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CIVIL LAW REVIEW 2

CASE DIGEST
2016-2017

TO BE SUBMITTED TO: ATTY. CRISOSTOMO URIBE

SUBMITTED BY: RUTHERFORD V. AMOR


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TABLE OF CONTENTS
OBLIGATIONS:
1. SPOUSES ALEXANDER AND JULIE LAM vs. KODAK PHILIPPINES, LTD.,
(Indivisibility of obligation)

2. ROSALINA CARODAN vs. CHINA BANKING CORPORATION


(Solidary Liability)

3. SPOUSES VIRGILIO DE GUZMAN, JR. ET AL., v .COURT OF APPEALS, ET AL


( Prescription of action)-

4. TRAVEL & TOURS ADVISERS, INCORPORATED, v. ALBERTO CRUZ, SR, Et., Al


(TOPIC: Solidary liability for damages of an employer)

5. DRA. MERCEDES OLIVER vs. PHILIPPINE SAVINGS BANK AND LILIA CASTRO,
(TOPIC: Solidary Liability)

6. SPOUSES JAIME AND MATILDE POON, v. PRIME SAVINGS BANK ET AL


(TOPIC: Fortuitous event/penal clause)

7. LAND BANK OF THE PHILIPPINES vs. SPOUSES ANTONIO


(TOPIC: DELAY IN PAYMENT OBLIGATION)

8. OYSTER PLAZA HOTEL AND JENNIFER AMPEL v. ERROL O. MELIVO


(TOPIC: SOLIDARY LIABILITY OF EMPLOYER)

9. SERGIO R. OSMEA III, vs. POWER SECTOR ASSETS AND LIABILITIES


MANAGEMENT CORPORATION, ET AL
(TOPIC: Conditional Obligation)

CONTRACTS:
10. UNIVERSITY OF MINDANAO, INC., vs. BANGKO SENTRAL NG PILIPINAS, ET AL
(TOPIC: PRESCRIPTION/CONTRACTS)

11. NISSAN CAR LEASE PHILS., INC., VS. LICA MANAGEMENT, INC. ET AL
(TOPIC: RESCISSION OF CONTRACT)

12. REBECCA FULLIDO vs. GINO GRILLI


(TOPIC: VOID CONTRACT)

13. JUANA VDA. DE ROJALES,. ET AL, v. MARCELINO DIME., ET AL


(TOPIC: Pacto de Retro Sale/ Privity of contract)

14. CATHAY PACIFIC AIRWAYS, LTD vs. SPOUSES FUENTEBELLA


(TOPIC: Breach of contract of carriage)

15. THELMA RODRIGUEZ, v. SPOUSES JAIME SIOSON ET AL.,


(TOPIC: Contract of Sale vs. Contract to Sell)

16. BONIFACIO DANAN vs. SPOUSES GREGORIO SERRANO AND ADELAIDA REYES
(TOPIC: Contract to Sell)
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SALES:
17. SPOUSES PEN vs. SPOUSES SANTOS and LINDA JULIAN
(TOPIC: PACTUM COMMISSORIUM)

18. FABIO CAHAYAG ET AL vs. COMMERCIAL CREDIT CORPORATIONET Al.


(TOPIC: Nemo dat quad non ha bet)

19. TIMOTEO BACALSO and DIOSDADA BACALSO vs. GREGORIA B. ACA-AC ET AL.,
(TOPIC: Sale Consideration)

20. HELEN B. LUKBAN vs. OPTIMUM DEVELOPMENT BANK


(TOPIC: Auction sale of tax delinquent real properties)

21. OSCAR S. VILLARTA vs. GAUDIOSO TALAVERA, JR.,


(TOPIC: Equitable Mortgage)

22. JOEY R. PEA, v. JESUS DELOS SANTOS et al


(TOPIC: Validity of Substitution)

23. GIL MACALINO ET AL, v. ARTEMIO PIS-AN,.


(TOPIC: SALES)

24. RCBC SAVINGS BANK vs. NOEL M. ODRADA


(TOPIC: Warranty against hidden defects)

AGENCY:
25. BANK OF THE PHILIPPINE ISLANDS v. YOLANDA LAINGO,.
(TOPIC: Agency)

26. THE HONGKONG & SHANGHAI BANKING CORPORATION, LIMITED v. NATIONAL


STEEL CORPORATION AND CITYTRUST BANKING CORPORATION
(TOPIC: AGENCY)

PARTNERSHIP:
27. MICHAEL C. GUY, vs. ATTY. GLENN C. GACOTT
(TOPIC: LIABILITY OF A PARTNER IN A PARTNERSHIP)

28. MELECIO DOMINGO, vs. SPOUSES GENARO MOLINA and ELENA B. MOLINA, ,
(TOPIC: Sale of conjugal partnership)

CREDIT TRANSACTIONS:
29. ORIX METRO LEASING AND FINANCE CORPORATION, vs. CARDLINE INC., ET AL
(Topic: Benefit of Excussion)

30. PHILIPPINE NATIONAL BANK vs. HEIRS OF ALONDAY


(TOPIC: Dragnet Clause or blanket mortgage clause)
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OBLIGATIONS
SPOUSES ALEXANDER AND JULIE LAM vs. KODAK PHILIPPINES, LTD.,
G.R. No. 167615 January 11, 2016

NATURE OF ACTION: Complaint for replevin and/or recovery of sum of money

TOPIC: Indivisibility of obligation

PONENTE: LEONEN, J.:

FACTS:

On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd. entered into an
agreement (Letter Agreement) for the sale of three (3) units of the Kodak Minilab
System (Minilab Equipment) in the amount of 1,796,000.00 per unit, 7 with the following
terms:

1. Said Minilab Equipment packages will avail a total of 19% multiple


order discount based on prevailing equipment price provided said
equipment packages will be purchased not later than June 30, 1992.

2. 19% Multiple Order Discount shall be applied in the form of


merchandise and delivered in advance immediately after signing of the
contract.

* Also includes start-up packages worth P61,000.00.

3. NO DOWNPAYMENT.

4. Minilab Equipment Packag

e shall be payable in 48 monthly installments at THIRTY FIVE THOUSAND


PESOS (P35,000.00) inclusive of 24% interest rate for the first 12 months;
the balance shall be re-amortized for the remaining 36 months and the
prevailing interest shall be applied.

On January 15, 1992, Kodak Philippines, Ltd. delivered one (1) unit of the Minilab
Equipment in Tagum, Davao Province. The Lam Spouses issued postdated checks
amounting to 35,000.00 each for 12 months as payment for the first delivered unit, with
the first check due on March 31, 1992.However, both checks were negotiated by Kodak
Philippines, Ltd. and were honored by the depository bank. The 10 other checks were
subsequently dishonored after the Lam Spouses ordered the depository bank to stop
payment.Kodak canceled the sale and demanded that the Lam Spouses return the unit it
delivered together with its accessories. The Lam Spouses ignored the demand but also
rescinded the contract for Kodaks failure to deliver the two (2) remaining Minilab
Equipment units.Kodak filed a Complaint for replevin and/or recovery of sum of money.

The Regional Trial Court found that Kodak Philippines, Ltd. defaulted in the
performance of its obligation under its Letter Agreement with the Lam Spouses. It held that
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Kodak Philippines, Ltd.s failure to deliver two (2) out of the three (3) units of the Minilab
Equipment caused the Lam Spouses to stop paying for the rest of the installments.

The Court of Appeals modified the Decision of the Regional Trial Courtand ruled that
the Letter Agreement executed by the parties showed that their obligations were
susceptible of partial performance. Under Article 1225 of the New Civil Code, their
obligations are divisible:

In determining the divisibility of an obligation, the following factors may be


considered, to wit: (1) the will or intention of the parties, which may be expressed or
presumed; (2) the objective or purpose of the stipulated prestation; (3) the nature of the
thing; and (4) provisions of law affecting the prestation.

Petitioners assert that the obligations of the parties were not susceptible of partial
performance since the Letter Agreement was for a package deal consisting of three (3)
units.75 For the delivery of these units, petitioners were obliged to pay 48 monthly
payments, the total of which constituted one debt. 76 Having relied on respondents
assurance that the three units would be delivered at the same time, petitioners
simultaneously rented and renovated three stores in anticipation of simultaneous
operations.77 Petitioners argue that the divisibility of the object does not necessarily
determine the divisibility of the obligation since the latter is tested against its susceptibility
to a partial performance.78 They argue that even if the object is susceptible of separate
deliveries, the transaction is indivisible if the parties intended the realization of all parts of
the agreed obligation.

Respondent argues that the parties Letter Agreement contained divisible


obligations susceptible of partial performance as defined by Article 1225 of the New Civil
Code.88 In respondents view, it was the intention of the parties to be bound separately for
each individually priced Minilab Equipment unit to be delivered to different outlets: 89

The three (3) Minilab Equipment are intended by petitioners LAM for install[a]tion
at their Tagum, Davao del Norte, Sta. Cruz, Manila and Cotabato City outlets. Each of these
units [is] independent from one another, as many of them may perform its own job without
the other. Clearly the objective or purpose of the prestation, the obligation is divisible.

The nature of each unit of the three (3) Minilab Equipment is such that one can
perform its own functions, without awaiting for the other units to perform and complete its
job. So much so, the nature of the object of the Letter Agreement is susceptible of partial
performance, thus the obligation is divisible.90

With the contract being severable in character, respondent argues that it performed
its obligation when it delivered one unit of the Minilab Equipment. 91 Since each unit could
perform on its own, there was no need to await the delivery of the other units to complete
its job.92 Respondent then is of the view that when petitioners ordered the depository bank
to stop payment of the issued checks covering the first delivered unit, they violated their
obligations under the Letter Agreement since respondent was already entitled to full
payment.93
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Petitioners argue that the Letter Agreement it executed with respondent for three
(3) Minilab Equipment units was not severable, divisible, and susceptible of partial
performance. Respondents recovery of the delivered unit was unjustified.

ISSUES:

Whether the contract between the parties are severable, divisible, and susceptible of
partial performance?

HELD:

No. The Letter Agreement contained an indivisible obligation.

Both parties rely on the Letter Agreement 97 as basis of their respective obligations. Based
on the foregoing, the intention of the parties is for there to be a single transaction covering
all three (3) units of the Minilab Equipment. Respondents obligation was to deliver all
products purchased under a "package," and, in turn, petitioners obligation was to pay for
the total purchase price, payable in installments.

The intention of the parties to bind themselves to an indivisible obligation can be


further discerned through their direct acts in relation to the package deal. There was only
one agreement covering all three (3) units of the Minilab Equipment and their accessories.
The Letter Agreement specified only one purpose for the buyer, which was to obtain these
units for three different outlets. If the intention of the parties were to have a divisible
contract, then separate agreements could have been made for each Minilab Equipment unit
instead of covering all three in one package deal. Furthermore, the 19% multiple order
discount as contained in the Letter Agreement was applied to all three acquired units. 99 The
"no downpayment" term contained in the Letter Agreement was also applicable to all the
Minilab Equipment units. Lastly, the fourth clause of the Letter Agreement clearly referred
to the object of the contract as "Minilab Equipment Package."

In ruling that the contract between the parties intended to cover divisible
obligations, the Court of Appeals highlighted: (a) the separate purchase price of each item;
(b) petitioners acceptance of separate deliveries of the units; and (c) the separate payment
arrangements for each unit. However, through the specified terms and conditions, the tenor
of the Letter Agreement indicated an intention for a single transaction. This intent must
prevail even though the articles involved are physically separable and capable of being paid
for and delivered individually, consistent with the New Civil Code:

Article 1225. For the purposes of the preceding articles, obligations to give definite
things and those which are not susceptible of partial performance shall be deemed to be
indivisible.When the obligation has for its object the execution of a certain number of days
of work, the accomplishment of work by metrical units, or analogous things which by their
nature are susceptible of partial performance, it shall be divisible.

However, even though the object or service may be physically divisible, an obligation is
indivisible if so provided by law or intended by the parties.

There is no indication in the Letter Agreement that the units petitioners ordered
were covered by three (3) separate transactions. The factors considered by the Court of
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Appeals are mere incidents of the execution of the obligation, which is to deliver three units
of the Minilab Equipment on the part of respondent and payment for all three on the part of
petitioners. 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.

WHEREFORE, the Petition is DENIED. The Amended Decision dated September 9,


2005 is AFFIRMED with MODIFICATION. Respondent Kodak Philippines, Ltd. is ordered to
pay petitioners Alexander and Julie Lam:

(a) P270,000.00, representing the partial payment made on the Minilab Equipment;

(b) P130,000.00, representing the amount of the generator set, plus legal interest at 12%
.per annum from December 1992 until fully paid;

(c) P440,000.00 as actual damages;

(d) P25,000.00 as moral damages;

(e) P50,000.00 as exemplary damages; and

(f) P20,000.00 as attorney's fees.

Petitioners are ordered to return the Kodak Minilab System 22XL unit and its standard
accessories to respondent.
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ROSALINA CARODAN vs. CHINA BANKING CORPORATION


February 24, 2016 G.R. No. 210542

NATURE OF ACTION: Specific performance

TOPIC: Solidary Liability

PONENTE:SERENO, CJ:

FACTS:

Barbara Perez (Barbara), Rebecca Perez-Viloria (Rebecca), Rosalina Carodan


(Rosalina) and Madeline Carodan (Madeline), obtained a loan from China Bank and for
value received, executed and delivered promissory to respondent bank under which they
promised therein to jointly and severally pay the amount of P2.8 million and as security for
the payment of the loan, Barbara, Rebecca and Rosalina also executed a Real Estate
Mortgage over a property registered in the name of Rosalina. Respondent alleged that a
Surety Agreement in favor of China Bank as creditor was also executed by Barbara and
Rebecca as principals and Rosalina and her niece Madeline as sureties. Through that
agreement, the principals and sureties warranted the payment of the loan obligation
amounting to P2.8 million including interests, penalties, costs, expenses, and attorney's
fees.

Barbara and Rebecca failed to pay their loan obligation despite repeated demands
from China Bank. Their failure to pay prompted the bank institute extrajudicial foreclosure
proceedings on the mortgaged property. From the extrajudicial sale, it realized only Pl.5
million as evidenced by a Certificate of Sale. This amount, when applied to the total
outstanding loan obligation of Pl,865,345.77, would still leave a deficiency of P365,345.77.
For that reason, the bank prayed that the court order the payment of the deficiency amount
with interest at 12% per annum computed from January 2000; attorney's fees equal to
10% of the deficiency amount; and litigation expenses and costs of suit.

Rosalina protests her liability for the deficiency. She claims that China Bank
cancelled the mortgage lien and released the principal borrowers from liability. She
contends that this act violated Article 2089 of the Civil Code on the indivisibility of
mortgage and ultimately discharged her from liability as a surety.

The trial court declared that respondent bank had therefore lawfully foreclosed the
mortgage over the property of Rosalina, even if she was a mere accommodation mortgagor.
The RTC also declared Rosalina's claim to be without merit and without basis in law and
jurisprudence. She claimed that because the Real Estate Mortgage covering her property
was a single and indivisible contract, China Bank's act of releasing the principal debtors'
properties resulted in the extinguishment of the obligation.

The CA found the appeal bereft of merit. It qualified Rosalina as a surety who had
assumed or undertaken a principal debtor's responsibility or obligation. As such, she was
supposed to be principally liable for the payment of the debt in case the principal debtors
did not pay, regardless of their financial capacity to do so. As for the deficiency.

ISSUE:

Whether or not the petitioner Rosalina is liable jointly and severally with Barbara
and Rebecca for the payment of respondent China Bank's claims
9

HELD:

Yes. We find that Rosalina is liable as an accommodation mortgagor.

In Belo v. PNB, -an accommodation mortgage is not necessarily void simply because
the accommodation mortgagor did not benefit from the same. The validity of an
accommodation mortgage is allowed under Article 2085 of the New Civil Code which
provides that third persons who are not parties to the principal obligation may secure the
latter by pledging or mortgaging their own property. An accommodation mortgagor,
ordinarily, is not himself a recipient of the loan, otherwise that would be contrary to his
designation as such.

Apart from being an accommodation mortgagor, Rosalina is also a surety, defined


under Article 2047 of the Civil Code in this wise:

Art. 2047. By guaranty a person, called a guarantor, binds himself to the creditor to
fulfill the obligation of the principal debtor in case the latter should fail to do so If a person
binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3,
Title I of this Book shall be observed. In such case the contract is called a suretyship.

A contract of suretyship (second paragraph of Article 2047) has been juxtaposed


against a contract of guaranty (first paragraph of Article 2047) as follows:

A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency


of the debtor. A suretyship is an undertaking that the debt shall be paid; a guaranty, an
undertaking that the debtor shall pay. Stated differently, a surety promises to pay the
principal's debt if the principal will not pay, while a guarantor agrees that the creditor, after
proceeding against the principal, may proceed against the guarantor if the principal is
unable to pay. A surety binds himself to perform if the principal does not, without regard to
his ability to do so. A guarantor, on the other hand, does not contract that the principal will
pay, but simply that he is able to do so. In other words, a surety undertakes directly for the
payment and is so responsible at once if the principal debtor makes default, while a
guarantor contracts to pay if, by the use of due diligence, the debt cannot be made out of the
principal debtor.65Citations omitted)

A resort to the terms of the Surety Agreement can easily settle the question of
whether Rosalina should still be held liable. The agreement expressly contains the
following stipulation:

The Surety(ies) expressly waive all rights to demand for payment and notice of non-
payment and protest, and agree that the securities of every kind that are now and may
hereafter be left with the Creditor its successors, indorsees or assigns as collateral to any
evidence of debt or obligation, or upon which a lien may exist therefor, may be substituted,
withdrawn or surrendered at any time, and the time for the payment of such obligations
extended, without notice to or consent by the Surety(ies) x xx

We therefore find no merit in Rosalina's protestations in this petition. As provided


by the quoted clause in the contract, she not only waived the rights to demand payment and
to receive notice of nonpayment and protest, but she also expressly agreed that the time for
payment may be extended. More significantly, she agreed that the securities may be
"substituted, withdrawn or surrendered at any time" without her consent or without notice
to her. That China Bank indeed surrendered the properties of the principal debtors was
precisely within the ambit of this provision in the contract. Rosalina cannot now contest
that act in light of her express agreement to that stipulation.
10

While we rule that Rosalina, along with the principal debtors, Barbara and Rebecca,
is still liable as a surety for the deficiency amount, we modify the RTC's imposition of
interest rate at 12% per annum, which the CA subsequently affirmed. We must modify the
rates according to prevailing jurisprudence. Hence, the 12% legal interest should be
imposed on the deficiency amount from 13 January 2000 until 30 June 2013 and 6% legal
interest from 1 July 2013 until full payment.
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SPOUSES VIRGILIO DE GUZMAN, JR. [SUBSTITUTED BY HIS WIFE, LYDIA S. DE


GUZMAN, AND CHILDREN, NAMELY, RUEL S. DE GUZMAN, ET AL. AND LYDIA S. DE
GUZMAN, Petitioners, v.COURT OF APPEALS, MINDANAO STATION, LAMBERTO BAJAO,
HEIR OF SPOUSES LEONCIO*BAJAO AND ANASTACIA Z. BAJAO, Respondents.
G.R. No. 185757, March 02, 2016

NATURE OF ACTION: Reconveyance and Damages

TOPIC: Prescription of action

PONENTE: JARDELEZA, J.:


FACTS:

The property subject of this case (property) is a 480-square meter lot that formed
part of Lot No. 532 which has a total area of 25,178 square meters, was acquired by
Lamberto Bajao's (respondent) parent, Leoncio Bajao, through Free Patent issued on May
28, 1968. Spouses De Guzman acquired the property in two transactions. On May 24, 1969,
Spouses Bajao sold 200 square meters of Lot No. 532 to them for P1,000.On June 18, 1970,
Spouses Bajao sold another 280 square meters of Lot No. 532 to petitioners for
P1,400. Both transactions were evidenced by separate Deeds of Absolute Sale. Spouses
Bajao allegedly promised to segregate the property from the remaining area of Lot No.
532 and to deliver a separate title to petitioners covering it. However, because the promise
was not forthcoming, petitioner Lydia S. de Guzman executed an Affidavit of Adverse Claim
on April 21, 1980 covering the property.

On September 26, 1980, or after the death of Leoncio Bajao on February 1,


1972, respondent and Anastacia Bajao executed an Extrajudicial Settlement Among
Heirs (Extrajudicial Settlement), which subdivided Lot No. 532 into three parts. The
property was included in Lot No. 532-C, which was adjudicated in favor of respondent. The
Extrajudicial Settlement was registered on December 10, 1980. On December 16, 1980,
respondent caused the cancellation of petitioners' annotated adverse claim over the
property and later obtained Transfer Certificate of Title (TCT) No. T-7133 on February 13
and October 2, 1981. Petitioners thereafter requested respondent to deliver TCT No. T-7133
so they could present it to the Register of Deeds, respondent, however, refused to heed their
request. Thus, on January 21, 2000, petitioners filed a Complaint for Reconveyance with
Writ of Preliminary Mandatory Injunction and Damages.

Spouses De Guzman alleged that they were innocent purchasers for value. They also
alleged that respondent was in bad faith since he knew about the sale of the property
between them and his parents, and the existing survey and segregation over the area, yet he
fraudulently included the same in his share upon the issuance of TCT No. T-7133.

Bajao argued that the action is time barred and there is no more trust to speak of. He
pointed out that more than 10 years have lapsed from the date of the registration of the
Extrajudicial Settlement on December 10, 1980 and the registration of TCT No. T-7133 on
February and October 1981, to the date of filing of the Complaint.Respondent also
countered that there was no mistake or fraud in including the property in TCT No. T-7133
since his rights arose from the Extrajudicial Settlement.

