CIVIL LAW DOCTRINES REITERATED IN January 2014 – June

2016 CASES
Atty. Rhett Emmanuel C. Serfino

HUMAN RELATIONS

Malicious prosecution, requisites – Marsman and Co. v. Ligo (767 SCRA 542)

A civil action for damages for malicious prosecution is an action for damages brought by one
against whom a criminal prosecution, civil suit, or other legal proceeding has been instituted
maliciously and without probable cause, after the termination of such prosecution, suit, or other
proceeding in favor of the defendant therein. The gist of the action is the putting of legal process
in force, regularly, for the mere purpose of vexation or injury.
The statutory basis for a civil action for damages for malicious prosecution are found in the
provisions of the New Civil Code on Human Relations and on damages particularly Articles 19,
20, 21, 26, 29, 32, 33, 35, 2217 and 2219 (8). To constitute malicious prosecution, however, there
must be proof that the prosecution was prompted by a sinister design to vex and humiliate a
person, and that it was initiated deliberately by the defendant knowing that his charges were false
and groundless. Concededly, the mere act of submitting a case to the authorities for prosecution
does not make one liable for malicious prosecution.
For a malicious prosecution suit to prosper, the plaintiff must prove the following: (1) the
prosecution did occur, and the defendant was himself the prosecutor or that he instigated its
commencement; (2) the criminal action finally ended with an acquittal; (3) in bringing the action,
the prosecutor acted without probable cause; and (4) the prosecution was impelled by legal
malice — an improper or a sinister motive. The gravamen of malicious prosecution is not the
filing of a complaint based on the wrong provision of law, but the deliberate initiation of an
action with the knowledge that the charges were false and groundless.

PERSONS AND FAMILY RELATIONS

Nationality principle, family rights and duties; processual presumption; exceptions to

application of foreign law – Del Socorro v. Van Wilsem (744 SCRA 516)

Insofar as Philippine laws are concerned, specifically the provisions of the Family Code on
support, the same only applies to Filipino citizens. By analogy, the same principle applies to
foreigners such that they are governed by their national law with respect to family rights and
duties. The obligation to give support to a child is a matter that falls under family rights and
duties. Since the respondent is a citizen of Holland or the Netherlands, he is subject to the laws
of his country, not to Philippine law, as to whether he is obliged to give support to his child, as
well as the consequences of his failure to do so.

However, foreign laws do not prove themselves in our jurisdiction and our courts are not
authorized to take judicial notice of them. Like any other fact, they must be alleged and proved.
In view of respondent’s failure to prove the national law of the Netherlands in his favor, the
doctrine of processual presumption shall govern.

More, when the foreign law, judgment or contract is contrary to a sound and established public policy of
the forum, the said foreign law, judgment or order shall not be applied.

Conjugal properties, doctrine of presumed-identity (processual presumption) – Orion Savings

Bank v. Suzuki (740 SCRA 345)

The International Law doctrine of presumed-identity approach or processual presumption states

that where a foreign law is not pleaded or, even if pleaded, is not proven, the presumption is that
foreign law is the same as Philippine Law. Under Philippine Law, the phrase “Yung Sam Kang
‘married to’ Hyun Sook Jung” is merely descriptive of the civil status of Kang. In other words,
the import from the certificates of title is that Kang is the owner of the properties as they are
registered in his name alone, and that he is married to Hyun Sook Jung. While we have held that
registration of the property in the name of only one spouse does not negate the possibility of it
being conjugal or community property. In those cases, however, there was proof that the
properties, though registered in the name of only one spouse, were indeed either conjugal or
community properties. Accordingly, we see no reason to declare as invalid Kang’s conveyance in
favor of Suzuki for the supposed lack of spousal consent.

Abuse of right - Sesbreño v. CA (720 SCRA 57)

In order that liability may attach under the concept of abuse of rights, the following elements
must be present, to wit: (a) the existence of a legal right or duty, (b) which is exercised in bad
faith, and (c) for the sole intent of prejudicing or injuring another. In the instant case, the VOC
inspectors decided to enter the main premises only after finding the meter of Sesbreño turned
upside down, hanging and its disc not rotating. Their doing so would enable them to determine
the unbilled electricity consumed by his household. The circumstances justified their decision.

[Note: See also Diaz v. Encanto (781 SCRA 231) where denial of application for sabbatical leave
was not considered abuse of right, as such leave was declared not a right but a privilege]

Unfair competition, requisites – Willaware products Corporation v. Jesichris Manufacturing

Corporation (734 SCRA 238)

What is being sought to be prevented by Article 28 is not competition per se but the use of
unjust, oppressive or high- handed methods which may deprive others of a fair chance to engage
in business or to earn a living. What the law prohibits is unfair competition and not competition
where the means used are fair and legitimate. In order to qualify the competition as “unfair,” it
must have two characteristics: (1) it must involve an injury to a competitor or trade rival, and (2)
it must involve acts which are characterized as “contrary to good conscience,” or “shocking to
judicial sensibilities,” or otherwise unlawful; in the language of our law, these include force,
intimidation, deceit, machination or any other unjust, oppressive or high-handed method.

Here, both characteristics are present. First, both parties are competitors or trade rivals, both
being engaged in the manufacture of plastic-made automotive parts. Second, the acts of the
petitioner were clearly “contrary to good conscience” as petitioner admitted having employed
respondent’s former employees, deliberately copied respondent’s products and even went to the
extent of selling these products to respondent’s customers.

Note: The instant case falls under Article 28 of the Civil Code on human relations, and not unfair
competition under Republic Act No. 8293, as the present suit is a damage suit and the products are not
covered by patent registration.

Void marriages, need for declaration of nullity under Family Code; not required under Civil
Code – Castillo v. De Leon-Castillo (789 SCRA 503)

After 3 August 1988 [effectivity of the Family Code] A judicial declaration of absolute nullity of
marriage is now expressly required where the nullity of a previous marriage is invoked for
purposes of contracting a second marriage. A second marriage contracted prior to the issuance of
this declaration of nullity is thus considered bigamous and void.
However, the requirement of a judicial decree of nullity does not apply to marriages that were
celebrated before the effectivity of the Family Code, particularly if the children of the parties
were born while the Civil Code was in force.

Void marriage, lack of a marriage license – Kho v. Republic (791 SCRA 604)

To be considered void on the ground of absence of a marriage license, the law requires that the
absence of such marriage license must be apparent on the marriage contract, or at the very least,
supported by a certification from the local civil registrar that no such marriage license was issued
to the parties.

Psychological incapacity; emotional immaturity and irresponsibility – Republic v. De Gracia

(716 SCRA 8)

Emotional immaturity and irresponsibility cannot be equated with psychological incapacity.

Based on the evidence presented, there exists insufficient factual or legal basis to conclude that
Natividad’s emotional immaturity, irresponsibility, or even sexual promiscuity, can be equated
with psychological incapacity, as the psychiatric evaluation report of Dr. Zalsos does not explain
in reasonable detail how Natividad’s condition could be characterized as grave, deeply-rooted,
and incurable.

Psychological incapacity; exposure of children to gambling – Kalaw v. Fernandez (745 SCRA

512)

The fact that the respondent brought her children with her to her mahjong sessions did not only
point to her neglect of parental duties, but also manifested her tendency to expose them to a
culture of gambling. Her willfully exposing her children to the culture of gambling on every
occasion of her mahjong sessions was a very grave and serious act of subordinating their needs
for parenting to the gratification of her own personal and escapist desires.

Sexual infidelity or perversion is not equivalent to psychological incapacity – Mallilin v.

Jamesolamin (751 SCRA 1)
Respondent’s act of living an adulterous life 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. Sexual infidelity or perversion and
abandonment do not, by themselves, constitute grounds for declaring a marriage void based on
psychological incapacity. Robert argues that the series of sexual indiscretion of Luz were
external manifestations of the psychological defect that she was suffering within her person,
which could be considered as nymphomania or “excessive sex hunger.” Other than his
allegations, however, no other convincing evidence was adduced to prove that these sexual
indiscretions were considered as nymphomania, and that it was grave, deeply rooted, and
incurable within the term of psychological incapacity embodied in Article 36. To stress, Robert’s
testimony alone is insufficient to prove the existence of psychological incapacity.

Psychological incapacity, gravity; contracting marriage out of respect for parents is not
psychological incapacity – Republic v. Romero II (785 SCRA 164)

The illness must be grave enough to bring about the incapacity or inability of the party to assume
the essential obligations of marriage such that “mild characteriological peculiarities, mood
changes, occasional emotional outbursts” cannot be accepted as root causes. The illness must be
shown as downright incapacity or inability, not a refusal, neglect or difficulty, much less ill will.
That respondent married Olivia not out of love, but out of reverence for the latter’s parents, does
not mean that he is psychologically incapacitated in the context of Article 36 of the Family Code.
Marriages entered into for other purposes, limited or otherwise, such as convenience,
companionship, money, status, and title, provided that they comply with all the legal requisites,
are equally valid. Love, though the ideal consideration in a marriage contract, is not the only
valid cause for marriage. Other considerations, not precluded by law, may validly support a
marriage

Declaration of presumptive death, well-founded belief – Rep. v. Orcelino-Villanueva (764

SCRA 407)

Article 41 of the Family Code provides that before a judicial declaration of presumptive death
may begranted, the present spouse must prove that he/she has a well-founded belief that the
absentee is dead. In this case, Edna failed. The well-founded belief in the absentee’s death
requires the present spouse to prove that his/her belief was the result of diligent and reasonable
efforts to locate the absent spouse and that based on these efforts and inquiries, he/she believes
that under the circumstances, the absent spouse is already dead. It necessitates exertion of active
effort (not a mere passive one). Mere absence of the spouse (even beyond the period required by
law), lack of any news that the absentee spouse is still alive, mere failure to communicate, or
general presumption of absence under the Civil Code would not suffice.
The premise is that Article 41 of the Family Code places upon the present spouse the burden of
complying with the stringent requirement of “well-founded belief” which can only be discharged
upon a showing of proper and honest-to-goodness inquiries and efforts to ascertain not only the
absent spouse’s whereabouts but, more importantly, whether the absent spouse is still alive or is
already dead.
Here, Edna’s claim of making diligent search and inquiries remained unfounded as it merely
consisted of bare assertions without any corroborative evidence on record. She also failed to
present any person from whom she inquired about the whereabouts of her husband. She did not
even present her children from whom she learned the disappearance of her husband. In fact, she
was the lone witness. Following the basic rule that mere allegation is not evidence and is not
equivalent to proof, the Court cannot give credence to her claims that she indeed exerted diligent
efforts to locate her husband.

[Note: see also Republic v. Sareñogon (783 SCRA 615), Republic v. Tampus (787 SCRA 563)]

Declaration of presumptive death, remedy – Republic v. Sareñogon (783 SCRA 615)

The RTC’s Decision on a Petition for declaration of presumptive death pursuant to Article 41 of
the Family Code is immediately final and executory. Thus, the CA has no jurisdiction to entertain
a notice of appeal pertaining to such judgment. A petition for certiorari under Rule 65 of the
Rules of Court is the proper remedy to question the RTC’s Decision in a summary proceeding for
the declaration of presumptive death

Valid bigamous marriage, requisites; Declaration of presumptive death, how to set aside –
Santos v. Santos (737 SCRA 637)

A bigamous subsequent marriage may be considered valid when the following are present:
1. The prior spouse had been absent for four consecutive years
2. The spouse present has a well-founded belief that the absent spouse was already dead.
3. There must be a summary proceeding for the declaration of presumptive death of the
absent spouse.
4. There is a court declaration of presumptive death of the absent spouse

A subsequent marriage contracted in bad faith, even if it was contracted after a court declaration
of presumptive death, lacks the requirement of a well-founded belief that the spouse is already
dead. The first marriage will not be considered as validly terminated.

The termination of the subsequent marriage by reappearance is subject to several conditions: (1)
the non-existence of a judgment annulling the previous marriage or declaring it void ab initio;
(2) recording in the civil registry of the residence of the parties to the subsequent marriage of the
sworn statement of fact and circumstances of reappearance; (3) due notice to the spouses of the
subsequent marriage of the fact of reappearance; and (4) the fact of reappearance must either be
undisputed or judicially determined.

