should not be excessive, iniquitous,
unconscionable and exorbitant; otherwise, the Court may declare the rate illegal.
The award of attorneys fees must rest on a factual basis and legal justification stated in
the body of the decision under review. Absent the statement of factual basis and legal
justification, attorneys fees are to be disallowed. In Abobon v. Abobon, the Court has
expounded on the requirement for factual basis and legal justification in order to warrant
the grant of attorneys fees to the winning party, viz:
As to attorneys fees, the general rule is that such fees cannot be recovered by a

successful litigant as part of the damages to be assessed against the losing party
because of the policy that no premium should be placed on the right to litigate.
Indeed, prior to the effectivity of the present Civil Code, such fees could be
recovered only when there was a stipulation to that effect. It was only under the
present Civil Code that the right to collect attorneys fees in the cases mentioned in
Article 2208 of the Civil Code came to be recognized. Such fees are now included in
the concept of actual damages.
Even so, whenever attorneys fees are proper in a case, the decision rendered therein
should still expressly state the factual basis and legal justification for granting them.
Granting them in the dispositive portion of the judgment is not enough; a discussion
of the factual basis and legal justification for them must be laid out in the body of the
decision.
Contracts;
interpretation; general
versus specific terms.

Valentin Movido substituted by Marginito Movido vs. Luisa Reyes Pastor, G.R.


No. 172279, February 11, 2010
In this connection, the kasunduan sa bilihan ng lupa contains the general terms and
conditions of the agreement of the parties. On the other hand, the kasunduan refers to a
particular or specific matter, i.e., that portion of the land that is traversed by a Napocor
power line. As the kasunduan pertains to a special area of the agreement, it constitutes an
exception to the general provisions of the kasunduan sa bilihan ng lupa, particularly on
the purchase price for that portion. Specialibus derogat generalibus.

Contracts;
interpretation;
two
contracts on same
matter considered a
single agreement.

Valentin Movido substituted by Marginito Movido vs. Luisa Reyes Pastor, G.R. No.
172279, February 11, 2010

Contracts;
interpretation.

Virgilio S. David vs. Misamis Occidental II Electric Cooperative, Inc.; G.R. No.
194785, July 11, 2012.

Parties had executed two contracts (a kasunduan, and a kasunduan sa bilihan ng lupa) the
import of which the lower courts had read in differing ways, depending on which
document the court thought had been executed first. The Supreme Court opined that the
issue of which of the two contracts was first executed by the parties is immaterial to the
resolution of this case. In the first place, both contracts were executed and notarized on
the same day, December 6, 1993. More importantly, both contracts, even independent of
the time of their execution but, taken together, clearly spell out in full the respective
rights and obligations of the parties. A reading of the kasunduan sa bilihan ng lupa and
the kasunduan would readily reveal that payment of the purchase price does not depend
on the survey of the property. In other words, the purchase price should be paid whether
or not the property is surveyed. The survey of the property is important only insofar as
the right of respondent to the reduction of the purchase price is concerned. On the other
hand, the survey of the property to determine the metes and bounds of the 1,731 sq. m.
portion that is excluded from the contract as well as the portions covered by the
kasunduan which will be subject to reduction of the purchase price, is also not
conditioned on the payment of any installment. Petitioner simply has to do it. In fact,
under the kasunduan sa bilihan ng lupa, the survey should be done before the date of the
last installment. Hence, the survey could have been done anytime after the execution of
the agreement. The kasunduan sa bilihan ng lupa and the kasunduan should both be
given effect rather than be declared conflicting, if there is a way of reconciling them.
Petitioner and respondent would not have entered into either of the agreements if they
did not intend to be bound or governed by them. Indeed, taken together, the two
agreements actually constitute a single contract pertaining to the sale of a land to
respondent by petitioner. Their stipulations must therefore be interpreted together,
attributing to the doubtful ones that sense that may result from all of them taken jointly.
Their proper construction must be one that gives effect to all.

The rule is that it is not the title of the contract, but its express terms or stipulations that
determine the kind of contract entered into by the parties.
Contracts; invalidation
on ground of notarial
infirmity. Petitioners

Golden Apple Realty & Development Corporation and Rosvibon Realty Corporation
vs. Sierra Grande Realty Corporation, Manphil Investment Corporation, Renan V.
Santos and Patricio Mamaril, G.R. No. 119857, July 28, 2010
Petitioners claim that, since the representatives of the corporations which executed the

Deed of Absolute Sale appeared before the Notary Public, the acknowledgment was
complied with, even if they admitted that the representatives did not present their
residence certificates nor indicate the number, date and place of issue of the same
residence certificates in the acknowledgment. As shown in the records and in the
testimony of the notary, the requirement of the presentation of the residence certificate
was missing.
Contracts; issue is lack
of consideration and
gross inadequacy is
not relevant.

Heirs of Policronio M. Ureta, Sr., namely: Conrado B. Ureta, et al. vs. Heirs of
Liberato M. Ureta, namely: Teresa F. Ureta, et al./Heirs of Liberato M. Ureta, namely:
Teresa F. Ureta, et al. vs. Heirs of Policronio M. Ureta, Sr., namely: Conrado B.
Ureta, et al.; G.R. No. 165748/G.R. No. 165930, September 14, 2011
It is well-settled in a long line of cases that where a deed of sale states that the purchase
price has been paid but in fact has never been paid, the deed of sale is null and void for
lack of consideration. Thus, although the contract states that the purchase price of
2,000.00 was paid by Policronio to Alfonso for the subject properties, it has been
proven that such was never in fact paid as there was no money involved. It must,
therefore, follow that the Deed of Sale is void for lack of consideration. Given that the
Deed of Sale is void, it is unnecessary to discuss the issue on the inadequacy of
consideration.

Contracts; lack of
adequate
consideration.

Carmela Brobio Mangahas vs. Eufrocina A. Brobio; G.R. No. 183852, October 20,
2010
A contract is presumed to be supported by cause or consideration. The presumption that
a contract has sufficient consideration cannot be overthrown by a mere assertion that it
has none. To overcome the presumption, the alleged lack of consideration must be shown
by preponderance of evidence. The burden to prove lack of consideration rests upon
whoever alleges it, which, in the present case, is respondent and respondent failed to do
so. From her testimony and her assertions in the pleadings, it is clear that the promissory
note was issued for a cause or consideration, which, at the very least, was petitioners
signature on the document.
It may very well be argued that if such was the consideration, it was inadequate.
Nonetheless, even if the consideration is inadequate, the contract would not be
invalidated, unless there has been fraud, mistake, or undue influence. None of these
grounds had been proven present in this case.

Contracts; law
between the parties.

Spouses Victoriano Chung and Debbie Chung vs. Ulanday Construction, Inc.; G.R.
No. 156038, October 11, 2010
In contractual relations, the law allows the parties leeway and considers their agreement
as the law between them. Contract stipulations that are not contrary to law, morals, good
customs, public order or public policy shall be binding and should be complied with in
good faith. No party is permitted to change his mind or disavow and go back upon his
own acts, or to proceed contrary thereto, to the prejudice of the other party.

Contracts; lease
contracts; lease
contracts survive the
death of the parties
and continue to bind
the heirs except if the
contract states
otherwise; the
provision in the lease
contract stating that
this contract is
nontransferable unless
prior written consent
of the lessor is
obtained in writing
refers to transfers inter
vivos and not
transmissions mortis

Manuel Uy & Sons, Inc. v. Valbueco, Incorporated, G.R. No. 179594, September 11,
2013
The Supreme Court has previously ruled that lease contracts, by their nature, are not
personal. The general rule, therefore, is lease contracts survive the death of the parties
and continue to bind the heirs except if the contract states otherwise. In Sui Man Hui
Chan v. Court of Appeals, we held that: A lease contract is not essentially personal in
character. Thus, the rights and obligations therein are transmissible to the heirs. The
general rule, therefore, is that heirs are bound by contracts entered into by their
predecessors-in-interest except when the rights and obligations arising therefrom are not
transmissible by (1) their nature, (2) stipulation or (3) provision of law. In the subject
Contract of Lease, not only were there no stipulations prohibiting any transmission of
rights, but its very terms and conditions explicitly provided for the transmission of the
rights of the lessor and of the lessee to their respective heirs and successors. The contract
is the law between the parties. The death of a party does not excuse nonperformance of a
contract, which involves a property right, and the rights and obligations thereunder pass
to the successors or representatives of the deceased. Similarly, nonperformance is not
excused by the death of the party when the other party has a property interest in the

causa.

subject matter of the contract. Section 6 of the lease contract provides that [t]his
contract is nontransferable unless prior consent of the lessor is obtained in writing.
Section 6 refers to transfers inter vivos and not transmissions mortis causa. What Section
6 seeks to avoid is for the lessee to substitute a third party in place of the lessee without
the lessors consent.

Contracts; lease
contracts; lessees
right upon the
termination of the
lease to (a) claim
reimbursement from
the lessor for half the
value of the useful
improvements
introduced by the
lessee in good faith, or
to (b) demolish of such
improvements.

Manuel Uy & Sons, Inc. v. Valbueco, Incorporated, G.R. No. 179594, September 11,
2013
The CA erred in not applying Article 1678 of the Civil Code which provides: Art. 1678.
If the lessee makes, in good faith, useful improvements which are suitable to the use for
which the lease is intended, without altering the form or substance of the property leased,
the lessor upon the termination of the lease shall pay the lessee one-half of the value of
the improvements at that time. Should the lessor refuse to reimburse said amount, the
lessee may remove the improvements, even though the principal thing may suffer
damage thereby. He shall not, however, cause any more impairment upon the property
leased than is necessary. With regard to ornamental expenses, the lessee shall not be
entitled to any reimbursement, but he may remove the ornamental objects, provided no
damage is caused to the principal thing, and the lessor does not choose to retain them by
paying their value at the time the lease is extinguished.
The foregoing provision applies if the improvements were: (1) introduced in good faith;
(2) useful; and (3) suitable to the use for which the lease is intended, without altering the
form and substance. We find that the aforementioned requisites are satisfied in this case.
The buildings were constructed before Germans demise, during the subsistence of a
valid contract of lease. It does not appear that HDSJ prohibited German from
constructing the buildings. Thus, HDSJ should have reimbursed German (or his estate)
half of the value of the improvements as of 2001. If HDSJ is not willing to reimburse the
Inocencios, then the latter should be allowed to demolish the buildings.

Contracts; lease
contracts; sublease
arrangement; concept.

Manuel Uy & Sons, Inc. v. Valbueco, Incorporated, G.R. No. 179594, September 11,
2013
Assignment or transfer of lease, which is covered by Article 1649 of the Civil Code, is
different from a sublease arrangement, which is governed by Article 1650 of the same
Code. In a sublease, the lessee becomes in turn a lessor to a sub-lessee. The sub-lessee
then becomes liable to pay rentals to the original lessee. However, the juridical relation
between the lessor and lessee is not dissolved. The parties continue to be bound by the
original lease contract. Thus, in a sublease arrangement, there are at least three parties
and two distinct juridical relations.

Contracts; lump sum


for piece of work.

Leighton Contractors Philippines, Inc. vs. CNP Industries, Inc., G.R. No. 160972,
March 9, 2010
The parties entered into a contract for a piece of work whereby petitioner engaged
respondent as contractor to build and provide the necessary materials for the construction
of the structural steel works of HJIs fiber cement plant for a fixed lump-sum priceof
P44,223,909. The scope of work was defined in the subcontract as the completion of the
structural steel works according to the main drawing, technical specifications and the
main contract. Thus, to determine whether the roof ridge ventilation and crane beams
were included in the scope of work, reference to the main drawing, technical
specifications and main contract is necessary. The main contract stated that the structural
steel works included Drawing Nos. P302-6200-S-405 and P302-6200-S-402. This,
according to petitioner and respondent, referred to the roof ridge ventilation and crane
beams. Hence, the said works were clearly included in the sub-contract works.
Nevertheless, respondent contends that when Bennett signed the August 12, 1997
progress report, petitioner approved the additional cost estimates, in effect modifying the
original agreement in the subcontract. In contracts for a stipulated price like fixed lumpsum contracts, the recovery of additional costs is governed by Article 1724 of the Civil
Code. Settled is the rule that a claim for the cost of additional work arising from changes
in the scope of work can only be allowed upon the (1) written authority from the
developer or project owner ordering or allowing the written changes in work and (2)
written agreement of parties with regard to the increase in price or cost due to the change
in work or design modification. Furthermore, compliance with the two requisites of
Article 1724, a specific provision governing additional works, is a condition precedent

for the recovery. The absence of one or the other condition bars the recovery of
additional costs. Neither the authority for the changes made nor the additional price to be
paid therefor may be proved by any other evidence. Respondent, in this instance,
presented the August 12, 1997 progress report signed by Bennett. However, respondent
knew that Bennett was not authorized to order any changes in the scope of works or to
approve the cost thereof. It addressed all correspondences relating to the project to
(petitioners) project manager Michael Dent, not Bennett. Moreover, Bennett did not
sign the subcontract for and in behalf of respondent but only as a witness. Respondent
was therefore aware of Bennetts lack of authority. In this respect, aside from
respondents failure to present the documents required by Article 1724 of the Civil Code,
we find that the sub-contract was never modified. Petitioner therefore cannot be liable
for the additional costs incurred by respondent. In a fixed lump-sum contract, the project
owner agrees to pay the contractor a specified amount for completing a scope of work
involving a variety of unspecified items of work without requiring a cost breakdown.
The contractor estimates the project cost based on the scope of work and schedule and
considers probable errors in measurement and changes in the price of materials. By
entering into a fixed lump-sum contract, respondent undertook the risk of incurring a
loss due to errors in measurement. The sub-contract explicitly stated that the stipulated
price was not subject to remeasurement. Since the roof ridge ventilation and crane beams
were included in the scope of work, respondent was presumed to have estimated the
quantity of steel (the minimum and maximum amount) needed on the said portions when
it made its formal offer on July 5, 1997. Concomitantly, by the very nature of a fixed
lump-sum contract, petitioner was only liable to pay the stipulated subcontract price.
Contracts; lump-sum
contracts.

Spouses Victoriano Chung and Debbie Chung vs. Ulanday Construction, Inc.; G.R.
No. 156038, October 11, 2010
Article 1724 of the Civil Code governs the recovery of additional costs in contracts for a
stipulated price (such as fixed lump-sum contracts), and the increase in price for
additional work due to change in plans and specifications. Such added cost can only be
allowed upon the: (a) written authority from the developer or project owner ordering or
allowing the written changes in work, and (b) written agreement of parties with regard to
the increase in price or cost due to the change in work or design modification.
Compliance with these two requisites is a condition precedent for the recovery. The
absence of one or the other condition bars the recovery of additional costs. Neither the
authority for the changes made nor the additional price to be paid therefor may be
proved by any other evidence.

Contracts; meaning of
badges of fraud;
ordinary meaning
versus Article 1602
meaning.

Golden Apple Realty & Development Corporation and Rosvibon Realty Corporation
vs. Sierra Grande Realty Corporation, Manphil Investment Corporation, Renan V.
Santos and Patricio Mamaril, G.R. No. 119857, July 28, 2010
Petitioners claim that the Court of Appeals misused the term badges of fraud in reaching
its decision. According to them, Article 1602, upon which the term badges of fraud
refers to, is not applicable, because the said article refers to a sale with a right to
repurchase, whereas the subject invalidated contracts were absolute sales. They cited a
case where this Court pronounced that, badges of fraud is a circumstance in Article 1602
of the Civil Code, which, if present in any given transaction, gives rise to the
presumption that it is not a sale but an equitable mortgage. Thus, according to
petitioners, the CA confused Article 1602 (1) with that of Article 1470, because both
articles deal with sale in general and have inadequacy of price as subject matter. Either
way, they argue, the inadequacy of the price does not result in the cancellation or
invalidation of contracts.
However, a close reading of the Court of Appeals decision would reveal that the said
court used the phrase badges of fraud to refer to certain fraudulent acts that attended the
execution of the Contract to Sell and the Deeds of Absolute Sale which would eventually
tend to prove that the same transactions were indeed suspicious as the said contracts
were antedated, simulated and fraudulent. As used by the Court of Appeals, the phrase
did not refer to any particular provision of a law. Hence, the general and ordinary
meaning of the phrase prevails. In the same manner, this Court, in numerous cases
concerning various subjects, has used the same phrase in its rulings referring to the said
phrases general and ordinary meaning.

Contracts; mistake;

The Roman Catholic Church vs. Pante; G.R. No. 174118, April 11, 2012

voidable contract.
For mistake as to the qualification of one of the parties to vitiate consent, two requisites
must concur:
1. the mistake must be either with regard to the identity or with regard to the
qualification of one of the contracting parties; and
2. the identity or qualification must have been the principal consideration for the
celebration of the contract.
Contracts; Mortgage;
nature of mortgage.

Development Bank of the Philippines (DBP) v. Guarina Agricultural and Realty


Development Corporation, G.R. No. 160758. January 15, 2014
It is true that loans are often secured by a mortgage constituted on real or personal
property to protect the creditors interest in case of the default of the debtor. By its
nature, however, a mortgage remains an accessory contract dependent on the principal
obligation, such that enforcement of the mortgage contract will depend on whether or not
there has been a violation of the principal obligation. While a creditor and a debtor could
regulate the order in which they should comply with their reciprocal obligations, it is
presupposed that in a loan the lender should perform its obligation the release of the
full loan amount before it could demand that the borrower repay the loaned amount.

Contracts; mortgagee
in good faith.

Sps. Bernadette and Rodulfo Vilbar v. Angelito L. Opinion, G.R. No. 176043. January
15, 2014
Assuming arguendo that the Gorospes titles to the subject properties happened to be
fraudulent, public policy considers Opinion to still have acquired legal title as a
mortgagee in good faith. As held in Cavite Development Bank v. Spouses Lim:
There is, however, a situation where, despite the fact that the mortgagor is not the owner
of the mortgaged property, his title being fraudulent, the mortgage contract and any
foreclosure sale arising therefrom are given effect by reason of public policy. This is the
doctrine of the mortgagee in good faith based on the rule that all persons dealing with
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 the indefeasibility of a certificate of title, as evidence of the lawful ownership
of the land or of any encumbrance thereon, protects a buyer or mortgagee who, in good
faith, relied upon what appears on the face of the certificate of title.

Contracts; novation;
extinguishment of
criminal liability.

Cresencio C. Milla vs. People of the Philippines et al.; G.R. No. 188726. January 25,
2012
The principle of novation cannot apply as to extinguish criminal liability in this case.
The mere payment of an obligation before the institution of a criminal complaint does
not, on its own, constitute novation that may prevent criminal liability. The Court citing
the case of People v. Nery ruled that novation is not one of the means recognized by the
Penal Code whereby criminal liability can be extinguished and that the role of novation
may only be either to prevent the rise of criminal liability or to cast doubt on the true
nature of the original petition, whether or not it was such that its breach would not give
rise to penal responsibility as when money loaned is made to appear as a deposit, or
other similar disguise is resorted to. It further ratiocinated, citing the case of Quinto v.
People, that the gravamen of the offense of estafa is the appropriation or conversion of
money or property received to the prejudice of the owner and neither the theory of delay
in the fulfilment of commission nor that of novation can avoid the incipient criminal
liability. The criminal liability for estafa already committed is then not affected by the
subsequent novation of contract, for it is a public offense which must be prosecuted and
punished by the State in its own conation.
In this case, the acceptance by MPI of the Equitable PCI checks tendered by Milla could
not have novated the original transaction, as the checks were only intended to secure the
return of the P2 Million the former had already given to him these checks even bounced
and were thus unable to satisfy his liability. The estafa involved here was not for simple
misappropriation or conversion, but committed through Falsification of public
documents, the liability for which cannot be extinguished by mere novation.

Contracts; obligatory
nature of contracts;

Rodolfo G. Cruz and Esperanza Ibias vs. Atty. Delfin Gruspe; G.R. No. 191431.
March 13, 2013

interpretation; Joint
Affidavit of
Undertaking may be a
contract in itself; due
execution; default,
elements; judicial
demand; computation
of interest.

Contracts are obligatory no matter what their forms may be, whenever the essential
requisites for their validity are present. In determining whether a document is an
affidavit or a contract, the Court looks beyond the title of the document, since the
denomination or title given by the parties in their document is not conclusive of the
nature of its contents. In the construction or interpretation of an instrument, the intention
of the parties is primordial and is to be pursued. If the terms of the document are clear
and leave no doubt on the intention of the contracting parties, the literal meaning of its
stipulations shall control. If the words appear to be contrary to the parties evident
intention, the latter shall prevail over the former.
A simple reading of the terms of the Joint Affidavit of Undertaking readily discloses
that it contains stipulations characteristic of a contract. The Joint Affidavit of
Undertaking contained a stipulation where Cruz and Leonardo promised to replace the
damaged car of Gruspe, 20 days from October 25, 1999 or up to November 15, 1999, of
the same model and of at least the same quality. In the event that they cannot replace the
car within the same period, they would pay the cost of Gruspes car in the total amount
of P350,000, with interest at 12% per month for any delayed payment after November
15, 1999, until fully paid.
An allegation of vitiated consent must be proven by preponderance of evidence.
Although the undertaking in the affidavit appears to be onerous and lopsided, this does
not necessarily prove the alleged vitiation of consent. They, in fact, admitted the
genuineness and due execution of the Joint Affidavit and Undertaking when they said
that they signed the same to secure possession of their vehicle.
In order that the debtor may be in default, it is necessary that the following requisites be
present: (1) that the obligation be demandable and already liquidated; (2) that the debtor
delays performance; and (3) that the creditor requires the performance judicially and
extrajudicially. Default generally begins from the moment the creditor demands the
performance of the obligation.

Contracts; Offer and


Acceptance.

Korean Air Co., Ltd and Suk Kyoo Kim vs. Adelina A.S. Yuson, G.R. No. 170369, June
16, 2010
An offer is a unilateral proposition made by one party to another for the celebration of a
contract. For an offer to be certain, a contract must come into existence by the mere
acceptance of the offeree without any further act on the offerors part. The offer must be
definite, complete and intentional. In Spouses Paderes v. Court of Appeals, the Court
held that, There is an offer in the context of Article 1319 only if the contract can come
into existence by the mere acceptance of the offeree, without any further act on the part
of the offeror. Hence, the offer must be definite, complete and intentional.
In the present case, the offer is not certain: (i) the 21 August 2001 memorandum clearly
states that, MNLSM Management, on its discretion, is hereby offering the said early
retirement program to its staff; (ii) applications for the ERP were forwarded to the head
office for approval, and further acts on the offerors part were necessary before the
contract could come into existence; and (iii) the 21 August 2001 memorandum clearly
states Korean Airs intention, which was, to prevent further losses.
(Emphasis, the Courts.) Korean Air could not have intended to ministerially approve all
applications for the ERP.

Contracts; parties may


establish any
agreement, term, and
condition they may
deem advisable,
provided they are not
contrary to law, morals
or public policy; if the
language used is clear,
there is no need for
construction;
mortgage; courts duty,

Star Two (SPV-AMC), Inc. vs. Paper City Corporation of the Philippines; G.R. No.
169211. March 6, 2013
As held in Gateway Electronics Corp. v. Land Bank of the Philippines, the rule in this
jurisdiction is that the contracting parties may establish any agreement, term, and
condition they may deem advisable, provided they are not contrary to law, morals or
public policy. The right to enter into lawful contracts constitutes one of the liberties
guaranteed by the Constitution.
It has been explained by the Supreme Court in Norton Resources and Development
Corporation v. All Asia Bank Corporation in reiteration of the ruling in Benguet
Corporation v. Cabildo that:

merely to interpret the


intent of the parties;
even if not expressly
so stated, the mortgage
extends to the
improvements;
machineries and
equipment are
considered real
properties.

A courts purpose in examining a contract is to interpret the intent of the contracting


parties, as objectively manifested by them. The process of interpreting a contract
requires the court to make a preliminary inquiry as to whether the contract before it is
ambiguous. A contract provision is ambiguous if it is susceptible of two reasonable
alternative interpretations. Where the written terms of the contract are not ambiguous
and can only be read one way, the court will interpret the contract as a matter of law.
Then till now the pronouncement has been that if the language used is as clear as day
and readily understandable by any ordinary reader, there is no need for construction.
Law and jurisprudence provide and guide that even if not expressly so stated, the
mortgage extends to the improvements.
Article 2127 of the Civil Code provides:
Art. 2127. The mortgage extends to the natural accessions, to the improvements,
growing fruits, and the rents or income not yet received when the obligation becomes
due, and to the amount of the indemnity granted or owing to the proprietor from the
insurers of the property mortgaged, or in virtue of expropriation for public use, with
the declarations, amplifications and limitations established by law, whether the estate
remains in the possession of the mortgagor, or it passes into the hands of a third
person.
In the early case of Bischoff v. Pomar and Cia. General de Tabacos, the Court ruled that
even if the machinery in question was not included in the mortgage expressly, Article
111 of the [old] Mortgage Law provides that chattels permanently located in a building,
either useful or ornamental, or for the service of some industry even though they were
placed there after the creation of the mortgage shall be considered as mortgaged with the
estate, provided they belong to the owner of said estate.
The real estate mortgage over the machineries and equipment is even in full accord with
the classification of such properties by the Civil Code of the Philippines as immovable
property. Thus:
Article 415. The following are immovable property:
(1) Land, buildings, roads and constructions of all kinds adhered to the soil; xxxx
(5) Machinery, receptacles, instruments or implements intended by the owner of the
tenement for an industry or works which may be carried on in a building or on a
piece of land, and which tend directly to meet the needs of the said industry or works.

Contracts; payment of
debt by a third party.

Petitioners invocation of Article 1236 of the Civil Code does not help them. They
cannot deny their indebtedness to respondent on the basis of said article since the
payment advanced by respondent on petitioners behalf redounded to their benefit and
petitioner never objected to it when she came to learn of it. It is thus immaterial that
petitioner was unaware of respondents action for the law ultimately allows recovery to
the extent that the debtors-petitioners were benefited. Spouses Divina C. Publico and
Jose T. Publico vs. Teresa Bautista, G.R. No. 174096, July 20, 2010

Contracts; perfection

Starbright Sales Eterprises, Inc. vs. Philippine Realty Corporation, Msgr. Domingo A.
Cirilos, et al., G.R. No. 177936. January 18, 2012
For a contract to be perfected, three elements are needed to create a perfected contract:
1) the consent of the contracting parties; (2) an object certain which is the subject matter
of the contract; and (3) the cause of the obligation which is established. Under the law on
sales, a contract of sale is perfected when the seller, obligates himself, for a price certain,
to deliver and to transfer ownership of a thing or right to the buyer, over which the latter
agrees. From that moment, the parties may demand reciprocal performance.

Contracts; Principle of
quantum merit; when
allowed.

Rivelisa Realty, Inc., represented by Ricardo P. Venturina v. First Sta. Clara Builders
Corporation, represented by Ramon A. Pangilinan, as President, G.R. No. 189618.
January 15, 2014
Case law instructs that under this principle (quantum meruit), a contractor is allowed to
recover the reasonable value of the thing or services rendered despite the lack of a
written contract, in order to avoid unjust enrichment. Quantum meruit means that, in an
action for work and labor, payment shall be made in such amount as the plaintiff

reasonably deserves. The measure of recovery should relate to the reasonable value of
the services performed because the principle aims to prevent undue enrichment based on
the equitable postulate that it is unjust for a person to retain any benefit without paying
for it.
Contracts; public
documents; forms.

Adelaida Meneses (deceased), substituted by her heir Marilyn M. Carbonel-Garcia vs.


Rosario G. Venturozo; G.R. No. 172196. October 19, 2011
The necessity of a public document for contracts which transmit or extinguish real rights
over immovable property, as mandated by Article 1358 of the Civil Code, is only for
convenience; it is not essential for validity or enforceability. As notarized documents,
Deeds of Absolute Sale carry evidentiary weight conferred upon them with respect to
their due execution and enjoy the presumption of regularity which may only be rebutted
by evidence so clear, strong and convincing as to exclude all controversy as to falsity.
The presumptions that attach to notarized documents can be affirmed only so long as it is
beyond dispute that the notarization was regular. A defective notarization will strip the
document of its public character and reduce it to a private instrument. Consequently,
when there is a defect in the notarization of a document, the clear and convincing
evidentiary standard normally attached to a duly-notarized document is dispensed with,
and the measure to test the validity of such document is preponderance of evidence.

Contracts; quantum
meruit.

Heirs of Ramon C. Gaite, et al. vs. The Plaza, Inc. and FGU Insurance Corporation;
G.R. No. 177685, January 26, 2011
Under the principle of quantum meruit, a contractor is allowed to recover the reasonable
value of the thing or services rendered despite the lack of a written contract, in order to
avoid unjust enrichment. Quantum meruit means that in an action for work and labor,
payment shall be made in such amount as the plaintiff reasonably deserves. To deny
payment for a building almost completed and already occupied would be to permit
unjust enrichment at the expense of the contractor..

Contracts; ratification

Sps. Fernando and Lourdes Viloria vs. Continental Airlines, Inc.,G.R. No. 188288.
January 16, 2012
Article 1392 of the Civil Code states that ratification extinguishes the action to annul a
voidable contract. Ratification of a voidable contract, under Article 1393, may be
effected expressly or tacitly. It is understood that there is a tacit ratification if, with
knowledge of the reason which renders the contract voidable and such reason having
ceased, the person who has a right to invoke it should execute an act which necessarily
implies an intention to waive his right.
Implied ratification may take diverse forms, such as by silence or acquiescence; by acts
showing approval or adoption of the contract; or by acceptance and retention of benefits
flowing therefrom.

Contracts; Reciprocal
obligations; concept;
for failing to perform
all its correlative
obligation under the
reciprocal contract, a
party cannot
unilaterally demand
performance by the
other party.

Consolidated Industrial Gases, Inc. v. Alabang Medical Center, G.R. No. 181983,
November 13, 2013
Reciprocal obligations are those which arise from the same cause, and in which each
party is a debtor and a creditor of the other, such that the obligation of one is dependent
upon the obligation of the other. They are to be performed simultaneously, so that the
performance of one is conditioned upon the simultaneous fulfillment of the other. In
reciprocal obligations, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. From the moment
one of the parties fulfills his obligation, delay by the other begins.
In reciprocal obligations, before a party can demand the performance of the obligation of
the other, the former must also perform its own obligation.

Contracts; reciprocal
obligations.

Subic Bay Metropolitan Authority vs. Honorable Court of Appeals and Subic
International Hotel Corporation; G.R. No. 192885, July 4, 2012
Reciprocal obligations are those which arise from the same cause, and in which each
party is a debtor and a creditor of the other, such that the obligation of one is dependent
upon the obligation of the other. They are to be performed simultaneously such that the

performance of one is conditioned upon the simultaneous fulfillment of the other. For
one party to demand the performance of the obligation of the other party, the former
must also perform its own obligation. Accordingly, petitioner, not having provided the
services that would require the payment of service fees as stipulated in the Lease
Development Agreement, is not entitled to collect the same.
Contracts; requisites;
disputable
presumption that there
is sufficient
consideration for a
Contract.

Eduardo M. Cojuangco, Jr. vs. Republic of the Philippines; G.R. No. 180705.
November 27, 2012

Contracts; rescissible;
presumption of fraud
in sale by debtor;
application to
mortgage of property.

Samuel U. Lee, et al. v. Bangkok Bank Public Company, Limited; G.R. No. 173349.
February 9, 2011

Under Art. 1318 of the Civil Code, there is no contract unless the following requisites
concur: (1) consent of the contracting parties;(2) object certain which is the subject
matter of the contract;(3) cause of the obligation which is established. The following
contract is inexistent and void from the beginning: those whose cause or object did not
exist at the time of the transaction. There is a disputable presumption that there was a
sufficient consideration for a contract. The rule then is that the party who stands to profit
from a declaration of the nullity of a contract on the ground of insufficiency of
consideration which would necessarily refer to one who asserts such nullityhas the
burden of overthrowing the presumption offered by the Rules of Court.

The presumption of fraud established under Art. 1387 does not apply to registered lands
IF the judgment or attachment made is not also registered. In this case, prior to the
annotation of the REM on February 23, 1998, SBC was able to successfully acquire a
writ of preliminary attachment in its favor against the spouses Lee on January 30, 1998
in a case for a sum of money for nonpayment of its obligation. Bangkok Bank alleges
that because of this, the presumption of fraud under Art. 1387 of the Civil Code applies.
But while a judgment was made against the spouses Lee in favor of SBC on January 30,
1998, this, however, was not annotated on the titles of the subject properties. In fact,
there is no showing that the judgment has ever been annotated on the titles of the subject
properties. Considering that the earlier SBC judgment or attachment was not, and in fact
never was, annotated on the titles of the subject Antipolo properties, prior to the
execution of the REM, the presumption of fraud under Art. 1387 of the Code clearly
cannot apply.
Also, even assuming Article 1387 of the Civil Code applies, fraud is presumed only in
alienations by onerous title of a person against whom a judgment or attachment has been
issued. The term, alienation, connotes the transfer of the property and possession of
lands, tenements, or other things, from one person to another. This term is particularly
applied to absolute conveyances of real property and must involve a complete transfer
from one person to another. A mortgage does not contemplate a transfer or an absolute
conveyance of a real property. It is an interest in land created by a written instrument
providing security for the performance of a duty or the payment of a debt. When a
debtor mortgages his property, he merely subjects it to a lien but ownership thereof is
not parted with. It is merely a lien that neither creates a title nor an estate. It is,
therefore, certainly not the alienation by onerous title that is contemplated in Art. 1387
where fraud is to be presumed.
Finally, a careful reading of Art. 1387 of the Code vis--vis its Art. 1385 would plainly
show that the presumption of fraud in case of alienations by onerous title only applies to
the person who made such alienation, and against whom some judgment has been
rendered in any instance or some writ of attachment has been issued. A third person is
not and should not be automatically presumed to be in fraud or in collusion with the
judgment debtor. In allowing rescission in case of an alienation by onerous title, the third
person who received the property conveyed should likewise be a party to the fraud. As
clarified by Art. 1385(2) of the Code, so long as the person who is in legal possession of
the property did not act in bad faith, rescission cannot take place. Thus, in all instances,
as to the third person in legal possession of the questioned property, good faith is
presumed. Accordingly, it is upon the person who alleges bad faith or fraud that rests the
burden of proof. Asiatrust, being a third person in good faith, should not be
automatically presumed to have acted fraudulently by the mere execution of the REM
over the subject Antipolo properties, there being no evidence of fraud or bad faith.

Contracts; rescission

Lilia B. Luz, et al. vs. Florante Baylon; G.R. No. 182435, August 13, 2012

by reason of subject
being under litigation;
resolution of litigation
is not a condition to
rescission.

Contracts which are rescissible due to fraud or bad faith include those which involve
things under litigation, if they have been entered into by the defendant without the
knowledge and approval of the litigants or of competent judicial authority. Thus, Article
1381(4) of the Civil Code provides: The following contracts are rescissible: x x x x (4)
Those which refer to things under litigation if they have been entered into by the
defendant without the knowledge and approval of the litigants or of competent judicial
authority[.]
The rescission of a contract under Article 1381(4) of the Civil Code only requires the
concurrence of the following: first, the defendant, during the pendency of the case, enters
into a contract which refers to the thing subject of litigation; and second, the said
contract was entered into without the knowledge and approval of the litigants or of a
competent judicial authority. As long as the foregoing requisites concur, it becomes the
duty of the court to order the rescission of the said contract.
It bears stressing that the right to ask for the rescission of a contract under Article
1381(4) of the Civil Code is not contingent upon the final determination of the
ownership of the thing subject of litigation. The primordial purpose of Article 1381(4) of
the Civil Code is to secure the possible effectivity of the impending judgment by a court
with respect to the thing subject of litigation. It seeks to protect the binding effect of a
courts impending adjudication vis--vis the thing subject of litigation regardless of
which among the contending claims therein would subsequently be upheld. Accordingly,
a definitive judicial determination with respect to the thing subject of litigation is not a
condition sine qua non before the rescissory action contemplated under Article 1381(4)
of the Civil Code may be instituted.

Contracts; rescission
of contract.

F.F. Cruz & Co., Inc. vs. HR Construction Corp.; G.R. No. 187521. March 14, 2012
The rescission referred to in Article 1191 of the Civil Code, more appropriately referred
to as resolution, is on the breach of faith by the defendant, which is violative of the
reciprocity between the parties. The right to rescind, however, may be waived, expressly
or impliedly. While the right to rescind reciprocal obligations is implied, that is, that such
right need not be expressly provided in the contract, nevertheless the contracting parties
may waive the same.
Hence, in spite of the existence of dispute or controversy between the parties during the
course of the Subcontract Agreement, HRCC had agreed to continue the performance of
its obligations pursuant to the Subcontract Agreement. In view of the provision of the
Subcontract Agreement, HRCC is deemed to have effectively waived its right to effect
extrajudicial rescission of its contract with FFCCI. Accordingly, HRCC, in the guise of
rescinding the Subcontract Agreement, was not justified in implementing a work
stoppage.

Contracts; rescission;
accion pauliana.

Metropolitan Bank and Trust Company, substituted by Meridian Corporation vs.


International Exchange Bank/Chuayuco Steel Manufacturing vs. International
Exchange Bank; G.R. No. 176008/G.R. No. 176131, August 10, 2011
Under Article 1381 of the Civil Code, an accion pauliana is an action to rescind contracts
in fraud of creditors. However, jurisprudence is clear that the following successive
measures must be taken by a creditor before he may bring an action for rescission of an
allegedly fraudulent contract: (1) exhaust the properties of the debtor through levying by
attachment and execution upon all the property of the debtor, except such as are exempt
by law from execution; (2) exercise all the rights and actions of the debtor, save those
personal to him (accion subrogatoria); and (3) seek rescission of the contracts executed
by the debtor in fraud of their rights (accion pauliana). It is thus apparent that an action
to rescind, or an accion pauliana, must be of last resort, availed of only after the creditor
has exhausted all the properties of the debtor not exempt from execution or after all other
legal remedies have been exhausted and have been proven futile.
It does not appear that Metrobank sought other properties of SSC other than the subject
lots alleged to have been transferred in fraud of creditors. Neither is there any showing
that Metrobank subrogated itself in SSCs transmissible rights and actions. Without
availing of the first and second remedies, Metrobank simply undertook the third measure
and filed an action for annulment of the chattel mortgages. This cannot be done. Article

1383 of the New Civil Code is very explicit that the right or remedy of the creditor to
impugn the acts which the debtor may have done to defraud them is subsidiary in nature.
It can only be availed of in the absence of any other legal remedy to obtain reparation for
the injury. This fact is not present in this case. No evidence was presented nor even an
allegation was offered to show that Metrobank had availed of the abovementioned
remedies before it tried to question the validity of the contracts of chattel mortgage
between IEB and SSC.
Contracts; rescission;
consequences are
restitution and in this
case, each party will
bear its own damage.

Goldloop Properties, Inc. vs. Government Service Insurance System; G.R. No.
171076, August 1, 2012
As correctly observed by the RTC, the rescissory action taken by GSIS is pursuant to
Article 1191 of the Civil Code. In cases involving rescission under the said provision,
mutual restitution is required. The parties should be brought back to their original
position prior to the inception of the contract. Accordingly, when a decree of rescission
is handed down, it is the duty of the court to require both parties to surrender that which
they have respectively received and to place each other as far as practicable in [their]
original situation. Pursuant to this, Goldloop should return to GSIS the possession and
control of the property subject of their agreements while GSIS should reimburse
Goldloop whatever amount it had received from the latter by reason of the MOA and the
Addendum.
Relevant also is the provision of Article 1192 of the Civil Code which reads: In case
both parties have committed a breach of the obligation, the liability of the first infractor
shall be equitably tempered by the courts. If it cannot be determined which of the
parties first violated the contract, the same shall be deemed extinguished, and each
shall bear his own damages.
In this case, it cannot be determined with certainty which between the parties is the first
infractor. It could be GSIS because of the high probability that even before the execution
of the agreements, real property taxes were already imposed and unpaid such that when
GSIS applied for building permits, the tax liability was already in the substantial amount
of P54 million. It was just that GSIS could not have been mindful of the same because of
its stand that it is tax exempt. But as this cannot be conclusively presumed, there exists
an uncertainty as to which between the failure to comply on the part of each party came
first; hence, the last portion of Article 1192 finds application. Pursuant thereto, the
parties respective claims for damages are thus deemed extinguished and each of them
shall bear its own damage.

Contracts; rescission;
grounds.

Consolidated Industrial Gases, Inc. v. Alabang Medical Center, G.R. No. 181983,
November 13, 2013
Rescission of a contract will not be permitted for a slight or casual breach, but only for
such substantial and fundamental violations as would defeat the very object of the parties
in making the agreement. Whether a breach is substantial is largely determined by the
attendant circumstances.

Contracts; rescission;
no right to restitution.

Violeta Tudtud Banate, et al. vs. Philippine Countryside Rural Bank (Liloan, Cebu),
Inc. and Teofilo Soon, Jr., G.R. No. 163825, July 13, 2010
This case is a little weird. Petitioners borrowed money from a bank (they contracted
several loans) and mortgaged various properties. They asked the bank manager to
approve the sale of the property and to release the lien on that property in exchange for
payment of one of the loans. The bank manager agreed even though he had no authority
to do so and even though the property that was sold actually secured other loans that
were still unpaid. The buyer of the land gave the petitioners the purchase price and the
petitioners used that to pay off the one loan. Later the bank refused to have the lien on
the title of the relevant property cancelled so the petitioners sued. The court held that
there could be no novation because the bank manager had no authority to agree to the
new terms. The petitioners then argued that if that were the case, the money paid to the
bank should be returned. They asked that the agreement with the bank manager be
rescinded.
I would think that the first response to this was there was no agreement (the supposedly
new one with the bank manager) to rescind. But the bank title to the subject properties to

the buyer, only to enable the latter to obtain a transfer of title in her own name. The
Supreme Court then said: countered saying that the clear agreement of the parties was
for the full payment of the subject loan, and in return, the bank would deliver the We
agree with PCRB. Even if we were to assume that the purported agreement has been
sufficiently established, since it is not binding on the bank for lack of authority of
PCRBs branch manager, then the prayer for restitution of the amount paid would have
no legal basis. I think it would have been clearer if the decision simply stated that the
petitioners could not ask for rescission because there was nothing to rescind and
whether or not the agreement with the bank manager was properly established, there is
no legal basis for restitution. The buyer had no claim against the bank because it paid the
check to the petitioners. Meanwhile, the petitioners who had paid the money to the bank
could not ask the money back because it was applied to the loan that unquestionably
existed. In this regard, the court said that Article 2154 of the Civil Code which reads
[I]f something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises, has no application.
Contracts; rescission;
no right to restitution.

Violeta Tudtud Banate, et al. vs. Philippine Countryside Rural Bank (Liloan, Cebu),
Inc. and Teofilo Soon, Jr., G.R. No. 163825, July 13, 2010
This case is a little weird. Petitioners borrowed money from a bank (they contracted
several loans) and mortgaged various properties. They asked the bank manager to
approve the sale of the property and to release the lien on that property in exchange for
payment of one of the loans. The bank manager agreed even though he had no authority
to do so and even though the property that was sold actually secured other loans that
were still unpaid. The buyer of the land gave the petitioners the purchase price and the
petitioners used that to pay off the one loan. Later the bank refused to have the lien on
the title of the relevant property cancelled so the petitioners sued. The court held that
there could be no novation because the bank manager had no authority to agree to the
new terms. The petitioners then argued that if that were the case, the money paid to the
bank should be returned. They asked that the agreement with the bank manager be
rescinded.
I would think that the first response to this was there was no agreement (the supposedly
new one with the bank manager) to rescind. But the bank title to the subject properties to
the buyer, only to enable the latter to obtain a transfer of title in her own name. The
Supreme Court then said: countered saying that the clear agreement of the parties was
for the full payment of the subject loan, and in return, the bank would deliver the We
agree with PCRB. Even if we were to assume that the purported agreement has been
sufficiently established, since it is not binding on the bank for lack of authority of
PCRBs branch manager, then the prayer for restitution of the amount paid would have
no legal basis. I think it would have been clearer if the decision simply stated that the
petitioners could not ask for rescission because there was nothing to rescind and
whether or not the agreement with the bank manager was properly established, there is
no legal basis for restitution. The buyer had no claim against the bank because it paid the
check to the petitioners. Meanwhile, the petitioners who had paid the money to the bank
could not ask the money back because it was applied to the loan that unquestionably
existed. In this regard, the court said that Article 2154 of the Civil Code which reads
[I]f something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises, has no application.

Contracts; rescission;
proper when there is
non-performance of
obligation

Fil-Estate Properties, Inc. and Fil-Estate Network, Inc. v. Spouses Conrado and
Maria Victoria Ronquillo, G.R. No. 185798, January 13, 2014

Contracts; rescission;
reciprocal obligations.

Solar Harvest Incorporated vs. Davao Corrugated Carton Corporation, G.R. No.
176686, July 26, 2010

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him. The injured party
may choose between the fulfillment and the rescission of the obligation, with payment of
damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.

The right to rescind a contract arises once the other party defaults in the performance of
his obligation. In determining when default occurs, Article 1191 should be taken in
conjunction with Article 1169 of the same law.

In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment of
the parties respective obligations should be simultaneous. Hence, no demand is
generally necessary because, once a party fulfills his obligation and the other party does
not fulfill his, the latter automatically incurs in delay. But when different dates for
performance of the obligations are fixed, the default for each obligation must be
determined by the rules given in the first paragraph of Article 1169, that is, the other
party would incur in delay only from the moment the other party demands fulfillment of
the formers obligation. Thus, even in reciprocal obligations, if the period for the
fulfillment of the obligation is fixed, demand upon the obligee is still necessary before
the obligor can be considered in default and before a cause of action for rescission will
accrue.
Contracts; rescission.

Bonifacio Sanz Maceda, Jr. vs. DBO / DBP Vs. Bonifacio Sanz Maceda, Jr., G.R. No.
174979 & G.R. No. 175010, August 11, 2010
Under Article 1191 of the Civil Code, the aggrieved party has a choice between specific
performance and rescission with damages in either case. However, we have ruled that if
specific performance becomes impractical or impossible, the court may order rescission
with damages to the injured party. After the lapse of more than 30 years, it is now
impossible to implement the loan agreement as it was written, considering the absence of
evidence as to the rising costs of construction, as well as the obvious changes in market
conditions on the viability of the operations of the hotel. We deem it equitable and
practicable to rescind the obligation of DBP to deliver the balance of the loan proceeds
to Maceda. In exchange, we order DBP to pay Maceda the value of Macedas cash equity
of P6,153,398.05 by way of actual damages, plus the applicable interest rate. The present
ruling comes within the purview of Macedas and DBPs prayers for other reliefs, just
or equitable under the premises.

Contracts; rescission.

Contracts; rescission.

ALC industries, Inc. vs. Department of Public Works and Highways, G.R. No. 17321920, August 11, 2010
ALC undertook in the agreement to accomplish 43.91% of the reduced project by the
end of December 1998. The agreements threshold was, therefore, 39.52%. But ALC was
only able to accomplish 30.80% which was only 70.14% of the schedule, well below the
90% progress required by Clause 10. And even if delay due to bad weather could be
factored in, ALC would still fall below the 90% target. On this score alone rescission
was still justified. The 90% progress is a requirement imposed by the parties to the
agreement. As a contractual obligation, this supersedes the threshold imposed by law.
Since the parties entered into the agreement primarily due to initial delays in the project,
the timetable instituted in it became an integral part of the agreement, an assurance that
the project would be completed on time. ALCs failure to keep up with the rate of
progress as contractually mandated is a substantial and fundamental breach which would
defeat the very purpose of the agreement. Thus, the DPWH was entitled to terminate the
project and expel ALC from it.
Valentin Movido substituted by Marginito Movido vs. Luisa Reyes Pastor, G.R. No.
172279, February 11, 2010
Rescission is only allowed when the breach is so substantial and fundamental as to
defeat the object of the parties in entering into the contract. The court found no such
substantial or material breach. It is true that respondent failed to pay the 7th and 8th
installments of the purchase price. However, considering the circumstances of the instant
case, particularly the provisions of the kasunduan, respondent cannot be deemed to have
committed a serious breach. In the first place, respondent was not in default as petitioner
never made a demand for payment. Also, under both the kasunduan sa bilihan ng lupa
and the kasunduan, petitioner undertook to cause the survey of the property in order to
determine the portion excluded from the sale, as well as the portion traversed by the
Napocor power line. Despite repeated demands by respondent, however, petitioner failed
to perform his obligation. Thus, considering that there was a breach on the part of
petitioner (and no material breach on the part of respondent), he cannot properly invoke
his right to rescind the contract.

Contracts; rescission.

G.G. Sportswear Mfg. Corp vs. World Class Properties, Inc., G.R. No. 182720, March
2, 2010

Unless the parties stipulated it, rescission is allowed only when the breach of the contract
is substantial and fundamental to the fulfillment of the obligation. Whether the breach is
slight or substantial is largely determined by the attendant circumstances. GG
Sportswear anchors its claim for rescission of a reservation agreement (the
Agreement) for the purchase of units and parking slots in a condominum property
being developed by World Class, on two grounds: (a) its dissatisfaction with the
completion date; and (b) the lack of a Contract to Sell. However, GG Sportswear cannot
claim that it did not know the time-frame for the projects completion when it entered
into the Agreement with World Class. As World Class points out, it is absurd and
unbelievable that Mr. Gidwani, the presidentof GG Sportswear and an experienced
businessman, did not have an idea of the expected completion date of the condominium
project before he bought the condominium units for P89,624,272.82. The grant, too, to
World Class of a first License to Sell up to August 1998 and a second License to Sell up
to December 1999, to our mind, served as a clear notice of when the project was to be
completed. Moreover, the provisional Contract to Sell that accompanied the second
Reservation Agreement explicitly provided that the condominium project would be ready
for turnover no later than December 15, 1998, a clear expression of the projects
completion date. Having known the date, the fact of dissatisfaction with it does not
constitute a breach so substantial as to render the Agreement rescissible. GG Sportswear
has never alleged that the given December 15, 1998 completion date violates the
completion date previously agreed upon by the parties. In fact, nowhere does GG
Sportswear allege that the parties ever agreed upon an earlier completion date. Even
assuming that GG Sportswear was not aware of the exact completion date, we note that
GG Sportswear signed the Agreement despite the Agreements omission to expressly
state a specific completion date. This directly implies that a specific completion date was
not a material consideration for GG Sportswear when it executed the Agreement. Neither
is the initial lack of a License to Sell a basis to cancel the Agreement and has in fact
effectively been cured even if it may be considered an initial defect. We therefore find no
reason for GG Sportswear to be dissatisfied [Digesters Note: I guess the court means to
be dissatisfied since a breach had occurred] with the indicated completion date. Even if it
had been unhappy with the completion date, this ground, standing alone, is not sufficient
basis to rescind the Agreement; unhappiness is a state of mind, not a defect available in
law as a basis to rescind a contract. [Digesters note: Last line good candidate for car
sticker for IBP members.] On GG Sportwears second ground, we note that the
Agreement expressly provides that GG Sportswear shall be entitled to a Contract to Sell
only upon its payment of at least 30% of the total contract price. Since GG Sportswear
had only paid 21% of the total contract price, World Classs obligation to execute a
Contract to Sell had not yet arisen. Accordingly, GG Sportswear had no basis to claim
that World Class breached this obligation and to seek the application of Article 1191 of
the Civil Code.
Contracts; Rescission.

Under their lease agreement, the remedy of rescission would become unavailable to DBS
only if the Martins, as lessors, made the required repair and reconstruction after the
damages by natural cause occurred, which meant putting the premises after the floods in
such condition as would enable DBS to resume its use of the same for the purposes
contemplated in the agreement, namely, as office, warehouse, and parking space for
DBS repossessed vehicles. Here, it is undisputed that the floods of May 25 and August
13, 1997 submerged the DBS offices and its 326 repossessed vehicles. The floods
rendered the place unsuitable for its intended uses. And, while the Martins did some
repairs, they did not restore the place to meet DBS needs. Thus DBS may seek to
rescinding the lease. Felicidad T. Martin, et al. vs. DBS Bank Philippines, Inc., et al.
G.R. No. 174632 & G.R. No. 174804, June 16, 2010.

Contracts; simulation;
lack of consent
because of a lack of
intention to be bound;
contract is therefore
void.

Heirs of Policronio M. Ureta, Sr., namely: Conrado B. Ureta, et al. vs. Heirs of
Liberato M. Ureta, namely: Teresa F. Ureta, et al./Heirs of Liberato M. Ureta, namely:
Teresa F. Ureta, et al. vs. Heirs of Policronio M. Ureta, Sr., namely: Conrado B.
Ureta, et al.; G.R. No. 165748/G.R. No. 165930, September 14, 2011
Where a person, in order to place his property beyond the reach of his creditors,
simulates a transfer of it to another, he does not really intend to divest himself of his title
and control of the property; hence, the deed of transfer is but a sham. Similarly, in this
case, Alfonso simulated a transfer to Policronio purely for taxation purposes, without
intending to transfer ownership over the subject lands.

The most protuberant index of simulation of contract is the complete absence of an


attempt in any manner on the part of the ostensible buyer to assert rights of ownership
over the subject properties. Policronios failure to take exclusive possession of the
subject properties or, in the alternative, to collect rentals, is contrary to the principle of
ownership. Such failure is a clear badge of simulation that renders the whole transaction
void.
Contracts; simulation.

Heirs of Dr. Mario S. Intac and Angelina Mendoza-Intac vs. Court of Appeals and
Spouses Marcelo Roy, Jr. and Josefina Mendoza-Roy, et al. G.R. No. 173211. October
11, 2012
In a contract of sale, its perfection is consummated at the moment there is a meeting of
the minds upon the thing that is the object of the contract and upon the price. If the
parties state a false cause in the contract to conceal their real agreement, the contract is
only relatively simulated and the parties are still bound by their real agreement. In
absolute simulation, there is a colorable contract but it has no substance as the parties
have no intention to be bound by it. The main characteristic of an absolute simulation is
that the apparent contract is not really desired or intended to produce legal effect or in
any way alter the juridical situation of the parties. As a result, an absolutely simulated or
fictitious contract is void, and the parties may recover from each other what they may
have given under the contract.
In the case at bench, no valid sale of the subject property actually took place between the
alleged vendors, Ireneo and Salvacion; and the alleged vendees, Spouses Intac. There
was simply no consideration and no intent to sell it. Marietto, a witness to the execution
of the absolute deed of sale, testified that Ireneo personally told him that he was going to
execute a document of sale because Spouses Intac needed to borrow the title to the
property and use it as collateral for their loan application. Aside from the plain denial,
petitioners could not show any tangible evidence of any payment therefor. Their failure
to prove their payment only strengthened Mariettos story that there was no payment
made because Ireneo had no intention to sell.

Contracts; stages.

International Freeport Traders, Inc. vs. Danzas Intercontinental, Inc.; G.R. No.
181833, January 26, 2011.
Every contract has the elements of (1) consent of the contracting parties; (2) object
certain which is the subject matter of the contract; and (3) cause of the obligation which
is established. A contract is perfected by mere consent, which is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which are to
constitute the contract. Generally, contracts undergo three distinct stages: (1) preparation
or negotiation; (2) perfection; and (3) consummation. Negotiation begins from the time
the prospective contracting parties manifest their interest in the contract and ends at the
moment of agreement of the parties. The perfection or birth of the contract takes place
when the parties agree upon the essential elements of the contract. The last stage is the
consummation of the contract where the parties fulfill or perform the terms they agreed
on, culminating in its extinguishment.

Contracts; statute of
frauds.

Virgilio S. David vs. Misamis Occidental II Electric Cooperative, Inc.; G.R. No.
194785, July 11, 2012.
There being delivery and release, said fact constitutes partial performance which takes
the case out of the protection of the Statute of Frauds. It is elementary that the partial
execution of a contract of sale takes the transaction out of the provisions of the Statute of
Frauds so long as the essential requisites of consent of the contracting parties, object and
cause of the obligation concur and are clearly established to be present.

Contracts; tortious
interference; elements;
exception.

Analita P. Inocencion, substituting for Ramon Inocencion (deceased) v. Hospicio de


San Jose, G.R. No. 201787, September 25, 2013
As correctly pointed out by the Inocencios, tortious interference has the following
elements: (1) existence of a valid contract; (2) knowledge on the part of the third person
of the existence of the contract; and (3) interference of the third person without legal
justification or excuse. In So Ping Bun v. Court of Appeals, we held that there was no
tortious interference if the intrusion was impelled by purely economic motives. In So
Ping Bun, we explained that: Authorities debate on whether interference may be

justified where the defendant acts for the sole purpose of furthering his own financial or
economic interest. One view is that, as a general rule, justification for interfering with
the business relations of another exists where the actors motive is to benefit himself.
Such justification does not exist where his sole motive is to cause harm to the other.
Added to this, some authorities believe that it is not necessary that the interferers
interest outweighs that of the party whose rights are invaded, and that an individual acts
under an economic interest that is substantial, not merely de minimis, such that wrongful
and malicious motives are negatived, for he acts in self-protection. Moreover,
justification for protecting ones financial position should not be made to depend on a
comparison of his economic interest in the subject matter with that of others. It is
sufficient if the impetus of his conduct lies in a proper business interest rather than in
wrongful motives.
Contracts; void and
inexistent sale not
subject to ratification.

Serverino M. Manotok IV, et al. vs. Heirs of Homer L. Barque, represented by Teresita
Barque Hernandez; G.R. Nos. 162335 & 162605. March 6, 2012
As to the applicability of Article 1317 of the Civil Code, contracts of sale lacking the
approval of the Secretary of the Interior/Agriculture and Natural Resources fall under the
class of void and inexistent contracts enumerated in Article 1409, which cannot be
ratified. Section 18 of Act No. 1120 mandates the approval by the Secretary for a sale of
friar land to be valid.
The official document denominated as Sale Certificate clearly required both the
signatures of the Director of Lands who issued such sale certificate to an applicant
settler/occupant and the Secretary of the Interior/Agriculture and Natural Resources
indicating his approval of the sale. These forms had been prepared and issued by the
Chief of the Bureau of Public Lands under the supervision of the Secretary of the
Interior, consistent with Act No. 1120 as may be necessary x x x to carry into effect all
the provisions [thereof] that are to be administered by or under [his] direction, and for
the conduct of all proceedings arising under such provisions.

Contracts; void
contract; effects.

Domingo Gonzalo v. John Tarnate, Jr., G.R. No. 160600, January 15, 2014
Under Article 1409 (1) of the Civil Code, a contract whose cause, object or purpose is
contrary to law is a void or inexistent contract. As such, a void contract cannot produce a
valid one. To the same effect is Article 1422 of the Civil Code, which declares that a
contract, which is the direct result of a previous illegal contract, is also void and
inexistent.

Contracts; voidable.

Carmela Brobio Mangahas vs. Eufrocina A. Brobio; G.R. No. 183852, October 20,
2010
Contracts are voidable where consent thereto is given through mistake, violence,
intimidation, undue influence, or fraud. In determining whether consent is vitiated by
any of these circumstances, courts are given a wide latitude in weighing the facts or
circumstances in a given case and in deciding in favor of what they believe actually
occurred, considering the age, physical infirmity, intelligence, relationship, and conduct
of the parties at the time of the execution of the contract and subsequent thereto,
irrespective of whether the contract is in a public or private writing.
Nowhere is it alleged that mistake, violence, fraud, or intimidation attended the
execution of the promissory note. Still, respondent insists that she was forced into
signing the promissory note because petitioner would not sign the document required by
the BIR. In one case, the Court in characterizing a similar argument by respondents
therein held that such allegation is tantamount to saying that the other party exerted
undue influence upon them. However, the Court said that the fact that respondents were
forced to sign the documents does not amount to vitiated consent.
There is undue influence when a person takes improper advantage of his power over the
will of another, depriving the latter of a reasonable freedom of choice. For undue
influence to be present, the influence exerted must have so overpowered or subjugated
the mind of a contracting party as to destroy his free agency, making him express the
will of another rather than his own.
Respondent may have desperately needed petitioners signature on the Deed, but there is

no showing that she was deprived of free agency when she signed the promissory note.
Being forced into a situation does not amount to vitiated consent where it is not shown
that the party is deprived of free will and choice. Respondent still had a choice: she
could have refused to execute the promissory note and resorted to judicial means to
obtain petitioners signature. Instead, respondent chose to execute the promissory note to
obtain petitioners signature, thereby agreeing to pay the amount demanded by
petitioner.
The fact that respondent may have felt compelled, under the circumstances, to execute
the promissory note will not negate the voluntariness of the act. As rightly observed by
the trial court, the execution of the promissory note in the amount of P600,000.00 was,
in fact, the product of a negotiation between the parties.
Contrary to the CAs findings, the situation did not amount to intimidation that vitiated
consent. There is intimidation when one of the contracting parties is compelled to give
his consent by a reasonable and well-grounded fear of an imminent and grave evil upon
his person or property, or upon the person or property of his spouse, descendants, or
ascendants. Certainly, the payment of penalties for delayed payment of taxes would not
qualify as a reasonable and well-grounded fear of an imminent and grave evil.
We join the RTC in holding that courts will not set aside contracts merely because
solicitation, importunity, argument, persuasion, or appeal to affection was used to obtain
the consent of the other party. Influence obtained by persuasion or argument or by appeal
to affection is not prohibited either in law or morals and is not obnoxious even in courts
of equity.
Contracts; waiver of
rights under contract.

F.F. Cruz & Co., Inc. vs. HR Construction Corp.; G.R. No. 187521. March 14, 2012
Waiver is defined as a voluntary and intentional relinquishment or abandonment of a
known existing legal right, advantage, benefit, claim or privilege, which except for such
waiver the party would have enjoyed; the voluntary abandonment or surrender, by a
capable person, of a right known by him to exist, with the intent that such right shall be
surrendered and such person forever deprived of its benefit; or such conduct as warrants
an inference of the relinquishment of such right; or the intentional doing of an act
inconsistent with claiming it.
FFCCIs voluntary payment in favor of HRCC, albeit in amounts substantially different
from those claimed by the latter, is a glaring indication that it had effectively waived its
right to demand for the joint measurement of the completed works. FFCCIs failure to
demand a joint measurement of HRCCs completed works reasonably justified the
inference that it had already relinquished its right to do so.

Corporate
responsibility;
liability; negligence;
damages.