The trial court ruled for the plaintiffs and hereby orders the defendantto reconvey to
the plaintiffs the four hundred eighty square meter lot in question. The trial court found the
two Deeds of Absolute Sale free from infirmities.
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The trial court also found respondent in bad faith. Respondent admitted that he was aware
of the adverse claim annotated at the back of the title when he went to the Register of
Deeds to register the Extrajudicial Settlement.The CA granted the appeal of the Bajao. The
CA noted that an implied trust between the parties under Article 1456 53 of the Civil Code
was created at the time Anastacia Bajao and respondent executed the Extrajudicial
Settlement on September 26, 1980, with respondent becoming the trustee who holds the
property in trust for the benefit of petitioners. The CA held that an action for reconveyance
based on an implied trust prescribes in 10 years from the registration of title in the Office of
the Register of Deeds.55 Thus, petitioners' action for reconveyance filed in January 2000 has
already prescribed since more than 10 years have lapsed from October 1981, the date of
registration of respondent's title.

ISSUE:

Whether or not the Complaint for reconveyance is barred by prescription.

HELD:

Yes. Article 1456 of the Civil Code provides that a person acquiring property
through mistake or fraud becomes, by operation of law, a trustee of an implied trust for the
benefit of the real owner of the property. 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. Thus, petitioners had 10 years from 1981 or until 1991 to file their complaint for
reconveyance of property. The Complaint, however, was filed only on January 21, 2000, or
more than 10 years from the issuance of TCT No. T-7133. Hence, the action is already
barred by prescription. 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.

Here, petitioners allege that they were in juridical possession of the property from
the time they put up a fence on it until the filing of the Complaint. Respondent disputes this
claim, countering that petitioners are not in actual and material possession of the
property. Whether petitioners have actual possession of the lot is a question of fact. xxxx
We affirm the CA's finding that petitioners were not able to establish their actual possession
of the lot except by bare allegations not substantiated by evidence.During trial, petitioners
testified that they do not live on the property. They alleged putting up a fence alter they
purchased the lot but there was no evidence to support their allegations as to when this
fence was constructed.

Also, the sale between the parties were null and void under Section 124 of the Public
Land Act, any acquisition, conveyance, alienation, transfer, or other contract made or
executed in violation of Sections 118 to 123 of the Public Land Act shall be unlawful and
null and void from its execution. The violation shall also produce the effect of annulling and
cancelling the grant, title, patent or permit originally issued, recognized or confirmed
actually or presumptively. The violation shall also cause the reversion of the property and
its improvements to the State. The contract executed in violation of these sections being
void, it is not susceptible of ratification, and the action for the declaration of the absolute
nullity of such a contract is imprescriptible.
13

In this case, portions of Lot No. 532 were conveyed to petitioners by virtue of two
Deeds of Absolute Sale executed on May 24, 1969 and June 18, 1970, or after the grant and
issuance of Free Patent May 28, 1968. Both Deeds of Absolute Sale were executed within
the prohibited period of five years. Consequently, following Section 124, these Deeds are
null and void and produce no effect. They did not convey any right from Spouses Bajao to
petitioners on the property. The parties could not have claimed ignorance of the free patent
grant.Section 118 does not exempt patentees and their purported transferees who had no
knowledge of the issuance of the patent from the prohibition against alienation; for the law
does not say that the five years are to be counted "from knowledge or notice of issuance"
ofthe patent or grant.

WHEREFORE, in view of the foregoing, the petition is DENIED.


14

TRAVEL & TOURS ADVISERS, INCORPORATED, Petitioner, v. ALBERTO CRUZ, SR.,


EDGAR HERNANDEZ AND VIRGINIA MUOZ, Respondents.
G.R. No. 199282, March 14, 2016

NATURE OF ACTION: Action for Damages

TOPIC: Solidary liability for damages of an employer

PONENTE: PERALTA, J.:

FACTS:

Respondent Edgar Hernandez was driving an Isuzu Passenger Jitney (jeepney) along
Angeles-Magalang Road, Barangay San Francisco, Magalang, Pampanga, on January 9, 1998,
around 7:50 p.m. Meanwhile,. a Daewoo passenger bus (RCJ Bus Lines) owned by petitioner
Travel and Tours Advisers, Inc. (Travel) and driven by Edgar Calaycay travelled in the same
direction. The bus bumped the rear portion of the jeepney causing it to ram into
an acacia tree which resulted in the death of Alberto Cruz, Jr. and the serious physical
injuries of Virginia Mun oz. Thus, respondents Edgar Hernandez, Virginia Mun oz and
Alberto Cruz, Sr., father of the deceased Alberto Cruz, Jr., filed a complaint for damages,
before the RTC claiming that the collision was due to the reckless, negligent and imprudent
manner by which Edgar Calaycay was driving the bus, in complete disregard to existing
traffic laws, rules and regulations.

The petitioner claimed that it exercised the diligence of a good father of a family in
the selection and supervision of its employee Edgar Calaycay and further argued that it was
Edgar Hernandez who was driving his passenger jeepney in a reckless and imprudent
manner by suddenly entering the lane of the petitioner's bus without seeing to it that the
road was clear for him to enter said lane. In addition, petitioner alleged that at the time of
the incident, Edgar Hernandez violated his franchise by travelling along an unauthorized
line/route and that the jeepney was overloaded with passengers, and the deceased Alberto
Cruz, Jr. was clinging at the back thereof.

The RTC rendered judgment in favor of the respondents. The CA PARTLY GRANTED
the appeal of Travel.

ISSUE:

Whether or not the employer is solidarily liable with its employee despite its claim
that it exercised extraordinary diligence of a good father of a family in its selection and
supervision of driver.

HELD:

YES. Article 2176 of the Civil Code provides: Whoever by act or omission causes
damage to another, there being fault or negligence, is obliged to pay for the damage done.
Such fault or negligence, if there is no pre-existing contractual relation between the parties,
is called a quasi-delict.

Article 2176 is Article 2180 which states the following:

The obligation imposed by Article 2176 is demandable not only for one's
own acts or omissions, but also for those of persons for whom one is responsible x x
15

x.Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even though the
former are not engaged in any business or industry x x x.

Consequently, the petitioner, being the owner of the bus and the employer of
the driver, Edgar Calaycay, cannot escape liability The responsibility treated of in this
article shall cease when the persons herein mentioned prove that they observed all
the diligence of a good father of a family to prevent damage.Article 2180, in relation to
Article 2176, of the Civil Code provides that the employer of a negligent employee is
liable for the damages caused by the latter. When an injury is caused by the negligence
of an employee there instantly arises a presumption of the law that there was
negligence on the part of the employer either in the selection of his employee or in the
supervision over him after such selection. The presumption, however, may be
rebutted by a clear showing on the part of the employer that it had exercised the care
and diligence of a good father of a family in the selection and supervision of his
employee. Hence, to escape solidary liability for quasi-delict committed by an
employee, the employer must adduce sufficient proof that it exercised such degree of
care.

In this case, the petitioner failed to do so. The RTC and the CA exhaustively and
correctly ruled as to the matter. Thus, whenever an employee's (defendant EDGAR
CALAYCAY) negligence causes- damage or injury to another, there instantly arises a
presumption that the employer (defendant-appellant) failed to exercise the due
diligence of a good father of the family in the selection or supervision of its
employees. To avoid liability for a quasi-delict committed by its employee, an
employer must overcome the presumption by presenting convincing proof that it
exercised the care and diligence of a good father of a family in the selection and
supervision of its employee. The failure of the defendant-appellant to overturn this
presumption was meticulously explained by the court a quo as follows:

The position of the defendant company that it cannot be held jointly and
severally liable for such damages because it exercised the diligence of a good father of
a family, which does not merit great credence.As admitted, Edgar Calaycay was duly
authorized by the defendant company to drive the bus at the time of the incident. Its
claim that it has issued policies, rules and regulation's to be followed, conduct
seminars and see to it that their drivers and employees imbibe such policies, rules
and regulations, have their drivers and conductors medically checked-up and undergo
drug-testing, did not show that all these rudiments were applied to Edgar Calaycay.
No iota of evidence was presented that Edgar Calaycay had undergone all these
activities to ensure that he is a safe and capable drivers. In fact, the defendant
company did not put up a defense on the said driver. The defendant company did not
even secure a counsel to defend the driver. It did not present any evidence to show it
ever counseled such driver to be careful in his driving. As appearing from the
evidence of the defendant corporation, the driver at the time of the incident was
Calaycay Francisco (Exh. 9) and the conductor was Tejada. This shows that the
defendant corporation does not exercise the diligence of a good father of a family in
the selection and supervision of the employees. It does not even know the correct and
true name of its drivers. The testimony of Rolando Abadilla, Jr. that they do not have
the records of Edgar Calaycay because they ceased operation due to the death of his
father is not credible. Why only the records of Edgar Calaycay? It has the inspection
16

and dispatcher reports for January 9, 1998 and yet it could not find the records of
Edgar Calaycay.

Be that as it may, this does not erase the fact that at the time of the vehicular
accident, the jeepney was in violation of its allowed route as found by the RTC and the
CA, hence, the owner and driver of the jeepney likewise, are guilty of negligence as
defined under Article 2179 of the Civil Code .The petitioner and its driver, therefore,
are not solely liable for the damages caused to the victims. The petitioner must thus
be held liable only for the damages actually caused by his negligence. It is, therefore,
proper to mitigate the liability of the petitioner and its driver. The determination of
the mitigation of the defendant's liability varies depending on the circumstances of
each case.

In the present case, it has been established that the proximate cause of the
death of Alberto Cruz, Jr. is the negligence of petitioner's bus driver, with the
contributory negligence of respondent Edgar Hernandez, the driver and owner of the
jeepney, hence, the heirs of Alberto Cruz, Jr. shall recover damages of only 50% of the
award from petitioner and its driver. Necessarily, 50% shall be bourne by respondent
Edgar Hernandez. This is pursuant to Rakes v. AG & P and after considering the
circumstances of this case.

WHEREFORE, the Petition for Review on Certiorari is DENIED with


modification.
17

DRA. MERCEDES OLIVER vs. PHILIPPINE SAVINGS BANK AND LILIA CASTRO,
G.R. No. 214567, April 04, 2016

TOPIC: Solidary Liability

NATURE OF ACTION: Injunction and Damages

PONENTE:MENDOZA, J.:

FACTS:

Petitioner Mercedes Oliver (Oliver) was a depositor of respondent Philippine


Savings Bank Respondent Lilia Castro (Castro) was the Assistant Vice President of PSBank
and the Acting Branch Manager of PSBank San Pedro, Laguna. Oliver alleged sometime in
1997, she made an initial deposit of P12 million into her PSBank account. During that time,
Castro convinced her to loan out her deposit as interim or bridge financing for the
approved loans of bank borrowers who were waiting for the actual release of their loan
proceeds Oliver was convinced under this arrangement. Their arrangement went on
smoothly for months. Due to the frequency of bank transactions, Oliver even entrusted her
passbook to Castro. Because Oliver earned substantial profit, she was further convinced by
Castro to avail of an additional credit line in the amount of P10 million. Beginning
September 1998, Castro stopped rendering an accounting for Oliver. The latter then
demanded the return of her passbook. When Castro showed her the passbook sometime in
late January or early February 1999, she noticed several erasures and superimpositions
therein. She became very suspicious of the many erasures pertaining to the December 1998
entries so she requested a copy of her transaction history register from PSBank.

When her transaction history register was shown to her, Oliver was surprised to
discover that the amount of P4,491,250.00 (estimated at P4.5 million) was entered into her
account on December 21, 1998. While a total of P7 million was withdrawn from her
account on the same day, Oliver asserted that she neither applied for an additional loan of
P4.5 million nor authorized the withdrawal of P7 million. She also discovered another loan
for P1,396,310.45, acquired on January 5, 1999 and allegedly issued in connection with the
P10 million credit line. Oliver received two collection letters from PSBank referring to the
non-payment of unpaid loans, to wit: (1) P4,491,250.00 from the additional loan and (2)
P1,396,310.45 from the P10 million credit line. In response, Oliver protested that she
neither availed of the said loans nor authorized the withdrawal of P7 million from her
account. She also claimed that the P10 million loan from her credit line was already paid in
full. A final demand letter was sent to Oliver by PSBank, requiring her to pay the unpaid
loans. Subsequently, Oliver received a notice of sale involving the property in Ayala Alabang,
informing her of the impending extra-judicial foreclosure and sale of her house and lot. As a
result, Oliver filed the subject complaint against PSBank and Castro.

Castro's Position

In her Answer,[15] Castro admitted that she and Oliver agreed that the latter would lend
out money to borrowers at 4% to 5% interest per month provided that the former would
screen them.She disclosed that she made some alterations and erasures in Oliver's
passbook so as to reconcile the passbook with the computer printout of the bank, but
denied any attempt to hide the passbook as she was able to return it sometime in January
18

1999.Castro also denied the deceit imputed against her. She asserted that their
arrangement was not "interim or bridge financing" inasmuch as the loans were entirely
new and distinct from that granted by PSBank. Castro admitted that on October 19, 1999,
she was terminated by PSBank because of certain problems regarding client
accommodation and loss of confidence.

PSBank's Position

In its defense, PSBank averred that Oliver applied for a credit line of P10 million
which was granted by the bank and which secured by a real estate mortgage. Because
Oliver failed to pay the P10 million loan, she obtained another loan in the amount of P4.5
million, as evidenced by a promissory note. Days later, she again acquired a separate loan
amounting to P1,396,310.45 as shown by another promissory note. Both loans were
secured by a real estate mortgage.

RTC dismissed the complaint and rendered judgment in favor of PSBank and Castro.
According to the RTC, PSBank and Castro should not be held liable for the loan of P4.5
million and the withdrawal of the P7 million. Castro was able to submit the Debit Credit
Memo and the Savings Account Check Deposit Slip to prove that there were some previous
loan transactions between Oliver and Lim. Considering that neither PSBank nor Castro
obtained the P7 million, there was no obligation on their part to return the amount.

Oliver seasonably filed her motion for reconsideration.On July 22, 2010, the RTC
resolved the motion and issued an order reversing its earlier decision. With regard to
PSBank, the RTC stated that it failed to exercise utmost diligence in safekeeping Oliver's
deposit. Had it not been for the unauthorized, withdrawal which was attributable to the
bank and Castro. Thus held solidarily liable with Castro. The CA also found that PSBank
exercised extraordinary diligence in handling Oliver's account, thus, the awards of damages
were deleted.

ISSUES:

Whether or not the CA gravely erred when it failed to hold that the respondents are
jointly and severally liable to the petitioner for damages.

HELD:

Yes. Under Article 2180 of the Civil Code, employers shall be held primarily and
solidarily liable for damages caused by their employees acting within the scope of their
assigned tasks.PSBank failed to exercise the highest degree of diligence required of banking
institutions.

Aside from Castro, PSBank must also be held liable because it failed to exercise
utmost diligence in the improper withdrawal of the P7 million from Oliver's bank account.

In the case of banks, the degree of diligence required is more than that of a good father of a
family. Considering the fiduciary nature of their relationship with their depositors, banks
are duty bound to treat the accounts of their clients with the highest degree of care. The
point is that as a business affected with public interest and because of the nature of its
functions, the bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their relationship.
19

PSBank's failure to exercise the degree of diligence that it ought to have exercised in
dealing with its clients. It could not prove that the withdrawal of P7 million was duly
authorized by Oliver. As a banking institution, PSBank was expected to ensure that such
substantial amount should only be transacted with the consent and authority of Oliver.
PSBank, however, reneged on its fiduciary duty by allowing an encroachment upon its
depositor's account without the latter's permission. Hence, PSBank must be held liable for
such improper transaction.

As discussed above, both Castro and PSBank failed to establish the burden of their
defense. They failed to present proof that Oliver authorized the said transaction. They could
have presented either the cash withdrawal slip for the P7 million on December 21, 1999 or
Lim's testimony to prove the transfer of funds'to the latter's account, but they did neither.
Without an iota of proof to substantiate the validity of the said transaction, the respondents
unlawfully deprived Oliver of her funds.Indeed, the bank should be solidarily liable with its
employee for the damages committed to its depositor. Castro, as acting branch manager of
PSBank was able to facilitate the questionable transaction as she was also entrusted with
Oliver's passbook. In other words, Castro was the representative of PSBank, and, at the
same time, the agent of Oliver. Oddly, PSBank, either consciously or through sheer
negligence, allowed the double dealings of its employee with its client. Such carelessness
and lack of protection of the depositors from its own employees led to the unlawful
withdrawal of the P7 million from Oliver's account. Although Castro was eventually
terminated by PSBank because of certain problems regarding client accommodation and
loss of confidence, the damage to Oliver had already been done. Thus, both Castro and
PSBank must be held solidarily liable.

WHEREFORE, the petition is GRANTED.


20

SPOUSES JAIME AND MATILDE POON, Petitioners, v. PRIME SAVINGS BANK


REPRESENTED BY THE PHILIPPINE DEPOSIT INSURANCE CORPORATION AS
STATUTORY LIQUIDATOR, Respondent.
G.R. No. 183794, June 13, 2016

NATURE OF ACTION: Rescission of Contract

TOPIC: Fortuitous event/penal clause

PONENTE: SERENO, C.J.:

FACTS:

Petitioners owned a commercial building in Naga City, Matilde Poon and Prime
Saving Bank(PSB) executed a 10-year Contract of Lease (Contract) over the building for the
latter's use as its branch office in Naga City. In paragraph 24 of the Contract, it provides: -
Should the lease[d] premises be closed, deserted or vacated by the LESSEE, the LESSOR shall
have the right to terminate the lease without the necessity of serving a court order and to
immediately repossess the leased premises. Thereafter the LESSOR shall open and enter the
leased premises in the presence of a representative of the LESSEE (or of the proper
authorities) for the purpose of taking a complete inventory of all furniture, fixtures,
equipment and/or other materials or property found within the leased premises. The LESSOR
shall thereupon have the right to enter into a new contract with another party. All advanced
rentals shall be forfeited in favor of the LESSOR. Barely three years later, however, the BSP
placed PSB under the receivership of the Philippine Deposit Insurance Corporation (PDIC)
On 12 May 2000, PSB vacated the leased premises and surrendered them to petitioners.
Subsequently, the PDIC issued petitioners a demand letter 11 asking for the return of the
unused advance rental amounting to P3,480,000 on the ground that paragraph 24 of the
lease agreement had become inoperative, because respondent's closure constituted force
majeure. Petitioners, however, refused the PDIC's demand. 12 They maintained that they
were entitled to retain the remainder of the advance rentals following paragraph 24 of their
Contract. Consequently, PSB sued petitioners before the RTC for a partial rescission of
contract and/or recovery of a sum of money.

RTC ordered the partial rescission of the lease agreement


Parties' respective claims for damages and attorney's fees are dismissed.

The CA affirmed the RTC Decision, but had a different rationale for applying Article
1229. The appellate court ruled that the closure of respondent's business was not a
fortuitous event. Still, the CA sustained the trial court's interpretation of the proviso on the
forfeiture of advance rentals as a penal clause and the consequent application of Article
1229.

ISSUES:

1. Whether or not PSB may be released from its contractual obligations on the
ground of fortuitous event under Article 1174 of the Civil Code and unforeseen
event under Article 1267 of the Civil Code;
2. Whether or not the proviso in the parties' Contract allowing the forfeiture of
advance rentals was a penal clause

HELD:
21

1. No. The closure of respondent's business was neither a fortuitous nor an


unforeseen event that rendered the lease agreement functus officio.

The period during which the bank cannot do business due to insolvency is not a fortuitous
event, unless it is shown that the government's action to place a bank under receivership or
liquidation proceedings is tainted with arbitrariness, or that the regulatory body has acted
without jurisdiction.

Respondent posits that it should be released from its contract with petitioners, because
the closure of its business upon the BSP's order constituted a fortuitous event as the Court
held in Provident Savings Bank. The cited case, however, must always be read in the context of
the earlier Decision in Central Bank v. Court of Appeals. The Court ruled in that case that the
Monetary Board had acted arbitrarily and in bad faith in ordering the closure of Provident
Savings Bank. Accordingly, in the subsequent case of Provident Savings Bank it was held
that fuerza mayor had interrupted the prescriptive period to file an action for the foreclosure
of the subject mortgage. In contrast, there is no indication or allegation that the BSP's action
in this case was tainted with arbitrariness or bad faith. Instead, its decision to place
respondent under receivership and liquidation proceedings was pursuant to Section 30 of
Republic Act No. 7653. Moreover, respondent was partly accountable for the closure of its
banking business. It cannot be said, then, that the closure of its business was independent of
its will as in the case of Provident Savings Bank. The legal effect is analogous to that created
by contributory negligence in quasi-delict actions. The difficulty of performance should be
such that the party seeking to be released from a contractual obligation would be placed at a
disadvantage by the unforeseen event. Mere inconvenience, unexpected impediments,
increased expenses, or even pecuniary inability to fulfill an engagement, will not relieve the
obligor from an undertaking that it has knowingly and freely contracted. Clearly, the closure
of respondent's business was not an unforeseen event. As the lease was long-term, it was not
lost on the parties that such an eventuality might occur, as it was in fact covered by the terms
of their Contract. Besides, as We have previously discussed, the event was not independent of
respondent's will.