Hence, the subsequent marriage may still subsist despite the absent or presumptively dead
spouse’s reappearance (1) if the first marriage has already been annulled or has been declared a
nullity; (2) if the sworn statement of the reappearance is not recorded in the civil registry of the
subsequent spouses’ residence; (3) if there is no notice to the subsequent spouses; or (4) if the
fact of reappearance is disputed in the proper courts of law, and no judgment is yet rendered
confirming, such fact of reappearance.
The provision on reappearance in the Family Code as a remedy to effect the termination of the
subsequent marriage does not preclude the spouse who was declared presumptively dead from
availing other remedies existing in law. This court had, in fact, recognized that a subsequent
marriage may also be terminated by filing “an action in court to prove the reappearance of the
absentee and obtain a declaration of dissolution or termination of the subsequent marriage.”

Celerina does not admit to have been absent. She also seeks not merely the termination of the
subsequent marriage but also the nullification of its effects. She contends that reappearance is not
a sufficient remedy because it will only terminate the subsequent marriage but not nullify the
effects of the declaration of her presumptive death and the subsequent marriage. Celerina’s
choice to file an action for annulment of judgment will, therefore, lie.

Divorce, non-recognition – Lavadia v. Heirs of Luna (730 SCRA 376)

Divorce between Filipinos is void and ineffectual under the nationality rule adopted by
Philippine law. From the time of the celebration of the first marriage on September 10, 1947 until
the present, absolute divorce between Filipino spouses has not been recognized in the
Philippines. The non-recognition of absolute divorce between Filipinos has remained even under
the Family Code, even if either or both of the spouses are residing abroad. Indeed, the only two
types of defective marital unions under our laws have been the void and the voidable marriages.
Hence, any settlement of property between the parties of the first marriage involving Filipinos
submitted as an incident of a divorce obtained in a foreign country lacks competent judicial
approval, and cannot be enforceable against the assets of the husband who contracts a subsequent
marriage. Thus, petitioner, the alleged second wife of the deceased, was in a bigamous marriage
to the deceased, which is governed by the rules on co-ownership. She may not claim to have a
share in the condominium unit and law books of the deceased, she not having proven
contributing to the acquisition thereof.

Absolute community of property, actual contribution by spouse irrelevant, disposition without

consent of other spouse void – Nobleza v. Nuega (752 SCRA 602)

Actual contribution is not relevant in determining whether a piece of property is community

property for the law itself defines what constitutes community property. Here, the property was
acquired by the parties before the marriage. Since the subject property does not fall under any of
the exclusions provided in Art. 92 of the Family Code, it therefore forms part of the absolute
community property of Shirley and Rogelio. Regardless of their respective contribution to its
acquisition before their marriage, and despite the fact that only Rogelio’s name appears in the
TCT as owner, the property is owned jointly by the spouses Shirley and Rogelio.
More, under Art. 96 of the Family Code, Rogelio could not sell the subject property without the
written consent of respondent or the authority of the court. In absolute community of property, if
the husband, without knowledge and consent of the wife, sells (their) property, the entire sale is
null and void.

Property regime of marriage declared null and void under Art. 36 – Ocampo v. Ocampo (764
SCRA 608)
In a void marriage, as in those declared void under Article 36 of the Family Code, the property
relations of the parties during the period of cohabitation is governed either by Article 147 or
Article 148 of the Family Code. Article 147 of the Family Code applies to union of parties who
are legally capacitated and not barred by any impediment to contract marriage, but whose
marriage is nonetheless void, as in cases of marriages declared void due to psychological
incapacity. For Article 147 to operate, the man and the woman: (1) must be capacitated to marry
each other; (2) live exclusively with each other as husband and wife; and (3) their union is
without the benefit of marriage or their marriage is void, as in the instant case. The term
“capacitated” in the first paragraph of the provision pertains to the legal capacity of a party to
contract marriage.

Family home, requisites for execution sale – Eulogio v. Bell Sr. (762 SCRA 103)

It has been judicially determined with finality that the property in dispute is a family home, and
that its value at the time of its constitution was within the statutory limit. Moreover, respondents
have timely claimed the exemption of the property from execution. To warrant the execution sale
of respondents’ family home under Article 160, petitioners needed to establish these facts: (1)
there was an increase in its actual value; (2) the increase resulted from voluntary improvements
on the property introduced by the persons constituting the family home, its owners or any of its
beneficiaries; and (3) the increased actual value exceeded the maximum allowed under Article
157. However, during the execution proceedings, none of those facts was alleged – much less
proven – by petitioners. The sole evidence presented was the Deed of Sale, but the trial court had
already determined with finality that the contract was null. The price stated therein was not the
actual value of the property in dispute.

Adoption, consent of spouse and legitimate children to the adoption must be obtained – Castro
v. Gregorio (738 SCRA 415)

The law on adoption requires that the adoption by the father of a child born out of wedlock
obtain not only the consent of his wife but also the consent of his legitimate children. As the
written consent of the spouse and legitimate daughter was never obtained by the deceased
adopter, the adoption is void. Furthermore, as summons were never personally served on the
spouse and legitimate daughter of the proceedings, the adoption court never validly acquired
jurisdiction.

Proof of filiation – Aguilar v. Siasat (748 SCRA 555)

The filiation of illegitimate children, like legitimate children, is established by (1) the record of
birth appearing in the civil register or a final judgment; or (2) an admission of legitimate
filiation in a public document or a private handwritten instrument and signed by the parent
concerned. In the absence thereof, filiation shall be proved by (1) the open and continuous
possession of the status of a legitimate child; or (2) any other means allowed by the Rules of
Court and special laws. The due recognition of an illegitimate child in a record of birth, a will,
a statement before a court of record, or in any authentic writing is, in itself, a consummated act
of acknowledgment of the child, and no further court action is required. In fact, any authentic
writing is treated not just a ground for compulsory recognition; it is in itself a voluntary
recognition that does not require a separate action for judicial approval.

The Court sees it fit to adopt the following rules respecting the requirement of affixing the
signature of the acknowledging parent in any private handwritten instrument wherein an
admission of filiation of a legitimate or illegitimate child is made: ch

1) Where the private handwritten instrument is the lone piece of evidence submitted to
prove filiation, there should be strict compliance with the requirement that the same must
be signed by the acknowledging parent; and

2) Where the private handwritten instrument is accompanied by other relevant and

competent evidence, it suffices that the claim of filiation therein be shown to have been
made and handwritten by the acknowledging parent as it is merely corroborative of such
other evidence.

Proof of filiation, where it is denied that the child is a child OF BOTH HUSBAND AND
WIFE, Article 172 or 175 of the Family Code does not apply; rule that filiation can be
attacked only directly does not apply – Geronimo v. Santos (771 SCRA 508)

Proof of legitimacy under Article 172, or illegitimacy under Article 175, should only be raised in
a direct and separate action instituted to prove the filiation of a child. This action can be brought
only by the husband or his heirs and within the periods fixed in the law. The obvious intention of
the law is to prevent the status of a child born in wedlock from being in a state of uncertainty for
a long time. It also aims to force early action to settle any doubt as to the paternity of such child,
so that the evidence material to the matter, which must necessarily be facts occurring during the
period of the conception of the child, may still be easily available.
However, this procedural rule is applicable only to actions where the legitimacy - or illegitimacy
- of a child is at issue, which does not obtain in the case at bar. In the instant case, the filiation of
a child is not at issue. Petitioner does not claim that respondent is not the legitimate child of his
deceased brother Rufino and his wife Caridad. What petitioner alleges is that respondent is not
the child of the deceased spouses Rufino and Caridad at all. When petitioner alleged that
respondent is not a child of the deceased spouses, it is correct to admit and rule on secondary
evidence of respondent - even if such proof is similar to the evidence admissible under the
second paragraph of Article 172 and despite the instant case not being a direct action to prove
one’s filiation.

Proof of filiation, where it is denied that the child is a child OF BOTH HUSBAND AND
WIFE, record of birth is not conclusive evidence of the statements therein – Geronimo v.
Santos (supra)

A mere cursory reading of the birth certificate of respondent would show that it was tampered. More, it is
well-settled [in cases where it is alleged that the child is not the child of the putative parents] that a record
of birth is merely a prima facie evidence of the facts contained therein. It is not conclusive evidence of
the truthfulness of the statements made there by the interested parties.
Here, both the RTC and the CA ruled that respondent is a legitimate child of her putative parents because
she was allowed to bear their family name “Geronimo”, they supported her and her education, she was the
beneficiary of the burial benefits of Caridad in her GSIS policy, Caridad applied for and was appointed as
her legal guardian in relation to the estate left by Rufino, and she and Caridad executed an extrajudicial
settlement of the estate of Rufino as his legal heirs. These secondary evidence, relied upon by both courts
a quo, does not sufficiently establish the one crucial fact in this case: that respondent is indeed a child of
the deceased spouses [no proof that the alleged mother gave birth to respondent].

Use of father’s surname by illegitimate children, discretionary on child – Grande v. Antonio

(716 SCRA 698)

Art. 176. – Illegitimate children shall use the surname and shall be under the parental
authority of their mother, and shall be entitled to support in conformity with this Code.
However, illegitimate children may use the surname of their father if their filiation has
been expressly recognized by their father through the record of birth appearing in the
civil register, or when an admission in a public document or private handwritten
instrument is made by the father. Provided, the father has the right to institute an action
before the regular courts to prove non-filiation during his lifetime. The legitime of each
illegitimate child shall consist of one-half of the legitime of a legitimate child.

Art. 176 gives illegitimate children the right to decide if they want to use the surname of their
father or not. It is not the father or the mother who is granted by law the right to dictate the
surname of their illegitimate children. The use of the word “may” in the provision readily shows
that an acknowledged illegitimate child is under no compulsion to use the surname of his
illegitimate father. The word “may” is permissive and operates to confer discretion upon the
illegitimate children. Accordingly, the appellate court may not issue an order ordering the change
in the children’s surname on petition of the father. Notably, the Supreme Court has, time and
again, rebuffed the idea that the use of the father’s surname serves the best interest of the minor
child. In fact, the Court has even allowed the use of a surname different from the surnames of the
child’s father or mother, so long as the same is for the best interest of the child.

Use of names, alias – Limson v. Gonzales (720 SCRA 246)

An alias is a name or names used by a person or intended to be used by him publicly and
habitually, usually in business transactions, in addition to the real name by which he was
registered at birth or baptized the first time, or to the substitute name authorized by a competent
authority; a man’s name is simply the sound or sounds by which he is commonly designated by
his fellows and by which they distinguish him, but sometimes a man is known by several
different names and these are known as aliases. An alias is thus a name that is different from the
individual’s true name, and does not refer to a name that is not different from his true name. In
this case, the names used by Eugenio Gonzalez, “Eugenio Gonzales”, “Eugenio Juan Gonzalez”,
“Eugenio Juan Gonzalez y Regalado”, “Eugenio C.R. Gonzalez”, “Eugenio J. Gonzalez”, and per Limson
“Eugenio Juan Robles Gonzalez” contained his true names, albeit at times joined with an erroneous
middle or second name, or a misspelled family name in one instance. The records disclose that the
erroneous middle or second names, or the misspelling of the family name resulted from error or
inadvertence left unchecked and unrectified over time. What is significant, however, is that such names
were not fictitious names within the purview of the Anti-Alias Law; and that such names were not
different from each other.
Funerals, right to make arrangements; express wishes of deceased apply only to form of
funeral rites – Valino v, Adriano (723 SCRA 1)

The law confines the right and duty to make funeral arrangements to the members of the family
to the exclusion of one’s common law partner. As applied to this case, it is clear that the law
gives the right and duty to make funeral arrangements to Rosario, she being the surviving legal
wife of Atty. Adriano. The fact that she was living separately from her husband and was in the
United States when he died has no controlling significance.
The claim that expressed wishes of the deceased should nevertheless prevail pursuant to Article
307 is unsupported by any other evidence, hence the supposed burial wish of Atty. Adriano was
unclear and undefinite. More, Article 307 simply seeks to prescribe the “form of the funeral
rites” that should govern in the burial of the deceased, not the place of burial. And again, even if
Article 307 were to be interpreted to include the place of burial among those on which the wishes
of the deceased shall be followed, Tolentino, an eminent authority on civil law, commented that it
is generally recognized that any inferences as to the wishes of the deceased should be established
by some form of testamentary disposition. As Article 307 itself provides, the wishes of the
deceased must be expressly provided, which is not the case here.