Professional Services, Inc. vs. The Court of Appeals, et al./Natividad (substituted by


her children Marcelino Agana III, Enrique Agana, Jr. Emma Agana- Andaya, Jesus
Agana and Raymund Agana and Errique Agana) vs. The Court of Appeals and Juan
Fuentes Miguel Ampil vs. Natividad and Enrique Agana, G.R. Nos. 126297/G.R. No.
126467/G.R. No. 127590, February 2, 2010
The Court notes that PSI made the following admission in its Motion for
Reconsideration PSI is not liable for Dr. Ampils acts during the operation. Considering
further that Dr. Ampil was personally engaged as a doctor by Mrs. Agana, it is incumbent
upon Dr. Ampil, as Captain of the Ship, and as the Aganas doctor to advise her on
what to do with her situation vis-a-vis the two missing gauzes. In addition to noting the
missing gauzes, regular check- ups were made and no signs of complications were
exhibited during her stay at the hospital, which could have alerted petitioner PSIs
hospital to render and provide post-operation services to and tread on Dr. Ampils role as
the doctor of Mrs. Agana. The absence of negligence of PSI from the patients admission
up to her discharge is borne by the finding of facts in this case. Likewise evident
therefrom is the absence of any complaint from Mrs. Agana after her discharge from the
hospital which had she brought to the hospitals attention, could have alerted petitioner
PSI to act accordingly and bring the matter to Dr. Ampils attention. But this was not the
case. Ms. Agana complained ONLY to Drs. Ampil and Fuentes, not the hospital. How
then could PSI possibly do something to fix the negligence committed by Dr. Ampil
when it was not informed about it at all. PSI reiterated its admission when it stated that
had Natividad Agana informed the hospital of her discomfort and pain, the hospital

would have been obliged to act on it. This is a judicial admission by PSI that while it
had no power to control the means or method by which Dr. Ampil conducted the surgery
on Natividad Agana, it had the power to review or cause the review of what may have
irregularly transpired within its walls strictly for the purpose of determining whether
some form of negligence may have attended any procedure done inside its premises,
with the ultimate end of protecting its patients. Second, it is a judicial admission that, by
virtue of the nature of its business as well as its prominence in the hospital industry, it
assumed a duty to tread on the captain of the ship role of any doctor rendering
services within its premises for the purpose of ensuring the safety of the patients availing
themselves of its services and facilities. Third, by such admission, PSI defined the
standards of its corporate conduct under the circumstances of this case, specifically: (a)
that it had a corporate duty to Natividad even after her operation to ensure her safety as a
patient; (b) that its corporate duty was not limited to having its nursing staff note or
record the two missing gauzes and (c) that its corporate duty extended to determining Dr.
Ampils role in it, bringing the matter to his attention, and correcting his negligence. And
finally, by such admission, PSI barred itself from arguing in its second motion for
reconsideration that the concept of corporate responsibility was not yet in existence at
the time Natividad underwent treatment; and that if it had any corporate responsibility,
the same was limited to reporting the missing gauzes and did not include taking an
active step in fixing the negligence committed. Given the standard of conduct that PSI
defined for itself, the next relevant inquiry is whether the hospital measured up to it. PSI
excuses itself from fulfilling its corporate duty on the ground that Dr. Ampil assumed the
personal responsibility of informing Natividad about the two missing gauzes. Dr.
Ricardo Jocson, who was part of the group of doctors that attended to Natividad, testified
that toward the end of the surgery, their group talked about the missing gauzes but Dr.
Ampil assured them that he would personally notify the patient about it. Furthermore,
PSI claimed that there was no reason for it to act on the report on the two missing gauzes
because Natividad Agana showed no signs of complications. She did not even inform the
hospital about her discomfort. The excuses proffered by PSI are totally unacceptable. To
begin with, PSI could not simply wave off the problem and nonchalantly delegate to Dr.
Ampil the duty to review what transpired during the operation. The purpose of such
review would have been to pinpoint when, how and by whom two surgical gauzes were
mislaid so that necessary remedial measures could be taken to avert any jeopardy to
Natividads recovery. Certainly, PSI could not have expected that purpose to be achieved
by merely hoping that the person likely to have mislaid the gauzes might be able to
retrace his own steps. By its own standard of corporate conduct, PSIs duty to initiate the
review was non-delegable. While Dr. Ampil may have had the primary responsibility of
notifying Natividad about the missing gauzes, PSI imposed upon itself the separate and
independent responsibility of initiating the inquiry into the missing gauzes. The purpose
of the first would have been to apprise Natividad of what transpired during her surgery,
while the purpose of the second would have been to pinpoint any lapse in procedure that
led to the gauze count discrepancy, so as to prevent a recurrence thereof and to determine
corrective measures that would ensure the safety of Natividad. That Dr. Ampil
negligently failed to notify Natividad did not release PSI from its self- imposed separate
responsibility. Corollary to its non-delegable undertaking to review potential incidents of
negligence committed within its premises, PSI had the duty to take notice of medical
records prepared by its own staff and submitted to its custody, especially when these bear
earmarks of a surgery gone awry. Thus, the record taken during the operation of
Natividad which reported a gauze count discrepancy should have given PSI sufficient
reason to initiate a review. It should not have waited for Natividad to complain. As it
happened, PSI took no heed of the record of operation and consequently did not initiate a
review of what transpired during Natividads operation. Rather, it shirked its
responsibility and passed it on to others to Dr. Ampil whom it expected to inform
Natividad, and to Natividad herself to complain before it took any meaningful step. By
its inaction, therefore, PSI failed its own standard of hospital care. It committed
corporate negligence. It should be borne in mind that the corporate negligence ascribed
to PSI is different from the medical negligence attributed to Dr. Ampil. The duties of the
hospital are distinct from those of the doctor-consultant practicing within its premises in
relation to the patient; hence, the failure of PSI to fulfill its duties as a hospital
corporation gave rise to a direct liability to the Aganas distinct from that of Dr. Ampil.
All this notwithstanding, we make it clear that PSIs hospital liability based on ostensible
agency and corporate negligence applies only to this case, pro hac vice. It is not intended
to set a precedent and should not serve as a basis to hold hospitals liable for every form
of negligence of their doctors-consultants under any and all circumstances. The ruling is
unique to this case, for the liability of PSI arose from an implied agency with Dr. Ampil

and an admitted corporate duty to Natividad. Other circumstances peculiar to this case
warrant this ruling, not the least of which being that the agony wrought upon the Aganas
has gone on for 26 long years, with Natividad coming to the end of her days racked in
pain and agony. Such wretchedness could have been avoided had PSI simply done what
was logical: heed the report of a guaze count discrepancy, initiate a review of what went
wrong and take corrective measures to ensure the safety of Nativad. Rather, for 26 years,
PSI hemmed and hawed at every turn, disowning any such responsibility to its patient.
Meanwhile, the options left to the Aganas have all but dwindled, for the status of Dr.
Ampil can no longer be ascertained. Therefore, taking all the equities of this case into
consideration, this Court believes P15 million would be a fair and reasonable liability of
PSI, subject to 12% p.a. interest from the finality of this resolution to full satisfaction.
Credit; concurrence
and preference of
credit; tax clearance is
not required for the
approval of a project
of partition.

Philippine Deposit Insurance Corporation v. Bureau of Internal Revenue, G.R. No.


172892, June 13, 2013
The position of the BIR, insisting on prior compliance with the tax clearance
requirement as a condition for the approval of the project of distribution of the assets of a
bank under liquidation, is contrary to both the letter and intent of the law on liquidation
of banks by the PDIC.
The law expressly provides that debts and liabilities of the bank under liquidation are to
be paid in accordance with the rules on concurrence and preference of credit under the
Civil Code. Duties, taxes, and fees due the Government enjoy priority only when they
are with reference to a specific movable property, under Article 2241(1) of the Civil
Code, or immovable property, under Article 2242(1) of the same Code. However, with
reference to the other real and personal property of the debtor, sometimes referred to as
free property, the taxes and assessments due the National Government, other than
those in Articles 2241(1) and 2242(1) of the Civil Code, such as the corporate income
tax, will come only in ninth place in the order of preference. On the other hand, if the
BIRs contention that a tax clearance be secured first before the project of distribution of
the assets of a bank under liquidation may be approved, then the tax liabilities will be
given absolute preference in all instances, including those that do not fall under Articles
2241(1) and 2242(1) of the Civil Code. In order to secure a tax clearance which will
serve as proof that the taxpayer had completely paid off his tax liabilities, PDIC will be
compelled to settle and pay first all tax liabilities and deficiencies of the bank, regardless
of the order of preference under the pertinent provisions of the Civil Code. Following the
BIRs stance, therefore, only then may the project of distribution of the banks assets be
approved and the other debts and claims thereafter settled, even though under Article
2244 of the Civil Code such debts and claims enjoy preference over taxes and
assessments due the National Government.

Dacion en pago.

Luzon Development Bank vs. Angeles Catherine Enriquez / Delta Development and
Management Services, Inc. vs. Angeles Catherine Enriquez, et al.; G.R. Nos. 168646
& G.R. No. 168666. January 12, 2011.
A dacion en pago is governed by the law of sales. Contracts of sale come with
warranties, either express (if explicitly stipulated by the parties) or implied (under
Article 1547 et seq. of the Civil Code).

Damages for violation


of right to privacy;
inviolability of
diplomatic residence.

Nestor N. Padalhin, et al. Vs. Nelson D. Lavina. G.R. No. 183026. November 14,2012

Damages;
actual
damages due to loss of
income.

Doris U. Sunbanun vs. Aurora B. Go, G.R. No. 163280, February 2, 2010

As already exhaustively discussed by both the RTC and the CA, Nestor himself admitted
that he caused the taking of the pictures of Lavinas residence without the latters
knowledge and consent. Nestor reiterates that he did so sans bad faith or malice.
However, Nestors surreptitious acts negate his allegation of good faith. If it were true
that Lavina kept ivories in his diplomatic residence, then, his behavior deserves
condemnation. However, that is not the issue in the case at bar. Nestor violated the New
Civil Code prescriptions concerning the privacy of ones residence and he cannot hide
behind the cloak of his supposed benevolent intentions to justify the invasion. Hence, the
award of damages and attorneys fees in Lavinas favor is proper.

The lease contract clearly provides that petitioner leased to respondent the ground floor
of her residential house for a term of one year commencing from 7 July 1995. Thus, the

lease contract would expire only on 7 July 1996. However, petitioner started ejecting
respondents lodgers in March 1996 by informing them that the lease contract was only
until 15 April 1996. Clearly, petitioners act of ejecting respondents lodgers resulted in
respondent losing income from her lodgers. Hence, it was proper for the trial court and
the appellate court to order petitioner to pay respondent actual damages in the amount of
P45,000.
Damages; actual
damages; concept;
when awarded.

Consolidated Industrial Gases, Inc. v. Alabang Medical Center, G.R. No. 181983,
November 13, 2013
For damages to be recovered, the best evidence obtainable by the injured party must be
presented. Actual or compensatory damages cannot be presumed, but must be proved
with reasonable degree of certainty. The Court cannot rely on speculation, conjecture or
guesswork as to the fact and amount of damages, but must depend upon competent proof
that they have been suffered and on evidence of the actual amount. If the proof is flimsy
and unsubstantial, no damages will be awarded.

Damages; actual
damages; loss of
earning capacity.

Philippine Hawk Corporation vs. Vivian Tan Lee, G.R. No. 166869, February 16, 2010

Damages; actual
damages; requires
competent proof of the
actual amount of loss.

Comsavings Bank (now GSIS Family Bank) v. Sps. Danilo and Estrella Capistrano,
G.R. No. 170942, August 28, 2013

Damages;
damages;
profits.

Daniel T. So vs. Food Fest Land, Inc. / Food Fest Land, Inc. vs. Daniel T. So, G.R. Nos.
183628 & 183670, April 7, 2010
Food Fest leased property from So. Food Fest sought
to pre-terminate the lease. So sued Food Fest for ejection, payment of arrears and
damages. On the matter of damages, So claims that Food Fest did not exercise care in
removing the installations and fixtures, thereby causing destruction to the premises to
thus entitle him to damages, as well as to damages corresponding to unrealized profits
(lucrum cessans) to answer for the period during which the unit was not rented out.
Unrealized profits fall under the category of actual or compensatory damages. If there
exists a basis for a reasonable expectation that profits would have continued to be
generated had there been no breach of contract, indemnification for damages based on
such expected profits is proper. This is, however, subject to the rule that a party is
entitled to an adequate compensation only for such pecuniary loss suffered by him as he
has duly proved. Other than the photographs evincing damage to the premises, no

actual
unrealized

The indemnity for loss of earning capacity of the deceased is provided for by Article
2206 of the Civil Code. Compensation of this nature is awarded not for loss of earnings,
but for loss of capacity to earn money. As a rule, documentary evidence should be
presented to substantiate the claim for damages for loss of earning capacity. By way of
exception, damages for loss of earning capacity may be awarded despite the absence of
documentary evidence when: (1) the deceased is self-employed and earning less than the
minimum wage under current labor laws, in which case, judicial notice may be taken of
the fact that in the deceaseds line of work no documentary evidence is available; or (2)
the deceased is employed as a daily wage worker earning less than the minimum wage
under current labor laws. In this case, the records show that respondents husband was
leasing and operating a gasoline station and earned an annual income of one million
pesos. Respondent presented in evidence a Certificate of Creditable Income Tax
Withheld at Source. It is reasonable to use the Certificate and respondents testimony as
bases for fixing the gross annual income of the deceased at one million pesos before
respondents husband died. However, no documentary evidence was presented regarding
the income derived from their copra business; hence, the testimony of respondent as
regards such income cannot be considered. In the computation of loss of earning
capacity, only net earnings, not gross earnings, are to be considered; that is, the total of
the earnings less expenses necessary for the creation of such earnings or income, less
living and other incidental expenses. In the absence of documentary evidence, it is
reasonable to peg necessary expenses for the lease and operation of the gasoline station
at 80 percent of the gross income, and peg living expenses at 50 percent of the net
income (gross income less necessary expenses).

To justify an award for actual damages, there must be competent proof of the actual
amount of loss. Credence can be given only to claims duly supported by receipts.
Respondents did not submit any documentary proof, like receipts, to support their claim
for actual damages.

Damages; actual
damages.

evidence was proffered to show Sos entitlement to unrealized profits. That the leased
unit was not subsequently leased is not solely attributable to Food Fest. As borne by the
records, no renovation was undertaken by So for almost three years following Food
Fests vacation of the premises in 2001. The quotations issued by construction
companies for purposes of renovation were issued only in 2004. However, So may seek
damages pursuant to the contract.
Respecting Sos claim for renovation expenses, the same must be denied absent proof as
to the actual cost of renovation. Only firm offers or quotations from construction
companies are in the records. Following Article 2224 of the Civil Code, however, the
appellate courts award of temperate damages is in order. This Court notes that the
appellate court did not award liquidated damages in contravention of the contract. As for
the appellate courts award of P20,000.00 as attorneys fees, the contractual stipulation
should prevail.
As for Food Fests invocation of the principle of rebus sic stantibus as enunciated in
Article 1267 of the Civil Code to render the lease contract functus officio, and
consequently release it from responsibility to pay rentals, the Court is not persuaded.
Article 1267 provides: Article 1267. When the service has become so difficult as to be
manifestly beyond the contemplation of the parties, the obligor may also be released
therefrom, in whole or in part.
This article, which enunciates the doctrine of unforeseen events, is not, however, an
absolute application of the principle of rebus sic stantibus, which would endanger the
security of contractual relations. The parties to the contract must be presumed to have
assumed the risks of unfavorable developments. It is, therefore, only in absolutely
exceptional changes of circumstances that equity demands assistance for the debtor.
Food Fest claims that its failure to secure the necessary business permits and licenses
rendered the impossibility and non-materialization of its purpose in entering into the
contract of lease, in support of which it cites the earlier-quoted portion of the preliminary
agreement dated July 1, 1999 of the parties. The cause or essential purpose in a contract
of lease is the use or enjoyment of a thing. A partys motive or particular purpose in
entering into a contract does not affect the validity or existence of the contract; an
exception is when the realization of such motive or particular purpose has been made a
condition upon which the contract is made to depend. The exception does not apply here.
It is clear that the condition set forth in the preliminary agreement pertains to the initial
application of Food Fest for the permits, licenses and authority to operate. It should not
be construed to apply to Food Fests subsequent applications. Food Fest was able to
secure the permits, licenses and authority to operate when the lease contract was
executed. Its failure to renew these permits, licenses and authority for the succeeding
year, does not, however, suffice to declare the lease functus officio, nor can it be
construed as an unforeseen event to warrant the application of Article 1267. Contracts,
once perfected, are binding between the contracting parties. Obligations arising
therefrom have the force of law and should be complied with in good faith. Food Fest
cannot renege from the obligations it has freely assumed when it signed the lease
contract.
Calibre Traders Inc., Mario Sison Sebastian and Minda Blanco Sebastian vs. Bayer
Philippines, Inc.; G.R. No. 161431, October 13, 2010
Actual or compensatory damages, indemnification comprises not only the value of the
loss suffered, but likewise the profits the obligee failed to obtain. But in this case, he
court did not find any evidence supporting the claim for damages, which must be proved.

Damages; actual.

Damages; amount in
tort interference.

Adrian Wilson International Associates, Inc. vs. TMX Philippines, Inc., G.R. No.
162608, July 26, 2010.
Actual damages puts the claimant in the position in which he had been before he was
injured. The award thereof must be based on the evidence presented, not on the personal
knowledge of the court; and certainly not on flimsy, remote, speculative and nonsubstantial proof. Under the Civil Code, one is entitled to an adequate compensation
only for such pecuniary loss suffered by him as he has duly proved.
Allan C. Go, doing business under the name and style of ACG Express Liner vs.
Mortimer F. Cordero/Mortimer F. Cordero vs. Allan C. Go, doing business under the
name and style of ACG Express Liner, et al., G.R. No. 164703/G.R. No, 164747.
May 4, 2010
The rule is that the defendant found guilty of interference with contractual relations
cannot be held liable for more than the amount for which the party who was inducted to

break the contract can be held liable. Respondents were therefore correctly held liable
for the balance of petitioners commission from the sale.
Damages; attorneys
fees; allowed when
exemplary damages
are awarded or where
the plaintiff has
incurred expenses to
protect his interest by
reason of defendants
act or omission.

Comsavings Bank (now GSIS Family Bank) v. Sps. Danilo and Estrella Capistrano,
G.R. No. 170942, August 28, 2013

Damages; Attorneys
fees; dual concept of
attorneys fees; an
award of attorneys
fees under Article
2208 demands factual,
legal, and equitable
justification.

Philippine National Construction Corporation v. Apac Marketing Corporation,


represented by Cesar M. Ong, Jr., G.R. No. 190957, June 5, 2013.

Article 2208 of the Civil Code allows recovery of attorneys fees when exemplary
damages are awarded or where the plaintiff has incurred expenses to protect his interest
by reason of defendants act or omission. Considering that exemplary damages were
properly awarded here, and that respondents hired a private lawyer to litigate its cause,
the Supreme Court agrees with the RTC and CA that the P30,000.00 allowed as
attorneys fees were appropriate and reasonable.

Article 2208 of the New Civil Code of the Philippines states the policy that should guide
the courts when awarding attorneys fees to a litigant. As a general rule, the parties may
stipulate the recovery of attorneys fees. In the absence of such stipulation, this article
restrictively enumerates the instances when these fees may be recovered.
In ABS-CBN Broadcasting Corp. v. CA, this Court had the occasion to expound on the
policy behind the grant of attorneys fees as actual or compensatory damages:
(T)he law is clear that in the absence of stipulation, attorneys fees may be recovered
as actual or compensatory damages under any of the circumstances provided for in
Article 2208 of the Civil Code. The general rule is that attorneys fees cannot be
recovered as part of damages because of the policy that no premium should be placed
on the right to litigate. They are not to be awarded every time a party wins a suit.
The power of the court to award attorneys fees under Article 2208 demands factual,
legal, and equitable justification. Even when a claimant is compelled to litigate with
third persons or to incur expenses to protect his rights, still attorneys fees may not be
awarded where no sufficient showing of bad faith could be reflected in a partys
persistence in a case other than an erroneous conviction of the righteousness of his
cause.
We have consistently held that an award of attorneys fees under Article 2208 demands
factual, legal, and equitable justification to avoid speculation and conjecture surrounding
the grant thereof. Due to the special nature of the award of attorneys fees, a rigid
standard is imposed on the courts before these fees could be granted. Hence, it is
imperative that they clearly and distinctly set forth in their decisions the basis for the
award thereof. It is not enough that they merely state the amount of the grant in the
dispositive portion of their decisions. It bears reiteration that the award of attorneys fees
is an exception rather than the general rule; thus, there must be compelling legal reason
to bring the case within the exceptions provided under Article 2208 of the Civil Code to
justify the award.

Damages; Attorneys
fees; what constitute
bad faith.

Asian Construction and Development Corporation v. Sumitomo Corporation /


Sumitomo Corporation v. Asia Construction and Development Corporation, G.R. No.
196723 / G.R. No. 196728, August 28, 2013
There was no gross and evident bad faith on the part of Asian Construction in filing its
complaint against Sumitomo since it was merely seeking payment of its unpaid works
done pursuant to the Agreement. Neither can its subsequent refusal to accept Sumitomos
offered compromise be classified as a badge of bad faith since it was within its right to
either accept or reject the same owing to its contractual nature. Absent any other just or
equitable reason to rule otherwise, these incidents are clearly off-tangent with a finding
of gross and evident bad faith which altogether negates Sumitomos entitlement to
attorneys fees.

Damages; Attorneys
fees; when awarded.

Asian Construction and Development Corporation v. Sumitomo Corporation /


Sumitomo Corporation v. Asia Construction and Development Corporation, G.R. No.
196723 / G.R. No. 196728, August 28, 2013
Jurisprudence dictates that in the absence of a governing stipulation, attorneys fees may

be awarded only in case the plaintiffs action or defendants stand is so untenable as to


amount to gross and evident bad faith. This is embodied in Article 2208 of the Civil
Code which states:
Article 2208. In the absence of stipulation, attorneys fees and expenses of litigation,
other than judicial costs, cannot be recovered, except:
xxxx
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiffs plainly valid, just and demandable claim;
xxxx
Damages; Award of
attorneys fees and
litigation expenses and
costs; justified when
there is bad faith.

Spouses Celemencio C. Sabitsana, Jr. and Ma. Rosario M. Sabitsana v. Juanito F.


Muertegui, represented by his attorney-in-fact, Domingo A. Muertegui, Jr., G.R. No.
181359, August 5, 2013
Even granting that Atty. Sabitsana has ceased to act as the Muertegui familys lawyer, he
still owed them his loyalty. The termination of attorney-client relation provides no
justification for a lawyer to represent an interest adverse to or in conflict with that of the
former client on a matter involving confidential information which the lawyer acquired
when he was counsel. The clients confidence once reposed should not be divested by
mere expiration of professional employment. This is underscored by the fact that Atty.
Sabitsana obtained information from Carmen which he used to his advantage and to the
detriment of his client.
[F]rom the foregoing disquisition, it can be seen that petitioners are guilty of bad faith in
pursuing the sale of the lot despite being apprised of the prior sale in respondents favor.
Moreover, petitioner Atty. Sabitsana has exhibited a lack of loyalty toward his clients,
the Muerteguis, and by his acts, jeopardized their interests instead of protecting them.
Over and above the trial courts and the CAs findings, this provides further justification
for the award of attorneys fees, litigation expenses and costs in favor of the respondent.

Damages; award of
costs; when entitled.
Costs shall be allowed
to the prevailing party
as a matter of course
unless otherwise
provided in the Rules
of Court.

Jose T. Ramirez v. The Manila Banking Corporation, G.R. No. 198800, December 11,
2013.

Damages; causal
connection.

Adrian Wilson International Associates, Inc. vs. TMX Philippines, Inc., G.R. No.
162608, July 26, 2010.

The costs Ramirez may recover are those stated in Section 10, Rule 142 of the Rules of
Court. For instance, Ramirez may recover the lawful fees he paid in docketing his action
for annulment of sale before the trial court. The court adds thereto the amount of P3,530
or the amount of docket and lawful fees paid by Ramirez for filing this petition before
this Court. 35(35) The court deleted the award of moral and exemplary damages; hence,
the restriction under Section 7, Rule 142 of the Rules of Courtwould have prevented
Ramirez to recover any cost of suit. But the court certifies, in accordance with said
Section 7, that Ramirezs action for annulment of sale involved a substantial and
important right such that he is entitled to an award of costs of suit. Needless to stress, the
purpose of paragraph N of the real estate mortgage is to apprise the mortgagor, Ramirez,
of any action that the mortgagee-bank might take on the subject properties, thus
according him the opportunity to safeguard his rights.

In contracts and quasi-contracts, the damages for which the obligor who acted in good
faith is liable shall be those that are the natural and probable consequences of the breach
of the obligation. In this case, the trial court and the Court of appeals held AWIA liable
for the cost of 11 shoring columns. The Supreme Court also found that AWIA had
breached its duty of contract administration. It noted that had the effects on the marginal
strength of the concrete been promptly disclosed to TMX, the cracks and deflections
could have been rectified by the contractor before it was issued its final certification of
payment and the owner could have been spared from further expenses. There is a causal
connection between AWIAs negligence and the expenses incurred by TMX. The latter
was compelled to shutdown the plant during the workdays in December to repair the
roof. In the process, it incurred expenses for the repairs, including the salaries of its
workers who were put on forced leave, for which it can ask for reimbursement as actual
damages.

Damages;
compensatory
damages.

OMC Carriers, Inc. and Jerry Analucas y Pitalino vs. Spouses Roberto C. Nabua and
Rosario T. Nabua, G.R. No. 148974, July 2, 2010
In the case at bar, respondents only testified to the fact that the victim, Reggie Nabua,
was a freshman taking up Industrial Engineering at the Technological Institute of the
Philippines in Cubao. There was no evidence of good academic record, extra-curricular
activities, and varied interests presented in court. Hence, the Court of Appeals was
correct when it deleted the award of compensatory damages amounting to
P2,000,000.00, as the same is without any basis.

Damages; damages for


loss of earning
capacity; must be duly
proven by
documentary evidence;
exceptions.

People of the Philippines v. Garry Vergara y Oriel and Joseph Incencio y Paulino,
G.R. No. 177763, July 3, 2013
The Supreme Court agrees with the Court of Appeals when it removed the RTCs award
respecting the indemnity for the loss of earning capacity. As it has already previously
ruled that damages for loss of earning capacity is in the nature of actual damages, which
as a rule must be duly proven by documentary evidence, not merely by the self-serving
testimony of the widow.
By way of exception, damages for loss of earning capacity may be awarded despite the
absence of documentary evidence when (1) the deceased is self-employed earning less
than the minimum wage under current labor laws, and judicial notice may be taken of the
fact that in the deceaseds line of work no documentary evidence is available; or (2) the
deceased is employed as a daily wage worker earning less than the minimum wage under
current labor laws.

Damages; death
indemnity.

OMC Carriers, Inc. and Jerry Analucas y Pitalino vs. Spouses Roberto C. Nabua and
Rosario T. Nabua, G.R. No. 148974, July 2, 2010
Death indemnity has been fixed by jurisprudence at P50,000.00.

Damages; diligence;
standard of care of
banks.

Metropolitan Bank and Trust Company vs. Larry Marinas, G.R. No. 179105, July 26,
2010
While it is conceded that petitioner had the right to offset the unpaid interests due it
against the deposits of respondent, the issue of whether it acted judiciously is an entirely
different matter. As business affected with public interest, and because of the nature of
their functions, banks are under obligation to treat the accounts of their depositors with
meticulous care, always having in mind the fiduciary nature of their relationship. This
whole incident would have been avoided had petitioner adhered to the standard of
diligence expected of one engaged in the banking business.

Damages; entitlement;
when death results
from delict.

People of the Philippines v. Marcial M. Malicdem; G.R. No. 184601. November 12,
2012
Anent the award of damages, when death occurs due to a crime, the following may be
recovered: (1) civil indemnity ex delicto for the death of the victim; (2) actual or
compensatory damages; (3) moral damages; (4) exemplary damages; (5) attorneys fees
and expenses of litigation; and (6) interest, in proper cases.

Damages; exemplary
damages in delict;
awarded when there is
an aggravating
circumstance, whether
ordinary or qualifying.

People of the Philippines v. Marcial M. Malicdem; G.R. No. 184601. November 12,
2012

Damages;

Doris U. Sunbanun vs. Aurora B. Go, G.R. No. 163280, February 2, 2010

exemplary

Unlike the criminal liability which is basically a State concern, the award of damages,
however, is likewise, if not primarily, intended for the offended party who suffers
thereby. It would make little sense for an award of exemplary damages to be due the
private offended party when the aggravating circumstance is ordinary but to be withheld
when it is qualifying. Withal, the ordinary or qualifying nature of an aggravating
circumstance is a distinction that should only be of consequence to the criminal, rather
than to the civil, liability of the offender. In fine, relative to the civil aspect of the case,
an aggravating circumstance, whether ordinary or qualifying, should entitle the offended
party to an award of exemplary damages within the unbridled meaning of Article 2230 of
the Civil Code.

damages;
fees.

attorneys
Exemplary damages may be awarded when a wrongful act is accompanied by bad faith
or when the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner which would justify an award of exemplary damages under Article 2232 of the
Civil Code. Since the award of exemplary damages is proper in this case, attorneys fees
and cost of the suit may also be recovered as provided under Article 2208 of the Civil
Code.

Damages; exemplary
damages; awarded if
there is an aggravating
circumstance, whether
ordinary or qualifying.

People of the Philippines v. Garry Vergara y Oriel and Joseph Incencio y Paulino,
G.R. No. 177763, July 3, 2013

Damages; exemplary
damages; concept.

Joyce V. Ardiente v. Spouses Javier and Ma. Theresa Pastofide, G.R. No. 161921, July
17, 2013

Unlike the criminal liability which is basically a State concern, the award of exemplary
damages, however, is likewise, if not primarily, intended for the offended party who
suffers thereby. It would make little sense for an award of exemplary damages to be due
the private offended party when the aggravating circumstance is ordinary but to be
withheld when it is qualifying. Withal, the ordinary or qualifying nature of an
aggravating circumstance is a distinction that should only be of consequence to the
criminal, rather than to the civil, liability of the offender. In fine, relative to the civil
aspect of the case, an aggravating circumstance, whether ordinary or qualifying, should
entitle the offended party to an award of exemplary damages within the unbridled
meaning of Article 2230 of the Civil Code.

As for exemplary damages, Article 2229 provides that exemplary damages may be
imposed by way of example or correction for the public good. Nonetheless, exemplary
damages are imposed not to enrich one party or impoverish another, but to serve as a
deterrent against or as a negative incentive to curb socially deleterious actions. In the
instant case, the Court agrees with the CA in sustaining the award of exemplary
damages, although it reduced the amount granted, considering that respondent spouses
were deprived of their water supply for more than nine (9) months, and such deprivation
would have continued were it not for the relief granted by the RTC.
Damages; Exemplary
damages; the law
allows the grant of
exemplary damages to
set an example for the
public good.

Comsavings Bank (now GSIS Family Bank) v. Sps. Danilo and Estrella Capistrano,
G.R. No. 170942, August 28, 2013

Damages; exemplary.

Leticia Tan, et al. vs. OMC Carriers, Inc. and Bonifacio Arambala;G.R. No. 190521,
January 12, 2011.

The law allows the grant of exemplary damages to set an example for the public good.
The business of a bank is affected with public interest; thus, it makes a sworn profession
of diligence and meticulousness ingiving irreproachable service. For this reason, the
bank should guard against injury attributable to negligence or bad faith on its part. The
banking sector must at all times maintain a high level of meticulousness. The grant of
exemplary damages is justified by the initial carelessness of petitioner, aggravated by its
lack of promptness in repairing its error.

Exemplary or corrective damages are imposed by way of example or correction for the
public good, in addition to moral, temperate, liquidated or compensatory damages. In
quasi-delicts, exemplary damages may be granted if the defendant acted with gross
negligence. Celedonio Tans death and the destruction of the petitioners home and
tailoring shop were unquestionably caused by the respondents gross negligence. The
law allows the grant of exemplary damages in cases such as this to serve as a warning to
the public and as a deterrent against the repetition of this kind of deleterious actions. The
grant, however, should be tempered, as it is not intended to enrich one party or to
impoverish another.
Damages; for loss of
earning capacity.

Constancia G. Tamayo, et al. vs. Rosalia Abad Senora, et al., G.R. No. 176946,
November 15, 2010
The award of damages for loss of earning capacity is concerned with the determination
of losses or damages sustained by respondents, as dependents and intestate heirs of the
deceased. This consists not of the full amount of his earnings, but of the support which
they received or would have received from him had he not died as a consequence of the

negligent act. Thus, the amount recoverable is not the loss of the victims entire earnings,
but rather the loss of that portion of the earnings which the beneficiary would have
received.
Indemnity for loss of earning capacity is determined by computing the net earning
capacity of the victim as follows:
Net Earning Capacity = life expectancy x (gross annual income -reasonable and
necessary living expenses).
Life expectancy shall be computed by applying the formula (2/3 x [80 - age at death])
adopted from the American Expectancy Table of Mortality or the Actuarial of Combined
Experience Table of Mortality. On the other hand, gross annual income requires the
presentation of documentary evidence for the purpose of proving the victims annual
income. The victims heirs presented in evidence Senoras pay slip from the PNP,
showing him to have had a gross monthly salary of P12,754.00. Meanwhile, the victims
net income was correctly pegged at 50% of his gross income in the absence of proof as
regards the victims living expenses.
Damages; interest
thereon; where
obligation does not
constitute a loan or
forbearance of money.

Asian Terminals, Inc. v. Philam Insurance Co., Inc. (now Chartis Philippines
Insurance Inc.)/ Philam Insurance Co., Inc. (now Chartis Philippines Insurance Inc.)
v. Westwind Shipping Corporation and Asian Terminals, Inc./ Westwind Shipping
Corporation v. Philam Insurance Co., Inc. and Asian Terminals, Inc., G.R. Nos.
181163/181262/181319, July 24, 2013
The CA erred in imposing an interest rate of 12% on the award of damages. Under
Article 2209 of the Civil Code, when an obligation not constituting a loan or forbearance
of money is breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum. In the similar case of Belgian
Overseas Chartering and Shipping NV v. Philippine First Insurance Co., lnc., the Court
reduced the rate of interest on the damages awarded to the carrier therein to 6% from the
time of the filing of the complaint until the finality of the decision.

Damages; Interests;
Eastern Shipping
Lines guidelines as
modified by BSP-MB
Circular No. 799.

Dario Nacar v. Gallery Frames and/or Felipe Borde, Jr., G.R. No. 189871, August 13,
2013
The Supreme Court set out the following guidelines on damages and interest due:
1. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The
provisions under Title XVIII on Damages of the Civil Code govern in determining the
measure of recoverable damages.
2. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as
follows:
(a) When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of of stipulation,
the rate of interest shall be 6% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169
the Civil Code.
(b) When an obligation, not constituting a loan or forbearance of money, is breached,
an interest on the amount of damages awarded may be imposed at the discretion of
the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages, except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot
be so reasonably established at the time the demand is made, the interest shall begin
to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.
(c) When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or

paragraph 2, above, shall be 6% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.
Damages; loss of
earning capacity;
compensation for lost
income is in the nature
of damages and as
such requires due
proof of the damages
suffered; there must be
unbiased proof of the
deceaseds income.

In People of the Philippines v. Edwin Ibanez y Albante, et al., G.R. No. 197813,
September 25, 2013

Damages; loss of
earning capacity.

Paulita Edith Serra vs. Nelfa T. Mumar; G.R. No. 193861. March 14, 2012

In People v. Caraig, the Supreme Court had drawn two exceptions to the rule that
documentary evidence should be presented to substantiate the claim for damages for
loss of earning capacity, and have thus awarded damages where there is testimony that
the victim was either (1) self-employed earning less than the minimum wage under
current labor laws, and judicial notice may be taken of the fact that in the victims line of
work no documentary evidence is available; or (2) employed as a daily-wage worker
earning less than the minimum wage under current labor laws.

Damages for loss of earning capacity is in the nature of actual damages, which as a rule
must be duly proven by documentary evidence, not merely by the self-serving testimony
of the widow. By way of exception, damages for loss of earning capacity may be
awarded despite the absence of documentary evidence when (1) the deceased is selfemployed earning less than the minimum wage under current labor laws, and judicial
notice may be taken of the fact that in the deceaseds line of work no documentary
evidence is available; or (2) the deceased is employed as a daily wage worker earning
less than the minimum wage under current labor laws.
It was error for the Court of Appeals to have awarded damages for loss of earning
capacity based on Nelfas testimony alone. First, while it is conceded that the deceased
was self-employed, the Court cannot accept that in his line of work there was no
documentary proof available to prove his income from such occupation. There would
have been receipts, job orders, or some form of written contract or agreement between
the deceased and his clients when he is contracted for a job. Second, and more
importantly, decedent was not earning less than the minimum wage at the time of his
death.
Damages; loss of
earning capacity.

Heirs of Jose Marcial K. Ochoa, namely: Ruby B. Ochoa, et al. v. G & S Transport
Corporation/G & S Transport Corporation v. Heirs of Jose Marcial K. Ochoa, namely:
Ruby B. Ochoa, et al., G.R. No. 170071 & G.R. No. 170125, March 9, 2011
Clearly, the CA erred in deleting the award for lost income on the ground that the
USAID Certification supporting such claim is self-serving and unreliable. On the
contrary, we find said certification sufficient basis for the court to make a fair and
reasonable estimate of Jose Marcials loss of earning capacity just like in Tamayo v.
Senora where we based the victims gross annual income on his pay slip from the
Philippine National Police. Hence, we uphold the trial courts award for Jose Marcials
loss of earning capacity.

Damages; moral and


exemplary damages in
claims for disability
benefits; not
recoverable where
employer was not
negligent in affording
the employee with
medical treatment, and
employer did not
forsake employee
during the period of
disability.

Camilo A. Esguerra v. United Philippines Lines, Inc., et al., G.R. No. 199932, July 3,
2013

Damages; moral and


exemplary; standard of
diligence applicable to
a bank.

Citibank, N.A. vs. Atty. Ernesto S. Dinopol, G.R. No. 188412, November 22, 2010

The CA correctly denied an award of moral and exemplary damages. The respondents
were not negligent in affording the petitioner with medical treatment neither did they
forsake him during his period of disability.

The award of moral damages should be granted in reasonable amounts depending on the
facts and circumstances of the case. Moral damages are meant to compensate the

claimant for any physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation and similar injuries
unjustly caused.
As to the award of exemplary damages, the law allows it by way of example for the
public good. The business of banking is impressed with public interest and great reliance
is made on the banks sworn profession of diligence and meticulousness in giving
irreproachable service. Thus, the Court affirms the award as a way of setting an example
for the public good. In addition, it also provided for attorneys fees. Both are subject to
legal interest.
In any event, Citibank should have been more cautious in dealing with its clients since
its business is imbued with public interest. Banks must always act in good faith and must
win the confidence of clients and people in general. It is irrelevant whether the client is a
lawyer or not.
Damages; moral
damages need not be
attended by bad faith;
exemplary damages;
attorneys fees.

A depositor has the right to recover reasonable moral damages even if the banks
negligence may not have been attended with malice and bad faith, if the former suffered
mental anguish, serious anxiety, embarrassment and humiliation. Moral damages are not
meant to enrich a complainant at the expense of defendant. It is only intended to alleviate
the moral suffering she has undergone. The award of exemplary damages is justified, on
the other hand, when the acts of the bank are attended by malice, bad faith or gross
negligence. The award of reasonable attorneys fees is proper where exemplary damages
are awarded. It is proper where depositors are compelled to litigate to protect their
interest. Metropolitan Bank and Trust Company vs. Larry Marinas, G.R. No. 179105,
July 26, 2010

Damages; moral
damages; awarded
where the victim of a
crime suffered a
violent death, even in
the absence of proof of
mental and emotional
suffering of the
victims heirs.

People of the Philippines v. Garry Vergara y Oriel and Joseph Incencio y Paulino,
G.R. No. 177763, July 3, 2013

Damages;
moral
damages;
compensatory
damages;
attorneys
fees.

Luciano Briones and Nelly Briones vs. Jose Macabagdal, Fe D. Macabagdal and
Vergon Realty Investments Corporation, G.R. No. 150666, August 3, 2010

Damages; Moral
damages; recoverable
for acts or actions
referred to in Article

Comsavings Bank (now GSIS Family Bank) v. Sps. Danilo and Estrella Capistrano,
G.R. No. 170942, August 28, 2013

The Supreme Court sustained the RTCs award for moral damages in the amount of
P50,000.00 even in the absence of proof of mental and emotional suffering of the
victims heirs. As borne out by human nature and experience, a violent death invariably
and necessarily brings about emotional pain and anguish on the part of the victims
family. While no amount of damages may totally compensate the sudden and tragic loss
of a loved one it is nonetheless awarded to the heirs of the deceased to at least assuage
them.

Take note of this case for its input on attorneys fees. Considering that petitioners acted
in good faith in building their house on the subject property of the respondent-spouses,
there is no basis for the award of moral damages to respondent- spouses. Likewise, the
Court deletes the award to Vergon of compensatory damages and attorneys fees for the
litigation expenses Vergon had incurred as such amounts were not specifically prayed for
in its Answer to petitioners third-party complaint. Under Article 2208 of the Civil Code,
attorneys fees and expenses of litigation are recoverable only in the concept of actual
damages, not as moral damages
nor judicial costs. Hence, such must be specifically prayed foras was not done in this
caseand may not be deemed incorporated within a general prayer for such other relief
and remedy as this court may deem just and equitable. It must also be noted that aside
from the following, the body of the trial courts decision was devoid of any statement
regarding attorneys fees. In Scott Consultants & Resource Development Corporation,
Inc. v. Court of Appeals, we reiterated that attorneys fees are not to be awarded every
time a party wins a suit. The power of the court to award attorneys fees under Article
2208 of the Civil Code demands factual, legal, and equitable justification; its basis
cannot be left to speculation or conjecture. Where granted, the court must explicitly state
in the body of the decision, and not only in the dispositive portion thereof, the legal
reason for the award of attorneys fees.

In their amended complaint, respondents claimed that the acts of GCB Builders and

20 of the Civil Code.

Comsavings Bank had caused them to suffer sleepless nights, worries and anxieties. The
claim was well founded. Danilo worked in Saudi Arabia in order to pay the loan used for
the construction of their family home. His anxiety and anguish over the incomplete and
defective construction of their house, as well as the inconvenience he and his wife
experienced because of this suit were not easily probable. On her part, Estrella was a
mere housewife, but was the attorney-in-fact of Danilo in matters concerning the loan
transaction. With Danilo working abroad, she was alone in overseeing the house
construction and the progress of the present case. Given her situation, she definitely
experienced worries and sleepless nights. The award of moral damages of P100,000.00
awarded by the CA as exemplary damages is proper.

Damages; moral
damages; requisites;
granted when rights of
individuals are
violated; exemplary
damages; actual
damages; nature; in the
absence of proof,
temperate damages
may be awarded;
attorneys fees;
exception rather than
the general rule.

Manila Electric Company (MERALCO) vs. Atty. P.M. Castillo, doing business under
the trade name and style of Permanent Light Manufacturing Enterprises, et al.; G.R.
No. 182976. January 14, 2013
Moral damages are awarded to compensate the claimant for physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation and similar injury. Jurisprudence has established the following
requisites for the award of moral damages: (1) there is an injury whether physical,
mental or psychological, which was clearly sustained by the claimant; (2) there is a
culpable act or omission factually established; (3) the wrongful act or omission of the
defendant is the proximate cause of the injury sustained by the claimant; and (4) the
award of damages is predicated on any of the cases stated in Article 2219 of the Civil
Code.
Pertinent to the case at hand, Article 32 of the Civil Code provides for the award of
moral damages in cases where the rights of individuals, including the right against
deprivation of property without due process of law, are violated. In Quisumbing v.
Manila Electric Company, this Court treated the immediate disconnection of electricity
without notice as a form of deprivation of property without due process of law, which
entitles the subscriber aggrieved to moral damages. We stressed:
More seriously, the action of the defendant in maliciously disconnecting the electric
service constitutes a breach of public policy. For public utilities, broad as their
powers are, have a clear duty to see to it that they do not violate nor transgress the
rights of the consumers. Any act on their part that militates against the ordinary
norms of justice and fair play is considered an infraction that gives rise to an action
for damages. Such is the case at bar.
In addition to moral damages, exemplary damages are imposed by way of example or
correction for the public good. In this case, to serve as an example that before
disconnection of electric supply can be effected by a public utility, the requisites of law
must be complied with we sustain the award of exemplary damages to respondents.
Actual damages are compensation for an injury that will put the injured party in the
position where it was before the injury. They pertain to such injuries or losses that are
actually sustained and susceptible of measurement. Except as provided by law or by
stipulation, a party is entitled to adequate compensation only for such pecuniary loss as
is duly proven. Basic is the rule that to recover actual damages, not only must the
amount of loss be capable of proof; it must also be actually proven with a reasonable
degree of certainty premised upon competent proof or the best evidence obtainable.
Actual or compensatory damages cannot be presumed, but must be duly proved with a
reasonable degree of certainty. The award is dependent upon competent proof of the
damage suffered and the actual amount thereof. The award must be based on the
evidence presented, not on the personal knowledge of the court; and certainly not on
flimsy, remote, speculative and unsubstantial proof.
Nonetheless, in the absence of competent proof on the amount of actual damages
suffered, a party is entitled to temperate damages. Temperate or moderate damages,
which are more than nominal but less than compensatory damages, may be recovered
when the court finds that some pecuniary loss has been suffered but its amount cannot,
from the nature of the case, be proved with certainty. The amount thereof is usually left
to the discretion of the courts but the same should be reasonable, bearing in mind that
temperate damages should be more than nominal but less than compensatory.

An award of attorneys fees has always been the exception rather than the rule.
Attorneys fees are not awarded every time a party prevails in a suit. The policy of the
Court is that no premium should be placed on the right to litigate. The trial court must
make express findings of fact and law that bring the suit within the exception. What this
demands is that factual, legal or equitable justifications for the award must be set forth
not only in the fallo but also in the text of the decision, or else, the award should be
thrown out for being speculative and conjectural.
Damages; moral
damages; when
awarded.

The Heirs of Victorino Sarili, namely, Isabel A. Sarili, et al. v. Pedro F. Lagrosa,
represented in this act by his Attorney- in-Fact, Lourdes Labios Mojica, G.R. No.
193517, January 15, 2014
Suffice it to say that the dispute over the subject property had caused respondent serious
anxiety, mental anguish and sleepless nights, thereby justifying the aforesaid award.
Likewise, since respondent was constrained to engage the services of counsel to file this
suit and defend his interests, the awards of attorneys fees and litigation expenses are
also sustained.

Damages; moral
damages; when
awarded.

Dr. Encarnacion C. Lumantas v. Hanz Calapiz, represented by his parents, Hilario


Calapiz, Jr. and Helita Calapiz, G.R. No. 163753. January 15, 2014
Every person is entitled to the physical integrity of his body. Although we have long
advocated the view that any physical injury, like the loss or diminution of the use of any
part of ones body, is not equatable to a pecuniary loss, and is not susceptible of exact
monetary estimation, civil damages should be assessed once that integrity has been
violated. The assessment is but an imperfect estimation of the true value of ones body.
The usual practice is to award moral damages for the physical injuries sustained.

Damages; moral
damages; when
awarded.

General Milling Corporation vs. Violeta L. Viajar; G.R. No. 181738. January 30, 2013

Damages; moral
damages; when
recoverable.

Carlos Lim, et al. v. Development Bank of the Philippines, G.R. No. 177050, July 1,
2013

The Court has awarded moral damages in termination cases when bad faith, malice or
fraud attend the employees dismissal or where the act oppresses labor, or where it was
done in a manner contrary to morals, good customs or public policy

In Philippine National Bank v. Spouses Rocamora, the Supreme Court said that:
Moral damages are not recoverable simply because a contract has been breached.
They are recoverable only if the defendant acted fraudulently or in bad faith or in
wanton disregard of his contractual obligations. The breach must be wanton,
reckless, malicious or in bad faith, and oppressive or abusive. Likewise, a breach of
contract may give rise to exemplary damages only if the guilty party acted in a
wanton, fraudulent, reckless, oppressive or malevolent manner.
Damages;
damages.

moral

Philippine Hawk Corporation vs. Vivian Tan Lee, G.R. No. 166869, February 16, 2010
Moral damges are not intended to enrich a plaintiff at the expense of the defendant. They
are awarded to allow the plaintiff to obtain means, diversions or amusements that will
serve to alleviate the moral suffering he/she has undergone due to the defendants
culpable action and must, perforce, be proportional to the suffering inflicted.

Damages;
damages.

moral

Doris U. Sunbanun vs. Aurora B. Go, G.R. No. 163280, February 2, 2010
In this case, moral damages may be recovered under Article 2219 and Article 2220 of the
Civil Code in relation to Article 21. The petitioners act of ejecting respondents lodgers
three months before the lease contract expired without valid reason constitutes bad faith.
What aggravates the situation was that petitioner did not inform respondent, who was
then working in Hong Kong, about petitioners plan to pre-terminate the lease contract
and evict respondents lodgers. Moral damages may be awarded when the breach of
contract was attended with bad faith.

Damages;
damages.

moral

Northwest Airlines, Inc. vs. Spouses Edward J. Heshan and Neilia L. Heshan, et al.,
G.R. No. 179117, February 3, 2010

Nonetheless, the petition is in part meritorious. There is a need to substantially reduce


the moral damages awarded by the appellate court. While courts are given discretion to
determine the amount of damages to be awarded, it is limited by the principle that the
amount awarded should not be palpably and scandalously excessive. Moral damages are
neither intended to impose a penalty to the wrongdoer, nor to enrich the claimant. Taking
into consideration the facts and circumstances attendant to the case, an award to
respondents of P500,000, instead of P2,000,000, as moral damages is to the Court
reasonable.
Damages; moral
damages.

Engr. Emelyne P. Cayetano, et al. vs. Colegio De San Juan De Letran- Calamba; G.R.
No. 179545, July 11, 2012.
A breach of contract may give rise to an award of moral damages only if the party guilty
of the breach acted fraudulently or in bad faith. Likewise, a breach of contract may give
rise to exemplary damages if the guilty party acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.
The CIAC awarded moral and exemplary damages in favor of petitioners on the basis of
respondents failure to make payments on time and in full. The CIAC gave merit to the
allegations of petitioners that the delayed and staggered payments drained them
financially and emotionally, compelled them to apply for additional loans, affected their
reputation and credit standing adversely, made them suffer mental anguish, serious
anxiety and sleepless nights, and prevented them from participating in the bidding of
other projects because of their financial problems.
However, as already explained above, with the exception of the down payment,
petitioners agreed to a staggered payment of the progress billings; hence, they cannot
now claim that they were adversely affected by respondents payments in installment.
Also, with respect to the down payment, there was no showing that respondents failure
to pay the same on time and in full was attended by fraud or bad faith or was in wanton
or oppressive disregard of petitioners rights.
More importantly, an award of moral damages must be anchored on a clear showing that
the party entitled thereto actually experienced mental anguish, besmirched reputation,
sleepless nights, wounded feelings, or similar injury. Here, while petitioners alleged that
their finances were adversely affected, they did not present any evidence thereof, such as
documents evidencing the loans they were supposedly compelled to obtain.
In the same manner, respondent also failed to present sufficient evidence of their
entitlement to moral and exemplary damages. The alleged besmirched reputation it
allegedly suffered as a result of the building not having been finished on time was not
supported by any evidence other than respondents bare allegation.
Absent any showing that the parties are entitled to moral and exemplary damages, their
respective claims therefor must be disallowed.

Damages;
moral; Metropolitan Bank and Trust Co. and Solidbank Corporation vs. Bernardita H. Perez,
exemplary; attorneys represented by her Attorney in fact Patria H. Perez, G.R. No. 181842, February 5,
fees.
2010
Since an award of moral damages is predicated on a categorical showing from the
claimant that emotional and mental sufferings were actually experienced, absent any
evidence thereon in the present case, the award must be disallowed. And so too must the
award of attorneys fees, absent an indication in the trial courts decision of the factual
basis thereof, the award having been merely stated in the dispositive portion.
Parenthetically, while respondent prayed in her complaint for the award of attorneys
fees there is no showing that she submitted any documentary evidence in support
thereof.
Damages; moral;
exemplary; attorneys
fees.

Numeriano P. Abobon vs. Felicitas Abata Abobon, et al.; G.R. No. 155830, August 15,
2012
To be recoverable, moral damages must be capable of proof and must be actually proved
with a reasonable degree of certainty. Courts cannot simply rely on speculation,
conjecture or guesswork in determining the fact and amount of damages. Yet, nothing

was adduced here to justify the grant of moral damages. What we have was only the
allegation on moral damages, with the complaint stating that the respondents had been
forced to litigate, and that they had suffered mental anguish, serious anxiety and
wounded feelings from the petitioners refusal to restore the possession of the land in
question to them. The allegation did not suffice, for allegation was not proof of the facts
alleged.
The Court cannot also affirm the exemplary damages granted in favor of the
respondents. Exemplary damages were proper only if the respondents, as the plaintiffs,
showed their entitlement to moral, temperate or compensatory damages. Yet, they did not
establish their entitlement to such other damages.
As to attorneys fees, the general rule is that such fees cannot be recovered by a
successful litigant as part of the damages to be assessed against the losing party because
of the policy that no premium should be placed on the right to litigate. Indeed, prior to
the effectivity of the present Civil Code, such fees could be recovered only when there
was a stipulation to that effect. It was only under the present Civil Code that the right to
collect attorneys fees in the cases mentioned in Article 2208 of the Civil Code came to
be recognized. Such fees are now included in the concept of actual damages.
Even so, whenever attorneys fees are proper in a case, the decision rendered therein
should still expressly state the factual basis and legal justification for granting them.
Damages; moral.

Heirs of Jose Marcial K. Ochoa, namely: Ruby B. Ochoa, et al. v. G & S Transport
Corporation/G & S Transport Corporation v. Heirs of Jose Marcial K. Ochoa, namely:
Ruby B. Ochoa, et al., G.R. No. 170071 & G.R. No. 170125, March 9, 2011
While we deemed it proper to modify the amount of moral damages awarded by the trial
court as discussed below, we nevertheless agree with the heirs that the CA should not
have pegged said award in proportion to the award of exemplary damages. Moral and
exemplary damages are based on different jural foundations. They are different in nature
and require separate determination. The amount of one cannot be made to depend on the
other. In Victory Liner Inc. v. Gammad we awarded P100,000.00 by way of moral
damages to the husband and three children of the deceased, a 39-year old Section Chief
of the Bureau of Internal Revenue, to compensate said heirs for the grief caused by her
death. This is pursuant to the provisions of Articles 1764 and 2206(3) which provide:
Art. 1764. Damages in cases comprised in this Section shall be awarded in
accordance with Title XVIII of this Book, concerning Damages. Articles 2206 shall
also apply to the death of a passenger caused by the breach of contract by a common
carrier.
Art. 2206. x x x
(3) The spouse, legitimate and illegitimate descendants and the ascendants of the
deceased may demand moral damages for mental anguish by reason of the death of
the deceased.
Here, there is no question that the heirs are likewise entitled to moral damages pursuant
to the above provisions, considering the mental anguish suffered by them by reason of
Jose Marcials untimely death.

Damages; moral.

OMC Carriers, Inc. and Jerry Analucas y Pitalino vs. Spouses Roberto C. Nabua and
Rosario T. Nabua, G.R. No. 148974, July 2, 2010
It must be stressed that moral damages are not intended to enrich a plaintiff at the
expense of the defendant. They are awarded to allow the plaintiff to obtain means,
diversion or amusements that will serve to alleviate the moral suffering he/she has
undergone due to the defendants culpable action and must, perforce, be proportional to
the suffering inflicted. Thus, given the circumstances of the case at bar, an award of
P50,000.00 as moral damages is proper.

Damages; negligence;
contributory
negligence; higher
diligence standard for
banks.

Philippine National Bank vs. F.F. Cruz and Co., Inc.; G.R. No. 173259. July 25, 2011
We find no reversible error in the findings of the appellate court that PNB was negligent
in the handling of FFCCIs combo account, specifically, with respect to PNBs failure to
detect the forgeries in the subject applications for managers check which could have
prevented the loss. As we have often ruled, the banking business is impressed with

public trust. A higher degree of diligence is imposed on banks relative to the handling of
their affairs than that of an ordinary business enterprise. Thus, the degree of
responsibility, care and trustworthiness expected of their officials and employees is far
greater than those of ordinary officers and employees in other enterprises. In the case at
bar, PNB failed to meet the high standard of diligence required by the circumstances to
prevent the fraud. In Philippine Bank of Commerce v. Court of Appeals and The
Consolidated Bank & Trust Corporation v. Court of Appeals, where the banks
negligence is the proximate cause of the loss and the depositor is guilty of contributory
negligence, we allocated the damages between the bank and the depositor on a 60-40
ratio. We apply the same ruling in this case considering that, as shown above, PNBs
negligence is the proximate cause of the loss while the issue as to FFCCIs contributory
negligence has been settled with finality in G.R. No. 173278. Thus, the appellate court
properly adjudged PNB to bear the greater part of the loss consistent with these rulings.
Damages; negligence;
degree of care; motor
vehicle vs. bicycle.

The Heirs of Redentor Completo and Elpidio Abiad vs. Sgt. Amando C. Albayda, Jr.,
G.R. No. 172200, July 6, 2010
Read this because it establishes a greater degree of care on a motorist when he
encounters a bicycle. The instant case involved a collision between a taxicab and a
bicycle which resulted in serious physical injuries to the bicycle rider, Albayda. It is a
rule in negligence suits that the plaintiff has the burden of proving by a preponderance of
evidence the motorists breach in his duty of care owed to the plaintiff, that the motorist
was negligent in failing to exercise the diligence required to avoid injury to the plaintiff,
and that such negligence was the proximate cause of the injury suffered.
Article 2176 of the Civil Code provides that whoever by act or omission causes damage
to another, there being fault or negligence, is obliged to pay for the damage done. Such
fault or negligence, if there is no preexisting contractual relation between the parties, is
called a quasi-delict. In this regard, the question of the motorists negligence is a
question of fact.
It was proven by a preponderance of evidence that Completo failed to exercise
reasonable diligence in driving the taxicab because he was over-speeding at the time he
hit the bicycle ridden by Albayda. Such negligence was the sole and proximate cause of
the serious physical injuries sustained by Albayda. Completo did not slow down even
when he approached the intersection of 8th and 11th Streets of VAB. It was also proven
that Albayda had the right of way, considering that he reached the intersection ahead of
Completo.
The bicycle occupies a legal position that is at least equal to that of other vehicles
lawfully on the highway, and it is fortified by the fact that usually more will be required
of a motorist than a bicyclist in discharging his duty of care to the other because of the
physical advantages the automobile has over the bicycle.
At the slow speed of ten miles per hour, a bicyclist travels almost fifteen feet per second,
while a car traveling at only twenty-five miles per hour covers almost thirty-seven feet
per second, and split-second action may be insufficient to avoid an accident. It is obvious
that a motor vehicle poses a greater danger of harm to a bicyclist than vice versa.
Accordingly, while the duty of using reasonable care falls alike on a motorist and a
bicyclist, due to the inherent differences in the two vehicles, more care is required from
the motorist to fully discharge the duty than from the bicyclist. Simply stated, the
physical advantages that the motor vehicle has over the bicycle make it more dangerous
to the bicyclist than vice versa.

Damages; negligence.

Philippine Hawk Corporation vs. Vivian Tan Lee, G.R. No. 166869, February 16, 2010
Nevertheless, this fact does not affect the finding of the trial court that petitioners bus
driver, Margarito Avila, was guilty of simple negligence as affirmed by the appellate
court. Foreseeability is the fundamental test of negligence. To be negligent, a defendant
must have acted or failed to act in such a way that an ordinary reasonable man would
have realized that certain interests of certain persons were unreasonably subjected to a
general but definite class of risks. In this case, the bus driver, who was driving on the
right side of the road, already saw the motorcycle on the left side of the road before the
collision. However, he did not take the necessary precaution to slow down, but drove on
and bumped the motorcycle, and also the passenger jeep parked on the left side of the

road, showing that the bus was negligent in veering to the left lane, causing it to hit the
motorcycle and the passenger jeep.
Damages; negligence.

Jose Marques, et al. vs. Far East Bank and Trust Company, et al. / Far East Ban and
Trust Company, et al. vs. Jose Marques, et al.; G.R. No. 171379/G.R. No. 171419,
January 10, 2011.
Negligence is defined as the omission to do something which a reasonable man, guided
upon those considerations which ordinarily regulate the conduct of human affairs, would
do, or the doing of something which a prudent man and reasonable man could not do.
As a consequence of its negligence, FEBTC must be held liable for damages pursuant to
Article 2176 of the Civil Code which states whoever by act or omission causes damage
to another, there being fault or negligence, is obliged to pay for the damage done.
Indisputably, had the insurance premium been paid, through the automatic debit
arrangement with FEBTC, Maxilites fire loss claim would have been approved. Hence,
Maxilite suffered damage to the extent of the face value of the insurance policy or the
sum of P2.1 million.

Damages; nominal
damages; when
warranted in labor
cases.

Poseidon International Maritime Services, Inc. v. Tito R. Tamala, et al., G.R. No.
186475, June 26, 2013

Damages; proof of
pecuniary loss.

Sps. Godfrey and Gerardina Serfino vs. Far East Bank and Trust Company, Inc., now
Bank of the Philippine Islands. G.R. No. 171845. October 10, 2012

While Van Doorn has a just and valid cause to terminate the respondents employment, it
failed to meet the requisite procedural safeguards provided under Article 283 of the
Labor Code. In the termination of employment under Article 283, Van Doorn, as the
employer, is required to serve a written notice to the respondents and to the DOLE of the
intended termination of employment at least one month prior to the cessation of its
fishing operations. Poseidon could have easily filed this notice, in the way it represented
Van Doorn in its dealings in the Philippines. While this omission does not affect the
validity of the termination of employment, it subjects the employer to the payment of
indemnity in the form of nominal damages.

The spouses Serfino invoke American common law that imposes a duty upon a bank
receiving a notice of adverse claim to the fund in a depositors account to freeze the
account for a reasonable length of time, sufficient to allow the adverse claimant to
institute legal proceedings to enforce his right to the fund. To adopt the foreign rule,
however, goes beyond the power of this Court to promulgate rules governing pleading,
practice and procedure in all courts. The rule reflects a matter of policy that is better
addressed to the Bangko Sentral ng Pilipinas. Essentially, these statutes do not impose a
duty on banks to freeze the deposit upon a mere notice of adverse claim; they first
require either a court order or an indemnity bond. The banks contractual relations are
with its depositor, not with the third party. In the absence of any positive duty of the
bank to an adverse claimant, there could be no breach that entitles the latter to moral
damages.
Damages; quasi-delict;
employer liability.

The Heirs of the late Ruben Reinoso, Sr., et al. vs. Court of Appeals, et al.; G.R. No.
116121. July 18, 2011
Whenever an employees negligence causes damage or injury to another, there instantly
arises a presumption juris tantum that the employer failed to exercise diligentissimi
patris families in the selection or supervision of his employee. Thus, in the selection of
prospective employees, employers are required to examine them as to their qualification,
experience and service record. With respect to the supervision of employees, employers
must formulate standard operating procedures, monitor their implementation, and
impose disciplinary measures for breaches thereof. These facts must be shown by
concrete proof, including documentary evidence. Thus, the RTC committed no error in
finding that the evidence presented by respondent Guballa was wanting. It ruled:
x x x. As expected, defendant Jose Guballa, attempted to overthrow this presumption
of negligence by showing that he had exercised the due diligence required of him by
seeing to it that the driver must check the vital parts of the vehicle he is assigned to
before he leaves the compound like the oil, water, brakes, gasoline, horn (9 tsn, July
17, 1986); and that Geronimo had been driving for him sometime in 1976 until the

collision in litigation came about (5-6 tsn, ibid); that whenever his trucks gets out of
the compound to make deliveries, it is always accompanied with two (2) helpers (1617 tsn, ibid). This was all which he considered as selection and supervision in
compliance with the law to free himself from any responsibility. This Court then
cannot consider the foregoing as equivalent to an exercise of all the care of a good
father of a family in the selection and supervision of his driver Mariano Geronimo.
Damages; quasi-delict;
vicarious liability.

Filcar Transport Services vs. Jose A. Espinas; G.R. No. 171456, June 20, 2012
As a general rule, one is only responsible for his own act or omission. Thus, a person
will generally be held liable only for the torts committed by himself and not by another.
This general rule is laid down in Article 2176 of the Civil Code.
Based on the above-cited article, the obligation to indemnify another for damage caused
by ones act or omission is imposed upon the tortfeasor himself, i.e., the person who
committed the negligent act or omission. The law, however, provides for exceptions
when it makes certain persons liable for the act or omission of another.
One exception is an employer who is made vicariously liable for the tort committed by
his employee. Article 2180 of the Civil Code states:
Article 2180. The obligation imposed by Article 2176 is demandable not only for
ones own acts or omissions, but also for those of persons for whom one is
responsible.
xxxx
Employers shall be liable for the damages caused by their employees and household
helpers acting within the scope of their assigned tasks, even though the former are
not engaged in any business or industry.
xxxx
The responsibility treated of in this article shall cease when the persons herein
mentioned prove that they observed all the diligence of a good father of a family to
prevent damage.
Under Article 2176, in relation with Article 2180, of the Civil Code, an action predicated
on an employees act or omission may be instituted against the employer who is held
liable for the negligent act or omission committed by his employee.
Although the employer is not the actual tortfeasor, the law makes him vicariously liable
on the basis of the civil law principle of pater familias for failure to exercise due care
and vigilance over the acts of ones subordinates to prevent damage to another. In the last
paragraph of Article 2180 of the Civil Code, the employer may invoke the defense that
he observed all the diligence of a good father of a family to prevent damage.
As its core defense, Filcar contends that Article 2176, in relation with Article 2180, of
the Civil Code is inapplicable because it presupposes the existence of an employeremployee relationship. According to Filcar, it cannot be held liable under the subject
provisions because the driver of its vehicle at the time of the accident, Floresca, is not its
employee but that of its Corporate Secretary, Atty. Flor.
We cannot agree. It is well settled that in case of motor vehicle mishaps, the registered
owner of the motor vehicle is considered as the employer of the tortfeasor-driver, and is
made primarily liable for the tort committed by the latter under Article 2176, in relation
with Article 2180, of the Civil Code. The rationale for the rule that a registered owner is
vicariously liable for damages caused by the operation of his motor vehicle is explained
by the principle behind motor vehicle registration, which has been discussed by this
Court in Erezo, and cited by the CA in its decision:
The main aim of motor vehicle registration is to identify the owner so that if any
accident happens, or that any damage or injury is caused by the vehicle on the
public highways, responsibility therefor can be fixed on a definite individual, the
registered owner. Instances are numerous where vehicles running on public
highways caused accidents or injuries to pedestrians or other vehicles without
positive identification of the owner or drivers, or with very scant means of
identification. It is to forestall these circumstances, so inconvenient or prejudicial to
the public, that the motor vehicle registration is primarily ordained, in the interest of
the determination of persons responsible for damages or injuries caused on public
highways.