2 Yes. The forfeiture clause in the Contract is penal in nature.

It is settled that a provision is a penal clause if it calls for the forfeiture of any
remaining deposit still in the possession of the lessor, without prejudice to any other
obligation still owing, in the event of the termination or cancellation of the agreement by
reason of the lessee's violation of any of the terms and conditions thereof. This kind of
agreement may be validly entered into by the parties. The clause is an accessory obligation
meant to ensure the performance of the principal obligation by imposing on the debtor a
special prestation in case of nonperformance or inadequate performance of the principal
obligation. It is evident from the above-quoted testimony of Jaime Poon that the stipulation
on the forfeiture of advance rentals under paragraph 24 is a penal clause in the sense that it
provides for liquidated damages. In effect, the penalty for the premature termination of the
Contract works both ways. As the CA correctly found, the penalty was to compel respondent
to complete the 10-year term of the lease. Petitioners, too, were similarly obliged to ensure
the peaceful use of their building by respondent for the entire duration of the lease under
pain of losing the remaining advance rentals paid by the latter.

The forfeiture clauses of the Contract, therefore, served the two functions of a penal
22

clause, i.e., (1) to provide for liquidated damages and (2) to strengthen the coercive force of
the obligation by the threat of greater responsibility in case of breach. 47 As the CA correctly
found, the prestation secured by those clauses was the parties' mutual obligation to observe
the fixed term of the lease. For this reason, We sustain the lower courts' finding that the
forfeiture clause in paragraph 24 is a penal clause, even if it is not expressly labelled as such.

WHEREFORE, the Petition for Review on Certiorari is DENIED.

LAND BANK OF THE PHILIPPINES vs. SPOUSES ANTONIO AND CARMEN AVANCENA
G.R. No. 190520 May 30, 2016
.
23

NATURE OF ACTION: Action for specific performance

TOPIC: DELAY IN PAYMENT (OBLIGATION)

FACTS:

Respondents Spouses Avancen a were the registered owners of a parcel of agricultural


land situated at Sanghan, Cabadbaran, Agusan del Norte. In 1988, respondents spouses
voluntarily offered to sell their land to the government under the Comprehensive Agrarian
Reform Program (CARP. Initially valuation of the subject lot at Pl,877,516.. Upon
recomputation the land was revalued at P3,337,672.78 but respondents rejected the
valuation.

Petitioner deposited the difference in the cash portion between the revalued amount
and the initial valuation of P 1,877,516.09 in trust for the respondents on July 24, 1996. The
parties brought the matter of valuation to the Department of Agrarian Reform Adjudication
Board (DARAB), Caraga Regional Office, which affirmed petitioner's second valuation.

Respondents-spouses filed with the Regional Trial Court, acting as a Special Agrarian
Court a complaint for determination of just compensation. They prayed for a valuation of no
less than P200,000.00 per hectare for the subject lot or in the alternative, to appoint
Commissioners to determine the just compensation; and that they be allowed to withdraw
the valuation amount that petitioner had deposited for them including the earned interest,
pending the court's final valuation. Petitioner filed its Answer alleging that the valuation was
computed based on the factors enumerated in Section 17 of Republic Act No. (R.A.) 6657, the
Comprehensive Agrarian Reform Law.

ISSUE:

Whether the 6% interest was to be computed at the rate in the year 2000.

HELD:

xxx The CA found that the title to respondents spouses' land was canceled and a new
title was issued in the name of the Republic of the Philippines in December 1991, but there
was no showing that petitioner had made payments prior to the taking of the land.

Thus, there was delay in the payment of just compensation which entitles the
respondents spouses to the payment of interest from the time the property was transferred
in the name of the government in December 1991 up to the time petitioner deposited the
valuation in the account of the respondents-spouses in July 1996. We agree with the CA that
petitioner should pay interest for the delay in the payment of just compensation. However,
such payment of interest should be computed up to the full payment of just compensation.

Thus, the CA did not err in imposing interest on the just compensation which will be
determined after the remand of the case to the SAC. The interest should be computed from
December 1991 up to the full payment of just compensation and not only up to the time
petitioner deposited the valuation in 1996 as the CA ruled. The concept of just compensation
embraces not only the correct determination of the amount to be paid to the owners of the
land, but also payment within a reasonable time from its taking. Without prompt payment,
compensation cannot be considered "just" inasmuch as the property owner is made to suffer
the consequences of being immediately deprived of his land while being made to wait for a
24

decade or more before actually receiving the amount necessary to cope with loss xxx.

OYSTER PLAZA HOTEL AND JENNIFER AMPEL v. ERROL O. MELIVO


G.R. No. 217455, October 05, 2016

NATURE OF ACTION: Action for Illegal Dismissal

TOPIC: SOLIDARY LIABILITY OF EMPLOYER


25

PONENTE: MENDOZA, J.:

FACTS:

On October 22, 2009, respondent Errol O. Melivo (Melivo) filed before the NLRC a
Complaint4 for illegal dismissal with prayers for reinstatement and payment of back wages,
holiday pay, overtime pay, service incentive leave, and, 13 th month pay against petitioners
Oyster Plaza Hotel (Oyster Plaza), Rolito Go (Go), and Jennifer Ampel (Ampel).

The LA ruled that Melivo was illegally dismissed. Considering that Melivo had already
rendered six (6) months of service for Oyster Plaza, the LA held that he had become a regular
employee by operation of law. LA ordered Oyster Plaza to reinstate Melivo to his previous
position and to pay him back wages IN SOLIDUM reckoned from his dismissal; his
proportionate 13th month pay; and attorney's fees in the amount equivalent to 10% of the
total money claims awarded.

The NLRC affirmed the Decision of the LA.

The CA dismissed the petition for lack of merit and affirmed the June 21, 2011 NLRC
Decision.

ISSUE:

Whether or not petitioners go and ampel solidarily liable with oyster plaza.

HELD:

No.

A corporation, being a juridical entity, may act only through its directors, officers and
employees. Obligations incurred by them, acting as such corporate agents, are not theirs but
the direct accountabilities of the corporation they represent. Pursuant to this principle, a
director, officer or employee of a corporation is generally not held personally liable for
obligations incurred by the corporation; it is only in exceptional circumstances that solidary
liability will attach to them. Thus, in labor cases, corporate directors and officers are held
solidarity liable with the corporation for the employee's termination only when the
same is done with malice or in bad faith.

In the present case, there is nothing substantial on record which can justify Go and
Ampel's solidary liability with Oyster Plaza or MDC. As to Ampel, records reveal that her
participation in the illegal dismissal was her verbally informing Melivo that his services were
being terminated; and the said act could hardly be considered malicious enough to make
Ampel solidarity liable with Oyster Plaza or MDC.

With regard to Go, aside from the assertion that he was the owner of Oyster Plaza, no
other act, relating to Melivo's illegal dismissal, was ever averred against him. Besides, Go's
relation with Oyster Plaza or MDC was only based from the bare allegations of Melivo who
failed to provide substantial evidence to prove them. It is of no moment that Go failed to
produce evidence to show that he was no longer connected with MDC or Oyster Plaza. Melivo
should have relied on the strength of his evidence and not on the weakness of the defense
26

offered by the petitioners.39 Clearly, without any participation in the illegal dismissal of
Melivo, no malice or bad faith can be attributed to Go to justify his solidary liability with
Oyster Plaza. In fine, the petition must be partially granted to the effect that only Oyster
Plaza/MDC should be adjudged liable to Melivo.

WHEREFORE, the petition is PARTIALLY GRANTED with MODIFICATION in that only


Oyster Plaza Hotel/Martyniuk Development Corporation is ORDERED to reinstate Melivo
and to pay his backwages, proportionate 13th month pay, and attorney's fees equivalent to
10% of the monetary awards.

SERGIO R. OSMEA III, vs. POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT
CORPORATION, EMMANUEL R. LEDESMA, JR., SPC POWER CORPORATION, AND
THERMA POWER VISAYAS, INC.,
G.R. No. 212686, October 05, 2016

NATURE OF ACTION: Public Bidding


27

TOPIC: Conditional Obligation

PONENTE: VELASCO JR., J.:

FACTS:

On December 27, 2013, the Board of Directors of the Power Sector Assets and Liabilities
Management Corporation (PSALM) approved the commencement of the 3 rd round of bidding
for the sale of the 153.1MW NPPC. Respondents SPC Power Corporation (SPC) and TVPI
submitted their respective bids for the project. The results PSALM issued a Notice of Award
dated April 30, 2014 in favor of TPVI, declaring the latter as the Winning Bidder. The
execution of a Land Lease Agreement (LLA) and Assets Purchase Agreement (APA) in favor of
TPVI, however, was subject to SPC's non-exercise of its Right to Top. However,the Right to
Top and the resultant agreements from its exercise, however, were subsequently nullified by
the Court through its September 28, 2015 Decision.

TPVI filed the instant Manifestation/Motion wherein it maintained that the nullification
of SPC's Right to Top calls for the reinstatement of the cancelled April 30, 2014 Notice of
Award in its favor. The Court resolved to deny with finality SPC's motion and those of PSALM
they were nevertheless required to comment on TPVI's Manifestation/Motion that remained
unresolved.

ISSUE:

Whether or not TVPI is entitled to the Notice of award upon nullification of SPCs right
to top.

HELD:

Yes. TPVI's motion is impressed with merit. Articles 1181 and 1185 of the Civil Code
find application in this case.

The award of the NPPC-LLA and NPPC-LLA to TPVI further finds justification under
Arts. 1181 and 1185 of the Civil Code, viz:

Article 1181. In conditional obligations, the acquisition of rights, as well as the


extinguishment or loss of those already acquired, shall depend upon the happening of the
event which constitutes the condition.

xxxx

Article 1185. The condition that some event will not happen at a determinate
time shall render the obligation effective from the moment the time indicated has elapsed,
or if it has become evident that the event cannot occur. x x x

The Court explained in The Wellex Group, Inc. v. U-Land Airlines, Co., Ltd.11 that, under
Art. 1185, if an obligation is conditioned on the non-occurrence of a particular event at a
determinate time, that obligation arises (a) at the lapse of the indicated time, or (b) if it has
become evident that the event cannot occur. To illustrate:

Petitioner Wellex and respondent U-Land bound themselves to negotiate with each
other within a 40-day period to enter into a share purchase agreement. If no share purchase
28

agreement was entered into, both parties would be freed from their respective undertakings.

It is the non-occurrence or non-execution of the share purchase agreement that would


give rise to the obligation to both parties to free each other from their respective
undertakings. This includes returning to each other all that they received in pursuit of
entering into the share purchase agreement.

In the case at bar, PSALM's obligation to award the contract in TPVI's favor was
dependent on the non-occurrence of an event: SPC's legal and valid exercise of its Right to
Top. As phrased by PSALM: "the approval of the sale to TPVI was a conditional one, the
consummation of which is dependent on the non-exercise by SPC of its right to top."13 It has
become apparent, however, that such event will never occur. SPC can never legally and validly
invoke its Right to Top in view of its nullity. The condition, therefore, is deemed complied
with by operation of law, and the obligation to execute the purchase contracts in favor of
TPVI, due and demandable.

Our Decision nullifying SPC's Right to Top ought not then be construed as the
nullification of the entire third round of the public bidding. It merely called for the
application of the severability clause to prevent PSALM, as much as possible, from having to
repeat the process for the fourth time. Consistently, the Court never expressly declared the
third round of bidding as invalid. Clear from the language of the dispositive portion of the
Court's Decision is that the nullification was limited only to SPC's Right to Top and the NPPC-
LLA and NPPC-APA in its favor, nothing more. The results of the prior conducted bidding
process should then be upheld, and the Notice of Award dated April 30, 2014, reinstated.

The Notice of Award dated April 30, 2014 is a perfected contract between PSALM and
TPVI.As can be recalled, it states that the obligation of PSALM to execute the NPPC-APA and
NPPC-LLA in favor of TPVI is conditioned on SPC's non-exercise or failure to legally and
validly exercise its Right to Top. This agreement is the law between the contracting parties
with which they are required to comply in good faith.

In view of the Court's Decision, however, the condition in the Notice of Award should be
deemed as not written, and the obligation to award the NPPC-LLA and NPPC-APA to TPVI,
due and demandable. Furthermore, the mutual obligation of the parties to abide by their
covenant in good faith remains, entitling TPVI to demand compliance from PSALM, including
the award of the purchase contracts in its favor. This is but the proper application of the
severability clause.

WHEREFORE, premises considered, the Manifestation/Motion dated March 16, 2016 of


respondent TPVI is hereby GRANTED

CONTRACTS
UNIVERSITY OF MINDANAO, INC., vs. BANGKO SENTRAL NG PILIPINAS, ET AL.,
G.R. No. 194964-65 January 11, 2016

TOPIC: PRESCRIPTION/CONTRACTS

NATURE OF THE ACTION: Foreclosure

PONENTE: LEONEN, J.:


29

Guillermo B. Torres and Dolores P. Torres incorporated and operated two (2) thrift
banks: (1) First Iligan Savings & Loan Association, Inc. (FISLAI); and (2) Davao Savings and
Loan Association, Inc. (DSLAI). Guillermo B. Torres chaired both thrift banks. Bangko
Sentral ng Pilipinas issued a P1.9 million standby emergency credit to FISLAI as evidenced
by three (3) promissory notes. On May 25, 1982, University of Mindanaos (UM) Vice
President for Finance, Saturnino Petalcorin, executed a deed of real estate mortgage over
UMs property in Cagayan de Oro City in favor of BSP served as security for FISLAIs P1.9
Million loan. As proof of his authority to execute a real estate mortgage for University of
Mindanao, Saturnino Petalcorin showed a Secretarys Certificate Corporate Secretary,
Aurora de Leon.

Guillermo B. Torres died on March 2, 1989. On June 18, 1999, BSP sent a letter to
UM, informing it that the bank would foreclose its properties if MSLAIs total outstanding
obligation of P12,534,907.73 remained unpaid. In its reply to BSP, UM, through its Vice
President for Accounting, Gloria E. Detoya, denied that UMs properties were mortgaged. It
also denied having received any loan proceeds from BSP. On July 16, 1999, UM filed two
Complaints for nullification and cancellation of mortgage. UM alleged in its Complaints that
it did not obtain any loan from Bangko Sentral ng Pilipinas. It also did not receive any loan
proceeds from the bank and also alleged that Aurora de Leons certification was
anomalous. It never authorized Saturnino Petalcorin to execute real estate mortgage
contracts involving its properties to secure FISLAIs debts. It never ratified the execution of
the mortgage contracts.

RTC rendered a Decision in favor of UM DECLARING the real estate mortgage


Saturnino R. Petalcorin executed in favor of BSP as annulled as there was no board
resolution giving Saturnino Petalcorin authority to execute mortgage contracts on behalf of
UM. The trial court gave weight to Aurora de Leons testimony that UMs Board of Trustees
did not issue a board resolution that would support the Secretarys Certificate she issued.
She testified that she signed the Secretarys Certificate only upon Guillermo B. Torres
orders. Saturnino Petalcorin testified that he had no authority to execute a mortgage
contract on University of Mindanaos behalf. He merely executed the contract because of
Guillermo B. Torres request. Also, BSP witness Daciano Pagui, Jr. also admitted that there
was no board resolution giving Saturnino Petalcorin authority to execute mortgage
contracts on behalf of University of Mindanao.

The CA found in favor of BSP, It ruled that "although BSP failed to prove that the UM Board
of Trustees actually passed a Board Resolution authorizing Petalcorin to mortgage the
subject real properties," Aurora de Leons Secretarys Certificate "clothed Petalcorin with
apparent and ostensible authority to execute the mortgage deed on its behalf. "BSP merely
relied in good faith on the Secretarys Certificate. UM is estopped from denying Saturnino
Petalcorins authority.The Court of Appeals also ruled that Bangko Sentral ng Pilipinas
action for foreclosure had not yet prescribed because the due date extensions that Bangko
Sentral ng Pilipinas granted to FISLAI extended the due date of payment to five (5) years
from February 8, 1985.58 The banks demand letter to Dolores P. Torres on June 18, 1999
also interrupted the prescriptive period.

ISSUES:

1. Whether BSPS action to foreclose the mortgaged properties had already prescribed;
30

2. Whether University of Mindanao is bound by the real estate mortgage contracts


executed by Saturnino Petalcorin.

HELD:

I. No.

The prescriptive period for actions on mortgages is ten (10) years from the day they
may be brought Actions on mortgages may be brought not upon the execution of the
mortgage contract but upon default in payment of the obligation secured by the mortgage.
A debtor is considered in default when he or she fails to pay the obligation on due date and,
subject to exceptions, after demands for payment were made by the creditor. Article 1169
of the Civil Code provides:

ART. 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his power
to perform.

Article 1193 of the Civil Code provides that an obligation is demandable only upon
due date. In other words, as a general rule, a person defaults and prescriptive period for
action runs when (1) the obligation becomes due and demandable; and (2) demand for
payment has been made.The prescriptive period neither runs from the date of the
execution of a contract nor does the prescriptive period necessarily run on the date when
the loan becomes due and demandable. Prescriptive period runs from the date of
demand, subject to certain exceptions. In other words, ten (10) years may lapse from the
date of the execution of contract, without barring a cause of action on the mortgage when
there is a gap between the period of execution of the contract and the due date or between
the due date and the demand date in cases when demand is necessary.

In this case, the mortgage contracts in this case were executed by Saturnino
Petalcorin in 1982. The maturity dates of FISLAIs loans were repeatedly extended until the
loans became due and demandable only in 1990. Respondent informed petitioner of its
decision to foreclose its properties and demanded payment in 1999.The running of the
prescriptive period of respondents action on the mortgages did not start when it executed
the mortgage contracts with Saturnino Petalcorin in 1982.The prescriptive period for filing
an action may run either (1) from 1990 when the loan became due, if the obligation was
covered by the exceptions under Article 1169 of the Civil Code; (2) or from 1999 when
31

respondent demanded payment, if the obligation was not covered by the exceptions under
Article 1169 of the Civil Code.

In either case, respondents Complaint with cause of action based on the mortgage
contract was filed well within the prescriptive period. However, under Article 1155 of the
Civil Code, prescription of actions may be interrupted by (1) the filing of a court action; (2)
a written extrajudicial demand; and (3) the written acknowledgment of the debt by the
debtor. Therefore, the running of the prescriptive period was interrupted when respondent
sent its demand letter to petitioner on June 18, 1999. This eventually led to petitioners
filing of its annulment of mortgage complaints before the Regional Trial Courts of Iligan City
and Cagayan De Oro City on July 16, 1999. Assuming that demand was necessary,
respondents action was within the ten (10)-year prescriptive period. Respondent
demanded payment of the loans in 1999 and filed an action in the same year.

2. No. The mortgage contracts executed in favor of respondent do not bind petitioner.
They were executed without authority from petitioner.

The relationship between a corporation and its representatives is governed by the


general principles of agency.Article 1317 of the Civil Code provides that there must be
authority from the principal before anyone can act in his or her name:

ART. 1317. No one may contract in the name of another without being authorized by the
latter, or unless he has by law a right to represent him.

Hence, without delegation by the board of directors or trustees, acts of a person


including those of the corporations directors, trustees, shareholders, or officersexecuted
on behalf of the corporation are generally not binding on the corporation. 114

Contracts entered into in anothers name without authority or valid legal representation
are generally unenforceable. The Civil Code provides:

ART. 1317. . . .

A contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is
revoked by the other contracting party.

The unenforceable status of contracts entered into by an unauthorized person on


behalf of another is based on the basic principle that contracts must be consented to by
both parties.115 There is no contract without meeting of the minds as to the subject matter
and cause of the obligations created under the contract. Consent of a person cannot be
presumed from representations of another, especially if obligations will be incurred as a
result. Thus, authority is required to make actions made on his or her behalf binding on a
person. Contracts entered into by persons without authority from the corporation shall
generally be considered ultra vires and unenforceable against the corporation.

Two trial courts found that the Secretarys Certificate and the board resolution were
either non-existent or fictitious. The trial courts based their findings on the testimony of
the Corporate Secretary, Aurora de Leon herself. She signed the Secretarys Certificate and
32

the excerpt of the minutes of the alleged board meeting purporting to authorize Saturnino
Petalcorin to mortgage petitioners properties. There was no board meeting to that effect.
Guillermo B. Torres ordered the issuance of the Secretarys Certificate. Aurora de Leons
testimony was corroborated by Saturnino Petalcorin.Even the Court of Appeals, which
reversed the trial courts decisions, recognized that "BSP failed to prove that the UM Board
of Trustees actually passed a Board Resolution authorizing Petalcorin to mortgage the
subject real properties."

Well-entrenched is the rule that this court, not being a trier of facts, is bound by the
findings of fact of the trial courts and the Court of Appeals when such findings are
supported by evidence on record. Hence, not having the proper board resolution to
authorize Saturnino Petalcorin to execute the mortgage contracts for petitioner, the
contracts he executed are unenforceable against petitioner. They cannot bind petitioner.

Respondent argues that it may rely on the Secretarys Certificate issued by Aurora de
Leon because it was notarized. The Secretarys Certificate was void whether or not it was
notarized. Notarization creates a presumption of regularity and authenticity on the
document. This presumption may be rebutted by "strong, complete and conclusive
proof" to the contrary. While notarial acknowledgment "attaches full faith and credit to the
document concerned[,]" it does not give the document its validity or binding effect. When
there is evidence showing that the document is invalid, the presumption of regularity or
authenticity is not applicable. Since the notarized Secretarys Certificate was found to have
been issued without a supporting board resolution, it produced no effect. It is not binding
upon petitioner. It should not have been relied on by respondent especially given its status
as a bank.