PROPERTY

Property of public dominion exempt from levy, encumbrance or disposition through public or
private sale – GEMASCO v. NHA (750 SCRA 156)

Properties of public dominion, being for public use, are not subject to levy, encumbrance or
disposition through public or private sale. Any encumbrance, levy on execution or auction sale
of any property of public dominion is void for being contrary to public policy. Otherwise,
essential public services would stop if properties of public dominion would be subject to
encumbrances, foreclosures and auction sale. The water works system in General Mariano
Alvarez, Cavite, including the three (3) water tanks subject of the assailed Writ of Execution is
devoted to public use and thus, property of public dominion.

Machinery considered as real property UNDER LOCAL GOVERNMENT CODE – Manila

Electric Company v. The City Assessor (765 SCRA 52)

The properties under Article 415, paragraph (5) of the Civil Code are immovables by destination,
or “those which are essentially movables, but by the purpose for which they have been placed in
an immovable, partake of the nature of the latter because of the added utility derived therefrom.”
These properties, including machinery, become immobilized if the following requisites concur:
(a) they are placed in the tenement by the owner of such tenement; (b) they are destined for use
in the industry or work in the tenement; and (c) they tend to directly meet the needs of said
industry or works. The first two requisites are not found anywhere in the Local Government
Code, which merely defines machinery subject to real property tax as those which “may or may
not be attached, permanently or temporarily to the real property;” and the physical facilities for
production, installations, and appurtenant service facilities, those which are mobile, self-powered
or self-propelled, or are not permanently attached must (a) be actually, directly, and exclusively
used to meet the needs of the particular industry, business, or activity; and (2) by their very
nature and purpose, be designed for, or necessary for manufacturing, mining, logging,
commercial, industrial, or agricultural purposes.

[Note: See also Capitol Wireless v. Provincial Treasurer of Batangas (791 SCRA 272) where the
Court declared that submarine or undersea communications cables are akin to electric
transmission lines which are “no longer exempted from real property tax” and may qualify as
“machinery” subject to real property tax under the Local Government Code. The Court further
stated that even objects in or on a body of water may be classified as real property. A classic
example is a boathouse which, by its nature, is a vessel and, therefore, a personal property but, if
it is tied to the shore and used as a residence, and since it floats on waters which is immovable, is
considered real property.]

Personal property, international long distance calls – PLDT v. Alvarez (718 SCRA 54)

“International long distance calls” cannot be said to be personal properties belonging to PLDT
since the latter could not have acquired ownership over such calls. PLDT merely encodes,
augments, enhances, decodes and transmits said calls using its complex communications
infrastructure and facilities. PLDT not being the owner of said telephone calls, could not validly
claim that such telephone calls were taken without its consent. It is the use of these
communications facilities without the consent of PLDT that constitutes the crime of theft,
which is the unlawful taking of the telephone services and business. Therefore, the business
of providing telecommunication and the telephone service are personal property under Article
308 of the Revised Penal Code, and the act of engaging in ISR is an act of “subtraction”
penalized under said article.

Accessory follows the principal, exception – Villasi v. Garcia (713 SCRA 629)

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. Accordingly, we recognized the separate
ownership of the land from the building; brush aside the rule that accessory follows the principal;
and allow execution on the building, even if the land on which the building stands belong to a
different owner.

Builder in good faith, building on land of another with knowledge of owner – DepEd v.
Casibang (782 SCRA 326)

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 the concept of owner, and that he be unaware that there
exists in his title or mode of acquisition any flaw which invalidates it. However, there are cases
where Article 448 of the Civil Code was applied beyond the recognized and limited definition of
good faith, e.g., cases wherein the builder has constructed improvements on the land of another
with the consent of the owner. The Court ruled therein that the structures were built in good faith
in those cases that the owners knew and approved of the construction of improvements on the
property.

Alluvion, requisites – Daclison v. Baytion (789 SCRA 56)

For alluvion, the following requisites must concur in order for an accretion to be considered,
namely:
(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.
In the case at bench, this contested portion cannot be considered an accretion. To begin with, the
land came about not by reason of a gradual and imperceptible deposit. The deposits were
artificial and man-made and not the exclusive result of the current from the creek adjacent to his
property.

Quieting of title, requisites – De Guzman v. Tabangao Realty (750 SCRA 271)

For an action to quiet title to prosper, two indispensable requisites must concur: (1) the plaintiff
or complainant has a legal or equitable title or interest in the real property subject of the action;
and (2) 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.

[Note: See also Heirs of Tappa v. Heirs of Bacud (788 SCRA 13)]

Quieting of title, equitable title defined – Heirs of Jose Extremadura v. Extremadura (793 SCRA
581)

Equitable title has been defined as “[a] title derived through a valid contract or relation, and
based on recognized equitable principles; the right in the party, to whom it belongs, to have the
legal title transferred to him. x x x. In order that a plaintiff may draw to himself an equitable title,
he must show that the one from whom he derives his right had himself a right to transfer.

Quieting of title, when imprescriptible – Syjuco v. Bonifacio (745 SCRA 468)

It is true that under Sec. 32 of PD1529, upon the expiration of said period of one year, the decree
of registration and the certificate of title issued shall become incontrovertible. However, this rule
has well-settled exceptions. It is an established doctrine in land ownership disputes that the filing
of an action to quiet title is imprescriptible if the disputed real property is in the possession of the
plaintiff. In this case, petitioners have duly established during the trial that they and/or their
predecessors-in-interest have been in uninterrupted possession of the subject land since 1926 and
that it was only in 1994 when they found out that respondent Bonifacio was able to register the
said property in her name in another title. [That very same year, they filed the instant action] It
was also only in 1995 when petitioners learned that respondent Bonifacio was able to sell and
transfer her title over the subject land in favor of respondent VSD Realty.
More, the rule on the incontrovertibility or indefeasibility of title has no application in this case
as the contending parties claim ownership over the subject land based on their respective
certificates of title which originated from different sources. The indefeasibility of a title under the
Torrens system could be claimed only if a previous valid title to the same parcel of land does not
exist. A certificate is not conclusive evidence of title if it is shown that the same land had already
been registered and that an earlier certificate for the same land is in existence.

Co-ownership, sale of a definite portion – Cabrera v. Ysaac (740 SCRA 612)

Unless all the co-owners have agreed to partition their property, none of them may sell a definite
portion of the land. The co-owner may only sell his or her proportionate interest in the co-
ownership. A contract of sale which purports to sell a specific or definite portion of unpartitioned
land is null and void ab initio.
However, the rules also allow a co-owner to alienate his or her part in the co-ownership. Accordingly, a
contract of sale which purports to sell a specific or definite portion of unpartitioned land is null
and void ab initio if the other co-owners do not consent or acquiesce thereto. If they consent or
acquiesce to the sale, as by complaining only 9 years after the sale, after the buyer had performed
several acts of ownership over a definite portion of the co-owned property, they cannot question
the sale anymore.

Note: See however Torres Jr. v. Lapinid (742 SCRA 646) where the Court said:

We are not unaware of the principle that a co-owner cannot rightfully dispose of a particular
portion of a co-owned property prior to partition among all the co-owners. However, this should
not signify that the vendee does not acquire anything at all in case a physically segregated area of
the co-owned lot is in fact sold to him. Since the co-owner/vendor’s undivided interest could
properly be the object of the contract of sale between the parties, what the vendee obtains by
virtue of such a sale are the same rights as the vendor had as co-owner, in an ideal share
equivalent to the consideration given under their transaction. In other words, the vendee steps
into the shoes of the vendor as co-owner and acquires a proportionate abstract share in the
property held in common

Easement of right of way, discontinuous, acquired only by title; meaning of title – Mercader
Jr. v. Bardilas (794SCRA 387)

A road right of way is a discontinuous apparent easement in the context of Article 622 of the
Civil Code, which provides that continuous non-apparent easements, and discontinuous ones,
whether apparent or not, may be acquired only by virtue of title. But the phrase with existing
Right of Way in the TCT is not one of the modes of acquisition of the easement by virtue of a
title. Acquisition by virtue of title, as used in Art. 622 of the Civil Code, refers to “the juridical
act which gives birth to the easement, such as law, donation, contract, and will of the testator.”

Easement of right of way, exists in favor of State if land was previously public land – Republic
v. Regulto (790 SCRA 1)
“a legal easement of right-of-way exists in favor of the Government over land that was originally
a public land awarded by free patent even if the land is subsequently sold to another.” The
“ruling would be otherwise if the land was originally a private property, to which just
compensation must be paid for the taking of a part thereof for public use as an easement of right-
of-way.
One of the reservations and conditions under the Original Certificate of Title of land granted by
free patent is that the said land is subject “to all conditions and public easements and servitudes
recognized and prescribed by law especially those mentioned in Sections 109, 110, 111, 112, 113
and 114, Commonwealth Act No. 141, as amended,” to include a right-of-way not exceeding
sixty (60) meters on width for public highways (Sec. 112)

Easement of right of way, requisites; least prejudice prevails over shortest distance – Reyes v.
Valentin (750 SCRA 379)

The requisites need to be established before a person becomes entitled to demand the compulsory
easement of right of way are:
1. An immovable is surrounded by other immovables belonging to other persons, and is
without adequate outlet to a public highway;
2. Payment of proper indemnity by the owner of the surrounded immovable;
3. The isolation of the immovable is not due to its owner’s acts; and
4. The proposed easement of right of way is established at the point least prejudicial to the
servient estate, and insofar as consistent with this rule, where the distance of the
dominant estate to a public highway may be the shortest.
Based on the Ocular Inspection Report, petitioner’s property had another outlet to the highway.
In between her property and the highway or road, however, is an irrigation canal, which can be
traversed by constructing a bridge, similar to what was done by the owners of the nearby
properties. There is, therefore, no need to utilize respondents’ property to serve petitioner’s
needs. Another adequate exit exists. Petitioner can use this outlet to access the public roads.
Article 650 of the Civil Code provides that in determining the existence of an easement of right
of way, the requirement of “least prejudice] to the servient estate” trumps “distance [between] the
dominant estate [and the] public highway.” “Distance” is considered only insofar as it is
consistent to the requirement of “least prejudice.”

[Note: See also Calimoso v. Roullo (781 SCRA 624) where the Court said that the option to pass
through two lots to get to the highway, although longer, was better than passing through the
shorter route through petitioner’s lot, as the same resulted in no damage while passing through
petitioner’s lot would cause damage to a wire fence and house. Least prejudice criterion prevails
over shortest distance criterion.]

Easement of right of way, extent of indemnity – De Guzman v. Filinvest Development

Corporation (746 SCRA 65)

The right of way constituting the easement in this case consists of existing and developed
network of roads. This means that in their construction, the needs of the dominant estate were not
taken into consideration precisely because they were constructed prior to the grant of the right of
way. It was established that the width of the affected roads is 10 meters. Multiplied by the
distance of 2,350 meters, the total area to be indemnified is 23,500 square meters and at a price
of P1,620.00 per square meter, petitioners must pay respondent the whopping amount of
P38,070,000.00 for the value of the land. Under the circumstances, the Court finds it rather
iniquitous to compute the proper indemnity based on the 10-meter width of the existing roads. To
stress, it is the needs of the dominant estate which determines the width of the passage. And per
their complaint, petitioners were simply asking for adequate vehicular and other similar access to
the highway. To the Court’s mind, the 10-meter width of the affected road lots is unnecessary and
inordinate for the intended use of the easement. At most, a 3-meter wide right of way can already
sufficiently meet petitioners’ need for vehicular access. It would thus be unfair to assess
indemnity based on the 10-meter road width when a three-meter width can already sufficiently
answer the needs of the dominant estate. Therefore bearing in mind Article 651, the Court finds
proper a road width of 3 meters in computing the proper indemnity.

