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Facts:
San Buenventura is the owner of a piece of land. She entered into a contract of lease of
Josefa stipulating thereon that the lease will be for five years and is renewable upon the
consent of the parties. Josefa introduced improvements on the property his occupation of
the same. After five years, however, San Buenaventura demanded that Josefa vacate the
premises or otherwise pay a monthly rental of P30,ooo.oo. Josefa, however, continued to
stay and paid only P15,000.00 which was received by San Buenventura.
Issues:
1. Wether the lease contract between petitioner and respondent contained a "renewal
clause" and as such, they had agreed to extend the period of the lease for more than five
years;
2. Whether petitioner is entitled to reimbursement for his improvement on the leased
premises.
Held:
1. The clause "renewable upon agreement of the parties" in the lease contract is clear and
admits of no other interpretation: the contract is renewable only upon agreement of the
parties. Since the private respondents were not amenable to a renewal, they cannot be
compelled to execute a new contract when the old contract terminated. As such, petitioner
has no other option but to vacate the property.
2. In this case, there is no question that petitioner was initially a lawful possessor
because his entry into the property is by virtue of a lease contract with respondent.
However as a mere lessee whose possession after the expiration is at the sufferance of the
owner of the property cannot claim to be a builder in good faith. Under Art.1678 of he
New Civil Code (NCC) petitioner is entitled to one half of the value of the improvement
only if respondent, as the owner, decides to appropriate the improvement. Since
respondent refused to appropriate the improvements petitioner cannot compel her to
reimburse to him one-half of the value. The Sole right of the petitioner under Art. 1678 is
to remove the improvement without causing anymore damage upon the property leased
than is necessary.
Secretary of Education vs. Heirs of Rufino Dulay (G.R. No. 164748, January 27,
2006, 480 SCRA 452)
FACTS:
On August 3, 1981, the spouses Rufino Dulay, Sr. and Ignacia Vicente Dulay executed a
deed of donation over a 10,000-square-meter portion of their property in favor of the
Ministry of Education and Culture.
The property was subdivided. On April 13, 1983, a Transfer Certificate of Title was
issued in the name of the Ministry of Education and Culture, represented by Laurencio C.
Ramel, the Superintendent of Schools of Isabela. However, the property was not used for
school purposes and remained idle.
Sometime in 1988, the DECS, through its Secretary, started construction of the Rizal
National High School building on a parcel of land it acquired from Alejandro Feliciano.
The school site was about 2 kilometers away from the land donated by the spouses Dulay.
In a letter to the DECS Secretary dated August 19, 1994, the spouses Dulay requested
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that the property be returned to them considering that the land was never used since 1981,
or a period of more than 13 years. On August 28, 1994, the Barangay Council of Rizal,
Santiago City issued Resolution No. 397 recognizing the right of the donors to redeem
the subject parcel of land because of the DECS failure to utilize it for the intended
purpose. It further resolved that the Rizal National High School no longer needed the
donated land "considering its distance from the main campus and [the] failure to utilize
the property for a long period of time."
On August 31, 1997, the heirs of Dulay, Sr., herein respondents, filed a complaint for the
revocation of the deed of donation and cancellation of the title, alleging that (1) there was
a condition in the deed of donation: that the DECS, as donee, utilize the subject property
for school purposes, that is, the construction of a building to house the Rizal National
High School, (2) the DECS did not fulfill the condition and that the land remained idle up
to the present, and (3) the donation inter vivos was inofficious, since the late Rufino
Dulay, Sr. donated more than what he could give by will.
Petitioners, through the Office of the Solicitor General (OSG), interposed the following
defenses: (a) the DECS complied with said condition because the land was being used by
the school as its technology and home economics laboratory; (b) the donation was not
inofficious for the donors were the owners of five other parcels of land, all located at
Rizal, Santiago City; (c) the DECS acquired the disputed property by virtue of purchase
made on December 8, 1997 by the barangay of Rizal, Santiago City in the amount of
P18,000.00 as certified by its former Barangay Captain, Jesus San Juan;11 and (d) the
action of the respondents had prescribed. The OSG also claimed that students planted a
portion of the land with rice, mahogany seedlings, and fruit-bearing trees; the produce
would then be sold and the proceeds used for the construction of a school building on the
subject property.
ISSUE:
(1) Whether or nor the DECS had complied with the condition imposed on the the deed
of donation.
(2) Whether the respondents' right to seek the revocation of the deed of donation is
already barred by prescription and laches.