Further, The banking institution is "impressed with public interest" such that the
publics faith is "of paramount importance." Thus, banks are required to exercise the
highest degree of diligence in their transactions. In China Banking Corporation v. Lagon, this
court found that the bank was not a mortgagee in good faith for its failure to question the
due execution of a Special Power of Attorney that was presented to it in relation to a
mortgage contract. For its failure to exercise the degree of diligence required of banks,
respondent cannot claim good faith in the execution of the mortgage contracts with
Saturnino Petalcorin. Banks cannot rely on assumptions. This will be contrary to the high
standard of diligence required of them.

The Petition is GRANTED. The CA's Decision is REVERSED and SET ASIDE.

NISSAN CAR LEASE PHILS., INC., vs. LICA MANAGEMENT, INC. ET AL


G.R. No. 176986, January 13, 2016

NATURE OF ACTION: Extrajudicial foreclosure

TOPIC: Rescission of contract

PONENTE: JARDELEZA, J.:


33

FACTS;

Lica Management, Inc. (LMI) is the absolute owner of a property. On June 24, 1994,
it entered into a contract with Nissan Car Lease Phils. (Nissan) for the latter to lease the
property for a term of ten (10) years (or from July 1, 1994 to June 30, 2004) with a monthly
rental of 308,000.00 and an annual escalation rate of ten percent (10%). Sometime in
September 1994, NCLPI, with LMIs consent, allowed its subsidiary Nissan Smartfix
Corporation (NSC) to use the leased premises. Nissan became delinquent in paying the
monthly rent. In May 1996, Nissan and Lica verbally agreed to convert the arrearages into a
debt to be covered by a promissory note and twelve (12) postdated checks, each amounting
to 162,541.95 as monthly payments starting June 1996 until May 1997.

While Nissan was able to deliver the postdated checks per its verbal agreement with LMI, it
failed to sign the promissory note and pay the checks for June to October 1996. Thus, in a
letter dated October 16, 1996, LMI informed Nissan that it was terminating their Contract
of Lease due to arrears in the payment of rentals. It also demanded that Nissan (1) pay the
amount of 2,651,570.39 for unpaid rentals and (2) vacate the premises within five (5)
days from receipt of the notice. In the meantime Nissan entered into a Memorandum of
Agreement with Proton whereby the former agreed to allow Proton "to immediately
commence renovation work even prior to the execution of the Contract of Sublease x x x. In
consideration, Proton agreed to transmit to NCLPI a check representing three (3) months of
rental payments, to be deposited only upon the due execution of their Contract of Sublease.
Nissan through counsel, replied to LMIs letter of October 16, 1996 acknowledging the
arrearages incurred by it under their Contract of Lease. Claiming, however, that it has no
intention of abandoning the lease and citing efforts to negotiate a possible sublease of the
property. LMI filed a Complaint for sum of money with damages against for its unpaid
rentals, with interest and penalties, as well as exemplary damages, attorneys fees, and
costs of litigation.

In its Answer and Third-Party Complaint against Proton, Nissan alleged that LMI
and Proton "schemed" and "colluded" to unlawfully force Nissan from the premises.

Ruling of the Trial Court

The trial court ruled in favor of LMI. The trial court found that Nissan purposely
violated the terms of its contract with LMI when it failed to pay the required rentals and
contracted to sublease the premises without the latters consent.The CA denied Nissan
appeal and affirmed the trial courts decision with modification.

Nissan maintains that LMI cannot unilaterally and extrajudicially rescind their
Contract of Lease in the absence of an express provision in their Contract to that effect
because - the power to rescind is judicial in nature and the Supreme Court has allowed
extrajudicial rescission if such remedy is specifically provided for in the contract.

ISSUE:

Whether or not a contract may be rescinded extrajudicially despite the absence of a


special contractual stipulation therefor?

HELD:
34

Yes.

It is true that Nissan and LMIs Contract of Lease does not contain a provision
expressly authorizing extrajudicial rescission. LMI can nevertheless rescind the contract,
without prior court approval, pursuant to Art. 1191 of the Civil Code.

Art. 1191 provides that the power to rescind is implied in reciprocal obligations, in
cases where one of the obligors should fail to comply with what is incumbent upon him.
Otherwise stated, an aggrieved party is not prevented from extrajudicially rescinding a
contract to protect its interests, even in the absence of any provision expressly providing
for such right. The rationale for this rule was explained in the case of University of the
Philippines v. De los Angeles wherein this Court held:

[T]he law definitely does not require that the contracting party who believes itself
injured must first file suit and wait for a judgment before taking extrajudicial steps to
protect its interest. Otherwise, the party injured by the other's breach will have to
passively sit and watch its damages accumulate during the pendency of the suit until
the final judgment of rescission is rendered when the law itself requires that he
should exercise due diligence to minimize its own damages (Civil Code, Article 2203).
(Emphasis and underscoring supplied)

We are aware of this Courts previous rulings in Tan v. Court of Appeals, Iringan v.
Court of Appeals, and EDS Manufacturing, Inc. v. Healthcheck International, Inc., for example,
wherein we held that extrajudicial rescission of a contract is not possible without an
express stipulation to that effect.

The seeming "conflict" between this and our previous rulings, however, is more
apparent than real.

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. In Golden
Valley Exploration, Inc. v. Pinkian Mining Company, we explained:

This notwithstanding, jurisprudence still indicates that an extrajudicial rescission


based on grounds not specified in the contract would not preclude a party to treat
the same as rescinded. The rescinding party, however, by such course of action, subjects
himself to the risk of being held liable for damages when the extrajudicial rescission is
questioned by the opposing party in court. This was made clear in the case of U.P. v. De los
Angeles, wherein the Court held as follows:

Of course, it must be understood that the act of a party in treating a contract as


cancelled or resolved on account of infractions by the other contracting party must
be made known to the other and is always provisional, being ever subject to scrutiny
and review by the proper court. If the other party denies that rescission is justified, it
is free to resort to judicial action in its own behalf, and bring the matter to
court.Then, should the court, after due hearing, decide that the resolution of the
contract was not warranted, the responsible party will be sentenced to damages; in
the contrary case, the resolution will be affirmed, and the consequent indemnity awarded
to the party prejudiced.
35

In other words, the party who deems the contract violated may consider it
resolved or rescinded, and act accordingly, without previous court action, but
it proceeds at its own risk. For it is only the final judgment of the corresponding court
that will conclusively and finally settle whether the action taken was or was not
correct in law. x x x (Emphasis and underscoring in the original)

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."In fact, the rule is the same even if the parties contract expressly allows
extrajudicial rescission. The other party denying the rescission may still seek judicial
intervention to determine whether or not the rescission was proper.

Having established that LMI can extrajudicially rescind its contract with Nissan even
absent an express contractual stipulation to that effect, the question now to be resolved is
whether this extrajudicial rescission was proper under the circumstances.

As earlier discussed, Nissans non-payment of rentals and unauthorized sublease of


the leased premises were both clearly proven by the records. We thus confirm LMIs
rescission of its contract with Nissan on account of the latters breach of its obligations.

WHEREFORE, in view of the foregoing, the petition is DENIED.

REBECCA FULLIDO vs. GINO GRILLI


G.R. No. 215014, February 29, 2016

NATURE OF ACTION: Unlawful Detainer

TOPIC: VOID CONTRACT

PONENTE: MENDOZA, J.:

FACTS:
36

Grilli financially assisted Fullido in procuring a lot from her parents which was
registered in her name On the said property, they constructed a house, which was funded
by Grilli. Upon completion, they maintained a common-law relationship and lived there
whenever Grilli was on vacation in the Philippines twice a year.
In 1998, Grilli and Fullido executed a contract of lease, to define their respective rights over
the house and lot. The lease contract stipulated, among others, that Grilli as the lessee,
would rent the lot, registered in the name of Fullido, for a period of fifty (50) years, to be
automatically renewed for another fifty (50) years upon its expiration in the amount
of P10,000.00 for the whole term of the lease contract; and that Fullido as the lessor, was
prohibited from selling, donating, or encumbering the said lot without the written consent
of Grilli. Their harmonious relationship turned sour after 16 years of living together. Both
charged each other with infidelity. They could not agree who should leave the common
property, and Grilli sent formal letters to Fullido demanding that she vacate the property,
but these were unheeded. On September 8, 2010, Grilli filed a complaint for unlawful
detainer with prayer for issuance of preliminary injunction against Fullido before the MCTC

Fullido argues that she could not be ejected from her own lot based on the contract
of lease and the MOA because those documents were null and void for being contrary to the
Constitution, the law, public policy, morals and customs; that the MOA prevented her from
disposing or selling her own land, while the contract of lease favoring Grilli, a foreigner, was
contrary to the Constitution as it was a for a period of fifty (50) years, and, upon
termination, was automatically renewable for another fifty (50) years.

Grilli, on the other hand, contends that Fullido could not question the validity of the
said contracts in the present ejectment suit unless she instituted a separate action for
annulment of contracts. Thus, the Court is confronted with the issue of whether a contract
could be declared void in a summary action of unlawful detainer.

The MCTC dismissed the case after finding that Fullido could not be ejected from
their house and lot. The MCTC opined that she was a co-owner of the house as she
contributed to it by supervising its construction. The RTC reversed and set aside the MCTC
decision. The RTC was of the view that Grilli had the exclusive right to use and possess the
house and lot by virtue of the contract of lease executed by the parties.

The CA upheld the decision of the RTC emphasizing that in an ejectment case, the
only issue to be resolved would be the physical possession of the property. The CA was also
of the view that as Fullido executed both the MOA and the contract of lease, which gave
Grilli the possession and use of the house and lot, the same constituted as a judicial
admission that it was Grilli who had the better right of physical possession.

ISSUE:

May patently null and void contracts be a basis of an ejectment order?

HELD:

No.

A void or inexistent contract may be defined as one which lacks, absolutely either in
fact or in law, one or some of the elements which are essential for its validity. It is one which
37

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. 21Quod 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, there is no need for an action to set aside a void or inexistent contract.

A review of the relevant jurisprudence reveals that the Court did not hesitate to set
aside a void contract even in an action for unlawful detainer. In Spouses Alcantara v.
Nido, which involves an action for unlawful detainer, the petitioners therein raised a
defense that the subject land was already sold to them by the agent of the owner. The Court
rejected their defense and held that the contract of sale was void because the agent did not
have the written authority of the owner to sell the subject land.

Clearly, contracts may be declared void even in a summary action for unlawful
detainer because, precisely, void contracts do not produce legal effect and cannot be the
source of any rights. To emphasize, void contracts may not be invoked as a valid action or
defense in any court proceeding, including an ejectment suit. The next issue that must be
resolved by the Court is whether the assailed lease contract and MOA are null and void.

WHEREFORE, the petition is GRANTED.

JUANA VDA. DE ROJALES, SUBSTITUTED BY HER HEIRS, REPRESENTED BY CELERINA


ROJALES-SEVILLA, Petitioner, v. MARCELINO DIME, SUBSTITUTED BY HIS HEIRS,
REPRESENTED BY BONIFACIA MANIBAY, Respondent
G.R. No. 194548, February 10, 2016

NATURE OF ACTION: Petition for the Consolidation of Ownership and Title

TOPIC: Pacto de Retro Sale (Privity of contract)

PONENTE: PERALTA, J.:


38

FACTS:

Petitioner Juana Vda. de Rojales owned a parcel of land. Marcelino Dime alleged in a
petition for the consolidation of ownership and title over Lot 4-A that on May 16, 1999,
petitioner conveyed under a pacto de retro contract Lot 4-A in favor of respondent for and
in consideration of the sum of P2,502,932.10. Petitioner reserved the right to repurchase
the property for the same price within a period of nine (9) months from March 24, 1999 to
December 24, 1999. Despite repeated verbal and formal demands to exercise her right,
petitioner refused to exercise her right to repurchase the subject property.

Petitioner denied the execution of the pacto de retro sale in favor of respondent and
alleged that she had not sold the subject property. She claimed that the document
presented by respondent was falsified since the fingerprint appearing therein was not hers
and the signature of the Notary Public Modesto S. Alix was not his. She also averred that she
filed falsification and use of falsified documents charges against respondent. the NBI
submitted a copy of Dactyloscopic Report FP Case No. 2000-349 by Fingerprint Examiner
Eriberto B. Gomez, Jr. to the court. It was concluded therein that the questioned thumbmark
appearing on the original-duplicate copy of the notarized pacto de retro sale and the
standard right thumbmark, taken by Police Officer Marcelo Quintin Sosing, were impressed
by and belong to the same person, the petitioner

The heirs of Dime filed a Manifestation and Motion to Dismiss the Complaint on the
ground that it was Rufina Villamin, respondent's common law wife, who was the source of
the fund in purchasing Lot 4-A. They alleged that the consolidation of ownership and title to
respondent would be prejudicial to Villamin and would unjustly enrich them. Consequently,
the RTC, dismissed the case with prejudice on the ground that the case was not filed by an
indispensable party, Villamin and ratiocinated that it is a clear mistake to rule on the merits
of the case knowing that such was not filed by the indispensable party, hence, the judgment
will be void.The CA rejected the ruling of the court a quo that Villamin was an indispensable
party. It ruled that the person who provided the funds for the purchase of the property is
not considered as an indispensable party in a case of consolidation of title filed by
respondent, the vendee, in whose favor the petitioner sold the subject property under the
contract of sale con pacto de retro.

ISSUE:

Whether or not there is a pacto de retro sale.

HELD:

NO. As relevant to the case at bar, Articles 1311 and 1607 of the Civil Code Article
1311. Contracts take effect only between the parties, their assigns and heirs, except in
case where the rights and obligations arising from the contract are not transmissible by
their nature, or by stipulation or by provision of law. The heir is not liable beyond the value
of the property he received from the decedent. If a contract should contain some stipulation
in favor of a third person, he may demand its fulfillment provided he communicated his
acceptance to the obligor before its revocation. A mere incidental benefit or interest of a
39

person is not sufficient. The contracting parties must have clearly and deliberately
conferred a favor upon a third person.

As evidenced by the contract of Pacto de Retro sale, petitioner, the vendor, bound
herself to sell the subject property to respondent, the vendee, and reserved the right to
repurchase the same property for the same amount within a period of nine (9) months
from March 24, 1999 to December 24, 1999.Therefore, in an action for the consolidation of
title and ownership in the name of vendee in accordance with Article 1616 of the Civil Code,
the indispensable parties are the parties to the Pacto de Retro Sale - the vendor, the vendee,
and their assigns and heirs. In this case, Villamin, as the alleged source of the consideration,
is not privy to the contract of sale between the petitioner and the respondent. Therefore,
she could not maintain an action for consolidation of ownership and title of the subject
property in her name since she was not a party to the said contract.

We have consistently decreed that the nomenclature used by the contracting parties
to describe a contract does not determine its nature. The decisive factor is their intention -
as shown by their conduct, words, actions and deeds - prior to, during, and after executing
the agreement. Thus, even if a contract is denominated as a pacto de retro, the owner of the
property may still disprove it by means of parole evidence, provided that the nature of the
agreement is placed in issue by the pleadings filed with the trial court.Petitioner failed to
specifically allege in all her pleadings that she did not intend to sell her property to
respondent, instead, she maintained that there was no pacto de retro sale because her
thumbmark and the notary public's signature were falsified. She should have raised the
issue that respondent merely borrowed the title from her and promised to pay her in her
pleadings and not belatedly claimed the same after the NBI ruled that the thumbmark in
the contract was hers.

In light of petitioner's inconsistent and bare allegations and the conflicting


testimony of her other witness, we rule that petitioner failed to overcome the presumption
of regularity of the notarized contract of Pacto de Retro sale. Moreover, this Court is
unconvinced that petitioner has successfully proven that her agreement with respondent
was not a pacto de retro sale but a contract of loan secured by a mortgage of the subject
property.

WHEREFORE, the petition is hereby DENIED.

CATHAY PACIFIC AIRWAYS, LTD vs. SPOUSES ARNULFO AND EVELYN FUENTEBELLA
G. R. No. 188283, July 20, 2016

NATURE OF ACTION: Damages

TOPIC: Breach of contract of carriage

PONENTE: SERENO, C.J.:

FACTS:
40

In 1993, Congressmen Arnulfo Fuentebella (respondent Fuentebella), Alberto Lopez


(Cong. Lopez) and Leonardo Fugoso (Cong. Fugoso) to travel on official business to Sydney,
Australia, to confer with their counterparts in the Australian Parliament from 25 October to
6 November 1993.According to respondents, their travel arrangements, including the
request for the upgrade of their seats from Business Class to First Class, were made through
Cong. Lopez. Cathay admits that First Class tickets were issued to respondents, but
clarifies that the tickets were open-dated (waitlisted). There was no showing whether the
First Class tickets issued to Sps. Lopez and Sps. Fugoso were open-dated or otherwise, but it
appears that they were able to fly First Class on all the segments of the trip, while
respondents were not.

On 25 October 1993, discovered that they had not been given First Class seats when
they were denied entry into the First Class lounge. Fuentebella went back to the check-in
counter to demand that they be given First Class seats or at the very least, access to the
First Class Lounge. He recalled that he was treated by the ground staff in a discourteous,
arrogant and rude manner. He was allegedly told that the plane would leave with or without
them. Fuentebella filed Complaint for damages against Cathay Pacific Airways Ltd., a for
PI3 million in damages for the alleged besmirched reputation and honor, as well as the
public embarrassment they had suffered as a result of a series of involuntary downgrades
of their trip from Manila to Sydney via Hong Kong on 25 October 1993 and from Hong Kong
to Manila on 2 November 1993.

Cathay admitted that First Class tickets had been issued to respondents, but qualified
that those tickets were open-dated. 29 She referred to the plane tickets, which bore the
annotations "OPEN F OPEN" for all sectors of the flight. 30 Petitioner explained that while
respondents expressed their desire to travel First Class, they could not be accommodated
because they had failed to confirm and the sections were full on the date and time of their
scheduled and booked flights.31 Petitioner also denied that its personnel exhibited
arrogance in dealing with respondents; on the contrary, it was allegedly respondent
Fuentebella who was hostile in dealing with the ground staff.

RTC ruled in favor of respondents and awarded P5 million as moral damages, PI


million as exemplary damages, and P500,000 as attorney's fees.
Petitioner prays that the Complaint be dismissed, or in the alternative, that the damages be
substantially and equitably reduced. The CA affirmed the RTC Decision with the
modification that the attorney's fees be reduced to P100,000.

ISSUE:

Whether or not there was a breach of contract.

HELD:

Yes. There was a breach of contract.

In Air France v. Gillego this Court ruled that in an action based on a breach of contract
of carriage, the aggrieved party does not have to prove that the common carrier was at fault
or was negligent; all that he has to prove is the existence of the contract and the fact of its
nonperformance by the carrier.
41

In this case, both the trial and appellate courts found that respondents were entitled
to First Class accommodations under the contract of carriage, and that petitioner failed to
perform its obligation. The First Class tickets issued on 25 October 1993 indicate that they
were "issued in exchange for Tickets correspond to the Business Class tickets issued on 23
October 1993, which in turn originated from Ticket No. 160-4011239858 issued on 22
October 1993.With this information, We can conclude that petitioner may have been telling
the truth that the passengers made many changes in their booking. However, their claim
that respondents held both Business Class tickets and the open-dated First Class tickets is
untrue. We can also conclude that on the same day of the flight, petitioner still issued First
Class tickets to respondents. The incontrovertible fact, therefore, is that respondents were
holding First Class tickets on 25 October 1993.

WHEREFORE, the Petition is PARTIALLY GRANTED. Moral and exemplary damages


are hereby reduced to P500,000 and P50,000, respectively.

THELMA RODRIGUEZ, JOINED BY HER HUSBAND, Petitioners, v.SPOUSES JAIME


SIOSON AND ARMI SIOSON, ET AL., Respondents.
G.R. No. 199180, July 27, 2016

NATURE OF ACTION:

TOPIC: Contract of Sale vs. Contract to Sell

PONENTE: REYES, J.:


42

FACTS:

Sometime in 1997, the Municipality of Orani, Bataan (Municipality) purchased from


Neri Lot 398, , it was agreed that upon full payment of the purchase price, Neri will
surrender the mother title to the Municipality for subdivision of the property on the
condition that Neri will equitably share in the expense thereof.Lot 398 was subsequently
subdivided into 5 lots: Lot 398-A, Lot 398-B, Lot 398-C, Lot 398-D, and Lot 398-E. Lots 398-
C and 398-D pertain to the portions that were sold to the Municipality.The then Municipal
Mayor Mario Zun iga suggested that he sell Lot 398-A to his aunt, petitioner Thelma
Rodriguez (Thelma). Thelmaissued a check for said amount payable to Neri. When it fell
due, no sufficient funds were available to cover the check. Consequently, it was agreed that
Thelma would pay the purchase price in installments. Thelma, however, was only able to
pay P442,293.50.

After Thelma learned of the second sale of Lot 398-A, she filed against the
respondents a complaint for the Declaration of Nullity of the Second Sale. In support of her
claim, Thelma once again presented a deed of absolute sale executed by Neri in her favor.
This time, the deed of sale she presented was duly signed by her and Neri, witnessed,
notarized and dated April 10, 1997. The Siosons countered that they are innocent
purchasers for value having bought Lot 398-A at the time when Thelma's adverse claim was
already cancelled.

The RTC rendered judgment in favor of Thelma. The RTC concluded that by Neri's
admission that he sold the subject lot to Thelma for a consideration of P1,243,000.00, and
his acknowledgement receipt of P442,293.50 as partial payment from the latter, the
transaction between Thelma and Neri should be regarded as an executed contract of sale.
Hence, Lot 398-A was subjected to a double sale when Neri sold the same property to the
respondents.