Note 1: Petitioners may still use the 10 meter width so as not to affect traffic flow in the area.
Note 2: Petitioners argument that it is unfair to require them to pay the value of the affected road
lots since the same is tantamount to buying the property without them being issued titles and not
having the right to exercise dominion over it is untenable. Payment of the value of the land for
permanent use of the easement does not mean an alienation of the land occupied.

Nuisance, summary abatement not allowed for nuisance per accidens – Rana v. Wong (727
SCRA 539)

A nuisance may either be: (a) a nuisance per se (or one which “affects the immediate safety of
persons and property and may be summarily abated under the undefined law of necessity”); or
(b) a nuisance per accidens (or that which “depends upon certain conditions and circumstances,
and its existence being a question of fact, it cannot be abated without due hearing thereon in a
tribunal authorized to decide whether such a thing does in law constitute a nuisance.”). It is a
standing jurisprudential rule that unless a nuisance is a nuisance per se, it may not be summarily
abated. In this case, elevating a portion of the road to facilitate entry and exit from one’s property
is not, by its nature, injurious to the health or comfort of the community, hence it is not a
nuisance per se.

Nuisance per accidens cannot be abated summarily, exception – Aquino v. Municipality of

Malay (737 SCRA 145)

The hotel, in itself, cannot be considered as a nuisance per se since this type of nuisance is
generally defined as an act, occupation, or structure, which is a nuisance at all times and under
any circumstances, regardless of location or surrounding. It is a nuisance per accidens. Whether
the building constituted a nuisance per se or a nuisance per accidens becomes immaterial. Sec.
444 (b)(3)(vi) of the LGC, which empowered the mayor to order the closure and removal of
illegally constructed establishments for failing to secure the necessary permits. The hotel was
demolished not exactly because it is a nuisance but because it failed to comply with the legal
requirements prior to construction (non-issuance of the necessary permits and clearances). It just
so happened that, in the case at bar, the hotel’s incident that qualified it as a nuisance per
accidens––its being constructed within the no build zone––further resulted in the non-issuance of
the necessary permits and clearances, which is a ground for demolition under the LGC. Under
the premises, a court order that is required under normal circumstances is hereby dispensed with.

[Note: See also Cruz v. Pandacan Hikers Club (778 SCRA 385) where the Court declared that a
basketball ring is not a nuisance per se, and penalized the barangay captain for sawing the same
without an ordinance authorizing her to do so]

Donation; donation of immovable must be in a public document; acceptance of donation

required for validity – Homeowners Association of Talayan Village v. J.M. Tuason & Co. (774
SCRA 315)

The donation was not embodied in a public document as provided under Article 749 of the Civil
Code of the Philippines. More, the record is entirely bereft of showing that said donation was
duly accepted in accordance with Article 745 of the same Code. The purpose of the formal
requirement for acceptance of a donation is to ensure that such acceptance is duly communicated
to the donor. Since the donation is considered perfected only upon the moment the donor is
apprised of such acceptance, lack of such acceptance, as expressly provided under the law,
renders the donation null and void.
Absent a deed of donation or legitimate acquisition thereof by the government, the area claimed
to have been reserved for public use and/or as an open space still pertained to the subdivision
developer.

Preterition – Morales v. Olondriz (783 SCRA 151)

Preterition consists in the omission of a compulsory heir from the will, either because he is not
named or, although he is named as a father, son, etc., he is neither instituted as an heir nor
assigned any part of the estate without expressly being disinherited – tacitly depriving the heir of
his legitime. Preterition requires that the omission is total, meaning the heir did not also receive
any legacies, devises, or advances on his legitime.
The preterition of a compulsory heir in the direct line shall annul the institution of heirs, but the
devises and legacies shall remain valid insofar as the legitimes are not impaired. Consequently, if
a will does not institute any devisees or legatees, the preterition of a compulsory heir in the direct
line will result in total intestacy.
In the present case, the decedent’s will evidently omitted Francisco Olondriz as an heir, legatee, or
devisee. As the decedent’s illegitimate son, Francisco is a compulsory heir in the direct line. Unless
Morales [person appointed as executrix by the decedent] could show otherwise, Francisco’s omission
from the will leads to the conclusion of his preterition.

Prescription, period of prescription for implied trust, exception – De Guzman Jr. v. CA (785
SCRA 382)

An action for reconveyance based on an implied trust generally prescribes in 10 years, the
reckoning point of which is the date of registration of the deed or the date of issuance of the
certificate of title over the property. The exception to the ten-year rule on prescription is when
the plaintiff is in possession of the land to be reconveyed. In such case, the action becomes one
for quieting of title, which is imprescriptible.
Prescription, mortgage action – Maybank Philippines, Inc. v. Tarrosa (772 SCRA 670)

An action to enforce a right arising from a mortgage should be enforced within ten (10) years
from the time the right of action accrues, i.e., when the mortgagor defaults in the payment of his
obligation to the mortgagee; otherwise, it will be barred by prescription and the mortgagee will
lose his rights under the mortgage.

Prescription and laches, reasonable time construed – Phil-Air Conditioning Center v. RCJ
Lines (775 SCRA 265)

The question of laches is addressed to the sound discretion of the court. 43 The court resolves
whether the claimant asserted its claim within a reasonable time and whether its failure to do so
warrants the presumption that it either has abandoned it or declined to assert it. On the other
hand, if the law gives the period within which to enforce a claim or file an action in court, the
court confirms whether the claim is asserted or the action is filed in court within the
prescriptive period. In sum, where the law provides the period within which to assert a claim or
file an action in court, the assertion of the claim or the filing of the action in court at any
time within the prescriptive period is generally deemed reasonable, and thus, does not call
for the application of laches. As we held in one case, unless reasons of inequitable proportions
are adduced, any imputed delay within the prescriptive period is not delay in law that would bar
relief.

OBLIGATIONS AND CONTRACTS

Rescission under 1191, only for substantial breach – Nolasco v. Cuerpo (777 SCRA 447)

For a contracting party to be entitled to rescission (or resolution) in accordance with Article 1191
of the Civil Code, the other contracting party must be in substantial breach of the terms and
conditions of their contract. A substantial breach of a contract is a fundamental breach that
defeats the object of the parties in entering into an agreement. Here, it cannot be said that
petitioners’ failure to undertake their obligation under paragraph 7 defeats the object of the
parties in entering into the subject contract, considering that the same paragraph provides
respondents contractual recourse in the event of petitioners’ non-performance of the aforesaid
obligation, that is, to cause such transfer themselves in behalf and at the expense of petitioners.

Rescission under 1191, available even if no contractual stipulation therefor – Nissan Car
Lease Phils. v. Lica Mgt. (780 SCRA 400)

Whether a contract provides for it or not, the remedy of rescission is always available as a
remedy against a defaulting party. When done without prior judicial imprimatur, however, it may
still be subject to a possible court review. The only practical effect of a contractual stipulation
allowing extrajudicial rescission is “merely to transfer to the defaulter the initiative of instituting
suit, instead of the rescinder.”

Rescission under 1191, must be invoked judicially, exception; date of effectivity of rescission
in such cases – Golden Valley Exploration, Inc. v. Pinkian Mining Company (726 SCRA 259)
As a general rule, the power to rescind an obligation must be invoked judicially and cannot be
exercised solely on a party’s own judgment that the other has committed a breach of the
obligation. This is so because 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. As a well-established exception, however, an injured
party need not resort to court action in order to rescind a contract when the contract itself
provides that it may be revoked or cancelled upon violation of its terms and conditions.

Where parties agree to a stipulation allowing extra-judicial rescission, no judicial decree is

necessary for rescission to take place; the extra-judicial rescission immediately releases the party
from its obligation under the contract, subject only to court reversal if found improper. On the
other hand, without a stipulation allowing extra-judicial rescission, it is the judicial decree that
rescinds, and not the will of the rescinding party.

Rescission under 1191 also includes the duty to return whatever may have been received – The
Wellex Group, Inc. v. U-Land Airlines (745 SCRA 563)

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. And the
Court has said that The provisions of Article 1385 applies to rescission under Art. 1191.

Indivisibility of obligations, test of indivisibility – Lam v. Kodak (778 SCRA 96)

An obligation is indivisible when it cannot be validly performed in parts, whatever may be the
nature of the thing which is the object thereof. The indivisibility refers to the prestation and not
to the object thereof. In the present case, the obligation to deliver three units of Minilab
Equipment on the part of respondent and payment for all three on the part of petitioners is
indivisible. The intention to create an indivisible contract is apparent from the benefits that the
Letter Agreement afforded to both parties. Petitioners were given the 19% discount on account of
a multiple order, with the discount being equally applicable to all units that they sought to
acquire. The provision on “no downpayment” was also applicable to all units. Respondent, in
turn, was entitled to payment of all three Minilab Equipment units, payable by installments.

Subrogation distinguished from assignment of credit – Liam v. UCPB (793 SCRA 383)

An assignment of credit is the process of transferring the right of the assignor to the assignee
who would then have the right to proceed against the debtor. The assignment may be done either
gratuitously or onerously, in which case, the assignment has an effect similar to that of a sale.

On the other hand, subrogation is a process by which the third party pays the obligation of the
debtor to the creditor with the latter’s consent. As a consequence, the paying third party steps
into the shoes of the original creditor as subrogee of the latter. It results in a subjective novation
of the contract in that a third person is subrogated to the rights of the creditor.

The crucial distinction between assignment and subrogation actually deals with the necessity of
the consent of the debtor in the original transaction. In an assignment of credit, the consent of the
debtor is not necessary in order that the assignment may fully produce legal effects. What the law
requires in an assignment of credit is not the consent of the debtor but merely notice to him as
the assignment takes effect only from the time he has knowledge thereof. A creditor may,
therefore, validly assign his credit and its accessories without the debtor’s consent. Meanwhile,
subrogation requires an agreement among the three parties concerned – the original creditor, the
debtor, and the new creditor. It is a new contractual relation based on the mutual agreement
among all the necessary parties.

Application of payment, payment of principal and interest, Art. 1176 vis-à-vis 1253 – Marquez v. Elisan
Credit Corp. (755 SCRA 31)

Article 1176 provides that: “The receipt of the principal by the creditor, without reservation with
respect to the interest, shall give rise to the presumption that said interest has been paid.

On the other hand, Article 1253 states: “If the debt produces interest, payment of the principal
shall not be deemed to have been made until the interests have been covered.”

Article 1176 should be treated as a general presumption subject to the more specific presumption
under Article 1253. Article 1176 is relevant on questions pertaining to the effects and nature of
obligations in general, while Article 1253 is specifically pertinent on questions involving
application of payments and extinguishment of obligations.

The presumption under Article 1176 does not resolve the question of whether the amount
received by the creditor is a payment for the principal or interest. Under this article the amount
received by the creditor is the payment for the principal, but a doubt arises on whether or not the
interest is waived because the creditor accepts the payment for the principal without reservation
with respect to the interest. Article 1176 resolves this doubt by presuming that the creditor
waives the payment of interest because he accepts payment for the principal without any
reservation.

On the other hand, the presumption under Article 1253 resolves doubts involving payment of
interest-bearing debts. It is a given under this Article that the debt produces interest. The doubt
pertains to the application of payment; the uncertainty is on whether the amount received by the
creditor is payment for the principal or the interest. Article 1253 resolves this doubt by providing
a hierarchy: payments shall first be applied to the interest; payment shall then be applied to the
principal only after the interest has been fully-paid.

Correlating the two provisions, the rule under Article 1253 that payments shall first be applied to
the interest and not to the principal shall govern if two facts exist: (1) the debt produces interest
(e.g., the payment of interest is expressly stipulated) and (2) the principal remains unpaid.