Thus, whether there is an employer-employee relationship between the registered owner


and the driver is irrelevant in determining the liability of the registered owner who the
law holds primarily and directly responsible for any accident, injury or death caused by
the operation of the vehicle in the streets and highways.
Damages; quasi-delict;
vicarious liability.

As a general rule, one is only responsible for his own act or omission. Thus, a person
will generally be held liable only for the torts committed by himself and not by another.
This general rule is laid down in Article 2176 of the Civil Code.
Based on the above-cited article, the obligation to indemnify another for damage caused
by ones act or omission is imposed upon the tortfeasor himself, i.e., the person who
committed the negligent act or omission. The law, however, provides for exceptions
when it makes certain persons liable for the act or omission of another.
One exception is an employer who is made vicariously liable for the tort committed by
his employee. Article 2180 of the Civil Code states:
Article 2180. The obligation imposed by Article 2176 is demandable not only for
ones own acts or omissions, but also for those of persons for whom one is
responsible.
xxxx
Employers shall be liable for the damages caused by their employees and household
helpers acting within the scope of their assigned tasks, even though the former are
not engaged in any business or industry.
xxxx
The responsibility treated of in this article shall cease when the persons herein
mentioned prove that they observed all the diligence of a good father of a family to
prevent damage.
Under Article 2176, in relation with Article 2180, of the Civil Code, an action
predicated on an employees act or omission may be instituted against the employer
who is held liable for the negligent act or omission committed by his employee.
Although the employer is not the actual tortfeasor, the law makes him vicariously
liable on the basis of the civil law principle of pater familias for failure to exercise
due care and vigilance over the acts of ones subordinates to prevent damage to
another. In the last paragraph of Article 2180 of the Civil Code, the employer may
invoke the defense that he observed all the diligence of a good father of a family to
prevent damage.
As its core defense, Filcar contends that Article 2176, in relation with Article 2180,
of the Civil Code is inapplicable because it presupposes the existence of an
employer-employee relationship. According to Filcar, it cannot be held liable under
the subject provisions because the driver of its vehicle at the time of the accident,
Floresca, is not its employee but that of its Corporate Secretary, Atty. Flor.
We cannot agree. It is well settled that in case of motor vehicle mishaps, the
registered owner of the motor vehicle is considered as the employer of the
tortfeasor-driver, and is made primarily liable for the tort committed by the latter
under Article 2176, in relation with Article 2180, of the Civil Code. The

Damages; quasi-delict.

Alfredo P. Pacis and Cleopatra D. Pacis vs. Jerome Jovanne Morales, G.R. No.
169467, February 25, 2010
Unlike the subsidiary liability of the employer under Article 103 of the Revised Penal
Code, the liability of the employer, or any person for that matter, under Article 2176 of
the Civil Code is primary and direct, based on a persons own negligence. This case
involves the accidental discharge of a firearm inside a gun store. A higher degree of care
is required of someone who has in his possession or under his control an instrumentality
extremely dangerous in character, such as dangerous weapons or substances. Such
person in possession or control of dangerous instrumentalities has the duty to take
exceptional precautions to prevent any injury being done thereby. Unlike the ordinary
affairs of life or business which involve little or no risk, a business dealing with
dangerous weapons requires the exercise of a higher degree of care. As a gun store
owner, respondent is presumed to be knowledgeable about firearms safety and should
have known never to keep a loaded weapon in his store to avoid unreasonable risk of
harm or injury to others. Respondent has the duty to ensure that all the guns in his store

are not loaded. Firearms should be stored unloaded and separate from ammunition when
the firearms are not needed for ready-access defensive use. With more reason, guns
accepted by the store for repair should not be loaded precisely because they are defective
and may cause an accidental discharge such as what happened in this case. Respondent
was clearly negligent when he accepted the gun for repair and placed it inside the drawer
without ensuring first that it was not loaded. In the first place, the defective gun should
have been stored in a vault. Before accepting the defective gun for repair, respondent
should have made sure that it was not loaded to prevent any untoward accident. Indeed,
respondent should never accept a firearm from another person, until the cylinder or
action is open and he has personally checked that the weapon is completely unloaded.
For failing to ensure that the gun was not loaded, respondent himself was negligent.
Furthermore, it was not shown in this case whether respondent had a License to Repair,
which authorizes him to repair defective firearms to restore its original composition or
enhance or upgrade firearms. Clearly, respondent did not exercise the degree of care and
diligence required of a good father of a family, much less the degree of care required of
someone dealing with dangerous weapons, as would exempt him from liability in this
case.
Damages; quasi-delict.

Philippine Hawk Corporation vs. Vivian Tan Lee, G.R. No. 166869, February 16, 2010
Whenever an employees negligence causes damage or injury to another, there instantly
arises a presumption that the employer failed to exercise the due diligence of a good
father of the family in the selection or supervision of its employees. To avoid liability for
a quasi-delict committed by his employee, an employer must overcome the presumption
by presenting convincing proof that he exercised the care and diligence of a good father
of a family in the selection and supervision of his employee. The Court upholds the
finding of the trial court and the Court of Appeals that petitioner is liable to respondent,
since it failed to exercise the diligence of a good father of the family in the selection and
supervision of its bus driver, Margarito Avila, for having failed to sufficiently inculcate
in him discipline and correct behavior on the road. Indeed, petitioners tests were
concentrated on the ability to drive and physical fitness to do so. It also did not know
that Avila had been previously involved in sideswiping incidents.

Damages; recovery of
temperate damages
allowed where there is
no competent proof of
actual damages or loss
of earning capacity.

Leticia Tan, et al. vs. OMC Carriers, Inc. and Bonifacio Arambala; G.R. No. 190521,
January 12, 2011.
Absent competent proof on the actual damages suffered, a party still has the option of
claiming temperate damages, which may be allowed in cases where, from the nature of
the case, definite proof of pecuniary loss cannot be adduced although the court is
convinced that the aggrieved party suffered some pecuniary loss.
As a rule, documentary evidence should be presented to substantiate the claim for loss of
earning capacity. By way of exception, damages for loss of earning capacity may be
awarded despite the absence of documentary evidence when: (1) the deceased is selfemployed and earning less than the minimum wage under current labor laws, in which
case, judicial notice may be taken of the fact that in the deceaseds line of work, no
documentary evidence is available; or (2) the deceased is employed as a daily wage
worker earning less than the minimum wage under current labor laws.

Damages; res ipsa


loquitur; elements;
liability of employer.

Oscar Del Carmen, Jr. vs. Geronimo Bacoy, guradian and representing the children,
namely, Mary Marjorie B. Monsalud, et al.; G.R. No. 173870, April 25, 2012
Under the doctrine of res ipsa loquitur, [w]here the thing that caused the injury
complained of is shown to be under the management of the defendant or his servants;
and the accident, in the ordinary course of things, would not happen if those who had
management or control used proper care, it affords reasonable evidence in the absence
of a sufficient, reasonable and logical explanation by defendant that the accident arose
from or was caused by the defendants want of care. Res ipsa loquitur is merely
evidentiary, a mode of proof, or a mere procedural convenience, since it furnishes a
substitute for, and relieves a plaintiff of, the burden of producing a specific proof of
negligence. It recognizes that parties may establish prima facie negligence without
direct proof, thus, it allows the principle to substitute for specific proof of negligence. It
permits the plaintiff to present along with proof of the accident, enough of the attending
circumstances to invoke the doctrine, create an inference or presumption of negligence
and thereby place on the defendant the burden of proving that there was no negligence

on his part. The doctrine is based partly on the theory that the defendant in charge of
the instrumentality which causes the injury either knows the cause of the accident or has
the best opportunity of ascertaining it while the plaintiff has no such knowledge, and is
therefore compelled to allege negligence in general terms.
The requisites of the doctrine of res ipsa loquitur as established by jurisprudence are as
follows:
1) the accident is of a kind which does not ordinarily occur unless someone is
negligent;
2) the cause of the injury was under the exclusive control of the person in charge and
3) the injury suffered must not have been due to any voluntary action or contribution
on the part of the person injured.
The aforementioned requisites having been met, there now arises a presumption of
negligence which he could have overcome by evidence that he exercised due care and
diligence in preventing strangers from using his jeep. Unfortunately, he failed to do so.
The operator on record of a vehicle is primarily responsible to third persons for the
deaths or injuries consequent to its operation, regardless of whether the employee drove
the registered owners vehicle in connection with his employment. Absent the
circumstance of unauthorized use48 or that the subject vehicle was stolen which are
valid defenses available to a registered owner, he cannot escape liability for quasi-delict
resulting from his jeeps use.
Damages; solidary
liability.

Aquinas School vs. Sps. Jose Inton and Ma. Victoria S. Inton, etc., et al.; G.R. No.
184202, January 26, 2011.
The Supreme Court found that Aquinas School was not solidarily liable for actions of
person (Yamyamin) who was not its employee. The Court has consistently applied the
four- fold test to determine the existence of an employer-employee relationship: the
employer (a) selects and engages the employee; (b) pays his wages; (c) has power to
dismiss him; and (d) has control over his work. Of these, the most crucial is the element
of control. Control refers to the right of the employer, whether actually exercised or
reserved, to control the work of the employee as well as the means and methods by
which he accomplishes the same.
In this case, the school directress testified that Aquinas had an agreement with a
congregation of sisters under which, in order to fulfill its ministry, the congregation
would send religion teachers to Aquinas to provide catechesis to its students. Aquinas
insists that it was not the school but Yamyamins religious congregation that chose her
for the task of catechizing the schools grade three students, much like the way bishops
designate the catechists who would teach religion in public schools. Under the
circumstances, it was quite evident that Aquinas did not have control over Yamyamins
teaching methods.
Of course, Aquinas still had the responsibility of taking steps to ensure that only
qualified outside catechists are allowed to teach its young students. In this regard, it
cannot be said that Aquinas took no steps to avoid the occurrence of improper conduct
towards the students by their religion teacher. It had reviewed the qualifications of
Yamyamin, determined that the congregation that recommended her was legitimate and
in order, provided her with teacher orientation and a Faculty Manual, and reviewed the
course outline of the subjects that the teacher would be handling.

Damages; standard of
diligence of a bank;
moral damages; no
need for bad faith;
exemplary damages;
attorneys fees.

Citytrust Banking Corporation vs. Carlos Romulo N. Cruz, G.R. No. 157049, August 11,
2010
Unquestionably, the petitioner, being a banking institution, had the direct obligation to
supervise very closely the employees handling its depositors accounts, and should
always be mindful of the fiduciary nature of its relationship with the depositors. Such
relationship required it and its employees to record accurately every single transaction,
and as promptly as possible, considering that the depositors accounts should always
reflect the amounts of money the depositors could dispose of as they saw fit, confident
that, as a bank, it would deliver the amounts to whomever they directed. If it fell short of
that obligation, it should bear the responsibility for the consequences to the depositors,
who, like the respondent, suffered particular embarrassment and disturbed peace of mind
from the negligence in the handling of the accounts.

In several decisions of the Court, the banks, defendants therein, were made liable for
negligence, even without sufficient proof of malice or bad faith on their part, and the
Court awarded moral damages of P100,000.00 each time to the suing depositors in
proper consideration of their reputation and their social standing. The respondent should
be similarly awarded for the damage to his reputation as an architect and businessman.
As for the award of exemplary damages and attorneys fees, it is never overemphasized
that the public always relies on a banks profession of diligence and meticulousness in
rendering irreproachable service. Its failure to exercise diligence and meticulousness
warranted its liability for exemplary damages and for reasonable attorneys fees.
Damages; Temperate
damages; may be
recovered when the
court finds that some
pecuniary loss was
suffered but its amount
cannot be proved with
certainty.

Comsavings Bank (now GSIS Family Bank) v. Sps. Danilo and Estrella Capistrano,
G.R. No. 170942, August 28, 2013

Damages; temperate
damages; when
warranted.

People of the Philippines v. Reggie Bernardo, G.R. No. 198789, June 3, 2013.

Damages;
damages.

Philippine Hawk Corporation vs. Vivian Tan Lee, G.R. No. 166869, February 16, 2010

temperate

Nonetheless, it cannot be denied that they had suffered substantial losses. Article 2224 of
the Civil Code allows the recovery of temperate damages when the court finds that some
pecuniary loss was suffered but its amount cannot be proved with certainty. In lieu of
actual damages, therefore, temperate damages of P25,000.00 are awarded. Such amount,
in the courts view, is reasonable under the circumstances.

Article 2224 of the New Civil Code provides that (t)emperate or moderate damages,
which are more than nominal but less than compensatory damages may be recovered
when the court finds that some pecuniary loss has been suffered but its amount cannot,
from the nature of the case, proved with certainty.

Under Art. 2224 of the Civil Code, temperate damages may be recovered when the
court finds that some pecuniary loss has been suffered but its amount cannot, from the
nature of the case, be proved with certainty. The cost of the repair of the motorcycle
was prayed for by respondent in her Complaint. However, the evidence presented was
merely a job estimate of the cost of the motorcycles repair amounting to P17, 829.00.
The Court of Appeals aptly held that there was no doubt that the damage caused on the
motorcycle was due to the negligence of petitioners driver. In the absence of competent
proof of the actual damage caused on the motorcycle or the actual cost of its repair, the
award of temperate damages by the appellate court in the amount of P10,000.00 was
reasonable under the circumstances.
Damages; temperate,
moderate, exemplary.

Philippine Airlines, Inc. vs. Francisco Lao Lim, The Heirs of Henry Go, Manuel
Limtiong and Rainbow Tours and Travel, Inc. G.R. No. 168987. October 17, 2012
Petitioner assails the award of P50,000 as moral damages granted to the heirs of Henry
Go despite the fact that neither Henry Go nor any of his heirs testified on matters that
could be the basis for such monetary award. Indeed, in this case, since respondent Henry
Go was not able to testify, there is then no evidence on record to prove that he suffered
mental anguish, besmirched reputation, sleepless nights, wounded feelings or similar
injury by reason of petitioners conduct.
However, there was no error committed by the lower courts with regard to the award of
temperate or moderate damages of P100,000 to respondents Lao Lim and Go. The
purpose for respondents trip to Hong Kong was to conduct business negotiations, but
respondents were not able to meet their counterparts as they were not allowed to board
the PR300 flight. Understandably, it is difficult, if not impossible, to adduce solid proof
of the losses suffered by respondents due to their failure to make it to their business
meetings. Thus, it is only just that respondents be awarded temperate or moderate
damages. Since respondent is entitled to temperate damages, then the court may also
award exemplary damages.

Damages; temperate.

The Heirs of Redentor Completo and Elpidio Abiad vs. Sgt. Amando C. Albayda, Jr.,
G.R. No. 172200, July 6, 2010
While the amount of actual damages was not duly established with certainty, the Court

recognizes the fact that, indeed, Albayda incurred a considerable amount for the
necessary and reasonable medical expenses, loss of salary and wages, loss of capacity to
earn increased wages, cost of occupational therapy, and harm from conditions caused by
prolonged immobilization. Temperate damages, more than nominal but less than
compensatory damages, may be recovered when the court finds that some pecuniary loss
has been suffered but its amount cannot, from the nature of the case, be proved with
certainty. Temperate damages must be reasonable under the circumstances.
Damages; Torrens
system; Laches and
prescription.

Rogelio J. Jakolsalem, et al. vs. Roberto S. Barangan, G.R. No. 175025. February 15,
2012.
Article 434 of the Civil Code provides that [i]n an action to recover, the property must
be identified, and the plaintiff must rely on the strength of his title and not on the
weakness of the defendants claim. In other words, in order to recover possession, a
person must prove (1) the identity of the land claimed, and (2) his title.
Jurisprudence consistently holds that prescription and laches can not apply to registered
land covered by the Torrens system because under the Property Registration Decree,
no title to registered land in derogation to that of the registered owner shall be acquired
by prescription or adverse possession.

Damages; vicarious
liability; employers
degree of diligence.

Under Article 2180 of the Civil Code, the obligation imposed by Article 2176 is
demandable not only for ones own acts or omissions, but also for those persons for
whom one is responsible. Employers shall be liable for the damages caused by their
employees, but the employers responsibility shall cease upon proof that they observed
all the diligence of a good father of the family in the selection and supervision of their
employees.
When an injury is caused by the negligence of an employee, a legal presumption
instantly arises that the employer was negligent. This presumption may be rebutted only
by a clear showing on the part of the employer that he exercised the diligence of a good
father of a family in the selection and supervision of his employee. If the employer
successfully overcomes the legal presumption of negligence, he is relieved of liability. In
other words, the burden of proof is on the employer.
The responsibility of two or more persons who are liable for quasi-delict is solidary. The
civil liability of the employer for the negligent acts of his employee is also primary and
direct, owing to his own negligence in selecting and supervising his employee. The civil
liability of the employer attaches even if the employer is not inside the vehicle at the
time of the collision.
In the selection of prospective employees, employers are required to examine them as to
their qualifications, experience, and service records. On the other hand, with respect to
the supervision of employees, employers should formulate standard operating
procedures, monitor their implementation, and impose disciplinary measures for
breaches thereof. To establish these factors in a trial involving the issue of vicarious
liability, employers must submit concrete proof, including documentary evidence. The
Heirs of Redentor Completo and Elpidio Abiad vs. Sgt. Amando C. Albayda, Jr., G.R.
No. 172200, July 6, 2010

Damages; When
Applicable.

Albert M. Ching, et al. vs. Felix M. Bantolo, et al.; G.R. No. 177086. December 5,
2012
It is essential that for damages to be awarded, a claimant must satisfactorily prove during
the trial that they have a factual basis, and that the defendants acts have a causal
connection to them. Article 2229 of the Civil Code provides that exemplary damages
may be imposed by way of example or correction for the public good, in addition to the
moral, temperate, liquidated or compensatory damages. They are, however, not
recoverable as a matter of right. They are awarded only if the guilty party acted in a
wanton, fraudulent, reckless, oppressive or malevolent manner.

Damages.

Mila A. Reyes v. Victoria T. Tuparan, G.R. No. 188064. June 1, 2011


Respondents are not entitled to moral damages because contracts are not referred to in
Article 2219 of the Civil Code, which enumerates the cases when moral damages may be
recovered. Article 2220 of the Civil Code allows the recovery of moral damages in
breaches of contract where the defendant acted fraudulently or in bad faith. However,
this case involves a contract to sell, wherein full payment of the purchase price is a

positive suspensive condition, the non-fulfillment of which is not a breach of contract,


but merely an event that prevents the seller from conveying title to the purchaser. Since
there is no breach of contract in this case, respondents are not entitled to moral damages.
In the absence of moral, temperate, liquidated or compensatory damages, exemplary
damages cannot be granted for they are allowed only in addition to any of the four kinds
of damages mentioned.
Damages.

Ermelinda Manaloto, et al. vs. Ismael Veloso III, G.R. No. 171365, October 6, 2010
The party from whom damages was sought to be recovered (the petitioner), distributed
copies of the decision of the lower court on an unlawful detainer case, to the neighbors
of the losing party (the respondent). The latter filed a complaint against the respondent
for, among others, moral damages against the petitioner for the embarrassment and
humiliation he suffered by reason of petitioners actions. The complaint was dismissed
by the lower court. The Court of Appeals reversed the dismissal and went on to find the
petitioner liable for damages. The Supreme Court agreed with the CA that the complaint
should not have been dismissed but disagreed with the CAs already finding liability as
no evidence, at that point, had been adduced yet.
The following is the Supreme Courts discussion on the cause of action for damages: A
cause of action (for damages) exists if the following elements are present: (1) a right in
favor of the plaintiff by whatever means and under whatever law it arises or is created;
(2) an obligation on the part of the named defendant to respect or not to violate such
right; and (3) an act or omission on the part of such defendant violative of the right of the
plaintiff or constituting a breach of the obligation of defendant to the plaintiff for which
the latter may maintain an action for recovery of damages. The court found that all these
elements were present.
First, respondent filed the complaint to protect his good character, name, and reputation.
Every man has a right to build, keep, and be favored with a good name. This right is
protected by law with the recognition of slander and libel as actionable wrongs, whether
as criminal offenses or tortuous conduct.
Second, petitioners are obliged to respect respondents good name even though they are
opposing parties in the unlawful detainer case. As Article 19 of the Civil Code requires,
[e]very person must, in the exercise of his rights and in the performance of his duties,
act with justice, give everyone his due, and observe honesty and good faith. A violation
of such principle constitutes an abuse of rights, a tortuous conduct.
Petitioner is also expected to respect respondents dignity, personality, privacy and
peace of mind under Article 26 of the Civil Code. Thus, Article 2219(10) of the Civil
Code allows the recovery of moral damages for acts and actions referred to in Article 26,
among other provisions, of the Civil Code.
And third, respondent alleged that the distribution by petitioners to Horseshoe Village
homeowners of copies of the MeTC decision in the unlawful detainer case, which was
adverse to respondent and still on appeal before the RTC-Branch 88, had no apparent
lawful or just purpose except to humiliate respondent or assault his character. As a result,
respondent suffered damages becoming the talk of the town and being deprived of his
political career.
Petitioners reason that respondent has no cause of action against them since the MeTC
decision in the unlawful detainer case was part of public records. It is already settled that
the public has a right to see and copy judicial records and documents. However, this is
not a case of the public seeking and being denied access to judicial records and
documents. The controversy is rooted in the dissemination by petitioners of the MeTC
judgment against respondent to Horseshoe Village homeowners, who were not involved
at all in the unlawful detainer case, thus, purportedly affecting negatively respondents
good name and reputation among said homeowners. The unlawful detainer case was a
private dispute between petitioners and respondent, and the MeTC decision against
respondent was then still pending appeal before the RTC-Branch 88, rendering suspect
petitioners intentions for distributing copies of said MeTC decision to non-parties in the
case. While petitioners were free to copy and distribute such copies of the MeTC
judgment to the public, the question is whether they did so with the intent of humiliating
respondent and destroying the latters good name and reputation in the community.

Dealership contract;
liability.

Petron Corporation vs. Sps. Cesar Jovero and Erma F. Cudilla, et al., G.R. No.
151038. January 18, 2012
The petitioner as importer and the dealer executed an exclusive dealership agreement for
mutual benefit and gain. On one hand, petitioner benefits from the sale of its products, as
well as the advertisement it gains when it broadens its geographical coverage in
contracting with independent dealers in different areas. The products sold and the
services rendered by the dealer also contribute to its goodwill. Thus, despite the transfer
of ownership upon the sale and delivery of its products, petitioner still imposes the
obligation on the dealer to exclusively carry its products. The dealer, on the other hand,
also benefits from the dealership agreement, not only from the resale of the products of
petitioner, but also from the latters goodwill.
However, with the use of its trade name and trademark, petitioner and the dealer inform
and guarantee to the public that the products and services are of a particular standard or
quality. The public, which is not privy to the dealership contract, assumes that the
gasoline station is owned or operated by petitioner. Thus, respondents, who suffered
damages from the act or omission that occurred in the gasoline station and that caused
the fire, may file an action against petitioner based on the representations it made to the
public. As far as the public is concerned, it is enough that the establishment carries
exclusively the name and products of petitioner to assume that the latter is liable for acts
done within the premises.
The expiration or nonexistence of a dealership contract did not ipso facto transform the
relationship of the dealer and petitioner into one of agency. As far as the parties to the
dealership contract were concerned, the rights and obligations as to them still subsisted,
since they continued to mutually benefit from the agreement. Thus, neither party can
claim that it is no longer bound by the terms of the contract and the expiration thereof.

Deposit.

Durban Apartments Corp., etc. vs. Pioneer Insurance and Surety Corp.; G.R. No.
179419. January 12, 2011.
Article 1962, in relation to Article 1998, of the Civil Code defines a contract of deposit
and a necessary deposit made by persons in hotels or inns:
Art. 1962. A deposit is constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and returning the same.
If the safekeeping of the thing delivered is not the principal purpose of the contract,
there is no deposit but some other contract.
Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be
regarded as necessary. The keepers of hotels or inns shall be responsible for them as
depositaries, provided that notice was given to them, or to their employees, of the
effects brought by the guests and that, on the part of the latter, they take the
precautions which said hotel-keepers or their substitutes advised relative to the care
and vigilance of their effects.
Plainly, from the facts found by the lower courts, the insured See deposited his vehicle
for safekeeping with petitioner, through the latters employee, Justimbaste. In turn,
Justimbaste issued a claim stub to See. Thus, the contract of deposit was perfected from
Sees delivery, when he handed over to Justimbaste the keys to his vehicle, which
Justimbaste received with the obligation of safely keeping and returning it. Ultimately,
petitioner is liable for the loss of Sees vehicle.

Dishonor of check.

This case involved certain loans for which petitioner was an accommodation party. The
borrowers under the loans had defaulted triggering the solidary liability of the
accommodation party, and the cancellation of the petitioners credit line with that bank
under a certain agreement. Consequently, one of the petitioners checks was dishonored.
The Supreme Court held that the bank improperly dishonored the check of the petitioner
since it had failed to formally notify the petitioner as accommodation party of the default
under the loan. Eusebio Gonzales v. Philippine Commercial & International Bank, et
al.; G.R. No. 180257. February 23, 2011

Donation mortis causa

Jarabini G. Del Rosario vs. Asuncion F. Ferrer, et al., G.R. No. 187056, September 20,

vs. donation inter


vivos.

2010
That a document is captioned Donation Mortis Causa is not controlling. If a donation
by its terms is inter vivos, this character is not altered by the fact that the donor styles it
mortis causa.
Irrevocability is a quality absolutely incompatible with the idea of conveyances mortis
causa, where revocability is precisely the essence of the act. A donation mortis causa
has the following characteristics:
1. It conveys no title or ownership to the transferee before the death of the transferor;
or, what amounts to the same thing, that the transferor should retain the ownership
(full or naked) and control of the property while alive;
2. That before his death, the transfer should be revocable by the transferor at will, ad
nutum; but revocability may be provided for indirectly by means of a reserved power
in the donor to dispose of the properties conveyed; and
3. That the transfer should be void if the transferor should survive the transferee.
In this case, the donors plainly said that it is our will that this Donation Mortis
Causa shall be irrevocable and shall be respected by the surviving spouse. The
intent to make the donation irrevocable becomes even clearer by the proviso that a
surviving donor shall respect the irrevocability of the donation. Consequently, the
donation was in reality a donation inter vivos.
The donors in this case of course reserved the right, ownership, possession, and
administration of the property and made the donation operative upon their death. But
this Court has consistently held that such reservation (reddendum) in the context of an
irrevocable donation simply means that the donors parted with their naked title,
maintaining only beneficial ownership of the donated property while they lived.
Notably, the three donees signed their acceptance of the donation, which acceptance the
deed required. This Court has held that an acceptance clause indicates that the donation
is inter vivos, since acceptance is a requirement only for such kind of donations.
Donations mortis causa, being in the form of a will, need not be accepted by the donee
during the donors lifetime.
Finally, as Justice J. B. L. Reyes said in Puig v. Penaflorida, in case of doubt, the
conveyance should be deemed a donation inter vivos rather than mortis causa, in order to
avoid uncertainty as to the ownership of the property subject of the deed.
Since the donation in this case was one made inter vivos, it was immediately operative
and final. The reason is that such kind of donation is deemed perfected from the moment
the donor learned of the donees acceptance of the donation. The acceptance makes the
donee the absolute owner of the property donated.

Donation mortis causa.

Manuel A. Echavez vs. Dozen Construction and Development Corp. and The Register
of Deeds, Cebu City; G.R. No. 192916. October 11, 2010
A donation mortis causa must comply with the formalities prescribed by law for the
validity of wills, otherwise, the donation is void and would produce no effect. Articles
805 and 806 of the Civil Code should be applied. In this case, the purported attestation
clause embodied in the Acknowledgment portion did not contain the number of pages on
which the deed was written. The exception to this rule in Singson v. Florentino and
Taboada v. Hon. Rosal cannot be applied to the present case, as the facts of this case are
not similar with those of Singson and Taboada. In those cases, the Court found that
although the attestation clause failed to state the number of pages upon which the will
was written, the number of pages was stated in one portion of the will. This is not the
factual situation in the present case.
Even granting that the Acknowledgment embodies what the attestation clause requires,
an attestation clause and an acknowledgment may not be merged in one statement. That
the requirements of attestation and acknowledgment are embodied in two separate
provisions of the Civil Code (Articles 805 and 806, respectively) indicates that the law
contemplates two distinct acts that serve different purposes. An acknowledgment is made
by one executing a deed, declaring before a competent officer or court that the deed or
act is his own. On the other hand, the attestation of a will refers to the act of the
instrumental witnesses themselves who certify to the execution of the instrument before

them and to the manner of its execution.


Although the witnesses in the present case acknowledged the execution of the Deed of
Donation Mortis Causa before the notary public, this is not the avowal the law requires
from the instrumental witnesses to the execution of a decedents will. An attestation must
state all the details the third paragraph of Article 805 requires. In the absence of the
required avowal by the witnesses themselves, no attestation clause can be deemed
embodied in the Acknowledgement of the Deed of Donation Mortis Causa.
Donation.

Gonzalo Villanueva, represented by his heirs vs. Spouses Froilan and Leonila
Branoco; G.R. No. 172804, January 24, 2011.
It is immediately apparent that Rodrigo passed naked title to Rodriguez under a
perfected donation inter vivos. First. Rodrigo stipulated that if the herein Donee
predeceases me, the [Property] will not be reverted to the Donor, but will be inherited by
the heirs of x x x Rodriguez, signaling the irrevocability of the passage of title to
Rodriguezs estate, waiving Rodrigos right to reclaim title. This transfer of title was
perfected the moment Rodrigo learned of Rodriguezs acceptance of the disposition
which, being reflected in the Deed, took place on the day of its execution on 3 May
1965. Rodrigos acceptance of the transfer underscores its essence as a gift in presenti,
not in futuro, as only donations inter vivos need acceptance by the recipient. Indeed, had
Rodrigo wished to retain full title over the Property, she could have easily stipulated, as
the testator did in another case, that the donor, may transfer, sell, or encumber to any
person or entity the properties here donated x x x or used words to that effect. Instead,
Rodrigo expressly waived title over the Property in case Rodriguez predeceases her.

Easement.

Margarita F. Castro v. Napoleon A. Monsod ; G.R. No. 183719. February 2, 2011


An easement or servitude is an encumbrance imposed upon an immovable for the benefit
of another immovable belonging to a different owner. There are two kinds of easements
according to source. An easement is established either by law or by will of the owners.
The courts cannot impose or constitute any servitude where none existed. They can only
declare its existence if in reality it exists by law or by the will of the owners. There are
therefore no judicial easements.
Article 684 of the Civil Code provides that no proprietor shall make such excavations
upon his land as to deprive any adjacent land or building of sufficient lateral or subjacent
support. An owner, by virtue of his surface right, may make excavations on his land, but
his right is subject to the limitation that he shall not deprive any adjacent land or building
of sufficient lateral or subjacent support. Between two adjacent landowners, each has an
absolute property right to have his land laterally supported by the soil of his neighbor,
and if either, in excavating on his own premises, he so disturbs the lateral support of his
neighbors land as to cause it, or, in its natural state, by the pressure of its own weight, to
fall away or slide from its position, the one so excavating is liable.]
In the instant case, an easement of subjacent and lateral support exists in favor of
respondent. It was established that the properties of petitioner and respondent adjoin
each other. The residential house and lot of respondent is located on an elevated plateau
of fifteen (15) feet above the level of petitioners property. The embankment and the
riprapped stones have been in existence even before petitioner became the owner of the
property. It was proven that petitioner has been making excavations and diggings on the
subject embankment and, unless restrained, the continued excavation of the embankment
could cause the foundation of the rear portion of the house of respondent to collapse,
resulting in the destruction of a huge part of the family dwelling.

Effectivity of laws;
generally, no
retroactive effect;
exception, when law is
procedural.

Spouses Augusto G. Dacudao and Ofelia R. Dacudao vs. Secretary of Justice Raul M.
Gonzales of the Department of Justice; G.R. No. 188056. January 8, 2013
As a general rule, laws shall have no retroactive effect. However, exceptions exist, and
one such exception concerns a law that is procedural in nature. The reason is that a
remedial statute or a statute relating to remedies or modes of procedure does not create
new rights or take away vested rights but only operates in furtherance of the remedy or
the confirmation of already existing rights. A statute or rule regulating the procedure of
the courts will be construed as applicable to actions pending and undetermined at the

time of its passage. All procedural laws are retroactive in that sense and to that extent.
The retroactive application is not violative of any right of a person who may feel
adversely affected, for, verily, no vested right generally attaches to or arises from
procedural laws.
Ejectment; distinction
between a summary
action of ejectment
and a plenary action
for recovery of
possession and/or
ownership of the land;
power of the inferior
courts to rule on the
question of ownership
in ejectment suits;
partition; validity of
oral partition; actual
possession and
exercise of dominion
over definite portions
of the property are
considered strong
proof of an oral
partition; ownership;
tax declarations and
tax receipts alone are
not conclusive
evidence.

Casilang vs. Casilang-Dizon, et al.; G.R. No. 180269. February 20, 2013
It is well to be reminded of the settled distinction between a summary action of
ejectment and a plenary action for recovery of possession and/or ownership of the land.
What really distinguishes an action for unlawful detainer from a possessory action
(accion publiciana) and from a reinvindicatory action (accion reinvindicatoria) is that the
first is limited to the question of possession de facto. Unlawful detainer suits (accion
interdictal) together with forcible entry are the two forms of ejectment suit that may be
filed to recover possession of real property. Aside from the summary action of ejectment,
accion publiciana or the plenary action to recover the right of possession and accion
reinvindicatoria or the action to recover ownership which also includes recovery of
possession, make up the three kinds of actions to judicially recover possession.
Under Section 3 of Rule 70 of the Rules of Court, the Summary Procedure governs the
two forms of ejectment suit, the purpose being to provide an expeditious means of
protecting actual possession or right to possession of the property. They are not
processes to determine the actual title to an estate. If at all, inferior courts are
empowered to rule on the question of ownership raised by the defendant in such suits,
only to resolve the issue of possession and its determination on the ownership issue is
not conclusive.
The validity of an oral partition is well-settled in our jurisdiction. In Vda. de Espina v.
Abaya, this Court declared that an oral partition is valid:
Anent the issue of oral partition, We sustain the validity of said partition. An agreement
of partition may be made orally or in writing. An oral agreement for the partition of the
property owned in common is valid and enforceable upon the parties. The Statute of
Frauds has no operation in this kind of agreements, for partition is not a conveyance of
property but simply a segregation and designation of the part of the property which
belong to the co-owners.
In Maestrado v. CA, the Supreme Court upheld the partition after it found that it
conformed to the alleged oral partition of the heirs, and that the oral partition was
confirmed by the notarized quitclaims executed by the heirs subsequently. In MaglucotAw v. Maglucot, the Supreme Court elaborated on the validity of parol partition:
On general principle, independent and in spite of the statute of frauds, courts of
equity have enforce [sic] oral partition when it has been completely or partly
performed.
Regardless of whether a parol partition or agreement to partition is valid and
enforceable at law, equity will [in] proper cases[,] where the parol partition has
actually been consummated by the taking of possession in severalty and the exercise
of ownership by the parties of the respective portions set off to each, recognize and
enforce such parol partition and the rights of the parties thereunder. Thus, it has been
held or stated in a number of cases involving an oral partition under which the parties
went into possession, exercised acts of ownership, or otherwise partly performed the
partition agreement, that equity will confirm such partition and in a proper case
decree title in accordance with the possession in severalty.
In numerous cases it has been held or stated that parol partition may be sustained on
the ground of estoppel of the parties to assert the rights of a tenant in common as to
parts of land divided by parol partition as to which possession in severalty was taken
and acts of individual ownership were exercised. And a court of equity will recognize
the agreement and decree it to be valid and effectual for the purpose of concluding
the right of the parties as between each other to hold their respective parts in
severalty.
A parol partition may also be sustained on the ground that the parties thereto have
acquiesced in and ratified the partition by taking possession in severalty, exercising
acts of ownership with respect thereto, or otherwise recognizing the existence of the
partition.
A number of cases have specifically applied the doctrine of part performance, or have
stated that a part performance is necessary, to take a parol partition out of the
operation of the statute of frauds. It has been held that where there was a partition in
fact between tenants in common, and a part performance, a court of equity would
have regard to and enforce such partition agreed to by the parties.

It is settled that tax declarations and tax receipts alone are not conclusive evidence of
ownership. They are merely indicia of a claim of ownership,61 but when coupled with
proof of actual possession of the property, they can be the basis of claim of ownership
through prescription. In the absence of actual, public and adverse possession, the
declaration of the land for tax purposes does not prove ownership.
Ejectment; unlawful
detainer; estoppel
against tenants;
conclusive
presumption;
foreclosure of
mortgage; title to land
remains in the
mortgagor until
expiration of
redemption period;
inchoate character of
purchasers right.

Juanita Ermitano, represented by her Attorney-in-fact, Isabelo Ermitano vs. Lailanie


M. Paglas; G.R. No. 174436. January 23, 2013
[T]he only question that the courts resolve in ejectment proceedings is: who is entitled to
the physical possession of the premises, that is, to the possession de facto and not to the
possession de jure. It does not even matter if a partys title to the property is
questionable.
In an unlawful detainer case, the sole issue for resolution is the physical or material
possession of the property involved, independent of any claim of ownership by any of
the party litigants. Where the issue of ownership is raised by any of the parties, the
courts may pass upon the same in order to determine who has the right to possess the
property. The adjudication is, however, merely provisional and would not bar or
prejudice an action between the same parties involving title to the property.
[I]n unlawful detainer, one unlawfully withholds possession thereof after the expiration
or termination of his right to hold possession under any contract, express or implied. In
such case, the possession was originally lawful but became unlawful by the expiration or
termination of the right to possess; hence, the issue of rightful possession is decisive for,
in such action, the defendant is in actual possession and the plaintiffs cause of action is
the termination of the defendants right to continue in possession.
The conclusive presumption found in Section 2 (b), Rule 131 of the Rules of Court,
known as estoppel against tenants, provides as follows:
Sec. 2. Conclusive presumptions. The following are instances of conclusive
presumptions:
(b) The tenant is not permitted to deny the title of his landlord at the time of the
commencement of the relation of landlord and tenant between them.
It is clear from the abovequoted provision that what a tenant is estopped from denying is
the title of his landlord at the time of the commencement of the landlord-tenant relation.
If the title asserted is one that is alleged to have been acquired subsequent to the
commencement of that relation, the presumption will not apply. Hence, the tenant may
show that the landlords title has expired or been conveyed to another or himself; and he
is not estopped to deny a claim for rent, if he has been ousted or evicted by title
paramount.
It is settled that during the period of redemption, it cannot be said that the mortgagor is
no longer the owner of the foreclosed property, since the rule up to now is that the right
of a purchaser at a foreclosure sale is merely inchoate until after the period of
redemption has expired without the right being exercised. The title to land sold under
mortgage foreclosure remains in the mortgagor or his grantee until the expiration of the
redemption period and conveyance by the masters deed. Indeed, the rule has always
been that it is only upon the expiration of the redemption period, without the judgment
debtor having made use of his right of redemption, that the ownership of the land sold
becomes consolidated in the purchaser.
Stated differently, under Act. No. 3135 (An Act to Regulate the Sale of Property Under
Special Powers Inserted in or Annexed to Real Estate Mortgages), the purchaser in a
foreclosure sale has, during the redemption period, only an inchoate right and not the
absolute right to the property with all the accompanying incidents. He only becomes an
absolute owner of the property if it is not redeemed during the redemption period.

Employer; liability for


damages.

Paulita Edith Serra vs. Nelfa T. Mumar; G.R. No. 193861. March 14, 2012
Under Article 2180 of the Civil Code, employers are liable for the damages caused by
their employees acting within the scope of their assigned tasks. Whenever an employees
negligence causes damage or injury to another, there instantly arises a presumption that

the employer failed to exercise the due diligence of a good father of the family in the
selection or supervision of its employees. The liability of the employer is direct or
immediate. It is not conditioned upon prior recourse against the negligent employee and
a prior showing of insolvency of such employee. Moreover, under Article 2184 of the
Civil Code, if the causative factor was the drivers negligence, the owner of the vehicle
who was present is likewise held liable if he could have prevented the mishap by the
exercise of due diligence.
Petitioner failed to show that she exercised the level of diligence required in supervising
her driver in order to prevent the accident. She admitted that de Castro had only been her
driver for one year and she had no knowledge of his driving experience or record of
previous accidents. She also admitted that it was de Castro who maintained the vehicle
and would even remind her to pay the installment of the car. Petitioner also admitted
that, at the time of the accident, she did not know what was happening and only knew
they bumped into another vehicle when the driver shouted. She then closed her eyes and
a moment later felt something heavy fall on the roof of the car. When the vehicle
stopped, petitioner left the scene purportedly to ask help from her brother, leaving the
other passengers to come to the aid of her injured driver.
Equitable mortgage

Lomises Aludos, deceased, substituted by Flora Aludos vs. Johnny M. Suerte; G.R.
No. 165285, June 18, 2012
Lomises questions the nature of the agreement between him and Johnny, insisting that it
was a contract of loan, not an assignment of leasehold rights and sale of improvements.
In other words, what existed was an equitable mortgage, as contemplated in Article
1602, in relation with Article 1604, of the Civil Code. An equitable mortgage has been
defined as one which although lacking in some formality, or form or words, or other
requisites demanded by a statute, nevertheless reveals the intention of the parties to
charge real property as security for a debt, there being no impossibility nor anything
contrary to law in this intent. Article 1602 of the Civil Code lists down the
circumstances that may indicate that a contract is an equitable mortgage:
Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of
the following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate; (2)
When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the
parties is that the transaction shall secure the payment of a debt or the
performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be received by
the vendee as rent or otherwise shall be considered as interest which shall be subject
to the usury laws.
Based on Lomises allegations in his pleadings, we consider three circumstances to
determine whether his claim is well-supported. First, Johnny was a mere college student
dependent on his parents for support when the agreement was executed, and it was
Johnnys mother, Domes, who was the party actually interested in acquiring the market
stalls. Second, Lomises received only P48,000.00 of the P68,000.00 that Johnny claimed
he gave as down payment; Lomises said that the P20,000.00 represented interests on the
loan. Third, Lomises retained possession of the market stalls even after the execution of
the agreement.
Whether separately or taken together, these circumstances do not support a conclusion
that the parties only intended to enter into a contract of loan.
That Johnny was a mere student when the agreement was executed does not indicate that
he had no financial capacity to pay the purchase price of P260,000.00.
As to the second point, Lomises contends that of the P68,000.00 given by Johnny, he
only received P48,000.00, with the remaining P20,000.00 retained by Johnny as interest
on the loan. However, the testimonies of the witnesses presented during trial, including
Lomises himself, negate this claim. On the third point, that Lomises retained possession
of the market stalls even after the execution of his agreement with Johnny is also not an

indication that the true transaction between them was one of loan. Johnny had yet to
complete his payment and, until Lomises decided to forego with their agreement, had
four more months to pay; until then, Lomises retained ownership and possession of the
market stalls.
Hence, the CA was correct in characterizing the agreement between Johnny and Lomises
as a sale of improvements and assignment of leasehold rights.
Equitable mortgage;
right of redemption.

Magdalena C. Reyes, et al. vs. Amanda S. Reyes, et al., G.R. No. 158377, August 13,
2010.
The existence of any one of the conditions enumerated under Article 1602 of the Civil
Code, not a concurrence of all or of a majority thereof, suffices to give rise to the
presumption that the contract is an equitable mortgage.
The provisions of the Civil Code governing equitable mortgages disguised as sale
contracts are primarily designed to curtail the evils brought about by contracts of sale
with right to repurchase, particularly the circumvention of the usury law and pactum
commissorium. Courts have taken judicial notice of the well- known fact that contracts
of sale with right to repurchase have been frequently resorted to in order to conceal the
true nature of a contract, that is, a loan secured by a mortgage. It is a reality that grave
financial distress renders persons hard-pressed to meet even their basic needs or to
respond to an emergency, leaving no choice to them but to sign deeds of absolute sale of
property or deeds of sale with pacto de retro if only to obtain the much-needed loan from
unscrupulous money lenders. This reality precisely explains why the pertinent provision
of the Civil Code includes a peculiar rule concerning the period of redemption, to wit:
Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the
following cases:
xxx
(3)When upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed;
xxx
Ostensibly, the law allows a new period of redemption to be agreed upon or granted even
after the expiration of the equitable mortgagors right to repurchase, and treats such
extension as one of the indicators that the true agreement between the parties is an
equitable mortgage, not a sale with right to repurchase. Heirs of Jose Reyes, jr. namely;
Magdalena C. Reyes, et al.

Estoppel; by silence.

Jose Marques, et al. vs. Far East Bank and Trust Company, et al. / Far East Ban and
Trust Company, et al. vs. Jose Marques, et al.; G.R. No. 171379/G.R. No. 171419,
January 10, 2011.
In estoppel, a party creating an appearance of fact, which is false, is bound by that
appearance as against another person who acted in good faith on it. Estoppel is based on
public policy, fair dealing, good faith and justice. Its purpose is to forbid one to speak
against his own act, representations, or commitments to the injury of one who reasonably
relied thereon. It springs from equity, and is designed to aid the law in the administration
of justice where without its aid injustice might result.
Estoppel by silence arises where a person, who by force of circumstances is obliged to
another to speak, refrains from doing so and thereby induces the other to believe in the
existence of a state of facts in reliance on which he acts to his prejudice. Silence may
support an estoppel whether the failure to speak is intentional or negligent.
Both trial and appellate courts basically agree that FEBTC is estopped from claiming
that the insurance premium has been unpaid. That FEBTC induced Maxilite and
Marques to believe that the insurance premium has in fact been debited from Maxilites
account is grounded on the the following facts: (1) FEBTC represented and committed to
handle Maxilites financing and capital requirements, including the related transactions
such as the insurance of the trust receipted merchandise; (2) prior to the subject
Insurance Policy No. 1024439, the premiums for the three separate fire insurance
policies had been paid through automatic debit arrangement; (3) FEBIBI sent FEBTC,
not Maxilite nor Marques, written reminders dated 19 October 1994, 24 January 1995,
and 6 March 1995 to debit Maxilites account, establishing FEBTCs obligation to

automatically debit Maxilites account for the premium amount; (4) there was no written
demand from FEBTC or Makati Insurance Company for Maxilite or Marques to pay the
insurance premium; (5) the subject insurance policy was released to Maxilite on 19
August 1994; and (6) the subject insurance policy remained uncancelled despite the
alleged non-payment of the premium, making it appear that the insurance policy
remained in force and binding.
Estoppel; cannot be
made to apply against
the government.

Republic of the Philippines v. Antonio Bacas, et al., G.R. No. 182913, November 20,
2013
Granting that the persons representing the government was negligent, the doctrine of
estoppel cannot be taken against the Republic. It is a well- settled rule that the Republic
or its government is not estopped by mistake or error on the part of its officials or agents.
In any case, even granting that the said official was negligent, the doctrine of estoppel
cannot operate against the State. It is a well-settled rule in our jurisdiction that the
Republic or its government is usually not estopped by mistake or error on the part of its
officials or agents (Manila Lodge No. 761 vs. CA, 73 SCRA 166, 186; Republic vs.
Marcos, 52 SCRA 238, 244; Luciano vs. Estrella, 34 SCRA 769).

Estoppel; requisites.

Ernesto Dy v. Hon. Gina M. Bibat-Palamos, in her capacity as Presiding Judge of the


RTC, Branch 64, Makati City, and Orix Metro Leasing and Finance Corporation,
G.R. No. 196200, September 11, 2013
For estoppel to take effect, there must be knowledge of the real facts by the party sought
to be estopped and reliance by the party claiming estoppel on the representation made by
the former. In this case, petitioner cannot be estopped from asking for the return of the
vessel in the condition that it had been at the time it was seized by respondent because he
had not known of the deteriorated condition of the ship.

Estoppel.

Pacific Rehouse Corporation, et al. vs. EIB Securities, Inc.; G.R. No. 184036, October
13, 2010
The principle of estoppel rests on the rule that where a party, by his or her deed or
conduct, has induced another to act in particular manner, estoppel effectively bars the
former from adopting an inconsistent position, attitude or course of conduct that causes
loss or injury to the latter. The doctrine of estoppel is based upon the grounds of public
policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak
against his own act, representations, or commitments to the injury of one whom they
were directed and who reasonably relied thereon. The essential elements of estoppel as
related to the party estopped are: (1) conduct which amounts to a false representation or
concealment of material facts, or, at least, which calculated to convey the impression that
the facts are otherwise than, and inconsistent with, those which the party subsequently
attempts to assert; (2) intention, or at least expectation, that such conduct shall be acted
upon by the other party; and (3) knowledge, actual or constructive, of the actual facts.

Estoppel.

Prisma Construction and Development Corporation and Rogelio S. Pantaleon vs.


Arthur F. Menchavez, G.R. No. 160545, March 9, 2010
We cannot apply the doctrine of estoppel in the present case since the facts and
circumstances, as established by the record, negate its application. Under the promissory
note, what the petitioners agreed to was the payment of a specific sum of P40,000.00 per
month for six months not a 4% rate of interest per month for six (6) months on a loan
whose principal is P1,000,000.00, for the total amount of P1,240,000.00. Thus, no
reason exists to place the petitioners in estoppel, barring them from raising their present
defenses against a 4% per month interest after the six-month period of the agreement.
The board resolution, on the other hand, simply authorizes Pantaleon to contract for a
loan with a monthly interest of not more than 4%. This resolution merely embodies the
extent of Pantaleons authority to contract and does not create any right or obligation
except as between Pantaleon and the board. Again, no cause exists to place the
petitioners in estoppel.

Estoppel.

The Learning Child, Inc. and Sps. Felipe and Mary Anne Alfonso Vs. Ayala Alabang
Village Association, Spouses Ernest and Alma Arzaga, et al./Jose Marie V. Aquino,
minor and represented by his parents Dr. Errol Aquino and Atty. Marilyn Aquino, et
al. Vs. Ayala Alabang Village Association, Spouses Ernesto and Alma Arzaga, et

al./Ayala Alabang Village Association, Spouses Ernesto and Alma Arzaga, et al.
Vs.Municipality of Muntinlupa, et al., G.R. No. 134269/G.R. No. 134440/G.R. No.
144518, July 7, 2010
Estoppel by deed is a bar which precludes one party from asserting as against the other
party and his privies any right or title in derogation of the deed, or from denying the truth
of any material facts asserted in it. Estoppel has been characterized as harsh or odious,
and not favored in law. When misapplied, estoppel becomes a most effective weapon to
establish an injustice, inasmuch as it shuts a mans mouth from speaking the truth and
debars the truth in a particular case. Estoppel cannot be sustained by mere argument or
doubtful inference; it must be clearly proved in all its essential elements by clear,
convincing and satisfactory evidence.
Family Code;
Application of Family
Code.

Victoria S. Jarillo vs. People of the Philippines, G.R. No. 164435, June 29, 2010

Family Code; child


custody; application of
Article 213 on all
custody agreements.

Herald Black Dacasin vs. Sharon Del Mundo Dacasin, G.R. No. 168785, February 5,
2010

Family Code;
presumption of death;
summary judicial
proceedings under the
Family Code.

Republic of the Philippines vs. Yolanda Cadacio Granada; G.R. No. 187512, June 13,
2012

Family home; how to


constitute; levy and
execution.

Juanita Trinidad Ramos, et al. vs. Danilo Pangilinan et al., G.R. No. 185920, July 20,
2010

In the Decision dated September 29, 2009, the Court affirmed petitioners conviction for
bigamy. Petitioner moved for reconsideration of the Decision, arguing that since
petitioners marriages were entered into before the effectivity of the Family Code, then
the applicable law is Section 29 of the Marriage Law (Act 3613), instead of Article 40 of
the Family Code, which requires a final judgment declaring the previous marriage void
before a person may contract a subsequent marriage. Petitioners argument lacks merit.
As far back as 1995, in Atienza v. Brillantes, Jr., the Court already made the declaration
that Article 40, which is a rule of procedure, should be applied retroactively because
Article 256 of the Family Code itself provides that said Code shall have retroactive
effect insofar as it does not prejudice or impair vested or acquired rights. The fact that
procedural statutes may somehow affect the litigants rights may not preclude their
retroactive application to pending actions. The retroactive application of procedural laws
is not violative of any right of a person who may feel that he is adversely affected. The
reason is that as a general rule, no vested right may attach to, nor arise from, procedural
laws.

It will not do to argue that the second paragraph of Article 213 of the Family Code
applies only to judicial custodial agreements based on its text that No child under seven
years of age shall be separated from the mother, unless the court finds compelling
reasons to order otherwise. To limit this provisions enforceability to court sanctioned
agreements while placing private agreements beyond its reach is to sanction a double
standard in custody regulation of children under seven years old of separated parents.
This effectively empowers separated parents, by the simple expedient of avoiding the
courts, to subvert a legislative policy vesting to the separated mother sole custody of her
children under seven years of age to avoid a tragedy where a mother has seen her baby
torn away from her. This ignores the legislative basis that [n]o man can sound the deep
sorrows of a mother who is deprived of her child of tender age.

Under Article 41 of the Family Code, the losing party in a summary proceeding for the
declaration of presumptive death may file a petition for certiorari with the CA on the
ground that, in rendering judgment thereon, the trial court committed grave abuse of
discretion amounting to lack of jurisdiction. From the decision of the CA, the aggrieved
party may elevate the matter to this Court via a petition for review on certiorari under
Rule 45 of the Rules of Court. (Digesters Note: This case also summarizes a number of
cases on proof for existence of a well-founded belief that the absent spouse is already
dead, but there is no ruling on this point and the comment by the Court that the
Republics arguments are well-taken, is obiter.)

The general rule is that the family home is a real right which is gratuitous, inalienable
and free from attachment, constituted over the dwelling place and the land on which it is
situated, which confers upon a particular family the right to enjoy such properties, which

must remain with the person constituting it and his heirs. It cannot be seized by creditors
except in certain special cases.
The case of Kelley, Jr. v. Planters Products, Inc. lays down the rules relative to the levy
on execution over the family home, viz: (i) a family home is generally exempt from
execution provided it was duly constituted as such; (ii) there must be proof that the
alleged family home was constituted jointly by the husband and wife or by an unmarried
head of a family; (iii) it must be the house where they and their family actually reside
and the lot on which it is situated, (iv) the family home must be part of the properties of
the absolute community or the conjugal partnership, or of the exclusive properties of
either spouse with the latters consent, or on the property of the unmarried head of the
family; and (v) the actual value of the family home shall not exceed, at the time of its
constitution, the amount of P300,000 in urban areas and P200,000 in rural areas.
With regard to the need for constituting a residence as a family home in order for the
property to be exempt from execution, distinction must be made as to what law applies
based on when it was constituted and what requirements must be complied with by the
judgment debtor or his successors claiming such privilege. Hence, two sets of rules are
applicable.
If the family home was constructed before the effectivity of the Family Code or before
August 3, 1988, then it must have been constituted either judicially or extra-judicially as
provided under Articles 225, 229-231 and 233 of the Civil Code. Judicial constitution of
the family home requires the filing of a verified petition before the courts and the
registration of the courts order with the Registry of Deeds of the area where the property
is located. Meanwhile, extrajudicial constitution is governed by Articles 240 to 242 of
the Civil Code and involves the execution of a public instrument which must also be
registered with the Registry of Property. Failure to comply with either one of these two
modes of constitution will bar a judgment debtor from availing of the privilege.
On the other hand, for family homes constructed after the effectivity of the Family Code
on August 3, 1988, there is no need to constitute extrajudicially or judicially. All family
homes constructed after the effectivity of the Family Code (August 3, 1988) are
constituted as such by operation of law. All existing family residences as of August 3,
1988 are considered family homes and are prospectively entitled to the benefits accorded
to a family home under the Family Code. The exemption is effective from the time it was
constituted and lasts as long as any of its beneficiaries under Article 154 actually resides
therein. Moreover, the family home should belong to the absolute community or
conjugal partnership, or if exclusively by one spouse, its constitution must have been
with consent of the other, and its value must not exceed certain amounts depending upon
the area where it is located. Further, the debts incurred for which the exemption does not
apply as provided under Article 155 for which the family home is made answerable must
have been incurred after August 3, 1988.
In both cases, whether under the Civil Code or the Family Code, it is not sufficient that
the person claiming exemption merely alleges that such property is a family home. This
claim for exemption must be set up and proved.
In the present case, since petitioners claim that the family home was constituted prior to
August 3, 1988, or as early as 1944, they must comply with the procedure mandated by
the Civil Code. There being absolutely no proof that the Pandacan property was
judicially or extra-judicially constituted as the Ramos family home, the laws protective
mantle cannot be availed of by petitioners. Parenthetically, the records show that the
sheriff exhausted all means to execute the judgment but failed because Ramos bank
accounts were already closed while other properties in his or the companys name had
already been transferred, and the only property left was the Pandacan property.
Family
relations;
annulment
of
marriage;
psychological
incapacity.

Silvino A. Ligeralde vs. May Ascension A. Patalinghug, et al., G.R. No. 168796, April
15, 2010
This is a petition for certiorari under Rule 65, questioning a Court of Appeals decision
that ruled that private respondents alleged sexual infidelity, emotional immaturity and
irresponsibility do not constitute psychological incapacity within the contemplation of
the Family Code and that the psychologist failed to identify and prove the root cause
thereof or that the incapacity was medically or clinically permanent or incurable.

In this case at bench, the Court finds no commission of a grave abuse of discretion in the
rendition of the assailed CA decision dismissing petitioners complaint for declaration of
nullity of marriage under Article 36 of the Family Code. A petition for declaration of
nullity of marriage is anchored on Article 36 of the Family Code. Psychological
incapacity required by Art. 36 must be characterized by (a) gravity, (b) juridical
antecedence and (c) incurability. The incapacity must be grave or serious such that the
party would be incapable of carrying out the ordinary duties required in marriage. It
must be rooted in the history of the party antedating the marriage, although the overt
manifestations may emerge only after the marriage. It must be incurable or, even if it
were otherwise, the cure would be beyond the means of the party involved. The Court
likewise laid down the guidelines in resolving petitions for declaration of nullity of
marriage, based on Article 36 of the Family Code, in Republic v. Court of Appeals.
Relevant to this petition are the following: (1) The burden of proof to show the nullity of
the marriage belongs to the plaintiff; (2) the root cause of the psychological incapacity
must be medically or clinically identified, alleged in the complaint, sufficiently proven
by experts and clearly explained in the decision; (3) the incapacity must be proven to be
existing at the time of the celebration of the marriage; (4) such incapacity must also be
shown to be medically or clinically permanent or incurable; and (5) such illness must be
grave enough to bring about the disability of the party to assume the essential obligations
of marriage.
Guided by these pronouncements, it is the Courts considered view that petitioners
evidence failed to establish respondents psychological incapacity. Petitioners testimony
did not prove the root cause, gravity and incurability of private respondents condition.
Even the psychologist failed to show the root cause of her psychological incapacity. The
root cause of the psychological incapacity must be identified as a psychological illness,
its incapacitating nature fully explained and established by the totality of the evidence
presented during trial. More importantly, the acts of private respondent do not even rise
to the level of the psychological incapacity that the law requires. Private respondents
act of living an adulterous life (wife came home late and had lovers) did not come cannot
automatically be equated with a psychological disorder, especially when no specific
evidence was shown that promiscuity was a trait already existing at the inception of
marriage. Petitioner must be able to establish that respondents unfaithfulness is a
manifestation of a disordered personality, which makes her completely unable to
discharge the essential obligations of the marital state. Doubtless, the private respondent
was far from being a perfect wife and a good mother. She certainly had some character
flaws. But these imperfections do not warrant a conclusion that she had a psychological
malady at the time of the marriage that rendered her incapable of fulfilling her marital
and family duties and obligations.
Family
relations;
annulment
of
marriage;
psychological
incapacity.

Jordan Chan Paz vs. Jeanice Pavon-Paz, G.R. No. 166579, February 18, 2010
In Santos v. Court of Appeals, the court first declared that psychological incapacity must
be characterized by (a) gravity, (b) judicial antecedence, and (c) incurability. It must be
confined to the most serious cases of personality disorders clearly demonstrative of an
utter insensitivity or inability to give meaning and significance to the marriage.
In Dimayuga-Laurena v. Court of Appeals, the court explained these elements: (a)
gravity it must be grave and serious such that the party would be incapable of carrying
out the ordinary duties required in a marriage; (b) judicial antecedence it must be
rooted in the history of the party antedating the marriage, although the overt
manifestations may emerge only after the marriage; and (c) incurability It must be
incurable, or even if it were otherwise, the cure would be beyond the means of the party
involved. The testimony of the psychologist that one of the parties was suffering from
borderline personality disorder as manifested by his being a Mamas Boy did not
constitute sufficient evidence of that partys condition. The diagnosis was only based on
the interviews with the petitioning spouse and the transcript of that spouses testimony in
court. The psychologist did not actually hear, see and evaluate the respondent. Her
testimony constituted hearsay. The presentation of expert proof presupposes a thorough
and in-dept assessment of the parties by the psychologist or expert, for a conclusive
diagnosis of a grave, severe and incurable presence of psychological incapacity.
Furthermore, the psychologist did not particularly describe the pattern of behavior
which showed that Jordan indeed suffers from Borderline Personality Disorder. Gates
also failed to explain how such a personality disorder made Jordan psychologically
incapacitated to perform his obligations as a husband. In any case, the alleged
psychological capacity of the respondent was not shown to be so grave and so permanent
as to deprive him of the awareness of the duties and responsibilities of the matrimonial

Family
relations;
annulment
of
marriage;
psychological
incapacity.

bond. At worst [Digesters Note: The decision as set out in the link says, at best, but
thats obviously a mistake], the allegations show the respondent to be irresponsible,
insensitive or emotionally immature. What the law requires is downright incapacity, not
refusal or neglect or difficulty, much less ill will. The mere showing of irreconcilable
differences and conflicting personalities does not constitute psychological incapacity.
Nor was there any evidence that any condition was incurable.

Edward N. Lim vs. Ma. Cheryl Sta. Cruz-Lim, G.R. No. 176464, February 4, 2010
In this case, the court disregarded the testimony of a psychologist on both parties
personality disorders (given to support the claim of psychological incapacity as ground
for annulment of marriage), observing that the witness global conclusion was not
supported by psychological tests properly administered by clinical psychologists
specifically trained in the tests use and interpretation. The supposed personality
disorders of the parties, considering that such diagnoses were made, could have been
fully established by psychometric and neurological tests which are designed to measure
specific aspects of peoples intelligence, thinking, or personality. [Digesters Note: The
Supreme Court saw fit to cite material on psychological testing to show that parties had
not provided adequate basis for the claim of psychological incapacity and then goes on
to say...] Concededly, a copy of DSM IV, or any of the psychology textbooks, does not
transform a lawyer or a judge into a professional psychologist. A judge should not
substitute his own psychological assessment of the parties for that of the psychologist or
the psychiatrist. However, a judge has the bounden duty to rule on what the law is, as
applied to a certain set of facts. Certainly, as in all other litigations involving technical or
special knowledge, a judge must first and foremost resolve the legal question based on
law and jurisprudence. The expert opinion of a psychiatrist arrived at after a maximum
of seven hours of interview, and unsupported by separate psychological tests, cannot tie
the hands of the trial court and prevent it from making its own factual finding on what
happened in this case. The probative force of the testimony of an expert does not lie in a
mere statement of his theory or opinion, but rather in the assistance that he can render to
the courts in showing the facts that serve as a basis for his criterion and the reasons upon
which the logic of his conclusion is founded.