Contrary to the findings of the RTC, the CA found that the contract between Neri
and Thelma was a mere contract to sell and not a contract of sale; hence, there was no
double sale of Lot 93 8-A. According to the CA, the question of whether or not the
respondents are buyers in good faith is unavailing since the concept of a "buyer in good
faith" finds relevance only in cases of double sale.

ISSUES:

(1) Whether or not there was a double sale?


(2) Whether or not the sale between Thelma and Neri is a mere contract to sell?;

HELD:

1. No. The rule on double sale, as provided in Article 1544 of the Civil Code, does
not apply to a case where there was a sale to one party of the land itself while the
other contract was a mere promise to sell the land or at most an actual
assignment of the right to repurchase the same land.

2. Yes. The real character of the contract is not the title given, but the intention of the
parties.

In determining the nature of the agreement between Thelma and Neri, the CA took
note of these two documents, and, coupled with Thelma's own admissions, correctly found
43

that it was a mere contract to sell. According to the CA:During trial, Thelma explained the
apparent disparity between the two (2) "deeds of absolute sale" by testifying that the undated
and unnotarized deed of sale served only as a "receipt" which was signed by Neri when the
latter received the downpayment for the lot. The dated and notarized deed of sale, on the
other hand, was signed by both Thelma and Neri upon Thelma's alleged full payment of the
purchase price:

Second, the execution of the "deed of absolute sale" dated August 10, 1997 and the
transfer and delivery of the title to Thelma's name covering Lot No. 398-A were conditioned
upon full payment of the purchase price.

Thelma testified that the "deed of absolute sale" dated August 10, 1997 and which
was attached to Thelma's complaint in Civil Case No. 7664 was signed by her, Neri and their
witnesses only upon full payment of the purchase price. Thelma further testified that she
and Neri agreed to place the amount of the purchase price on the deed of absolute sale only
at the time when Thelma had fully paid the same: x x x

Despite the denomination of their agreement as one of sale, the circumstances tend
to show that Neri agreed to sell the subject property to Thelma on the condition that title
and ownership would pass or be transferred upon the full payment of the purchase price.
This is the very nature of a contract to sell, which is a "bilateral contract whereby the
prospective seller, while expressly reserving the ownership of the property despite delivery
thereof to the prospective buyer, binds himself to sell the property exclusively to the
prospective buyer upon fulfillment of the condition agreed upon, i.e., the full payment of the
purchase price." As stated by the Court, the agreement to execute a deed of sale upon full
payment of the purchase price "shows that the vendors reserved title to the subject
property until full payment of the purchase price."

WHEREFORE, the petition is DENIED.

BONIFACIO DANAN vs. SPOUSES GREGORIO SERRANO AND ADELAIDA REYES


G.R. No. 195072, August 01, 2016

NATURE OF ACTION: Specific Performance

TOPIC: Contract to Sell

PONENTE: PERALTA, J.:

FACTS:
44

Respondents spouses Gregorio Serrano and Adelaida Reyes (Spouses Serrano) are the
registered owners of a parcel of land. Sometime in the years 1940 and 1950, when the
property was still co-owned by respondent Gregorio and his siblings, Gregorio's sisters,
Marciana and Felicidad, gave petitioner Bonifacio Danan and a certain Artemio Vitug
permission to possess 400 square meters each of the total estate and to build their homes
thereon in exchange for one cavan of palay every year. 5 Thereafter, in separate documents
denominated as "Agreement in Receipt Form" 6 dated June 27, 1976, Gregorio sold to
Bonifacio and Artemio their respective 400-square-meter portions of the property.
Bonifacio and Artemio paid the P2,000.00 upon the signing of the Agreement, they were
both unable to pay the balance of the purchase price when they fell due on June 30, 1977
and June 30, 1978.

A Complaint for specific performance was filed. Bonifacio and Artemio prayed that
judgment be rendered ordering the Spouses Serrano to sign, execute, and deliver the proper
deed of sale, together with the corresponding titles over the portions of land in their favor

Respondents spouses asserted that they are the owners of the subject properties; that
the possession thereof by Bonifacio and Artemio are merely by tolerance; and, that the
Agreements in Receipt Form dated June 27, 1976 are mere contracts to sell, of which failure
by the vendees to fully pay the price agreed thereon prevents the transfer of ownership
from the vendor to the vendees.

The RTC granted the Complaint of Bonifacio and Artemio and ordered the Spouses
Serrano to execute and sign the proper Deed of Sale, deliver the corresponding titles after
receiving the P4,000.00 balance.

The CA reversed and set aside the RTC Decision finding that the trial court seemed to
have failed to properly determine the true nature of the agreement between the parties for
being primarily impelled by supposed impulses of equity, stressing that Bonifacio and
Artemio were allegedly unschooled and easily induced by the wealthy spouses.

ISSUE:

Whether or not petitioner cannot demand respondent spouses serrano to transfer the
subject property because of his failure to comply with the suspensive condition of full
payment of the purchase price.

HELD:

YES. The nature of the agreement between the parties in this case is one that is akin to
a contract to sell.

Time and again, the Court had ruled that in a contract of sale, the title to the property
passes to the vendee upon the delivery of the thing sold whereas in a contract to sell, the
ownership is, by agreement, retained by the vendor and is not to pass to the vendee until
full payment of the purchase price. In a contract of sale, the vendee's non-payment of the
price is a negative resolutory condition, while in a contract to sell, the vendee's full payment
of the price is a positive suspensive condition to the coming into effect of the agreement.
Xxx

It is imperative to note, however, that in view of the nature of the agreement herein, a
contract to sell real property on installment basis, the provisions of RA No. 6552 must be
taken into account insofar as the rights of the parties in cases of default are concerned.
45

Thus, the rights of the buyer in the event he defaults in the payment of the succeeding
installments depend upon whether he has paid at least two (2) years of installments or less.
In the case at hand, it is undisputed that Bonifacio was only able to pay the first P2,000.00
installment upon the signing of their agreement, thereafter, failing to pay the balance of the
purchase price when they fell due on June 30, 1977 and June 30, 1978. It is, therefore,
Section 4 of RA No. 6552 that applies herein. Essentially, the said provision provides for
three (3) requisites before the seller may actually cancel the subject contract: first, the
seller shall give the buyer a sixty (60)-day grace period to be reckoned from the date the
installment became due; second, the seller must give the buyer a notice of
cancellation/demand for rescission by notarial act if the buyer fails to pay the installments
due at the expiration of the said grace period; and, third, the seller may actually cancel the
contract only after thirty (30) days from the buyer's receipt of the said notice of
cancellation/demand for rescission by notarial act.

Thus, when there is failure on the part of the seller to comply with the requirements
prescribed by RA No. 6552 insofar as the cancellation of a contract to sell is concerned, the
Court shall not hesitate in upholding the sale, albeit being subject to the full payment by the
buyer of the purchase price. .

In the instant case, there is no showing that the Spouses Serrano complied with the
requirements prescribed by RA No. 6552. Notwithstanding the failure by the spouses to
comply with the cancellation requirements under RA No. 6552, however, Bonifacio's action
for specific performance must nonetheless fail on the ground of prescription.
such action to enforce said written contract herein prescribes in ten (10) years reckoned
from the nonfulfillment of the obligation to pay on the last due date. Thus, Bonifacio should
have filed the action before June 30, 1988.

WHEREFORE, the instant petition is DENIED

SALES
SPOUSES ROBERTO and ADELAIDA PEN vs. SPOUSES SANTOS and LINDA JULIAN
G.R. No. 160408 January 11, 2016

NATURE OF THE ACTION: Foreclosure Proceedings

TOPIC: PACTUM COMMISSORIUM


46

PONENTE: BERSAMIN, J.:

FACTS:

The appellees (the Julians) obtained two (2) loans from appellant Adelaida Pen. Two
(2) promissory notes were executed by the appellees in favor of Adelaida to evidence the
foregoing loans. Both Joans were charged interest at 6% per month. As security, on May 23,
1986, the Julians executed a Real Estate Mortgage over their real property registered under
the name of Santos Julian, which was delivered to Adelaida.When the loans became due
and demandable, they failed to pay. Hence, Adelaida decided institute foreclosure
proceedings. However, she was prevailed upon by Linda not to foreclose the property and
instead offered their mortgaged property as payment in kind. The Julians executed a Deed
of Sale. Title to the property was transferred to Adelaida. Linda offered twice to repurchase
the property payable in cash but failed to repurchase the same. Linda offered to pay
P100,000.00 in cash as sign of good faith. The offer was rejected by appellant Adelaida.
However, Adelaida held the money only for safekeeping upon the pleading of appellee
Linda. Upon the agreement of the parties, the amount of P100,000.00 was deducted from
the balance of the appellees' indebtedness, however, allege that instead of paying their
balance, the Julians instituted a civil complaint and filed an adverse claim and lis pendens.

On the other hand, the Julians aver that at that time the mortgage was executed, they
were likewise required by Adelaida to sign a one (1) page document purportedly an
"Absolute Deed of Sale". Said document did not contain any consideration, and was
"undated, unfilled and unnotarized". Linda Julian offered to pay appellant Adelaida the
amount of P150,000.00. The latter refused to accept the offer and demanded that she be
paid the amount of P250,000.00. Unable to meet the demand, Linda desisted from the offer
and requested that she be shown the land title which she conveyed to Adelaida, but the
latter refused. Upon verification with the Registry of Deeds of Quezon City, she was
informed that the title to the mortgaged property had already been registered in the name
of Adelaida. Linda filed an Affidavit of Adverse Claim and formally demanded the
reconveyance of the title and/or the property to them, but the appellants refused. Linda
also discovered that Adelaida have obtained several Declarations of Real Property, and a
Deed of Sale which indicates a consideration of P70,000.00 for the lot, and was made to
appear as having been executed on October 22, 1986. The Julians filed a suit for the
Cancellation of Sale, Cancellation of Title issued to the appellants; Recovery of Possession;
Damages with Prayer for Preliminary Injunction. The complaint alleged that appellant
Adelaida, through obvious bad faith, maliciously typed, unilaterally filled up, and caused to
be notarized the Deed of Sale earlier signed by Julians and used this spurious deed of sale
as the vehicle for her fraudulent transfer unto herself the parcel of land

The RTC ruled in favor of the respondents that the parties had not agreed on the
consideration for the sale at the time they signed the deed of sale; that in the absence of the
consideration, the sale lacked one of the essential requisites of a valid contract. The CA
pronounced the deed of sale as void but not because of the supposed lack of consideration
as the R TC had indicated, but because of the deed of sale having been executed at the same
time as the real estate mortgage, which rendered the sale as a prohibited pactum
commissorium in light of the fact that the deed of sale was blank as to the consideration and
the date, which details would be filled out upon the default by the respondents.
47

ISSUE:

Whether or not the deed of sale is valid?

HELD:

The Deed of Sale is void. Article 2088 of the Civil Code prohibits the creditor from
appropriating the things given by way of pledge or mortgage, or from disposing of
them; any stipulation to the contrary is null and void. 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. The first element was
present considering that the property of the respondents was mortgaged by Linda in favor
of Adelaida as security for the farmer's indebtedness. As to the second, the authorization
for Adelaida to appropriate the property subject of the mortgage upon Linda's default was
implied from Linda's having signed the blank deed of sale simultaneously with her signing
of the real estate mortgage. The haste with which the transfer of property was made upon
the default by Linda on her obligation, and the eventual transfer of the property in a
manner not in the form of a valid dacion en pago ultimately confirmed the nature of the
transaction as a pactum commissorium.

It is notable that in reaching its conclusion that Linda's deed of sale had been
executed simultaneously with the real estate mortgage, the CA first compared the unfilled
deed of sale presented by Linda with the notarized deed of sale adduced by Adelaida. The
CA justly deduced that the completion and execution of the deed of sale had been
conditioned on the non-payment of the debt by Linda, and reasonably pronounced that
such circumstances rendered the transaction pactum commissorium. The Court should not
disturb or undo the CA's conclusion in the absence of the clear showing of abuse,
arbitrariness or capriciousness on the part of the CA.

The petitioners have theorized that their transaction with the respondents was a
valid dacion en pago by highlighting that it was Linda who had offered to sell her property
upon her default. Their theory cannot stand scrutiny. Dacion en pago is in the nature of a
sale because property is alienated in favor of the creditor in satisfaction of a debt in
money. For a valid dacion en pago to transpire, however, the attendance of the following
elements must be established, namely: (a) the existence of a money obligation; (b) the
alienation to the creditor of a property by the debtor with the consent of the former; and (c)
the satisfaction of the money obligation of the debtor. To have a valid dacion en
pago, therefore, the alienation of the property must fully extinguish the debt. Yet, the debt
of the respondents subsisted despite the transfer of the property in favor of Adelaida.

The petitioners insist that the parties agreed that the deed of sale would not yet
contain the date and the consideration because they had still to agree on the price. Their
insistence is not supported by the established circumstances. It appears that two days after
the loan fell due on October 15, 1986, Linda offered to sell the mortgaged property; hence,
the parties made the ocular inspection of the premises on October 18, 1986. By that time,
Adelaida had already become aware that the appraiser had valued the property at
48

P70,000.00. If that was so, there was no plausible reason for still leaving the consideration
on the deed of sale blank if the deed was drafted by Adelaida on October 20, 1986,
especially considering that they could have conveniently communicated with each other in
the meanwhile on this significant aspect of their transaction. It was also improbable for
Adelaida to still hand the unfilled deed of sale to Linda as her copy if, after all, the deed of
sale would be eventually notarized on October 22, 1986.

According to Article 1318 of the Civil Code, the requisites for any contract to be valid
are, namely: (a) the consent of the contracting parties; (b) the object; and (c) the
consideration. There is a perfection of a contract when there is a meeting of the minds of
the parties on each of these requisites. Xxx In a sale, the contract is perfected at the moment
when the seller obligates herself to deliver and to transfer ownership of a thing or right to
the buyer for a price certain, as to which the latter agrees. The absence of the consideration
from Linda's copy of the deed of sale was credible proof of the lack of an essential requisite
for the sale. In other words, the meeting of the minds of the parties so vital in the perfection
of the contract of sale did not transpire. And, even assuming that Linda's leaving the
consideration blank implied the authority of Adelaida to fill in that essential detail in the
deed of sale upon Linda's default on the loan, the conclusion of the CA that the deed of sale
was a pactum commisorium still holds, for, as earlier mentioned, all the elements of pactum
commisorium were present.

WHEREFORE, the Court AFFIRMS the decision of the CA.

FABIO CAHAYAG and CONRADO RIVERA, Petitioners,


vs.
COMMERCIAL CREDIT CORPORATION, represented by its President, LEONARDO B.
ALEJANDRO; TERESITA T. QUA, assisted by her husband ALFONSO MA. QUA; and the
REGISTER OF DEEDS OF LAS PINAS, METRO MANILA, DISTRICT IV, Respondents.
G.R. No. 168078
G.R. No. 168357 January 13, 2016

NATURE OF THE ACTION: Extra Judicial Foreclosure


49

TOPIC: Nemo dat quad non ha bet

PONENTE: SERENO, J.:

FACTS:

Petitioner Dulos Realty was the registered owner of certain residential lots covered
by several Transfer Certificate of Titles. Dulos Realty obtained a loan from respondent CCC
in the amount of P300,000. To secure the loan, Dulos executed a Real Estate Mortgage over
the subject properties in favor of respondent. The mortgage was duly annotated on the
certificates of title on 3 February 1981. Dulos Realty entered into a Contract to Sell with
petitioner Cahayag over the lot covered by TCT No. S-39775. Dulos Realty entered into
another Contract to Sell, this time with petitioner Rivera over the lot covered by TCT No. S-
28335.

Dulos Realty defaulted in the payment of the mortgage loan, prompting respondent
CCC to initiate extrajudicial foreclosure proceedings. In the auction sale, CCC was held the
the highest bidder. a Certificate of Sale covering the properties, together with all the
buildings and improvements existing thereon, was issued in favor of CCC. Thereafter, Dulos
Realty entered into a Contract to Sell with petitioner Escalona over the house and lot
covered by TCT No. S-29776.Subsequently, corresponding titles to the properties. TCT Nos.
S-39775, S-28335, S-29776 - all in the name of Dulos Realty - were cancelled and TCT Nos.
74531, 74532, 74533 and 74534 were issued in the name of respondent CCC on the same
day.

Respondent CCC, through a Deed of Absolute Sale, sold to respondent Qua the same
subject properties, Accordingly, TCT Nos. 74531, 74532, 74533 and 74534 were cancelled;
and TCT Nos. 77012, 77013, 77014 and 770015 were issued to respondent Qua.
Subsequently, respondent Qua filed ejectment suits individually against petitioners Dulos
Realty, Cahayag,Esca1ona, and Rivera .

The MTC rendered Decisions in favor of respondent Qua. It ordered Dulos Realty,
Escalona, Cahayag, and Rivera to vacate the properties.

Petitioners filed a Complaint against respondents for the "Annulment of Sherifffs]


Sale and Other Documents with Preliminary Injunction and/or Temporary Restraining
Order" The Complaint alleged that petitioners Cahayag, Rivera, Escalona and Baldoza were
owners of the properties in question by virtue of Contracts of Sale individually executed in
their favor, and that the Real Estate Mortgage between Dulos Realty and defendant-
appellant CCC did not include the houses, but merely referred to the lands
themselves. Thus, the inclusion of the housing units in the Deed of Sale executed by
respondent CCC in favor of respondent Qua was allegedly illegal.

The RTC rendered a Decision, which ruled that the houses were not included in the
Real Estate Mortgage; and that the foreclosure of the mortgage over the subject lots, as well
as the housing units, was not valid.

Petitioners claim that the List of Properties attached to the Deed of Real Estate
Mortgage refers merely to the lands themselves and does not include the housing units
found thereon. As backup argument for the theory that the houses are outside the coverage
50

of the mortgage agreement, petitioners argue that the improvements were not owned by
Dulos Realty, the mortgagor, but by its buyers under the Contracts to Sell and Contracts of
Sale; hence, those improvements are excluded from the coverage of the real estate
mortgage.

Also, petitioners challenge the validity of the foreclosure sale on the ground that the
mortgage executed by the mortgagor (petitioner Dulos Realty) and the mortgagee
(respondent CCC) was null and void. 38 Petitioners claim that Dulos Realty was no longer the
owner of the properties it had mortgaged at the time of the execution of the mortgage
contract, as they were sold under existing Contracts to Sell and Deed of Absolute Sale

Petitioners also, claim that respondent CCC cannot claim to be a mortgagee in good
faith, since it is a financial institution. As such, respondent CCC knew that it was dealing
with a subdivision developer, which was in the business of selling subdivision lots.

CA held that the extrajudicial foreclosure was valid, since the Real Estate Mortgage
clearly included the buildings and improvements on the lands, subject of the mortgage.

ISSUES:

1. Whether the real mortgage covers the lands only, as enumerated in the Deed of
Real Estate Mortgage or the housing units as well;

2.Whether Dulos Realty was the owner of the properties it had mortgaged at the
time of its execution in view of the various Contracts to Sell and Deed of Absolute Sale
respectively executed in favor of petitioners Cahayag, Rivera, Escalona and Cahayag?

HELD:

No.

It is true that the List of Properties attached to the Deed of Real Estate Mortgage
refers merely to the lands themselves and does not include the housing units found
thereon. A plain reading of the Real Estate Mortgage, however, reveals that it covers
the housing units as well. We quote the pertinent provision of the agreement:

[T]he MORTGAGOR has transferred and conveyed and, by these presents, do


hereby transfer and convey by way of FIRST MORTGAGE unto the
MORTGAGEE, its successors and assigns the real properties described in the
list appearing at the back of this document and/or in a supplemental
document attached hereto as Annex "A" and made and integral part
hereof, together with all the buildings and/or other improvements now
existing or which may hereafter be place[d] or constructed thereon, all
of which the MORTGAGOR hereby warrants that he is the absolute owner and
exclusive possessor thereof, free from all liens and encumbrances of whatever
kind and nature. xxx.47 (Emphasis Ours)

Thus, the housing units would fall under the catch-all phrase "together with all the
buildings and/or other improvements now existing or which may hereafter be placed
or constructed thereon."
51

The contra proferentem rule finds no application to this case. The doctrine provides
that in the interpretation of documents, ambiguities are to be construed against the
drafter.48 By its very nature, the precept assumes the existence of an ambiguity in the
contract, which is why contra proferentem is also called the ambiguity doctrine. In this case,
the Deed of Real Estate Mortgage clearly establishes that the improvements found on the
real properties listed therein are included as subject-matter of the contract. It covers not
only the real properties, but the buildings and improvements thereon as well.

2.No.

Undeniably, there is an established rule under the law on sales that one cannot give
what one does not have (Nemo dat quad non ha bet).73 The CA, however, confuses the
application of this rule with respect to time. It makes the nemo dat quad non habet rule a
requirement for the perfection of a contract of sale, such that a violation thereof goes into
the validity of the sale. But the Latin precept has been jurisprudentially held to apply to a
contract of sale at its consummation stage, and not at the perfection stage.

Cavite Development Bank v. Spouses Syrus Lim puts nemo dat quad non habet in its
proper place. Initially, the Court rules out ownership as a requirement for the perfection of
a contract of sale. For all that is required is a meeting of the minds upon the object of the
contract and the price. The case then proceeds to give examples of the rule. It cites Article
1434 of the Civil Code, which provides that in case the seller does not own the subject
matter of the contract at the time of the sale, but later acquires title to the thing sold,
ownership shall pass to the buyer. The Court also refers to the rule as the rationale behind
Article 1462, which deals with sale of "future goods."