Difficulty of performance, extinguishment of obligation, requisites – Tagaytay Realty Co. v.

Gacutan (761 SCRA 87)

Article 1267 of the Civil Code provides that “(w)hen 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.” For Article 1267 to apply, the following conditions should concur, namely: (a)
the event or change in circumstances could not have been foreseen at the time of the execution of
the contract; (b) it makes the performance of the contract extremely difficult but not impossible;
(c) it must not be due to the act of any of the parties; and (d) the contract is for a future
prestation. The requisites did not concur herein because the difficulty of performance under
Article 1267 of the Civil Code should be such that one party would be placed at a disadvantage
by the unforeseen event [there must be a manifest disequilibrium in the prestations; there are
extraordinary obstacles which can be overcome only by an absolutely disproportionate sacrifice].
Mere inconvenience, or unexpected impediments, or increased expenses do not suffice to relieve
the debtor from a bad bargain. In the instant case, the petitioner suspended construction to save
on maintenance costs, not because of any difficult situation. More, the worsening of the economy
occurred after petitioner should have complied with its obligation.

[Note: See also Poon v. Prime Savings Bank (793 SCRA 141) where the Court declared that Art. 1267
was inapplicable as closure of the business was not an unforeseen event, and was not independent of
respondent’s will]

Novation by substitution of person of debtor, consent of creditor needed – BPI v. Domingo (754 SCRA
245)

Whether expromision or delegacion the creditor’s consent to the novation is indispensable, given
that the “substitution of one debtor for another may delay or prevent the fulfillment of the
obligation by reason of the financial inability or insolvency of the new debtor; hence, the creditor
should agree to accept the substitution in order that it may the existence of the creditor’s consent
may also be inferred from the creditor’s acts, but such acts still need to be “a clear and unmistakable
expression of [the creditor’s] consent.” be binding on him.”
In order to give novation its legal effect, the law requires that the creditor should consent to the
substitution of a new debtor. Preferably, this consent should be given expressly, as it implies on
the part of the creditor a waiver of the right that he had before the novation, under the principle
that renuntiatio non praesumitor, a waiver of right may not be performed unless the will to waive
is indisputably shown by him who holds the right. However, the existence of the creditor’s
consent may also be inferred from the creditor’s acts, but such acts still need to be “a clear and
unmistakable expression of [the creditor’s] consent.”

Mutuality of contracts – Limso v. PNB (782 SCRA 137)

There is no mutuality of contracts when the determination or imposition of interest rates is at the
sole discretion of a party to the contract. Further, escalation clauses in contracts are void when
they allow the creditor to unilaterally adjust the interest rates without the consent of the debtor.

Relativity of contracts – Honrado v. GMA Network (746 SCRA 249)

GMA Films seeks refund for the balance of the fees it paid to petitioner for the film Bubot which
petitioner allegedly failed to turn-over to the film’s owner. GMA Films’ theory is that that the
Agreement it entered into with petitioner obliges petitioner to give to the film owners the entire
amount he received from GMA Films and that his failure to do so gave rise to an implied trust,
obliging petitioner to hold whatever amount he kept in trust for GMA Films. This is error. The
Agreement, as its full title denotes (“TV Rights Agreement”), is a licensing contract, the essence
of which is the transfer by the licensor (petitioner) to the licensee (GMA Films), for a fee, of the
exclusive right to telecast the films listed in the Agreement. Nowhere in the Agreement did the
parties stipulate that petitioner signed the contract as agent of the film owners. Nor did the
parties stipulate that the fees paid by GMA Films for the films listed in the Agreement will be
turned over by petitioner to the film owners. Instead, the Agreement merely provided that the
total fees will be paid in three installments (Paragraph 3). We entertain no doubt that petitioner
forged separate contractual arrangements with the owners of the films listed in the Agreement,
spelling out the terms of payment to the latter. Whether or not petitioner complied with these
terms, however, is a matter to which GMA Films holds absolutely no interest. Being a stranger to
such arrangements, GMA Films is no more entitled to complain of any breach by petitioner of
his contracts with the film owners than the film owners are for any breach by GMA Films of its
Agreement with petitioner.

Right to top, a variation of the right of first refusal; option and right of first refusal
distinguished – Osmeña III v. PSALM (771 SCRA 559)

A right to top [where, should the lessor sell or lease the property, the lessee has a right to offer
an amount higher, usually a fixed sum or percentage, than the price offered by the winning
bidder for the sale or lease of such property] is a variation of the right of first refusal often
incorporated in lease contracts. When a lease contract contains a right of first refusal, the lessor
is under a legal duty to the lessee not to sell to anybody at any price until after he has made an
offer to sell to the latter at a certain price and the lessee has failed to accept it. The lessee has a
right that the lessor’s first offer shall be in his favor. While sometimes referred to as a “first
option to buy” or “option of first refusal,” a right of first refusal is not an option contract.

An option is a preparatory contract in which one party grants to another, for a fixed period and at
a determined price, the privilege to buy or sell, or to decide whether or not to enter into a
principal contract. It binds the party who has given the option not to enter into the principal
contract with any other person during the period designated, and within that period, to enter into
such contract with the one to whom the option was granted, if the latter should decide to use the
option. On the other hand, in a right of first refusal, while the object might be made determinate,
the exercise of the right would be dependent not only on the grantor’s eventual intention to enter
into a binding juridical relation with another but also on terms, including the price, that are yet to
be firmed up. A right of first refusal does not need a separate consideration to be valid, as the
consideration for the lease includes the consideration for the grant of the right of first refusal.

Right to top, generally invalid in public contracts; when valid – Osmeña III v. PSALM (771
SCRA 559)

In the field of public contracts, the right to top and the right of first refusal are generally invalid
as they contravene the policy requiring government contracts to be awarded through public
bidding. A “right of first refusal”, or “right to top,” whether granted to a bidder or non-bidder,
discourages other parties from submitting bids, narrowing the number of possible bidders and
thus preventing the government from securing the best bid.
These clauses are valid only in the narrow instance where the right of first refusal (or “right to
top”) is 1) founded on the beneficiary’s “interest on the object over which the right of first
refusal is to be exercised” (such as a “tenant with respect to the land occupied, a lessee vis-a-vis
the property leased, a stockholder as regards shares of stock, and a mortgagor in relation to the
subject of the mortgage”) and 2) the government stands to benefit from the stipulation.
In the instant case, respondent has a right to top in the event of lease or sale of property which is not
part of the premises it is leasing. Respondent’s right to top is void for lack of a valid interest or
right to the object over which the right is to be exercised. First, the property subject of the right
to top is outside the premises leased. Second, the right to top refers not only to land but to any
property within the vicinity of the leased premises, as in this case, an entire power plant complex
(NPPC) and the land on which it is built. And third, while SPC cited concerns regarding security,
right of way or other operational requirements, these are clearly not analogous to a lessee’s
legitimate interest on the property being leased.
It cannot be argued that that the privatization of the plant was more advantageous to the
Government, simply because it resulted in a higher price (Php54 million more) than TPVI’s
winning bid. Whatever initial gain from the higher price obtained for the NPPC compared to the
original bid price of TPVI is negated by the fact that SPC’s right to top had discouraged more
potential buyers from submitting their bids, knowing that even their most reasonable bid can be
defeated by SPC’s exercise of its right to top.

Complaint for annulment of mortgage, not a mortgage action; prescribes in 4 years – Spouses
Sierra v. Paic Savings and Mortgage Bank (734 SCRA 694)

A “mortgage action” refers to an action to enforce a right necessarily arising from a

mortgage. In the present case, petitioners are not “enforcing” their rights under the mortgage but
are, in fact, seeking to be relieved therefrom. The complaint filed by petitioners is, therefore, not
a mortgage action as contemplated under Article 1142.
Considering, however, petitioners’ failure to establish that their consent to the mortgage was
vitiated, rendering them without a cause of action, much less a right of action to annul the
mortgage, the question of whether or not the complaint has prescribed becomes merely
academic.
In any event, even assuming that petitioners have a valid cause of action, the four-year
prescriptive period on voidable contracts shall apply. Since the complaint for annulment was
anchored on a claim of mistake, i.e., that petitioners are the borrowers under the loan secured by
the mortgage, the action should have been brought within four (4) years from its discovery. Since
they filed the action in 1991, more than 4 years from the time they were informed of the
foreclosure of the property, their action has already prescribed.

Unenforceable contracts, kinds – Iglesia Filipina Independiente v. Heirs of Taeza (715 SCRA
138)

Unenforceable contracts are those which cannot be enforced by a proper action in court, unless
they are ratified, because either they are entered into without or in excess of authority or they do
not comply with the statute of frauds or both of the contracting parties do not possess the
required legal capacity. Closely analogous cases of unenforceable contracts are those where a
person signs a deed of extrajudicial partition in behalf of co-heirs without the latter’s authority;
where a mother as judicial guardian of her minor children, executes a deed of extrajudicial
partition wherein she favors one child by giving him more than his share of the estate to the
prejudice of her other children; and where a person, holding a special power of attorney, sells a
property of his principal that is not included in said special power of attorney. Here, the contract
is unenforceable as the Supreme Bishop, contrary to church rules, sold the property without the
consent of all church entities; hence beyond his powers.

Void contracts cannot be the source of rights – Fullido v. Grilli (785 SCRA 278)

The lease contract (for a period of fifty years, automatically extended for another fifty years) and
the MOA (stating that ownership of the land and the residential building resided with Grilli) in
this case are null and void as they virtually transfer the land to Grilli, a foreigner.

Being null and void, it has no force and effect from the very beginning, as if it had never been
entered into; it produces no effect whatsoever either against or in favor of anyone. Quod nullum
est nullum producit effectum. Article 1409 of the New Civil Code explicitly states that void
contracts also cannot be ratified; neither can the right to set up the defense of illegality be
waived. Accordingly, the same cannot be used by Grilli to eject his erstwhile live-in partner
Fullido.

Pari delicto rule, inapplicable if the same would contravene well-established public policy, such as
unjust enrichment of one party – Gonzalo v. Ternate Jr. (713 SCRA 224)

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, such as the principle of unjust enrichment found in Article 22 of the Civil Code.
Accordingly, while the law prohibits the subcontracting of a DPWH contract without the express
consent of the Secretary, the fact that the subcontractor provided the equipment, labor and
materials for the project while it was the contractor who received the payment would result in the
unjust enrichment of the latter if the pari delicto rule is strictly applied; hence the exception is
applicable.

[Note: See also Fullido v. Grilli (supra) where the Supreme Court declared the pari delicto rule
as inapplicable because of public policy against land ownership by aliens; De Guzman Jr. v. CA
(785 SCRA 382) involving public policy on free patents being sold within the prohibited period]

Pari delicto rule, inapplicable in void and inexistent contracts – Rana v. Wong (727 SCRA 539)

The principle of in pari delicto provides that when two parties are equally at fault, the law leaves
them as they are and denies recovery by either one of them. However, this principle does not
apply with respect to inexistent and void contracts. In this case, one party elevated the road,
which turned out to be a nuisance per accidens, while the other party, contrary to law, summarily
abated the same. There is no contract existing between them, hence the pari delicto rule will not
apply.
Estoppel, kinds of – Go v. Bangko Sentral ng Pilipinas (762 SCRA 344)

There are three kinds of estoppels, to wit: (1) estoppel in pais; (2) estoppel by deed; and (3)
estoppel by laches. Under the first kind, a person is considered in estoppel if by his conduct,
representations, admissions or silence when he ought to speak out, whether intentionally or
through culpable negligence, “causes another to believe certain facts to exist and such other
rightfully relies and acts on such belief, as a consequence of which he would be prejudiced if the
former is permitted to deny the existence of such facts.” Under estoppel by deed, a party to a
deed and his privies are precluded from denying any material fact stated in the deed as against
the other party and his privies. Under estoppel by laches, an equitable estoppel, a person who has
failed or neglected to assert a right for an unreasonable and unexplained length of time is
presumed to have abandoned or otherwise declined to assert such right and cannot later on seek
to enforce the same, to the prejudice of the other party, who has no notice or knowledge that the
former would assert such rights and whose condition has so changed that the latter cannot,
without injury or prejudice, be restored to his former state

Estoppel, State is not estopped by omission, mistake, error of its officials or agents – Republic
v. Pasicolan (755 SCRA 495)

Absence of opposition from government agencies is of no controlling significance, because the

State cannot be estopped by the omission, mistake or error of its officials or agents. Nor is the
Republic barred from assailing the decision granting the petition for correction of entries if, on
the basis of the law and the evidence on record, such petition has no merit.