Family
relations;
applicable law
Family relations; child
custody; agreements
between separated
parents.

Civil Code vs. Family Code. See Manuel O. Fuentes, et al. vs. Conrado G. Roca, et al.,
G.R. No. 178902, April 21, 2010
Herald Black Dacasin vs. Sharon Del Mundo Dacasin, G.R. No. 168785, February 5,
2010

Family relations; child


support; filiation.

Ben-Hur Nepomuceno vs. Archbencel Ann Lopez, represented by her mother Araceli
Lopez, G.R. No. 181258, March 18, 2010

At the time the parties executed the Agreement on 28 January 2002, two facts are
undisputed: (1) Stephanie was under seven years old; and (2) petitioner and respondent
were no longer married under the laws of the United States because of the divorce
decree. The relevant Philippine law on child custody for spouses separated in fact or in
law (under the second paragraph of Article 213 of the Family Code) is also undisputed:
no child under seven years of age shall be separated from the mother x x x. (This
statutory awarding of sole parental custody to the mother is mandatory, grounded on
sound policy consideration, subject only to a narrow exception not alleged to obtain
here.) Clearly then, the Agreements object to establish a post-divorce joint custody
regime between respondent and petitioner over their child under seven years old
contravenes Philippine law. Thus the joint custody agreement between the parents is void
ab initio for being contrary to law. Also, it has also been repudiated by the mother when
she refused to allow joint custody by the father. The agreement would be valid if the
spouses have not divorced or separated because the law provides for joint parental
authority when spouses live together. However, upon separation of the spouses, the
mother takes sole custody under the law if the child is below seven years old and any
agreement to the contrary is void. The separated parents cannot contract away the
provision in the Family Code on the maternal custody of children below seven years.

Arhbencels demand for support, being based on her claimof filiation to petitioner as his
illegitimate daughter, falls under Article 195(4). As such, her entitlement to support from
petitioner is dependent on the determination of her filiation. [Digesters note: The Court
cites Herrera v. Alba to summarize the laws, rules, and jurisprudence on establishing
filiation.] In the present case, Arhbencel relies, in the main, on the handwritten note

executed by petitioner which reads: I, Ben-Hur C. Nepomuceno, hereby undertake to


give and provide financial support in the amountof P1,500.00 every fifteen and thirtieth
day of each month for a total of P3,000.00 a month starting Aug. 15, 1999, to Ahrbencel
Ann Lopez, presently in the custody of her mother Araceli Lopez without the necessity
of demand, subject to adjustment later depending on the needs of the child and my
income. The note does not contain any statement whatsoever about Arhbencels filiation
to petitioner. It is, therefore, not within the ambit of Article 172(2) vis--vis Article 175
of the Family Code which admits as competent evidence of illegitimate filiation an
admission of filiation in a private handwritten instrument signed by the parent
concerned. The note cannot also be accorded the same weight as the notarial agreement
to support the child referred to in Herrera. For it is not even notarized. And Herrera
instructs that the notarial agreement must be accompanied by the putative fathers
admission of filiation to be an acceptable evidence of filiation. Here, however, not only
has petitioner not admitted filiation through contemporaneous actions. He has
consistently denied it. The only other documentary evidence submitted by Arhbencel, a
copy of her Certificate of Birth, has no probative value to establish filiation to petitioner,
the latter not having signed the same. At bottom, all that Arhbencel really has is
petitioners handwritten undertaking to provide financial support to her which, without
more, fails to establish her claim of filiation. The Court is mindful that the best interests
of the child in cases involving paternity and filiation should be advanced. It is, however,
just as mindful of the disturbance that unfounded paternity suits cause to the privacy and
peace of the putative fathers legitimate family.
Family relations;
impact of foreign
divorce.

Herald Black Dacasin vs. Sharon Del Mundo Dacasin, G.R. No. 168785, February 5,
2010
In seeking the enforceability of a joint custody agreement, the petitioner cannot prevent
the application of Article 213 of the Family Code (to the matter of custody of a child of
separated parents) by relying on the alleged invalidity of the divorce that the parents had
obtained. The argument that foreigners in this jurisdiction are not bound by foreign
divorce decrees is hardly novel. Van Dorn v. Romillo settled the matter by holding that
an alien spouse of a Filipino is bound by a divorce decree obtained abroad. There, we
dismissed the alien divorcees Philippine suit for accounting of alleged post-divorce
conjugal property and rejected his submission that the foreign divorce (obtained by the
Filipino spouse) is not valid in this jurisdiction. In that case the court ruled that there can
be no question as to the validity of that Nevada divorce in any of the States of the United
States. The decree is binding on private respondent as an American citizen. It is true that
owing to the nationality principle embodied in Article 15 of the Civil Code, only
Philippine nationals are covered by the policy against absolute divorces the same being
considered contrary to our concept of public policy and morality. However, aliens may
obtain divorces abroad, which may be recognized in the Philippines, provided they are
valid according to their national law. In this case, the divorce in Nevada released private
respondent from the marriage from the standards of American law, under which divorce
dissolves the marriage. Thus, pursuant to his national law, private respondent is no
longer the husband of petitioner. He would have no standing to sue in the case below as
petitioners husband entitled to exercise control over conjugal assets. As he is bound by
the Decision of his own countrys Court, which validly exercised jurisdiction over him,
and whose decision he does not repudiate, he is estopped by his own representation
before said Court from asserting his right over the alleged conjugal property. We
reiterated Van Dorn in Pilapil v. Ibay-Somera to dismiss criminal complaints for adultery
filed by the alien divorcee (who obtained the foreign divorce decree) against his former
Filipino spouse because he no longer qualified as offended spouse entitled to file the
complaints under Philippine procedural rules. Thus, it should be clear by now that a
foreign divorce decree carries as much validity against the alien divorcee in this
jurisdiction as it does in the jurisdiction of the aliens nationality, irrespective of who
obtained the divorce.

Family relations; sale


of conjugal property.

The law that applies to this case is the Family Code, not the Civil Code. Although
Tarciano and Rosario got married in 1950, Tarciano sold the conjugal property to the
Fuentes spouses on January 11, 1989, a few months after the Family Code took effect on
August 3, 1988. When Tarciano married Rosario, the Civil Code put in place the system
of conjugal partnership of gains on their property relations. While its Article 165 made
Tarciano the sole administrator of the conjugal partnership, Article 166 prohibited him
from selling commonly owned real property without his wifes consent. Still, if he sold
the same without his wifes consent, the sale is not void but merely voidable. Article 173

gave Rosario the right to have the sale annulled during the marriage within ten years
from the date of the sale. Failing in that, she or her heirs may demand, after dissolution
of the marriage, only the value of the property that Tarciano fraudulently sold. But, as
already stated, the Family Code took effect on August 3, 1988. Its Chapter 4 on Conjugal
Partnership of Gains expressly superseded Title VI, Book I of the Civil Code on Property
Relations Between Husband and Wife. Further, the Family Code provisions were also
made to apply to already existing conjugal partnerships without prejudice to vested
rights. Thus: Art. 105. x x x The provisions of this Chapter shall also apply to conjugal
partnerships of gains already established between spouses before the effectivity of this
Code, without prejudice to vested rights already acquired in accordance with the Civil
Code or other laws, as provided in Article 256. (n)
Consequently, when Tarciano sold the conjugal lot to the Fuentes spouses on January 11,
1989, the law that governed the disposal of that lot was already the Family Code. In
contrast to Article 173 of the Civil Code, Article 124 of the Family Code does not
provide a period within which the wife who gave no consent may assail her husbands
sale of the real property. It simply provides that without the other spouses written
consent or a court order allowing the sale, the same would be void. Under the provisions
of the Civil Code governing contracts, a void or inexistent contract has no force and
effect from the very beginning. And this rule applies to contracts that are declared void
by positive provision of law, as in the case of a sale of conjugal property without the
other spouses written consent. A void contract is equivalent to nothing and is absolutely
wanting in civil effects. It cannot be validated either by ratification or prescription. But,
although a void contract has no legal effects even if no action is taken to set it aside,
when any of its terms have been performed, an action to declare its inexistence is
necessary to allow restitution of what has been given under it. This action, according to
Article 1410 of the Civil Code does not prescribe. Here, the Rocas filed an action against
the Fuentes spouses in 1997 for annulment of sale and reconveyance of the real property
that Tarciano sold without their mothers (his wifes) written consent.
The passage of time did not erode the right to bring such an action. Besides, even
assuming that it is the Civil Code that applies to the transaction, Article 173 provides that
the wife may bring an action for annulment of sale on the ground of lack of spousal
consent during the marriage within 10 years from the transaction. Consequently, the
action that the Rocas, her heirs, brought in 1997 fell within 10 years of the January 11,
1989 sale. It did not yet prescribe. The Fuentes spouses point out that it was to Rosario,
whose consent was not obtained, that the law gave the right to bring an action to declare
void her husbands sale of conjugal land. But here, Rosario died in 1990, the year after
the sale. Does this mean that the right to have the sale declared void is forever lost? The
answer is no. As stated above, that sale was void from the beginning. Consequently, the
land remained the property of Tarciano and Rosario despite that sale. When the two died,
they passed on the ownership of the property to their heirs, namely, the Rocas. As lawful
owners, the Rocas had the right, under Article 429 of the Civil Code, to exclude any
person from its enjoyment and disposal. In fairness to the Fuentes spouses, however,
they should be entitled, among other things, to recover from Tarcianos heirs, the Rocas,
the P200,000.00 that they paid him, with legal interest until fully paid, chargeable
against his estate. Further, the Fuentes spouses appear to have acted in good faith in
entering the land and building improvements on it.
Atty. Plagata, whom the parties mutually entrusted with closing and documenting the
transaction, represented that he got Rosarios signature on the affidavit of consent. The
Fuentes spouses had no reason to believe that the lawyer had violated his commission
and his oath. They had no way of knowing that Rosario did not come to Zamboanga to
give her consent. There is no evidence that they had a premonition that the requirement
of consent presented some difficulty. Indeed, they willingly made a 30 percent down
payment on the selling price months earlier on the assurance that it was forthcoming.
Further, the notarized document appears to have comforted the Fuentes spouses that
everything was already in order when Tarciano executed a deed of absolute sale in their
favor on January 11, 1989. In fact, they paid the balance due him. And, acting on the
documents submitted to it, the Register of Deeds of Zamboanga City issued a new title in
the names of the Fuentes spouses. It was only after all these had passed that the spouses
entered the property and built on it. He is deemed a possessor in good faith, said Article
526 of the Civil Code, who is not aware that there exists in his title or mode of
acquisition any flaw which invalidates it. As possessor in good faith, the Fuentes spouses
were under no obligation to pay for their stay on the property prior to its legal
interruption by a final judgment against them. What is more, they are entitled under
Article 448 to indemnity for the improvements they introduced into the property with a
right of retention until the reimbursement is made. The Rocas shall of course have the

option, pursuant to Article 546 of the Civil Code, of indemnifying the Fuentes spouses
for the costs of the improvements or paying the increase in value which the property may
have acquired by reason of such improvements.
Manuel O. Fuentes, et al. vs. Conrado G. Roca, et al., G.R. No. 178902, April 21, 2010
Property; possession in good faith. See Manuel O. Fuentes, et al. vs. Conrado G. Roca, et
al., G.R. No. 178902, April 21, 201; above.

Family relations; use


of maiden name by
married woman; in a
passport.

Filiation; cannot be
collaterally attacked.

Sale; conjugal property. See Manuel O. Fuentes, et al. vs. Conrado G. Roca, et al., G.R.
No. 178902, April 21, 2010
Ma. Virginia V. Remo vs. The Honorable Secretary of Foreign Affairs, G.R. No.
169202. March 5, 2010
In the present case, petitioner, whose marriage is still subsisting and who opted to use
her husbands surname in her old passport, requested to resume her maiden name in the
replacement passport arguing that no law prohibits her from using her maiden name.
Petitioner cites Yasin as the applicable precedent. However, Yasin is not squarely in point
with this case. Unlike in Yasin, which involved a Muslim divorcee whose former
husband is already married to another woman, petitioners marriage remains subsisting.
Anotherpoint, Yasin did not involve a request to resume ones maiden name in a
replacement passport, but a petition to resume ones maiden name in view of the
dissolution of ones marriage. The law governing passport issuance is RA 8239 and the
applicable provision in this case is Section 5(d) which sets out when a married woman
may revert to her maiden name in her passport. None of these instances are present.
Petitioner, however, argues that RA 8239 effectively conflicts with and, thus, operates as
an implied repeal of Article 370 of the Civil Code. Petitioner is mistaken. RA 8239 does
not prohibit a married woman from using her maiden name in her passport. In fact, in
recognition of this right, the DFA allows a married woman who applies for a passport for
the first time to use her maiden name. Such an applicant is not required to adopt her
husbands surname. In the case of renewal of passport, a married woman may either
adopt her husbands surname or continuously use her maiden name. If she chooses to
adopt her husbands surname in her new passport, the DFA additionally requires the
submission of an authenticated copy of the marriage certificate. Otherwise, if she prefers
to continue using her maiden name, she may still do so. The DFA will not prohibit her
from continuously using her maiden name. However, once a married woman adopts her
husbands surname in her passport, she may not revet to the use of her maiden name,
except in the cases enumerated in Section 5(d) of RA 8239. These cases are (1) death of
husband, (2) divorce, (3) annulment, (4) nullity of marriage.
Eugenio R. Reyes, joined by Timothy Joseph M. Reyes, et al. vs. Librada F. Maurico
and Leonida F. Mauricio, G.R. No. 175080, November 24, 2010
It is settled law that filiation cannot be collaterally attacked. Well-known civilista Dr.
Arturo M. Tolentino, in his book Civil Code of the Philippines, Commentaries and
Jurisprudence, noted that the aforecited doctrine is rooted from the provisions of the
Civil Code of the Philippines. He explained thus:
The legitimacy of the child cannot be contested by way of defense or as a collateral issue
in another action for a different purpose. The necessity of an independent action directly
impugning the legitimacy is more clearly expressed in the Mexican code (article 335)
which provides: The contest of the legitimacy of a child by the husband or his heirs
must be made by proper complaint before the competent court; any contest made in any
other way is void. This principle applies under our Family Code. Articles 170 and 171
of the code confirm this view, because they refer to the action to impugn the
legitimacy. This action can be brought only by the husband or his heirs and within the
periods fixed in the present articles.

Filiation; open and


continuous possession
of status.

Antonio Perla v. Mirasol Baring and Randy B. Perla; G.R. No. 172471, November 12,
2012
To prove open and continuous possession of the status of an illegitimate child, there
must be evidence of the manifestation of the permanent intention of the supposed father
to consider the child as his, by continuous and clear manifestations of parental affection
and care, which cannot be attributed to pure charity. Such acts must be of such a nature
that they reveal not only the conviction of paternity, but also the apparent desire to have

and treat the child as such in all relations in society and in life, not accidentally, but
continuously. Here, the single instance that Antonio allegedly hugged Randy and
promised to support him cannot be considered as proof of continuous possession of the
status of a child. To emphasize, [t]he fathers conduct towards his son must be
spontaneous and uninterrupted for this ground to exist.
Filiation; proof;
Certificate of Live
Birth; not competent
proof of paternity
when putative father
had no hand in
preparation; Baptismal
Certificate; per se not
a competent proof of
filiation or
circumstantial
evidence to prove
filiation.

Antonio Perla v. Mirasol Baring and Randy B. Perla; G.R. No. 172471, November 12,
2012

Filiation; support;
entitlement; clear and
convincing proof of
filiation

Antonio Perla v. Mirasol Baring and Randy B. Perla; G.R. No. 172471, November 12,
2012

Force Majeure.

Article 1174 of the Civil Code provides: Except in cases expressly specified by the law,
or when it is otherwise declared by stipulation or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those events which
could not be foreseen, or which though foreseen, were inevitable. A perusal of the
construction agreements shows that the parties never agreed to make LCDC liable even
in cases of force majeure. Neither was the assumption of risk required. Thus, in the
occurrence of events that could not be foreseen, or though foreseen were inevitable,
neither party should be held responsible.

Just like in a birth certificate, the lack of participation of the supposed father in the
preparation of a baptismal certificate renders this document incompetent to prove
paternity. And while a baptismal certificate may be considered a public document, it
can only serve as evidence of the administration of the sacrament on the date specified
but not the veracity of the entries with respect to the childs paternity. Thus, baptismal
certificates are per se inadmissible in evidence as proof of filiation and they cannot be
admitted indirectly as circumstantial evidence to prove the same.

Time and again, this Court has ruled that a high standard of proof is required to establish
paternity and filiation. An order for support may create an unwholesome situation or may
be an irritant to the family or the lives of the parties so that it must be issued only if
paternity or filiation is established by clear and convincing evidence.

Under Article 1174 of the Civil Code, to exempt the obligor from liability for a breach of
an obligation due to an act of God or force majeure, the following must concur:
(a) the cause of the breach of the obligation must be independent of the will of the
debtor;
(b) the event must be either unforseeable or unavoidable;
(c) the event must be such as to render it impossible for the debtor to fulfill his
obligation in a normal manner; and
(d) the debtor must be free from any participation in, or aggravation of the injury to
the creditor.
The shortage in supplies and cement may be characterized as force majeure. In the
present case, hardware stores did not have enough cement available in their supplies or
stocks at the time of the construction in the 1990s. Likewise, typhoons, power failures
and interruptions of water supply all clearly fall under force majeure. Since LCDC could
not possibly continue constructing the building under the circumstances prevailing, it
cannot be held liable for any delay that resulted from the causes aforementioned.
Philippine Realty and Holding Corp. vs. Ley Const. and Dev. Corp./Ley Cons. and Dev.
Corp. vs. Philippine Realty and Holding Corp., G.R. No. 165548/G.R. No. 167879. June
13, 2011
Foreclosure of
mortgage; proceeds;
obligations covered.

Philippine Bank of Communication v. Mary Ann O. Yeung, G.R. No. 179691,


December 4, 2013.
The petitioner contends that there was no excess or surplus that needs to be returned to
the respondent because her other outstanding obligations and those of her attorney-infact were paid out of the proceeds.
The relevant provision, Section 4 of Rule 68 of the Rules of Civil Procedure, mandates

that:
Section 4. Disposition of proceeds of sale. The amount realized from the
foreclosure sale of the mortgaged property shall, after deducting the costs of the sale,
be paid to the person foreclosing the mortgage, and when there shall be any balance
or residue, after paying off the mortgage debt due, the same shall be paid to junior
encumbrancers in the order of their priority, to be ascertained by the court, or if there
be no such encumbrancers or there be a balance or residue after payment to them,
then to the mortgagor or his duly authorized agent, or to the person entitled to it.
Thus, in the absence of any evidence showing that the mortgage also covers the other
obligations of the mortgagor, the proceeds from the sale should not be applied to them.
Foreclosure;
extrajudicial
foreclosure; notice of
extrajudicial
foreclosure
proceedings not
necessary unless
stipulated by the
parties.

Jose T. Ramirez v. The Manila Banking Corporation, G.R. No. 198800, December 11,
2013.

Foreclosure; premature
foreclosure; order of
restoration of
possession and
payment of reasonable
rentals.

Development Bank of the Philippines (DBP) v. Guarina Agricultural and Realty


Development Corporation, G.R. No. 160758. January 15, 2014

Foreclosure; purchaser
in foreclosure sale
may take possession of
the property even
before the expiration
of the redemption
period.

LZK Holdings and Development Corporation v. Planters Development Bank, G.R. No.
187973, January 20, 2014

In Carlos Lim, et al. v. Development Bank of the Philippines, the court held that unless
the parties stipulate, personal notice to the mortgagor in extrajudicial foreclosure
proceedings is not necessary because Section 3 of Act No. 3135 only requires the posting
of the notice of sale in three public places and the publication of that notice in a
newspaper of general circulation. In this case, the parties stipulated in paragraph N of the
real estate mortgage that all correspondence relative to the mortgage including
notifications of extrajudicial actions shall be sent to mortgagor Ramirez at his given
address. Respondent had no choice but to comply with this contractual provision it has
entered into with Ramirez. The contract is the law between them. Hence, the court
cannot agree with the bank that paragraph N of the real estate mortgage does not impose
an additional obligation upon it to provide personal notice of the extrajudicial
foreclosure sale to the mortgagor Ramirez.

Having found and pronounced that the extrajudicial foreclosure by DBP was premature,
and that the ensuing foreclosure sale was void and ineffectual, the Court affirms the
order for the restoration of possession to Guarifia Corporation and the payment of
reasonable rentals for the use of the resort. The CA properly held that the premature and
invalid foreclosure had unjustly dispossessed Guarifia Corporation of its properties.
Consequently, the restoration of possession and the payment of reasonable rentals were
in accordance with Article 561 of the Civil Code, which expressly states that one who
recovers, according to law, possession unjustly lost shall be deemed for all purposes
which may redound to his benefit to have enjoyed it without interruption.

A writ of possession is a writ of execution employed to enforce a judgment to recover


the possession of land. It commands the sheriff to enter the land and give possession of it
to the person entitled under the judgment. It may be issued in case of an extrajudicial
foreclosure of a real estate mortgage under Section 7 of Act No. 3135, as amended by
Act No. 4118.
Under said provision, the writ of possession may be issued to the purchaser in a
foreclosure sale either within the one-year redemption period upon the filing of a bond,
or after the lapse of the redemption period, without need of a bond.
We have consistently held that the duty of the trial court to grant a writ of possession is
ministerial. Such writ issues as a matter of course upon the filing of the proper motion
and the approval of the corresponding bond. No discretion is left to the trial court. Any
question regarding the regularity and validity of the sale, as well as the consequent
cancellation of the writ, is to be determined in a subsequent proceeding as outlined in
Section 8 of Act No. 3135. Such question cannot be raised to oppose the issuance of the
writ, since the proceeding is ex parte. The recourse is available even before the
expiration of the redemption period provided by law and the Rules of Court.

Free patent;

Nancy T. Lorzano vs. Juan Tabayag, Jr., G.R. No. 189647. February 6, 2012

Fradulently secured.
A Free Patent may be issued where the applicant is a natural-born citizen of the
Philippines; is not the owner of more than twelve (12) hectares of land; has continuously
occupied and cultivated, either by himself or through his predecessors-in-interest, a tract
or tracts of agricultural public land subject to disposition, for at least 30 years prior to the
effectivity of Republic Act No. 6940; and has paid the real taxes thereon while the same
has not been occupied by any person. Once a patent is registered and the corresponding
certificate of title is issued, the land covered thereby ceases to be part of public domain
and becomes private property, and the Torrens Title issued pursuant to the patent
becomes indefeasible upon the expiration of one year from the date of such issuance.
However, a title emanating from a free patent which was secured through fraud does not
become indefeasible, precisely because the patent from whence the title sprung is itself
void and of no effect whatsoever. Well-settled is the doctrine that the registration of a
patent under the Torrens System does not by itself vest title; it merely confirms the
registrants already existing one. Verily, registration under the Torrens System is not a
mode of acquiring ownership.
Nonetheless, a free patent that was fraudulently acquired, and the certificate of title
issued pursuant to the same, may only be assailed by the government in an action for
reversion pursuant to Section 101 of the Public Land Act. Since it was the Director of
Lands who processed and approved the applications of the appellants and who ordered
the issuance of the corresponding free patents in their favor in his capacity as
administrator of the disposable lands of the public domain, the action for annulment
should have been initiated by him, or at least with his prior authority and consent.
Government contracts;
obligation to pay
supplier or contractor
even under an illegal
contract on basis of
quantum meruit.

Gregorio R. Vigilar, et al. vs. Arnulfo D. Aquino; G.R. No. 180388, January 18, 2011.
In ordering the payment of the obligation due respondent on a quantum meruit basis, the
Court of Appeals correctly relied on Royal Trust Corporation v. COA, Eslao v. COA,
Melchor v. COA, EPG Construction Company v. Vigilar, and Department of Health v.
C.V. Canchela & Associates, Architects. All these cases involved government projects
undertaken in violation of the relevant laws, rules and regulations covering public
bidding, budget appropriations, and release of funds for the projects. Consistently in
these cases, this Court has held that the contracts were void for failing to meet the
requirements mandated by law; public interest and equity, however, dictate that the
contractor should be compensated for services rendered and work done. Specifically,
C.V. Canchela & Associates is similar to the case at bar, in that the contracts involved in
both cases failed to comply with the relevant provisions of Presidential Decree No. 1445
and the Revised Administrative Code of 1987. Nevertheless, the illegality of the subject
Agreements proceeds, it bears emphasis, from an express declaration or prohibition by
law, not from any intrinsic illegality. As such, the Agreements are not illegal per se, and
the party claiming thereunder may recover what had been paid or delivered.
Neither can petitioners escape the obligation to compensate respondent for services
rendered and work done by invoking the states immunity from suit. This Court has long
established that the doctrine of governmental immunity from suit cannot serve as an
instrument for perpetrating an injustice to a citizen.

Gross negligence;
concept.

Comsavings Bank (now GSIS Family Bank) v. Sps. Danilo and Estrella Capistrano,
G.R. No. 170942, August 28, 2013
Based on the provisions, a banking institution like Comsavings Bank is obliged to
exercise the highest degree of diligence as well as high standards of integrity and
performance in all its transactions because its business is imbued with public interest. As
aptly declared in Philippine National Bank v. Pike: [T]he stability of banks largely
depends on the confidence of the people in the honesty and efficiency of banks. Gross
negligence connotes want of care in the performance of ones duties; it is a negligence
characterized by the want of even slight care, acting or omitting to act in a situation
where there is duty to act, not inadvertently but willfully and intentionally, with a
conscious indifference to consequences insofar as other persons may be affected. It
evinces a thoughtless disregard of consequences without exerting any effort to avoid
them.

Guarantee.

United Coconut Planters Bank vs. Planters Products, Inc., Janet Layson and Gregory

Grey; G.R. No. 179015, June 13, 2012


By its tenor, Greys undertaking was a guarantee. It says, payment unconditionally
guaranteed within sixty (60) days from Planters Products, Inc. Invoice date up to Pesos:
Two Hundred Thousand (P200,000.00) only. As it happens, bank guarantees are highly
regulated transactions under the law. They are undertakings that are not so casually
issued by banks or by their branch managers at the dorsal side of a clients promissory
note as if an afterthought. A bank guarantee is a contract that binds the bank and so may
be entered into only under authority granted by its board of directors. Such authority
does not appear on any document. Indeed, PPI had no right to expect branch manager
Grey to issue one without such authorization.
Human Relations;
abuse of rights; Article
19 of the Civil Code;
concept; damages as
reliefs.

Joyce V. Ardiente v. Spouses Javier and Ma. Theresa Pastofide, G.R. No. 161921, July
17, 2013
The principle of abuse of rights as enshrined in Article 19 of the Civil Code provides that
every person must, in the exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and good faith.
In this regard, the Courts ruling in Yuchengco v. The Manila Chronicle Publishing
Corporation is instructive, to wit:
This provision of law sets standards which must be observed in the exercise of ones
rights as well as in the performance of its duties, to wit: to act with justice; give
everyone his due; and observe honesty and good faith.
In Globe Mackay Cable and Radio Corporation v. Court of Appeals, it was elucidated
that while Article 19 lays down a rule of conduct for the government of human relations
and for the maintenance of social order, it does not provide a remedy for its violation.
Generally, an action for damages under either Article 20 or Article 21 would be proper.
The Court said:
One of the more notable innovations of the New Civil Code is the codification of
some basic principles that are to be observed for the rightful relationship between
human beings and for the stability of the social order. [REPORT ON THE CODE
COMMISSION ON THE PROPOSED CIVIL CODE OF THE PHILIPPINES, p.
39]. The framers of the Code, seeking to remedy the defect of the old Code which
merely stated the effects of the law, but failed to draw out its spirit, incorporated
certain fundamental precepts which were designed to indicate certain norms that
spring from the fountain of good conscience and which were also meant to serve as
guides for human conduct [that] should run as golden threads through society, to the
end that law may approach its supreme ideal, which is the sway and dominance of
justice. (Id.) Foremost among these principles is that pronounced in Article 19
This article, known to contain what is commonly referred to as the principle of abuse of
rights, sets certain standards which must be observed not only in the exercise of ones
rights, but also in the performance of ones duties. These standards are the following: to
act with justice; to give everyone his due; and to observe honesty and good faith. The
law, therefore, recognizes a primordial limitation on all rights; that in their exercise, the
norms of human conduct set forth in Article 19 must be observed. A right, though by
itself legal because recognized or granted by law as such, may nevertheless become the
source of some illegality. When a right is exercised in a manner which does not conform
with the norms enshrined in Article 19 and results in damage to another, a legal wrong is
thereby committed for which the wrongdoer must be held responsible. But while Article
19 lays down a rule of conduct for the government of human relations and for the
maintenance of social order, it does not provide a remedy for its violation. Generally, an
action for damages under either Article 20 or Article 21 would be proper.

Human Relations; civil


case for fraud; Article
33 of the Civil Code
provides that a civil
case for damages
based on fraud may
proceed independently
of the criminal case
therefor; said civil

Rafael Jose Consing, Jr. v. People of the Philippines, G.R. No. 161075, July 15, 2013
It is well settled that a civil action based on defamation, fraud and physical injuries may
be independently instituted pursuant to Article 33 of the Civil Code, and does not operate
as a prejudicial question that will justify the suspension of a criminal case. This was
precisely the Courts thrust in G.R. No. 148193, thus:
Moreover, neither is there a prejudicial question if the civil and the criminal action
can, according to law, proceed independently of each other. Under Rule 111, Section
3 of the Revised Rules on Criminal Procedure, in the cases provided in Articles 32,

case will not operate


as a prejudicial
question that will
justify the suspension
of a criminal case.

33, 34 and 2176 of the Civil Code, the independent civil action may be brought by
the offended party. It shall proceed independently of the criminal action and shall
require only a preponderance of evidence. In no case, however, may the offended
party recover damages twice for the same act or omission charged in the criminal
action.
In the instant case, Civil Case No. 99-95381, for Damages and Attachment on account of
the alleged fraud committed by respondent and his mother in selling the disputed lot to
PBI is an independent civil action under Article 33 of the Civil Code. As such, it will not
operate as a prejudicial question that will justify the suspension of the criminal case at
bar.

Human relations;
unjust enrichment.

Bibiano C. Elegir vs. Philippine Airlines, Inc.; G.R. No. 181995, July 16, 2012.
To allow the petitioner to leave the company before it has fulfilled the reasonable
expectation of service on his part will amount to unjust enrichment. Pertinently, Article
22 of the New Civil Code states:
Art. 22. Every person who through an act of performance by another, or any other
means, acquires or comes into possession of something at the expense of the latter
without just or legal ground, shall return the same to him.
There is unjust enrichment when a person unjustly retains a benefit at the loss of another,
or when a person retains the money or property of another against the fundamental
principles of justice, equity and good conscience. Two conditions must concur: (1) a
person is unjustly benefited; and (2) such benefit is derived at the expense of or with
damages to another. The main objective of the principle of unjust enrichment is to
prevent one from enriching oneself at the expense of another. It is commonly accepted
that this doctrine simply means that a person shall not be allowed to profit or enrich
himself inequitably at anothers expense. The enrichment may consist of a patrimonial,
physical, or moral advantage, so long as it is appreciable in money. It must have a
correlative prejudice, disadvantage or injury to the plaintiff which may consist, not only
of the loss of the property or the deprivation of its enjoyment, but also of the nonpayment of compensation for a prestation or service rendered to the defendant without
intent to donate on the part of the plaintiff, or the failure to acquire something what the
latter would have obtained.
As can be gathered from the facts, PAL invested a considerable amount of money in
sending the petitioner abroad to undergo training to prepare him for his new appointment
as B747-400 Captain. In the process, the petitioner acquired new knowledge and skills
which effectively enriched his technical know-how. As all other investors, PAL expects a
return on investment in the form of service by the petitioner for a period of 3 years,
which is the estimated length of time within which the costs of the latters training can
be fully recovered. The petitioner is, thus, expected to work for PAL and utilize whatever
knowledge he had learned from the training for the benefit of the company. However,
after only one (1) year of service, the petitioner opted to retire from service, leaving PAL
stripped of a necessary manpower.

Implied trust.

Heirs Pedro De Guzman vs. Angelina Perona and Heirs of Rosauro De Guzman,
Bataan Development Bank and Republic Planters Bank, G.R. No. 152266, July 2,
2010
Petitioners submission that respondents merely hold the title to the properties in trust for
their predecessor Pedro is without merit. Pedro failed to prove by clear and convincing
evidence that the spouses Rosauro and Angelina managed, through fraud, to have the
real properties subject of this case registered in their name. In the absence of fraud, no
implied trust was established between Pedro and the spouses Rosauro and Angelina
under Article 1456 of the New Civil Code.

Interest on the
judgment; 12% per
annum to be computed
from default, which is
from judicial or
extrajudicial demand.

Eleanor De Leon Llenado vs. People of the Philippines and Editha Villaflores. G.R.
No. 193279. March 14, 2012
Applying Lunaria v. People, the Court of Appeals modified the appealed judgment
holding petitioner liable for the amount of the dishonored check, with 12% interest per
annum from the date of judicial demand until the finality of this Decision. We find the
need to modify the ruling of the CA with regard to the imposition of interest on the

judgment. It has been established that in the absence of stipulation, the rate of interest
shall be 12% per annum to be computed from default, that is, from judicial or
extrajudicial demand under and subject to the provisions of Article 1169of the Civil
Code. In Ongson v. People, we held that interest began to run from the time of the
extrajudicial demand, as duly proved by the creditor. Thus, petitioner should also be held
liable for the amount of the dishonored check, which is 1,500,000, plus 12% legal
interest covering the period from the date of the receipt of the demand letter on 14 May
1999 to the finality of this Decision. The total amount due in the dispositive portion of
the CAs Decision, inclusive of interest, shall further earn 12% interest per annum from
the finality of this Decision until fully paid.
Interest rate

RGM Industries, Inc. vs. United Pacific Capital Corporation; G.R. No. 194781, June
27, 2012
We affirm the interest rate decreed by the CA. Stipulated interest rates are illegal if they
are unconscionable and courts are allowed to temper interest rates when necessary. In
exercising this vested power to determine what is iniquitous and unconscionable, the
Court must consider the circumstances of each case. What may be iniquitous and
unconscionable in one case, may be just in another.
We cannot uphold the petitioners invocation of our ruling in DBP v. Court of Appeals
wherein the interest rate imposed was reduced to 10% per annum. The overriding
circumstance prompting such pronouncement was the regular payments made by the
borrower. Evidently, such fact is wanting in the case at bar, hence, the petitioner cannot
demand for a similar interest rate.
The circumstances attendant herein are similar to those in Trade & Investment
Development Corporation of the Philippines v. Roblett Industrial Construction
Corporation wherein we levied the legal interest rate of 12% per annum.
However, pursuant to Bank of the Philippine Islands, Inc. v. Yu, we deem it proper to
further reduce the penalty charge decreed by the CA from 2% per month to 1% per
month or 12% per annum in view of the following factors: (1) respondent has already
received P7,504,522.27 in penalty charges, and (2) the loan extended to respondent was
a short-term credit facility.

Interest rates; a
stipulated interest of
24% per annum is not
unconscionable;
surcharge on principal
loan; a surcharge of
1% per month on the
principal loan is valid;
surcharge or penalty
partakes of the nature
of liquidated damages;
different from interest
payment.

Spouses Florentino T. Mallari and Aurea V. Mallari v. Prudential Bank of the


Philippines, G.R. No. 197861, June 5, 2013
In Villanueva v. Court of Appeals, where the issue raised was whether the 24% p.a.
stipulated interest rate is unreasonable under the circumstances, we answered in the
negative and held:
In Spouses Zacarias Bacolor and Catherine Bacolor v. Banco Filipino Savings and
Mortgage Bank, Dagupan City Branch, this Court held that the interest rate of 24%
per annum on a loan of P244,000.00, agreed upon by the parties, may not be
considered as unconscionable and excessive. As such, the Court ruled that the
borrowers cannot renege on their obligation to comply with what is incumbent upon
them under the contract of loan as the said contract is the law between the parties and
they are bound by its stipulations.
Also, in Garcia v. Court of Appeals, this Court sustained the agreement of the parties
to a 24% per annum interest on an P8,649,250.00 loan finding the same to be
reasonable and clearly evidenced by the amended credit line agreement entered into
by the parties as well as two promissory notes executed by the borrower in favor of
the lender.
Based on the above jurisprudence, the Court finds that the 24% per annum interest rate,
provided for in the subject mortgage contracts for a loan of P225,000.00, may not be
considered unconscionable. Moreover, considering that the mortgage agreement was
freely entered into by both parties, the same is the law between them and they are bound
to comply with the provisions contained therein.
In Ruiz v. CA, we held:
The 1% surcharge on the principal loan for every month of default is valid. This
surcharge or penalty stipulated in a loan agreement in case of default partakes of the
nature of liquidated damages under Art. 2227 of the New Civil Code, and is separate

and distinct from interest payment. Also referred to as a penalty clause, it is expressly
recognized by law. It is an accessory undertaking to assume greater liability on the
part of an obligor in case of breach of an obligation. The obligor would then be
bound to pay the stipulated amount of indemnity without the necessity of proof on
the existence and on the measure of damages caused by the breach.
Interest; 12% interest
rate doctrine in Eastern
Shipping Lines vs.
CA.

Spouses Ricardo and Elena Golez vs. Spouses Carlos and Amelita Navarro; G.R. No.
192532. January 30, 2013
The imposition of 12% interest is still warranted in the case at bar, not from the date of
sale on November 9, 1994, as the respondents insist; but from the finality of the decision
up to the satisfaction of judgment in line with the doctrine laid down in Eastern Shipping
Lines, Inc. v. Court of Appeals. ... [T]he payment of 12% interest from the finality of
judgment is in order pursuant to Eastern Shippings Lines, Inc. where the Court held that:
When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot
be so reasonably established at the time the demand is made, the interest shall begin
to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.
When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.

Interest; Judgment
award; imposition of
interests; under BSP
Circular No. 799,
effective on July 1,
2013, the interest rate
to be imposed for a
loan or forbearance of
money, goods or
credits and the rate
allowed in judgments
in the absence of
stipulation thereon,
was changed from
12% to 6%.

Megaworld Construction and Development Corporation v. Engr. Luis U. Parada,


represented by Engr. Leonardo A. Parada of Genlite Industries, G.R. No. 183804,
September 11, 2013

Interest; judgments.

Bibiano Reynoso IV vs. Penta Capital Finance CorporationG.R. No. 162100 & G.R.
No. 162395. January 18, 2012.

Notice must be taken that in Resolution No. 796 dated May 16, 2013, the Monetary
Board of the Bangko Sentral ng Pilipinas approved the revision of the interest rate to be
imposed for the loan or forbearance of any money, goods or credits and the rate allowed
in judgments, in the absence of an express contract as to such rate of interest. Thus,
under BSP Circular No. 799, issued on June 21, 2013 and effective on July 1, 2013, the
said rate of interest is now back at six percent (6%), S.C.

The Eastern Shipping case provides that in the absence of a written stipulation, the
applicable interest rate to be imposed in judgments involving a forbearance of credit
shall be 12% per annum in accordance with Central Bank (CB) Circular No. 416. On the
other hand, if the judgment refers to payment of indemnities in the concept of damages
arising from a breach or a delay in the performance of obligations in general, the
applicable interest rate shall be 6% per annum, in accordance with Article 2206 of the
Civil Code. Both interest rates apply from the time of judicial or extrajudicial demand
until the finality of the judgment. However, from the time the judgment of the court
awarding a sum of money becomes final until it is satisfied, the award it granted shall be
considered a forbearance of credit, whether or not the judgment award actually pertained
to one. Accordingly, during this interim period, the interest rate of 12% per annum for
forbearance of money shall apply.

An award of a sum of money shall be considered as a forbearance of credit once it


becomes final, whether or not the award actually pertained to one. Hence, from its
finality until its satisfaction, the judgment award of moral and exemplary damages, as
well as attorneys fees, shall be subject to the interest rate of 12% per annum.
Interest; legal interest;
interest rate pegged at
6% regardless of the
source of obligation.

Fil-Estate Properties, Inc. and Fil-Estate Network, Inc. v. Spouses Conrado and
Maria Victoria Ronquillo, G.R. No. 185798, January 13, 2014

Interest; legal interest;


proper rate.

Land Bank of the Philippines v. Emmanuel C. Onate, G.R. No. 192371, January 15,
2014

The resulting modification of the award of legal interest is, also, in line with our recent
ruling in Nacar v. Gallery Frames, embodying the amendment introduced by the Bangko
Sentral ng Pilipinas Monetary Board in BSP-MB Circular No. 799 which pegged the
interest rate at 6% regardless of the source of obligation.

In Eastern Shipping, it was observed that the commencement of when the legal interest
should start to run varies depending on the factual circumstances obtaining in each case.
As a rule of thumb, it was suggested that where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run
only from the date the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained).
During the pendency of this case, however, the Monetary Board issued Resolution No.
796 dated May 16, 2013, stating that in the absence of express stipulation between the
parties, the rate of interest in loan or forbearance of any money, goods or credits and the
rate allowed in judgments shall be 6% per annum. Said Resolution is embodied in
Bangko Sentral ng Pilipinas Circular No. 799, Series of2013, which took effect on July
1, 2013. Hence, the 12% annual interest mentioned above shall apply only up to June 30,
2013. Thereafter, or starting July 1, 2013, the applicable rate of interest for both the
debited amount and undocumented withdrawals shall be 6% per annum compounded
annually, until fully paid.
Interest; Legal interest;
prospective
application.

Dario Nacar v. Gallery Frames and/or Felipe Borde, Jr., G.R. No. 189871, August 13,
2013
It should be noted that the new rate could only be applied prospectively and not
retroactively. Consequently, the 12% per annum legal interest shall apply only until June
30, 2013. Come July 1, 2013 the new rate of 6% per annum shall be the prevailing rate
of interest when applicable. Nonetheless, with regard to those judgments that have
become final and executory prior to July 1, 2013, said judgments shall not be disturbed
and shall continue to be implemented applying the rate of interest fixed therein.

Interest; legal interest;


rate.

First United Constructors Corporation, et al. v. Bayanihan Automotive Corporation,


G.R. No. 164985, January 15, 2014
The legal interest rate to be imposed from February 11, 1993, the time of the
extrajudicial demand by respondent, should be 6% per annum in the absence of any
stipulation in writing in accordance with Article 2209 of the Civil Code, which provides:
Article 2209. If the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the contrary,
shall be the payment of the interest agreed upon, and in the absence of stipulation, the
legal interest, which is six per cent per annum.

Interest; legal interest;


when awarded.

Dr. Encarnacion C. Lumantas v. Hanz Calapiz, represented by his parents, Hilario


Calapiz, Jr. and Helita Calapiz, G.R. No. 163753. January 15, 2014
Many years have gone by since Hanz suffered the injury. Interest of 6% per annum
should then be imposed on the award as a sincere means of adjusting the value of the
award to a level that is not only reasonable but just and commensurate. Unless we make
the adjustment in the permissible manner by prescribing legal interest on the award, his
sufferings would be unduly compounded. For that purpose, the reckoning of interest
should be from the filing of the criminal information on April 1 7, 1997, the making of

the judicial demand for the liability of the petitioner.


Interest; legal interest;
where obligation
constitutes a loan or
forbearance of money,
goods or credit; legal
rate allowed in
judgments.

Dario Nacar v. Gallery Frames and/or Felipe Borde, Jr., G.R. No. 189871, August 13,
2013

Interest; Legal rate of


interest effective July
1, 2013; pursuant to
BSP Circular 799,
series of 2013, the
legal rate of interest
shall be 6% per
annum.

Virginia M. Venzon v. Rural Bank of Buenavista, Inc., represented by Lourdesita E.


Parajes, G.R. No. 178031, August 28, 2013

Interest; legal rate;


when interest begins to
run and on what is
base.

Benny Y. Hung vs. BPI Card Finance Corp., G.R. No. 182398, July 20, 2010

In the absence of an express stipulation as to the rate of interest that would govern the
parties, the rate of legal interest for loans or forbearance of any money, goods or credits
and the rate allowed in judgments shall no longer be 12% per annum. As reflected in the
case of Eastern Shipping Lines and Subsection X305.1 of the Manual of Regulations for
Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for
Non-Bank Financial Institutions, before its amendment by BSP-MB Circular No. 799,
the interest rate will now be 6% per annum effective July 1, 2013.

The Court held that [P]ursuant to Circular No. 799, series of 2013 of the Bangko
Sentral ng Pilipinas which took effect July 1, 2013, the amount of P6,000.00,
erroneously paid by Petitioner to the bank, shall earn interest at the rate of 6% per annum
computed from the filing of the Petition in Civil Case No. 5535 up to its full
satisfaction.

When an obligation, not constituting a loan or forbearance of money, is breached, an


interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or
extra-judicially (Article 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run
only from the date the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.
When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of credit.
Since this case before us involves an obligation not arising from a loan or forbearance of
money, the applicable interest rate is 6% per annum. The legal interest rate of 6% shall
be computed from 4 October 1999, the date the letter of demand was presumably
received by the defendant. And in accordance with these rules, the rate of 12% per
annum shall be charged on the total amount outstanding, from the time the judgment
becomes final and executory until its satisfaction.

Interest;
on
judgment.

final

Agripino V. Molina vs. Pacific Plans, Inc.; G.R. No. 165476. August 15, 2011
The Resolution of the National Labor Relations Commission is modified by including in
the award, aside from the principal amount of P4,366,954.80, interest at the legal rate of
12% per annum from the date the Decision in the present case became final and
executory, until the principal amount is fully paid.

Interest; stipulation on
interest must be in
writing.

Prisma Construction and Development Corporation and Rogelio S. Pantaleon vs.


Arthur F. Menchavez, G.R. No. 160545, March 9, 2010
In the present case, the borrower obtaineda P1,000,000.00 loan payable within six (6)
months, or from January 8, 1994 up to June 8, 1994. During this period, the loan shall
earn an interest of P40,000.00 per month, for a total obligation of P1,240,000.00 for the
six-month period. This agreed sum can be computed at 4% interest per month, but no
such rate of interest was stipulated in the promissory note; rather a fixed sum equivalent
to this rate was agreed upon. Article 1956 of the Civil Code specifically mandates that
no interest shall be due unless it has been expressly stipulated in writing. Under this
provision, the payment of interest in loans or forbearance of money is allowed only if:
(1) there was an express stipulation for the payment of interest; and (2) the agreement for

the payment of interest was reduced in writing. The concurrence of the two conditions is
required for the payment of interest at a stipulated rate. Thus, the court held in Tan v.
Valdehuezaand Ching v. Nicdao that collection of interest without any stipulation in
writing is prohibited by law. Applying this provision, we find that the interest of
P40,000.00 per month corresponds only to the six (6)- month period of the loan, or from
January 8, 1994 to June 8, 1994, as agreed upon by the parties in the promissory note.
Thereafter, the interest on the loan should be at the legal interest rate of 12% per annum,
consistent with our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals. In other
words, the facts show that the parties agreed to the payment of a specific sum of money
of P40,000.00 per month for six months, not to a 4% rate of interest payable within a six
(6)-month period.
Interest;
unconscionable rate.

Asian Cathay Finance and Leasing Corporation vs. Spouses Cesario Gravador and
Norma De Vera and Spouses Emma Concepcion G. Dumigpi and Federico L.
Dumigpi, G.R. No. 186550, July 5, 2010
It is true that parties to a loan agreement have a wide latitude to stipulate on any interest
rate in view of Central Bank Circular No. 905, series of 1982, which suspended the
Usury Law ceiling on interest rate effective January 1, 1983. However, interest rates,
whenever unconscionable, may be equitably reduced or even invalidated. In several
cases, this Court had declared as null and void stipulations on interest and charges that
were found excessive, iniquitous and unconscionable. Stipulations authorizing the
imposition of iniquitous or unconscionable interest are contrary to morals, if not against
the law. Under Article 1409 of the Civil Code, these contracts are inexistent and void
from the beginning. They cannot be ratified nor the right to set up their illegality as a
defense be waived.
The nullity of the stipulation on the usurious interest does not, however, affect the
lenders right to recover the principal of the loan. Nor would it affect the terms of the
real estate mortgage. The right to foreclose the mortgage remains with the creditors, and
said right can be exercised upon the failure of the debtors to pay the debt due. The debt
due is to be considered without the stipulation of the excessive interest. A legal interest
of 12% per annum will be added in place of the excessive interest formerly imposed. The
nullification by the CA of the interest rate and the penalty charge and the consequent
imposition of an interest rate of 12% and penalty charge of 1% per month cannot,
therefore, be considered a reversible error.

Interest;
unconscionable rate.

Lazaro Pasco and Lauro Pasco vs. Heirs of Filomena De Guzman, represented by
Cresencia De Guzman, G.R. No. 165554, July 26, 2010
Although the petition is unmeritorious, we find the 5% monthly interest rate stipulated in
Clause 4 of the Compromise Agreement to be iniquitous and unconscionable.
Accordingly, the legal interest of 12% per annum must be imposed in lieu of the
excessive interest stipulated in the agreement. In several cases, we have ruled that
stipulations authorizing iniquitous or unconscionable interests are contrary to morals, if
not against the law. In Medel v. Court of Appeals, we annulled a stipulated 5.5% per
month or 66% per annum interest on a P500,000.00 loan and a 6% per month or 72%
per annum interest on a P60,000.00 loan, respectively, for being excessive, iniquitous,
unconscionable and exorbitant. In Ruiz v. Court of Appeals, we declared a 3% monthly
interest imposed on four separate loans to be excessive. In both cases, the interest rates
were reduced to 12% per annum.
In this case, the 5% monthly interest rate, or 60% per annum, compounded monthly,
stipulated in the Kasulatan is even higher than the 3% monthly interest rate imposed in
the Ruiz case. Thus, we similarly hold the 5% monthly interest to be excessive,
iniquitous, unconscionable and exorbitant, contrary to morals, and the law. It is therefore
void ab initio for being violative of Article 1306 of the Civil Code.

Interest;
unconscionable rate.

Pentacapital Investment Corporation vs. Makilito Mahinay/Pentacapital Investment


Corporation Vs. Mikilito Mahinay, G.R. No. 171736, July 5, 2010
Aside from the payment of the principal obligation of P1,936,800.00, the parties agreed
that respondent pay interest at the rate of 25% from February 17, 1997 until fully paid.
Such rate, however, is excessive and thus, void. Since the stipulation on the interest rate
is void, it is as if there was no express contract thereon. To be sure, courts may reduce

the interest rate as reason and equity demand. In this case, 12% interest is reasonable.
Interest; Usury Law;
need for parties to
agree on the rate.

Solidbank Corporation vs. Permanent Homes, Inc., G.R. No. 171925, July 23, 2010
The Usury Law had been rendered legally ineffective by Resolution No. 224 dated 3
December 1982 of the Monetary Board of the Central Bank, and later by Central Bank
Circular No. 905 which took effect on 1 January 1983. These circulars removed the
ceiling on interest rates for secured and unsecured loans regardless of maturity. The
effect of these circulars is to allow the parties to agree on any interest that may be
charged on a loan. The virtual repeal of the Usury Law is within the range of judicial
notice which courts are bound to take into account. Although interest rates are no longer
subject to a ceiling, the lender still does not have an unbridled license to impose
increased interest rates. The lender and the borrower should agree on the imposed rate,
and such imposed rate should be in writing.
The stipulations on interest rate repricing in the promissory notes are valid because (1)
the parties mutually agreed on said stipulations; (2) repricing takes effect only upon
Solidbanks written notice to Permanent of the new interest rate; and (3) Permanent has
the option to prepay its loan if Permanent and Solidbank do not agree on the new interest
rate. The phrases irrevocably authorize, at any time and adjustment of the interest
rate shall be effective from the date indicated in the written notice sent to us by the bank,
or if no date is indicated, from the time the notice was sent, emphasize that Permanent
should receive a written notice from Solidbank as a condition for the adjustment of the
interest rates.
In order that obligations arising from contracts may have the force of law between the
parties, there must be a mutuality between the parties based on their essential equality. A
contract containing a condition which makes its fulfillment dependent exclusively upon
the uncontrolled will of one of the contracting parties is void. There was no showing that
either Solidbank or Permanent coerced each other to enter into the loan agreements. The
terms of the Omnibus Line Agreement and the promissory notes were mutually and
freely agreed upon by the parties.

Interest; usury law.

Spouses Nelson and Myra Villanueva vs.Court of Appeals, et al.;G.R. No. 163433.
August 22, 2011
Petitioners contend that the interest rate of 24% per annum stipulated in the mortgage
contract, which they executed in favor of respondent Bank, is usurious. This Court has
consistently held that for some time now, usury has been legally non-existent and that
interest can now be charged as lender and borrower may agree upon. In fact, Section 1 of
Central Bank Circular No. 905, Series of 1982, which took effect on January 1, 1983,
expressly provides that [t]he rate of interest, including commissions, premiums, fees
and other charges, on a loan or forbearance of any money, goods, or credits, regardless of
maturity and whether secured or unsecured, that may be charged or collected by any
person, whether natural or juridical, shall not be subject to any ceiling prescribed under
or pursuant to the Usury Law, as amended.
Nonetheless, this Court has also held in a number of cases, that nothing in the circular
grants lenders carte blanche authority to raise interest rates to levels which will either
enslave their borrowers or lead to a hemorrhaging of their assets. Thus, the stipulated
interest rates are illegal if they are unconscionable.
The question now is whether the 24% per annum interest rate is unreasonable under the
circumstances obtaining in the present case. The Court rules in the negative.
In Spouses Zacarias Bacolor and Catherine Bacolor v. Banco Filipino Savings and
Mortgage Bank, Dagupan City Branch, this Court held that the interest rate of 24% per
annum on a loan of P244,000.00, agreed upon by the parties, may not be considered as
unconscionable and excessive. As such, the Court ruled that the borrowers cannot renege
on their obligation to comply with what is incumbent upon them under the contract of
loan as the said contract is the law between the parties and they are bound by its
stipulations.
Also, in Garcia v. Court of Appeals, this Court sustained the agreement of the parties to a
24% per annum interest on an P8,649,250.00 loan finding the same to be reasonable and
clearly evidenced by the amended credit line agreement entered into by the parties as

well as two promissory notes executed by the borrower in favor of the lender.
Based on the above jurisprudence, the Court finds that the 24% per annum interest rate,
provided for in the subject mortgage contracts for a loan of P225,000.00, may not be
considered unconscionable. Moreover, considering that the mortgage agreement was
freely entered into by both parties, the same is the law between them and they are bound
to comply with the provisions contained therein.
Interest.

Aniceto G. Saludo, Jr. vs. Security Bank Corporation; G.R. No. 184041, October 13,
2010
The Supreme Court upheld the imposition of 20.189% interest rate and rejected its
characterization as unconscionable. It cited Development Bank of the Philippines v.
Family Foods Manufacturing Co. Ltd., where the Court upheld the validity of the
imposition of 18% and 22% stipulated rates of interest in the two promissory notes.
Likewise in Spouses Bacolor v. Banco Filipino Savings and Mortgage Bank, the 24%
interest rate agreed upon by parties was held as not violative of the Usury Law, as
amended by Presidential Decree No. 116.

Joint Venture;
Application of Laws
on Partnership;
Sharing of Losses.

Marsman Drysdale vs. Philippine Geoanalytics, et al. and Gotesco Properties vs.
Marsman Drysdale Land, Inc., et al., G.R. No. 183374 & G.R. No. 183376, June 29,
2010
A joint venture being a form of partnership, it is to be governed by the laws on
partnership.
Article 1797 of the Civil Code provides that [T]he losses and profits shall be distributed
in conformity with the agreement. If only the share of each partner in the profits has
been agreed upon, the share of each in the losses shall be in the same proportion.
(Emphasis, the Courts.) In their joint venture agreement, Marsman Drysdale and
Gotesco agreed on a 50-50 ratio on the proceeds of the project. They did not provide for
the splitting of losses, however. Applying the above-quoted provision of Article 1797
then, the same ratio applies in splitting the P535,353.50 obligation-loss of the joint
venture.
The appellate courts decision must be modified, however. Marsman Drysdale and
Gotesco being jointly liable, there is no need for Gotesco to reimburse Marsman
Drysdale for 50% of the aggregate sum due to PGI. Allowing Marsman Drysdale to
recover from Gotesco what it paid to PGI would not only be contrary to the law on
partnership on division of losses but would partake of a clear case of unjust enrichment
at Gotescos expense.

Laches; as
relatives.

between

Estate of Margarita D. Cabacungan, represented by Luz Laigo-Ali vs. Marilou Laigo,


et al. ;G.R. No. 175073. August 15, 2011
Laches, being rooted in equity, is not always to be applied strictly in a way that would
obliterate an otherwise valid claim especially between blood relatives. The existence of a
confidential relationship based upon consanguinity is an important circumstance for
consideration; hence, the doctrine is not to be applied mechanically as between near
relatives. Adaza v. Court of Appeals held that the relationship between the parties
therein, who were siblings, was sufficient to explain and excuse what would otherwise
have been a long delay in enforcing the claim and the delay in such situation should not
be as strictly construed as where the parties are complete strangers vis-a-vis each other;
thus, reliance by one party upon his blood relationship with the other and the trust and
confidence normally connoted in our culture by that relationship should not be taken
against him. Too, Sotto v. Teves ruled that the doctrine of laches is not strictly applied
between near relatives, and the fact that the parties are connected by ties of blood or
marriage tends to excuse an otherwise unreasonable delay.

Laches; concept; the


question of laches is
addressed to the sound
discretion of the court
and, being an equitable
doctrine, its

Citibank, N.A. and the Citigroup Private Bank v. Ester H. Tanco-Gabaldon, et al./
Carol Lim v. Ester H. Tanco-Gabaldon, et al., G.R. No. 198444/G.R. No. 198469-70,
September 4, 2013
Laches has been defined as the failure or neglect for an unreasonable and unexplained
length of time to do that which, by exercising due diligence, could or should have been

application is
controlled by equitable
considerations.

done earlier, thus, giving rise to a presumption that the party entitled to assert it either
has abandoned or declined to assert it.
On this score, it is a well-settled principle of law that laches is a recourse in equity,
which is, applied only in the absence of statutory law. And though laches applies even to
imprescriptible actions, its elements must be proved positively. Ultimately, the question
of laches is addressed to the sound discretion of the court and, being an equitable
doctrine, its application is controlled by equitable considerations.

Laches; definition.

Bobby Tan v. Grace Andrade, et al./Grace Andrade, et al. v. Bobby Tan, G.R. Nos.
171904 & 172017, August 7, 2013
The Court observes that laches had already set in, thereby precluding the Andrades from
pursuing their claim. Case law defines laches as the failure to assert a right for an
unreasonable and unexplained length of time, warranting a presumption that the party
entitled to assert it has either abandoned or declined to assert it.

Laches; elements.

Jack Arroyo v. Bocago Inland Devt Corp. (BIDECO), G.R. No. 167880 November
14,2012
The elements of laches must be proven positively. Laches is evidentiary in nature, a fact
that cannot be established by mere allegations in the pleadings. Evidence is of utmost
importance in establishing the existence of laches because there is no absolute rule as to
what constitutes laches or staleness of demand; each case is to be determined according
to the particular circumstances. Verily, the application of laches is addressed to the sound
discretion of the court as its application is controlled by equitable considerations.
Laches is not concerned only with the mere lapse of time. The following elements must
be present in order to constitute laches: (1) conduct on the part of the defendant, or of
one under whom he claims, giving rise to the situation of which complaint is made for
which the complaint seeks a remedy; (2) delay in asserting the complainants rights, the
complainant having had knowledge or notice, of the defendants conduct and having
been afforded an opportunity to institute a suit; (3) lack of knowledge or notice on the
part of the defendant that the complaint would assert the right on which he bases his suit;
and (4) injury or prejudice to the defendant in the event the relief is accorded to the
complainant, or the suit is not held to be barred.

Laches.

Simedarby Pilipinas, Inc. vs. Goodyear Philippines, Inc., et al./Goodyear Philippines,


Inc. vs. Sime Darby Pilipinas, Inc. et al.; G.R. No. 182148/G.R. No. 183210. June 8,
2011
Laches is the failure or neglect, for an unreasonable and unexplained length of time, to
do that which, by exercising due diligence, could or should have been done earlier; it is
negligence or omission to assert a right within a reasonable time, warranting the
presumption that the party entitled to assert it either has abandoned or declined to assert
it. There is no absolute rule as to what constitutes laches or staleness of demand; each
case is to be determined according to its particular circumstances, with the question of
laches addressed to the sound discretion of the court. Because laches is an equitable
doctrine, its application is controlled by equitable considerations and should not be used
to defeat justice or to perpetuate fraud or injustice.
From the records, it appears that Macgraphics first learned of the assignment when Sime
Darby sent its letter-notice dated May 3, 1996. From the letters sent by Macgraphics to
Goodyear, it is apparent that Macgraphics had to study and determine both the legal and
practical implications of entertaining Goodyear as a client. After review, Macgraphics
found that consenting to the assignment would entail the commitment of manpower and
resources that it did not foresee at the inception of the lease. It thereafter communicated
its non-conformity to the assignment. To the mind of the Court, there was never a delay.

Laches.

The Heirs of Romana Saves, namely: Fidela Alamaida, et al. vs. The Heirs of
Escolastico Saves, namely: Enriqueta chavez-Abella, et al.; G.R. No. 152866, October
6, 2010
Laches is defined as the failure to assert a right for an unreasonable and unexplained
length of time, warranting a presumption that the party entitled to assert it has either
abandoned or declined to assert it. In the case at bar, plaintiffs, assuming that they or
their predecessors-in-interest had rights over the land in question, obviously neglected to

exercise these rights by failing to assert any adverse claim over the property or demand
any share of its fruits for many years. Not unlike their predecessors, petitioners never
interposed any challenge to Valencias continued possession under title of ownership
over Lot No. 382 ever since the entire property was sold to her in 1947 which led to the
issuance of TCT No. 148 in her name. Likewise, petitioners and their predecessors-ininterest did not mount any opposition to the sale of Lot No. 382 by Valencia to
respondent Abella in 1961 which prompted the issuance of TCT No. 110. It was not only
until 1981, or 34 years from Valencias acquisition of the entire lot and 20 years from the
transfer of ownership over the same to respondent Abella, that petitioners decided to
assert their alleged rights over the property in a proper action in court.
Petitioners contend that the delay is attributable to the surreptitious manner by which
Valencia acquired Lot No. 382 from their predecessors-in-interest but, on this point,
petitioners evidence gravely lacks credibility and weight as shown by the records.
Instead, the evidence thus presented by both parties, as found by the Court of Appeals,
would lean towards the conclusion that petitioners inaction for the past so many years
belies any present conviction on their part that they have any existing interest over the
property at all. Thus, even if we grant that petitioners are co-owners of the property at
issue, it is only fair and reasonable for this Court to apply the equitable principle of
estoppel by laches against them in order to avoid an injustice to respondent Abella who
is the innocent purchaser for value in this case.
Land ownership.

Heirs of Albina G. Ampil, namely Precious A. Zavalla, Eduardo Ampil, et al. vs.
Teresa Manahan and Mario Manahan G.R. No. 175990. October 11, 2012
The bare allegation of respondents that they had been in peaceful and continuous
possession of the lot in question because their predecessor-in-interest had been in
possession thereof in the concept of an owner from time immemorial, cannot prevail
over the tax declarations and other documentary evidence presented by petitioners. In the
absence of any supporting evidence, that of the petitioners deserves more probative
value. A perusal of the records shows that respondents occupation of the lot in question
was by mere tolerance. From the minutes of the meeting in the Barangay Lupon,
Perfecto admitted that in Albina permitted them to use the lots on the condition that they
would vacate the same should Albina need it.

Land titles; conflicting


titles.

Aniceto Bangis, substituted by his heirs, namely Rodolfo B. Bangis, et al. vs. Heirs of
Serafin and Salud Adolfo, namely: Luz A. Banniester, et al.; G.R. No. 190875, June
13, 2012
As held in the case of Top Management Programs Corporation v. Luis Fajardo and the
Register of Deeds of Las Pinas City: if two certificates of title purport to include the
same land, whether wholly or partly, the better approach is to trace the original
certificates from which the certificates of titles were derived.
Having, thus, traced the roots of the parties respective titles supported by the records of
the Register of Deeds of Malaybalay City, the courts a quo were correct in upholding the
title of the Heirs of Adolfo as against TCT No. T-10567 of Bangis, notwithstanding its
earlier issuance on August 18, 1976 or long before the Heirs of Adolfo secured their own
titles on May 26, 1998. To paraphrase the Courts ruling in Mathay v. Court of Appeals:
where two (2) transfer certificates of title have been issued on different dates, the one
who holds the earlier title may prevail only in the absence of any anomaly or irregularity
in the process of its registration, which circumstance does not obtain in this case.