Cavite Development Bank thereafter turns to Article 1459, which requires ownership
by the seller of the thing sold at the time of delivery or consummation stage of the
sale. The Court explains that if the rule were otherwise, the seller would not be able to
comply with the latter's obligation to transfer ownership to the buyer under a perfected
contract of sale. The Court ends the discourse with the conclusion that "[i]t is at the
consummation stage where the principle of nemo dat quad non habet applies.76

Case law also provides that the fact that the seller is not the owner of the subject
matter of the sale at the time of perfection does not make the sale void.

Hence, the lesson: for title to pass to the buyer, the seller must be the owner of the
thing sold at the consummation stage or at the time of delivery of the item sold. The seller
need not be the owner at the perfection stage of the contract, whether it is of a contract to
sell or a contract of sale. Ownership is not a requirement for a valid contract of sale; it is a
requirement for a valid transfer of ownership'.

Consequently, it was not correct for the CA to consider the contract of sale void. The
CA erroneously considered lack of ownership on the part of the seller as having an effect on
the validity of the sale. The sale was very much valid when the Deed of Absolute Sale
between the parties was executed on 10 December 1983, even though title to the property
had earlier been consolidated in favor of respondent CCC as early as 10 November 1983.
The fact that Dulos Realty was no longer the owner of the property in question at the time
of the sale did not affect the validity of the contract.
52

On the contrary, lack of title goes into the performance of a contract of sale. It is
therefore crucial to determine in this case if the seller was the owner at the time of delivery
of the object of the sale. For this purpose, it should be noted that execution of a public
instrument evidencing a sale translates to delivery. It transfers ownership of the item sold
to the buyer.

In this case, the delivery coincided with the perfection of the contract -The Deed of
Absolute Sale covering the real property in favor of petitioner Baldoza was executed on 10
December 1983. As already mentioned, Dulos Realty was no longer the owner of the
property on that date. Accordingly, it could not have validly transferred ownership of the
real property it had sold to petitioner.

Thus, the correct conclusion that should be made is that while there was a valid sale,
there was no valid transfer of title to Baldoza, since Dulos Realty was no longer the owner
at the time of the execution of the Deed of Absolute Sale.

WHEREFORE, premises considered, the Petitions are DENIED.

TIMOTEO BACALSO and DIOSDADA BACALSO vs. GREGORIA B. ACA-AC ET AL.,


G.R. No.172919, January 13, 2016

NATURE OF THE ACTION: Declaration of nullity of documents, certificates of title.

TOPIC: Sale (consideration)

PONENTE: REYES, J.:

FACTS:
53

The Bacus siblings were the registered owners of a parcel of land covered by
Transfer Certificate of Title (TCT) No. 59260. The Bacus siblings inherited the said property
from their mother (Matea Bacalso). the Bacus siblings executed a Deed of Absolute Sale
conveying a portion of Lot No. 1809-G-2 with an area of 271 sq m, described as Lot No.
1809-G-2-C, in favor of their cousin, Timoteo for and in consideration of the amount of
P8,000.00. However, Timoteo, together with his sisters Lucena and Victoria and some of his
cousins filed a complaint for declaration of nullity of documents, certificates of title,
reconveyance of real property and damages against the Bacus siblings and four other
persons before the RTC of Cebu. They claimed that they are co-owners of the three-fourths
portion of Lot No. 1809-Gas Bacus Mother (Matea) had paid for the said property for and in
behalf of her brother Alejandro (father of petitioner Timoteo) and sisters Perpetua and
Liberata, all surnamed Bacalso. The RTC found that Matea was the sole owner of Lot No.
1809-G and affirmed the validity of the conveyances of portions of Lot No. 1809-G made by
her children. The same was aflirmed by the CA in a Decision dated March 23, 1992 and
became final and executory on April 15, 1992.

Timoteo and Diosdada Bacalso (petitioners) filed another complaint for declaration
of nullity of contract and certificates of title, reconveyance and damages against the Bacus
siblings, this time claiming ownership over Lot No. 1809-G-2-C by virtue of the Deed of
Absolute Sale dated October 15, 1987. They claimed, however, that the Bacus siblings
reneged on their promise to cause the issuance of a new TCT in the name of the
petitioners.In their answer, the Bacus siblings denied the allegations of the petitioners and
claimed that the alleged sale of Lot No. 1809-G-2-C in favor of the petitioners did not push
through because the petitioners failed to pay the purchase price thereof.

On April 19, 2000, the RTC issued a Decision declaring the Deed of Absolute Sale
dated October 15, 1987 void for want of consideration after finding that the petitioners
failed to pay the price of the subject property. the CA affirmed the ruling of the RTC.

ISSUES:

Whether the Deedof Absolute Saledated 15 OCTOBER 1987 is null and void ab
initio for failure or want of consideration?

Held:

The sale is void. Well-settled is the rule that where there is no consideration, the sale
is null and void ab initio (Sps. Lequin v. Sps. Vizconde).

In the Civil Code, a contract is a meeting of minds, with respect to the other, to give
something or to render some service. Article 1318 provides:

Art. 1318. There is no contract unless the following requisites concur:

(l) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.


54

In the case at bar, the petitioners argue that the Deed of Absolute Sale has all the
requisites of a valid contract. The petitioners contend that there is no lack of consideration
that would prevent the existence of a valid contract. They assert that the testimonies of
Timoteo and witness Roberto Ybas sufficiently established that the purchase price of
P5,000.00 for Lot No. 1809-G-2-C was paid to Julian at Sto. Nifio Church in Cebu City before
the execution of the Deed of Absolute Sale. They also claim that even assuming that they
failed to pay the purchase price, such failure does not render the sale void for being
fictitious or simulated, rather, there is only non-payment of the consideration within the
period agreed upon for payment.

The Court does not agree.

Contrary to the petitioners' claim, this is not merely a case of failure to pay the
purchase price which can only amount to a breach of obligation with rescission as the
proper remedy. As correctly observed by the RTC, the disputed sale produces no effect and
is considered void ab initio for failure to or want of consideration since the petitioner failed
to pay the consideration stipulated in the Deed of Absolute Sale. The trial court's discussion
on the said issue, as affirmed by the CA, is hereby quoted:

From the totality of the evidence adduced in this case which it scrutinized and
evaluated, it has come up with a finding that there was failure or want of consideration of
the Deed of Sale of Lot 1809-G-2-C executed in favor of the [petitioners] on October 15,
1987. The Court is morally and sufficiently convinced that [Timoteo] had not paid to the
[Bacus siblings] the price for the said land. This fact has been competently and
preponderantly established by the testimony in court of [Julian]. [Julian] made the
following narration in his testimony:

Sometime in October 1987, he and his two sisters agreed to sell to the [petitioners]
Lot No. 1809-G-2-C because they needed money for the issuance of the titles to the four lots
into which Lot 1809-G-2 was subdivided. [Timoteo] lured him and his sisters into selling
the said land by his promise and representation that money was coming from his sister,
Lucena Bacalso, from Jolo, Sulu. Timoteo Bacalso asked for two weeks within which to
produce the said money. However, no such money came. To the shock and surprise of him
and his sisters, a complaint was filed in Court against them in Civil Case No. CEB-6693 by
[Timoteo], together with nine others, when Lucena Bacalso arrived from Jolo, Sulu, wherein
they claimed as theirs Lot 1809-G. Instead of being paid, he and his sisters were sued in
Court. From then on, [Timoteo] never cared anymore to pay for Lot 1809-G-2-C. He and his
sisters just went through the titling of Lots 1809-G-A, 1809-G-2-B, Lot 1809-G-2-C and
1809-G-2-D on their own.

On his part, [Timoteo] himself acted in such a manner as to confirm that he did not
anymore give significance or importance to the Deed of Sale of Lot 1809-G-2-C which, in
turn, creates an impression or conclusion that he did not pay Jor the consideration or price
thereof. Upon being cross-examined in Court on his testimony, he made the following
significant admissions and statements:

1. That he did not let [Julian] sign a receipt for the sum of P8,000.00
purportedly given by him to the latter as payment for the land in
question;
55

2. That the alleged payment of the said sum of P8,000.00 was made
not in the presence of the notary public who notarized the document
but in a place near Sto. Nino Church in Cebu City;

3. That it was only [Julian] who appeared before the notary public, but
he had no special power of attorney from his two sisters;

4. That the Deed of Sale of Lot 1809-G-2-C was already in his


possession before Civil Case No. CEB-6693 was filed in court;

5. That he did not however show the said Deed of Sale to his lawyer
who filed for the plaintiffs the complaint in Civil Case No. CEB 6693, as
in fact he suppressed the said document from others;

6. That he did not bother to cause the segregation of Lot 1809-G-2-C


from the rest of the lots even after he had already bought it already;

7. That it was only after he lost in Civil Case No. CEB-6693 that he
decided to file the present case;

8. That he did not apply for building permits for the three houses that
he purportedly caused to be built on the land in question;

9. That he did not also declare for taxation purposes the said alleged
houses;

10. That he did not declare either for taxation purposes the land in
question in his name or he had not paid taxes therefore; and

11. That he did not bother to register with the Registry of Deeds for
the Province of Cebu the Deed of Sale of the lot.1a\^/phi1

To the mind of the Court, [Timoteo] desisted from paying to [the Bacus siblings] the
price for Lot 1809-G-2-C when he, together with nine others, filed in Court the complaint in
Civil Case No. CEB-6693. He found it convenient to just acquire the said land as supposed
co-owners.

Thus, it is evident from all the foregoing circumstances that there was a failure to or
want of consideration of the supposed sale of the land in question to the [petitioners] on
October 15, 1987. So, the said sale could not be given effect. Article 1352 of the New Civil
Code of the Philippines is explicit in providing that 'contracts without cause produce no
effect whatsoever'. If there is no cause, the contract is void. x x x There being no price paid,
there is no cause or consideration; hence, the contract is void as a sale. x x x Consequently,
in the case at bench, the plaintiffs have not become absolute owners of Lot 1809-G-2-C of
Psd-07-022093 by virtue of the Deed of Sale thereof which was executed on October 15,
1987 by the [Bacus siblings] in their favor.

It is clear from the factual findings of the RTC that the Deed of Absolute Sale entirely
lacked consideration and, consequently, void and without effect. No portion of the
56

P8,000.00 consideration indicated in the Deed of Absolute Sale was ever paid by the
petitioners.1wphi1

It must be stressed that the present case is not merely a case of failure to pay the
purchase price, as [the petitioners] claim, which can only amount to a breach of obligation
with rescission as the proper remedy. What we have here is a purported contract that lacks
a cause - one of the three essential requisites of a valid contract. Failure to pay the
consideration is different from lack of consideration. The former results in a right to
demand the fulfillment or cancellation of the obligation under an existing valid contract
while the latter prevents the existence of a valid contract. Consequently, we rule that the
October 15, 1987 Deed of Sale is null and void ab initio for lack of consideration. 20 (Citation
omitted)

WHEREFORE, petition is DENIED.

HELEN B. LUKBAN vs. OPTIMUM DEVELOPMENT BANK


January 20, 2016 G.R. No. 205785

NATURE OF ACTION: Cancellation of Transfer Certificate Title

TOPIC: Auction sale of tax delinquent real properties

PONENTE: CARPIO,J

FACTS:
57

On 18 August 2005, the City Treasurer's Office of Marikinaconducted an auction sale


of tax delinquent real properties, which included the real property of Melba T. Atienza.
Petitioner Helen B. Lukban was the highest and winning bidder of the property during the
public auction. On 25 August 2005, the City Treasurer issued Petitioner Lukban a Certificate
of Sale of Delinquent Real Property to Purchaser, acknowledging receipt of her payment.
Petitioner Lukban then paid the realty taxes, capital gains tax, documentary stamp tax, and
all other internal revenue taxes due on the property.

On 10 June 2008, Lukban filed a petition for the cancellation of TCT No. 234408 and
the issuance by the Register of Deeds of Marikina City a new TCT in her favor. The case was
raffled to the Regional Trial Court of Marikina City. The trial court found that there was an
entry on TCT No. 234408 annotating a prior Notice of Levy in favor of Capitol Bank,
denominated as Entry No. 285574/T-No. 234408 - Mortgage. It was annotated more than
12 years ahead of the Notice of Levy for tax delinquency. The trial court noted that there
was a possibility that the owner's duplicate certificate of title was not with Atienza but with
Capitol Bank. The trial court further noted that while Lukban provided it with Atienza's
address, she did not furnish the trial court with Capitol Bank's address. The trial court
ordered Lukban to provide it with Capitol Bank's correct address so that it could be notified
of the case as a party in interest. Lukban sought the help of the Marikina Register of Deeds
but it could not provide her with Capitol Bank's address.

The trial court then issued an Order setting the continuance of the proceedings on
27 November 2008 and the initial presentation of evidence on 3 December 2008.

ISSUE:

Whether or not the Court of Appeals committed a reversible error in setting aside
the trial courts Decision on the ground that the registered owner did not receive a copy of
the notice of auction sale.

HELD:

No. Only the registered owner of the property is deemed the taxpayer who is
entitled to a notice of delinquency and other proceedings relative to the tax sale. In this
case, Atienza received the Warrant of Levy and the Notice of Sale. Whether Atienza received
the Notice of Public Auction is a factual issue that was not raised by Optimum Bank because
it is an issue that only Atienza, being the registered owner, can raise.

We do not find merit in the claim of Optimum Bank that the issuance of a new TCT in
favor of Lukban will impair its rights as a mortgagee. The trial court made a clear ruling on
this. It stated:

As for the opposition interposed in the instant petition by the oppositor, Optimum
Development Bank, the Court deemed that in the issuance of a new title under petitioner's
name, the oppositor's rights as a mortgagee should be annotated in the new title. This is in
line with the pronouncement in Ligon v. CA that, "It (the mortgage) is inseparable from the
property mortgaged as it is a right in rem - a lien on the property whoever its owner may
be. It subsists notwithstanding a change in ownership; in short, the personality of the
owner is disregarded. Thus, all subsequent purchasers must respect the mortgage whether
58

the transfer to them be with or without the consent of the mortgage, for such mortgage
until discharged follows the property."

In the dispositive portion of its Decision, the trial court mandated that "[t]he
mortgage annotated on the subject title shall be incorporated in or carried over to the new
transfer certificate of title and its duplicates and shall also contain a memorandum of the
annulment of the outstanding duplicate." In short, the rights of Optimum Bank as a
mortgagee are amply protected, both by the Decision and by Section 180 of R.A. No. 7160,
despite the cancellation of the old TCT and the issuance of a new TCT in favor of Lukban.
Even in the petition before this Court, Lukban stressed that she never alleged and prayed
for the cancellation of the encumbrances on TCT No. 234408.

We do not subscribe to Optimum Bank's view that it is entitled to the Notice of Sale
so that it may exercise its right to redeem the property. Section 260 of R.A. No. 7160 states:

Section 260. Advertisement and Sale. - x x x.

Within thirty (30) days after the sale, the local treasurer or his deputy shall make a
report of the sale to the sanggunian concerned, and which shall form part of his records.
The local treasurer shall likewise prepare and deliver to the purchaser a certificate of sale
which shall contain the name of the purchaser, a description of the property sold, the
amount of the delinquent tax, the interest due thereon, the expenses of sale and a brief
description of the proceedings: Provided, however, That proceeds of the sale in excess of
the delinquent tax, the interest due thereon, and the expenses of sale shall be remitted to
the owner of the real property or person having legal interest therein.

Clearly, only the registered owner is entitled to the Notice of Sale xxx

OSCAR S. VILLARTA vs. GAUDIOSO TALAVERA, JR.,


G.R. No. 208021, February 03, 2016

NATURE OF ACTION: Reformation of Contract

TOPIC: Equitable Mortgage

PONENTE: CARPIO, J.:

FACTS:

Oscar Villarta (Villarta) filed the complaint a quo for reformation of contracts
Gaudioso Talavera, Jr. (Talavera) he owned four parcels of land; sometime in 1993, he
59

ventured into treasure hunting activites; in order to infuse his much needed capital, he
obtained several loans from Talavera who was a distant relative; as of 1996, his loan already
reached P800,000.00, inclusive of 3% interest per month; he religiously paid the interest,
but when the 1997 financial crisis struck, Talavera raised the interest to a rate between 7%
and 10%; in 1995, Talavera employed insidious words and machinations in convincing him
to execute a deed of absolute sale over TCT No. T-130095; however, the real agreement was
that the lot would only serve as security for the several loans he obtained; in 1997, he was
again convinced to execute two more deeds of conveyance over the his two lots,
respectively; in 2001, he was informed that his loan had already reached P2,000,000.00 and
since the 3 parcels of land were no longer sufficient to cover the loan, he was further
convinced to mortgage to Maybank additional real properties, on top of the 3 parcels of
land, to secure a P50 million loan; when Talavera realized that his loan was going to be
approved, the former demanded that he execute a deed of absolute sale over the lot, yet, the
real agreement was that the lot would only serve as collateral suit.

Talavera, Jr. averred: even before 1996, Villarta had been obtaining loans from him;
during their early transactions secured by the lot covered by TCT T-130095, and, the
amount of P526.552.00, by appellant's two lots covered by TCT T-12142 and TCT T-53252;
when the two checks were presented for payment, they were dishonored due to account
since the latter could no longer raise the sum to pay off his loans, and, instead offered his
properties, offered to transfer these titles to his nameand were delivered to him via
Villartas s two deeds of absolute sale; the transfer of the properties to him was by virtue of
dacion en pago.

The RTC rendered ruled in favor of Talavera which found that that the subject deeds
of absolute sale were executed by the [petitioner] when his loan obligation was already
overdue. In other words, the subject deeds of absolute sale, being public documents, speak
for themselves, res ipsa loquitur, that [petitioner] sold the two (2) covered properties for
and in consideration of his overdue loan account with [respondent], and this fact is
unrefuted.

The CA dismissed Villartas appeal and affirmed the RTC. The CA rejected
petitioner's argument that the real transaction is an equitable mortgage.

ISSUE:

Whether or not the contract in this case is one of equitable mortgage.

HELD:

No. Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of
the following cases:

1. When the price of a sale with a 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;
60

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.

We agree with the lower courts' assessment of the facts. The conduct of the parties
prior to, during, and after the execution of the deeds of sale adequately shows that
petitioner sold to respondent the lots in question to satisfy his debts. Respondent was able
to sufficiently explain why the presumption of an equitable mortgage does not apply in the
present case. The inadequacy of the purchase price in the two deeds of sale dated 18 May
2001 was supported by an Affidavit of True Consideration of the Absolute Sale of the
Property. Respondent did not tolerate petitioner's possession of the lots. Respondent
caused the registration and subsequent transfer of TCT No. T-214950 to TCT No. T-333921
under his name, and paid taxes thereon. There were no extensions of time for the payment
of petitioner's loans; rather, petitioner offered different modes of payment for his loans. It
was only after three instances of bounced checks that petitioner offered TCT Nos. T-130095
and T-214950 as payment for his loans and executed deeds of sale in respondent's favor.

The transaction between petitioner and respondent is thus not an equitable


mortgage, but is instead a dacion en pago.Dacion en pago is the delivery and transmission of
ownership of a thing by the debtor to the creditor as an accepted equivalent of the
performance of an existing obligation. It is a special mode of payment where the debtor
offers another thing to the creditor who accepts it as equivalent to the payment of an
outstanding debt. For dacion en pago to exist, the following elements must concur: (a)
existence of a money obligation; (b) the alienation to the creditor of a property by the
debtor with the consent of the former; and (c) satisfaction of the money obligation of the
debtor.

WHEREFORE, we DENY the petition.

JOEY R. PEA, Petitioner, v. JESUS DELOS SANTOS AND THE HEIRS OF ROSITA DELOS
SANTOS FLORES., Respondents.
G.R. No. 202223, March 02, 2016

NATURE OF ACTION: Special Civil Action

TOPIC: Validity of Substitution

PONENTE: REYES, J.:

FACTS:

Jesus Delos Santos and Rosita De Jesus are awardees of the two-thirds portion or
9,915 square meters of four adjoining lots located in Boracay Island, Malay, Aldan. The
61

decision became final and executory and the case was then remanded to the RTC of Kalibo,
Aklan for the execution proceedings during which a Motion for Substitution with a Motion
for a Writ of Execution and Demolition was filed by Pen a. Pen a averred that he is the
transferee of Jesus and Rosita's adjudged allotments over the subject lots. He claimed that
he bought the same from Atty. Romeo Robiso (Atty. Robiso) who in turn, acquired the
properties from Jesus and Rosita through assignment and sale as evidenced by 1) Deed of
Transfer or Conveyance dated May 4, 2005 to Atty. Robiso 2). Deed of Absolute Sale dated
May 4, 2005 over the 2,000 sq m of Lots No. 394-PT and 393-A in favor of Atty. Robiso; 3)
c. Confirmation of Sale and Transfer dated December 5, 2006 affirming the two foregoing
instruments executed by Jesus and Rosita in favor of Atty. Robiso. The latter later on sold
Lots No. 393-A and 394-D to Pen a and said portions were subsequently registered in Pen a's
name.

Atty. Robiso was the counsel of Jesus and Rosita in Civil Case No. 3683. Under their
agreement, Atty. Robiso will render his legal services in connection with Civil Case No. 3683
and to any proceedings that may arise in connection therewith and Atty. Robiso undertook
to advance his own funds for all expenses and costs he may incur in relation to the case. In
consideration thereof, Jesus and Rosita obliged themselves to give or pay to him as
contingent professional fees, 2,000 sq m of any and all lands that the courts will award to
them in the case. The plaintiffs opposed Pen a's motion claiming that the conveyance made
by Jesus and Rosita in favor of Atty. Robiso was null and void for being a prohibited
transaction because the latter was their counsel in the case.