Trusts; implied resulting trust; purchase resulting money trust; implied resulting trust must be
repudiated by trustee for prescription to run – Tong v. Go Tiat Kun (722 SCRA 623)

Where the Chinese father had the property he purchased for the family’s lumber business titled in
the name of his only Filipino child, the same is not an express trust, but rather an implied
resulting trust created as provided under the first sentence of Article 1448 which is sometimes
referred to as a purchase money resulting trust. Its elements are: (a) an actual payment of money,
property or services, or an equivalent, constituting valuable consideration; and (b) such
consideration must be furnished by the alleged beneficiary of a resulting trust. [See also Trinidad
v. Imson, 770 SCRA 581]
As a rule, implied resulting trusts do not prescribe except when the trustee repudiates the trust.
The principle that a trustee who puts a certificate of registration in his name cannot repudiate the
trust by relying on the registration is one of the well-known limitations upon a title. A trust,
which derives its strength from the confidence one reposes on another especially between
families, does not lose that character simply because of what appears in a legal document.
Further, the action to reconvey does not prescribe so long as the property stands in the name of
the trustee.

SPECIAL CONTRACTS
Contract to Sell and Deed of Sale, distinguished – Norberte Jr. v. Mejia (752 SCRA 120)

Although denominated as conditional, a deed of sale is absolute in nature in the absence of any
stipulation reserving title to the seller until full payment of the purchase price. In such case,
ownership of the thing sold passes to the buyer upon actual or constructive delivery. 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 vendor and is
not to pass to the vendee until full payment of the purchase price. Here, there was already a
perfected contract. The condition imposed was only on the performance of the obligations of the
parties. There is nothing in the Deed of Conditional Sale which expressly provides for the
retention of title or ownership of the property by the sellers until full payment of the purchase
price. The absence of such stipulation indicates that what the parties have actually contemplated
was a contract of absolute sale

Sales, earnest money – First Optima Realty v. Securitron Security Services (748 SCRA 534)

In a potential sale transaction, the prior payment of earnest money even before the property
owner can agree to sell his property is irregular, and cannot be used to bind the owner to the
obligations of a seller under an otherwise perfected contract of sale; to cite a well-worn cliché,
the carriage cannot be placed before the horse. As contemplated under Art. 1482 of the Civil
Code, “there must first be a perfected contract of sale before we can speak of earnest money.”
“Where the parties merely exchanged offers and counter-offers, no contract is perfected since
they did not yet give their consent to such offers. Earnest money applies to a perfected sale.”

Dation in payment, extent of extinguishment of obligation – PNB v. Dee (717 SCRA 14)

Dacion en pago or dation in payment is the delivery and transmission of ownership of a thing by
the debtor to the creditor as an accepted equivalent of the performance of the obligation. It
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.

Recto Law, inapplicable to financing of car purchase through loan agreement with chattel
mortgage – Equitable Savings Bank v. Palces (787 SCRA 260)

Article 1484 of the Civil Code, which governs the sale of personal properties in installments, is
not applicable in cases where [the buyer] never bought the subject vehicle from [the
bank/financing company] but from a third party, and merely sought financing from [the
bank/finacing company] for its full purchase price.
In this case there was no vendor-vendee relationship between respondent and petitioner. The
records would reveal that respondent never bought the subject vehicle from petitioner but from a
third party, and merely sought financing from petitioner for its full purchase price. To document
the loan transaction, a Promissory Note with Chattel Mortgage was executed wherein, inter alia,
respondent acknowledged her indebtedness to petitioner in the amount of P1,196,100.00 and
placed the subject vehicle as a security for the loan. Indubitably, a loan contract with the
accessory chattel mortgage contract - and not a contract of sale of personal property in
installments - was entered into by the parties with respondent standing as the debtor-mortgagor
and petitioner as the creditor-mortgagee. Therefore, the conclusion that Article 1484 finds
application in this case is misplaced.

Double sales, requisites – Roque v. Aguado (720 SCRA 780)

The requisites for Article 1544 to apply are:

(a) The two (or more) sales transactions in issue must pertain to exactly the same
subject matter, and must be valid sales transactions;
(b) The two (or more) buyers at odds over the rightful ownership of the subject
matter must each represent conflicting interests; and
(c) The two (or more) buyers at odds over the rightful ownership of the subject
matter must each have bought from the same seller.

In the instant case, the same is inapplicable as petitioners base their right of ownership over the
property on a contract to sell, not a contract of sale (even if denominated as a Deed of
Conditional Sale, the contract states that their seller promised to execute a deed of absolute sale upon
the completion by the buyer of the payment of the purchase price, hence it is only a contract to sell)

Sale with right of repurchase; Right of repurchase, how exercised – David v. David (713
SCRA 326)

A redemption within the period allowed by law is not a matter of intent but of payment or valid
tender of the full redemption price within the period. A sincere tender of payment is sufficient to
show the exercise of the right to repurchase. Here, Eduardo paid the repurchase price to Roberto
by depositing the proceeds of the sale of the Baguio City lot in the latter’s account. Such
payment was an effective exercise of the right to repurchase.

Sale with right of repurchase; period to repurchase cannot exceed ten years – Cebu State
College of Science and Technology v. Misterio (759 SCRA 1)

Agreements indicating indefinite stipulations for the exercise of the right to repurchase are
frowned upon and the redemption period is restricted to ten (10) years from the date of the
contract of sale. And in those instances where parties agree to suspend the right until the
occurrence of a certain time, event, or condition, in cases where the four (4)-year period would
extend the life of the contract beyond ten (10) years, the vendor a retro will only have the
remainder of the said ten (10)-year period to redeem the property. When, for instance, the
contract provides that the right may only be exercised after seven (7), eight (8), or nine (9) years
after the execution of the sale, the vendor a retro may only redeem the property before the
expiration of the ten (10)-year period from the date of the sale. In line with this, the period of
redemption agreed upon by the parties may be extended after the four (4)-year period so long as
the total period does not exceed ten (10) years from the date of the contract.

Sale with right of repurchase, presumption of being an equitable mortgage – Heirs of Antero
Soliva v. Soliva (757 SCRA 26)
Art. 1602 states that 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.
For the presumption of an equitable mortgage to arise under any of the circumstances
enumerated in Article 1602, however, two requisites must concur: (a) that the parties entered into
a contract denominated as a contract of sale; and (b) that their intention was to secure an
existing debt by way of mortgage. In the instant case, the Court did not find the Pacto de Retro
Sale to be an equitable mortgage because it found nothing to support the theory that the “sale
with right to repurchase was executed to secure a debt.”

Lease and agency distinguished; civil lease and agricultural lease distinguished – Jusayan v.
Sombilla (746 SCRA 437)

In agency, the agent binds himself to render some service or to do something in representation or
on behalf of the principal, with the consent or authority of the latter. The basis of the civil law
relationship of agency is representation, the elements of which are, namely: (a) the relationship is
established by the parties’ consent, express or implied; (b) the object is the execution of a
juridical act in relation to a third person; (c) the agent acts as representative and not for himself;
and (d) the agent acts within the scope of his authority. Whether or not an agency has been
created is determined by the fact that one is representing and acting for another.
The claim of Timoteo that Jorge was his agent contradicted the verbal agreement he had
fashioned with Jorge. By assenting to Jorge’s possession of the land sans accounting of the
cultivation expenses and actual produce of the land provided that Jorge annually delivered to him
110 cavans of palay and paid the irrigation fees belied the very nature of agency, which was
representation.

A leasehold tenancy and a civil law lease is distinguished in the following manner, namely: (1)
the subject matter of a leasehold tenancy is limited to agricultural land, but that of a civil law
lease may be rural or urban property; (2) as to attention and cultivation, the law requires the
leasehold tenant to personally attend to and cultivate the agricultural land; the civil law lessee
need not personally cultivate or work the thing leased; (3) as to purpose, the landholding in
leasehold tenancy is devoted to agriculture; in civil law lease, the purpose may be for any other
lawful pursuits; and(4) as to the law that governs, the civil law lease is governed by the Civil
Code, but the leasehold tenancy is governed by special laws.
Contract for a piece of work (structure or any other work), how to recover additional cost –
President of the Church of Jesus Christ of Latter Day Saints v. BTL Construction Corporation
(713 SCRA 455)

Under Art. 1724, the recovery of additional costs in contracts for a stipulated price (such as fixed
lump-sum contracts), as well as the increase in price for any additional work due to a subsequent
change in the original plans and specifications 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 (2) requisites is a condition
precedent for recovery. In these cases, records reveal that there is neither a written authorization
nor agreement covering the additional price to be paid for the concrete retaining wall, confirming
the finding that payment for the wall is already included in the original contract price, it being
part of the original plan. It need not be additionally paid for.

Agency, general power to administer does not include authority to sell – Bautista-Spille v.
Nicorp Management and Devt. Corp. (773 SCRA 67)

In the conveyance of real rights over immovable property, such authority must be conferred in
writing and must express the powers of the agent in clear and unmistakable language in order for
the principal to confer the right upon an agent to sell the real property. Thus, when the authority
is couched in general terms, without mentioning any specific power to sell or mortgage or to do
other specific acts of strict dominion, then only acts of administration are deemed conferred. The
power of administration does not include acts of disposition, which are acts of strict ownership.
As such, an authority to dispose cannot proceed from an authority to administer, and vice versa,
for the two powers may only be exercised by an agent by following the provisions on agency of
the Civil Code.

Agency, authority to sell does not include authority to file petition for issuance of writ of
possession – Heirs of Eugenio Lopez Sr. v. Querubin (753 SCRA 371)

The SPA in favor of Rivera was insufficient to cloth her with authority to file the petition for the
ex parte issuance of a writ of possession in the instant case. Under Article 1881 of the Civil
Code, an agent is mandated to act within the scope of his authority. The scope of an agent’s
authority, in turn, is what appears in the written terms of the power of attorney granted upon him.
“[a] power of attorney must be strictly construed and pursued. The instrument will be held to
grant only those powers which are specified therein, and the agent may neither go beyond nor
deviate from the power of attorney.” The authority of Rivera to sell the properties described in
the SPA does not carry with it the concomitant duty to file a petition for the ex parte issuance of
a writ of possession.

Agency, when can an agent sue in its own name – V-Gent Inc. v. Morning Star Travel (763
SCRA 496)

An agent may sue or be sued solely in its own name and without joining the principal when the
following elements concur: (1) the agent acted in his own name during the transaction; (2) the
agent acted for the benefit of an undisclosed principal; and (3) the transaction did not involve the
property of the principal. While the first element is present, as the purchase order and the receipt
were in the name of V-Gent, the remaining elements are absent because: (1) V-Gent disclosed the
names of the passengers to Morning Star — in fact the tickets were in their names; and (2) the
transaction was paid using the passengers’ money. Basically, V-Gent, the agent, is suing to
recover the money of its principals — the passengers — who are the real parties-in-interest
because they stand to be injured or benefited in case Morning Star refuses or agrees to grant the
refund because the money belongs to them. From this perspective, V-Gent evidently does not
have a legal standing to file the complaint. Under Article 1878 (15) of the Civil Code, a duly
appointed agent has no power to exercise any act of strict dominion on behalf of the principal
unless authorized by a special power of attorney. An agent’s authority to file suit cannot be
inferred from his authority to collect or receive payments; the grant of special powers cannot be
presumed from the grant of general powers.