HELD:
The contention of petitioners has no merit.
As gleaned from the CA decision, petitioners failed to prove that the donated property
was used for school purposes as indicated in the deed of donation:
We find it difficult to sustain that the defendant-appellants have complied with the
condition of donation. It is not amiss to state that other than the bare allegation of the
defendant-appellants, there is nothing in the records that could concretely prove that the
condition of donation has been complied with by the defendant-appellants. In the same
breadth, the planting of palay on the land donated can hardly be considered and could not
have been the "school purposes" referred to and intended by the donors when they had
donated the land in question. Also, the posture of the defendant-appellants that the land
donated is being used as technology and home economics laboratory of the Rizal
National High School is far from being the truth considering that not only is the said
school located two kilometers away from the land donated but also there was not even a
single classroom built on the land donated that would reasonably indicate that, indeed,
classes have been conducted therein. These observations, together with the unrebutted
ocular inspection report made by the trial court which revealed that the land donated
remains idle and without any improvement thereon for more than a decade since the time
of the donation, give Us no other alternative but to conclude that the defendant-appellants
have, indeed, failed to comply with what is incumbent upon them in the deed of donation.
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The right to seek the revocation of donation had not yet prescribed when respondents
filed their complaint
Anent the second issue, we reject the contention of the OSG that respondents cause of
action is already barred by prescription under Article 764 of the New Civil Code, or four
years from the non-compliance with the condition in the deed of donation. Since such
failure to comply with the condition of utilizing the property for school purposes became
manifest sometime in 1988 when the DECS utilized another property for the construction
of the school building, the four-year prescriptive period did not commence on such date.
Petitioner was given more than enough time to comply with the condition, and it cannot
be allowed to use this fact to its advantage. It must be stressed that the donation is
onerous because the DECS, as donee, was burdened with the obligation to utilize the land
donated for school purposes. Under Article 733 of the New Civil Code, a donation with
an onerous cause is essentially a contract and is thus governed by the rules on contract.
Issue: Whether or not respondents have a cause of action against the petitioner?
Held: Under the foregoing provisions of the Agreement, petitioner may be validly
declared in default for failure to pay the interest. As a consequence of default, the unpaid
amount shall earn default interest, and the respondent-banks have four alternative
remedies without prejudice to the application of the provisions on collaterals and any
other steps or action which may be adopted by the majority lender. The four remedies are
alternative, with the right of choice given to the lenders, in this case the respondents.
Under Article 1201 of the Civil Code, the choice shall produce no effect except from the
time it has been communicated. In the present case, we find that written notices were sent
to the petitioner by the respondents. The notices clearly indicate respondents choice of
remedy: to accelerate all payments payable under the loan agreement It should be noted
that the agreement also provides that the choice of remedy is without prejudice to the
action on the collaterals. Thus, respondents could properly file an action for foreclosure
of the leasehold rights to obtain payment for the amount demanded.
ASSET BUILDERS
CORPORATION versus
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STRONGHOLD INSURANCE
COMPANY, INCORPORATED,
Respondent.
DECISION
MENDOZA, J.:
This petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure
assails the February 27, 2009 Decision[1] of the Regional Trial Court, Pasig City, Branch
71 (RTC), in Civil Case No. 71034, ordering defendant Lucky Star to pay petitioner Asset
Builders Corporation the sum of P575,000.00 with damages, but absolving respondent
Stronghold Insurance Company, Incorporated (Stronghold)of any liability on its Surety
Bond and Performance Bond.
THE FACTS
On April 28, 2006, Asset Builders Corporation (ABC) entered into an agreement with
Lucky Star Drilling & Construction Corporation (Lucky Star) as part of the completion of
its project to construct the ACG Commercial Complex on NHA Avenue corner Olalia
Street, Barangay Dela Paz, Antipolo City.[2] As can be gleaned from the Purchase Order,
[3]
Lucky Star was to supply labor, materials, tools, and equipment including technical
supervision to drill one (1) exploratory production well on the project site. The total
contract price for the said project was P1,150,000.00. The salient terms and conditions of
said agreement are as follows:.
To guarantee faithful compliance with their agreement, Lucky Star engaged
respondent Stronghold which issued two (2) bonds in favor of petitioner. The first,
SURETY BOND G(16) No. 141558, dated May 9, 2006, covers the sum
of P575,000.00[4] or the required downpayment for the drilling work. The full text of the
surety bond is herein quoted:
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The liability of the surety company upon determination
under this bond shall in no case exceed the penal sum of
PESOS: FIVE HUNDRED SEVENTY FIVE THOUSAND
(P575,000.00) only, Philippine Currency.