The RTC upheld that the conveyance made by Jesus and Rosita in favor of Atty.
Robiso is valid since it was not made during the pendency of litigation but after judgment
has been rendered. The CA reversed the RTC and ruled that the conveyance made by Jesus
and Rosita in favor of Atty. Robiso was null and void because it is a prohibited transaction
under Article 1491(5) of the Civil Code. When the two Deeds of Sale in favor of Atty. Robiso
were executed on May 4, 2005 and December 5, 2005 and the Confirmation of Sale on
December 15, 2006, the case was still pending with the Supreme Court, before which Jesus
and Rosita were still represented by Atty. Robiso.

ISSUE:

Whether or not a lawyer may purchase a property of his client by virtue of a


contingency agreement which is a subject matter of a litigation.

HELD:

No. Article 1491(5) of the Civil Code expressly prohibits lawyers from acquiring
property or rights that may be the object of any litigation in which they may take part by
virtue of their profession.

A complementary prohibition is also provided in Rule 10 of the Canons of


Professional Ethics which states: - 10. Acquiring interest in litigation. The lawyer should not
purchase any interest in the subject matter of the litigation which he is conducting.A
property is in litigation if there is a contest or litigation over it in court or when it is subject
of a judicial action.

Records show that the judicial action over the subject lots was still in the appellate
proceedings stage when they were conveyed to Jesus and Rosita's counsel, Atty. Robiso. The
62

Deed of Transfer or Conveyance and the Deed of Absolute Sale both dated May 4, 2005 as
well as the Confirmation of Sale and Transfer dated December 5, 2006 were all executed
long before the termination of the appellate proceedings. Clearly then, since the property
conveyed to Atty. Robiso by Jesus and Rosita was still the object of litigation, the deeds of
conveyance executed by the latter are deemed inexistent. Under Article 1409 of the Code,
contracts which are expressly prohibited or declared void by law are considered inexistent
and void from the beginning. This being so, Atty. Robiso could not have transferred a valid
title in favor of Pen a over the lots awarded to Jesus and Rosita in Civil Case No. 3683.
Consequently, Pen a has no legal standing to be substituted in the stead of or joined with
Jesus and Rosita as the first set of intervenors and to move for issuance of a writ of
execution in Civil Case No. 3683. The basis of Pen a's motion for substitution is infirm
because the lots were transferred to his predecessor-in-interest, Atty. Robiso, through a
prohibited sale transaction

This is notwithstanding the fact that the sale to Atty. Robiso was made pursuant to a
contingency fee contract. It is true that contingent fee agreements are recognized in this
jurisdiction as a valid exception to the prohibitions under Article 1491(5) of the Civil
Code. The Court cannot extend a similar recognition to the present case, however, since the
payment to Atty. Robiso of his contingency fees was made during the pendency of litigation.
"A contingent fee contract is an agreement in writing where the fee, often a fixed percentage
of what may be recovered in the action, is made to depend upon the success of the
litigation. The payment of the contingent fee is not made during the pendency of the
litigation involving the client's property but only after the judgment has been rendered in
the case handled by the lawyer."Pen a cannot rely on Article 1437 by claiming that Jesus and
Rosita are already estopped from questioning the validity of their deeds of conveyance with
Atty. Robiso. Estoppel is a principle in equity and pursuant to Article 1432 it is adopted
insofar as it is not in conflict with the provisions of the Civil Code and other laws. Otherwise
speaking, estoppel cannot supplant and contravene the provision of law clearly applicable
to a case. Conversely, it cannot give validity to an act that is prohibited by law or one that is
against public policy.The rationale advanced for the prohibition in Article 1491(5) is that
public policy disallows the transactions in view of the fiduciary relationship involved, i.e.,
the relation of trust and confidence and the peculiar control exercised by these persons. It
is founded on public policy because, by virtue of his office, an attorney may easily take
advantage of the credulity and ignorance of his client and unduly enrich himself at the
expense of his client. The principle of estoppel runs counter to this policy and to apply it in
this case will be tantamount to sanctioning a prohibited and void transaction.

WHEREFORE, foregoing considered, the Motion for Reconsideration is DENIED.

GIL MACALINO, JR., TERESITA MACALINO, ELPIDIO MACALINO, PILAR MACALINO,


GILBERTO MACALINO, HERMILINA MACALINO, EMMANUEL MACALINO, EDELINA
MACALINO, EDUARDO MACALINO, LEONARDO MACALINO, EDLLANE ** MACALINO,
APOLLO MACALINO, MA. FE MACALINO, AND GILDA
MACALINO, Petitioners, v. ARTEMIO PIS-AN, Respondent.
June 01, 2016 G.R. No. 204056

NATURE OF ACTION: Petition for nullity of sale

TOPIC: Estoppel
63

FACTS:

Under Original Certificate of Title (OCT) No, 2393-A, Emeterio Jumento was the
owner of the half portion, and his children Hospicio Jumento and Severina Jumento of the
other half in equal shares, of Lot 3154 consisting of 469 square meters and located in
Junob, Dumaguete City, Negros Oriental.

When Hospicio and Severina died single and without issue, Emeterio as their sole
heir inherited the portions pertaining to them and thus became the owner of the whole lot.
Subsequently, Emeterio also passed away.

Apparently, the City of Dumaguete built in the 1950's a barangay road which cut
across said lot. As a result, Lot 3154 was divided into three portions, to wit: the portion
which was converted into a barangay road and the portions on both sides of said barangay
road. Sometime in the 1970's, Artemio, a grandson-in-law of Emeterio, commissioned
Geodetic Engineer Rodolfo B. Ridad to survey Lot 3154 so that taxes would be assessed
only on the portions of the subject property which remained as private property.
Accordingly, Engr. Ridad came up with a sketch plan where the three portions of Lot 3154
were denominated as Lot 3154-A (the portion on the left side of the road), Lot 3154-B (the
portion which was converted into a barangay road), and Lot 3154-C (the portion on the
right side of the road). The sketch plan also revealed that the portion occupied by Artemio,
i.e., Lot 3154-A as enclosed by points 1, 2, 3, 4, 5, and 6, together with a section of a dried
creek, contained an area of 207 square meters.

On May 3, 1995, Artemio and the other heirs of Emeterio executed an Extra Judicial
Settlement of Estate and Absolute Sale

ISSUE:

Whether Artemio is already estopped from claiming Lot 3154-C as early as 1996,
petitioners already occupied and possessed the said sub-lot by making use of the gravel,
soil and stones found therein.

HELD:

Essentially, the Court is tasked to resolve who between petitioners and Artemio has
a right over Lot 3154-C. For this determination, one pivotal question must be answered, i.e.,
did the sale between the spouses Sillero and Gil include Lot 3154-C? The Court finds in the
negative.

It is necessary to determine the true intention of the parties to the instruments


relevant to this case.

Petitioners, in order to further their case, rely on the failure of the Absolute Sale to
state that the 207-square meter portion conveyed by Artemio and his coheirs to the
spouses Sillero was Lot 3154-A. Artemio, on the other hand, puts emphasis on the fact that
the Deed of Sale between Gil and the spouses Sillero expressly stated that the lot subject of
the sale was Lot 3154-A only. Plainly, the parties' respective arguments hinge on two
relevant documents which they adopted as common exhibits - (1) the Absolute Sale subject
of which, among others, is the conveyance made by Artemio and his co-heirs to the spouses
Sillero; and (2) the Deed of Sale between the spouses Sillero and Gil. It is worthy to note
that there is no dispute regarding the contents of these documents, that is, neither of the
64

parties contests that the Absolute Sale did not state that the 207-square meter portion sold
to the spouses Sillero was Lot 3154-A nor that the Deed of Sale between Gil and the spouses
Sillero expressly mentioned that the subject of the sale between them was Lot 3154-A.
What is really in issue therefore is whether the admitted contents of the said documents
adequately and correctly express the true intention of the parties to the same. It has been
held that "[w]hen the parties admit the contents of written documents but put in issue
whether these documents adequately and correctly express the true intention of the
parties, the deciding body is authorized to look beyond these instruments and into the
contemporaneous and subsequent actions of the parties in order to determine such intent."
In view of this and since the Parol Evidence Rule is inapplicable in this case, an examination
of the parties' respective parol evidence is in order. Indeed, examination of evidence is
necessarily factual and not within the province of a petition for review on certiorari which
only allows questions of law to be raised. However, this case falls under one of the
recognized exceptions to such rule, i.e., when the CA's findings are contrary to that of the
trial court.

RCBC SAVINGS BANK vs. NOEL M. ODRADA


G.R. No. 219037, October 19, 2016

NATURE OF ACTION: SUM OF MONEY

TOPIC: Warranty against hidden defects

PONENTE: CARPIO, J.:

FACTS:
65

Noel M. Odrada (Odrada) sold a secondhand Mitsubishi Montero (Montero) to


Teodoro L. Lim (Lim) P10M financed by petitioner RCBC through a car loan obtained by
Lim.4 As a requisite for the approval of the loan, Odrada executed a Deed of Absolute Sale in
favor of Lim and the latter took possession of the Montero.
RCBC issued two manager's checks payable to Odrada. Prior to the checks' presentation,
Lim notified Odrada in a letter that there was an issue regarding the roadworthiness of the
Montero. Despite being informed of the Monteros defects, Ondrada deposited the
manager's checks and redeposited them on 19 April 2002 but the checks were dishonored
both times apparently upon Lim's instruction to RCBC. Consequently, Odrada filed a
collection suit against Lim and RCBC

Lim alleged that the cancellation of the loan was at his instance, upon discovery of the
misrepresentations by Odrada about the Montero's roadworthiness.On the other hand,
RCBC contended that the manager's checks were dishonored because Lim had cancelled the
loan. RCBC claimed that the cancellation of the loan was prior to the presentation of the
manager's checks. Moreover, RCBC alleged that despite notice of the defective condition of
the Montero, which constituted a failure of consideration, Odrada still proceeded with
presenting the manager's checks.

The trial court held that Odrada was the proper party to ask for rescission reasoned
that the right of rescission is implied in reciprocal obligations where one party fails to
perform what is incumbent upon him when the other is willing and ready to comply. The
trial court ruled that it was not proper for Lim to exercise the right of rescission since
Odrada had already complied with the contract of sale by delivering the Montero while Lim
remained delinquent in payment. Since Lim was not ready, willing, and able to comply with
the contract of sale, he was not the proper party entitled to rescind the contract. The trial
court ruled that the defective condition of the Montero was not a supervening event that
would justify the dishonor of the manager's checks. trial court ruled that RCBC was liable to
Odrada for the value of the manager's checks.

The Court of Appeals ruled that the two manager's checks, which were complete and
regular, reached the hands of Lim who deposited the same in his bank account with Ibank.
RCBC knew that the amount reflected on the manager's checks represented Lim's payment
for the remaining balance of the Montero's purchase price. The appellate court held that
when RCBC issued the manager's checks in favor of Odrada, RCBC admitted the existence of
the payee and his then capacity to endorse, and undertook that on due presentment the
checks which were negotiable instruments would be accepted or paid, or both according to
its tenor. The appellate court held that the effective delivery of the checks to Odrada made
RCBC liable for the checks.

ISSUES:

RCBC presented the following, issues in this petition:

1) The court a quo gravely erred in finding that as between Odrada as seller and Lim
as buyer of the vehicle, only the former has the right to rescind the contract of sale finding
failure to perform an obligation under the contract of sale on the part of the latter only
despite the contested roadworthiness of the vehicle, subject matter of the sale.

2) The court a quo gravely erred when it found that Odrada is a holder in due course
of the manager's checks in question despite being informed of the cancellation of the auto
loan by the borrower, Lim.

HELD:
66

1. We grant the petition. Article 1547 of the Civil Code states: "In a contract of sale,
unless a contrary intention appears, there is an implied warranty that the thing shall be free
from any hidden faults or defects." Article 1566 of the Civil Code provides that "the vendor
is responsible to the vendee for any hidden faults or defects in the thing sold, even though
he was not aware thereof." As a consequence, the law fixes the liability of the vendor for
hidden defects whether known or unknown to him at the time of the sale.

The law defines a hidden defect as one which would render the thing sold unfit for the
use for which it is intended, or would diminish its fitness for such use to such an extent
that, had the vendee been aware thereof, he would not have acquired it or would have given
a lower price for it.

Under the law on sales, a contract of sale is perfected the moment there is a meeting
of the minds upon the thing which is the object of the contract and upon the price which is
the consideration. From that moment, the parties may reciprocally demand
performance.33 Performance may be done through delivery, actual or constructive. Through
delivery, ownership is transferred to the vendee. 34However, the obligations between the
parties do not cease upon delivery of the subject matter. The vendor and vendee remain
concurrently bound by specific obligations. The vendor, in particular, is responsible for an
implied warranty against hidden defects.

In this case, Odrada and Lim entered into a contract of sale of the Montero. Following
the initial downpayment and execution of the deed of sale, the Montero was delivered by
Odrada to Lim and the latter took possession of the Montero. Notably, under the law,
Odrada's warranties against hidden defects continued even after the Montero's delivery.
Consequently, a misrepresentation as to the Montero's roadworthiness constitutes a breach
of warranty against hidden defects.

In the present case, when Lim acquired possession, he discovered that the Montero
was not roadworthy. The engine was misaligned, the automatic transmission was
malfunctioning, and the brake rotor disks needed refacing. 40 However, during the
proceedings in the trial court, Lim's testimony was stricken off the record because he failed
to appear during cross-examination. In effect, Lim was not able to present clear
preponderant evidence of the Montero's defective condition.

2) RCBC May Refuse to Pay Manager's Checks

We address the legal question of whether or not the drawee bank of a manager's
check has the option of refusing payment by interposing a personal defense of the
purchaser of the manager's check who delivered the check to a third party.

Jurisprudence defines a manager's check as a check drawn by the bank's manager


upon the bank itself and accepted in advance by the bank by the act of its issuance. It is
really the bank's own check and may be treated as a promissory note with the bank as its
maker.44 Consequently, upon its purchase, the check becomes the primary obligation of the
bank and constitutes its written promise to pay the holder upon demand. It is similar to a
cashier's check both as to effect and use in that the bank represents that the check is drawn
against sufficient funds.47chanrobleslaw
67

As a general rule, the drawee bank is not liable until it accepts. Prior to a bill's
acceptance, no contractual relation exists between the holder and the drawee. Acceptance,
therefore, creates a privity of contract between the holder and the drawee so much so that
the latter, once it accepts, becomes the party primarily liable on the
instrument. Accordingly, acceptance is the act which triggers the operation of the liabilities
of the drawee (acceptor) under Section 62of the Negotiable Instruments Law. Thus, once he
accepts, the drawee admits the following: (a) existence of the drawer; (b) genuineness of
the drawer's signature; (c) capacity and authority of the drawer to draw the instrument;
and (d) existence of the payee and his then capacity to endorse.

As can be gleaned in a long line of cases decided by this Court, a manager's check is
accepted by the bank upon its issuance. As compared to an ordinary bill of exchange where
acceptance occurs after the bill is presented to the drawee, the distinct feature of a
manager's check is that it is accepted in advance. Notably, the mere issuance of a manager's
check creates a privity of contract between the holder and the drawee bank, the latter
primarily binding itself to pay according to the tenor of its acceptance.

The drawee bank, as a result, has the unconditional obligation to pay a manager's check to a
holder in due course irrespective of any available personal defenses. However, while this
Court has consistently held that a manager's check is automatically accepted, a
holder other than a holder in due course is still subject to defenses. In International
Corporate Bank v. Spouses Gueco,52 which involves a delivered manager's check, the Court
still considered whether the check had become stale:

The foregoing rulings clearly establish that the drawee bank of a manager's check may
interpose personal defenses of the purchaser of the manager's check if the holder is not a
holder in due course. In short, the purchaser of a manager's check may validly
countermand payment to a holder who is not a holder in due course. Accordingly, the
drawee bank may refuse to pay the manager's check by interposing a personal defense of
the purchaser. Hence, the resolution of the present case requires a determination of the
status of Odrada as holder of the manager's checks. In this case, the Court of Appeals
gravely erred when it considered Odrada as a holder in due course. Section 52 of the
Negotiable Instruments Law defines a holder in due course as one who has taken the
instrument under the following conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice that it
has been previously dishonored, if such was the fact;

(c) That he took it in good faith and for value;

(d) That at the time it was negotiated to him, he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it. (Emphasis supplied)

To be a holder in due course, the law requires that a party must have acquired the
instrument in good faith and for value.

In the present case, Odrada attempted to deposit the manager's checks on 16 April
2002, a day after Lim had informed him that there was a serious problem with the Montero.
68

Instead of addressing the issue, Odrada decided to deposit the manager's checks. Odrada's
actions do not amount to good faith. Clearly, Odrada's action in depositing the manager's
checks despite knowledge of the Montero's defects amounted to bad faith. RCBC acted in
good faith in following the instructions of Lim. The records show that Lim notified RCBC of
the defective condition of the Montero before Odrada presented the manager's checks. Lim
informed RCBC of the hidden defects of the Montero. Hence, RCBC acted in good faith in
stopping the payment of the manager's checks.

WHEREFORE, we GRANT the petition. We REVERSE and SET ASIDE the 26 March
2014 Decision and the 18 June 2015 Resolution of the Court of Appeals in CA-G.R. CV No.
94890 only insofar as RCBC Savings Bank is concerned.

AGENCY
BANK OF THE PHILIPPINE ISLANDS AND FGU INSURANCE CORPORATION (PRESENTLY
KNOWN AS BPI/MS INSURANCE CORPORATION), Petitioners, v. YOLANDA
LAINGO, Respondent.
G.R. No. 205206, March 16, 2016

NATURE OF ACTION: Specific Performance


69

TOPIC: Agency

PONENTE: CARPIO, J.:

FACTS:

The son of respondent Yolanda Laingo (Laingo), is covered by "Platinum 2-in-1


Savings and Insurance" account with BPI. The Platinum 2-in-1 Savings and Insurance
account is a savings account where depositors are automatically covered by an insurance
policy against disability or death issued by FGU Insurance Corporation (FGU), with Laingo
as his named beneficiary.On 25 September 2000, Rheozel died due to a vehicular accident
On 27 September 2000, Laingo instructed the family's personal secretaryto go to BPI,
Claveria, Davao City branch and inquire about the savings account of Rheozel because
Laingo wanted to use the money in the savings account for Rheozel's burial and funeral
expenses.Laingo was allowed to withdraw P995,000 from the account of Rheozel.
More than two years later, Laingo found the Personal Accident Insurance Coverage
Certificate issued by FGU Insurance.Laingo sent two letters to BPI and FGU Insurance
requesting them to process her claim as beneficiary of Rheozel's insurance policy. FGU
Insurance sent a reply-letter to Laingo denying her claim. FGU Insurance stated that Laingo
should have filed the claim within three calendar months from the death of Rheozel as
required under Paragraph 15 of the Personal Accident Certificate of Insurance Laingo filed
a Complaint for Specific Performance with Damages against BPI and FGU Insurance.

The trial court dismissed the complaint because the prescriptive period of 90 days
shall commence from the time of death of the insured and not from the knowledge of the
beneficiary. Since the insurance claim was filed more than 90 days from the death of the
insured, the case must be dismissed. The CA reversed the ruling of the trial court which
ruled that Laingo could not be expected to do an obligation which she did not know existed;
Laingo was not a party to the insurance contract entered into between Rheozel and
petitioners. Thus, she could not be bound by the 90-day stipulation.

ISSUE:

Whether or not Laingo, as named beneficiary who had no knowledge of the


existence of the insurance contract, is bound by the three calendar month deadline for filing
a written notice of claim upon the death of the insured.

HELD:

No. As the named beneficiary entitled to the benefits of the insurance claim she had
no knowledge that Rheozel was covered by an insurance policy against disability or death
issued by FGU Insurance that was attached to Rheozel's savings account with BPI.

Articles 1884 and 1887 of the Civil Code state:

Art. 1884. The agent is bound by his acceptance to carry out the agency and is liable
for the damages which, through his non-performance, the principal may suffer.

He must also finish the business already begun on the death of the principal, should delay
entail any danger.
70

Art. 1887. In the execution of the agency, the agent shall act in accordance with the
instructions of the principal. In default, thereof, he shall do all that a good father of a family
would do, as required by the nature of the business.

The provision is clear that an agent is bound to carry out the agency. The
relationship existing between principal and agent is a fiduciary one, demanding conditions
of trust and confidence. It is the duty of the agent to act in good faith for the advancement of
the interests of the principal.

In this case, BPI tied up with its affiliate, FGU Insurance, as its partner. Any customer
interested to open a deposit account under this 2-in-1 product, after submitting all the
required documents to BPI and obtaining BPI's approval, will automatically be given
insurance coverage. Thus, BPI acted as agent of FGU Insurance with respect to the
insurance feature of its own marketed product. Thus, BPI had the obligation to carry out the
agency by informing the beneficiary, who appeared before BPI to withdraw funds of the
insured who was BPI's depositor, not only of the existence of the insurance contract but
also the accompanying terms and conditions of the insurance policy in order for the
beneficiary to be able to properly and timely claim the benefit. Upon Rheozel's death, which
was properly communicated to BPI by his mother Laingo, BPI, in turn, should have fulfilled
its duty, as agent of FGU Insurance, of advising Laingo that there was an added benefit of
insurance coverage in Rheozel's savings account. An insurance company has the duty to
communicate with the beneficiary upon receipt of notice of the death of the insured. This
notification is how a good father of a family should have acted within the scope of its
business dealings with its clients. BPI is expected not only to provide utmost customer
satisfaction in terms of its own products and services but also to give assurance that its
business concerns with its partner entities are implemented accordingly.