Agency, revoked when principal deals directly with 3rd persons – Bitte v. Jonas (777 SCRA 489)

Under Article 1924 of the Civil Code, “an agency is revoked if the principal directly manages the
business entrusted to the agent, dealing directly with third persons.” When a principal disregards
or bypasses the agent and directly deals with such person in an incompatible or exclusionary
manner, said third person is deemed to have knowledge of the revocation of the agency. They are
expected to know circumstances that should have put them on guard as to the continuing
authority of that agent. The mere fact of the principal dealing directly with the third person, after
the latter had dealt with an agent, should be enough to excite the third person’s inquiring mind on
the continuation of his authority.

In the case at bench, records show that Spouses Bitte initially transacted with Andrea as Rosa
Elsa’s agent on the basis of the SPA, dated July 19, 1985. Thereafter, however, Rosa Elsa
returned to the Philippines and directly negotiated with them. Rosa Elsa’s act of taking over in
the actual negotiation for the sale of the property only shows that Andrea’s authority to act has
been revoked pursuant to Article 1924. At that point, Spouses Bitte had information sufficient
enough to make them believe that Andrea was no longer an agent or should have compelled them
to make further inquiries. Despite their direct negotiation with Rosa Elsa, they still entered into a
contract with Andrea on February 25, 1997. In sum, the deed of absolute sale executed by
Andrea in favor of Spouses Bitte is unenforceable against Rosa Elsa because of their notice of
the revocation of the agency

Surety, nature of – Trade and Investment Devt. Corp. v. Asia Paces Corp. (716 SCRA 67)
Although the contract of a surety is in essence secondary only to a valid principal obligation, his
liability to the creditor is direct, primary and absolute; he becomes liable for the debt and duty of
another although he possesses no direct or personal interest over the obligations nor does he
receive any benefit therefrom. The fundamental reason therefor is that a contract of suretyship
effectively binds the surety as a solidary debtor.
Thus, since the surety is a solidary debtor, it is not necessary that the original debtor first failed
to pay before the surety could be made liable; it is enough that a demand for payment is made by
the creditor for the surety’s liability to attach.
Surety, when released – Vil-Rey Planners and Builders v. Lexber (793 SCRA 344)

It is true that a surety is discharged from its obligation when there is a material alteration of the
principal contract, such as a change that imposes a new obligation on the obligor; or takes away
some obligation already imposed; or changes the legal effect, and not merely the form, of the
original contract. Nevertheless, no release from the obligation shall take place when the change
in the contract does not have the effect of making the obligation more onerous to the surety. In
this case, the extension of the third contract for 15 days and the grant of an additional five-day
grace period did not make Stronghold’s obligation more onerous. On the contrary, the extensions
were aimed at the completion of the works, which would have been for the benefit of Stronghold.

[Note: The Court found no merit in the contention of Stronghold that the extensions extinguished
its obligation as a surety, stating that Strongjold was prepared to give an extension of its own so
that Vil-Rey could finish the work; and that it raised the issue of extension of time discharging it
only on MR during its appeal. Issues not raised before the trial court cannot be passed upon by
the reviewing court]

Pactum commissorium, elements – Pen v. Julian (778 SCRA 56)

The elements for pactum commissorium to exist are as follows, to wit: (a) that there should be a
pledge or mortgage wherein property is pledged or mortgaged by way of security for the
payment of the principal obligation; and (b) that there should be a stipulation for an automatic
appropriation by the creditor of the thing pledged or mortgaged in the event of non-payment of
the principal obligation within the stipulated period.

Pledge, requirements for validity – Bangko Sentral ng Pilipinas v. Libo-on (775 SCRA 133)
For a contract of pledge to be valid, it is necessary that: (1) the pledge is constituted to secure the
fulfillment of a principal obligation;. (2) the pledgor be the absolute owner of the thing pledged;
and (3) the person constituting the pledge has the free disposal of his property, and in the absence
thereof, that he be legally authorized for the purpose.
Here, the Rural Bank of Hinigaran was neither the absolute owner of the subject property nor the
security documents it had pledged to BSP, since again, at the time of the transaction between the
Rural Bank of Hinigaran and BSP on September 19, 1997, the Spouses Libo-on remains to be the
owner of the subject property. Given these circumstances, the Rural Bank of Hinigaran could not
have constituted a valid pledge on the subject property’s TCT.

Chattel mortgage, as security for after-incurred obligations – Marquez v. Elisan Credit Corp.
(755 SCRA 31)
The contract of chattel mortgage provided among others, that the motor vehicle shall stand as a
security for the first loan and “all other obligations of every kind already incurred or which may
hereafter be incurred.” After full payment of the loan, petitioner obtained a second loan with the
parties executing a second promissory note containing exactly the same terms and conditions as
the first promissory note. When petitioner failed to fully pay the second loan, respondent filed a
petition to foreclose on the mortgage.
The Court declared that the chattel mortgage could not validly cover the second loan, stating that
in contracts of real security should the obligation be duly paid, then the contract is automatically
extinguished. Once the obligation is complied with, then the contract of security becomes, ipso
facto, null and void. While a pledge, real estate mortgage, or antichresis may exceptionally
secure after-incurred obligations so long as these future debts are accurately described, a chattel
mortgage, however, can only cover obligations existing at the time the mortgage is constituted.

Although a promise expressed in a chattel mortgage to include debts that are yet to be contracted
can be a binding commitment that can be compelled upon, the security itself, however, does not
come into existence or arise until after a chattel mortgage agreement covering the newly
contracted debt is executed either by concluding a fresh chattel mortgage or by amending the old
contract conformably with the form prescribed by the Chattel Mortgage Law.

Compounding of interest must be in writing – Albos v. Embisan (743 SCRA 283)

The compounding of interest should be in writing. Article 1956 provides that No interest shall be
due unless it has been expressly stipulated in writing. As mandated by the foregoing provision,
payment of monetary interest shall be due only if: (1) there was an express stipulation for the
payment of interest; and (2) the agreement for such payment was reduced in writing. Thus, We
have held that collection of interest without any stipulation thereof in writing is prohibited by
law. For purposes of imposing compounded interest on the loan, Art. 1956 not only requires
reducing in writing the interest rate to be earned but also the manner of earning the same, if it is
to be compounded.

Failure to specify the manner of earning interest, however, shall not automatically render the
stipulation imposing the interest rate void since it is readily apparent from the contract itself that
the parties herein agreed for the loan to bear interest. Instead, in default of any stipulation on the
manner of earning interest, simple interest shall accrue.

TORTS AND DAMAGES

Recovery for quasi-delict, elements – Unknown Owner of the Vessel M/V China Joy v. ATI (752
SCRA 642)

To establish a plaintiff’s right to recovery for quasi-delicts, three elements must exist, to wit: (a)
damages to the plaintiff; (b) negligence by act or omission of which defendant personally, or
some person for whose acts it must respond, was guilty; and (c) the connection of cause and
effect between the negligence and the damage.

Negligence, defined – Ruks Consult and Construction v. Adworld Sign (746 SCRA 622)

Negligence is the omission to do something which a reasonable man, guided by those

considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man would not do. It is the failure to observe for the
protection of the interest of another person that degree of care, precaution, and vigilance which
the circumstances justly demand, whereby such other person suffers injury. In this case,
Transworld’s initial construction of its billboard’s lower structure without the proper foundation,
and that of Ruks’s finishing its upper structure and just merely assuming that Transworld would
reinforce the weak foundation are the two (2) successive acts which were the direct and
proximate cause of the damages sustained by Adworld. Worse, both Transworld and Ruks were
fully aware that the foundation for the former’s billboard was weak; yet, neither of them took any
positive step to reinforce the same. They merely relied on each other’s word that repairs would
be done to such foundation, but none was done at all. Clearly, the foregoing circumstances show
that both Transworld and Ruks are guilty of negligence in the construction of the former’s
billboard.

Negligence, liability of joint tort-feasors – Ruks Consult and Construction v. Adworld Sign (746
SCRA 622)

Joint tortfeasors are those who command, instigate, promote, encourage, advise, countenance,
cooperate in, aid or abet the commission of a tort, or approve of it after it is done, if done for
their benefit. They are also referred to as those who act together in committing wrong or whose
acts, if independent of each other, unite in causing a single injury. Under Article 2194 of the Civil
Code, joint tortfeasors are solidarily liable for the resulting damage. In other words, joint
tortfeasors are each liable as principals, to the same extent and in the same manner as if they had
performed the wrongful act themselves.

Where the concurrent or successive negligent acts or omissions of two or more persons, although
acting independently, are in combination the direct and proximate cause of a single injury to a
third person, it is impossible to determine in what proportion each contributed to the injury and
either of them is responsible for the whole injury.

Negligence, res ipsa loquitur – Solidum v. People (718 SCRA 263)

The doctrine res ipsa loquitur means that “where the thing which causes injury is shown to be
under the management of the defendant, and the accident is such as in the ordinary course of
things does not happen if those who have the management use proper care, it affords reasonable
evidence, in the absence of an explanation by the defendant, that the accident arose from want of
care.

The following essential requisites must first be satisfied, to wit: (1) the accident was of a kind
that does not ordinarily occur unless someone is negligent; (2) the instrumentality or agency that
caused the injury was under the exclusive control of the person charged; and (3) the injury
suffered must not have been due to any voluntary action or contribution of the person injured.

Courts of other jurisdictions have applied the doctrine in the following situations: leaving of a
foreign object in the body of the patient after an operation, injuries sustained on a healthy part of
the body which was not under, or in the area, of treatment, removal of the wrong part of the body
when another part was intended, knocking out a tooth while a patient’s jaw was under anesthetic
for the removal of his tonsils, and loss of an eye while the patient plaintiff was under the
influence of anesthetic, during or following an operation for appendicitis, among others.
Note: See also Josefa v. Manila Electric Company (730 SCRA 126) where a truck hit an electric
post, an immovable and stationary object; also Rosit v. Davao Doctors Hospital (776 SCRA 303)
where the surgeon used over-large screws to fasten a metal plate on the fractured jaw of the
patient, thereby hitting his molar. In medical malpractice cases where the doctrine of res ipsa
loquitur is applicable, expert testimony is no longer required.

Common carriers, presumption of negligence, does not apply if death/injury created by

strangers – G.V. Florida Transport, Inc. v. Heirs of Battung Jr. (772 SCRA 579)

Where the injury sustained by the passenger was in no way due 1) to any defect in the means of
transport or in the method of transporting, or 2) to the negligent or willful acts of the common
carrier’s employees with respect to the foregoing - such as when the injury arises wholly from
causes created by strangers which the carrier had no control of or prior knowledge to prevent —
there is no issue regarding the common carrier’s negligence in its duty to provide safe and
suitable care, as well as competent employees in relation to its transport business; as such, the
presumption of fault/negligence under Article 1756 of the Civil Code should not apply.
If death is caused by a co-passenger, the applicable provision is Article 1763 of the Civil Code,
which states that “a common carrier is responsible for injuries suffered by a passenger on
account of the willful acts or negligence of other passengers or of strangers, if the common
carrier’s employees through the exercise of the diligence of a good father of a family could have
prevented or stopped the act or omission.” Notably, for this obligation, the law provides a lesser
degree of diligence, i.e., diligence of a good father of a family, in assessing the existence of any
culpability on the common carrier’s part.
In the instant case, there was no indication that the men who shot the deceased were armed or
were to carry out an unlawful activity. With no such indication, there was no need for the bus
employees to conduct a more stringent search (i.e., bodily search) on the aforesaid men. By all
accounts, therefore, it cannot be concluded that petitioner or any of its employees failed to
employ the diligence of a good father of a family in relation to its responsibility under Article
1763 of the Civil Code. As such, petitioner cannot altogether be held civilly liable.