Lease; assignment of
lease; need for
consent.

Simedarby Pilipinas, Inc. vs. Goodyear Philippines, Inc., et al./Goodyear Philippines,


Inc. vs. Sime Darby Pilipinas, Inc. et al., G.R. No. 182148/G.R. No. 183210. June 8,
2011
Article 1649 of the New Civil Code provides:
Art. 1649. The lessee cannot assign the lease without the consent of the lessor, unless
there is a stipulation to the contrary.
In an assignment of a lease, there is a novation by the substitution of the person of
one of the parties the lessee. The personality of the lessee, who dissociates from the
lease, disappears. Thereafter, a new juridical relation arises between the two persons
who remain the lessor and the assignee who is converted into the new lessee. The

objective of the law in prohibiting the assignment of the lease without the lessors
consent is to protect the owner or lessor of the leased property.
The consent of the lessor to an assignment of lease may indeed be given expressly or
impliedly. It need not be given simultaneously with that of the lessee and of the assignee.
Neither is it required to be in any specific or particular form. It must, however, be clearly
given. In this case, it cannot be said that Macgraphics gave its implied consent to the
assignment of lease.
Lease; implied lease.

It bears emphasis that the respondent did not give the petitioner a notice to vacate upon
the expiration of the lease contract in December 1997 (the notice to vacate was sent only
on August 5, 1998), and the latter continued enjoying the subject premises for more than
15 days, without objection from the respondent. By the inaction of the respondent as
lessor, there can be no inference that it intended to discontinue the lease contract. An
implied new lease was therefore created pursuant to Article 1670 of the Civil Code.
An implied new lease or tacita reconduccion will set in when the following requisites
are found to exist: a) the term of the original contract of lease has expired; b) the lessor
has not given the lessee a notice to vacate; and c) the lessee continued enjoying the thing
leased for fifteen days with the acquiescence of the lessor.
Since the rent was paid on a monthly basis, the period of lease is considered to be from
month to month, in accordance with Article 1687 of the Civil Code. [A] lease from
month to month is considered to be one with a definite period which expires at the end of
each month upon a demand to vacate by the lessor. When the respondent sent a
notice to vacate to the petitioner on August 5, 1998, the tacita reconduccion was aborted,
and the contract is deemed to have expired at the end of that month. [A] notice to vacate
constitutes an express act on the part of the lessor that it no longer consents to the
continued occupation by the lessee of its property. After such notice, the lessees right
to continue in possession ceases and her possession becomes one of detainer. Viegely
Samelo, represented by Attorney-in- Fact Cristina Samelo vs. Manotok Services, Inc.,
etc.; G.R. No. 170509, June 27, 2012

Lease; implied new


lease

Zosima Inc. v. Salimbagat; G.R. No. 174376. September 12, 2012


An implied new lease will set in if it is shown that: (1) the term of the original contract
of lease has expired; (2) the lessor has not given the lessee a notice to vacate; and (3) the
lessee continued enjoying the thing leased for 15 days with the acquiescence of the
lessor. This acquiescence may be inferred from the failure of the lessor to serve notice to
vacate upon the lessee. This principle is provided for under Article 1670 of the Civil
Code. Thus, after the expiration of the contract of lease, the implied new lease should
have only been in a monthly basis.

Lease; Increase in
rental.

Manila International Airport vs. Avia Filipinas International, Inc., G.R. No. 180168.
February 27, 2012
Article 1374 of the Civil Code clearly provides that [t]he various stipulations of a
contract shall be interpreted together, attributing to the doubtful ones that sense which
may result from all of them taken jointly. It is true that Article II, Paragraph 2.04 of the
Contract of Lease states that[a]ny subsequent amendment to Administrative Order No.
4, Series of 1982, which will effect a decrease or escalation of the monthly rental or
impose new and additional fees and charges, including but not limited to
government/MIAA circulars, rules and regulation to this effect, shall be deemed
incorporated herein and shall automatically amend this Contract insofar as the monthly
rental is concerned. However, the above quoted provision of the lease contract should
not be read in isolation. Rather, it should be read together with the provisions of Article
VIII, Paragraph 8.13, which provide that [a]ny amendment, alteration or modification
of th[e] Contract shall not be valid and binding, unless and until made in writing and
signed by the parties thereto. It is clear from the foregoing that the intention of the
parties is to subject such amendment to the conformity of both petitioner and respondent.

Lease; interest on
unpaid rentals.

Viegely Samelo, represented by Attorney-in-Fact Cristina Samelo vs. Manotok


Services, Inc., etc.; G.R. No. 170509, June 27, 2012
The petitioner is liable to pay interest by way of damages for her failure to pay the

rentals due for the use of the subject premises. We reiterate that the respondents
extrajudicial demand on the petitioner was made on August 5, 1998. Thus, from this
date, the rentals due from the petitioner shall earn interest at 6% per annum, until the
judgment in this case becomes final and executory. After the finality of judgment, and
until full payment of the rentals and interests due, the legal rate of interest to be imposed
shall be 12%.
Lease; lessee in good
faith versus builder
in good faith; award
of damages.

Alida Mores vs. Shirley M. Yu-Go, Ma. Victoria Yu-Lim and Ma. Estrella M. Yu, G.R.
No. 172292, July 23, 2010
In a case where the lessee made improvements to the leased premises in good faith, the
applicable law is not the Civil Code provisions on builder in good faith, because those
provisions contemplate a situation where the builder believes himself to be the real
owner of the property. Tenants cannot be said to be builders in good faith as they have no
pretension to be owners of the property. It is Article 1678 of the Civil Code which should
apply.
In this case, the lessees removed only the improvements they introduced without
destroying the principal building, after the lessors refused to pay them the reasonable
value of the improvements. When the lessees demanded reimbursement, the lessors
should have offered to pay the lessees Mores one-half of the value of the improvements.
Since the lessors failed to make such offer, the lessees had the right to remove the
improvements, and the lessors were not entitled to any moral damages.

Lease; rescission in
reciprocal obligation.

Sps. Socrates Sy and Cely Sy v. Andoks Litson Corporation. G.R. No. 192108.
November 21, 2012
Article 1191 of the Civil Code provides that the power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should not comply with what is incumbent
upon him. A lease contract is a reciprocal contract. By signing the lease agreement, the
lessor grants possession over his/her property to the lessee for a period of time in
exchange for rental payment. Indeed, rescission is statutorily recognized in a contract of
lease. The aggrieved party is given the option to the aggrieved party to ask for: (1) the
rescission of the contract; (2) rescission and indemnification for damages; or (3) only
indemnification for damages, allowing the contract to remain in force.

Lease; return of leased


property in the leased
premises.

University Physicians Services, Inc. vs. Marian Clinics, Inc. and Dr. Lourdes
Mabanta, G.R. No. 152303, September 1, 2010.
Here is the first paragraph of this case, with Digesters responses in capitals: What
happens when personal properties inside leased premises are stipulated as included in the
contract of lease? THE PARTIES CAN DO THIS UNDER FREEDOM TO
CONTRACT. Does a judgment on a suit for unlawful detainer ejecting the lessees from
the subject property carry with it the return of these personal properties as well? YES,
BECAUSE UPON THE ISSUANCE OF THE EJECTMENT ORDER, THE LEASE
TERMINATES AND CLAUSE REQURING RETURN OR REPLACEMENT OF
CERTAIN PERSONAL PROPERTIES FOUND IN THE LEASED PREMISES, IS
TRIGGERED. Finally, the trickier part which is the crux of this petition: what if some
of these personal properties are lost, destroyed or sold by the lessor? May the ejected
lessees still be ordered to pay for their value? YES.

Lease; right of first


refusal; distinguished
from option to buy.

Polytechnic University of the Philippines Vs. Golden Horizon Realty


Corporation/National Development Company Vs. Golden Horizon Realty Corporation,
G.R. No. 183612/G.R. No. 184260, March 15, 2010
In the seventies, NDC hadentered tinto two contracts of lease with a company called
Golden Horizon Realty Corporation (GHRC). These each had a term of 10 years,
renewable for another 10 upon the consent of the parties. Inaddition GHRC was granted
an option to purchase the leased property. Before the expiration of the second lease
contract, GHRC sought to exercise its option to renew the lease and requested priority to
negotiate for the propertys purchase should NDC opt to sell. NDC did not respond to
this request but even after the expiry of the term kept on accepting the rentals. GHRC
learned that NDC had decided to secretly dispose of the land which prompted GHR to
take legal action. Meanwhile, then President Aquino issued a memorandum order
ordering the transfer to the National government ofthat NDC property. The National

Government in turn transferred the property to PUP. The issue is whether the transfer of
the property violated the option that had been granted to GHRC. An option is a
contract by which the owner of a property agrees with another that the latter shall have
the right to buy the formers property at a fixed price within a certain time. It binds the
party who has given the option, not to enter into a contract with any other person during
the period designated, and within that period, to enter into such a contract with the one to
whom the option was granted, if the latter decides to use the option. On the other hand, a
right of first refusal is a contractual grant, not of a sale of a property, but of first priority
to buy the property in the event the owner sells the same. As distinguished from an
option contract, in a right of first refusal, while the object might be made determinate,
the exercise of the right of first refusal would eb dependent not only on the owners
eventual intention to enter into a transaction with another, but also on terms, including
the price, that are yet to be firmed up. The option givento GHRC is obviously a mere
right of first refusal and this is not disputed by the parties. What PUPand NDC assail is
the conclusion that such right of first refusal subsisted even after the expiration of the
original lease period when GHRC was allowed to continue staying in the leased
premises under an implied renewal of lease. They argue that the right of first refusal
provision was not carried over to such month-to-month lease. The court found this
position untenable. Evidence shows that at thetime NDC began negotiating for the
transfer of the land to PUP, the right of first refusal was subsisting. Hence, whether or
not the right of first refusal was carried over to the implied lease, isirrelevant.
Lease;
right
sublease.

to

Doris U. Sunbanun vs. Aurora B. Go, G.R. No. 163280, February 2, 2010
It is undisputed that petitioner had ejected respondents lodgers three months before the
expiration of the lease contract on 7 July 1996. Petitioner maintains that she had the right
to terminate the contract prior to its expiration because respondent allegedly violated the
terms of the lease contract by subleasing the rented premises. However, petitioners
assertion is belied by the provision in the lease contract that states that the lessee can
use the premises as a dwelling or as lodging house. Thus, the lessee had the right to
sublease the premises.

Lease; term; month-tomonth basis.

Cebu Bionic Builders Supply, Inc. and Lydia Sia vs. Development Bank of the
Philippines, et al., G.R. No. 154366, November 17, 2010
The well-entrenched principle is that a lease from month-to-month is with a definite
period and expires at the end of each month upon the demand to vacate by the lessor. As
held by the Court of Appeals in the assailed Amended Decision, the above-mentioned
lease contract was duly terminated by DBP by virtue of its letter dated June 18, 1987. We
reiterate that the letter explicitly directed the petitioners to come to the office of the DBP
if they wished to enter into a new lease agreement with the said bank. Otherwise, if no
contract of lease was executed within 30 days from the date of the letter, petitioners were
to be considered uninterested in entering into a new contract and were thereby ordered to
vacate the property. As no new contract was in fact executed between petitioners and
DBP within the 30-day period, the directive to vacate, thus, took effect. DBPs letter
dated June 18, 1987, therefore, constituted the written notice that was required to
terminate the lease agreement between petitioners and Rudy Robles. From then on, the
petitioners continued possession of the subject property could be deemed to be without
the consent of DBP.
Thusly, petitioners assertion that Article 1670 of the Civil Code is not applicable to the
instant case is correct. The reason, however, is not that the existing contract was
continued by DBP, but because the lease was terminated by DBP, which termination was
accompanied by a demand to petitioners to vacate the premises of the subject property.
Article 1670 states that [i]f at the end of the contract the lessee should continue
enjoying the thing leased for fifteen days with the acquiescence of the lessor, and unless
a notice to the contrary by either party has previously been given, it is understood that
there is an implied new lease, not for the period of the original contract, but for the time
established in Articles 1682 and 1687. The other terms of the original contract shall be
revived.
In view of the order to vacate embodied in the letter of DBP dated June 18, 1987 in the
event that no new lease contract is entered into, the petitioners continued possession of
the subject properties was without the acquiescence of DBP, thereby negating the

constitution of an implied lease.


Legal Compensation;
mode of extinguishing
obligations; difference
with conventional
compensation;
requisites.

Mondragon Personal Sales, Inc. vs. Victoriano S. Sola, Jr.; G.R. No. 174882. January
21, 2013

Legal interest.

Bonifacio Sanz Maceda, Jr. vs. DBO / DBP Vs. Bonifacio Sanz Maceda, Jr., G.R. No.
174979 & G.R. No. 175010, August 11, 2010

Compensation is a mode of extinguishing to the concurrent amount the obligations of


persons who in their own right and as principals are reciprocally debtors and creditors of
each other. Legal compensation takes place by operation of law when all the requisites
are present, as opposed to conventional compensation which takes place when the parties
agree to compensate their mutual obligations even in the absence of some requisites.
Legal compensation requires the concurrence of the following conditions:
(1) That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.

In accordance with our ruling in Sta. Lucia Realty and Development v. Spouses
Buenaventura, the applicable interest rate on the P6,153,398.05 to be paid by DBP to
Maceda is 6% per annum, to be reckoned from the time of the filing of the complaint on
15 October 1984, because the case at bar involves a breach of obligation and not a loan
or forbearance of money. We guide ourselves with the rules of thumb established in
Eastern Shipping Lines, Inc. v. Court of Appeals.
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence
of stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No interest, however, shall
be adjudged on unliquidated claims or damages except when or until the demand
can be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the
time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but
when such certainty cannot be so reasonably established at the time the demand
is made, the interest shall begin to run only from the date the judgment of the
court is made (at which time the quantification of damages may be deemed to
have been reasonably ascertained). The actual base for the computation of legal
interest shall, in any case be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.
Pursuant to these rules, the interest rate of 12% per annum shall apply from the finality
of judgment until the total amount awarded is fully paid.
Legal interest.

Land Bank of the Philippines vs. Alfredo Ong, G.R. No. 190755, November 24, 2010
With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as
follows:
1. When the obligation is breached, and it consists in the payment of a sum of money,

i.e., a loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall be
12% per annum to be computed from default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the court
at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable certainty, the
interest shall begin to run from the time the claim is made judicially or extrajudicially
(Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at
the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit.
Legal interest.

Vitarich Corporation vs. Chona Locsin, G.R. No. 181560, November 15, 2010
Inasmuch as the case at bar involves an obligation not arising from a loan or forbearance
of money, but consists in the payment of a sum of money, the legal rate of interest is 6%
per annum of the amount demanded. Interest shall continue to run from February 12,
1997, the date when Vitarich demanded payment of the sum amounting to P921,083.10
from Locsin (and not from the time of the filing of the Complaint) until finality of the
Decision (not until fully paid). The rate of interest shall increase to 12% per annum only
from such finality until its satisfaction, the interim period being deemed to be equivalent
to a forbearance of credit.

Legal pre-emption;
Notice requirement.

Sps. Roman Pascual and Mercedita R. Pascual,et al. vs. Sps. Antonio Ballesteros and
Lorenza Melchor-Balles, G.R. No. 186269. February 15, 2012.
Article 1623 of the Civil Code provides that the right of legal pre-emption or redemption
shall not be exercised except within thirty days from the notice in writing by the
prospective vendor, or by the vendor, as the case may be. The written notice of sale is
mandatory. This Court has long established the rule that notwithstanding actual
knowledge of a co- owner, the latter is still entitled to a written notice from the selling
co-owner in order to remove all uncertainties about the sale, its terms and conditions, as
well as its efficacy and status.

Legal separation;
application of Family
Code provisions to
marriage entered into
prior to the Family
Codes enactment;
whats a vested right?;
definition of net
profits.

Brigido B. Quia vs. Rita C. Quiao, et al.; G.R. No. 176556, July 4, 2012.

Legal subrogation.

Metropolitan Bank and Trust Company vs. Rural Bank of Gerona, Inc., G.R. No.
159097, July 5, 2010

This case was actually decided based on procedural law. The decision being questioned
had actually become final (in the words of the Court, immutable), so the rest, which
the tribunal set out after discussing lengthily [its adverb, not mine] the immutability of
the Decision is for the enlightenment of the parties and the public at large.
Essentially, the Court noted that even if you got married before the Family Code was
enacted, how your property is divvied up can still be governed by the Family Code
because of the latters provisions allowing retroactive effect provided there is no
prejudice to any vested right (see Article 256 of the Family Code). Here, the husband
was divested of his share in the net profits of the conjugal partnership pursuant to Article
129 in relation to Article 63(2) of the Family Code. The husband argued that he already
had a vested right in the net profits. The Court said that you can impair a vested right
provided the holder of the right was afforded due process, which took place in this case,
and besides, he is the guilt party and finally, the decision is IMMUTABLE. Then the
Court, in defining net profits, went into a discussion of the differences between the
absolute community regime and the conjugal partnership of gains. Again, in my view,
the discussion is obiter, but if you want to slog through it, you are welcome.

The present case exemplifies the circumstance contemplated under paragraph 2, of


Article 1302 of the Civil Code which provides:
It is presumed that there is legal subrogation:(1) When a creditor pays another creditor
who is preferred, even without the debtors knowledge;
(2) When a third person, not interested in the obligation, pays with the express or tacit
approval of the debtor;
(3) When, even without the knowledge of the debtor, a person interested in the
fulfillment of the obligation pays, without prejudice to the effects of confusion as to the
latters share.
Metrobank was a third party to the Central Bank-RBG agreement, had no interest except
as a conduit, and was not legally answerable for the IBRD loans. Despite this, it was
Metrobanks demand deposit account, instead of RBGs, which the Central Bank
proceeded against, on the assumption perhaps that this was the most convenient means
of recovering the cancelled loans. That Metrobanks payment was involuntarily made
does not change the reality that it was Metrobank which effectively answered for RBGs
obligations.
Was there express or tacit approval by RBG of the payment enforced against Metrobank?
After Metrobank received the Central Banks debit advices in November 1978, it
(Metrobank) accordingly debited the amounts it could from RBGs special savings
account without any objection from RBG. RBGs President and Manager, Dr. Aquiles
Abellar, even wrote Metrobank, on August 14, 1979, with proposals regarding possible
means of settling the amounts debited by Central Bank from Metrobanks demand
deposit account. These instances are all indicative of RBGs approval of Metrobanks
payment of the IBRD loans. That RBGs tacit approval came after payment had been
made does not completely negate the legal subrogation that had taken place.
Article 1303 of the Civil Code states that subrogation transfers to the person subrogated
the credit with all the rights thereto appertaining, either against the debtor or against
third persons. As the entity against which the collection was enforced, Metrobank was
subrogated to the rights of Central Bank and has a cause of action to recover from RBG
the amounts it paid to the Central Bank, plus 14% per annum interest.
Legitimacy; change in
status cannot be done
through change of
name.

Republic of the Philippines v. Julian Edward Emerson Coseteng- Magpayo; G.R. No.
189476. February 2, 2011
The present petition must be differentiated from Alfon v. Republic of the Philippines. In
Alfon, the Court allowed the therein petitioner, Estrella Alfon, to use the name that she
had been known since childhood in order to avoid confusion. Alfon did not deny her
legitimacy, however. She merely sought to use the surname of her mother which she had
been using since childhood. Ruling in her favor, the Court held that she was lawfully
entitled to use her mothers surname, adding that the avoidance of confusion was
justification enough to allow her to do so. In the present case, however, respondent
denies his legitimacy.
The change being sought in respondents petition goes so far as to affect his legal status
in relation to his parents. It seeks to change his legitimacy to that of illegitimacy. Rule
103 then would not suffice to grant respondents supplication.
Labayo-Rowe v. Republic categorically holds that changes which may affect the civil
status from legitimate to illegitimate . . . are substantial and controversial alterations
which can only be allowed after appropriate adversary proceedings . . .

Letter of credit;
definition; nature.

Asian Terminals, Inc. v. Philam Insurance Co., Inc. (now Chartis Philippines
Insurance Inc.)/ Philam Insurance Co., Inc. (now Chartis Philippines Insurance Inc.)
v. Westwind Shipping Corporation and Asian Terminals, Inc./ Westwind Shipping
Corporation v. Philam Insurance Co., Inc. and Asian Terminals, Inc., G.R. Nos.
181163/181262/181319, July 24, 2013
A letter of credit is a financial device developed by merchants as a convenient and
relatively safe mode of dealing with sales of goods to satisfy the seemingly
irreconcilable interests of a seller, who refuses to part with his goods before he is paid,
and a buyer, who wants to have control of his goods before paying. However, letters of

credit are employed by the parties desiring to enter into commercial transactions, not for
the benefit of the issuing bank but mainly for the benefit of the parties to the original
transaction, in these cases, Nichimen Corporation as the seller and Universal Motors as
the buyer. Hence, the latter, as the buyer of the Nissan CKD parts, should be regarded as
the person entitled to delivery of the goods. Accordingly, for purposes of reckoning
when notice of loss or damage should be given to the carrier or its agent, the date of
delivery to Universal Motors is controlling.
Loan; accommodation
party.

Eusebio Gonzales v. Philippine Commercial & International Bank, et al.; G.R. No.
180257. February 23, 2011
The fact that the loans were undertaken by Gonzales when he signed as borrower or coborrower for the benefit of the spouses Panlilioas shown by the fact that the proceeds
went to the spouses Panlilio who were servicing or paying the monthly duesis beside
the point. For signing as borrower and co-borrower on the promissory notes with the
proceeds of the loans going to the spouses Panlilio, Gonzales has extended an
accommodation to said spouses.
As an accommodation party, Gonzales is solidarily liable with the spouses Panlilio for
the loans. In Ang v. Associated Bank, quoting the definition of an accommodation party
under Section 29 of the Negotiable Instruments Law, the Court cited that an
accommodation party is a person who has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value therefor, and for the purpose of lending his
name to some other person. The Court further explained:
[A]n accommodation party is one who meets all the three requisites, viz: (1) he must be a
party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not
receive value therefor; and (3) he must sign for the purpose of lending his name or credit
to some other person. An accommodation party lends his name to enable the
accommodated party to obtain credit or to raise money; he receives no part of the
consideration for the instrument but assumes liability to the other party/ies thereto. The
accommodation party is liable on the instrument to a holder for value even though the
holder, at the time of taking the instrument, knew him or her to be merely an
accommodation party, as if the contract was not for accommodation.
As petitioner acknowledged it to be, the relation between an accommodation party and
the accommodated party is one of principal and suretythe accommodation party being
the surety. As such, he is deemed an original promisor and debtor from the beginning; he
is considered in law as the same party as the debtor in relation to whatever is adjudged
touching the obligation of the latter since their liabilities are interwoven as to be
inseparable. Although a contract of suretyship is in essence accessory or collateral to a
valid principal obligation, the suretys liability to the creditor is immediate, primary and
absolute; he is directly and equally bound with the principal. As an equivalent of a
regular party to the undertaking, a surety becomes liable to the debt and duty of the
principal obligor even without possessing a direct or personal interest in the obligations
nor does he receive any benefit therefrom.
Thus, the knowledge, acquiescence, or even demand by Ocampo for an accommodation
by Gonzales in order to extend the credit or loan of PhP 1,800,000 to the spouses
Panlilio does not exonerate Gonzales from liability on the three promissory notes.

Loan; no period for


payment.

Hongkong and Shanghai Banking Corp., Ltd. Staff Retirement Plan vs. Sps.
Bienvenido and Editha Broqueza, G.R. No. 178610, November 17, 2010
There is no date of payment in the promissory notes. Accordingly, the creditor has the
right to demand immediate payment. Article 1178 of the Civil Code applies. The fact that
the creditor was content with the prior monthly check-off from the debtors salary is of
no moment. Once the debot defaulted, the creditor could make a demand to enforce a
pure obligation.

Loan; perfection.

Spouses Wilfredo and Brigida Palada vs. Solidbank Corporation, et al., G.R. No.
172227. June 29, 2011
Under Article 1934 of the Civil Code, a loan contract is perfected only upon the delivery
of the object of the contract. In this case, although petitioners applied for a P3 million

loan, only the amount of P1 million was approved by the bank because petitioners
became collaterally deficient when they failed to purchase TCT No. T-227331 which had
an appraised value of P1,944,000.00. Hence, on March 17, 1997, only the amount of P1
million was released by the bank to petitioners.
Upon receipt of the approved loan on March 17, 1997, petitioners executed a promissory
note for the amount of P1 million. As security for the P1 million loan, petitioners on the
same day executed in favor of the bank a real estate mortgage over the properties
covered by TCT Nos. T-237695, T-237696, T-237698, T-143683, T-143729, T-225131
and T-225132. Clearly, contrary to the findings of the RTC, the loan contract was
perfected on March 17, 1997 when petitioners received the P1 million loan, which was
the object of both the promissory note and the real estate mortgage executed by
petitioners in favor of the bank.
Loan; promissory
note: elements.

Pentacapital Investment Corporation vs. Makilito Mahinay/Pentacapital Investment


Corporation Vs. Mikilito Mahinay, G.R. No. 171736, July 5, 2010
To ascertain whether or not respondent is bound by the promissory notes, it must be
established that all the elements of a contract of loan are present. Like any other contract,
a contract of loan is subject to the rules governing the requisites and validity of contracts
in general. It is elementary in this jurisdiction that what determines the validity of a
contract, in general, is the presence of the following elements: (1) consent of the
contracting parties; (2) object certain which is the subject matter of the contract; and (3)
cause of the obligation which is established.
Under Article 1354 of the Civil Code, it is presumed that consideration exists and is
lawful unless the debtor proves the contrary. Moreover, under Section 3, Rule 131 of the
Rules of Court, the following are disputable presumptions: (1) private transactions have
been fair and regular; (2) the ordinary course of business has been followed; and (3)
there was sufficient consideration for a contract.

Loan; remedies of
mortgage-creditor;
unjust enrichment
defeats rule
prohibiting
multiplicity of suits.

Arturo Sarte Flores v. Spouses Enrico L. Lindo, Jr. and Edna C. Lindo, G.R. No.
183984. April 13, 2011
In Chieng v. Santos, this Court ruled that a mortgage-creditor may institute against the
mortgage-debtor either a personal action for debt or a real action to foreclose the
mortgage. The Court ruled that the remedies are alternative and not cumulative and held
that the filing of a criminal action for violation of Batas Pambansa Blg. 22 was in effect
a collection suit or a suit for the recovery of the mortgage-debt. In that case, however,
this Court pro hac vice, ruled that respondents could still be held liable for the balance of
the loan, applying the principle that no person may unjustly enrich himself at the
expense of another.
The principle of unjust enrichment is provided under Article 22 of the Civil Code which
provides:
Art. 22. Every person who through an act of performance by another, or any other
means, acquires or comes into possession of something at the expense of the latter
without just or legal ground, shall return the same to him.
There is unjust enrichment when a person unjustly retains a benefit to the loss of
another, or when a person retains money or property of another against the fundamental
principles of justice, equity and good conscience. The principle of unjust enrichment
requires two conditions: (1) that a person is benefited without a valid basis or
justification, and (2) that such benefit is derived at the expense of another.
The main objective of the principle against unjust enrichment is to prevent one from
enriching himself at the expense of another without just cause or consideration. The
principle is applicable in this case considering that Edna admitted obtaining a loan from
petitioners, and the same has not been fully paid without just cause. The Deed was
declared void erroneously at the instance of Edna, first when she raised it as a defense
before the RTC, Branch 33 and second, when she filed an action for declaratory relief
before the RTC, Branch 93. Petitioner could not be expected to ask the RTC, Branch 33
for an alternative remedy, as what the Court of Appeals ruled that he should have done,
because the RTC, Branch 33 already stated that it had no jurisdiction over any personal
action that petitioner might have against Edna.

Considering the circumstances of this case, the principle against unjust enrichment,
being a substantive law, should prevail over the procedural rule on multiplicity of suits.
The Court of Appeals, in the assailed decision, found that Edna admitted the loan, except
that she claimed it only amounted to P340,000. Edna should not be allowed to unjustly
enrich herself because of the erroneous decisions of the two trial courts when she
questioned the validity of the Deed. Moreover, Edna still has an opportunity to submit
her defenses before the RTC, Branch 42 on her claim as to the amount of her
indebtedness.
Marriage; annulment;
psychological
incapacity; Court
agrees to annul!

Ma. Socorro Camacho-Reyes vs. Ramon Reyes, G.R. No. 185286, August 18, 2010
Finally, finally, finally, the Supreme Court upholds a petition to have a marriage annulled
on the ground of psychological incapacity of the husband. Practitioners can try to
compare this with the Toring case (also digested in the edition), to see where the parties
went wrong in that case, and went right in this one.
Here, testimonies of two clinical psychologists and a psychiatrist had been presented to
show the incapacity of the husband. The Court of Appeals in reversing the RTC decision
to annul the marriage, rejected, wholesale, the testimonies of Doctors Magno and
Villegas for being hearsay since they never personally examined and interviewed the
respondent.
The Supreme Court disagreed with the CA observing that the lack of personal
examination and interview of the respondent, or any other person diagnosed with
personality disorder, does not per se invalidate the testimonies of the doctors. Neither do
their findings automatically constitute hearsay that would result in their exclusion as
evidence. For one, marriage, by its very definition, necessarily involves only two
persons. The totality of the behavior of one spouse during the cohabitation and marriage
is generally and genuinely witnessed mainly by the other. In this case, the experts
testified on their individual assessment of the present state of the parties marriage from
the perception of one of the parties, herein petitioner. Certainly, petitioner, during their
marriage, had occasion to interact with, and experience, respondents pattern of behavior
which she could then validly relay to the clinical psychologists and the psychiatrist.
For another, the clinical psychologists and psychiatrists assessment were not based
solely on the narration or personal interview of the petitioner. Other informants such as
respondents own son, siblings and in-laws, and sister-in-law (sister of petitioner),
testified on their own observations of respondents behavior and interactions with them,
spanning the period of time they knew him. These were also used as the basis of the
doctors assessments.
The court went on to cite the recent case of Lim v. Sta. Cruz-Lim, citing The Diagnostic
and Statistical Manual of Mental Disorders, Fourth Edition (DSM IV), which sets out the
general diagnostic criteria for personality disorders. Please check this or that case to get
the guidelines.
Within their acknowledged field of expertise, doctors can diagnose the psychological
make up of a person based on a number of factors culled from various sources. A person
afflicted with a personality disorder will not necessarily have personal knowledge
thereof. In this case, considering that a personality disorder is manifested in a pattern of
behavior, self-diagnosis by the respondent consisting only in his bare denial of the
doctors separate diagnoses, does not necessarily evoke credence and cannot trump the
clinical findings of experts.
The Supreme Court also rejected the CAs view that because one of the psychologists
had recommended therapy, she believe the illness was curable. A recommendation for
therapy does not automatically imply curability. In general, recommendations for therapy
are given by clinical psychologists, or even psychiatrists, to manage behavior. In Kaplan
and Saddocks textbook entitled Synopsis of Psychiatry, treatment, ranging from
psychotherapy to pharmacotherapy, for all the listed kinds of personality disorders are
recommended. In short, the recommendation that respondent should undergo therapy
does not necessarily negate the finding that respondents psychological incapacity is
incurable. Moreover, the psycholigist in question, during her testimony, categorically
declared that respondent is psychologically incapacitated to perform the essential marital
obligations. As aptly stated by Justice Romero in her separate opinion in the ubiquitously
cited case of Republic v. Court of Appeals & Molina:

[T]he professional opinion of a psychological expert became increasingly important in


such cases. Data about the persons entire life, both before and after the ceremony, were
presented to these experts and they were asked to give professional opinions about a
partys mental capacity at the time of the wedding. These opinions were rarely
challenged and tended to be accepted as decisive evidence of lack of valid consent.
... [Because] of advances made in psychology during the past decades. There was now
the expertise to provide the all-important connecting link between a marriage breakdown
and premarital causes.
At this point, the Supreme Court noted how it had, on many, many occasions essentially
pshawed at the testimonies of various therapists and psychiatrists: It is true that a
clinical psychologists or psychiatrists diagnoses that a person has personality disorder
is not automatically believed by the courts in cases of declaration of nullity of marriages.
Indeed, a clinical psychologists or psychiatrists finding of a personality disorder does
not exclude a finding that a marriage is valid and subsisting, and not beset by one of the
parties or both parties psychological incapacity. On more than one occasion, we have
rejected an experts opinion concerning the supposed psychological incapacity of a
party... In the case at bar, however, even without the experts conclusions, the factual
antecedents (narrative of events) alleged in the petition and established during trial, all
point to the inevitable conclusion that respondent is psychologically incapacitated to
perform the essential marital obligations.
Article 68 of the Family Code provides:
Art. 68. The husband and wife are obliged to live together, observe mutual love, respect
and fidelity, and render mutual help and support.
In this connection, it is well to note that persons with antisocial personality disorder
exhibit the following clinical features:
Patients with antisocial personality disorder can often seem to be normal and even
charming and ingratiating. Their histories, however, reveal many areas of disordered life
functioning. Lying, truancy, running away from home, thefts, fights, substance abuse,
and illegal activities are typical experiences that patients report as beginning in
childhood. x x x Their own explanations of their antisocial behavior make it seem
mindless, but their mental content reveals the complete absence of delusions and other
signs of irrational thinking. In fact, they frequently have a heightened sense of reality
testing and often impress observers as having good verbal intelligence.
x x x Those with this disorder do not tell the truth and cannot be trusted to carry out any
task or adhere to any conventional standard of morality. x x x A notable finding is a lack
of remorse for these actions; that is, they appear to lack a conscience.
In the instant case, respondents pattern of behavior manifests an inability, nay, a
psychological incapacity to perform the essential marital obligations as shown by his: (1)
sporadic financial support; (2) extra-marital affairs; (3) substance abuse; (4) failed
business attempts; (5) unpaid money obligations; (6) inability to keep a job that is not
connected with the family businesses; and (7) criminal charges of estafa.... In fine, given
the factual milieu of the present case and in light of the foregoing disquisition, we find
ample basis to conclude that respondent was psychologically incapacitated to perform
the essential marital obligations at the time of his marriage to the petitioner.
Marriage; annulment;
psychological
incapacity.

Ricardo P. Toring vs. Teresita M. Toring and Republic of the Philippines, G.R. No.
165321, August 3, 2010
This case reiterates the previous rulings of Santos and Molina, and presents another
example of the Supreme Courts not being too taken with the testimony of the
psychiatrist or therapist retained to prove the psychological incapacity of one of the
parties. Lawyers representing a spouse in a potential annulment case should study the
issues which have been raised by the court in respect of such testimonies. In this case,
the Supreme Court observed that what should not be lost in reading and applying its
established rulings is the intent of the law to confine the application of Article 36 of the
Family Code to the most serious cases of personality disorders these are the disorders
that result in the utter insensitivity or inability of the afflicted party to give meaning and
significance to the marriage he or she contracted. Furthermore, the psychological illness
and its root cause must have been there from the inception of the marriage. From these

requirements arise the concept that Article 36 of the Family Code does not really
dissolve a marriage; it simply recognizes that there never was any marriage in the first
place because the affliction already then existing was so grave and permanent as to
deprive the afflicted party of awareness of the duties and responsibilities of the
matrimonial bond he or she was to assume or had assumed.
In this regard, the court noted that mere difficulty, refusal, or neglect in the
performance of marital obligations or ill will on the part of the spouse is different from
incapacity rooted on some debilitating psychological condition or illness, and in this
case ruled that the following is not a reason to set aside the marital bonds (although if
you or I were at the receiving end, we would probably beg to disagree):
- Failure to manage the familys finances resulting in the loss of the house and lot
intended to be their family residence? According to the Supreme Court: this merely
constituted difficulty, refusal or neglect, during the marriage, in the handling of funds
intended for the familys financial support.
- Infidelity? According to the Supreme Court: for sexual infidelity to constitute as
psychological incapacity, the respondents unfaithfulness must be established as a
manifestation of a disordered personality, completely preventing the respondent from
discharging the essential obligations of the marital state; there must be proof of a natal or
supervening disabling factor that effectively incapacitated spouse from complying with
the obligation to be faithful to his or her spouse.
Here are what may be considered guidelines on the kind of evidence or testimony that
should be presented, based on this case:
(i) In So v. Valera, the Court considered the psychologists testimony and conclusions to
be insufficiently in-depth and comprehensive to warrant the finding of respondents
psychological incapacity because the facts, on which the conclusions were based, were
all derived from the petitioners statements whose bias in favor of his cause cannot be
discounted.
(ii) In another case, Padilla-Rumbaua v. Rumbaua, the Court declared that while the
various tests administered on the petitioner-wife could have been used as a fair gauge to
assess her own psychological condition, this same statement could not be made with
respect to the respondent- husbands psychological condition. Conclusions and
generalizations about a spouses psychological condition, based solely on information
fed by the other spouse, are not any different in kind from admitting hearsay evidence as
proof of the truthfulness of the content of such evidence.
(iii) To be sure, the law does not require that the allegedly incapacitated spouse be
personally examined by a physician or by a psychologist as a condition sine qua non for
the declaration of nullity of marriage under Article 36 of the Family Code. This
recognition, however, does not signify that the evidence should be any less than the
evidence that an Article 36 case, by its nature, requires.
(iv) It is still essential although from sources other than the respondent spouse to
show his or her personality profile, or its approximation, at the time of marriage; the root
cause of the inability to appreciate the essential obligations of marriage; and the gravity,
permanence and incurability of the condition. Other than from the spouses, such
evidence can come from persons intimately related to them, such as relatives, close
friends or even family doctors or lawyers who could testify on the allegedly
incapacitated spouses condition at or about the time of marriage, or to subsequent
occurring events that trace their roots to the incapacity already present at the time of
marriage. (In the present case, the only other party outside of the spouses who was ever
asked to give statements for purposes of the spouses psychological evaluation was the
spouses eldest son who would not have been very reliable as a witness in an Article 36
case because he could not have been there when the spouses were married and could not
have been expected to know what was happening between his parents until long after his
birth.)
(v) The Supreme Court did not consider isolated instances of the spouses fighting over
the foreclosure of their house, the husbands alleged womanizing, and their differences
in religion, as indicative of any basic psychological disorder existing at the time of
marriage. For one, these points of dispute are not uncommon in a marriage and relate
essentially to the usual roots of marital problems finances, fidelity and religion.
(vi) If a psychologists testimony will be submitted, the psychological evaluation should
fully explain the details i.e., the what, how, when, where and since when of the
spouses alleged personality disorder. It should also explain the incapacitating nature of

the disorder, how it related to the essential marital obligations that the spouse failed to
assume, and how grave and incurable it was.
Marriage; annulment;
psychological
incapacity.

Jose Reynaldo B. Ochosa vs. Bona J. Alano and Republic of the Philippines; G.R. No.
167459, January 26, 2011.
The Supreme Court reiterates its Santos and Molina rulings, backtracks on the Te case,
and finds that persistent sexual infidelity (the wife cuckolds a military officer) and
abandonment are not badges of psychological incapacity particularly in absence of proof
that these can be traced to roots prior to the marriage. Read it for the treatment of the key
cases of Santos, Molina and Te, and to see how another psychiatrists testimony bites the
dust.

Marriage; Divorce not


allowed in the
Philippines; Exception
based on principles of
comity; Divorce must
be proven as a fact.

Merope Enriquez Vda De Catalan vs Louella A. Catalan-Lee, G.R. No. 183622.


February 8, 2012.
The Supreme Court had already ruled that under the principles of comity, our jurisdiction
recognizes a valid divorce obtained by a spouse of foreign nationality. This doctrine was
established as early as 1985 in Van Dorn v. Romillo, Jr. wherein the SC said: It is true
that owing to the nationality principle embodied in Article 15 of the Civil Code, only
Philippine nationals are covered by the policy against absolute divorces, the same being
considered contrary to our concept of public policy and morality. However, aliens may
obtain divorces abroad, which may be recognized in the Philippines, provided they are
valid according to their national law. In this case, the divorce in Nevada released private
respondent from the marriage from the standards of American law, under which divorce
dissolves the marriage.
Nonetheless, the fact of divorce must still first be proven as the Supreme Court has
enunciated in Garcia v. Recio, to wit: Before a foreign judgment is given presumptive
evidentiary value, the document must first be presented and admitted in evidence. A
divorce obtained abroad is proven by the divorce decree itself. Indeed the best evidence
of a judgment is the judgment itself. The decree purports to be a written act or record of
an act of an official body or tribunal of a foreign country.

Marriage; essential
and formal requisites;
marriage license;
certification of nonissuance by civil
registrar; diligent
search requirement
compared to
presumption of
regularity in
performance of official
duties; effect of
absence of marriage
license.

Syed Azhar Abbas vs. Gloria Goo Abbas; G.R. No. 183896. January 30, 2013
As the marriage of Gloria and Syed was solemnized on January 9, 1993, Executive
Order No. 209, or the Family Code of the Philippines, is the applicable law. The
pertinent provisions that would apply to this particular case are Articles 3, 4 and 35(3),
which read as follows:
Art. 3. The formal requisites of marriage are:
(1) Authority of the solemnizing officer;
(2) A valid marriage license except in the cases provided for in Chapter 2 of this
Title; and
(3) A marriage ceremony which takes place with the appearance of the contracting
parties before the solemnizing officer and their personal declaration that they take
each other as husband and wife in the presence of not less than two witnesses of legal
age.
Art. 4. The absence of any of the essential or formal requisites shall render the
marriage void ab initio, except as stated in Article 35(2).
A defect in any of the essential requisites shall render the marriage voidable as
provided in Article 45.
An irregularity in the formal requisites shall not affect the validity of the marriage
but the party or parties responsible for the irregularity shall be civilly, criminally and
administratively liable.
Art. 35. The following marriages shall be void from the beginning:
xxxx
(3) Those solemnized without a license, except those covered by the preceding
Chapter.
Under Sec. 3(m), Rule 131 of the Rules of Court, it is a disputable presumption that an
official duty has been regularly performed, absent contradiction or other evidence to the
contrary. We held, The presumption of regularity of official acts may be rebutted by
affirmative evidence of irregularity or failure to perform a duty. No such affirmative
evidence was shown that the Municipal Civil Registrar was lax in performing her duty of

checking the records of their office, thus the presumption must stand. In fact, proof does
exist of a diligent search having been conducted, as Marriage License No. 996967 was
indeed located and submitted to the court. The fact that the names in said license do not
correspond to those of Gloria and Syed does not overturn the presumption that the
registrar conducted a diligent search of the records of her office.
In the case of Carino v. Carino, following the case of Republic, it was held that the
certification of the Local Civil Registrar that their office had no record of a marriage
license was adequate to prove the non- issuance of said license. The case of Carino
further held that the presumed validity of the marriage of the parties had been overcome,
and that it became the burden of the party alleging a valid marriage to prove that the
marriage was valid, and that the required marriage license had been secured.
Article 4 of the Family Code is clear when it says, The absence of any of the essential
or formal requisites shall render the marriage void ab initio, except as stated in Article
35(2). Article 35(3) of the Family Code also provides that a marriage solemnized
without a license is void from the beginning, except those exempt from the license
requirement under Articles 27 to 34, Chapter 2, Title I of the same Code.
Marriage; governing
law, depends on when
celebrated; impact on
who can file for
petition of nullity.

Isidro Ablaza vs. Republic of the Philippines, G.R. No. 158298, August 11, 2010
A valid marriage is essential in order to create the relation of husband and wife and to
give rise to the mutual rights, duties, and liabilities arising out of such relation. The law
prescribes the requisites of a valid marriage. Hence, the validity of a marriage is tested
according to the law in force at the time the marriage is contracted. As a general rule, the
nature of the marriage already celebrated cannot be changed by a subsequent amendment
of the governing law. To illustrate, a marriage between a stepbrother and a stepsister was
void under the Civil Code, but is not anymore prohibited under the Family Code; yet, the
intervening effectivity of the Family Code does not affect the void nature of a marriage
between a stepbrother and a stepsister solemnized under the regime of the Civil Code.
The Civil Code marriage remains void, considering that the validity of a marriage is
governed by the law in force at the time of the marriage ceremony.
Before anything more, the Court has to clarify the impact to the issue posed herein of
Administrative Matter (A.M.) No. 02-11-10-SC (Rule on Declaration of Absolute Nullity
of Void Marriages and Annulment of Voidable Marriages), which took effect on March
15, 2003.
Section 2, paragraph (a), of A.M. No. 02-11-10-SC explicitly provides the limitation that
a petition for declaration of absolute nullity of void marriage may be filed solely by the
husband or wife. Such limitation demarcates a line to distinguish between marriages
covered by the Family Code and those solemnized under the regime of the Civil Code.
Specifically, A.M. No. 02-11-10-SC extends only to marriages covered by the Family
Code, which took effect on August 3, 1988, but, being a procedural rule that is
prospective in application, is confined only to proceedings commenced after March 15,
2003.
Based on Carlos v. Sandoval, the following actions for declaration of absolute nullity of
a marriage are excepted from the limitation, to wit:
1. Those commenced before March 15, 2003, the effectivity date of A.M. No. 02-11-10SC; and
2. Those filed vis--vis marriages celebrated during the effectivity of the Civil Code and,
those celebrated under the regime of the Family Code prior to March 15, 2003.
Considering that the marriage between Cresenciano and Leonila was contracted on
December 26, 1949, the applicable law was the old Civil Code, the law in effect at the
time of the celebration of the marriage. Hence, the rule on the exclusivity of the parties
to the marriage as having the right to initiate the action for declaration of nullity of the
marriage under A.M. No. 02-11-10-SC had absolutely no application to the petitioner.
The old and new Civil Codes contain no provision on who can file a petition to declare
the nullity of a marriage, and when. Accordingly, in Ninal v. Bayadog, the children were
allowed to file after the death of their father a petition for the declaration of the nullity of
their fathers marriage to their stepmother contracted on December 11, 1986 due to lack
of a marriage license.

It is clarified, however, that the absence of a provision in the old and new Civil Codes
cannot be construed as giving a license to just any person to bring an action to declare
the absolute nullity of a marriage. According to Carlos v. Sandoval, the plaintiff must
still be the party who stands to be benefited by the suit, or the party entitled to the avails
of the suit, for it is basic in procedural law that every action must be prosecuted and
defended in the name of the real party in interest. Thus, only the party who can
demonstrate a proper interest can file the action. Interest within the meaning of the
rule means material interest, or an interest in issue to be affected by the decree or
judgment of the case, as distinguished from mere curiosity about the question involved
or a mere incidental interest. One having no material interest to protect cannot invoke the
jurisdiction of the court as plaintiff in an action. When the plaintiff is not the real party in
interest, the case is dismissible on the ground of lack of cause of action.
Here, the petitioner alleged himself to be the late Cresencianos brother and surviving
heir. Assuming that the petitioner was as he claimed himself to be, then he has a material
interest in the estate of Cresenciano that will be adversely affected by any judgment in
the suit. Indeed, a brother like the petitioner, albeit not a compulsory heir under the laws
of succession, has the right to succeed to the estate of a deceased brother under the
conditions stated in Article 1001 and Article 1003 of the Civil Code.
Marriage; liquidation
of property not
necessary before
declaration of nullity

Alain M. Dino vs. Ma. Caridad L. Dino; G.R. No. 178044, January 19, 2011.
For Article 147 of the Family Code to apply, the following elements must be present:
1. The man and the woman must be capacitated to marry each other;
2. They live exclusively with each other as husband and wife; and
3. Their union is without the benefit of marriage, or their marriage is void.
All these elements are present in this case and there is no question that Article 147 of the
Family Code applies to the property relations between petitioner and respondent. We
agree with petitioner that the trial court erred in ordering that a decree of absolute nullity
of marriage shall be issued only after liquidation, partition and distribution of the parties
properties under Article 147 of the Family Code. The ruling has no basis because Section
19(1) of the Rule does not apply to cases governed under Articles 147 and 148 of the
Family Code. It is clear from Article 50 of the Family Code that Section 19(1) of the
Rule applies only to marriages which are declared void ab initio or annulled by final
judgment under Articles 40 and 45 of the Family Code. In short, Article 50 of the Family
Code does not apply to marriages which are declared void ab initio under Article 36 of
the Family Code, which should be declared void without waiting for the liquidation of
the properties of the parties.

Marriage; petition for


nullity of marriage;
AM No. 02-11-10;
appearance by the
Office of the Solicitor
General still required.

Arabelle Mendoza v. Republic of the Philippines and Dominic Mendoza, G.R. No.
157649. November 12, 2012

Marriage; Presumption
of conjugality of
property; Married to
is merely descriptive
of the status of the
owner.

Antonia R. Dela Pena, et al. vs Gemma Remilyn C. Avila and Far East Bank & Trust
Co., G.R. No. 187490., February 8, 2012.

The Resolution nowhere stated that appeals by the OSG were no longer required. On the
contrary, the Resolution explicitly required the OSG to actively participate in all stages
of the proceedings.

Pursuant to Article 160 of the Civil Code of the Philippines, all property of the marriage
is presumed to belong to the conjugal partnership, unless it be proved that it pertains
exclusively to the husband or to the wife. Although it is not necessary to prove that the
property was acquired with funds of the partnership, proof of acquisition during the
marriage is an essential condition for the operation of the presumption in favor of the
conjugal partnership. Not having established the time of acquisition of the property, the
Dela Penas insist that the registration thereof in the name of Antonia R. Dela Pena, of
legal age, Filipino, married to Antegono A. Dela Pena should have already sufficiently
established its conjugal nature. Confronted with the same issue in the case Ruiz vs. Court
of Appeals, the Supreme Court ruled, however, that the phrase married to is merely
descriptive of the civil status of the wife and cannot be interpreted to mean that the
husband is also a registered owner. Because it is likewise possible that the property was
acquired by the wife while she was still single and registered only after her marriage,
neither would registration thereof in said manner constitute proof that the same was
acquired during the marriage and, for said reason, to be presumed conjugal in nature.

Since there is no showing as to when the property in question was acquired, the fact
that the title is in the name of the wife alone is determinative of its nature as paraphernal,
i.e., belonging exclusively to said spouse.
Marriage;
psychological
incapacity; definition;
burden of proof;
sexual infidelity and
abandonment do not
necessarily constitute
psychological
incapacity;
psychological fitness
as a wife not equated
with professional
relationship; doubts
are resolved in favor
of marriage.

Republic of the Philippines vs. Cesar Encelan; G.R. No. 170022. January 9, 2013
Article 36 of the Family Code governs psychological incapacity as a ground for
declaration of nullity of marriage. It provides that [a] marriage contracted by any party
who, at the time of the celebration, was psychologically incapacitated to comply with the
essential marital obligations of marriage, shall likewise be void even if such incapacity
becomes manifest only after its solemnization. In interpreting this provision, we have
repeatedly stressed that psychological incapacity contemplates downright incapacity
or inability to take cognizance of and to assume the basic marital obligations; not
merely the refusal, neglect or difficulty, much less ill will, on the part of the errant
spouse. The plaintiff bears the burden of proving the juridical antecedence (i.e., the
existence at the time of the celebration of marriage), gravity and incurability of the
condition of the errant spouse.
In any event, sexual infidelity and abandonment of the conjugal dwelling, even if true,
do not necessarily constitute psychological incapacity; these are simply grounds for legal
separation. To constitute psychological incapacity, it must be shown that the
unfaithfulness and abandonment are manifestations of a disordered personality that
completely prevented the erring spouse from discharging the essential marital
obligations.
Aside from the time element involved, a wifes psychological fitness as a spouse cannot
simply be equated with her professional/work relationship; workplace obligations and
responsibilities are poles apart from their marital counterparts. While both spring from
human relationship, their relatedness and relevance to one another should be fully
established for them to be compared or to serve as measures of comparison with one
another.
Once again, we stress that marriage is an inviolable social institution protected by the
State. Any doubt should be resolved in favor of its existence its existence and
continuation and against its dissolution and nullity. It cannot be dissolved at the whim of
the parties nor by transgressions made by one party to the other during the marriage.

Marriage;
psychological
incapacity; elements.

Republic v. Court of Appeals and Eduardo de Quintos, Jr., G.R. No. 159594.
November 12, 2012
Psychological incapacity under Article 36 of the Family Code contemplates an
incapacity or inability to take cognizance of and to assume basic marital obligations, and
is not merely the difficulty, refusal, or neglect in the performance of marital obligations
or ill will. It consists of: (a) a true inability to commit oneself to the essentials of
marriage; (b) the inability must refer to the essential obligations of marriage, that is, the
conjugal act, the community of life and love, the rendering of mutual help, and the
procreation and education of offspring; and (c) the inability must be tantamount to a
psychological abnormality. Proving that a spouse failed to meet his or her responsibility
and duty as a married person is not enough; it is essential that he or she must be shown
to be incapable of doing so due to some psychological illness.

Marriage;
psychological
incapacity; expert
evidence; thorough
and in-depth
assessment required.

Republic v. Court of Appeals and Eduardo de Quintos, Jr., G.R. No. 159594.
November 12, 2012

Marriage;
psychological
incapacity; proof of
natal or disabling
supervening factor
required.

Republic v. Court of Appeals and Eduardo de Quintos, Jr., G.R. No. 159594.
November 12, 2012

The expert evidence presented in cases of declaration of nullity of marriage based on


psychological incapacity presupposes a thorough and in-depth assessment of the parties
by the psychologist or expert to make a conclusive diagnosis of a grave, severe and
incurable presence of psychological incapacity.

It is not enough that the respondent, alleged to be psychologically incapacitated, had


difficulty in complying with his marital obligations, or was unwilling to perform these
obligations. Proof of a natal or supervening disabling factor an adverse integral

element in the respondents personality structure that effectively incapacitated him from
complying with his essential marital obligations must be shown.
Marriage;
psychological
incapacity; Santos and
Molina guidelines.

Republic v. Court of Appeals and Eduardo de Quintos, Jr., G.R. No. 159594.
November 12, 2012

Marriage;
psychological
incapacity; three basic
requirements.

Arabelle Mendoza v. Republic of the Philippines and Dominic Mendoza, G.R. No.
157649. November 12, 2012

Marriage;
psychological
incapacity; totality of
evidence proving
incapacity required.

Arabelle Mendoza v. Republic of the Philippines and Dominic Mendoza, G.R. No.
157649. November 12, 2012

Medical malpractice.

Dr. Rubi Li vs. Spouses Reynaldo and Lina Soliman as parents/heirs of deceased
Angelica Soliman, G.R. No. 165279. June 7, 2011

The pronouncements in Santos and Molina have remained as the precedential guides in
deciding cases grounded on the psychological incapacity of a spouse. But the Court has
declared the existence or absence of the psychological incapacity based strictly on the
facts of each case and not on a priori assumptions, predilections or generalizations.
Indeed, the incapacity should be established by the totality of evidence presented during
trial, making it incumbent upon the petitioner to sufficiently prove the existence of the
psychological incapacity.

To entitle petitioner spouse to a declaration of the nullity of his or her marriage, the
totality of the evidence must sufficiently prove that respondent spouses psychological
incapacity was grave, incurable and existing prior to the time of the marriage.

Even if the expert opinions of psychologists are not conditions sine qua non in the
granting of petitions for declaration of nullity of marriage, the actual medical
examination was to be dispensed with only if the totality of evidence presented was
enough to support a finding of his psychological incapacity. This did not mean that the
presentation of any form of medical or psychological evidence to show the psychological
incapacity would have automatically ensured the granting of petition for declaration of
nullity of marriage. What was essential, we should emphasize herein, was the presence
of evidence that can adequately establish the partys psychological condition. But
where, like here, the parties had full opportunity to present the professional and expert
opinions of psychiatrists tracing the root cause, gravity and incurability of the alleged
psychological incapacity, then the opinions should be represented and be weighed by the
trial courts in order to determine and decide whether or not to declare the nullity of the
marriages. It bears repeating that the trial courts, as in all other cases they try, must
always base their judgments not solely on the expert opinions presented by the parties
but on the totality of evidence adduced in the course of their proceedings.

An integral part of physicians overall obligation to patient is the duty of reasonable


disclosure of available choices with respect to proposed therapy and of dangers
inherently and potentially involved in each. However, the physician is not obliged to
discuss relatively minor risks inherent in common procedures when it is common
knowledge that such risks inherent in procedure of very low incidence. Cited as
exceptions to the rule that the patient should not be denied the opportunity to weigh the
risks of surgery or treatment are emergency cases where it is evident he cannot evaluate
data, and where the patient is a child or incompetent. The court thus concluded that the
patients right of self-decision can only be effectively exercised if the patient possesses
adequate information to enable him in making an intelligent choice. The scope of the
physicians communications to the patient, then must be measured by the patients need,
and that need is whatever information is material to the decision. The test therefore for
determining whether a potential peril must be divulged is its materiality to the patients
decision.
Cobbs v. Grant reiterated the pronouncement in Canterbury v. Spence that for liability of
the physician for failure to inform patient, there must be causal relationship between
physicians failure to inform and the injury to patient and such connection arises only if
it is established that, had revelation been made, consent to treatment would not have
been given.
There are four essential elements a plaintiff must prove in a malpractice action based

upon the doctrine of informed consent: (1) the physician had a duty to disclose material
risks; (2) he failed to disclose or inadequately disclosed those risks; (3) as a direct and
proximate result of the failure to disclose, the patient consented to treatment she
otherwise would not have consented to; and (4) plaintiff was injured by the proposed
treatment. The gravamen in an informed consent case requires the plaintiff to point to
significant undisclosed information relating to the treatment which would have altered
her decision to undergo it.
The element of ethical duty to disclose material risks in the proposed medical treatment
cannot thus be reduced to one simplistic formula applicable in all instances. Further, in a
medical malpractice action based on lack of informed consent, the plaintiff must prove
both the duty and the breach of that duty through expert testimony.
Moral damages; prerequisites for an
award.

Rodolfo N. Regala v. Federico P. Carin, G.R. No. 188715, April 6, 2011


In prayers for moral damages, recovery is more an exception rather than the rule. Moral
damages are not meant to be punitive but are designed to compensate and alleviate the
physical suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and similar harm unjustly caused to a
person. To be entitled to such an award, the claimant must satisfactorily prove that he has
suffered damages and that the injury causing it has sprung from any of the cases listed in
Articles 2219 and 2220 of the Civil Code. Moreover, the damages must be shown to be
the proximate result of a wrongful act or omission. The claimant must thus establish the
factual basis of the damages and its causal tie with the acts of the defendant.
In fine, an award of moral damages calls for the presentation of 1) evidence of
besmirched reputation or physical, mental or psychological suffering sustained by the
claimant; 2) a culpable act or omission factually established; 3) proof that the wrongful
act or omission of the defendant is the proximate cause of the damages sustained by the
claimant; and 4) the proof that the act is predicated on any of the instances expressed or
envisioned by Article 2219 and Article 2220 of the Civil Code.
In the present case, respondent failed to establish by clear and convincing evidence that
the injuries he sustained were the proximate effect of petitioners act or omission. It thus
becomes necessary to instead look into the manner by which petitioner carried out his
renovations to determine whether this was directly responsible for any distress
respondent may have suffered since the law requires that a wrongful or illegal act or
omission must have preceded the damages sustained by the claimant.
It bears noting that petitioner was engaged in the lawful exercise of his property rights to
introduce renovations to his abode. While he initially did not have a building permit and
may have misrepresented his real intent when he initially sought respondents consent,
the lack of the permit was inconsequential since it only rendered petitioner liable to
administrative sanctions or penalties.
The testimony of petitioner and his witnesses, specifically Architect Punzalan,
demonstrates that they had actually taken measures to prevent, or at the very least,
minimize the damage to respondents property occasioned by the construction work.
Architect Punzalan details how upon reaching an agreement with petitioner for the
construction of the second floor, he (Punzalan) surveyed petitioners property based on
the Transfer Certificate of Title (TCT) and Tax Declarations and found that the perimeter
wall was within the confines of petitioners property; that he, together with petitioner,
secured the consent of the neighbors (including respondent) prior to the start of the
renovation as reflected in a Neighbors Consent dated June 12, 1998; before the
construction began, he undertook measures to prevent debris from falling into
respondents property such as the installation of GI sheet strainers, the construction of
scaffoldings on respondents property, the instructions to his workers to clean the area
before leaving at 5:00 p.m; and that the workers conducted daily clean-up of
respondents property with his consent, until animosity developed between the parties.
Malice or bad faith implies a conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity; it is different from the negative idea of negligence
in that malice or bad faith contemplates a state of mind affirmatively operating with
furtive design or ill will. While the Court harbors no doubt that the incidents which gave
rise to this dispute have brought anxiety and anguish to respondent, it is unconvinced

that the damage inflicted upon respondents property was malicious or willful, an
element crucial to merit an award of moral damages under Article 2220 of the Civil
Code.
Mortgage;
piecemeal
redemption.

Spouses Francisco D. Yap and whelma Yap vs.. Spouses Zosimo Dy, Sr. and Natividad
Chiu Dy, et al./Dumaguete Rural Bank Inc. (DRBI) herein represented by Mr.
William D.S. Dichoso vs.. Spouses Zosimo Dy, Sr. and Natividad Chiu Dy, et al.; G.R.
Nos. 171868 & 171991. July 27, 2011
The Yaps argue that P40,000.00 cannot be a valid tender of redemption since the amount
of the auction sale was P216,040.93. They further contend that the mortgage is
indivisible so in order for the tender to be valid and effectual, it must be for the entire
auction price plus legal interest.
We cannot subscribe to the Yaps argument on the indivisibility of the mortgage. As held
in the case of Philippine National Bank v. De los Reyes, the doctrine of indivisibility of
mortgage does not apply once the mortgage is extinguished by a complete foreclosure
thereof as in the instant case. The Court held:
The parties were accordingly embroiled in a hermeneutic disparity on their aforesaid
contending positions. Yet, the rule on the indivisibility of mortgage finds no application
to the case at bar. x x x
From the foregoing, it is apparent that what the law proscribes is the foreclosure of only
a portion of the property or a number of the several properties mortgaged corresponding
to the unpaid portion of the debt where before foreclosure proceedings partial payment
was made by the debtor on his total outstanding loan or obligation. This also means that
the debtor cannot ask for the release of any portion of the mortgaged property or of one
or some of the several lots mortgaged unless and until the loan thus secured has been
fully paid, notwithstanding the fact that there has been a partial fulfillment of the
obligation. Hence, it is provided that the debtor who has paid a part of the debt cannot
ask for the proportionate extinguishment of the mortgage as long as the debt is not
completely satisfied.
That the situation obtaining in the case at bar is not within the purview of the aforesaid
rule on indivisibility is obvious since the aggregate number of the lots which comprise
the collaterals for the mortgage had already been foreclosed and sold at public auction.
There is no partial payment nor partial extinguishment of the obligation to speak of. The
aforesaid doctrine, which is actually intended for the protection of the mortgagee,
specifically refers to the release of the mortgage which secures the satisfaction of the
indebtedness and naturally presupposes that the mortgage is existing. Once the
mortgage is extinguished by a complete foreclosure thereof, said doctrine of
indivisibility ceases to apply since, with the full payment of the debt, there is
nothing more to secure.
Nothing in the law prohibits the piecemeal redemption of properties sold at one
foreclosure proceeding. In fact, in several early cases decided by this Court, the right of
the mortgagor or redemptioner to redeem one or some of the foreclosed properties was
recognized.

Mortgage;
accommodation
mortgage; sanctioned
under Article 2085 of
the Civil Code;
accommodation
mortgagor is ordinarily
not the recipient of the
loan; reasonable
promptness in
attacking the validity
of a mortgage;
unreasonable delay
may delay may
amount to ratification.

Spouses Ramos vs. Raul Obispo and Far East Bank and Trust Co.; G.R. No. 193804.
February 27, 2013
The validity of an accommodation mortgage is allowed under Article 2085 of the Civil
Code which provides that [t]hird persons who are not parties to the principal obligation
may secure the latter by pledging or mortgaging their own property. An accommodation
mortgagor, ordinarily, is not himself a recipient of the loan, otherwise that would be
contrary to his designation as such.
It bears stressing that an accommodation mortgagor, ordinarily, is not himself a recipient
of the loan, otherwise that would be contrary to his designation as such. We have held
that it is not always necessary that the accommodation mortgagor be apprised
beforehand of the entire amount of the loan nor should it first be determined before the
execution of the Special Power of Attorney in favor of the debtor. This is especially true
when the words used by the parties indicate that the mortgage serves as a continuing

security for credit obtained as well as future loan availments.