Liability of surety on this bond will expire on May 09, 2007 and
said bond will be cancelled five DAYS after its expiration, unless surety is
notified of and existing obligations hereunder.
x x x[5]
With respect to the second contract, PERFORMANCE BOND G(13) No. 115388,
dated May 09, 2006, it covers the sum of P345,000.00.[6] Thus:
WHEREAS, the liability of the Surety Company under this bond shall in
no case exceed the sum of PESOS THREE HUNDRED FORTY FIVE
THOUSAND ONLY (P345,000.00) Philippine Currency, inclusive of
interest, attorneys fee, and other damages, and shall not be liable for any
advances of the obligee to the principal.
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WHEREAS, said contract requires the said principal to give a good and
sufficient bond in the above-stated sum to secure the full and faithfull
performance on its part of said contract, and the satisfaction of obligations
for materials used and labor employed upon the work;
On August 3, 2006, ABC sent a Notice of Rescission of Contract with Demand for
Damages to Lucky Star.
Should you refuse to comply with our demand within the above period, we
shall be constrained to sue you in court, in which event we shall demand
payment of attorneys fees in the amount of at least PHP100,000.0.
On August 16, 2006, ABC sent a Notice of Claim for payment to Stronghold to make
good its obligation under its bonds.[10]
Despite notice, ABC did not receive any reply either from Lucky Star or Stronghold,
prompting it to file its Complaint for Rescission with Damages against both before the
RTC[11] on November 21, 2006.
In its Answer (with Complusory Counterclaim and Cross-Claim), dated January 24, 2007,
Stronghold denied any liability arguing that ABC had not shown any proof that it made
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an advance payment of 50% of the contract price of the project. It further averred that
ABCs rescission of its contract with Lucky Star virtually revoked the claims against the
two bonds and absolved them from further liability.[12]
Lucky Star, on the other hand, failed to file a responsive pleading within the
prescribed period and, thus, was declared in default by the RTC in its Order dated August
24, 2007.[13]
On February 27, 2009, the RTC rendered the assailed decision ordering Lucky Star to pay
ABC but absolving Stronghold from liability.[14] Relevant parts of the decision, including
the decretal portion, read:..
GROUNDS
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B. With the Lower Courts completely erroneous ruling on the
liabilities of Respondents bonds, the Lower Court equally
ERRED with manifest bias and grave abuse, in its FAILURE to
comply with the duty of court to make a finding of unreasonable
denial or withholding by Respondent Stronghold or Petitioners claims
and impose upon the Respondent the penalties provided for under
Section 241 and 244 of the Insurance Code.[16]
Respondent, along with its principal, Lucky Star, bound itself to the petitioner
when it executed in its favor surety and performance bonds. The contents of the said
contracts clearly establish that the parties entered into a surety agreement as defined
under Article 2047 of the New Civil Code. Thus:
As provided in Article 2047, the surety undertakes to be bound solidarily with the
principal obligor. That undertaking makes a surety agreement an ancillary contract as it
presupposes the existence of a principal contract. Although the contract of a surety is in
essence secondary only to a valid principal obligation, the surety becomes liable for the
debt or duty of another although it possesses no direct or personal interest over the
obligations nor does it receive any benefit therefrom.[17] Let it be stressed that
notwithstanding the fact that the surety contract is secondary to the principal obligation,
the surety assumes liability as a regular party to the undertaking.[18]
Stronghold Insurance Company, Inc. v. Republic-Asahi Glass Corporation,
[19]
reiterating the ruling in Garcia v. Court of Appeals,[20] expounds on the nature of the
suretys liability:
X x x. The suretys obligation is not an original and direct one for
the performance of his own act, but merely accessory or collateral to the
obligation contracted by the principal. Nevertheless, although the contract
of a surety is in essence secondary only to a valid principal obligation, his
liability to the creditor or promisee of the principal is said to be direct,
primary and absolute; in other words, he is directly and equally
bound with the principal.
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delay. Due to this default, Lucky Stars liability attached and, as a necessary consequence,
respondents liability under the surety agreement arose.