Torts, motor vehicle incidents, registered owner is liable; remedy of registered owner –
Mendoza v. Gomez (726 SCRA 505)

The registered owner is deemed the employer of the negligent driver, and is thus vicariously
liable under Article 2176, in relation to Article 2180, of the Civil Code. The Court has ruled that
in so far as third persons are concerned, the registered owner of the motor vehicle is the
employer of the negligent driver, and the actual employer is considered merely as an agent of
such owner. 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. Accordingly, even if the bus is merely using Mayamy
Transport’s name under the kabit system, still it is Mayamy’s registered owner who should be
held vicariously liable. However, under the civil law principle of unjust enrichment, the
registered owner of the motor vehicle has a right to be indemnified by the actual employer of the
driver; and under Article 2181 of the Civil Code, whoever pays for the damage caused by his
dependents or employees may recover from the latter what he has paid or delivered in
satisfaction of the claim.

[Note: See also Josefa v. Manila Electric Company (730 SCRA 126).
See however Caravan Travel and Tours v. Abejar (783 SCRA 368) where the Court declared that
in cases where both the registered-owner rule and Article 2180 apply, the plaintiff must first
establish that the employer is the registered owner of the vehicle in question. Once the plaintiff
successfully proves ownership, there arises a disputable presumption that the requirements of
Article 2180 have been proven. As a consequence, the burden of proof shifts to the defendant to
show that no liability under Article 2180 has arisen.]

Medical malpractice, requirements – Dela Torre v. Imbuido (736 SCRA 655)

“[M]edical malpractice or, more appropriately, medical negligence, is that type of claim which a
victim has available to him or her to redress a wrong committed by a medical professional which
has caused bodily harm.” In order to successfully pursue such a claim, a patient, or his or her
family as in this case, “must prove that a health care provider, in most cases a physician, either
failed to do something which a reasonably prudent health care provider would have done, or that
he or she did something that a reasonably prudent provider would not have done; and that failure
or action caused injury to the patient.”

In medical negligence cases, four essential elements must be established by the plaintiff, namely:
(1) duty; (2) breach; (3) injury; and (4) proximate causation. All four elements must be present in
order to find the physician negligent and, thus, liable for damages.

It is settled that a physician’s duty to his patient relates to his exercise of the degree of care, skill
and diligence which physicians in the same general neighborhood, and in the same general line
of practice, ordinarily possess and exercise in like cases. There is breach of this duty when the
patient is injured in body or in health. Proof of this breach rests upon the testimony of an expert
witness that the treatment accorded to the patient failed to meet the standard level of care, skill
and diligence. To justify an award of damages, the negligence of the doctor must be established
to be the proximate cause of the injury. In the instant case, it was not duly established that Dr.
Patilano [plaintiff’s expert witness] practiced and was an expert in the fields that involved
Carmen’s condition, he could not have accurately identified the said degree of care, skill,
diligence and the medical procedures that should have been applied by her attending physicians.

[Note: Rosit v. Davao Doctors Hospital (776 SCRA 303) states that in medical malpractice cases,
where the doctrine of res ipsa loquitur is applicable, expert testimony is no longer required.]

Medical malpractice, creation of physician-patient relationship – Casumpang v. Cortejo (752

SCRA 379)

In medical negligence cases, four essential elements must be established by the plaintiff, namely:
(1) duty; (2) breach; (3) injury; and (4) proximate causation. All four elements must be present
in order to find the physician negligent and, thus, liable for damages.
Duty refers to the standard of behavior that imposes restrictions on one’s conduct. It requires
proof of professional relationship between the physician and the patient. Without the professional
relationship, a physician owes no duty to the patient, and cannot therefore incur any liability. A
physician-patient relationship is created when a patient engages the services of a physician, and
the latter accepts or agrees to provide care to the patient. The establishment of this relationship is
consensual, and the acceptance by the physician essential. The mere fact that an individual
approaches a physician and seeks diagnosis, advice or treatment does not create the duty of care
unless the physician agrees.

Medical malpractice, liability of hospital, doctrine of apparent authority – Casumpang v.

Cortejo (752 SCRA 379)

Under the doctrine of apparent authority, hospitals could be found vicariously liable for the
negligence of an independent contractor providing care at the hospital if the plaintiff can prove
these two factors: first, the hospital’s manifestations; and second, the patient’s reliance.

Hospital’s manifestations - involves an inquiry on whether the hospital acted in a manner that
would lead a reasonable person to conclude that the individual alleged to be negligent was an
employee or agent of the hospital.
Patient’s reliance - involves an inquiry on whether the plaintiff acted in reliance on the conduct
of the hospital or its agent, consistent with ordinary care and prudence. The important
consideration in determining the patient’s reliance is: whether the plaintiff is seeking care from
the hospital itself or whether the plaintiff is looking to the hospital merely as a place for his/her
personal physician to provide medical care.

Contributory negligence, recovery of damages – Vergara v. Sonkin (757 SCRA 442)

Article 2179 provides: When the plaintiffs own negligence was the immediate and proximate
cause of his injury, he cannot recover damages. But if his negligence was only contributory, the
immediate and proximate cause of the injury being the defendant’s lack of due care, the plaintiff
may recover damages, but the courts shall mitigate the damages to be awarded.
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 to which he is required to conform
for his own protection.
In the case at bar, the Sonkin property is lower in elevation than the Vergara property, and thus,
legally obliged to receive the waters that flow from the latter, pursuant to Article 637 of the Civil
Code [the legal easement pertaining to the natural drainage of lands, which obliges lower estates
to receive from the higher estates water which naturally and without the intervention of man
descends from the latter]. Instead of doing so, they disregarded the easement and constructed
their house directly against the perimeter wall which adjoins the Vergara property. While the
proximate cause of the damage sustained by the house of Sps. Sonkin was the act of Sps. Vergara
in dumping gravel and soil onto their property, thus, pushing the perimeter wall back and causing
cracks thereon, as well as water seepage, the former is nevertheless guilty of contributory
negligence for not only failing to observe the two (2)-meter setback rule under the National
Building Code, but also for disregarding the legal easement constituted over their property. As
such, Sps. Sonkin must necessarily and equally bear their own loss.
Moral damages, when recoverable; Exemplary damages, when awarded – Metropolitan Bank
and Trust Company v. Rosales (713 SCRA 75)

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 by petitioner of the “Hold
Out” order against respondent’s bank deposits with it reveals that petitioner issued the “Hold
Out” order in bad faith, said order having no legal basis. Second, petitioner did not inform
respondents of the reason for the “Hold Out.

As to the award of exemplary damages, 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 awarded only if the guilty
party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.

In this case, we find that petitioner indeed acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner when it refused to release the deposits of respondents without any legal basis.

Attorneys fees, when recoverable – Aquino v. Lightbringers Cooperative (745 SCRA 203)

Attorney’s fees are in the concept of actual or compensatory damages allowed under the
circumstances provided for in Article 2208 of the Civil Code, and absent any evidence
supporting its grant, the same must be deleted for lack of factual basis. In this case, the MCTC
merely stated that respondent was constrained to file the present suit on account of the
petitioners’ obstinate failure to settle their obligation. Without any other basis on record to
support the award, such cannot be upheld in favor of respondent.

Interest, rules for imposition; forbearance of money – Federal Builders, Inc. v. Foundation
Specialists, Inc. (734 SCRA 379)

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
6% 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 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.

Note: the new rate can only be applied prospectively and not retroactively. Consequently, the
twelve percent (12%) per annum legal interest shall apply only until June 30, 2013. Come July 1,
2013, the new rate of six percent (6%) per annum shall be the prevailing rate of interest when
applicable.

A loan or forbearance of money, goods or credit describes a contractual obligation whereby a

lender or creditor has refrained during a given period from requiring the borrower or debtor to
repay the loan or debt then due and payable. Performance of a particular service is not a loan or
forbearance of money.

Conflicts of law problems, questions to be answered – Continental Micronesia Inc. v. Basso

(771 SCRA 329)

In the judicial resolution of conflict-of-laws problems, three consecutive phases are involved:
jurisdiction, choice of law, and recognition and enforcement of judgments. In resolving the
conflicts problem, courts should ask the following questions:

1. “Under the law, do I have jurisdiction over the subject matter and the parties to this case?
2. “If the answer is yes, is this a convenient forum to the parties, in light of the facts?
3. “If the answer is yes, what is the conflicts rule for this particular problem?
4. “If the conflicts rule points to a foreign law, has said law been properly pleaded and proved by
the one invoking it?
5. “If so, is the application or enforcement of the foreign law in the forum one of the basic
exceptions to the application of foreign law? In short, is there any strong policy or vital interest
of the forum that is at stake in this case and which should preclude the application of foreign
law?

This case stemmed from an illegal dismissal complaint. The Labor Code, under Article 217,
clearly vests original and exclusive jurisdiction to hear and decide cases involving termination
disputes to the Labor Arbiter. Hence, the Labor Arbiter and the NLRC have jurisdiction over the
subject matter of the case.
As regards jurisdiction over the parties, the Labor Arbiter acquired jurisdiction over the person of
Basso, notwithstanding his citizenship, when he filed his complaint against CMI. On the other
hand, jurisdiction over the person of CMI was acquired through the coercive process of service
of summons.
Considering that the Labor Arbiter and the NLRC have jurisdiction over the parties and the
subject matter of this case, these tribunals may proceed to try the case even if the rules of
conflict-of-laws or the convenience of the parties point to a foreign forum, this being an exercise
of sovereign prerogative of the country where the case is filed.

Conflicts of law, forum non conveniens – Continental Micronesia Inc. v. Basso (771 SCRA 329)

Under the doctrine of forum non conveniens, a Philippine court in a conflict-of-laws case may
assume jurisdiction if it chooses to do so, provided, that the following requisites are met: (1) that
the Philippine Court is one to which the parties may conveniently resort to; (2) that the
Philippine Court is in a position to make an intelligent decision as to the law and the facts; and
(3) that the Philippine Court has or is likely to have power to enforce its decision. All these
requisites are present here. Basso may conveniently resort to our labor tribunals as he and CMI
lad physical presence in the Philippines during the duration of the trial. CMI has a Philippine
branch, while Basso, before his death, was residing here. The labor tribunals can make an
intelligent decision as to the law and facts. The incident subject of this case (i.e. dismissal of
Basso) happened in the Philippines, the surrounding circumstances of which can be ascertained
without having to leave the Philippines. The acts that allegedly led to loss of trust and confidence
and Basso’s eventual dismissal were committed in the Philippines. As to the law, we hold that
Philippine law is the proper law of he forum, as we shall discuss shortly. Also, the labor tribunals
have the power to enforce their judgments because they acquired jurisdiction over the persons of
both parties.

Conflicts of law, choice of law – Continental Micronesia Inc. v. Basso (771 SCRA 329)

The choice-of-law issue in a conflict-of-laws case seeks to answer the following important
questions: (1) What legal system should control a given situation where some of the significant
facts occurred in two or more states; and (2) to what extent should the chosen legal system
regulate the situation. An essential element of conflict rules is the indication of a “test” or
“connecting factor” or “point of contact”. Choice-of-law rules invariably consist of a factual
relationship (such as property right, contract claim) and a connecting fact or point of contact,
such as the situs of the res, the place of celebration, the place of performance, or the place of
wrongdoing. The “test factors,” “points of contact” or “connecting factors” in this case are the
following:

(1) The nationality, domicile or residence of Basso;

(2) The seat of CMI;
(3) The place where the employment contract has been made, the locus actus; y
(4) The place where the act is intended to come into effect, e.g., the place of performance of
contractual duties; y
(5) The intention of the contracting parties as to the law that should govern their agreement, the
lex loci intentionis; and
(6) The place where judicial or administrative proceedings are instituted or done.
Applying the foregoing in this case, we conclude that Philippine law is the applicable law. Basso,
though a US citizen, was a resident here from he time he was hired by CMI until his death during
the pendency of the case. CMI, while a foreign corporation, has a license to do business in the
Philippines and maintains a branch here, where Basso was hired to work. The contract of
employment was negotiated in the Philippines. A purely consensual contract, it was also
perfected in the Philippines when Basso accepted the terms and conditions of his employment as
offered by CMI. The place of performance relative to Biasso’s contractual duties was in the
Philippines. The alleged prohibited acts of Basso that warranted his dismissal were committed in
the Philippines. Clearly, the Philippines is the state with the most significant relationship to the
problem.