Mortgagors desiring to attack a mortgage as invalid should act with reasonable
promptness, and unreasonable delay may amount to ratification.
Mortgage; Blanket
Mortgage Clause.

Sps. Benedict & Maricel Dy Tecklo vs. Rural Bank of Pamplona, Inc., represented by
its President/Manager, Juan Las, G.R. No. 171201, June 18, 2010.
A blanket mortgage clause, which makes available future loans without need of
executing another set of security documents, has long been recognized in our
jurisprudence. It is meant to save time, loan closing charges, additional legal services,
recording fees, and other costs. A blanket mortgage clause is designed to lower the cost
of loans to borrowers, at the same time making the business of lending more profitable to
banks. Settled is the rule that mortgages securing future loans are valid and legal
contracts.

Mortgage; blanket or
dragnet clause.

Violeta Tudtud Banate, et al. vs. Philippine Countryside Rural Bank (Liloan, Cebu),
Inc. and Teofilo Soon, Jr., G.R. No. 163825, July 13, 2010
Before we resolve the issues directly posed, we first dwell on the determination of the
nature of the cross-collateral stipulation in the mortgage contract. As a general rule, a
mortgage liability is usually limited to the amount mentioned in the contract. However,
the amounts named as consideration in a contract of mortgage do not limit the amount
for which the mortgage may stand as security if, from the four corners of the instrument,
the intent to secure future and other indebtedness can be gathered. This stipulation is
valid and binding between the parties and is known as the blanket mortgage clause
(also known as the dragnet clause).
In the present case, the mortgage contract indisputably provides that the subject
properties serve as security, not only for the payment of the subject loan, but also for
such other loans or advances already obtained, or still to be obtained. The crosscollateral stipulation in the mortgage contract between the parties is thus simply a variety
of a dragnet clause. After agreeing to such stipulation, the petitioners cannot insist that
the subject properties be released from mortgage since the security covers not only the
subject loan but the two other loans as well.

Mortgage; deficiency
claim; allowable after
extrajudicial
foreclosure of
mortgage.

Francisco Rabat, et al. vs. Philippine National Bank; G.R. No. 158755, June 18, 2012
We rule that PNB had the legal right to recover the deficiency amount. In Philippine
National Bank v. Court of Appeals, we held that: it is settled that if the proceeds of the
sale are insufficient to cover the debt in an extrajudicial foreclosure of the mortgage, the
mortgagee is entitled to claim the deficiency from the debtor. For when the legislature
intends to deny the right of a creditor to sue for any deficiency resulting from foreclosure
of security given to guarantee an obligation it expressly provides as in the case of
pledges [Civil Code, Art. 2115] and in chattel mortgages of a thing sold on installment
basis [Civil Code, Art. 1484(3)]. Act No. 3135, which governs the extrajudicial
foreclosure of mortgages, while silent as to the mortgagees right to recover, does not, on
the other hand, prohibit recovery of deficiency. Accordingly, it has been held that a
deficiency claim arising from the extrajudicial foreclosure is allowed.
Indeed, as we indicated in Prudential Bank v. Martinez, the fact that the mortgaged
property was sold at an amount less than its actual market value should not militate
against the right to such recovery

Mortgage; escalation
clause.

Spouses Humberto Delos Santos and Carmencita Delos Santos vs. Metropolitan Bank
and Trust Company G.R. No. 153852. October 24, 2012
We consider to be unsubstantiated the petitioners claim of their lack of consent to the
escalation clauses. They did not adduce evidence to show that they did not assent to the
increases in the interest rates. The records reveal instead that they requested only the
reduction of the interest rate or the restructuring of their loans. Escalation clauses are
valid and do not contravene public policy. These clauses are common in credit
agreements as means of maintaining fiscal stability and retaining the value of money on
long-term contracts. Any increase in the rate of interest made pursuant to an escalation
clause must be the result of an agreement between the parties. Thus, any change must be

mutually agreed upon, otherwise, the change carries no binding effect.


Mortgage;
extrajudicial
foreclosure; notice
requirement.

Century Savings Bank vs. Spouses Danilo T. Samonte and Rosalinda M. Samonte;
G.R. No. 176212, October 20, 2010
Respondents did not present any evidence at all to establish that the notices of sale were
not posted as required under Section 3 of Act No. 3135, as amended. Instead,
respondents merely focused on how Notary Public Magpantays Certificate of Posting
was worded, and emphasized on technicalities and semantics. Respondents insist that the
phrase on the 15th day of November 1999, I have caused the posting of three (3) copies
of Notice of Sale in the Certificate of Posting meant that Notary Public Magpantay
posted the notices for only one day, i.e., on November 15, 1999. This is a rather specious
interpretation of the aforequoted phrase. It is more logical and reasonable to understand
the same phrase as to mean that the notices were posted beginning November 15, 1999
until the issuance of the certificate on December 9, 1999. There is also no basis to
require the notary publics certificate to exactly state that the notices of sale were posted
at public places. Notary Public Magpantays use of the words conspicuous places in
his certificate already satisfactorily complies with the legal requirement for posting. The
adjective public may refer to that which is exposed to general view, and
conspicuous is a synonym thereof.
Moreover, it bears to stress that the Certificate of Posting is actually evidence presented
by the petitioner to establish that copies of the Notice of Sale were indeed posted as
required by Act No. 3135, as amended.
In addition, despite any defect in the posting of the Notice of Sale, the Court reiterates its
ruling in previous jurisprudence that the publication of the same notice in a newspaper of
general circulation is already sufficient compliance with the requirement of the law.

Mortgage; Foreclosure
of Mortgage;
Necessary
consequence of nonpayment.

Antonia R. Dela Pena, et al. vs Gemma Remilyn C. Avila and Far East Bank & Trust
Co., G.R. No. 187490., February 8, 2012.

Mortgage; foreclosure;
default is pre-requisite.

Rizal Commercial Banking Corporation vs. Pedro P. Buenaventura; G.R. No. 176479.
October 6, 2010

Since foreclosure of the mortgage is but the necessary consequence of non-payment of


the mortgage debt, FEBTC-BPI was, likewise, acting well within its rights as mortgagee
when it foreclosed the real estate mortgage on the property upon Gemmas failure to pay
the loans secured thereby. Executed on 26 November 1997, the mortgage predated
Antonias filing of an Affidavit of Adverse Claim with the Register of Deeds of Marikina
on 3 March 1998 and the annotation of a Notice of Lis Pendens on TCT No. 337834 on
10 December 1999. The mortgage directly and immediately subjects the property upon
which it is imposed, whoever the possessor may be, to the fulfilment of the obligation
for whose security it was constituted. When the principal obligation is not paid when
due, the mortgagee consequently has the right to foreclose the mortgage, sell the
property, and apply the proceeds of the sale to the satisfaction of the unpaid loan.

Foreclosure is valid only when the debtor is in default in the payment of his obligation. It
is a necessary consequence of non-payment of mortgage indebtedness. As a rule, the
mortgage can be foreclosed only when the debt remains unpaid at the time it is due.
Mortgage; Impact of
Foreclosure;
Extinction of
Mortgage.

Sps. Benedict & Maricel Dy Tecklo vs. Rural Bank of Pamplona, Inc., represented by
its President/Manager, Juan Las, G.R. No. 171201, June 18, 2010.

Mortgage; includes all


natural or civil fruits
and improvements
found on the

Philippine National Bank v. Sps. Bernard and Cresencia Maranon, G.R.No. 189316,
July 1, 2013

After the foreclosure of the mortgaged property, the mortgage is extinguished and the
purchaser at auction sale acquires the property free from such mortgage. Any deficiency
amount after foreclosure cannot constitute a continuing lien on the foreclosed property,
but must be collected by the mortgagee-creditor in an ordinary action for collection. In
this case, the second loan from the same mortgage deed is in the nature of a deficiency
amount after foreclosure.

Rent, as an accessory, follows the principal. In fact, when the principal property is

mortgaged property
when the secured
obligation becomes
due; in case of nonpayment of the
secured debt,
foreclosure
proceedings shall
cover not only the
hypothecated property
but all its accessions
and accessories as
well; indispensable
requisite that
mortgagor be the
absolute owner of the
encumbered property.

mortgaged, the mortgage shall include all natural or civil fruits and improvements found
thereon when the secured obligation becomes due as provided in Article 2127 of the
Civil Code, viz:
Art. 2127. The mortgage extends to the natural accessions, to the improvements,
growing fruits, and the rents or income not yet received when the obligation becomes
due, and to the amount of the indemnity granted or owing to the proprietor from the
insurers of the property mortgaged, or in virtue of expropriation for public use, with
the declarations, amplifications and limitations established by law, whether the estate
remains in the possession of the mortgagor, or it passes into the hands of a third
person.
Consequently, in case of non-payment of the secured debt, foreclosure proceedings shall
cover not only the hypothecated property but all its accessions and accessories as well.
This was illustrated in the early case of Cu Unjieng e Hijos v. Mabalacat Sugar Co.
where the Court held:
That a mortgage constituted on a sugar central includes not only the land on which it
is built but also the buildings, machinery, and accessories installed at the time the
mortgage was constituted as well as the buildings, machinery and accessories
belonging to the mortgagor, installed after the constitution thereof x x x [.]
Applying such pronouncement in the subsequent case of Spouses Paderes v. Court of
Appeals, the Court declared that the improvements constructed by the mortgagor on the
subject lot are covered by the real estate mortgage contract with the mortgagee bank and
thus included in the foreclosure proceedings instituted by the latter.
However, the rule is not without qualifications. In Castro, Jr. v. CA the Court explained
that Article 2127 is predicated on the presumption that the ownership of accessions and
accessories also belongs to the mortgagor as the owner of the principal. After all, it is an
indispensable requisite of a valid real estate mortgage that the mortgagor be the absolute
owner of the encumbered property.

Mortgage; mortgagee
in good faith relying
on Torrens Certificate
of Title;
Indefeasibility.

Philippine Banking Corporation v. Arturo Dy, etal., G.R. No. 183774. November 14,
2012

Mortgage; mortgagee
in good faith; right to
have mortgage lien
carried over and
annotated on the new
certificate of title.

Philippine National Bank v. Sps. Bernard and Cresencia Maranon, G.R.No. 189316,
July 1, 2013

Mortgage; mortgagee
in good faith; standard
for banks.

PNB vs. Corpuz. Philippine National Bank, as the Attorney-in-fact of Opal Portfolio
Investments (SPV- AMC), Inc. vs. Mercedes Corpuz, represented by her Attorney-infact Valentina Corpuz, G.R. No. 180945, February 12, 2010

Primarily, it bears noting that the doctrine of mortgagee in good faith is based on the
rule that all persons dealing with property covered by a Torrens Certificate of Title are
not required to go beyond what appears on the face of the title. This is in deference to the
public interest in upholding the indefeasibility of a certificate of title as evidence of
lawful ownership of the land or of any encumbrance thereon. In the case of banks and
other financial institutions, however, greater care and due diligence are required since
they are imbued with public interest, failing which renders the mortgagees in bad faith.
Thus, before approving a loan application, it is a standard operating practice for these
institutions to conduct an ocular inspection of the property offered for mortgage and to
verify the genuineness of the title to determine the real owner(s) thereof. The apparent
purpose of an ocular 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.

The protection afforded to PNB as a mortgagee in good faith refers to the right to have
its mortgage lien carried over and annotated on the new certificate of title issued to
Spouses Maranon as so adjudged by the RTC. Thereafter, to enforce such lien thru
foreclosure proceedings in case of non- payment of the secured debt, as PNB did so
pursue. The principle, however, is not the singular rule that governs real estate mortgages
and foreclosures attended by fraudulent transfers to the mortgagor.

Petitioner PNB points out that, since it did a credit investigation, inspected the property,
and verified the clean status of the title before giving out the loan to the Songcuans, it
should be regarded as a mortgagee in good faith. PNB claims that the precautions it took

constitute sufficient compliance with the due diligence required of banks when dealing
with registered lands. As a rule, the Court would not expect a mortgagee to conduct an
exhaustive investigation of the history of the mortgagors title before he extends a loan.
But petitioner PNB is not an ordinary mortgagee; it is a bank. Banks are expected to be
more cautious than ordinary individuals in dealing with lands, even registered ones,
since the business of banks is imbued with public interest. It is of judicial notice that the
standard practice for banks before approving a loan is to send a staff to the property
offered as collateral and verify the genuineness of the title to determine the real owner or
owners. One of the CAs findings in this case is that in the course of its verification,
petitioner PNB was informed of the previous TCTs covering the subject property. And
the PNB has not categorically contested this finding. It is evident from the faces of those
titles that the ownership of the land changed from Corpuz to Bondoc, from Bondoc to
the Palaganases, and from the Palaganases to the Songcuans in less than three months
and mortgaged to PNB within four months of the last transfer. The above information in
turn should have driven the PNB to look at the deeds of sale involved. It would have
then discovered that the property was sold for ridiculously low prices: Corpuz
supposedly sold it to Bondoc for just P50,000.00; Bondoc to the Palaganases for just
P15,000.00; and the Palaganases to the Songcuans also for just P50,000.00. Yet the PNB
gave the property an appraised value of P781,760.00. Anyone who deliberately ignores a
significant fact that would create suspicion in an otherwise reasonable person cannot be
considered as an innocent mortgagee for value.
Mortgage; pactum
commissorium.

Pablo P. Garcia vs. Yolanda Valdez Villar; G.R. No. 158891, June 27, 2012
The following are the elements of pactum commissorium:
(1) There should be a property mortgaged by way of security for the payment of the
principal obligation;
and
(2) There should be a stipulation for automatic appropriation by the creditor of the
thing mortgaged in case of non-payment of the principal obligation within the
stipulated period.
Villars purchase of the subject property did not violate the prohibition on pactum
commissorium. The power of attorney provision above did not provide that the
ownership over the subject property would automatically pass to Villar upon Galass
failure to pay the loan on time. What it granted was the mere appointment of Villar as
attorney-in-fact, with authority to sell or otherwise dispose of the subject property, and to
apply the proceeds to the payment of the loan. This provision is customary in mortgage
contracts, and is in conformity with Article 2087 of the Civil Code.
Galass decision to eventually sell the subject property to Villar for an additional
P1,500,000.00 was well within the scope of her rights as the owner of the subject
property. The subject property was transferred to Villar by virtue of another and separate
contract, which is the Deed of Sale. Garcia never alleged that the transfer of the subject
property to Villar was automatic upon Galass failure to discharge her debt, or that the
sale was simulated to cover up such automatic transfer.

Mortgage; redemption
period; applicable
interest

Heirs of Estelita Burgos-Lipat namely: AlanB. Lipat and Alfredo B. Lipat, Jr. vs.
Heirs of Eugenio D. Trinidad namely: Asuncion R. Trinidad, et al., G.R. No. 185644,
March 2, 2010
The one-year redemption period applied by the CA is the rule that generally applies to
foreclosure of mortgage by a bank. The period of redemption is not tolled by the filing of
a complaint or petition for annulment of the mortgage and the foreclosure sale conducted
pursuant to the said mortgage. However, considering the exceptional circumstances
surrounding this case, we will not apply the rule in this instance pro hac vice. In Lipat,
this Court upheld the RTC decision giving petitioners five months and 17 days from the
finality of the trial courts decision to redeem their foreclosed property. Lipat, already
final and executory, has therefore become the law of the case between the parties,
including their heirs who are petitioners and respondents in this case. Consequently,
petitioners had five months and 17 days from the finality of Lipat to exercise their right
of redemption, even though this period was beyond one year from the date of registration
of the sale. Thus, the CA erred (and even committed a grave abuse of discretion) when it
insisted on a contrary ruling. The CA had no power to reverse this Courts final and

executory judgment. The CA overstepped its authority when it held that the right of
redemption had already expired one year after the date of the registration of the
certificate of sale. Like all other courts in our judicial system, the CA must take its
bearings from the rulings and decisions of this Court. Nevertheless, we note that the
amount tendered by petitioners to redeem their foreclosed property was determined by
the sheriff at the rate of one percent per month for only one year. Section 78 of the
General Banking Act requires payment of the amount fixed by the court in the order of
execution, with interest thereon at the rate specified in the mortgage contract, and all the
costs and other judicial expenses incurred by the bank or institution concerned by reason
of the execution and sale and as a result of the custody of said property less the income
received from the property. The rate of interest specified in the mortgage contract shall
be applied for the one-year period reckoned from the date of registration of the
certificate of sale in accordance with the General Banking Act. However, since
petitioners effectively had more than one year to exercise the right of redemption,
justice, fairness and equity require that they pay 12% p.a. interest beyond the one-year
period up to June 16, 2004 when Partas consigned the redemption price with the RTC.
Mortgage; redemption
period; reckoning of
the period of
redemption by the
mortgagor or his
successor- in-interest
starts from the
registration of the sale
in the Register of
Deeds.

United Coconut Planters Bank v. Christopher Lumbo and Milagros Lumbo, G.R. No.
162757, December 11, 2013.

Mortgage; redemption
price if lender is DBP.

Development Bank of the Philippines vs. Environmental Aquatics, Inc., et al.;G.R. No.
174329, October 20, 2010

The reckoning of the period of redemption by the mortgagor or his successor-in-interest


starts from the registration of the sale in the Register of Deeds. Although Section 6 of
Act No. 3135, as amended, specifies that the period of redemption starts from and after
the date of the sale, jurisprudence has since settled that such period is more appropriately
reckoned from the date of registration.

Section 16 of Executive Order (EO) No. 81 states that the redemption price for
properties mortgaged to and foreclosed by DBP is equivalent to the remaining balance of
the loan. Section 16 states that, Any mortgagor of the Bank whose property has been
extrajudicially sold at public auction shall x x x have the right to redeem the real
property by paying to the Bank all of the latters claims against him, as determined by
the Bank. The lower courts ruled that the redemption price for the property is
equivalent only to what DBP paid during the public auction because DBP chose Act No.
3135 as the governing law for the extrajudicial foreclosure. The Supreme Court
disagreed with this saying that Republic Act (RA) No. 85 and Act No. 1508 do not
provide a procedure for extrajudicial foreclosure of real estate mortgage. When DBP
stated in its letter to the ex- officio sheriff that the property be sold at public auction in
accordance with the provisions of Act 3135, it did so merely to find a proceeding for
the sale. Also, EO No. 81, being a special and subsequent law, amended Act No. 3135
insofar as the as redemption price is concerned.
Mortgage; Redemption
price; should not
include CGT.

Supreme Transliner, Inc., Moises C. Alvarez and Paulita S. Alvarez v. BPI Family
Savings Bank, Inc./BPI Family Savings Bank, Inc. v. Supreme Transliner Inc.,
Moises C. Alvarez and Paulita S. Alvares; G.R. No. 165617/G.R. No. 165837.
February 25, 2011
Considering that herein petitioners-mortgagors exercised their right of redemption before
the expiration of the statutory one-year period, petitioner bank is not liable to pay the
capital gains tax due on the extrajudicial foreclosure sale. There was no actual transfer of
title from the owners-mortgagors to the foreclosing bank. Hence, the inclusion of the
said charge in the total redemption price was unwarranted and the corresponding amount
paid by the petitioners-mortgagors should be returned to them.

Mortgage;
Redemption; Process
and Calculation of
Redemption Price.

Sps. Benedict & Maricel Dy Tecklo vs. Rural Bank of Pamplona, Inc., represented by
its President/Manager, Juan Las, G.R. No. 171201, June 18, 2010.
In order to effect redemption, the judgment debtor or his successor -in-interest need only
pay the purchaser at the public auction sale the redemption amount composed of (1) the
price which the purchaser at the public auction sale paid for the property and (2) the
amount of any assessment or taxes which the purchaser may have paid on the property

after the purchase, plus the applicable interest. Respondent banks demand that the
second loan be added to the actual amount paid for the property at the public auction sale
finds no basis in law or jurisprudence. Regarding the computation of the redemption
amount, Section 78 of Republic Act No. 337, otherwise known as the General Banking
Act, governs in cases where the mortgagee is a bank.
Mortgage;
Registration.

Sps. Benedict & Maricel Dy Tecklo vs. Rural Bank of Pamplona, Inc., represented by
its President/Manager, Juan Las, G.R. No. 171201, June 18, 2010.
It is the act of registration which creates a constructive notice to the whole world and
binds third persons. By definition, registration is the ministerial act by which a deed,
contract, or instrument is inscribed in the records of the office of the Register of Deeds
and annotated on the back of the TCT covering the land subject of the deed, contract, or
instrument. A person dealing with registered land is not required to go beyond the TCT
to determine the liabilities attaching to the property. He is only charged with notice of
such burdens on the property as are duly annotated on the TCT. To require him to do
more is to defeat one of the primary objects of the Torrens system.
As to whether the second loan should have been annotated on the TCT of the mortgaged
property in order to bind third parties, the case of Tad-Y v. Philippine National Bank is in
point. The case involved a mortgage contract containing a provision that future loans
would also be secured by the mortgage. This Court ruled that since the mortgage
contract containing the blanket mortgage clause was already annotated on the TCT of the
mortgaged property, subsequent loans need not be separately annotated on the said TCT
in order to bind third parties.
Records of the present case show that the mortgage contract, containing the provision
that future loans would also be secured by the mortgage, is duly annotated on the TCT of
the mortgaged property. This constitutes sufficient notice to the world that the mortgage
secures not only the first loan but also future loans the mortgagor may obtain from
respondent bank. Applying the doctrine laid down in Tad-Y v. Philippine National Bank,
the second loan need not be separately annotated on the said TCT in order to bind third
parties such as petitioners.

Mortgage; requisites
for validity

Philippine National Bank v. Sps. Reblando; G.R. No. 194014. September 12, 2012
Article 2085 of the Civil Code provides that a mortgage contract, to be valid, must have
the following requisites: (a) that it be constituted to secure the fulfillment of a principal
obligation; (b) that the mortgagor be the absolute owner of the thing mortgaged; and (c)
that the persons constituting the mortgage have free disposal of their property, and in the
absence of free disposal, that they be legally authorized for the purpose.

Mortgage; Third party


mortgagor.

China Banking Corporation vs. QBRO Fishing Enterprises, Inc., G.R. No. 184556,
February 22, 2012.
Third persons who are not parties to the principal obligation may secure the latter by
pledging or mortgaging their own property. The fact that the loans were solely for the
benefit of TFRC would not invalidate the mortgage with respect to respondents property
as long as valid consent was given. Thus, when respondent executed the real estate
mortgage over its properties, such properties thereby secured the performance of the
principal obligation notwithstanding the fact that respondent itself had not assumed any
liability for the debt of TFRC.

Mortgage; validity of
blanket or dragnet
clauses.

Philippine Charity Sweepstakes Office (PCSO) vs. New Dagupan Metro Gas
Corporation, et al.; G.R. No. 173171, July 11, 2012.
As a general rule, a mortgage liability is usually limited to the amount mentioned in the
contract. However, the amounts named as consideration in a contract of mortgage do not
limit the amount for which the mortgage may stand as security if from the four corners
of the instrument the intent to secure future and other indebtedness can be gathered.
Alternatively, while a real estate mortgage may exceptionally secure future loans or
advancements, these future debts must be specifically described in the mortgage
contract. An obligation is not secured by a mortgage unless it comes fairly within the
terms of the mortgage contract.

The stipulation extending the coverage of a mortgage to advances or loans other than
those already obtained or specified in the contract is valid and has been commonly
referred to as a blanket mortgage or dragnet clause. In Prudential Bank v. Alviar,
this Court elucidated on the nature and purpose of such a clause as follows:
A blanket mortgage clause, also known as a dragnet clause in American
jurisprudence, is one which is specifically phrased to subsume all debts of past or
future origins. Such clauses are carefully scrutinized and strictly construed.
Mortgages of this character enable the parties to provide continuous dealings, the
nature or extent of which may not be known or anticipated at the time, and they
avoid the expense and inconvenience of executing a new security on each new
transaction. A dragnet clause operates as a convenience and accommodation to the
borrowers as it makes available additional funds without their having to execute
additional security documents, thereby saving time, travel, loan closing costs, costs
of extra legal services, recording fees, et cetera. xxx.
A mortgage that provides for a dragnet clause is in the nature of a continuing guaranty
and constitutes an exception to the rule than an action to foreclose a mortgage must be
limited to the amount mentioned in the mortgage contract. Its validity is anchored on
Article 2053 of the Civil Code and is not limited to a single transaction, but contemplates
a future course of dealing, covering a series of transactions, generally for an indefinite
time or until revoked. It is prospective in its operation and is generally intended to
provide security with respect to future transactions within certain limits, and
contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes
liable. In other words, a continuing guaranty is one that covers all transactions, including
those arising in the future, which are within the description or contemplation of the
contract of guaranty, until the expiration or termination thereof.
Mortgage; writ of
possession.

Souses Edmundo and Lourdes Sarrosa vs. Willy O. Dizon, G.R. No. 183027, July 26,
2010
The right of the purchaser to the possession of the foreclosed property becomes absolute
upon the expiration of the redemption period. The basis of this right to possession is the
purchasers ownership of the property. After the consolidation of title in the buyers
name for failure of the mortgagor to redeem, the writ of possession becomes a matter of
right and its issuance to a purchaser in an extrajudicial foreclosure is merely a ministerial
function.
In this case, petitioners failed to redeem the subject property within one year from the
date of registration of the certificate of sale. Hence, respondent consolidated ownership
over the subject property and TCT No. 162999 was issued in the name of respondent.
Thereafter, respondent filed an Ex- Parte Petition for Issuance of a Writ of Possession
over the subject property, and it was ministerial upon the RTC of Paranaque City, Branch
257 to issue the writ of possession in favor of respondent. Hence, it is clear that the RTC
of Paranaque City, Branch 257 did not gravely abuse its discretion in issuing the writ of
possession, considering that it was the ministerial duty of the RTC to issue the writ of
possession in favor of respondent, who had consolidated ownership over the subject
property after the redemption period expired.

Antonio
Leticia
Vega
vs. Social
Security
System,
et al.,seeks
G.R. No. 181672,
Mortgaged Property; whatSps.
happens
whenand
a person
sells
property,
and then
borrows,
and lender
September
20,
2010
to recover on loan by attaching the property that had been sold.

Mortgaged property;
what happens when
mortgagor sells
property without
mortgagees consent.

A party with a judgment for money can only go against properties that undisputably
belong to the borrower. If prior to the judgment, the borrower had sold the property, a
creditor can no longer go after that property.
Sps. Antonio and Leticia Vega vs. Social Security System, et al., G.R. No. 181672,
September 20, 2010
The question is: was Reyes disposal of the property in favor of the Vegas valid given a
provision in the mortgage agreement (between Reyes and SSS) that she could not do so
without the written consent of the SSS? The CA ruled that, under Article 1237 of the
Civil Code, the Vegas who paid amortizations to the SSS except the last on behalf of
Reyes, without the latters knowledge or against her consent, cannot compel the SSS to
subrogate them in her rights arising from the mortgage. Further, said the CA, the Vegas
claim of subrogation was invalid because it was done without the knowledge and

consent of the SSS as required under the mortgage agreement. But Article 1237 cannot
apply in this case since Reyes consented to the transfer of ownership of the mortgaged
property to the Vegas. Reyes also agreed for the Vegas to assume the mortgage and pay
the balance of her obligation to SSS.
Of course, paragraph 4 of the mortgage contract covering the property required Reyes to
secure SSS consent before selling the property. But, although such a stipulation is valid
and binding, in the sense that the SSS cannot be compelled while the loan was unpaid to
recognize the sale, it cannot be interpreted as absolutely forbidding her, as owner of the
mortgaged property, from selling the same while her loan remained unpaid. Such
stipulation contravenes public policy, being an undue impediment or interference on the
transmission of property.
Besides, when a mortgagor sells the mortgaged property to a third person, the creditor
may demand from such third person the payment of the principal obligation. The reason
for this is that the mortgage credit is a real right, which follows the property wherever it
goes, even if its ownership changes. Article 2129 of the Civil Code gives the mortgagee,
here the SSS, the option of collecting from the third person in possession of the
mortgaged property in the concept of owner. More, the mortgagor-owners sale of the
property does not affect the right of the registered mortgagee to foreclose on the same
even if its ownership had been transferred to another person. The latter is bound by the
registered mortgage on the title he acquired.
After the mortgage debt to SSS had been paid, however, the latter had no further
justification for withholding the release of the collateral and the registered title to the
party to whom Reyes had transferred her right as owner. Under the circumstance, the
Vegas had the right to sue for the conveyance to them of that title, having been validly
subrogated to Reyes rights.
Negligence;
Contributory
negligence.

Philippine National Railways Corporation, et al. vs. Purificacion Vizcara, et al., G.R.
No. 190022. February 15, 2012
Contributory negligence is conduct on the part of the injured party, contributing as a
legal cause to the harm he has suffered, which falls below the standard which he is
required to conform for his own protection. It is an act or omission amounting to want of
ordinary care on the part of the person injured which, concurring with the defendants
negligence, is the proximate cause of the injury.
Here, we cannot see how the respondents could have contributed to their injury when
they were not even aware of the forthcoming danger. It was established during the trial
that the jeepney carrying the respondents was following a ten-wheeler truck which was
only about three to five meters ahead. When the truck proceeded to traverse the railroad
track, Reynaldo, the driver of the jeepney, simply followed through. He did so under the
impression that it was safe to proceed. It bears noting that the prevailing circumstances
immediately before the collision did not manifest even the slightest indication of an
imminent harm. To begin with, the truck they were trailing was able to safely cross the
track. Likewise, there was no crossing bar to prevent them from proceeding or, at least, a
stoplight or signage to forewarn them of the approaching peril. Thus, relying on his
faculties of sight and hearing, Reynaldo had no reason to anticipate the impending
danger. He proceeded to cross the track and, all of a sudden, his jeepney was rammed by
the train being operated by the petitioners. Even then, the circumstances before the
collision negate the imputation of contributory negligence on the part of the respondents.
What clearly appears is that the accident would not have happened had the petitioners
installed reliable and adequate safety devices along the crossing to ensure the safety of
all those who may utilize the same.

Negligence; Proximate
cause.

Philippine National Railways Corporation, et al. vs. Purificacion Vizcara, et al., G.R.
No. 190022. February 15, 2012
The petitioners negligence in maintaining adequate and necessary public safety devices
in the area of the accident was the proximate cause of the mishap. Thus, there is no other
party to blame but the petitioners for their failure to ensure that adequate warning
devices are installed along the railroad crossing.

Negligence; Proximate

St. Josephs College, Sr., Josephini Ambatali, SFIC, and Rosalinda Tabugo vs. Jayson

Cause.

Miranda, represented by his father, Rodolfo S. Miranda, G.R. No. 182353, June 29,
2010
In this case, petitioners failed to show that the negligence of the student was the
proximate cause of the latters injury. We find that the immediate cause of the accident
was not the negligence of the student when he curiously looked into the test tube when
the chemicals suddenly exploded which caused his injury, but the sudden and
unexpected explosion of the chemicals independent of any intervening cause. Petitioners
could have prevented the mishap if they exercised a higher degree of care, caution and
foresight. The mishap that happened during the science experiment was foreseeable by
the school, its officials and teachers. This neglect in preventing a foreseeable injury and
damage equates to neglect in exercising the utmost degree of diligence required of
schools, its administrators and teachers, and, ultimately, was the proximate cause of the
damage and injury to the student. For a party to be liable, there must be a finding that the
act or omission considered as negligent was the proximate cause of the injury caused
because the negligence must have a causal connection to the accident.

Negligence; Standard
of Diligence for
Schools; In Loco
Parentis.

St. Josephs College, Sr., Josephini Ambatali, SFIC, and Rosalinda Tabugo vs. Jayson
Miranda, represented by his father, Rodolfo S. Miranda, G.R. No. 182353, June 29,
2010
The proximate cause of the students injury was the concurrent failure of petitioners to
prevent the foreseeable mishap that occurred during the conduct of the science
experiment. Petitioners were negligent by failing to exercise the higher degree of care,
caution and foresight incumbent upon the school, its administrators and teachers.
Article 218 of the Family Code, in relation to Article 2180 of the Civil Code, bestows
special parental authority on a school, its administrators and teachers, or the individual,
entity or institution engaged in child care, and these persons have responsibility over the
minor child while under their supervision, instruction or custody. Authority and
responsibility shall apply to all authorized activities whether inside or outside the
premises of the school, entity or institution. Teachers or heads of establishments of arts
and trades shall be liable for damages caused by their pupils and students or apprentices,
so long as they remain in their custody.
In this case, the petitioners negligence and failure to exercise the requisite degree of care
and caution was demonstrated by the following: (i) petitioner school did not take
affirmative steps to avert damage and injury to its students although it had full
information on the nature of dangerous science experiments conducted by the students
during class; (ii) petitioner school did not install safety measures to protect the students
who conduct experiments in class; (iii) petitioner school did not provide protective gears
and devices, specifically goggles, to shield students from expected risks and dangers;
and (iv) petitioner Tabugo (the teacher) was not inside the classroom the whole time her
class conducted the experiment, specifically, when the accident involving the student
occurred. In any event, the size of the classfifty (50) students conducting the
experiment is difficult to monitor.
Moreover, petitioners cannot simply deflect their negligence and liability by insisting
that petitioner Tabugo gave specific instructions to her science class not to look directly
into the heated compound.

Novation; lease
agreement; default.

RCJ Bus Lines, Incorporated vs. Master Tours and Travel Corporation G.R. No.
177232. October 11, 2012
Article 1292 of the Civil Code provides that in novation, it is imperative that it be so
declared in unequivocal terms, or that the old and the new obligations be on every point
incompatible with each other. In this case, the cause in a contract of lease is the
enjoyment of the thing; in a contract of deposit, it is the safekeeping of the thing. They
thus create essentially distinct obligations that would result in a novation only if the
parties entered into one after the other concerning the same subject matter.
The turning point in this case is whether or not the parties subsequently entered into an
agreement for the storage of the buses that superseded their prior lease agreement
involving the same buses. RCJ failed to present any clear proof that it agreed with
Master Tours to abandon the lease of the buses and in its place constitute RCJ as

depositary of the same, providing storage service to Master Tours for a fee. The only
evidence RCJ relied on is Master Tours letter in which it demanded the return of the
four buses which were placed in RCJs garage for safekeeping. For one thing, the letter
does not on its face constitute an agreement. It contains no contractual stipulations
respecting some warehousing arrangement between the parties concerning the buses. The
idea of RCJ safekeeping the buses for Master Tours is actually consistent with their lease
agreement. In fact, the lessee of a movable property has an obligation to return the thing
leased, upon the termination of the lease, just as he received it. Apart from delivering
the buses to RCJ, the agreement did not require any further act from Master Tours as a
condition to the exercise of its right to collect the lease fee.
Novation; loan;
restructuring.

Philippine National Bank Vs. Lilian S. Soriano G.R. No. 164051, October 3, 2012
Article 1292 of the Civil Code contemplates two kinds of novation. Novation is never
presumed, and the animus novandi, whether totally or partially, must appear by express
agreement of the parties, or by their acts that are too clear and unmistakable. The
contracting parties must incontrovertibly disclose that their object in executing the new
contract is to extinguish the old one. Upon the other hand, no specific form is required
for an implied novation, and all that is prescribed by law would be an incompatibility
between the two contracts. Nonetheless, both kinds of novation must still be clearly
proven.
Without a written contract stating in unequivocal terms that the parties were novating the
original loan agreement, eliminating an express novation, the Court looks to whether
there is an incompatibility between the Floor Stock Line secured by Trust receipts and
the subsequent restructured Omnibus Line which was supposedly approved by PNB. The
test of incompatibility is whether the two obligations can stand together, each one having
its independent existence. The obligation is not novated by an instrument that expressly
recognizes the old, changes only the terms of payment, adds other obligations not
incompatible with the old ones, or the new contract merely supplements the old one.
Besides, novation does not extinguish criminal liability.

Novation.

Mindanao Savings and Loan Association, Inc., etc. vs. Edward Willkom, et al.; G.R.
No. 178618, October 20, 2010
Novation is the extinguishment of an obligation by the substitution or change of the
obligation by a subsequent one which extinguishes or modifies the first, either by
changing the object or principal conditions, by substituting another in place of the
debtor, or by subrogating a third person in the rights of the creditor.
It is a rule that novation by substitution of debtor must always be made with the consent
of the creditor. The consent of the creditor to a novation by change of debtor is as
indispensable as the creditors consent in conventional subrogation in order that a
novation shall legally take place. Since novation implies a waiver of the right which the
creditor had before the novation, such waiver must be express.

Novation.

Violeta Tudtud Banate, et al. vs. Philippine Countryside Rural Bank (Liloan, Cebu),
Inc. and Teofilo Soon, Jr., G.R. No. 163825, July 13, 2010
Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive
when an old obligation is terminated by the creation of a new obligation that takes the
place of the former; it is merely modificatory when the old obligation subsists to the
extent that it remains compatible with the amendatory agreement. An extinctive novation
results either by changing the object or principal conditions (objective or real), or by
substituting the person of the debtor or subrogating a third person in the rights of the
creditor (subjective or personal). Under this mode, novation would have dual functions
one to extinguish an existing obligation, the other to substitute a new one in its place
requiring a conflux of four essential requisites: (1) a previous valid obligation; (2) an
agreement of all parties concerned to a new contract; (3) the extinguishment of the old
obligation; and (4) the birth of a valid new obligation.
The second requisite is lacking in this case. Novation presupposes not only the
extinguishment or modification of an existing obligation but, more importantly, the
creation of a valid new obligation. For the consequent creation of a new contractual
obligation, consent of both parties is, thus, required. As a general rule, no form of words

or writing is necessary to give effect to a novation. Nevertheless, where either or both


parties involved are juridical entities, proof that the second contract was executed by
persons with the proper authority to bind their respective principals is necessary.
Nuisance per se vs.
nuisance per accidens;
only nuisance per se
may be summarily
abated without judicial
intervention.

Marikina Demolition Office vs. Spouses Fortunito L. Madrona and Yolanda B. Pante;
G.R. No. 184478. March 21, 2012

Obligation,
Extinguishment
thereof; Dation in
payment.

Tan Shuy vs Spouses Guillermo Maulawin, et al., G.R. No. 190375. February 8, 2012

Obligation;
Extinguishment of
obligations;
consignation; when
tender of payment not
necessary; judicial in
character; difference
between consignation
and tender of payment.

Sps. Cacayorin v. Armed Forces and Police Mutual Benefit Association, Inc.; G.R.
No. 171298. April 15, 2013

If petitioner indeed found respondents fence to have encroached on the sidewalk, his
remedy is not to demolish the same summarily after respondents failed to heed his
request to remove it. Instead, he should go to court and prove respondents supposed
violations in the construction of the concrete fence. Indeed, unless a thing is a nuisance
per se, it may not be abated summarily without judicial intervention.
Respondents fence is not a nuisance per se. By its nature, it is not injurious to the health
or comfort of the community. It was built primarily to secure the property of respondents
and prevent intruders from entering it. And as correctly pointed out by respondents, the
sidewalk still exists. If petitioner believes that respondents fence indeed encroaches on
the sidewalk, it may be so proven in a hearing conducted for that purpose. Not being a
nuisance per se, but at most a nuisance per accidens, its summary abatement without
judicial intervention is unwarranted. Jaime S. Perez, both in his personal and official
capacity as Chief.

Indeed, pursuant to Article 1232 of the Civil Code, an obligation is extinguished by


payment or performance. There is payment when there is delivery of money or
performance of an obligation. Article 1245 of the Civil Code provides for a special mode
of payment called dation in payment (dacin en pago). There is dation in payment when
property is alienated to the creditor in satisfaction of a debt in money. Here, the debtor
delivers and transmits to the creditor the formers ownership over a thing as an accepted
equivalent of the payment or performance of an outstanding debt. In such cases, Article
1245 provides that the law on sales shall apply, since the undertaking really partakes in
one sense of the nature of sale; that is, the creditor is really buying the thing or
property of the debtor, the payment for which is to be charged against the debtors
obligation. Dation in payment extinguishes the obligation to the extent of the value of
the thing delivered, either as agreed upon by the parties or as may be proved, unless the
parties by agreement express or implied, or by their silence consider the thing as
equivalent to the obligation, in which case the obligation is totally extinguished.

Under Article 1256 of the Civil Code, the debtor shall be released from responsibility by
the consignation of the thing or sum due, without need of prior tender of payment, when
the creditor is absent or unknown, or when he is incapacitated to receive the payment at
the time it is due, or when two or more persons claim the same right to collect, or when
the title to the obligation has been lost.
Consignation is necessarily judicial. Article 1258 of the Civil Code specifically provides
that consignation shall be made by depositing the thing or things due at the disposal of
judicial authority. The said provision clearly precludes consignation in venues other than
the courts.
Elsewhere, what may be made is a valid tender of payment, but not consignation. The
two, however, must be distinguished.
Tender of payment must be distinguished from consignation. Tender is the antecedent
of consignation, that is, an act preparatory to the consignation, which is the principal,
and from which are derived the immediate consequences which the debtor desires or
seeks to obtain. Tender of payment may be extrajudicial, while consignation is
necessarily judicial, and the priority of the first is the attempt to make a private
settlement before proceeding to the solemnities of consignation. (8 Manresa 325).

Obligation; write-off
not an extinguishment
of obligation.

Ruben Reyna, et al. v. Commission on Audit; G.R. No. 167219. February 8, 2011
The Court rules that writing-off a loan does not equate to a condonation or release of a

debt by the creditor. As an accounting strategy, the use of write-off is a task that can help
a company maintain a more accurate inventory of the worth of its current assets. In
general banking practice, the write-off method is used when an account is determined to
be uncollectible and an uncollectible expense is recorded in the books of account. If in
the future, the debt appears to be collectible, as when the debtor becomes solvent, then
the books will be adjusted to reflect the amount to be collected as an asset. In turn,
income will be credited by the same amount of increase in the accounts receivable.
Write-off is not one of the legal grounds for extinguishing an obligation under the Civil
Code. It is not a compromise of liability. Neither is it a condonation, since in
condonation gratuity on the part of the obligee and acceptance by the obligor are
required. In making the write-off, only the creditor takes action by removing the
uncollectible account from its books even without the approval or participation of the
debtor.
Furthermore, write-off cannot be likened to a novation, since the obligations of both
parties have not been modified. When a write-off occurs, the actual worth of the asset is
reflected in the books of accounts of the creditor, but the legal relationship between the
creditor and the debtor still remains the same the debtor continues to be liable to the
creditor for the full extent of the unpaid debt.
Obligations;
conditions; fulfillment
thereof; deemed
fulfilled when obligor
voluntarily prevents it
fulfillment; requisites.

Sps. Nameal and Lourdes Bonrostro v. Sps. Juan and Constacia Luna, G.R.
No.172346, July 24, 2013
The spouses Bonrostro want to be relieved from paying interest on the amount of
P214,492.62 which the spouses Luna paid to Bliss as amortizations by asserting that they
were prevented by the latter from fulfilling such obligation. They invoke Art. 1186 of the
Civil Code which provides that the condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment.
However, the Court finds Art. 1186 inapplicable to this case. The said provision
explicitly speaks of a situation where it is the obligor who voluntarily prevents
fulfillment of the condition. Here, Constancia is not the obligor but the obligee.
Moreover, even if this significant detail is to be ignored, the mere intention to prevent
the happening of the condition or the mere placing of ineffective obstacles to its
compliance, without actually preventing fulfillment is not sufficient for the application
of Art. 1186. Two requisites must concur for its application, to wit: (1) intent to prevent
fulfillment of the condition; and, (2) actual prevention of compliance.

Obligations;
constructive
fulfillment; Article
1186 of the Civil
Code; requisites.

Carlos Lim, et al. v. Development Bank of the Philippines, G.R. No. 177050, July 1,
2013

Obligations; default in
performance;
liquidated damages.

Atlantic Erectors, Inc. vs. Court of Appeals and Herbal Cove Realty Corporation. G.R.
No. 170732. October 11, 2012

As aptly pointed out by the CA, Article 1186 of the Civil Code, which states that the
condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment,
does not apply in this case, viz:
Article 1186 enunciates the doctrine of constructive fulfillment of suspensive
conditions, which applies when the following three (3) requisites concur, viz: (1) The
condition is suspensive; (2) The obligor actually prevents the fulfillment of the
condition; and (3) He acts voluntarily. Suspensive condition is one the happening of
which gives rise to the obligation. It will be irrational for any Bank to provide a
suspensive condition in the Promissory Note or the Restructuring Agreement that
will allow the debtor-promissor to be freed from the duty to pay the loan without
paying it.

The parties to a contract are allowed to stipulate on liquidated damages to be paid in case
of breach. A perusal of the significant provisions of the Construction Contract and the
relevant construction documents would show that the rights to liquidated damages and to
terminate the contract are distinct remedies that are available to respondent. As long as
the contractor fails to finish the works within the period agreed upon by the parties
without justifiable reason and after the owner makes a demand, then liability for
damages as a consequence of such default arises.
With the modification of the contract period, petitioner was obliged to perform the works

and deliver the units. Yet it still reneged on its obligation. Assuming that the reasons for
valid extension indeed exist, still, petitioner should bear the consequences for the delay
when petitioner failed to meet its new deadline. While the Court has reduced the amount
of liquidated damages in some cases because of partial fulfillment of the contract and/or
the amount is unconscionable, the Court does not find the same to be applicable in this
case. As of the last certified billing, petitioners percentage accomplishment was only
62.57%. Hence, the Court applied the general rule not to ignore the freedom of the
parties to agree on such terms and conditions as they see fit as long as they are not
contrary to law, morals, good customs, public order or public policy.
Obligations; default;
borrower would not be
in default without
demand to pay.

Development Bank of the Philippines (DBP) v. Guarina Agricultural and Realty


Development Corporation, G.R. No. 160758. January 15, 2014

Obligations; delay;
additional works and
change order; principle
of quantum meruit.

Robert Pascua, doing business under the name and style Tri-Web Construction vs. G
& G Realty Corporation G.R. No. 196383. October 15, 2012

Considering that it had yet to release the entire proceeds of the loan, DBP could not yet
make an effective demand for payment upon Guarina Corporation to perform its
obligation under the loan. According to Development Bank of the Philippines v.
Licuanan, it would only be when a demand to pay had been made and was subsequently
refused that a borrower could be considered in default, and the lender could obtain the
right to collect the debt or to foreclose the mortgage.

Petitioner insists that respondent should pay the remaining balance on the contract price,
that it was respondents additional works and change orders which caused the delay in
the completion of the proposed project. Respondent anchors its non-payment of the
remaining balance primarily on the defects and delays incurred by petitioner in the
completion of the construction project.
Testimonial and documentary proof strongly show that the delay was caused by the
additional works and change order works required by respondent which were not part of
the original Agreement. Pursuant to the aforementioned contractual obligations,
petitioner completed the construction of the four-storey commercial building and twostorey kitchen with dining hall. Thus, this Court finds no legal basis for respondent to
not comply with its obligation to pay the balance of the contract price due the petitioner.
Under the principle of quantum meruit, a contractor is allowed to recover the reasonable
value of the thing or service rendered in order to avoid unjust enrichment.

Obligations; Delay.

Philippine Charter Insurance Corporation vs. Central Colleges of the Philippines and
Dynamic Planners and Construction Corporation, G.R. No. 180631- 33. February 22,
2012
The civil law concept of delay or default commences from the time the obligor demands,
judicially or extrajudicially, the fulfillment of the obligation from the obligee. In legal
parlance, demand is the assertion of a legal or procedural right.

Obligations; delay.

There are three requisites necessary for a finding of default. First, the obligation is
demandable and liquidated; second, the debtor delays performance; and third, the
creditor judicially or extrajudicially requires the debtors performance.
According to the CA, GMC did not make a demand on Spouses Ramos but merely
requested them to go to GMCs office to discuss the settlement of their account. In spite
of the lack of demand made on the spouses, however, GMC proceeded with the
foreclosure proceedings. Neither was there any provision in the Deed of Real Estate
Mortgage allowing GMC to extrajudicially foreclose the mortgage without need of
demand.
Indeed, Article 1169 of the Civil Code on delay requires the following:
Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfilment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may
exist:
(1) When the obligation or the law expressly so declares; x x x
As the contract in the instant case carries no such provision on demand not being

necessary for delay to exist, We agree with the appellate court that GMC should have
first made a demand on the spouses before proceeding to foreclose the real estate
mortgage.
Obligations;
extinguishment of
obligations;
compensation;
requisites.

Union Bank of the Philippines v. Development Bank of the Philippines, G.R. No.
191555, January 20, 2014
Compensation is defined as a mode of extinguishing obligations whereby two persons in
their capacity as principals are mutual debtors and creditors of each other with respect to
equally liquidated and demandable obligations to which no retention or controversy has
been timely commenced and communicated by third parties.
The requisites therefor are provided under Article 1279 of the Civil Code which reads as
follows:
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.
The rule on legal compensation is stated in Article 1290 of the Civil Code which
provides that [w]hen all the requisites mentioned in Article 1279 are present,
compensation takes effect by operation of law, and extinguishes both debts to the
concurrent amount, even though the creditors and debtors are not aware of the
compensation.

Obligations; force
majeure; concept of
force majeure.

Metro Concast Steel Corp., Spouses Jose S. Dychiao and Tiu Oh Yan, et al. v. Allied
Bank Corporation, G.R. No. 177921, December 4, 2013.
Anent petitioners reliance on force majeure, suffice it to state that Peakstars breach of
its obligations to Metro Concast arising from the MoA cannot be classified as a
fortuitous event under jurisprudential formulation.
Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It
is therefore, not enough that the event should not have been foreseen or anticipated, as is
commonly believed but it must be one impossible to foresee or to avoid. The mere
difficulty to foresee the happening is not impossibility to foresee the same.
To constitute a fortuitous event, the following elements must concur: (a) the cause of the
unforeseen and unexpected occurrence or of the failure of the debtor to comply with
obligations must be independent of human will; (b) it must be impossible to foresee the
event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to
avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill
obligations in a normal manner; and, (d) the obligor must be free from any participation
in the aggravation of the injury or loss.

Obligations; if an
obligation consists of
payment of money,
and the debtor incurs
in delay, the indemnity
for damages, there
being no stipulation to
the contrary, shall be
the payment of the
interest agreed upon,
and in the absence of
stipulation, the legal
interest.

Sps. Nameal and Lourdes Bonrostro v. Sps. Juan and Constacia Luna, G.R.
No.172346, July 24, 2013

Obligations; Joint
Obligation.

Marsman Drysdale vs. Philippine Geoanalytics, et al. and Gotesco Properties vs.
Marsman Drysdale Land, Inc., et al., G.R. No. 183374 & G.R. No. 183376, June 29,
2010

Under Article 2209 of the Civil Code, if the obligation consists in the payment of a sum
of money, and the debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest x x x. There being no stipulation on interest in
case of delay in the payment of amortization, the CA thus correctly imposed interest at
the legal rate which is now 12%per annum

The core issue to be resolved then is which between joint venturers Marsman Drysdale
and Gotesco bears the liability to pay PGI its unpaid claims. To Marsman Drysdale, it is
Gotesco since, under the joint venture agreement (JVA), construction funding for the
project was to be obtained from Gotescos cash contribution, as its (Marsman
Drysdales) participation in the venture was limited to the land. Gotesco maintains,
however, that it has no liability to pay PGI since it was due to the fault of Marsman
Drysdale that PGI was unable to complete its undertaking.
The Court finds Marsman Drysdale and Gotesco jointly liable to PGI. PGI executed a
technical service contract with the joint venture but was never a party to the JVA. While
the JVA clearly spelled out, inter alia, the capital contributions of Marsman Drysdale
(land) and Gotesco (cash) as well as the funding and financing mechanism for the
project, the same cannot be used to defeat the lawful claim of PGI against the two joint
venturers-partners. The Court noted Articles 1207 and 1208 of the Civil Code, which
respectively read:
Art. 1207. The concurrence of two or more creditors or of two or more debtors in
one and the same obligation does not imply that each one of the former has a
right to demand, or that each one of the latter is bound to render, entire
compliance with the prestations. There is a solidary liability only when the
obligation expressly so states, or when the law or nature of the obligation requires
solidarity.
Art. 1208. If from the law, or the nature or the wording of the obligations to which
the preceding article refers the contrary does not appear, the credit or debt shall be
presumed to be divided into as many equal shares as there are creditors or
debtors, the credits or debts being considered distinct from one another, subject to
the Rules of Court governing the multiplicity of suits. (Emphasis, the Courts.)
It stated that it could be presumed that the obligation owing to PGI is joint between
Marsman Drysdale and Gotesco.
The only time that the JVA may be made to apply in the present petitions is when the
liability of the joint venturers to each other would set in.
Obligations; novation
as a mode of
extinguishing an
obligation; concept;
novation is never
presumed but must be
clearly and
unequivocally shown.

Philippine Reclamation Authority (formerly known as thePublic Estates Authority v.


Romago, Inc./Romago, Inc. Vs. Philippine Reclamation Authority,G.R. Nos. 174665
and 175221, September 18, 2013

Obligations; novation;
concept; elements.

Philippine Reclamation Authority (formerly known as the Public Estates Authority v.


Romago, Inc./Romago, Inc. Vs. Philippine Reclamation Authority, G.R. Nos. 174665
and 175221, September 18, 2013

Novation is a mode of extinguishing an obligation by changing its objects or principal


obligations, by substituting a new debtor in place of the old one, or by subrogating a
third person to the rights of the creditor. It is the substitution of a new contract, debt, or
obligation for an existing one between the same or different parties. The settled rule is
that novation is never presumed, but must be clearly and unequivocally shown. In order
for a new agreement to supersede the old one, the parties to a contract must expressly
agree that they are abrogating their old contract in favor of a new one. Thus, the mere
substitution of debtors will not result in novation, and the fact that the creditor accepts
payments from a third person, who has assumed the obligation, will result merely in the
addition of debtors and not novation, and the creditor may enforce the obligation against
both debtors. If there is no agreement as to solidarity, the first and new debtors are
considered obligated jointly.

In novation, a subsequent obligation extinguishes a previous one through substitution


either by changing the object or principal conditions, by substituting another in place of
the debtor, or by subrogating a third person into the rights of the creditor. Novation
requires (a) the existence of a previous valid obligation; (b) the agreement of all parties
to the new contract; (c) the extinguishment of the old contract; and (d) the validity of the
new one. There cannot be novation in this case since the proposed substituted parties did
not agree to the PRAs supposed assignment of its obligations under the contract for the
electrical and light works at Heritage Park to the HPMC. The latter definitely and clearly
rejected the PRAs assignment of its liability under that contract to the HPMC.

Obligations; payment;
extinguishment of
obligation.

Spouses Miniano B. Dela Cruz and Leta L. Dela Cruz vs. Ana Marie Concepcion G.R.
No. 172825. October 11, 2012
Respondents obligation consists of payment of a sum of money. In order to extinguish
said obligation, payment should be made to the proper person as set forth in Article 1240
of the Civil Code. Admittedly, payment of the remaining balance of P200,000 was not
made to the creditors themselves. Respondent claims that Losloso was the authorized
agent of petitioners, but the latter dispute it. Loslosos authority to receive payment was
embodied in petitioners letter addressed to respondent where they informed respondent
of the amounts they advanced for the payment of the 1997 real estate taxes. In said letter,
petitioners reminded respondent of her remaining balance, together with the amount of
taxes paid. Taking into consideration the busy schedule of respondent, petitioners
advised the latter to leave the payment to a certain Dori who admittedly is Losloso, or
to her trusted helper. This is an express authority given to Losloso to receive payment.

Obligations; solidary
liability with a
corporation.

Queensland-Tokyo Commodities, Inc., et al. vs. Thomas George, G.R. No. 172727.
September 8, 2010
Doctrine dictates that a corporation is invested by law with a personality separate and
distinct from those of the persons composing it, such that, save for certain exceptions,
corporate officers who entered into contracts in behalf of the corporation cannot be held
personally liable for the liabilities of the latter. Personal liability of a corporate director,
trustee, or officer, along (although not necessarily) with the corporation, may validly
attach, as a rule, only when (1) he assents to a patently unlawful act of the corporation,
or when he is guilty of bad faith or gross negligence in directing its affairs, or when there
is a conflict of interest resulting in damages to the corporation, its stockholders, or other
persons; (2) he consents to the issuance of watered down stocks or who, having
knowledge thereof, does not forthwith file with the corporate secretary his written
objection thereto; (3) he agrees to hold himself personally and solidarily liable with the
corporation; or (4) he is made by a specific provision of law personally answerable for
his corporate action.

Obligations; solidary
obligations; surety not
an indispensable party

Living@Sense, Inc. v. Malayan Insurance Company, Inc.; G.R. No. 193753.


September 26, 2012
Records show that when DMI secured the surety and performance bonds from
respondent in compliance with petitioners requirement, respondent bound itself jointly
and severally with DMI for the damages and actual loss that petitioner may suffer
should DMI fail to perform its obligations under the Agreement. The term jointly and
severally expresses a solidary obligation granting petitioner, as creditor, the right to
proceed against its debtors, i.e., respondent or DMI.
The nature of the solidary obligation under the surety does not make one an
indispensable party. An indispensable party is a party-in-interest without whom no final
determination can be had of an action, and who shall be joined mandatorily either as
plaintiffs or defendants. The presence of indispensable parties is necessary to vest the
court with jurisdiction, thus, without their presence to a suit or proceeding, the judgment
of a court cannot attain real finality. The absence of an indispensable party renders all
subsequent actions of the court null and void for want of authority to act, not only as to
the absent parties but even as to those present.

Obligations; Surety.

Philippine Charter Insurance Corporation vs. Central Colleges of the Philippines and
Dynamic Planners and Construction Corporation, G.R. No. 180631-33. February 22,
2012
A surety under Article 2047 of the New Civil Code solidarily binds itself with the
principal debtor to assure the fulfillment of the obligation. As provided in Article 2047,
the surety undertakes to be bound solidarily with the principal obligor. That undertaking
makes a surety agreement an ancillary contract as it presupposes the existence of a
principal contract. Although the contract of a surety is in essence secondary only to a
valid principal obligation, the surety becomes liable for the debt or duty of another
although it possesses no direct or personal interest over the obligations nor does it
receive any benefit therefrom. The suretys obligation is not an original and direct one
for the performance of his own act, but merely accessory or collateral to the obligation

contracted by the principal. Nevertheless, although the contract of a surety is in essence


secondary only to a valid principal obligation, his liability to the creditor or promisee of
the principal is said to be direct, primary and absolute; in other words, he is directly and
equally bound with the principal.
Suretyship, in essence, contains two types of relationship the principal relationship
between the obligee and the obligor, and the accessory surety relationship between the
principal and the surety. In this arrangement, the obligee accepts the suretys solidary
undertaking to pay if the obligor does notpay. Such acceptance, however, does not
change in any material way the obligees relationship with the principal obligor. Neither
does it make the surety an active party to the principal obligee-obligor relationship.
Thus, the acceptance does not give the surety the right to intervene in the principal
contract. The suretys role arises only upon the obligors default, at which time, it can be
directly held liable by the obligee for payment as a solidary obligor.
Ownership, coownership.

Aurora L. Tecson, et al. v. Minverva, Maria, et al. all surnamed Fausto and Isabel
Vda. De Fausto; G.R. No. 180683. June 1, 2011
The portions belonging to the co-owners in the co-ownership shall be presumed equal,
unless the contrary is proved.

Ownership; acquisitive
prescription.

Aniceto Bangis, substituted by his heirs, namely Rodolfo B. Bangis, et al. vs. Heirs of
Serafin and Salud Adolfo, namely: Luz A. Banniester, et al.; G.R. No. 190875, June
13, 2012
The claim of the Heirs of Bangis that since they have been in possession of the subject
land since 1972 or for 28 years reckoned from the filing of the complaint in 2000 then,
the present action has prescribed is untenable. It bears to note that while Bangis indeed
took possession of the land upon its alleged mortgage, the certificate of title (TCT No.
6313) remained with Adolfo and upon his demise, transferred to his heirs, thereby
negating any contemplated transfer of ownership. Settled is the rule that no title in
derogation of that of the registered owner can be acquired by prescription or adverse
possession. Moreover, even if acquisitive prescription can be appreciated in this case, the
Heirs of Bangis possession being in bad faith is two years shy of the requisite 30-year
uninterrupted adverse possession required under Article 1137 of the Civil Code.
Consequently, the Heirs of Bangis cannot validly claim the rights of a builder in good
faith as provided for under Article 449 in relation to Article 448 of the Civil Code. Thus,
the order for them to surrender the possession of the disputed land together with all its
improvements was properly made.

Ownership; by
acquisitive
prescription.

Delfin Lamsis, et al. vs. Margarita Semon Dong- e; G.R. No. 173021, October 20,
2010
Assuming that the subject land may be acquired by prescription, we cannot accept
petitioners claim of acquisition by prescription. Petitioners admitted that they had
occupied the property by tolerance of the owner thereof. Having made this admission,
they cannot claim that they have acquired the property by prescription unless they can
prove acts of repudiation. It is settled that possession, in order to ripen into ownership,
must be in the concept of an owner, public, peaceful and uninterrupted. Possession not in
the concept of owner, such as the one claimed by petitioners, cannot ripen into
ownership by acquisitive prescription, unless the juridical relation is first expressly
repudiated and such repudiation has been communicated to the other party. Acts of
possessory character executed due to license or by mere tolerance of the owner are
inadequate for purposes of acquisitive prescription. Possession by tolerance is not
adverse and such possessory acts, no matter how long performed, do not start the
running of the period of prescription.
In the instant case, petitioners made no effort to allege much less prove any act of
repudiation sufficient for the reckoning of the acquisitive prescription. At most, we can
find on record the sale by petitioners Delfin and Agustin of parts of the property to
petitioners Maynard and Jose; but the same was done only in 1998, shortly before
respondent filed a case against them. Hence, the 30-year period necessary for the
operation of acquisitve prescription had yet to be attained.

Ownership;
possession.

Feliciano Gaitero and Nelia Gaitero vs. Generoso Almeria and Teresita Almeria, G.R.
No. 181812. June 8, 2011
Possession is an essential attribute of ownership. Necessarily, whoever owns the
property has the right to possess it. Here, between the Almerias registered title of
ownership and Gaiteros verbal claim to the same, the formers title is far superior.
As the MCTC, the RTC, and the CA found, the disputed area forms part of the Almerias
registered title. Upon examination, this fact is also confirmed by the subdivision plan
which partitioned Tomagans original Lot 9960. The evidence shows that the Almerias
bought Lot 9964, which includes the disputed area, from the Asenjo heirs in whose
names the land was originally registered. Since Gaitero was unable to prove that fraud
attended the titling of the disputed area, the Almerias right over the same became
indefeasible and incontrovertible a year from registration.
The Court cannot consider Gaiteros claim of ownership of the disputed area, based on
his alleged continuous possession of the same, without running afoul of the rule that bars
collateral attacks of registered titles. Gaiteros action before the MCTC is one for
recovery of possession of the disputed area. An adjudication of his claim of ownership
over the same would be out of place in such kind of action. A r egistered title cannot be
impugned, altered, changed, modified, enlarged, or diminished, except in a direct
proceeding permitted by law. Otherwise, reliance on registered titles would be lost.
Gaiteros action is prohibited by law and should be dismissed.
Gaiteros theory of laches cannot vest on him the ownership of the disputed area. To
begin with, laches is a consideration in equity and therefore, anyone who invokes it must
come to court with clean hands, for he who has done inequity shall not have equity.
Here, Gaiteros claim of laches against the Almerias can be hurled against him. When the
lot that the Almerias acquired (Lot 9964) was registered in 1979, Gaitero had
constructive, if not actual, notice that the cadastral survey included the disputed area as
part of the land that Leon Asenjo claimed. Yet, neither Gaitero nor his mother
complained or objected to such inclusion.
Worse, when Gaitero saw the subdivision plan covering Tomagans original Lot 9960 in
1993, it showed that the disputed area fell outside the boundaries of Lot 9960-A which
he claimed. Still, Gaitero did nothing to correct the alleged mistake. He is by his inaction
clearly estopped from claiming ownership of the disputed area. He cannot avail himself
of the law of equity.

Ownership;
prescription; element
of possession; in an
equitable mortgage.