Undeniably, when Lucky Star reneged on its undertaking with the petitioner and
further failed to return the P575,000.00 downpayment that was already advanced to it,
respondent, as surety, became solidarily bound with Lucky Star for the repayment of the
said amount to petitioner. The clause, this bond is callable on demand, strongly speaks of
respondents primary and direct responsibility to the petitioner.
Accordingly, after liability has attached to the principal, the obligee or, in this
case, the petitioner, can exercise the right to proceed against Lucky Star or respondent or
both. Article 1216 of the New Civil Code states:
The creditor may proceed against any one of the solidary debtors
or some or all of them simultaneously. The demand made against one of
them shall not be an obstacle to those which may subsequently be directed
against the others, so long as the debt has not been fully collected.
Contrary to the trial courts ruling, respondent insurance company was not
automatically released from any liability when petitioner resorted to the rescission of the
principal contract for failure of the other party to perform its undertaking. Precisely, the
liability of the surety arising from the surety contracts comes to life upon the solidary
obligors default. It should be emphasized that petitioner had to choose rescission in order
to prevent further loss that may arise from the delay of the progress of the
project. Without a doubt, Lucky Stars unsatisfactory progress in the drilling work and its
failure to complete it in due time amount to non-performance of its obligation.
Finally, Article 1217[22] of the New Civil Code acknowledges the right of
reimbursement from a co-debtor (the principal co-debtor, in case of suretyship) in favor
of the one who paid (the surety). Thus, respondent is entitled to reimbursement from
Lucky Star for the amount it may be required to pay petitioner arising from its bonds.
PHIL. BLOOMING MILLS INC. vs. CA., GR. No. 142381, Oct. 15, 2003
FACTS: Petitioner Philippine Blooming Mills, Inc. (PBM) obtained a loan from Traders
Royal Bank (TRB). Ching, the Senior Vice-President of PBM, signed Deed of Suretyship
in his personal capacity and not as mere guarantors but as primary obligors. PBM and
Ching filed a petition for suspension of payments with the SEC, and eventually placed
under rehabilitation receivership. Consequently, TRB dismissed complaint as to PBM.
Ching then alleged that the Deed of Suretyship executed in 1977 could not answer for
obligations not yet in existence at the time of its execution. It could not answer for debts
contracted by petitioner PBM in 1980 and 1981. No accessory contract of suretyship
could arise without an existing principal contract of loan.
Issue: Whether or not Ching is liable for credit obligations contracted by Philippine
Blooming Mills Inc. against Traders Royal Bank before and after the execution of the
Deed of Suretyship.
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Held: Ching is liable for credit obligations contracted by Philippine Blooming Mills Inc.
against Traders Royal Bank before and after the execution of the Deed of Suretyship.
This is evident from the tenor of the deed itself, referring to amounts to PBM may now be
indebted or may hereafter become indebted to Traders Royal Bank. The law expressly
allows a suretyship for future debts. Article 2053 provides that a guaranty may also be
given as security for future debts, the amount of which is not yet known, there can be no
claim against the guarantor until the debt is liquidated.
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MACALINAO V. BPI, 600 SCRA 67
FACTS: Petitioner Ileana Macalinao defaulted on the payment of her BPI credit card
dues. There was a stipulation in a contract that the charges and/or balance shall earn 3%
per month and additional penalty fee of another 3% per month. The Regional Trial Court
reduced the 3% monthly interest to 2%. On appeal of the case, the Court of Appeals
reversed the decision of the RTC holding that petitioner Macalinao freely availed herself
of the credit card facility offered by respondent Bank of the Philippine Islands to general
public; contracts of adhesion are not invalid per se. Petitioner assailed the appellate
courts decision alleging that the interest rate and penalty charges are unconscionable and
iniquitous at 36% per annum.
ISSUE: Whether or not the interest rate and penalty charges are unconscionable and
iniquitous at 36% per annum.
HELD: The interest rate and penalty charges are unconscionable and iniquitous at 36%
per annum. The Supreme Court held that the interest rate and penalty charge of 3% per
month or the 36% per annum should be reduced to 2% per month or 24% per annum. In a
long line of cased decided by the Supreme Court, it considered the 36% per annum to be
excessive and unconscionable. Citing Article1229, in exercising this power to determine
what is iniquitous and unconscionable; courts must consider the circumstances of each
case since what may be iniquitous and unconscionable in one maybe totally just and
equitable in another. In the instant case, Macalinao made partial payments to BPI
.Therefore, the interest rate and penalty charge of 3% per month or 36% per annum
should be reduced to 2% per month or 24% per annum.
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