Magdalena C. Reyes, et al. vs. Amanda S. Reyes, et al., G.R. No. 158377, August 13,
2010.
Did respondents acquire the mortgaged property through prescription? It is true that the
respondent Alejandro became a co-owner of the property by right of representation upon
the death of his father, Jose Sr. As a co-owner, however, his possession was like that of a
trustee and was not regarded as adverse to his co-owners but in fact beneficial to all of
them. Yet, the respondents except to the general rule, asserting that Alejandro, having
earlier repudiated the co-ownership, acquired ownership of the property through
prescription. The Court cannot accept the respondents posture.
In order that a co-owners possession may be deemed adverse to that of the cestui que
trust or the other co-owners, the following elements must concur:
1. The co-owner has performed unequivocal acts of repudiation of the co-ownership
amounting to an ouster of the cestui que trust or the other co-owners;
2. Such positive acts of repudiation have been made known to the cestui que trust or the
other co- owners;
3. The evidence on the repudiation is clear and conclusive; and
4. His possession is open, continuous, exclusive, and notorious.
The concurrence of the foregoing elements was not established herein. For one,
Alejandro did not have adverse and exclusive possession of the property, as, in fact, the
other co-owners had continued to possess it, with Alejandro and his heirs occupying only
a portion of it. Neither did the cancellation of the previous tax declarations in the name
of Leoncia, the previous co-owner, and the issuance of a new one in Alejandros name,
and Alejandros payment of the realty taxes constitute repudiation of the co- ownership.

The sole fact of a co-owner declaring the land in question in his name for taxation
purposes and paying the land taxes did not constitute an unequivocal act of repudiation
amounting to an ouster of the other co-owner and could not constitute adverse
possession as basis for title by prescription. Moreover, according to Blatero v.
Intermediate Appellate Court, if a sale a retro is construed as an equitable mortgage, then
the execution of an affidavit of consolidation by the purported buyer to consolidate
ownership of the parcel of land is of no consequence and the constructive possession
of the parcel of land will not ripen into ownership, because only possession acquired and
enjoyed in the concept of owner can serve as title for acquiring dominion.
In fine, the respondents did not present proof showing that Alejandro had effectively
repudiated the co- ownership. Their bare claim that Alejandro had made oral demands to
vacate to his co-owners was self- serving and insufficient. Alejandros execution of the
affidavit of consolidation of ownership on August 21, 1970 and his subsequent execution
on October 17, 1970 of the joint affidavit were really equivocal and ambivalent acts that
did not manifest his desire to repudiate the co-ownership.
The only unequivocal act of repudiation was done by the respondents when they filed the
instant action for quieting of title on September 28, 1994, nearly a year after Alejandros
death on September 2, 1993. However, their possession could not ripen into ownership
considering that their act of repudiation was not coupled with their exclusive possession
of the property. Heirs of Jose Reyes, jr. namely; Magdalena Reyes, et.al.
Ownership;
prescription;
requirement of
possession;
compromise
agreement does not
constitute
possession.

Rosario P. Tan vs. Artemio G. Ramirez, et al., G.R. No. 158929, August 3, 2010
Prescription, as a mode of acquiring ownership and other real rights over immovable
property, is concerned with lapse of time in the manner and under conditions laid down
by law, namely, that the possession should be in the concept of an owner, public,
peaceful, uninterrupted, and adverse. The party who asserts ownership by adverse
possession must prove the presence of the essential elements of acquisitive prescription.
Acquisitive prescription of real rights may be ordinary or extraordinary. Ordinary
acquisitive prescription requires possession in good faith and with just title for ten years.
In extraordinary prescription, ownership and other real rights over immovable property
are acquired through uninterrupted adverse possession for thirty years without need of
title or of good faith.
Possession in good faith consists in the reasonable belief that the person from whom
the thing is received has been the owner thereof, and could transmit his ownership. There
is just title when the adverse claimant came into possession of the property through
one of the modes recognized by law for the acquisition of ownership or other real rights,
but the grantor was not the owner or could not transmit any right.
The Supreme Court found that the Court of Appeals mistakenly relied upon a
compromise agreement to conclude that the respondents were possessors in good faith
and with just title who acquired the property through ordinary acquisitive prescription.
The main purpose of a compromise agreement is to put an end to litigation because of
the uncertainty that may arise from it. Reciprocal concessions are the very heart and life
of every compromise agreement. By the nature of a compromise agreement, it brings the
parties to agree to something that neither of them may actually want, but for the peace it
will bring them without a protracted litigation. Thus, no right can arise from the
compromise agreement because the parties executed the same only to buy peace and to
write finis to the controversy; it did not create or transmit ownership rights over the
subject property. In executing the compromise agreement, the parties, in effect, merely
reverted to their situation before the earlier civil case was filed.
Neither can the respondents benefit from the contract of sale of the subject property to
support their claim of possession in good faith and with just title. In the vintage case
[Digesters Note: Use of word vintage to describe a case, the ponentes, not mine] of
Leung Yee v. F.L. Strong Machinery Co. and Williamson, the court had noted that
[O]ne who purchases real estate with knowledge of a defect or lack of title in his vendor
cannot claim that he has acquired title thereto in good faith as against the true owner of
the land or of an interest therein; and the same rule must be applied to one who has
knowledge of facts which should have put him upon such inquiry and investigation as
might be necessary to acquaint him with the defects in the title of his vendor. Good
faith, or the want of it, can be ascertained only from the acts of the one claiming it, as it

is a condition of mind that can only be judged by actual or fancied token or signs.
In the present case, no dispute exists that Roberto, without Nicomedesas knowledge or
participation, bought the subject property on September 16, 1977 or during the pendency
of Civil Case No. B-565. Roberto, therefore, had actual knowledge that Belachos claim
to ownership of the subject property, as Gavinos purported heir, was disputed because
he (Roberto) and Nicomedesa were the defendants in Civil Case No. B-565. Roberto
even admitted that he bought the subject property from Belacho to avoid any trouble.
He, thus, cannot claim that he acted in good faith under the belief that there was no
defect or dispute in the title of the vendor, Belacho.
Not being a possessor in good faith and with just title, the ten-year period required for
ordinary acquisitive prescription cannot apply in Robertos favor. Even the thirty-year
period under extraordinary acquisitive prescription has not been met because of the
respondents claim to have been in possession, in the concept of owner, of the subject
property for only twenty-four years, from the time the subject property was tax declared
in 1974 to the time of the filing of the complaint in 1998.
P.D. No. 1529; Torrens
title; collateral attack;
indefeasibility of title
vs. possession

Heirs of Jose Maligaso, Sr., etc. vs. Sps. Simon D. Encinas and Esperanza E. Encinas;
G.R. No. 182716, June 20, 2012
In Soriente v. Estate of the Late Arsenio E. Concepcion, a similar allegation possession
of the property in dispute since time immemorial was met with rebuke as such
possession, for whatever length of time, cannot prevail over a Torrens title, the validity
of which is presumed and immune to any collateral attack.
The validity of respondents certificate of title cannot be attacked by petitioner in this
case for ejectment. Under Section 48 of Presidential Decree No. 1529, a certificate of
title shall not be subject to collateral attack. It cannot be altered, modified or cancelled,
except in a direct proceeding for that purpose in accordance with law. The issue of the
validity of the title of the respondents can only be assailed in an action expressly
instituted for that purpose. Whether or not petitioner has the right to claim ownership
over the property is beyond the power of the trial court to determine in an action for
unlawful detainer.
Given the foregoing, the petitioners attempt to remain in possession by casting a cloud
on the respondents title cannot prosper.
Neither will the sheer lapse of time legitimize the petitioners refusal to vacate the
subject area or bar the respondents from gaining possession thereof. As ruled in Spouses
Ragudo v. Fabella Estate Tenants Association, Inc., laches does not operate to deprive
the registered owner of a parcel of land of his right to recover possession thereof.

P.D. No. 1529; Torrens


title; collateral attack.

Sps. Ambrosio Decaleng [as substituted by his heirs] and Julia Wanay Decaleng vs.
Bishop of the Missionary District of Protestant Episcopal Church in the United States
of America, et al.; G.R. No. 171209 & UDK-13672. June 27, 2012
As for the spouses Decalengs contention that Certificate of Title No. 1 does not exist,
the Court fully agrees with the Court of Appeals that the same constitutes a collateral
attack of Certificate of Title No. 1. It is a hornbook principle that a certificate of title
serves as evidence of an indefeasible title to the property in favor of the person whose
name appears therein. In order to establish a system of registration by which recorded
title becomes absolute, indefeasible, and imprescriptible, the legislature passed Act No.
496, which took effect onFebruary 1, 1903. Act No. 496 placed all registered lands in the
Philippines under the Torrens system. The Torrens system requires the government to
issue a certificate of title stating that the person named in the title is the owner of the
property described therein, subject to liens and encumbrances annotated on the title or
reserved by law. The certificate of title is indefeasible and imprescriptible and all claims
to the parcel of land are quieted upon issuance of the certificate. Presidential Decree No.
1529, known as the Property Registration Decree, enacted on June 11, 1978, amended
and updated Act No. 496.
Section 48 of Presidential Decree No. 1529 provides:
Section 48. Certificate not subject to collateral attack. A certificate of title shall not be
subject to collateral attack. It cannot be altered, modified, or cancelled except in a direct

proceeding in accordance with law.


A Torrens title cannot be attacked collaterally, and the issue on its validity can be raised
only in an action expressly instituted for that purpose. A collateral attack is made when,
in another action to obtain a different relief, the certificate of title is assailed as an
incident in said action.
Partnership; existence
of a partnership.

Heirs of Jose Lim, represented by Elenito Lim vs. Juliet Villa Lim, G.R. No. 172690,
March 3, 2010
A partnership exists when two or more persons agree to place their money, effects, labor,
and skill in lawful commerce or business, with the understanding that there shall be a
proportionate sharing of the profits and losses among them. A contract of partnership is
defined by the Civil Code as one where two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of dividing
the profits among themselves. Undoubtedly, the best evidence would have been the
contract of partnership or the articles of partnership. Unfortunately, there is none in this
case, because the alleged partnership was never formally organized. Nonetheless, we are
asked to determine who between Jose and Elfledo was the partner in the trucking
business. The evidence presented by petitioners falls short of the quantum of proof
required to establish that: (1) Jose was the partner and not Elfledo; and (2) all the
properties acquiredby Elfledo and respondent form part of the estate of Jose, having been
derived from the alleged partnership. Petitioners heavily rely on Jimmys testimony. But
that testimony is just one piece of evidence against respondent. Applying the provisions
of Article 1769 of the Civil Code (on whether a partnership exists), the following
circumstances tend to prove that Elfledo was himself the partner of Jimmy and Norberto:
(1) Cresencia testified that Jose gave Elfledo P50,000.00, as share in the partnership, on
a date that coincided with the payment of the initial capital in the partnership; (2) Elfledo
ran the affairs of the partnership, wielding absolute control, power and authority, without
any intervention or opposition whatsoever from any of petitioners herein; (3) all of the
properties, particularly the nine trucks of the partnership, were registered in the name of
Elfledo; (4) Jimmy testified that Elfledo did not receive wages or salaries from the
partnership, indicating that what he actually received were shares of the profits of the
business; and (5) none of the petitioners, as heirs of Jose, the alleged partner, demanded
periodic accounting from Elfledo during his lifetime. Furthermore, petitioners failed to
adduce any evidence to show that the real and personal properties acquired and
registered in the namesof Elfledo and respondent formed part of the estate of Jose,
having been derived from Joses alleged partnership with Jimmy and Norberto. They
failed to refute respondents claim that Elfledo and respondent engaged in other
businesses. Edison even admitted that Elfledo also sold Interwood lumber as a sideline.
Petitioners could not offer any credible evidence other than their bare assertions. The
testimonies prove it was through Elfredos efforts and hard work that the partnership was
able to acquire more trucks and otherwise prosper. Even the appellant participated in the
affairs of the partnership by acting as the bookkeeper sans salary. It is notable too that
Jose Lim died when the partnership was barely a year old, and the partnership and its
business not only continued but also flourished. If it were true that it was Jose Lim and
not Elfledo who was the partner, then upon his death the partnershipshould have been
dissolved and its assets liquidated. On the contrary, these were not done but instead its
operation continued under the helm of Elfledo and without any participation from the
heirs ofJose Lim.

Partnership; joint
venture.

Josefina P. Realubit vs. Prosencio D. Jaso and Eden G. Jaso; G.R. No. 178782,
September 21, 2011
Generally understood to mean an organization formed for some temporary purpose, a
joint venture is likened to a particular partnership or one which has for its object
determinate things, their use or fruits, or a specific undertaking, or the exercise of a
profession or vocation. The rule is settled that joint ventures are governed by the law on
partnerships which are, in turn, based on mutual agency or delectus personae. Insofar as
a partners conveyance of the entirety of his interest in the partnership is concerned,
Article 1813 of the Civil Code provides as follows:
Art. 1813. A conveyance by a partner of his whole interest in the partnership does not
itself dissolve the partnership, or, as against the other partners in the absence of
agreement, entitle the assignee, during the continuance of the partnership, to interfere
in the management or administration of the partnership business or affairs, or to

require any information or account of partnership transactions, or to inspect the


partnership books; but it merely entitles the assignee to receive in accordance with
his contracts the profits to which the assigning partners would otherwise be entitled.
However, in case of fraud in the management of the partnership, the assignee may
avail himself of the usual remedies.
In the case of a dissolution of the partnership, the assignee is entitled to receive his
assignors interest and may require an account from the date only of the last account
agreed to by all the partners.
From the foregoing provision, it is evident that (t)he transfer by a partner of his
partnership interest does not make the assignee of such interest a partner of the firm, nor
entitle the assignee to interfere in the management of the partnership business or to
receive anything except the assignees profits. The assignment does not purport to
transfer an interest in the partnership, but only a future contingent right to a portion of
the ultimate residue as the assignor may become entitled to receive by virtue of his
proportionate interest in the capital. Since a partners interest in the partnership includes
his share in the profits, we find that the CA committed no reversible error in ruling that
the Spouses Jaso are entitled to Biondos share in the profits, despite Juanitas lack of
consent to the assignment of said Frenchmans interest in the joint venture. Although
Eden did not, moreover, become a partner as a consequence of the assignment and/or
acquire the right to require an accounting of the partnership business, the CA correctly
granted her prayer for dissolution of the joint venture conformably with the right granted
to the purchaser of a partners interest under Article 1831 of the Civil Code.
Payment;
extinguishment of
obligation.

The RTC and the Court of Appeals correctly ruled that the petitioners obligation has not
been extinguished. The petitioners obligation consists of payment of a sum of money. In
order for petitioners payment to be effective in extinguishing its obligation, it must be
made to the proper person. Article 1240 of the Civil Code states:
Art. 1240. Payment shall be made to the person in whose favor the obligation has
been constituted, or his successor in interest, or any person authorized to receive it.
In Cembrano v. City of Butuan, this Court elucidated on how payment will effectively
extinguish an obligation, to wit:
Payment made by the debtor to the person of the creditor or to one authorized by him
or by the law to receive it extinguishes the obligation. When payment is made to the
wrong party, however, the obligation is not extinguished as to the creditor who is
without fault or negligence even if the debtor acted in utmost good faith and by
mistake as to the person of the creditor or through error induced by fraud of a third
person.
In general, a payment in order to be effective to discharge an obligation, must be
made to the proper person. Thus, payment must be made to the obligee himself or to
an agent having authority, express or implied, to receive the particular payment.
Payment made to one having apparent authority to receive the money will, as a rule,
be treated as though actual authority had been given for its receipt. Likewise, if
payment is made to one who by law is authorized to act for the creditor, it will work
a discharge. The receipt of money due on a judgment by an officer authorized by law
to accept it will, therefore, satisfy the debt.
The respondent was able to establish that the LBP check was not received by her or by
her authorized personnel. The PNPs own records show that it was claimed and signed
for by Cruz, who is openly known as being connected to Highland Enterprises, another
contractor. Hence, absent any showing that the respondent agreed to the payment of the
contract price to another person, or that she authorized Cruz to claim the check on her
behalf, the payment, to be effective must be made to her.

Payment; from a third


person.

Land Bank of the Philippines vs. Alfredo Ong, G.R. No. 190755, November 24, 2010
Land Bank contends that Art. 1236 of the Civil Code backs their claim that Alfredo
should have sought recourse against the Spouses Sy instead of Land Bank. Art. 1236
provides:
The creditor is not bound to accept payment or performance by a third person who
has no interest in the fulfillment of the obligation, unless there is a stipulation to the

contrary.
Whoever pays for another may demand from the debtor what he has paid, except that
if he paid without the knowledge or against the will of the debtor, he can recover
only insofar as the payment has been beneficial to the debtor.
We agree with Land Bank on this point as to the first part of paragraph 1 of Art. 1236.
Land Bank was not bound to accept Alfredos payment, since as far as the former was
concerned, he did not have an interest in the payment of the loan of the Spouses Sy.
However, in the context of the second part of said paragraph, Alfredo was not making
payment to fulfill the obligation of the Spouses Sy. Alfredo made a conditional payment
so that the properties subject of the Deed of Sale with Assumption of Mortgage would be
titled in his name. It is clear from the records that Land Bank required Alfredo to make
payment before his assumption of mortgage would be approved. He was informed that
the certificate of title would be transferred accordingly. He, thus, made payment not as a
debtor but as a prospective mortgagor. But the trial court stated:
[T]he contract was not perfected or consummated because of the adverse finding in
the credit investigation which led to the disapproval of the proposed assumption.
There was no evidence presented that plaintiff was informed of the disapproval.
What he received was a letter dated May 22, 1997 informing him that the account of
spouses Sy had matured but there [were] no payments. This was sent even before the
conduct of the credit investigation on June 20, 1997 which led to the disapproval of
the proposed assumption of the loans of spouses Sy.
Alfredo, as a third person, did not, therefore, have an interest in the fulfillment of the
obligation of the Spouses Sy, since his interest hinged on Land Banks approval of his
application, which was denied. The circumstances of the instant case show that the
second paragraph of Art. 1236 does not apply. As Alfredo made the payment for his own
interest and not on behalf of the Spouses Sy, recourse is not against the latter. And as
Alfredo was not paying for another, he cannot demand from the debtors, the Spouses Sy,
what he has paid.
Penalties and interest
rates; penalties and
interest rates should be
expressly stipulated in
writing.

Carlos Lim, et al. v. Development Bank of the Philippines, G.R. No. 177050, July 1,
2013

Pledge; lesser
transmission of rights.

Union Bank of the Philippines vs. Alain Juniat, et al.; G.R. No. 171569, August 1,
2011

As to the imposition of additional interest and penalties not stipulated in the Promissory
Notes, this should not be allowed. Article 1956 of the Civil Code specifically states that
no interest shall be due unless it has been expressly stipulated in writing. Thus, the
payment of interest and penalties in loans is allowed only if the parties agreed to it and
reduced their agreement in writing.

We cannot sustain the finding of the CA that: The machineries were ceded to THIRD
PARTY NONWOVEN by way of dacion en pago, a contract later entered into by
WINWOOD/WINGYAN and THIRD PARTY NONWOVEN. As aptly pointed out by
petitioner, no evidence was presented by Nonwoven to show that the attached properties
were subsequently sold to it by way of a dacion en pago. Also, there is nothing in the
Agreement dated May 9, 1992 to indicate that the motorized sewing machines, snap
machines and boilers were ceded to Nonwoven as payment for the Wingyans and
Winwoods obligation. It bears stressing that there can be no transfer of ownership if the
delivery of the property to the creditor is by way of security. In fact, in case of doubt as
to whether a transaction is one of pledge or dacion en pago, the presumption is that it is a
pledge as this involves a lesser transmission of rights and interests.
Pledge.

Pacific Rehouse Corporation, et al. vs. EIB Securities, Inc.;G.R. No. 184036, October
13, 2010
The query is whether or not the pledge on KKP Shares/Property is valid. The answer is
no. It is indispensable that the pledgor is the absolute owner of the thing pledged (second
element). In the case at bar, the KKP shares were sold to third parties by EIB at PhP 0.14
and, as a result, petitioners lost their right of ownership over the KKP shares. Hence,
from the time of the sale, petitioners were no longer the absolute owners of said shares,
making the pledge constituted over said KKP shares null and void.

Also, it is necessary under Art. 2085 that the person constituting the pledge has the free
disposal of his or her property, and in the absence of that free disposal, that he or she be
legally authorized for the purpose (third element). This element is absent in the case at
bar. Petitioners no longer have the free disposal of the KKP shares when EIB sold said
shares at the stock exchange as they are no longer the owners of the shares. Thus, there
was no valid pledge constituted on the KKP shares.
The notice of sale, assuming it incorporates the accessory contract of pledge, merely
stated Property as collateral in addition to KKP shares. This is a blatant violation of
Art. 2096, which provides that a pledge shall not take effect against third persons if
description of the thing pledged and the date of the pledge do not appear in a public
instrument. The thing pledged must be amply and clearly described and specifically
identified. Evidently, the word Property is vague, broad, and confusing as to the
ownership. Hence, it does not satisfy the prescription under Art. 2096 of the Code.
Worse, the notice of sale is not in a public instrument as required by said legal provision;
therefore, the pledge on property is void and without legal effect.
Moreover, the notices of sale must be construed against EIB. Any ambiguity in a
contract whose terms are susceptible of different interpretations must be read against the
party who drafted it.
The DMCI shares which EIB construed to be included within the ambit of the word
property cannot be considered the thing pledged to secure the buy back of the KKP
shares in view of the vagueness of the word Property and the non-applicability of the
SDAA to the sale of the KKP shares.
Possession; de jure vs.
de facto nature of
possession; elements
of forcible entry.

Nenita Quality Foods Corporation vs. Crisostomo Galabo, et al.; G.R. No. 174191.
January 30, 2013
Ownership carries the right of possession, but the possession contemplated by the
concept of ownership is not exactly the same as the possession in issue in a forcible entry
case. Possession in forcible entry suits refers only to possession de facto, or actual or
material possession, and not possession flowing out of ownership; these are different
legal concepts for which the law provides different remedies for recovery of possession.
As the court explained in Pajuyo v. Court of Appeals, and again in the more recent cases
of Gonzaga v. Court of Appeals, De Grano v. Lacaba, and Lagazo v. Soriano, the word
possession in forcible entry suits refers to nothing more than prior physical possession
or possession de facto, not possession de jure or legal possession in the sense
contemplated in civil law. Title is not the issue, and its absence is not a ground for the
courts to withhold relief from the parties in an ejectment case. Thus, in a forcible entry
case, a party who can prove prior possession can recover such possession even against
the owner himself.
Whatever may be the character of his possession, if he has in his favor prior possession
in time, he has the security that entitles him to remain on the property until a person with
a better right lawfully ejects him. He cannot be ejected by force, violence or terror
not even by its owners. For these reasons, an action for forcible entry is summary in
nature aimed only at providing an expeditious means of protecting actual possession.
Ejectment suits are intended to prevent breach of x x x peace and criminal disorder and
to compel the party out of possession to respect and resort to the law alone to obtain
what he claims is his. Thus, lest the purpose of these summary proceedings be defeated,
any discussion or issue of ownership is avoided unless it is necessary to resolve the issue
of de facto possession.
Under Section 1, Rule 70 of the Rules of Court, for a forcible entry suit to prosper, the
plaintiff must allege and prove: (1) prior physical possession of the property; and (2)
unlawful deprivation of it by the defendant through force, intimidation, strategy, threat or
stealth. As in any civil case, the burden of proof lies with the complainants (the
respondents in this case) who must establish their case by preponderance of evidence.

Possession; Recovery
of possession; Implied
vs. constructive trust;
Prescription;

Celerino E. Mercado vs Belen Espinocilla and Ferdinand Espinocilla., G.R. No.


184109, February 1, 2012.
In a constructive trust, there is neither a promise nor any fiduciary relation to speak of

Acquisitive vs.
extinctive prescription;
Ordinary vs.
extraordinary
prescription.

and the so-called trustee neither accepts any trust nor intends holding the property for the
beneficiary. The relation of trustee and cestui que trust does not in fact exist, and the
holding of a constructive trust is for the trustee himself, and therefore, at all times
adverse. Prescription may supervene even if the trustee does not repudiate the
relationship.
Prescription, as a mode of acquiring ownership and other real rights over immovable
property, is concerned with lapse of time in the manner and under conditions laid down
by law, namely, that the possession should be in the concept of an owner, public,
peaceful, uninterrupted, and adverse. Acquisitive prescription of real rights may be
ordinary or extraordinary.
The CA correctly dismissed petitioners complaint as an action for reconveyance based
on an implied or constructive trust prescribes in 10 years from the time the right of
action accrues. This is the other kind of prescription under the Civil Code, called
extinctive prescription, where rights and actions are lost by the lapse of time. Petitioners
action for recovery of possession having been filed 55 years after Macario occupied
Dionisias share, it is also barred by extinctive prescription.
Ordinary acquisitive prescription requires possession in good faith and with just title for
10 years. In extraordinary prescription, ownership and other real rights over immovable
property are acquired through uninterrupted adverse possession for 30 years without
need of title or of good faith.

Possibly Unnecessary
Use of a Latin Maxim
(But At Least You
Find Out What it
Means).

In the June 2010 case of Office of the City Mayor of Paranaque City, et al. vs. Mario D.
Ebio and His Children/Heirs namely, Arturo V. Ebio, Eduardo, et al., G.R. No. 178411.
June 23, 2010 the Court noted that the State does not have any authority to convey a
property through the issuance of a grant or a patent if the land is no longer a public land.
It then stated: Nemo dat quod dat non habet. No one can give what he does not have.

Prescription; actions;
attorneys fees

Magdiwang Realty Corp., et al. v. Manila Banking Corp.; G.R. No. 195592. September
5, 2012
We agree with the trial and appellate courts, for as the records bear, that the ten (10)-year
prescriptive period to file an action based on the subject promissory notes was
interrupted by the several letters exchanged between the parties. This is in conformity
with the second and third circumstances under Article 1155 of the New Civil Code
(NCC) which provides that the prescription of actions is interrupted when: (1) they are
filed before the court; (2) there is a written extrajudicial demand by the creditors; and (3)
there is any written acknowledgment of the debt by the debtor.
Regarding the award of attorneys fees, the applicable provision is Article 2208(2) of the
NCC which allows the grant thereof when the defendants act or omission compelled the
plaintiff to litigate or to incur expenses to protect its interest. Considering the
circumstances that led to the filing of the complaint in court, and the clear refusal of the
petitioners to satisfy their existing debt to the bank despite the long period of time and
the accommodations granted to it by the respondent to enable them to satisfy their
obligations, we agree that the respondent was compelled by the petitioners acts to
litigate for the protection of the banks interests, making the award of attorneys fees
proper.

Prescription; Article
1144 of the Civil
Code.

Vector Shipping Corporation, et al. v. American Home Assurance Co., et al., G.R. No.
159213, July 3, 2013
We concur with the CAs ruling that respondents action did not yet prescribe. The legal
provision governing this case was not Article 1146 of the Civil Code, but Article 1144 of
the Civil Code, which states:
Article 1144. The following actions must be brought within ten years from the time
the cause of action accrues:
(1)Upon a written contract; (2) Upon an obligation created by law; (3)Upon a
judgment.

Prescription; discovery
of fraud.

Insurance of the Philippine Islands Corporation v. Spouses Vidal S. Gregorio and


Julita Gregorio; G.R. No. 174104. February 14, 2011

Petitioner filed an action for damages on the ground of fraud committed against it by
respondents. Under the provisions of Article 1146 of the Civil Code, actions upon an
injury to the rights of the plaintiff or upon a quasi-delict must be instituted within four
years from the time the cause of action accrued, which is when plaintiff discovered the
alleged fraud committed by respondents. However, the Court does not agree with the CA
in its ruling that the discovery of the fraud should be reckoned from the time of
registration of the titles covering the subject properties.
The Court notes that what has been given by respondents to petitioner as evidence of
their ownership of the subject properties at the time that they mortgaged the same are not
certificates of title but tax declarations, in the guise that the said properties are
unregistered. On the basis of the tax declarations alone and by reason of respondents
misrepresentations, petitioner could not have been reasonably expected to acquire
knowledge of the fact that the said properties were already titled. As a consequence,
petitioner may not be charged with any knowledge of any subsequent entry of an
encumbrance which may have been annotated on the said titles, much less any change of
ownership of the properties covered thereby. As such, the Court agrees with petitioner
that the reckoning period for prescription of petitioners action should be from the time
of actual discovery of the fraud in 1995. Hence, petitioners suit for damages, filed on
February 20, 1996, is well within the four-year prescriptive period.
Prescription; laches.

Spouses Morris Carpo and Socorro Carpo vs. Ayala Land, Incorporated, G.R. No.
166577, February 3, 2010
According to them, since the OCT from which ALI derived its title is void for want of a
duly approved survey plan, their cause of action did not prescribe. However, as
discussed above, the conclusion of the trial court that OCT No. 242 is void was not
sufficiently borne out by the evidence on record. Verily, the premise upon which
petitioners build their theory of imprescriptibility of their action did not exist. As
previously emphasized, OCT No. 242 of ALIs predecessor-in-interest was issued on
May 7, 1950, or 45 years before plaintiffs-appellees filed their complaint on March 10,
1995. As such, it is the Courts firmly held view that plaintiffs-appellees claim is barred
not only by prescription, but also by laches. Aside from the fact that OCT No. 242 had
become incontrovertible after the lapse of one year from the time a decree of registration
was issued, any action for reconveyance that plaintiffs- appellees could have availed of
is also barred. Although plaintiffs-appellees complaint was for quieting of title, it is in
essence an action for reconveyance based on an implied or constructive trust,
considering that plaintiffs-appellees were alleging in said complaint that there was a
serious mistake, if not fraud, in the issuance of OCT No. 242 in favor of ALIs
predecessor-in-interest. It is now well-settled that an action for reconveyance, which is a
legal remedy granted to a landowner whose property has been wrongfully or erroneously
registered in anothers name, must be filed within ten years from the issuance of the title,
since such issuance operates as a constructive notice. Since ALIs title is traced to an
OCT issued in 1950, the ten-year prescriptive period expired in 1960. As for laches, the
term means the negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to assert it either has abandoned it or
declined to assert it. It does not involve mere lapse or passage of time, but is principally
an impediment to the assertion or enforcement of a right, which has become under the
circumstances inequitable or unfair to permit. In the instant case, plaintiffs-appellees, as
well as their predecessor-in-interest, have not shown that they have taken judicial steps
to nullify OCT No. 242, from which ALIs title was derived, for 45 years. To allow them
to do so now, and if successful, would be clearly unjust and inequitable to those who
relied on the validity of said OCT, the innocent purchasers for value, who are protected
by the precise provisions of P.D. 1529.

Prescription; real
actions.

Republic of the Philippines Vs. Hon. Mamindiara P. Mangotara, in his capacity as


Presiding Judge of the Regional Trial Court, Branch 1, Iligan City, Lanao del Norte,
and Maria Cristina Fertilizer Corporation, and the Philippines National Bank/Land
Trade Realty Corporation Vs. National Power Corporation and National
Transmission Corporation (Transco)/National Power Corporation Vs. Hon. Court of
Appeals (Special Twenty-Third Division, Cagayan de Oro City) and Land Trade
Realty Corporation/National Transmission Corporation Vs. Hon. Court of Appeals
(Special Twenty-Third Division, Cagayan de Oro City) and Land Trade Realty
Corporation, G.R. No. 170375/G.R. No. 170505/G.R. Nos. 173355-56/G.R. No.
173401/G.R. Nos. 173563-64/G.R. No. 178779/G.R. No 178894.,July 7, 2010.

A real action is one where the plaintiff seeks the recovery of real property or, as
indicated in what is now Rule 4, Section 1 of the Rules of Court, a real action is an
action affecting title to or recovery of possession of real property. An action for
quieting of title to real property, such as Civil Case No. 4452, is indubitably a real action.
Article 1141 of the Civil Code plainly provides that real actions over immovables
prescribe after thirty years. Dona Demetria died in 1974, transferring by succession,
her title to the two parcels of land to her only heir, Vidal. Teofilo, through Atty. Cabildo,
filed a petition for reconstitution of the certificates of title covering said properties in
1978. This is the first palpable display of Teofilos adverse claim to the same properties,
supposedly, also as Dona Demetrias only heir. When Vidal and AZIMUTH instituted
Civil Case No. 4452 in 1998, only 20 years had passed, and the prescriptive period for
filing an action for quieting of title had not yet prescribed.
Nevertheless, the Court notes that Article 1411 of the Civil Code also clearly states that
the 30-year prescriptive period for real actions over immovables is without prejudice to
what is established for the acquisition of ownership and other real rights by prescription.
Thus, the Court must also look into the acquisitive prescription periods of ownership and
other real rights.
Acquisitive prescription of dominion and real rights may be ordinary or extraordinary.
Ordinary acquisitive prescription requires possession of things in good faith and with
just title for the time fixed by law. In the case of ownership and other real rights over
immovable property, they are acquired by ordinary prescription through possession of 10
years.
LANDTRADE cannot insist on the application of the 10-year ordinary acquisitive
prescription period since it cannot be considered a possessor in good faith. The good
faith of the possessor consists in the reasonable belief that the person from whom he
received the thing was the owner thereof, and could transmit his ownership. Since the
ordinary acquisitive prescription period of 10 years does not apply to LANDTRADE,
then the Court turns its attention to the extraordinary acquisitive prescription period
of 30 years set by Article 1137 of the Civil Code, which provides that ownership and
other real rights over immovables also prescribe through uninterrupted adverse
possession thereof for thirty years, without need of title or of good faith.
LANDTRADE adversely possessed the subject properties no earlier than 1996, when it
bought the same from Teofilo, and Civil Case No. 4452 was already instituted two years
later in 1998. LANDTRADE cannot tack its adverse possession of the two parcels of
land to that of Teofilo considering that there is no proof that the latter, who is already
residing in the U.S.A., adversely possessed the properties at all.
Prescription; revival of
judgment.

Ernesto Villeza vs. German Management and Services, Inc., et al., G.R. No. 182937,
August 8, 2010
An action for revival of judgment is governed by Article 1144 (3), Article 1152 of the
Civil Code and Section 6, Rule 39 of the Rules of Court. Article 1144(3) provides:
Art. 1144. The following actions must be brought within ten years from the time the
right of action accrues:
xxxx
(3) Upon a judgment
while Article 1152 of the Civil Code states that [T] he period for prescription of actions
to demand the fulfillment of obligations declared by a judgment commences from the
time the judgment became final. In this regard, Section 6, Rule 39 of the Rules of Court
provides that [A] final and executory judgment or order may be executed on motion
within five (5) years from the date of its entry. After the lapse of such time, and before it
is barred by the statute of limitations, a judgment may be enforced by action. The
revived judgment may also be enforced by motion within five (5) years from the date of
its entry and thereafter by action before it is barred by the statute of limitations.
(emphasis supplied)
The rules are clear. Once a judgment becomes final and executory, the prevailing party
can have it executed as a matter of right by mere motion within five years from the date
of entry of judgment. If the prevailing party fails to have the decision enforced by a

motion after the lapse of five years, the said judgment is reduced to a right of action
which must be enforced by the institution of a complaint in a regular court within ten
years from the time the judgment becomes final.
Petitioner Villeza, however, wants this Court to agree with him that the abeyance granted
to him by the lower court tolled the running of the prescriptive period. He even cited
cases allowing exceptions to the general rule. The cited cases are, in fact, not applicable
to him. The records reveal that it was petitioner Villeza, the prevailing party himself,
who moved to defer the execution of judgment. The losing party never had any hand in
the delay of its execution. Neither did the parties have any agreement on that matter.
After the lapse of five years from the finality of judgment, petitioner Villeza should have
instead filed a complaint for its revival in accordance with Section 6, Rule 39 of the
Rules of Court. He, however, filed a motion to execute the same which was a wrong
course of action. On the 11th year, he finally sought its revival but he requested the aid
of the courts too late.
The Court has pronounced in a plethora of cases that it is revolting to the conscience to
allow someone to further avert the satisfaction of an obligation because of sheer literal
adherence to technicality; that although strict compliance with the rules of procedure is
desired, liberal interpretation is warranted in cases where a strict enforcement of the
rules will not serve the ends of justice; and that it is a better rule that courts, under the
principle of equity, will not be guided or bound strictly by the statute of limitations or the
doctrine of laches when to do so, manifest wrong or injustice would result. These cases,
though, remain exceptions to the general rule. The purpose of the law in prescribing time
limitations for enforcing judgment by action is precisely to prevent the winning parties
from sleeping on their rights. The Court cannot just set aside the statute of limitations
into oblivion every time someone cries for equity and justice. Indeed, if eternal
vigilance is the price of safety, one cannot sleep on ones right for more than a 10th of a
century and expect it to be preserved in pristine purity.
Prescription.

Heirs of Policronio M. Ureta, Sr., namely: Conrado B. Ureta, et al. vs. Heirs of
Liberato M. Ureta, namely: Teresa F. Ureta, et al./Heirs of Liberato M. Ureta, namely:
Teresa F. Ureta, et al. vs. Heirs of Policronio M. Ureta, Sr., namely: Conrado B.
Ureta, et al.; G.R. No. 165748/G.R. No. 165930, September 14, 2011
As the Deed of Sale is a void contract, the action for the declaration of its nullity, even if
filed 21 years after its execution, cannot be barred by prescription for it is
imprescriptible. Furthermore, the right to set up the defense of inexistence or absolute
nullity cannot be waived or renounced. Therefore, the Heirs of Alfonso cannot be
precluded from setting up the defense of its inexistence.

Property of the
marriage; presumed
conjugal.

All property of the marriage is presumed to be conjugal. However, for this presumption
to apply, the party who invokes it must first prove that the property was acquired during
the marriage. Proof of acquisition during the coverture is a condition sine qua non to the
operation of the presumption in favor of the conjugal partnership. Thus, the time when
the property was acquired is material. Evangeline D. Imani vs. Metropolitan Bank and
Trust Company, G.R. No. 187023, November 17, 2010

Property registration;
proof of alienable
character; proof of
possession.

Vitarich Corporation vs. Chona Locsin, G.R. No. 171631, November 15, 2010
Under the Regalian doctrine, all lands of the public domain belong to the State. All lands
not appearing to be clearly within private ownership are presumed to belong to the State.
The burden of proof in overcoming the presumption of State ownership of the lands of
the public domain is on the person applying for registration (or claiming ownership). To
overcome this presumption, incontrovertible evidence must be established that the land
subject of the application (or claim) is alienable or disposable.
To support its contention that the land subject of the application for registration is
alienable, respondents presented the survey plan with the following annotation:
This survey is inside L.C. Map No. 2623 Proj. No. 27-B clasified as alienable/disposable
by the Bureau of Forest Development, Quezon City on Jan. 03, 1968.
The surveyors annotation presented by respondents is not the kind of proof required by
law to prove that the subject land falls within the alienable and disposable zone.
Respondents failed to submit a certification from the proper government agency to
establish that the subject land are part of the alienable and disposable portion of the

public domain. In the absence of incontrovertible evidence to prove that the subject
property is already classified as alienable and disposable, we must consider the same as
still inalienable public domain.
Anent respondents possession and occupation of the subject property, a reading of the
records failed to show that the respondents by themselves or through their predecessorsin-interest possessed and occupied the subject land since June 12, 1945 or earlier. The
evidence submitted by respondents to prove their possession and occupation over the
subject property consists of the testimonies of Jose and Amado Geronimo (Amado), the
tenant of the adjacent lot. However, their testimonies failed to establish respondents
predecessors-in-interest possession and occupation of subject property since June 12,
1945 or earlier. But Jose and Amados testimonies consist merely of general statements
with no specific details as to when respondents predecessors-in-interest began actual
occupancy of the land subject of this case. It is a rule that general statements that are
mere conclusions of law and not factual proof of possession are unavailing and cannot
suffice. An applicant in a land registration case cannot just harp on mere conclusions of
law to embellish the application but must impress thereto the facts and circumstances
evidencing the alleged ownership and possession of the land.
Respondents earliest evidence can be traced back to a tax declaration issued in the name
of their predecessors-in-interest only in the year 1949. At best, respondents can only
prove possession since said date. What is required is open, exclusive, continuous and
notorious possession by respondents and their predecessors-in-interest, under a bona fide
claim of ownership, since June 12, 1945 or earlier. Well settled is the rule that tax
declarations and receipts are not conclusive evidence of ownership or of the right to
possess land when not supported by any other evidence.
Property; ability of
mother to dispose of
property of minor
children.

Amelia B. Hebron vs. Franco L. Loyola, et al., G.R. No. 168960, July 5, 2010

Property; accretion;
elements;

Republic of the Philippines v. Arcadio Ivan Santos III and Arcadio Santos, Jr. G.R.
No. 160453. November 12, 2012

The minor children of Conrado inherited by representation in the properties of their


grandparents Remigia and Januario. These children, not their mother Victorina, were the
co-owners of the inherited properties. Victorina had no authority or had acted beyond her
powers in conveying, if she did indeed convey, to the petitioners mother the undivided
share of her minor children in the property involved in this case. The powers given to
her by the laws as the natural guardian covers only matters of administration and cannot
include the power of disposition. She should have first secured the permission of the
court before she alienated that portion of the property in question belonging to her minor
children. In a number of cases, where the guardians, mothers or grandmothers, did not
seek court approval of the sale of properties of their wards, minor children, the Court
declared the sales void.

By law, accretion the gradual and imperceptible deposit made through the effects if the
current of the water belongs to the owner if the land adjacent to the banks of rivers
where it forms. The drying up of the river is not accretion. Hence, the dried-up riverbed
belongs to the State as property of public dominion, not to the riparian owner, unless a
law vests the ownership in some other person.
Property; acquisition
by prescription;
confirmation of
incomplete or
imperfect titles;
requirements.

Jean Tan, et al. vs. Republic of the Philippines; G.R. No. 193443, April 16, 2012
There must be an express declaration by the State that the public dominion property is no
longer intended for public service or the development of the national wealth or that the
property has been converted into patrimonial. Without such express declaration, the
property, even if classified as alienable or disposable, remains property of the public
dominion, pursuant to Article 420(2), and thus incapable of acquisition by prescription.
It is only when such alienable and disposable lands are expressly declared by the State to
be no longer intended for public service or for the development of the national wealth
that the period of acquisitive prescription can begin to run. Such declaration shall be in
the form of a law duly enacted by Congress or a Presidential Proclamation in cases
where the President is duly authorized by law.
For one to invoke the provisions of Section 14(2) and set up acquisitive prescription
against the State, it is primordial that the status of the property as patrimonial be first

established. Furthermore, the period of possession preceding the classification of the


property as patrimonial cannot be considered in determining the completion of the
prescriptive period.
Adverse, continuous, open, public possession in the concept of an owner is a conclusion
of law and the burden to prove it by clear, positive and convincing evidence is on the
applicant. A claim of ownership will not proper on the basis of tax declarations if
unaccompanied by proof of actual possession.
The counting of the thirty (30)-year prescriptive period for purposes of acquiring
ownership of a public land under Section 14(2) can only start from the issuance of
DARCO Conversion Order. Before the property was declared patrimonial by virtue of
such conversion order, it cannot be acquired by prescription.
Property; action for
reconveyance;
prescriptive period;
exception.

Laura F. Paraguya v. Sps. Alma Escurel-Crucillo and Emeterio Crucillo and the
Register of Deeds of Sorsogon, G.R. No. 200265, December 2, 2013.

Property; builder in
good faith; concept of.

The Heirs of Victorino Sarili, namely, Isabel A. Sarili, et al. v. Pedro F. Lagrosa,
represented in this act by his Attorney-in-Fact, Lourdes Labios Mojica, G.R. No.
193517, January 15, 2014

The Court likewise takes note that Paraguyas complaint is likewise in the nature of an
action for reconveyance because it also prayed for the trial court to order Sps. Crucillo to
surrender ownership and possession of the properties in question to [Paraguya],
vacating them altogether . . . . Despite this, Paraguyas complaint remains dismissible
on the same ground because the prescriptive period for actions for reconveyance is ten
(10) years reckoned from the date of issuance of the certificate of title, except when the
owner is in possession of the property, in which case the action for reconveyance
becomes imprescriptible.

To be deemed a builder in good faith, it is essential that a person asserts title to the land
on which he builds, i.e. , that he be a possessor in concept of owner, and that he be
unaware that there exists in his title or mode of acquisition any flaw which invalidates
it. Good faith is an intangible and abstract quality with no technical meaning or statutory
definition, and it encompasses, among other things, an honest belief, the absence of
malice and the absence of design to defraud or to seek an unconscionable advantage. It
implies honesty of intention, and freedom from knowledge of circumstances which
ought to put the holder upon inquiry.
Property; builder in
good faith; not limited
to those claiming
ownership over
property; builder in
good faith;
landowners options.

Communities Cagayan, Inc. v. Sps. Arsenio (deceased) and Angeles Nanol, et al. G.R.
No. 176791. November 14, 2012

Property; builder in
good faith.

Luciano Briones and Nelly Briones vs. Jose Macabagdal, Fe D. Macabagdal and
Vergon Realty Investments Corporation, G.R. No. 150666, August 3, 2010

Article 448 of the Civil Code applies when the builder believes that he is the owner of
the land or that by some title he has the right to build thereon, or that, at least, he has a
claim of title thereto. In Tuatis, we ruled that the seller (the owner of the land) has two
options under Article 448: (1) he may appropriate the improvements for himself after
reimbursing the buyer (the builder in good faith) the necessary and useful expenses
under Articles 546 and 548 of the Civil Code; or (2) he may sell the land to the buyer,
unless its value is considerably more than that of the improvements, in which case, the
buyer shall pay reasonable rent.

Article 527 of the Civil Code presumes good faith, and since no proof exists to show that
the mistake was done by petitioners in bad faith, the latter should be presumed to have
built the house in good faith.
When a person builds in good faith on the land of another, Article 448 of the Civil Code
governs. This article covers cases in which the builders, sowers or planters believe
themselves to be owners of the land or, at least, to have a claim of title thereto. The
builder in good faith can compel the landowner to make a choice between appropriating
the building by paying the proper indemnity or obliging the builder to pay the price of
the land. The choice belongs to the owner of the land, a rule that accords with the
principle of accession, i.e., that the accessory follows the principal and not the other way

around. However, even as the option lies with the landowner, the grant to him,
nevertheless, is preclusive. He must choose one. He cannot, for instance, compel the
owner of the building to remove the building from the land without first exercising either
option. It is only if the owner chooses to sell his land, and the builder or planter fails to
purchase it where its value is not more than the value of the improvements, that the
owner may remove the improvements from the land. The owner is entitled to such
remotion only when, after having chosen to sell his land, the other party fails to pay for
the same.
Moreover, petitioners have the right to be indemnified for the necessary and useful
expenses they may have made on the subject property as provided in Articles 546 and
548 of the Civil Code. Consequently, the respondent-spouses have the option to
appropriate the house on the subject land after payment to petitioners of the appropriate
indemnity or to oblige petitioners to pay the price of the land, unless its value is
considerably more than the value of the structures, in which case petitioners shall pay
reasonable rent.
Property; builder in
good faith.

Filomena R. Benedicto vs. Antonio Villaflores; G.R. No. 185020. October 6, 2010
It is not disputed that the construction of Antonios house was undertaken long before the
sale in favor of Filomena; that when Filomena bought the property from Maria,
Antonios house which he used as residence had already been erected on the property. As
explained by the CA: [Antonio] claims not being aware of any flaw in his title. He
believed being the owner of the subject premises on account of the Deed of Sale thereof
in his favor despite his inability to register the same. The improvement was, in fact,
introduced by Antonio prior to Filomenas purchase of the land. x x x. Thus, Antonio is
a builder in good faith. Under Article 448, a landowner is given the option to either
appropriate the improvement as his own upon payment of the proper amount of
indemnity, or sell the land to the possessor in good faith. Relatedly, Article 546 provides
that a builder in good faith is entitled to full reimbursement for all the necessary and
useful expenses incurred; it also gives him right of retention until full reimbursement is
made.

Property; buyer in
good faith.

Filinvest Development Corporation vs. Golden Haven Memorial Park, Inc. / Golden
Haven Memorial Park, Inc. vs. Filinvest Development Corporation, G.R. No. 187824 /
G.R. No. 188265. November 17, 2010
To prove good faith, the rule is that the buyer of registered land needs only show that he
relied on the title that covers the property. But this is true only when, at the time of the
sale, the buyer was unaware of any adverse claim to the property. Otherwise, the law
requires the buyer to exercise a higher degree of diligence before proceeding with his
purchase. He must examine not only the certificate of title, but also the sellers right and
capacity to transfer any interest in the property. In such a situation, the buyer must show
that he exercised reasonable precaution by inquiring beyond the four corners of the title.
Failing in these, he may be deemed a buyer in bad faith.

Property; coownership;
prescription.

Heirs of Juanita Padilla, represented by Claudio Padilla vs. Dominador Magdua, G.R.
No. 176858, September 15, 2010
Co-heirs or co-owners cannot acquire by acquisitive prescription the share of the other
co-heirs or co-owners absent a clear repudiation of the co-ownership, as expressed in
Article 494 of the Civil Code which states:
Art. 494. x x x No prescription shall run in favor of a co-owner or co-heir against his
co-owners or co- heirs as long as he expressly or impliedly recognizes the coownership.
Since possession of co-owners is like that of a trustee, in order that a co-owners
possession may be deemed adverse to the cestui que trust or other co-owners, the
following requisites must concur: (1) that he has performed unequivocal acts of
repudiation amounting to an ouster of the cestui que trust or other co-owners, (2) that
such positive acts of repudiation have been made known to the cestui que trust or other
co-owners, and (3) that the evidence thereon must be clear and convincing.

Property; coownership; sale of co-

Reman Recio v. Heirs of Spouses Aguego and Maria Altamirano, G.R. No.182349,
July 24, 2013

owned property; if
only one co-owner
agreed to the sale, said
co- owner only sold
his aliquot share in the
subject property.

Property; dried-up
riverbed.

But as held by the appellate court, the sale between the petitioner and Alejandro is valid
insofar as the aliquot share of respondent Alejandro is concerned. Being a co-owner,
Alejandro can validly and legally dispose of his share even without the consent of all the
other co-heirs. Since the balance of the full price has not yet been paid, the amount paid
shall represent as payment to his aliquot share. This then leaves the sale of the lot of the
Altamiranos to the Spouses Lajarca valid only insofar as their shares are concerned,
exclusive of the aliquot part of Alejandro, as ruled by the CA.
Spouses Crispin Galang and Caridad Galang vs. Spouses Conrado S. Reyes and Fe
De Kastro Reyes (As substituted by their legal heir: Hermenigildo K. Reyes); G.R. No.
184746, August 8, 2012.
If indeed a property was the former bed of a creek that changed its course and passed
through the property of the claimant, then, pursuant to Article 461, the ownership of the
old bed left to dry by the change of course was automatically acquired by the claimant.
Before such a conclusion can be reached, the fact of natural abandonment of the old
course must be shown, that is, it must be proven that the creek indeed changed its course
without artificial or man-made intervention. Thus, the claimant, in this case the Reyeses,
must prove three key elements by clear and convincing evidence. These are: (1) the old
course of the creek, (2) the new course of the creek, and (3) the change of course of the
creek from the old location to the new location by natural occurrence.
In this regard, the Reyeses failed to adduce indubitable evidence to prove the old course,
its natural abandonment and the new course. In the face of a Torrens title issued by the
government, which is presumed to have been regularly issued, the evidence of the
Reyeses was clearly wanting. Uncorroborated testimonial evidence will not suffice to
convince the Court to order the reconveyance of the property to them.

Property; Ejectment;
only issue is who is
entitled to physical
possession; forcible
entry; prior physical
possession is vital;
judgment conclusive
between the parties
and their successorsin-interest; effects if
prevailing party is a
usufructuary; usufruct;
death of usufructuary
extinguishes usufruct.

Rivera-Calingasan v. Rivera; G.R. No. 171555. April 17, 2013


Ejectment cases forcible entry and unlawful detainer are summary proceedings
designed to provide expeditious means to protect actual possession or the right to
possession of the property involved. The only question that the courts resolve in
ejectment proceedings is: who is entitled to the physical possession of the premises, that
is, to the possession de facto and not to the possession de jure. It does not even matter if
a partys title to the property is questionable. Thus, an ejectment case will not
necessarily be decided in favor of one who has presented proof of ownership of the
subject property.
Indeed, possession in ejectment cases means nothing more than actual physical
possession, not legal possession in the sense contemplated in civil law. In a forcible
entry case, prior physical possession is the primary consideration[.] A party who can
prove prior possession can recover such possession even against the owner himself.
Whatever may be the character of his possession, if he has in his favor prior possession
in time, he has the security that entitles him to remain on the property until a person with
a better right lawfully ejects him. [T]he party in peaceable, quiet possession shall not
be thrown out by a strong hand, violence, or terror.
The judgment in an ejectment case is conclusive between the parties and their
successors-in interest by title subsequent to the commencement of the action; hence, it is
enforceable by or against the heirs of the deceased. This judgment entitles the winning
party to: (a) the restitution of the premises, (b) the sum justly due as arrears of rent or as
reasonable compensation for the use and occupation of the premises, and (c) attorneys
fees and costs.
[T]he right to the usufruct is now rendered moot by the death of Wilfredo since death
extinguishes a usufruct under Article 603(1) of the Civil Code. This development
deprives the heirs of the usufructuary the right to retain or to reacquire possession of the
property even if the ejectment judgment directs its restitution.
Thus, what actually survives under the circumstances is the award of damages, by way
of compensation.

Property;

Vda. de Roxas v. Our Ladys Foundation, Inc.; G.R. No. 182378. March 6, 2013

encroachment on
property; builder in
bad faith; options
available to owner of
the land; rules in
determining the
reckoning period for
valuing the property.

Under Article 448 pertaining to encroachments in good faith, as well as Article 450
referring to encroachments in bad faith, the owner of the land encroached upon
petitioner herein has the option to require respondent builder to pay the price of the
land.
Although these provisions of the Civil Code do not explicitly state the reckoning period
for valuing the property, Ballatan v. Court of Appeals already specifies that in the event
that the seller elects to sell the lot, the price must be fixed at the prevailing market value
at the time of payment.
More recently, Tuatis v. Spouses Escol illustrates that the present or current fair value of
the land is to be reckoned at the time that the landowner elected the choice, and not at
the time that the property was purchased. ... In Sarmiento v. Agana, we reckoned the
valuation of the property at the time that the real owner of the land asked the builder to
vacate the property encroached upon. Moreover, the oft-cited case Depra v. Dumlao
likewise ordered the courts of origin to compute the current fair price of the land in cases
of encroachment on real properties.

Property; land
included in title by
mistake.

Spouses Federico Valenzuela and Luz Buena-Valenzuela Vs. Spouses Jose Mano , Jr.
and Rosanna Reyes-Mano, G.R. No. 172611, July 9, 2010
Settled is the rule that a person, whose certificate of title included by mistake or
oversight the land owned by another, does not become the owner of such land by virtue
of the certificate alone. The Torrens System is intended to guarantee the integrity and
conclusiveness of the certificate of registration but is not intended to perpetrate fraud
against the real owner of the land. The certificate of title cannot be used to protect a
usurper from the true owner.

Property; ownership of
land.

Modesto Palali vs. Juliet Awisan, represented by her Attorney-in-fact Gregorio


Awisan, G.R. No. 158385, February 12, 2010
We hold that as between the petitioner and the respondent, it is the petitioner who has the
better claim or title to the subject property. While the respondent merely relied on her tax
declaration, petitioner was able to prove actual possession of the subject property
coupled with his tax declaration. We have ruled in several cases that possession, when
coupled with a tax declaration, is a weighty evidence of ownership. It certainly is more
weighty and preponderant than a tax declaration alone. The preponderance of evidence is
therefore clearly in favor of petitioner, particularly considering that, as the actual
possessor under claim of ownership, he enjoys the presumption of ownership. Moreover,
settled is the principle that a party seeking to recover real property must rely on the
strength of her case rather than on the weakness of the defense. The burden of proof rests
on the party who asserts the affirmative of an issue. For he who relies upon the existence
of a fact should be called upon to prove that fact. Having failed to discharge her burden
to prove her affirmative allegations, we find that the trial court rightfully dismissed
respondents complaint.

Property; ownership;
accession; accessory
follows the principal;
exception

Magdalena T. Villasi v. Filomena Garcia, substituted by his heirs, namely, Ermelinda


H. Garcia, et al., G.R. No. 190106, January 15, 2014

Property; Ownership;
Alluvial Deposits.

Office of the City Mayor of Paranaque City, et al. vs. Mario D. Ebio and His
Children/Heirs namely, Arturo V. Ebio, Eduardo, et al., G.R. No. 178411. June 23,
2010

While it is a hornbook doctrine that the accessory follows the principal, that is, the
ownership of the property gives the right by accession to everything which is produced
thereby, or which is incorporated or attached thereto, either naturally or artificially, such
rule is not without exception. In cases where there is a clear and convincing evidence to
prove that the principal and the accessory are not owned by one and the same person or
entity, the presumption shall not be applied and the actual ownership shall be upheld. In
a number of cases, we recognized the separate ownership of the land from the building
and brushed aside the rule that accessory follows the principal.

In case you ever wondered who owns land formed by alluvial deposits, wonder no more.
The ownership of such land is governed by Article 84 of the Spanish Law of Waters of

1866, which remains in effect, in relation to Article 457 of the Civil Code. Article 84 of
the Spanish Law of Waters of 1866 specifically covers ownership over alluvial deposits
along the banks of a creek. According to this article, accretions deposited gradually upon
lands contiguous to creeks, streams, rivers, and lakes, by accessions or sediments from
the waters thereof, belong to the owners of such lands. In this regard, Article 457 of the
Civil Code states that [T] o the owners of lands adjoining the banks of rivers belong the
accretion which they gradually receive from the effects of the current of the waters. It is
therefore explicit from the foregoing provisions that alluvial deposits along the banks of
a creek do not form part of the public domain as the alluvial property automatically
belongs to the owner of the estate to which it may have been added. The only restriction
provided for by law is that the owner of the adjoining property must register the same
under the Torrens system; otherwise, the alluvial property may be subject to acquisition
through prescription by third persons.
Property; Ownership;
Registration Does Not
Confer Title.

Office of the City Mayor of Paranaque City, et al. vs. Mario D. Ebio and His
Children/Heirs namely, Arturo V. Ebio, Eduardo, et al., G.R. No. 178411, June 23,
2010.
Undoubtedly, respondents are deemed to have acquired ownership over the subject
property through prescription. Respondents can assert such right despite the fact that
they have yet to register their title over the said lot. It must be remembered that the
purpose of land registration is not the acquisition of lands, but only the registration of
title which the applicant already possessed over the land. Registration was never
intended as a means of acquiring ownership. A decree of registration merely confirms,
but does not confer, ownership.

Property; patrimonial
property and property
of public dominion;
patrimonial property
of the State may be the
object of prescription,
however, those
intended for some
public service or the
development of
national wealth are
property of public
dominion, which are
not susceptible to
acquisition by
prescription; public
domain lands become
patrimonial property
only if there is a
declaration that these
are alienable or
disposable, together
with an express
government
manifestation that the
property is already
patrimonial or no
longer retained for
public service or the
development of
national wealth.

Dream Village Neighborhood Association, Inc., represented by its Incumbent


President Greg Seriego v. Bases Conversion Development Authority, G.R. No.192896,
July 24, 2013

Property; possession
as right of the owner.

Numeriano P. Abobon vs. Felicitas Abata Abobon, et al.; G.R. No. 155830, August 15,
2012

Under Article 422 of the Civil Code, public domain lands become patrimonial property
only if there is a declaration that these are alienable or disposable, together with an
express government manifestation that the property is already patrimonial or no longer
retained for public service or the development of national wealth. Only when the
property has become patrimonial can the prescriptive period for the acquisition of
property of the public dominion begin to run. Also under Section 14(2) of Presidential
Decree (P.D.) No. 1529, it is provided that before acquisitive prescription can
commence, the property sought to be registered must not only be classified as alienable
and disposable, it must also be expressly declared by the State that it is no longer
intended for public service or the development of the national wealth, or that the
property has been converted into patrimonial. Absent such an express declaration by the
State, the land remains to be property of public dominion.

It is beyond question under the law that the owner has not only the right to enjoy and
dispose of a thing without other limitations than those established by law, but also the
right of action against the holder and possessor of the thing in order to recover it. He
may exclude any person from the enjoyment and disposal of the thing, and, for this

purpose, he may use such force as may be reasonably necessary to repel or prevent an
actual or threatened unlawful physical invasion or usurpation of his property.
Property; possessor in
good faith;
reimbursement of
necessary and useful
expenses.

Heirs of Cipriano Trazona, et al. v. Heirs of Dionisio Canada, et al., G.R. No. 175874,
December 11, 2013.

Property; principle of
accretion; public
dominion lands.

Jose Fernando, Jr. et al. vs. Leon Acuna, et al.;G.R. No. 161030. September 14, 2011

Dionisio was well aware that this temporary arrangement may be terminated at any time.
Respondents cannot now refuse to vacate the property or eventually demand
reimbursement of necessary and useful expenses under Articles 448 and 546 of the New
Civil Code, because the provisions apply only to a possessor in good faith, i.e., one who
builds on land with the belief that he is the owner thereof. Persons who occupy land by
virtue of tolerance of the owners are not possessors in good faith.

As for the issue of the ownership of Sapang Bayan, we sustain the appellate court insofar
as it ruled that petitioners failed to substantiate their ownership over said area. However,
we find that the Court of Appeals erred in ruling that the principle of accretion is
applicable. The said principle is embodied in Article 457 of the Civil Code which states
that [t]o the owners of lands adjoining the banks of rivers belong the accretion which
they gradually receive from the effects of the current of the waters. We have held that
for Article 457 to apply the following requisites must concur: (1) that the deposit be
gradual and imperceptible; (2) that it be made through the effects of the current of the
water; and (3) that the land where accretion takes place is adjacent to the banks of rivers.
The character of the Sapang Bayan property was not shown to be of the nature that is
being referred to in the provision which is an accretion known as alluvion as no evidence
had been presented to support this assertion.
In fact from the transcripts of the proceedings, the parties could not agree how Sapang
Bayan came about. Whether it was a gradual deposit received from the river current or a
dried-up creek bed connected to the main river could not be ascertained.
Even assuming that Sapang Bayan was a dried-up creek bed, under Article 420,
paragraph 1 and Article 502, paragraph 1 of the Civil Code, rivers and their natural beds
are property of public dominion. In the absence of any provision of law vesting
ownership of the dried-up river bed in some other person, it must continue to belong to
the State.

Property; property
belonging to the State

Republic of the Philippines, represented by the Philippine Reclamation Authority


(PRA) vs. City of Paranaque; G.R. No. 191109, July 18, 2012.
The subject lands are reclaimed lands, specifically portions of the foreshore and offshore
areas of Manila Bay. As such, these lands remain public lands and form part of the public
domain. In the case of Chavez v. Public Estates Authority and AMARI Coastal
Development Corporation, the Court held that foreshore and submerged areas irrefutably
belonged to the public domain and were inalienable unless reclaimed, classified as
alienable lands open to disposition and further declared no longer needed for public
service. The fact that alienable lands of the public domain were transferred to the PEA
(now PRA) and issued land patents or certificates of title in PEAs name did not
automatically make such lands private. This Court also held therein that reclaimed lands
retained their inherent potential as areas for public use or public service.

Property; Public
property; public plaza
forms part of the
public dominion;
cannot be the object of
appropriation, lease,
any other contractual
undertaking; void
contracts.

Land Bank of the Philippines v. Cacayurin; G.R. No. 191667. April 17, 2013
A Public plaza is for public use and therefore forms part of the public dominion.
Accordingly, it cannot be the object of appropriation either by the State or by private
persons. Nor can it be the subject of lease or any other contractual undertaking. In
Villanueva v. Castaneda, Jr., citing Espiritu v. Municipal Council of Pozorrubio, the
Court pronounced that:
x x x Town plazas are properties of public dominion, to be devoted to public use and
to be made available to the public in general. They are outside the commerce of man
and cannot be disposed of or even leased by the municipality to private parties.
In this relation, Article 1409(1) of the Civil Code provides that a contract whose purpose
is contrary to law, morals, good customs, public order or public policy is considered

void and as such, creates no rights or obligations or any juridical relations.


Property; registration
requirements.

Republic of the Philippines vs. Jose T. Ching represented by his Attorney-in-fact,


Antonio V. Ching; G.R. No. 186166, October 20, 2010
Based on these legal parameters, applicants for registration of title under Section 14(1)
must sufficiently establish: (1) that the subject land forms part of the disposable and
alienable lands of the public domain; (2) that the applicant and his predecessors-ininterest have been in open, continuous, exclusive and notorious possession and
occupation of the same; and (3) that it is under a bona fide claim of ownership since June
12, 1945, or earlier.
Thus, before an applicant can adduce evidence of open, continuous, exclusive and
notorious possession and occupation of the property in question, he must first prove that
the land belongs to the alienable and disposable lands of the public domain. It is
doctrinal that, under the Regalian doctrine, all lands of the public domain pertain to the
State and the latter is the foundation of any asserted right to ownership in land.
Accordingly, the State presumably owns all lands not otherwise appearing to be clearly
within private ownership. To overcome such presumption, irrefutable evidence must be
shown by the applicant that the land subject of registration has been declassified and
now belongs to the alienable and disposable portion of the public domain.

Property; right of
possession.

Spouses Ida Nieves Beltran and Jose Beltran vs. Ms. Anita R. Nieves, etc.; G.R. No.
175561, October 20, 2010
The only issue in an ejectment case is the physical possession of real property
possession de facto and not possession de jure. We rule upon the issue of ownership only
to determine who between the parties has the better right of possession. As the law now
stands, in an ejectment suit, the question of ownership may be provisionally ruled upon
for the sole purpose of determining who is entitled to possession de facto.
A person who occupies the land of another at the latters tolerance or permission,
without any contract between them, is necessarily bound by an implied promise that he
will vacate upon demand, failing which a summary action for ejectment is the proper
remedy against them. Whatever right of possession that the spouses Beltran may have
over the subject property cannot prevail over that of Nieves for the simple reason that
Nieves is the registered owner of the subject property and the alleged deed of sale, which
Nieves disputes, remains unregistered. Although it is true that the spouses Beltran, and
not Nieves, were in prior physical possession of the subject property, this argument
cannot hold water as prior physical possession is material only in forcible entry cases.
Any question regarding the validity of Nieves title can only be assailed in an action
expressly instituted for that purpose. A certificate of title shall not be subject to collateral
attack. Our ruling in the present case shall not bar an action between the same parties for
the determination of ownership of the subject property.

Property; Spanish
titles can no longer be
used as evidence of
ownership after six (6)
months from the
effectivity of PD 892.
Property; waiver of
interest; when absolute
and unconditional

Public Document;
Effect of notarization;

Laura F. Paraguya v. Sps. Alma Escurel-Crucillo and Emeterio Crucillo and the
Register of Deeds of Sorsogon, G.R. No. 200265, December 2, 2013.
Based on Section 1 of PD 892, entitled Discontinuance of the Spanish Mortgage
System of Registration and of the Use of Spanish Titles as Evidence in Land Registration
Proceedings, Spanish titles can no longer be used as evidence of ownership after six (6)
months from the effectivity of the law, or starting August 16, 1976.
Isabelo C. Dela Cruz v. Lucila C. Dela Cruz, G.R. No. 192383, December 4, 2013
Lucila did not say, to put everything in proper order, I promise to waive my right to the
property, which is a future undertaking, one that is demandable only when everything is
put in proper order. But she instead said, to put everything in proper order, I hereby
waive etc. The phrase hereby waive means that Lucila was, by executing the
affidavit, already waiving her right to the property, irreversibly divesting herself of her
existing right to the same. After he and his co-owner Emelinda accepted the donation,
Isabelo became the owner of half of the subject property having the right to demand its
partition.
Antonia R. Dela Pena, et al. vs Gemma Remilyn C. Avila and Far East Bank & Trust
Co., G.R. No. 187490. February 8, 2012

Presumption of
regularity.

Publication
requirement; laws

With the material contradictions in the Dela Penas evidence, the CA cannot be faulted
for upholding the validity of the impugned 4 November 1997 Deed of Absolute Sale.
Having been duly notarized, said deed is a public document which carries the evidentiary
weight conferred upon it with respect to its due execution. Regarded as evidence of the
facts therein expressed in a clear, unequivocal manner, public documents enjoy a
presumption of regularity which may only be rebutted by evidence so clear, strong and
convincing as to exclude all controversy as to falsity. The burden of proof to overcome
said presumptions lies with the party contesting the notarial document like the Dela
Penas who, unfortunately, failed to discharge said onus. Absent clear and convincing
evidence to contradict the same, we find that the CA correctly pronounced the Deed of
Absolute Sale was valid and binding between Antonia and Gemma.
Arroyo v. Dept of Justice; G.R. No. 199082/G.R. No. 199085/G.R. No. 199118.
September 18, 2012
The publication requirement covers not only statutes but administrative regulations and
issuances, as clearly outlined in Tanada v.Tuvera. As opposed to Honasan II v. The Panel
of Investigating Prosecutors of the Department of Justice, where the Court held that
OMB-DOJ Joint Circular No. 95-001 is only an internal arrangement between the DOJ
and the Office of the Ombudsman outlining the authority and responsibilities among
prosecutors of both offices in the conduct of preliminary investigation, the assailed Joint
Committees Rules of Procedure regulate not only the prosecutors of the DOJ and the
Comelec but also the conduct and rights of persons, or the public in general. The
publication requirement should, therefore, not be ignored.
Publication is a necessary component of procedural due process to give as wide publicity
as possible so that all persons having an interest in the proceedings may be notified
thereof. The requirement of publication is intended to satisfy the basic requirements of
due process. It is imperative for it will be the height of injustice to punish or otherwise
burden a citizen for the transgressions of a law or rule of which he had no notice
whatsoever.

Publication
requirement;
regulations

Asociation of Southern Tagalog Electric Cooperatives, Inc., et al. v. Energy


Regulatory Commission; G.R. No. 192117/G.R. No. 192118. September 18, 2012
Publication is a basic postulate of procedural due process. The purpose of publication is
to duly inform the public of the contents of the laws which govern them and regulate
their activities. Article 2 of the Civil Code, as amended by Section 1 of Executive Order
No. 200, states that [l]aws shall take effect after fifteen days following the completion
of their publication either in the Official Gazette or in a newspaper of general circulation
in the Philippines, unless it is otherwise provided. Section 18, Chapter 5, Book I of
Executive Order No. 292 or the Administrative Code of 1987 similarly provides that
[l]aws shall take effect after fifteen (15) days following the completion of their
publication in the Official Gazette or in a newspaper of general circulation, unless it is
otherwise provided.
Procedural due process demands that administrative rules and regulations be published
in order to be effective. There are, however, several exceptions to the requirement of
publication. First, an interpretative regulation does not require publication in order to be
effective. The applicability of an interpretative regulation needs nothing further than its
bare issuance for it gives no real consequence more than what the law itself has already
prescribed. It add[s] nothing to the law and do[es] not affect the substantial rights of
any person. Second, a regulation that is merely internal in nature does not require
publication for its effectivity. It seeks to regulate only the personnel of the administrative
agency and not the general public. Third, a letter of instruction issued by an
administrative agency concerning rules or guidelines to be followed by subordinates in
the performance of their duties does not require publication in order to be effective.

Quasi-contract;
concept of quasicontract.

Antonio Locsin II v. Mekeni Food Corporation, G.R. No. 192105, December 9, 2013.
Article 2142 of the same Code likewise clarifies that there are certain lawful, voluntary
and unilateral acts which give rise to the juridical relation of quasi-contract, to the end
that no one shall be unjustly enriched or benefited at the expense of another. In the
absence of specific terms and conditions governing the car plan arrangement between the

petitioner and Mekeni, a quasi-contractual relation was created between them.


Quasi-contract; unjust
enrichment; concept
of; elements.In light of
the foregoing, it is
unfair to deny
petitioner a refund of
all his contributions to
the car plan.

Antonio Locsin II v. Mekeni Food Corporation, G.R. No. 192105, December 9, 2013.

Quasi-contracts;
definition; requisites
of solutio indebiti.

Metropolitan Bank & Trust Company vs. Absolute Management Corporation; G.R.
No. 170498. January 9, 2013

Under Article 22 of the Civil Code, [e]very person who through an act of performance
by another, or any other means, acquires or comes into possession of something at the
expense of the latter without just or legal ground, shall return the same to him.

A quasi-contract involves a juridical relation that the law creates on the basis of certain
voluntary, unilateral and lawful acts of a person, to avoid unjust enrichment. The Civil
Code provides an enumeration of quasi-contracts, but the list is not exhaustive and
merely provides examples.
Article 2154 embodies the concept solutio indebiti which arises when something is
delivered through mistake to a person who has no right to demand it. It obligates the
latter to return what has been received through mistake. Solutio indebiti, as defined in
Article 2154 of the Civil Code, has two indispensable requisites: first, that something has
been unduly delivered through mistake; and second, that something was received when
there was no right to demand it.
Quasi-contracts;
solutio indebiti;
concept.

Virginia M. Venzon v. Rural Bank of Buenavista, Inc., represented by Lourdesita E.


Parajes, G.R. No. 178031, August 28, 2013
In a controversy over payment made after the foreclosure of the mortgaged property, the
Court held: Since respondent was not entitled to receive the said amount, as it is
deemed fully paid from the foreclosure of petitioners property since its bid price at the
auction sale covered all that petitioner owed it by way of principal, interest, attorneys
fees and charges, it must return the same to petitioner. If something is received when
there is no right to demand it, and it was unduly delivered through mistake, the
obligation to return it arises.

Quasi-contracts;
Unjust enrichment.

Domingo Gonzalo v. John Tarnate, Jr., G.R. No. 160600, January 15, 2014
Unjust enrichment exists, according to Hulst v. PR Builders, Inc., when a person
unjustly retains a benefit at the loss of another, or when a person retains money or
property of another against the fundamental principles of justice, equity and good
conscience. The prevention of unjust enrichment is a recognized public policy of the
State, for Article 22 of the Civil Code explicitly provides that [e]very person who
through an act of performance by another, or any other means, acquires or comes into
possession of something at the expense of the latter without just or legal ground, shall
return the same to him.

Quasi-delict; elements.

Albert Tison and Claudio L. Jabon vs.Sps. Gregorio Pomasin and Consorcia Ponce
Pomasin, et al.; G.R. No. 173180. August 24, 2011
According to Article 2176 of the Civil Code, whoever by act or omission causes damage
to another, there being fault or negligence, is obliged to pay for the damage done. To
sustain a claim based on quasi-delict, the following requisites must concur: (a) damage
suffered by the plaintiff; (b) fault or negligence of defendant; and (c) connection of cause
and effect between the fault or negligence of defendant and the damage incurred by the
plaintiff. These requisites must be proved by a preponderance of evidence. The
claimants, respondents in this case, must, therefore, establish their claim or cause of
action by preponderance of evidence, evidence which is of greater weight, or more
convincing than that which is offered in opposition to it.

Quasi-delict; elements.

Dra. Leila A. Dela Llana v. Rebecca Biong, doing business under the name and style
of Pongkay Trading, G.R. No. 182356, December 4, 2013.
Article 2176 of the Civil Code provides that [w]hoever by act or omission causes

damage to another, there being fault or negligence, is obliged to pay for the damage
done. Such fault or negligence, if there is no pre-existing contractual relation between
the parties, is a quasi-delict. Under this provision, the elements necessary to establish a
quasi-delict case are: (1) damages to the plaintiff; (2) negligence, by act or omission, of
the defendant or by some person for whose acts the defendant must respond, was guilty;
and (3) the connection of cause and effect between such negligence and the damages.
These elements show that the source of obligation in a quasi-delict case is the breach or
omission of mutual duties that civilized society imposes upon its members, or which
arise from non- contractual relations of certain members of society to others.
Quasi-delict; human
relations.

Allan C. Go, doing business under the name and style of ACG Express Liner vs.
Mortimer F. Cordero/Mortimer F. Cordero vs. Allan C. Go, doing business under the
name and style of ACG Express Liner, et al., G.R. No. 164703/G.R. No, 164747.
May 4, 2010
The failure of respondents to act with fairness, honesty and good faith in securing better
terms for the purchase of high-speed catamarans from AFFA, to the prejudice of the
petitioner as the duly appointed exclusive distributor, is proscribed by Article 19 of the
Civil Code. When a right is exercised in a manner which does not conform with the
norms enshrined in Article 19 and results in damage to another, a legal wrong is thereby
committed for which the wrongdoer must be responsible. The object of this article,
therefore, is to set certain standards which must be observed not only in the exercise of
ones rights but also in the performance of ones duties. These standards are the
following: act with justice, give everyone his due and observe honesty and good faith. Its
antithesis, necessarily, is any act evincing bad faith or intent to injure. Its elements are
the following: (1) There is a legal right or duty; (2) which is exercised in bad faith; (3)
for the sole intent of prejudicing or injuring another. When Article 19 is violated, an
action for damages is proper under Articles 20 or 21 of the Civil Code. Article 21 refers
to acts contra bonus mores and has the following elements: (1) There is an act which is
legal; (2) but which is contrary to morals, good custom, public order, or public policy;
and (3) it is done with intent to injure. A common theme runs through Articles 19 and 21,
and that is, the act complained of must be intentional.

Quasi-delict; liability
of employer for
negligence of
employee; bases.

RCJ Bus Lines, Inc. vs. Standard Insurance Company Incorporated; G.R. No.
193629, August 17, 2011
Standard may hold RCJ liable for two reasons, both of which rely upon facts
uncontroverted by RCJ. One, RCJ is the registered owner of the bus driven by Mangoba.
Two, RCJ is Mangobas employer.
Standards allegation in its amended complaint that RCJ is the registered owner of the
passenger bus with plate number NYG 363 was sufficient to state a cause of action
against RCJ. The registered owner of a vehicle should be primarily responsible to the
public for injuries caused while the vehicle is in use. The main aim of motor vehicle
registration is to identify the owner so that if any accident happens, or that any damage
or injury is caused by the vehicle on the public highways, responsibility therefor can be
fixed on a definite individual, the registered owner.
Moreover, when the employee causes damage due to his own negligence while
performing his own duties, there arises the juris tantum presumption that the employer is
negligent, rebuttable only by proof of observance of the diligence of a good father of a
family. For failure to rebut such legal presumption of negligence in the selection and
supervision of employees, the employer is likewise responsible for damages, the basis of
the liability being the relationship of pater familias or on the employers own negligence.

Quasi-Delict; liability
of principal for acts of
agent

Sps. Fernando and Lourdes Viloria vs. Continental Airlines, Inc.,G.R. No. 188288.
January 16, 2012.
In actions based on quasi-delict, a principal can only be held liable for the tort committed
by its agents employees if it has been established by preponderance of evidence that the
principal was also at fault or negligent or that the principal exercise control and
supervision over them.
A prior determination of the nature of the passengers cause of action is necessary. If the
passengers cause of action against the airline company is premised on culpa aquiliana or

quasi-delict for a tort committed by the employee of the airline companys agent, there
must be an independent showing that the airline company was at fault or negligent or has
contributed to the negligence or tortuous conduct committed by the employee of its
agent. The mere fact that the employee of the airline companys agent has committed a
tort is not sufficient to hold the airline company liable. There is no vinculum juris
between the airline company and its agents employees and the contractual relationship
between the airline company and its agent does not operate to create a juridical tie
between the airline company and its agents employees.
Article 2180 of the Civil Code does not make the principal vicariously liable for the tort
committed by its agents employees and the principal-agency relationship per se does not
make the principal a party to such tort; hence, the need to prove the principals own fault
or negligence.
On the other hand, if the passengers cause of action for damages against the airline
company is based on contractual breach or culpa contractual, it is not necessary that
there be evidence of the airline companys fault or negligence. In an action based on a
breach of contract of carriage, the aggrieved party does not have to prove that the
common carrier was at fault or was negligent. All that he has to prove is the existence of
the contract and the fact of its non-performance by the carrier.
A persons vicarious liability is anchored on his possession of control, whether absolute
or limited, on the tortfeasor. Without such control, there is nothing which could justify
extending the liability to a person other than the one who committed the tort.
The Court cited the case of Cangco v. Manila Railroad Co. stated that with respect to
extra-contractual obligation arising from negligence, whether of act or omission the
legislature has limited such liability to cases in which the person upon whom such an
obligation is imposed is morally culpable or, on the contrary, for reasons of public
policy, to extend that liability without regard to the lack of moral culpability, so as to
include responsibility for the negligence of those persons whose acts or omissions are
imputable, by a legal fiction, to others who are in a position to exercise an absolute or
limited control over them. The legislature which adopted our Civil Code has elected to
limit extra-contractual liability with certain well-defined exceptions to cases in
which moral culpability can be directly imputed to the persons to be charged. This moral
responsibility may consist in having failed to exercise due care in ones own acts, or in
having failed to exercise due care in the selection and control of ones agent or servants,
or in the control of persons who, by reasons of their status, occupy a position of
dependency with respect to the person made liable for their conduct.
Quasi-delict;
negligence; violation
of law is negligence;
causal connection.

Albert Tison and Claudio L. Jabon vs.Sps. Gregorio Pomasin and Consorcia Ponce
Pomasin, et al.; G.R. No. 173180. August 24, 2011
Driving without a proper license is a violation of traffic regulation. Under Article 2185
of the Civil Code, the legal presumption of negligence arises if at the time of the mishap,
a person was violating any traffic regulation. However, in Sanitary Steam Laundry, Inc.
v. Court of Appeals, we held that a causal connection must exist between the injury
received and the violation of the traffic regulation. It must be proven that the violation of
the traffic regulation was the proximate or legal cause of the injury or that it substantially
contributed thereto. Negligence, consisting in whole or in part, of violation of law, like
any other negligence, is without legal consequence unless it is a contributing cause of the
injury. Likewise controlling is our ruling in Anonuevo v. Court of Appeals where we
reiterated that negligence per se, arising from the mere violation of a traffic statute, need
not be sufficient in itself in establishing liability for damages. In said case, Anonuevo,
who was driving a car, did not attempt to establish a causal connection between the
safety violations imputed to the injured cyclist, and the accident itself. Instead, he relied
on a putative presumption that these violations in themselves sufficiently established
negligence appreciable against the cyclist. Since the onus on Anonuevo is to
conclusively prove the link between the violations and the accident, we can deem him as
having failed to discharge his necessary burden of proving the cyclists own liability.
We took the occasion to state that:
The rule on negligence per se must admit qualifications that may arise from the logical
consequences of the facts leading to the mishap. The doctrine (and Article 2185, for that
matter) is undeniably useful as a judicial guide in adjudging liability, for it seeks to

impute culpability arising from the failure of the actor to perform up to a standard
established by a legal fiat. But the doctrine should not be rendered inflexible so as to
deny relief when in fact there is no causal relation between the statutory violation and
the injury sustained. Presumptions in law, while convenient, are not intractable so as to
forbid rebuttal rooted in fact. After all, tort law is remunerative in spirit, aiming to
provide compensation for the harm suffered by those whose interests have been invaded
owing to the conduct of other.
In the instant case, no causal connection was established between the tractor-trailer
drivers restrictions on his license to the vehicular collision. Furthermore, Jabon was able
to sufficiently explain that the Land Transportation Office merely erred in not including
restriction code 8 in his license.
Quasi-delict; quantum
of proof;
preponderance of
evidence.

Dra. Leila A. Dela Llana v. Rebecca Biong, doing business under the name and style
of Pongkay Trading, G.R. No. 182356, December 4, 2013.

Quasi-delict; standard
of due diligence of a
disabled person.

Antonio Francisco, substituted by his heirs, Nelia E.S. Francisco, et al. vs.Chemical
Bulk Carriers, Inc.; G.R. No. 193577. September 7, 2011

Based on these requisites, Dra. dela Llana must first establish by preponderance of
evidence the three elements of quasi-delict before we determine Rebeccas liability as
Joels employer. She should show the chain of causation between Joels reckless driving
and her whiplash injury. Only after she has laid this foundation can the presumption
that Rebecca did not exercise the diligence of a good father of a family in the selection
and supervision of Joel arise. Once negligence, the damages and the proximate
causation are established, this Court can then proceed with the application and the
interpretation of the fifth paragraph of Article 2180 of the Civil Code. Under Article
2176 of the Civil Code, in relation with the fifth paragraph of Article 2180, an action
predicated on an employees act or omission may be instituted against the employer who
is held liable for the negligent act or omission committed by his employee.The rationale
for these graduated levels of analyses is that it is essentially the wrongful or negligent act
or omission itself which creates the vinculum juris in extra-contractual obligations.

Standard of conduct is the level of expected conduct that is required by the nature of the
obligation and corresponding to the circumstances of the person, time and place. The
most common standard of conduct is that of a good father of a family or that of a
reasonably prudent person. To determine the diligence which must be required of all
persons, we use as basis the abstract average standard corresponding to a normal orderly
person.
However, one who is physically disabled is required to use the same degree of care that a
reasonably careful person who has the same physical disability would use. Physical
handicaps and infirmities, such as blindness or deafness, are treated as part of the
circumstances under which a reasonable person must act. Thus, the standard of conduct
for a blind person becomes that of a reasonable person who is blind.
We note that Francisco, despite being blind, had been managing and operating the Caltex
station for 15 years and this was not a hindrance for him to transact business until this
time. In this instance, however, we rule that Francisco failed to exercise the standard of
conduct expected of a reasonable person who is blind. First, Francisco merely relied on
the identification card of Bacsa to determine if he was authorized by CBCI. Francisco
did not do any other background check on the identity and authority of Bacsa. Second,
Francisco already expressed his misgivings about the diesel fuel, fearing that they might
be stolen property, yet he did not verify with CBCI the authority of Bacsa to sell the
diesel fuel. Third, Francisco relied on the receipts issued by Bacsa which were
typewritten on a half sheet of plain bond paper. If Francisco exercised reasonable
diligence, he should have asked for an official receipt issued by CBCI. Fourth, the
delivery to Francisco, as indicated in Petrons invoice, does not show that CBCI
authorized Bacsa to sell the diesel fuel to Francisco. Clearly, Francisco failed to exercise
the standard of conduct expected of a reasonable person who is blind.
Quasi-delict; tort
interference.

Allan C. Go, doing business under the name and style of ACG Express Liner vs.
Mortimer F. Cordero/Mortimer F. Cordero vs. Allan C. Go, doing business under the
name and style of ACG Express Liner, et al., G.R. No. 164703/G.R. No, 164747.
May 4, 2010

While it is true that a third person cannot possibly be sued for breach of contract because
only parties can breach contractual provisions, a contracting party may sue a third person
not for breach but for inducing another to commit such breach. Article 1314 of the Civil
Code provides: Any third person who induces another to violate his contract shall be
liable for damages to the other contracting party. The elements of tort interference are:
(1) existence of a valid contract; (2) knowledge on the part of the third person of the
existence of a contract; and (3) interference of the third person is without legal
justification.
In this case, the presence of the first and second elements is not disputed. As to the third
element, the Supreme Court cited its ruling in So Ping Bun v. Court of Appeals that noted
how authorities have debated on whether interference may be justified where the
defendant acts for the sole purpose of furthering his own financial or economic interest.
One view is that, as a general rule, justification for interfering with the business relations
of another exists where the actors motive is to benefit himself. Such justification does
not exist where his sole motive is to cause harm to the other. Added to this, some
authorities believe that it is not necessary that the interferers interest outweigh that of
the party whose rights are invaded, and that an individual acts under an economic
interest that is substantial, not merely de minimis, such that wrongful and malicious
motives are negatived, for he acts in self-protection. Moreover, justification for
protecting ones financial position should not be made to depend on a comparison of his
economic interest in the subject matter with that of others. It is sufficient if the impetus
of his conduct lies in a proper business interest rather than in wrongful motives. The
court noted that as early as Gilchrist vs. Cuddy, it had held that where there was no
malice in the interference of a contract, and the impulse behind ones conduct lies in a
proper business interest rather than in wrongful motives, a party cannot be a malicious
interferer. Where the alleged interferer is financially interested, and such interest
motivates his conduct, it cannot be said that he is an officious or malicious intermeddler.
While the court does not encourage tort interferers seeking their economic interest to
intrude into existing contracts at the expense of others, the conduct complained must
transcend the limits forbidding an obligatory award for damages in the absence of any
malice. Malice connotes ill will or spite, and speaks not in response to duty. It implies an
intention to do ulterior and unjustifiable harm. Malice is bad faith or bad motive.
The act of the respondents in inducing Robinson and AFFA to enter into another contract
directly with ACG Express Liner to obtain a lower price for the second vessel resulted in
AFFAs breach of its contractual obligation to pay in full the commission due to the
petitioner and unceremonious termination of the petitioners appointment as exclusive
distributor. Such act may not be deemed malicious if impelled by a proper business
interest rather than in wrongful motives. The attendant circumstances, however,
demonstrated that respondents transgressed the bounds of permissible financial interest
to benefit themselves at the expense of the petitioner.
Quieting of title; direct
attack on title.

Roman Catholic Archbishop of San Fernando, Pampanga, represented herein by the


incumbent Archbishop vs. Eduardo Soriano, et al./Marcial and Victoria Balagtas, et
al. vs. Roman Catholic Archbishop of San Fernando, Pampanga, etc.; G.R. No.
153829/G.R. No. 160909. August 17, 2011
The RCA likewise asserts that the case for quieting of title is a collateral attack on its
title which is prohibited by law. However, we agree with the CA in holding that the
complaint against the RCA does not amount to a collateral attack because the action for
the declaration of nullity of OCT No. 17629 is a clear and direct attack on its title.
An action is deemed an attack on a title when its objective is to nullify the title, thereby
challenging the judgment pursuant to which the title was decreed. The attack is direct
when the objective is to annul or set aside such judgment, or enjoin its enforcement. On
the other hand, the attack is indirect or collateral when, in an action to obtain a different
relief, an attack on the judgment is nevertheless made as an incident thereof.
The complaint filed with the RTC pertinently alleged that the claim of ownership by the
RCA is spurious as its title, denominated as OCT No. 17629, is fake for the following
reasons: (1) that the erasures are very apparent and the title itself is fake; (2) it was made
to appear under Memorandum of Encumbrance Entry No. 1007 that the title is a
reconstituted title when in truth, it is not; and (3) the verification reveals that there was
no petition filed before any court where an order was issued for the reconstitution and re-

issuance of an owners duplicate copy. It is thus clear from the foregoing that the case
filed questioning the genuineness of OCT No. 17629 is a direct attack on the title of the
RCA.
Quieting of title; legal
or equitable title in
quieting of title.

Dionisio Mananquil, et al. v. Roberto Moico; G.R. No. 180076. November 20, 2012

Quieting of title.

Joaquin G. Chung, Jr., et al. Vs. Jack Daniel Mondragon, et al.; G.R. No. 179754.
November 21, 2012

An action for quieting of title is essentially a common law remedy grounded on equity.
The competent court is tasked to determine the respective rights of the complainant and
other claimants, not only to place things in their proper place, to make the one who has
no rights to said immovable respect and not disturb the other, but also for the benefit of
both, so that he who has the right would see every cloud of doubt over the property
dissipated, and he could afterwards without fear introduce the improvements he may
desire, to use, and even to abuse the property as he deems best. But for an action to
quiet title to prosper, two indispensable requisites must concur, namely: (1) the plaintiff
or complainant has a legal or an equitable title to or interest in the real property subject
of the action; and (2) the deed, claim, encumbrance, or proceeding claimed to be casting
cloud on his title must be shown to be in fact invalid or inoperative despite its prima
facie appearance of validity or legal efficacy.

The issues in a case for quieting of title are fairly simple; the plaintiff need to prove only
two things, namely: (1) the plaintiff or complainant has a legal or an equitable title to or
interest in the real property subject of the action; and (2) that the deed, claim,
encumbrance or proceeding claimed to be casting a cloud on his title must be shown to
be in fact invalid or inoperative despite its prima facie appearance of validity or legal
efficacy. Stated differently, the plaintiff must show that he has a legal or at least an
equitable title over the real property in dispute, and that some deed or proceeding
beclouds its validity or efficacy.
Real Estate Mortgage;
Extrajudicial
foreclosure sale;
Recovery of unpaid
balance or deficiency;
Inadequacy of sale
price.

Bank of the Philippine Islands, as successor-in- Interest of Far Far East Bank &
Trust Company vs Cythia L. Reyes, G.R. No. 182769. February 1, 2012.
Citing BPI Family Savings Bank, Inc. v. Avenido, the Supreme Court reiterated the wellentrenched rule that a creditor is not precluded from recovering any unpaid balance on
the principal obligation if the extrajudicial foreclosure sale of the property subject of the
real estate mortgage results in a deficiency, to wit: It is settled that if the proceeds of
the sale are insufficient to cover the debt in an extrajudicial foreclosure of mortgage, the
mortgagee is entitled to claim the deficiency from the debtor. While Act No. 3135, as
amended, does not discuss the mortgagees right to recover the deficiency, neither does it
contain any provision expressly or impliedly prohibiting recovery. If the legislature had
intended to deny the creditor the right to sue for any deficiency resulting from the
foreclosure of a security given to guarantee an obligation, the law would expressly so
provide. Absent such a provision in Act No. 3135, as amended, the creditor is not
precluded from taking action to recover any unpaid balance on the principal obligation
simply because he chose to extrajudicially foreclose the real estate mortgage.
The Supreme Court ruled in Suico Rattan & Buri Interiors, Inc. v. Court of Appeals that,
in deference to the rule that a mortgage is simply a security and cannot be considered
payment of an outstanding obligation, the creditor is not barred from recovering the
deficiency even if it bought the mortgaged property at the extrajudicial foreclosure sale
at a lower price than its market value notwithstanding the fact that said value is more
than or equal to the total amount of the debtors obligation. Thus, it is wrong for
petitioners to conclude that when respondent bank supposedly bought the foreclosed
properties at a very low price, the latter effectively prevented the former from satisfying
their whole obligation. Petitioners still had the option of either redeeming the properties
and, thereafter, selling the same for a price which corresponds to what they claim as the
properties actual market value or by simply selling their right to redeem for a price
which is equivalent to the difference between the supposed market value of the said
properties and the price obtained during the foreclosure sale. In either case, petitioners
will be able to recoup the loss they claim to have suffered by reason of the inadequate
price obtained at the auction sale and, thus, enable them to settle their obligation with
respondent bank. Moreover, petitioners are not justified in concluding that they should
be considered as having paid their obligations in full since respondent bank was the one

who acquired the mortgaged properties and that the price it paid was very inadequate.
The fact that it is respondent bank, as the mortgagee, which eventually acquired the
mortgaged properties and that the bid price was low is not a valid reason for petitioners
to refuse to pay the remaining balance of their obligation. Settled is the rule that a
mortgage is simply a security and not a satisfaction of indebtedness.
Regalian doctrine;
public land.

Republic of the Philippines vs. Gloria Jaralve (deceased), substituted by Alan Jess
Jaralve-Document, Jr., et al. G.R. No. 175177. October 24, 2012
Under the Regalian doctrine, land that has not been acquired from the government, either
by purchase, grant, or any other mode recognized by law, belongs to the State as part of
the public domain. Thus, it is indispensable for a person claiming title to a public land to
show that his title was acquired through such means. To prove that the subject property
is alienable and disposable land of the public domain, respondents presented the CENRO
Certificate. However, a CENRO or PENRO Certification is not enough to certify that a
land is alienable and disposable. The applicant for land registration must prove that the
DENR Secretary had approved the land classification and released the land of the public
domain as alienable and disposable, and that the land subject of the application for
registration falls within the approved area per verification through survey by the PENRO
or CENRO. In addition, the applicant for land registration must present a copy of the
original classification approved by the DENR Secretary and certified as a true copy by
the legal custodian of the official records.
Although the survey and certification were done declaring certain portions of the public
domain situated in Cebu City as alienable and disposable, an actual copy of such
classification, certified as true by the legal custodian of the official records, was not
presented in evidence. Unfortunately, respondents were not able to discharge the burden
of overcoming the presumption that the land they sought to be registered forms part of
the public domain.

Rent; civil fruit;


rightful recipient.

Philippine National Bank v. Sps. Bernard and Cresencia Maranon, G.R.No. 189316,
July 1, 2013.
Rent is a civil fruit that belongs to the owner of the property producing it by right of
accession. The rightful recipient of the disputed rent in this case should thus be the
owner of the subject lot at the time the rent accrued.

Res ipsa loquitur;


Simple negligence;
Elements of
negligence; Damages.

Dr. Emmanuel Jarcia, Jr. and Dr. Marilou Bastan vs. People of the Philippines, G.R.
No. 187926. February 15, 2012.
The doctrine of res ipsa loquitur as a rule of evidence is unusual to the law of negligence
which recognizes that prima facie negligence may be established without direct proof
and furnishes a substitute for specific proof of negligence. The doctrine, however, is not
a rule of substantive law, but merely a mode of proof or a mere procedural convenience.
The rule, when applicable to the facts and circumstances of a given case, is not meant to
and does not dispense with the requirement of proof of culpable negligence on the party
charged. It merely determines and regulates what shall be prima facie evidence thereof
and helps the plaintiff in proving a breach of the duty. The doctrine can be invoked when
and only when, under the circumstances involved, direct evidence is absent and not
readily available. The requisites for the application of the doctrine of res ipsa loquitur
are: (1) the accident was of a kind which does not ordinarily occur unless someone is
negligent; (2) the instrumentality or agency which caused the injury was under the
exclusive control of the person in charge; and (3) the injury suffered must not have been
due to any voluntary action or contribution of the person injured.
Negligence is defined as the failure to observe for the protection of the interests of
another person that degree of care, precaution, and vigilance, which the circumstances
justly demand, whereby such other person suffers injury. The elements of simple
negligence are: (1) that there is lack of precaution on the part of the offender, and (2) that
the damage impending to be caused is not immediate or the danger is not clearly
manifest
Moral damages are not punitive in nature, but are designed to compensate and alleviate
in some way the physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar injury

unjustly inflicted on a person. Intended for the restoration of the psychological or


emotional status quo ante, the award of moral damages is designed to compensate
emotional injury suffered, not to impose a penalty on the wrongdoer.
Rescission.

Granting that a rescission can be permitted under Article 1191, the Court still cannot
allow it for the reason that, considering the circumstances, there was only a slight or
casual breach in the fulfillment of the obligation. Unless the parties stipulated it,
rescission is allowed only when the breach of the contract is substantial and fundamental
to the fulfillment of the obligation. Whether the breach is slight or substantial is largely
determined by the attendant circumstances. Mila A. Reyes v. Victoria T. Tuparan, G.R.
No. 188064. June 1, 2011

Retirement funds;
trust.

Metropolitan Bank & trust Company, Inc. vs. The Board of Trustees of Riverside
Mills Corp. Provident and Retirement Fund, et al., G.R. No. 176959, September 8,
2010
RMC was a company that set up a fund for its employees called RMCPRF. Petitioner
contends that RMCs closure in 1984 rendered the RMCPRF Board of Trustees functus
officio and devoid of authority to act on behalf of RMCPRF. It thus belittles the
RMCPRF Board Resolution dated June 2, 1998, authorizing the release of the Fund to
several of its supposed beneficiaries. Without known claimants of the fund for 11 years
since RMC closed shop, it claims that fund had technically reverted to, and formed
part of RMCs assets. Hence, it could be applied to satisfy RMCs debts to Philbank. The
court disagreed with the petitioner in this case.
A trust is a fiduciary relationship with respect to property which involves the existence
of equitable duties imposed upon the holder of the title to the property to deal with it for
the benefit of another. A trust is either express or implied. Express trusts are those
which the direct and positive acts of the parties create, by some writing or deed, or will,
or by words evincing an intention to create a trust.
Here, an express trust was created to provide retirement benefits to the regular
employees of RMC. RMC retained legal title to the Fund but held the same in trust for
the employees-beneficiaries. Employees trusts or benefit plans are intended to provide
economic assistance to employees upon the occurrence of certain contingencies,
particularly, old age retirement, death, sickness, or disability. They give security against
certain hazards to which members of the Plan may be exposed. They are independent
and additional sources of protection for the working group and established for their
exclusive benefit and for no other purpose. Here, while the plan provides for a reversion
of the fund to RMC, this cannot be done until all the liabilities of the plan have been
paid. And when RMC ceased operations in 1984, the fund became liable for the payment
not only of the benefits of qualified retirees at the time of RMCs closure but also of
those who were separated from work as a consequence of the closure.

Sale at public auction;


inadequacy of bid
price.

Francisco Rabat, et al. vs. Philippine National Bank; G.R. No. 158755, June 18, 2012

Sale of real property


on installment; cash
surrender value; when
the buyer is entitled
thereto.

Gatchalian Realty, Inc. v. Evelyn Angeles, G.R. No. 202358, November 27, 2013

We have consistently held that the inadequacy of the bid price at a forced sale, unlike
that in an ordinary sale, is immaterial and does not nullify the sale; in fact, in a forced
sale, a low price is considered more beneficial to the mortgage debtor because it makes
redemption of the property easier.

Republic Act No. 6552, also known as the Maceda Law, or the Realty Installment Buyer
Protection Act, has the declared public policy of protecting buyers of real estate on
installment payments against onerous and oppressive conditions.
Section 3 of R.A. 6552 provides for the rights of a buyer who has paid at least two years
of installments but defaults in the payment of succeeding installments. Section 3
provides that in all transactions or contracts involving the sale or financing of real estate
on installment payments, including residential condominium apartments but excluding
industrial lots, commercial buildings and sales to tenants under R.A. No. 3844, as
amended by R.A. No. 6389, where the buyer has paid at least two years of installments,
the buyer is entitled to the following rights in case he defaults in the payment of
succeeding installments:
(a) To pay, without additional interest, the unpaid installments due within the total

grace period earned by him which is hereby fixed at the rate of one month grace
period for every one year of installment payments made: Provided, That this right
shall be exercised by the buyer only once in every five years of the life of the
contract and its extensions, if any.
(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender
value of the payments on the property equivalent to fifty per cent of the total
payments made, and, after five years of installments, an additional five per cent every
year but not to exceed ninety per cent of the total payments made: Provided, That the
actual cancellation of the contract shall take place after thirty days from receipt by
the buyer of the notice of cancellation or the demand for rescission of the contract by
a notarial act and upon full payment of the cash surrender value to the buyer.
Down payments, deposits or options on the contract shall be included in the computation
of the total number of installment payments made.
Sale of Real Property;
Must be in a Public
Document;
requirement only for
convenience.

Lagrimas de Jesus Zamora v. Spouses Beatriz Zamora et al., G.R. No. 162930.
December 5, 2012

Sale; contract to sell


land;
payment
of
price; Maceda Law.

Spouses Faustino and Josefina Garcia, et al. vs. Court of Appeals, et al., G.R. No.
172036, April 23, 2010

Sale; contract to sell


versus contract of sale.

Article 1358 of the Civil Code provides that acts and contracts which have for their
object the transmission of real rights over immovable property or the sale of real
property must appear in a public document. If the law requires a document or other
special form, the contracting parties may compel each other to observe that form, once
the contract has been perfected. In Fule v. Court of Appeals, the Court held that Article
1358 of the Civil Code, which requires the embodiment of certain contracts in a public
instrument, is only for convenience, and registration of the instrument only adversely
affects third parties. Formal requirements are, therefore, for the benefit of third parties.
Non-compliance therewith does not adversely affect the validity of the contract nor the
contractual rights and obligations of the parties thereunder.

Contracts are law between the parties, and they are bound by its stipulations. It is clear
from the above-quoted provisions that the parties intended their agreement to be a
Contract to Sell: Dela Cruz retains ownership of the subject lands and does not have the
obligation to execute a Deed of Absolute Sale until petitioners payment of the full
purchase price. Payment of the price is a positive suspensive condition, failure of which
is not a breach but an event that prevents the obligation of the vendor to convey title
from becoming effective. Strictly speaking, there can be no rescission or resolution of an
obligation that is still non-existent due to the non- happening of the suspensive
condition. Dela Cruz is thus not obliged to execute a Deed of Absolute Sale in
petitioners favor because of petitioners failure to make full payment on the stipulated
date.
The trial court erred in applying R.A. 6552, or the Maceda Law, to the present case. The
Maceda Law applies to contracts of sale of real estate on installment payments, including
residential condominium apartments but excluding industrial lots, commercial buildings
and sales to tenants. The subject lands, comprising five parcels and aggregating 69,028
square meters, do not comprise residential real estate within the contemplation of the
Maceda Law. Moreover, even if we apply the Maceda Law to the present case,
petitioners offer of payment to Dela Cruz was made a year and a half after the stipulated
date. This is beyond the sixty-day grace period under Section 4 of the Maceda Law.
Petitioners still cannot use the second sentence of Section 4 of the Maceda Law against
Dela Cruz for Dela Cruzs alleged failure to give an effective notice of cancellation or
demand for rescission because Dela Cruz merely sent the notice to the address supplied
by petitioners in the Contract to Sell. It is undeniable that petitioners failed to pay the
balance of the purchase price on the stipulated date of the Contract to Sell. Thus, Dela
Cruz is within her rights to sell the subject lands to Bartolome. Neither Dela Cruz nor
Bartolome can be said to be in bad faith.
Sps. Paulino Atienza and Rufina Atienza vs. Domingo P. Espidol, G.R. No. 180665,
August 11, 2010
Regarding the right to cancel the contract for non-payment of an installment, there is
need to initially determine if what the parties had was a contract of sale or a contract to
sell. In a contract of sale, the title to the property passes to the buyer upon the delivery of
the thing sold. In a contract to sell, on the other hand, the ownership is, by agreement,

retained by the seller and is not to pass to the vendee until full payment of the purchase
price. In the contract of sale, the buyers non-payment of the price is a negative
resolutory condition; in the contract to sell, the buyers full payment of the price is a
positive suspensive condition to the coming into effect of the agreement. In the first case,
the seller has lost and cannot recover the ownership of the property unless he takes
action to set aside the contract of sale. In the second case, the title simply remains in the
seller if the buyer does not comply with the condition precedent of making payment at
the time specified in the contract.

Sale;
difference
between contract of
sale and contract to
sell.

Sale; double
Article 1544;
possession.

sale;
prior

Here, it is quite evident that the contract involved was one of a contract to sell since the
Atienzas, as sellers, were to retain title of ownership to the land until respondent Espidol,
the buyer, has paid the agreed price. Admittedly, Espidol was unable to pay the second
installment of P1,750,000.00 that fell due in December 2002. That payment was a
positive suspensive condition failure of which was not regarded a breach in the sense
that there can be no rescission of an obligation (to turn over title) that did not yet exist
since the suspensive condition had not taken place. Since the suspensive condition did
not arise, the parties stood as if the conditional obligation had never existed.
It should be noted that the condition is not a pure, suspensive one. Although the Atienzas
had no obligation as yet to turn over title pending the occurrence of the suspensive
condition, it was implicit that they were under immediate obligation not to sell the land
to another in the meantime. But when Espidol failed to pay within the period provided in
their agreement, the Atienzas were relieved of any obligation to hold the property in
reserve for him. The ruling of the lower courts that, despite the default in payment, the
Atienzas remained bound to this day to sell the property to Espidol once he is able to
raise the money and pay is quite unjustified.
Raymundo S. De Leon vs. Benita T. Ong, G.R. No. 170405, February 2, 2010
In a contract of sale, the seller conveys ownership of the property to the buyer upon the
perfection of the contract. Should the buyer default in the payment of the purchase price,
the seller may either sue for the collection thereof or have the contract judicially resolved
and set aside. The non-payment of the price is therefore a negative resolutory condition.
On the other hand, a contract to sell is subject to a positive suspensive condition. The
buyer does not acquire ownership of the property until he fully pays the purchase price.
For this reason, if the buyer defaults in the payment thereof, the seller can only sue for
damages. The deed executed by the parties stated that petitioner sold the properties to
respondent in a manner absolute and irrevocable for a sum of P1.1 million. With
regard to the manner of payment, it required respondent to pay P415,500 in cash to
petitioner upon the execution of the deed, with the balance payable directly to RSLAI
(on behalf of petitioner) within a reasonable time. Nothing in said instrument implied
that petitioner reserved ownership of the properties until the full payment of the purchase
price. On the contrary, the terms and conditions of the deed only affected the manner of
payment, not the immediate transfer of ownership (upon the execution of the notarized
contract) from petitioner as seller to respondent as buyer. Otherwise stated, the said
terms and conditions pertained to the performance of the contract, not the perfection
thereof nor the transfer of ownership. In this instance, petitioner executed a notarized
deed of absolute sale in favor of respondent. Settled is the rule that the seller is obliged
to transfer title over the properties and deliver the same to the buyer. In this regard,
Article 1498 of the Civil Code provides that, as a rule, the execution of a notarized deed
of sale is equivalent to the delivery of a thing sold. Moreover, not only did petitioner turn
over the keys to the properties to respondent, he also authorized RSLAI to receive
payment from respondent and release his certificates of title to her. The totality of
petitioners acts clearly indicates that he had unqualifiedly delivered and transferred
ownership of the properties to respondent. Clearly, it was a contract of sale the parties
entered into.
Raymundo S. De Leon vs. Benita T. Ong, G.R. No. 170405, February 2, 2010
Article 1544 of the Civil Code provides that when neither buyer registered the sale of the
properties with the registrar of deeds, the one who took prior possession of the properties
shall be the lawful owner thereof. In this instance, petitioner delivered the properties to
respondent when he executed the notarized deed and handed over to respondent the keys
to the properties. For this reason, respondent took actual possession and exercised
control thereof by making repairs and improvements thereon. Clearly, the sale was
perfected and consummated on March 10, 1993. Thus, respondent became the lawful
owner of the properties.

Sale; double sale;


buyer in good faith.

Spouses Ramy and Zenaida Pudadera vs. Ireneo Magallanes and the late Daisy
Teresa cortel Magallanes, substituted by her children, Nelly M. Marquez, et al.; G.R.
No. 170073, October 18, 2010
The question before us, then, is who between petitioners and respondents have a better
right over Lot 11-E-8-A? In case of a double sale of immovables, ownership shall belong
to (1) the first registrant in good faith; (2) then, the first possessor in good faith; and (3)
finally, the buyer who in good faith presents the oldest title. However, mere registration
is not enough to confer ownership. The law requires that the second buyer must have
acquired and registered the immovable property in good faith. In order for the second
buyer to displace the first buyer, the following must be shown: (1) the second buyer must
show that he acted in good faith (i.e., in ignorance of the first sale and of the first buyers
rights) from the time of acquisition until title is transferred to him by registration or
failing registration, by delivery of possession; and (2) the second buyer must show
continuing good faith and innocence or lack of knowledge of the first sale until his
contract ripens into full ownership through prior registration as provided by law.
One is considered a purchaser in good faith if he buys the property without notice that
some other person has a right to or interest in such property and pays its fair price before
he has notice of the adverse claims and interest of another person in the same property.
Well-settled is the rule that every person dealing with registered land may safely rely on
the correctness of the certificate of title issued therefor and the law will in no way oblige
him to go beyond the certificate to determine the condition of the property. However, this
rule shall not apply when the party has actual knowledge of facts and circumstances that
would impel a reasonably cautious man to make such inquiry or when the purchaser has
knowledge of a defect or the lack of title in his vendor or of sufficient facts to induce a
reasonably prudent man to inquire into the status of the title of the property in litigation.
His mere refusal to believe that such defect exists, or his willful closing of his eyes to the
possibility of the existence of a defect in his vendors title will not make him an innocent
purchaser for value if it later develops that the title was in fact defective, and it appears
that he had such notice of the defect had he acted with that measure of precaution which
may reasonably be required of a prudent man in a like situation.
In the case at bar, both the trial court and CA found that petitioners were not buyers and
registrants in good faith owing to the fact that Magallanes constructed a fence and small
hut on the subject lot and has been in actual physical possession since 1979. Hence,
petitioners were aware or should have been aware of Magallanes prior physical
possession and claim of ownership over the subject lot when they visited the lot on
several occasions prior to the sale thereof.

Sale; double
purchaser in
faith.

sale;
good

Raymundo S. De Leon vs. Benita T. Ong, G.R. No. 170405, February 2, 2010
This case involves a double sale as the disputed properties were sold validly on two
separate occasions by the same seller to the two different buyers in good faith. Article
1544 of the Civil Code sets down the rules on double or multiple sales. This provision
clearly states that the rules on double or multiple sales apply only to purchasers in good
faith. Needless to say, it disqualifies any purchaser in bad faith. A purchaser in good faith
is one who buys the property of another without notice that some other person has a right
to, or an 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 some other persons claim or interest in the
property. The law requires, on the part of the buyer, lack of notice of a defect in the title
of the seller and payment in full of the fair price at the time of the sale or prior to having
notice of any defect in the sellers title. Respondent purchased the properties, knowing
they were encumbered only by the mortgage to RSLAI. According to her agreement with
petitioner, respondent had the obligation to assume the balance of petitioners
outstanding obligation to RSLAI. Consequently, respondent informed RSLAI of the sale
and of her assumption of petitioners obligation. However, because petitioner
surreptitiously paid his outstanding obligation and took back her certificates of title,
petitioner himself rendered respondents obligation to assume petitioners indebtedness
to RSLAI impossible to perform. Since respondents obligation to assume petitioners
outstanding balance with RSLAI became impossible without her fault, she was released
from the said obligation. Moreover, because petitioner himself willfully prevented the
condition vis--vis the payment of the remainder of the purchase price, the said condition
is considered fulfilled pursuant to Article 1186 of the Civil Code. For purposes,

therefore, of determining whether respondent was a purchaser in good faith, she is


deemed to have fully complied with the condition of the payment of the remainder of the
purchase price.
Sale; execution of
public instrument
equivalent to delivery.

Anita Monasterio-Pe, et al. v. Jose Juan Tong, herein represented by his Attorney-infact, Jose Y. Ong, G.R. No. 151369. March 23, 2011
Article 1498 of the Civil Code provides that when the sale is made through a public
instrument, the execution thereof shall be equivalent to the delivery of the thing which is
the object of the contract, if from the deed the contrary does not appear or cannot clearly
be inferred. In the instant case, petitioners failed to present any evidence to show that
they had no intention of delivering the subject lots to respondent when they executed the
said deed of sale. Hence, petitioners execution of the deed of sale is tantamount to a
delivery of the subject lots to respondent. The fact that petitioners remained in
possession of the disputed properties does not prove that there was no delivery, because
as found by the lower courts, such possession is only by respondents mere tolerance.

Sale; innocent
purchaser for value.

Aurora L. Tecson, et al. v. Minverva, Maria, et al. all surnamed Fausto and Isabel
Vda. De Fausto; G.R. No. 180683. June 1, 2011
The remaining bar to the recovery by the respondents of the excess area held by Atty.
Tecson is the principle of an innocent purchaser for value of land under the Torrens
System of Registration.
The petitioners claim that they are bona fide purchasers of the entire nine hundred sixtyfour (964) square meters of land covered by Lot 2189-Bwith Aurora merely relying on
the strength of TCT No. T-4,336 in the name of Waldetrudes, while Atty. Tecson placing
confidence in TCT No. T-4,338 in the name of Aurora. Both TCT Nos. T-4,336 and T4,338 define the area of Lot 2189-B as nine hundred sixty-four (964) square meters. The
petitioners allege that at the time they made their respective purchase, they did not know
of the existing partition of Lot 2189 per the First Plan and the First Partition Agreement.
But the proven facts indicate that Atty. Tecson knew or, at the very least, should have
known that Atty. Fausto and Waldetrudes were co-owners in equal share of Lot 2189.
The Court noted the following circumstances:
1. Atty. Tecson was a long-time friend and neighbor of the Faustos. Atty. Tecson
himself testified that he considered Atty. Fausto as a good friend and even
admitted that he would sometimes visit the latter in his house to play mahjong.
By this, Atty. Tecson knew that Atty. Fausto has an actual interest in Lot 2189.
2. Atty. Tecson was the one who presented the Second Partition Agreement to
Waldetrudes and the respondents;
3. Waldetrudes and the respondents were not involved in the preparation of the
Second Partition Agreement and, at the time they signed the said agreement, had
no knowledge of the existence of the Second Plan; and
4. The Second Partition Agreement failed to state the specific areas allotted for
each component of Lot 2189 and made no mention of the division proposed by
the Second Plan.

Sale; Innocent
Purchaser for Value.

Anthony Orduna, et al. vs. Eduardo J. Fuentebella, et al., G.R. No. 176841, June 29,
2010.
It is the common defense of the respondent-purchasers that they each checked the title of
the subject lot when it was his turn to acquire the same and found it clean, meaning
without annotation of any encumbrance or adverse third party interest. And it is upon
this postulate that each claims to be an innocent purchaser for value, or one who buys the
property of another without notice that some other person has a right to or interest in it,
and who pays therefor a full and fair price at the time of the purchase or before receiving
such notice.
The general rule is that one dealing with a parcel of land registered under the Torrens
System may safely rely on the correctness of the certificate of title issued therefor and is
not obliged to go beyond the certificate. Where, in other words, the certificate of title is
in the name of the seller, the innocent purchaser for value has the right to rely on what
appears on the certificate, as he is charged with notice only of burdens or claims on the
res as noted in the certificate. Another formulation of the rule is that (a) in the absence of

anything to arouse suspicion or (b) except where the party has actual knowledge of facts
and circumstances that would impel a reasonably cautious man to make such inquiry or
(c) when the purchaser has knowledge of a defect of title in his vendor or of sufficient
facts to induce a reasonably prudent man to inquire into the status of the title of the
property, said purchaser is without obligation to look beyond the certificate and
investigate the title of the seller.
Eduardo and, for that matter, Bernard and Marcos and Benjamin, can hardly claim to be
innocent purchasers for value or purchasers in good faith. For each knew or was at least
expected to know that somebody else other than Gabriel, Jr. has a right or interest over
the lot. This is borne by the fact that the initial seller, Gabriel Jr., was not in possession
of subject property. With respect to Marcos and Benjamin, they knew as buyers that
Bernard, the seller, was not also in possession of the same property. The same goes with
Eduardo, as buyer, with respect to Marcos and Benjamin.
Basic is the rule that a buyer of a piece of land which is in the actual possession of
persons other than the seller must be wary and should investigate the rights of those in
possession. Otherwise, without such inquiry, the buyer can hardly be regarded as a buyer
in good faith. When a man proposes to buy or deal with realty, his duty is to read the
public manuscript, i.e., to look and see who is there upon it and what his rights are. A
want of caution and diligence which an honest man of ordinary prudence is accustomed
to exercise in making purchases is, in contemplation of law, a want of good faith. The
buyer who has failed to know or discover that the land sold to him is in adverse
possession of another is a buyer in bad faith.
Where the land sold is in the possession of a person other than the vendor, the purchaser
must go beyond the certificates of title and make inquiries concerning the rights of the
actual possessor.And where, as in the instant case, Gabriel Jr. and the subsequent
vendors were not in possession of the property, the prospective vendees are obliged to
investigate the rights of the one in possession.
Evidently, Bernard, Marcos and Benjamin, and Eduardo did not investigate the rights
over the subject lot of the petitioners who, during the period material to this case, were in
actual possession thereof.
Bernard, et al. are, thus, not purchasers in good faith and, as such, cannot be accorded
the protection extended by the law to such purchasers.
Moreover, not being purchasers in good faith, their having registered the sale, will not,
as against the petitioners, carry the day for any of them under Art. 1544 of the Civil
Code prescribing rules on preference in case of double sales of immovable property.
Occena v. Esponilla laid down the following rules in the application of Art. 1544: (1)
knowledge by the first buyer of the second sale cannot defeat the first buyers rights
except when the second buyer first register in good faith the second sale; and (2)
knowledge gained by the second buyer of the first sale defeats his rights even if he is
first to register, since such knowledge taints his registration with bad faith.
Sale; innocent
purchaser.

Spouses Braulio Navarro and Cesaria Sindao vs. Perla Rico Go, G.R. No. 187288.
August 9, 2010
A person is considered an innocent purchaser in good faith when he buys the property of
another, without notice that some other person has a right or an interest in such property,
and pays a full 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.
Whether petitioners were in good faith when they bought the property from the Samson
heirs is a question of fact that will not be disturbed in a petition for review under Rule 45
of the Rules of Court, save for meritorious exceptions. None of these exceptions is
present, however, in the case at bar. There is thus no compelling reason to overturn the
factual findings of the trial court, which was affirmed by the Court of Appeals,
respecting petitioners notice of respondents possession.
As reflected earlier, Palma, a relative of petitioner Cesaria, acknowledged via two
documents having been allowed by Josefa, respondents mother, to occupy the land. His
testimony, therefore, that he sought the permission of the Samson heirs, and not from
Josefa, must give way to documentary evidence.

In another vein, as noted above, petitioners live in the vicinity of the land which was
fenced and planted to fruit bearing trees. As such, they were put on notice that the land
was possessed by someone. Where the land subject of sale is in possession of a person
other than the vendor, prudence dictates that the vendee should go beyond the certificate
of title. Absent such investigation, good faith cannot be presumed
Sale; lack of
consideration.

Manuel Catindig, represented by his legal representative Emiliano Cantidig-Rodrigo


v. Aurora Irene Vda. De Meneses/Silvino Roxas, Sr., represented by Felicisima
Villafuerte Roxas v. Court of Appeals, et al.; G.R. No. 165851/G.R. No. 168875.
February 2, 2011
It is a well-entrenched rule that where the deed of sale states that the purchase price has
been paid but in fact has never been paid, the deed of sale is null and void ab initio for
lack of consideration. Moreover, Article 1471 of the Civil Code, provides that if the
price is simulated, the sale is void, which applies to the instant case, since the price
purportedly paid as indicated in the contract of sale was simulated for no payment was
actually made.

Sale; land; innocent


purchaser for value.

Lydia L. Roa Vs. Heirs of Santiago Ebora, et al., G.R. No. 161137, March 15, 2010
This case stemmed from a conflict of ownership (resulting from multiple transactions)
over Lot 18026-A. Although it was continuously, openly and adversely possessed by
Santiago Ebora, the property was mistakenly included by Chacon Enterprises in its
application for original registration. As a result, litigation arose between respondents (the
heirs of Ebora) and Chacon Enterprises. During the pendency of this litigation, the heirs
of Ebora sold the entire Lot 18026-A to their co-heirs, the Pacardos. On the same day,
the Pacardos assigned the propertyto Digno Roa, married to petitioner Lydia Roa. TCT
No. T-24488 was issued in the name of Digno Roa. Meanwhile, the case between
Chacon Enterprises and the heirs of Ebora was decided in favor of the latter. By reason
of this decision, TCT No. T-48097 was issued in the name of the heirs of Ebora.New
TCTs were issued and the lots were thereafter sold to various respondents, which
resulted in the issuance of new TCTs in the names of the respective vendees. All these
transactions occurred without petitioners knowledge and consent. In the case before the
Supreme Court, the petitioner sought that respondents be declared as not innocent
purchasers for value and that the subject properties be adjudicated in her favor. The
court, however, ruled that respondents are innocent purchasers for value. Nonetheless,
without undermining the reason behind this doctrine (of protecting innocent purchasers
for value), the court when on to hold that petitioner is entitled to the property following
Sanchez v. Quinio... In this case, as in Sanchez, petitioners title was validly issued and
had been undisturbed for 10 years before the title of respondents predecessor (the Ebora
heirs) was issued. Petitioner never relinquished her title to respondents or to anybody
else. She therefore possessed a superior right over those of respondents, notwithstanding
the fact that respondents were innocent purchasers for value. Moreover, the heirs of
Ebora sold and conveyed their rights to and interests in Lot 18026-A to thespouses
Pacardo who assigned the property to the husband of petitioner as early as June 3, 1977.
From then on, the heirs of Ebora lost all their rights and interest over the property.
Indeed, the heirsof Ebora even confirmed the sale to Josefa and the assignment and
waiver of rights in favor of petitioners husband in an instrument dated January 31, 1983.
Thus, the heirs of Ebora had nothing to adjudicate among themselves on October 8,
1987. Neither did they have anything to transfer tothe vendees or successors-in-interest.
As such, the transferees of the heirs of Ebora acquired no better right than that of the
transferors. The spring cannot rise higher than its source.

Sale; lump sum.

Carmen Del Prado vs. Spouses Antonio L. Caballero and Leonarda Caballero, G.R.
No. 148225, March 3, 2010
In the instant case, the deed of sale is not one of a unit price contract. The parties agreed
on the purchase price of P40,000.00 for a predetermined area of 4,000 sq m, more or
less, bounded on the North by Lot No. 11903, on the East by Lot No. 11908, on the
South by Lot Nos. 11858 & 11912, and on the West by Lot No. 11910. In a contract of
sale of land in a mass, the specific boundaries stated in the contract must control over
any other statement, with respect to the area contained within its boundaries. Clearly, the
discrepancy of 10,475 sq m cannot be considered a slight difference in quantity. The
difference in the area is obviously sizeable and too substantial to be overlooked. It is not
a reasonable excess or deficiency that should be deemed included in the deed of sale.

Sale; notice of
cancellation for action
to declare contract
non-existent.

Sale; perfection of
contract

Sale; prescription not


relevant.

Sps. Paulino Atienza and Rufina Atienza vs. Domingo P. Espidol, G.R. No. 180665,
August 11, 2010
Notice of cancellation by notarial act need not be given before the contract between the
Atienzas and respondent Espidol may be validly declared non-existent. R.A. 6552 which
mandated the giving of such notice does not apply to this case. The cancellation
envisioned in that law pertains to extrajudicial cancellation or one done outside of court,
which is not the mode availed of here. The Atienzas came to court to seek the declaration
of its obligation under the contract to sell cancelled. Thus, the absence of that notice
does not bar the filing of their action.
As a rule, a contract is perfected upon the meeting of the minds of the two parties. Under
Article 1475 of the Civil Code, a contract of sale is perfected the moment there is a
meeting of the minds on the thing which is the object of the contract and on the price. In
the present case, Medranos offer to sell the shares of the minority stockholders at the
price of 65% of the par value was not absolutely and unconditionally accepted by DBP.
DBP imposed several conditions to its acceptance and it is clear that Medrano indeed
tried in good faith to comply with the conditions given by DBP but unfortunately failed
to do so. Hence, there was no birth of a perfected contract of sale between the parties.
Development Bank of the Philippines v. Ben P. Medrano and Privatization Management
Office; G.R. No. 167004. February 7, 2011
Teofisto Ono, et al. vs. Vicente N. Lim, G.R. No. 154270, March 9, 2010
The petitioners assert that the lot, being titled in the name of their predecessors-ininterest, could not be acquired by prescription or adverse possession. The assertion is
unwarranted. Prescription, in general, is a mode of acquiring or losing ownership and
other real rights through the lapse of time in the manner and under the conditions laid
down by law. However, prescription was not relevant to the determination of the dispute
herein, considering that Lim did not base his right of ownership on an adverse
possession over a certain period. He insisted herein, instead, that title to the land had
been voluntarily transferred by the registered owners themselves to Luisa, his
predecessor-in-interest. Lim showed that his mother had derived a just title to the
property by virtue of sale; that from the time Luisa had acquired the property in 1937,
she had taken over its possession in the concept of an owner, and had performed her
obligation by paying real property taxes on the property, as evidenced by tax declarations
issued in her name; and that in view of the delivery of the property, coupled with Luisas
actual occupation of it, all that remained to be done was the issuance of a new transfer
certificate of title in her name.

Sale; purchaser
good faith.

in

Maria Lourdes Tamani, et al. v. Ramon Salvador, et al., G.R. No. 171497. April 4,
2011
A purchaser in good faith is one who buys the property of another, without notice that
some other person has a right to, or interest in, such property, and pays the full and fair
price for it at the time of such purchase or before he has notice of the claim or interest of
some other persons in the property. He buys the property with the belief that the person
from whom he receives the thing was the owner and could convey title to the property.
He cannot close his eyes to facts that should put a reasonable man on his guard and still
claim he acted in good faith. It is undisputed that respondents were neighbors of
petitioners and even co-owners of land under TCT No. 8582. Respondents have also
dealt with the Tamanis in the past, having mortgaged their property together when
respondents availed of a loan from the Government Service Insurance System. Thus, it is
inconceivable for respondents not to know that petitioners had been exercising open,
continuous and notorious possession over the property. Like Cruz, respondents should
have ascertained the lands identity and character given that houses were standing on the
land in dispute and petitioners had been leasing the same to tenants.

Sale; rescission for


breach of obligation to
deliver; constructive
delivery, execution of
public instrument.

Villamar vs. Mangaoil; G.R. No. 188661, April 11, 2012


A party is entitled to demand for the rescission of their contract for the failure to deliver
the physical possession of the subject property and the certificate of title covering the
same notwithstanding the absence of stipulations in the agreement expressly indicating