The records show that BPI had ample opportunity to inform Laingo, whether
verbally or in writing, regarding the existence of the insurance policy attached to the
deposit account. First, Rheozel's death was headlined in a daily major newspaper a day
after his death. Second, not only was Laingo, through her representative, able to inquire
about Rheozel's deposit account with BPI two days after his death but she was also allowed
by BPI's Claveria, Davao City branch to withdraw from the funds in order to help defray
Rheozel's funeral and burial expenses. Lastly, an employee of BPI visited Rheozel's wake
and submitted documents for Laingo to sign in order to process the withdrawal request.
These circumstances show that despite being given many opportunities to communicate
with Laingo regarding the existence of the insurance contract, BPI neglected to carry out its
duty. Since BPI, as agent of FGU Insurance, fell short in notifying Laingo of the existence of
the insurance policy, Laingo had no means to ascertain that she was entitled to the
insurance claim. It would be unfair for Laingo to shoulder the burden of loss when BPI was
remiss in its duty to properly notify her that she was a beneficiary.Thus, as correctly
decided by the appellate court, BPI and FGU Insurance shall bear the loss and must
compensate Laingo for the actual damages suffered by her family plus attorney's fees.
Likewise, FGU Insurance has the obligation to pay the insurance proceeds of Rheozel's
personal accident insurance coverage to Laingo, as Rheozel's named beneficiary.

WHEREFORE, we DENY the petition.


71

THE HONGKONG & SHANGHAI BANKING CORPORATION,


LIMITED, Petitioner, v. NATIONAL STEEL CORPORATION AND CITYTRUST BANKING
CORPORATION (NOW BANK OF THE PHILIPPINE ISLANDS), Respondents.
G.R. No. 183486, February 24, 2016

NATURE OF ACTION: Action for specific performance

TOPIC: AGENCY
72

FACTS:

Respondent National Steel Corporation entered into an Export Sales Contract with
Klockner East Asia Limited on October 12, 1993. NSC sold 1,200 metric tons of prime cold
rolled coils to Klockner under FOB ST Iligan terms. In accordance with the requirements in
the Contract, Klockner applied for an irrevocable letter of credit with HSBC in favor of NSC
as the beneficiary in the amount of US$ 468,000. On October 22, 1993, HSBC issued an
irrevocable and onsight letter of credit no. HKH 239409 in favor of NSC.

The Letter of Credit was amended twice to reflect changes in the terms of delivery.
NSC coursed the collection of its payment from Klockner through CityTrust Banking
Corporation (CityTrust). NSC had earlier obtained a loan from CityTrust secured by the
proceeds of the Letter of Credit issued by HSBC.

On November 29, 1993, CityTrust sent a collection order to HSBC respecting the
collection of payment from Klockner. The Collection Order instructed as follows:
(1) deliver documents against payment;
(2) cable advice of non-payment with reason;
(3) cable advice payment; and
(4) remit proceeds via TELEX.

The Collection Order also contained the following statement: "Subject to Uniform
Rules for the Collection of Commercial Paper Publication No. 322." Further, the Collection
Order stated that proceeds should be remitted to Standard Chartered Bank of Australia,
Ltd., Offshore Branch Manila (SCB-M) which was, in turn, in charge of remitting the amount
to CityTrust

On December 2, 1993, HSBC sent a cablegram to CityTrust acknowledging receipt of


the Collection Order. It also stated that the documents will be presented to "the drawee
against payment subject to UCP 322 [Uniform Rules for Collection (URC) 322] as instructed.
"SCB-M then sent a cablegram to HSBC requesting the latter to urgently remit the proceeds
to its account. It further asked that HSBC inform it if unable to pay and the reasons of such

On December 7, of the same year, HSBC responded to SCB-M and sent a cablegram
where it repeated that "this bill is being handled subject to URC 322 as instructed by the
collecting bank." It informed SCB-M that it has referred the matter to Klockner for payment
and that it will revert upon the receipt of the amount.

The Letter of Credit expired on December 8, 1993.

ISSUE:

Who among the parties bears the liability to pay the amount stated in the Letter of
Credit.

HELD:

xxx A letter of credit is a commercial instrument developed to address the unique


needs of certain commercial transactions. It is recognized in our jurisdiction and is
sanctioned under Article 567of the Code of Commerce and in numerous jurisprudence
defining a letter of credit, the principles relating to it, and the obligations of parties arising
from it.
73

In simpler terms, the various transactions that give rise to a letter of credit proceed
as follows: Once the seller ships the goods, he or she obtains the documents required under
the letter of credit. He or she shall then present these documents to the issuing bank which
must then pay the amount identified under the letter of credit after it ascertains that the
documents are complete. The issuing bank then holds on to these documents which the
buyer needs in order to claim the goods shipped. The buyer reimburses the issuing bank for
its payment at which point the issuing bank releases the documents to the buyer. The buyer
is then able to present these documents in order to claim the goods. At this point, all the
transactions are completed. The seller received payment for his or her performance of his
obligation to deliver the goods. The issuing bank is reimbursed for the payment it made to
the seller. The buyer received the goods purchased.

Having been remiss in its obligations under the applicable law, rules and
jurisprudence, HSBC only has itself to blame for its consequent liability to NSC.

CityTrust's Liability

When NSC obtained the services of CityTrust in collecting under the Letter of Credit, it
constituted CityTrust as its agent. Article 1868 of the Civil Code states that a contract of
agency exists when a person binds himself or herself "to render some service or to do
something in representation or on behalf of another, with the consent or authority of the
latter." In this case, CityTrust bound itself to collect under the Letter of Credit in behalf of
NSC.

One of the obligations of an agent is to carry out the agency in accordance with the
instructions of the principal. In ascertaining NSC's instructions to CityTrust, its letter dated
January 18, 1994 is determinative. In this letter, NSC clearly stated that it "negotiated with
CityTrust the export documents pertaining to LC No. HKH 239409 of HSBC and it was
CityTrust which wrongfully treated the negotiation as 'on collection basis."' HSBC
persistently communicated with CityTrust and consistently repeated that it will proceed
with collection under URC 322. At no point did CityTrust correct HSBC or seek clarification
from NSC. In insisting upon its course of action, CityTrust failed to act in accordance with
the instructions given by NSC, its principal.

Nevertheless while this Court recognizes that CityTrust committed a breach of its
obligation to NSC, this carries no implications on the clear liability of HSBC. As this Court
already mentioned, HSBC had a separate obligation that it failed to perform by reason of
acts independent of CityTrust's breach of its obligation under its contract of agency. If
CityTrust has incurred any liability, it is to its principal NSC. However, NSC has not raised
any claim against CityTrust at any point in these proceedings. Thus, this Court cannot make
any finding of liability against CityTrust in favor of NSC.

WHEREFORE, the Assailed Decision is AFFIRMED.

PARTNERSHIP
MICHAEL C. GUY, vs. ATTY. GLENN C. GACOTT
G.R. No. 206147, January 13, 2016

NATURE OF ACTION: Damages


74

TOPIC: LIABILITY OF A PARTNER IN A PARTNERSHIP

PONENTE: MENDOZA, J.:

FACTS:

It appears from the records that on March 3, 1997, Atty. Glenn Gacott (Gacott) from
Palawan purchased two (2) brand new transreceivers from Quantech Systems
Corporation (QSC) in Manila through its employee Rey Medestomas (Medestomas) On May
10, 1997, due to major defects, Gacott personally returned the transreceivers to QSC and
requested that they be replaced. Medestomas received the returned transreceivers and
promised to send him the replacement units. Despite several demands, both oral and
written, Gacott was never given a replacement or a refund.. Thus, Gacott filed a complaint
for damages. The decision of RTC became final. During the execution stage, Gacott learned
that QSC was not a corporation, but was in fact a general partnership and Guy was its
General Manager. Sheriff Felizarte attached Guys vehicle by virtue of the Notice of
Attachment/Levy upon Personalty Thereafter, Guy filed his Motion to Lift Attachment Upon
Personalty, arguing that he was not a judgment debtor and, therefore, his vehicle could not
be attached.

RTC denied the Motion to Lift Attachment Upon Personalty and so holds that the
property of Michael Guy may be validly attached in satisfaction of the liabilities adjudged by
this Court against Quantech Co., the latter being an ostensible Corporation and the movant
being considered by this Court as a general partner therein. The CA rendered the assailed
decision dismissing Guys appeal for the same reasons given by the trial courtbeing listed as
a general partner of QSC during that time, cannot feign ignorance of the existence of the
court summons.

Guy argues that he is not solidarily liable with the partnership because the solidary
liability of the partners under Articles 1822, 1823 and 1824 of the Civil Code only applies
when it stemmed from the act of a partner. In this case, the alleged lapses were not
attributable to any of the partners. Guy further invokes Article 1816 of the Civil Code which
states that the liability of the partners to the partnership is merely joint and subsidiary in
nature.

Gacott countered, among others, that because Guy was a general and managing
partner of QSC, he could not feign ignorance of the transactions undertaken by QSC. Gacott
insisted that notice to one partner must be considered as notice to the whole partnership,
which included the pendency of the civil suit against it.

ISSUE

Whether Guy is solidarily liable with the partnership for damages arising from
the breach of the contract of sale?

HELD:
75

No. A partner must be separately and distinctly impleaded before he can be bound
by a judgment.

Although a partnership is based on delectus personae or mutual agency, whereby any


partner can generally represent the partnership in its business affairs, it is non sequitur that
a suit against the partnership is necessarily a suit impleading each and every partner. It
must be remembered that a partnership is a juridical entity that has a distinct and separate
personality from the persons composing it.In relation to the rules of civil procedure, it is
elementary that a judgment of a court is conclusive and binding only upon the parties and
their successors-in-interest after the commencement of the action in court. A decision
rendered on a complaint in a civil action or proceeding does not bind or prejudice a person
not impleaded therein, for no person shall be adversely affected by the outcome of a civil
action or proceeding in which he is not a party.The principle that a person cannot be
prejudiced by a ruling rendered in an action or proceeding in which he has not been made a
party conforms to the constitutional guarantee of due process of law.

Here, Guy was never made a party to the case. He did not have any participation in
the entire proceeding until his vehicle was levied upon and he suddenly became QSCs co-
defendant debtor during the judgment execution stage. It is a basic principle of law that
money judgments are enforceable only against the property incontrovertibly belonging to
the judgment debtor. Indeed, the power of the court in executing judgments extends only to
properties unquestionably belonging to the judgment debtor alone. An execution can be
issued only against a party and not against one who did not have his day in court. The duty
of the sheriff is to levy the property of the judgment debtor not that of a third person. For,
as the saying goes, one man's goods shall not be sold for another man's debts.In the spirit of
fair play, it is a better rule that a partner must first be impleaded before he could be
prejudiced by the judgment against the partnership. Xxx.

Further, Article 1821 of the Civil Code does not state that there is no need to
implead a partner in order to be bound by the partnership liability. It provides that:

Notice to any partner of any matter relating to partnership affairs, and the
knowledge of the partner acting in the particular matter, acquired while a partner or
then present to his mind, and the knowledge of any other partner who reasonably could
and should have communicated it to the acting partner, operate as notice to or
knowledge of the partnership, except in the case of fraud on the partnership, committed
by or with the consent of that partner.

A careful reading of the provision shows that notice to any partner, under certain
circumstances, operates as notice to or knowledge to the partnership only. Evidently, it does
not provide for the reverse situation, or that notice to the partnership is notice to the
partners. Unless there is an unequivocal law which states that a partner is automatically
charged in a complaint against the partnership, the constitutional right to due process takes
precedence and a partner must first be impleaded before he can be considered as a
judgment debtor. To rule otherwise would be a dangerous precedent, harping in favor of the
deprivation of property without ample notice and hearing, which the Court certainly cannot
countenance.
76

Partners liability is subsidiary and generally joint; immediate levy upon the property
of a partner cannot be made

Granting that Guy was properly impleaded in the complaint, the execution of
judgment would be improper. Article 1816 of the Civil Code governs the liability of the
partners to third persons, which states that:

Article 1816. All partners, including industrial ones, shall be liable pro rata with all
their property and after all the partnership assets have been exhausted, for the
contracts which may be entered into in the name and for the account of the partnership,
under its signature and by a person authorized to act for the partnership. However, any
partner may enter into a separate obligation to perform a partnership contract.

This provision clearly states that, first, the partners obligation with respect to the
partnership liabilities is subsidiary in nature. It provides that the partners shall only be
liable with their property after all the partnership assets have been exhausted. To say that
ones liability is subsidiary means that it merely becomes secondary and only arises if the
one primarily liable fails to sufficiently satisfy the obligation. Resort to the properties of a
partner may be made only after efforts in exhausting partnership assets have failed or that
such partnership assets are insufficient to cover the entire obligation. The subsidiary
nature of the partners liability with the partnership is one of the valid defenses against a
premature execution of judgment directed to a partner.

In this case, had he been properly impleaded, Guys liability would only arise after
the properties of QSC would have been exhausted. The records, however, miserably failed to
show that the partnerships properties were exhausted. The report 37 of the sheriff showed
that the latter went to the main office of the DOTC-LTO in Quezon City and verified whether
Medestomas, QSC and Guy had personal properties registered therein. Gacott then
instructed the sheriff to proceed with the attachment of one of the motor vehicles of
Guy.38 The sheriff then served the Notice of Attachment/Levy upon Personalty to the record
custodian of the DOTC-LTO of Mandaluyong City. A similar notice was served to Guy
through his housemaid at his residence.

Clearly, no genuine efforts were made to locate the properties of QSC that could have
been attached to satisfy the judgment contrary to the clear mandate of Article 1816. Being
subsidiarily liable, Guy could only be held personally liable if properly impleaded and after
all partnership assets had been exhausted.

Second, Article 1816 provides that the partners obligation to third persons with
respect to the partnership liability is pro rata or joint. Liability is joint when a debtor is
liable only for the payment of only a proportionate part of the debt. In contrast,
a solidary liability makes a debtor liable for the payment of the entire debt. In the same
vein, Article 1207 does not presume solidary liability unless: 1) the obligation
expressly so states; or 2) the law or nature requires solidarity. With regard to
partnerships, ordinarily, the liability of the partners is not solidary. The joint liability of the
partners is a defense that can be raised by a partner impleaded in a complaint against the
partnership.

WHEREFORE, the petition is GRANTED.


77

MELECIO DOMINGO, Petitioner, vs. SPOUSES GENARO MOLINA and ELENA B. MOLINA,
substituted by ESTER MOLINA, Respondents
G.R. No. 200274 April 20, 2016

NATURE OF ACTION: Action for nullity of sale


78

TOPIC: Sale of conjugal partnership

FACTS:

Spouses Domingo bought a property in Tarlac, consisting of a one-half undivided


portion over an 18, 164 square meter parcel of land. Anastacio borrowed money from the
respondent spouses spouses Molina 10 years after Floras death, Anastacio sold his interest
over the land to the spouses Molina to answer for his debts. In 1986, Anastacio died.

In May 19, 1995, the sale of Anastacios interest was registered under Transfer
Certificate of Title (TCT) No. 272967 and transferred the entire one-half undivided portion
of the land to the spouses Molina. Melecio, one of the children of Anastacio and Flora,
learned of the transfer and filed a Complaint for Annulment of Title and Recovery
of Ownership (Complaint) against the spouses Molina on May 17, 1999. Melecio claims that
Anastacio gave the subject property to the spouses Molina to serve as collateral for the
money that Anastacio borrowed.

Finally, Melecio asserts that he occupied the subject property from the time of
Anastacios death up to the time he filed the Complaint. Melecio presented the testimonies
of the Records Officer of the Register of Deeds of Tarlac, and of Melecios nephew, George
Domingo.

The Records Officer testified that he could not locate the instrument that documents
the transfer of the subject property ownership from Anastacio to the spouses Molina.

George, on the other hand, testified that he has been living on the subject property
owned by Anastacio since 1986. George testified, however, that aside from himself, there
were also four other occupants on the subject property.

The spouses Molina asserted that Anastacio surrendered the title to the subject
property to answer for his debts and told the spouses Molina that they already own half of
the land. The spouses Molina have been in possession of the subject property before the
title was registered under their names and have religiously paid the propertys real estate
taxes. The spouses Molina also asserted that Melecio knew of the disputed sale since he
accompanied Anastacio several times to borrow money. The last loan was even used to pay
for Melecios wedding.

Finally, the spouses Molina asserted that Melecio built his nipa hut on the subject
property only in 1999, without their knowledge and consent. The spouses Molina
presented Jaime Garlitos as their sole witness and who is one of the occupants of the
subject lot. Jaime testified that Elena Molina permitted him to build a house on the subject
property in 1993. Jaime, together with the other tenants, planted fruit bearing trees on the
subject property and gave portions of their harvest to Elena Molina without any complaint
from Melecio. Jaime further testified that Melecio never lived on the subject property and
that only George Domingo, as the caretaker of the spouses Molina, has a hut on the
property. Meanwhile, the spouses Molina died during the pendency of the case and were
substituted by their adopted son, Cornelio Molina.

ISSUE:

Whether the sale of land belonging to the conjugal partnership without the wifes
consent is invalid.

HELD:
79

Anastacio and Florasconjugal partnership was dissolved upon Floras death.

There is no dispute that Anastacio and Flora Domingo married before the Family
Codes effectivity on August 3, 1988 and their property relation is a conjugal partnership.
governed by the rules found in Chapter 4 (Conjugal Partnership of Gains) of Title IV
(Property Relations Between Husband and Wife) of the Family Code. This is clear from
Article 105 of the Family Code which states:

x x x The provisions of this Chapter shall also apply to conjugal partnerships of gains
already established between spouses before the effectivity of this Code, without prejudice to
vested rights already acquired in accordance with the Civil Code or other laws, as provided in
Article 256.

The conjugal partnership of Anastacio and Flora was dissolved when Flora died in
1968, pursuant to Article 175 (1) of the Civil Code (now Article 126 (1) of the Family Code).

Article 130 of the Family Code requires the liquidation of the conjugal partnership
upon death of a spouse and prohibits any disposition or encumbrance of the conjugal
property prior to the conjugal partnership liquidation, to quote:

Article 130. Upon the termination of the marriage by death, the conjugal partnership
property shall be liquidated in the same proceeding for the settlement of the estate of the
deceased.

If no judicial settlement proceeding is instituted, the surviving spouse shall liquidate


the conjugal partnership property either judicially or extrajudicially within one year from
the death of the deceased spouse. If upon the lapse of the six month period no liquidation is
made, any disposition or encumbrance involving the conjugal partnership property of the
terminated marriage shall be void. x x x (emphases supplied)

While Article 130 of the Family Code provides that any disposition involving the
conjugal property without prior liquidation of the partnership shall be void, this rule does
not apply since the provisions of the Family Code shall be "without prejudice to vested
rights already acquired in accordance with the Civil Code or other laws."xxx.

CREDIT TRANSACTIONS
ORIX METRO LEASING AND FINANCE CORPORATION, vs. CARDLINE INC., ET AL
G.R. No. 201417, January 13, 2016
80

NATURE OF ACTION: Replevin and Damages

Topic: Benefit of Excussion

PONENTE: BRION, J.:

FACTS:

Cardline leased four machines (machines) from Orix as evidenced by three similarly-
worded lease agreements. Cardlines principal stockholders and officers - Mary C. Calubad,
Sony N. Calubad, and Ng Beng Sheng (individual respondents) signed the suretyship
agreements in their personal capacities to guarantee Cardlines obligations under each
lease agreement. Cardline defaulted in paying the rent. Orix formally demanded payment
from Cardline but the latter refused to pay.

Orix filed a complaint for replevin, sum of money, and damages with an application for a
writ of seizure against Cardline and the individual respondents (collectively, the
respondents) before the RTC. The RTC issued a writ of seizure allowing Orix to recover the
machines from Cardline.

The CA granted the petition, annulled the RTCs order dated December 1, 2010, and
prohibited the sheriff from executing the judgment.

Orix argues that: (1) the market value of the returned machines and the guaranty
deposit do not offset the outstanding obligations; (2) the individual respondents are
solidarily liable to Orix and are not entitled to the benefit of excussion; and (3) the
respondents and their counsel engaged in willful and deliberate forum shopping.

Respondents argue that: (1) the RTCs judgment should be interpreted as follows: if
Orix recovers the properties, their market values should be deducted from the respondents
outstanding obligations; (2) the individual respondents merely acted as guarantors, not as
sureties; and (3) the respondents committed no forum shopping because no cases were
pending before the courts when they filed the petition for prohibition.

ISSUE:

Whether or not the individual respondents are solidarily liable to Orix and are
not entitled to the benefit of excussion.

HELD:

No.

The terms of a contract govern the parties rights and obligations. When a party
undertakes to be "jointly and severally" liable, it means that the obligation is
solidary. Furthermore, even assuming that a party is liable only as a guarantor, he can be
held immediately liable without the benefit of excussion if the guarantor agreed that his
liability is direct and immediate. In effect, the guarantor waived the benefit of excussion
pursuant to Article 2059(1) of the Civil Code.
81

In the present case, the records show that the individual respondents bound
themselves solidarily with Cardline. Section 31.1 of the lease agreements states that the
persons who sign separate instruments to secure Cardlines obligations to Orix shall
be jointly and severally liable with Cardline.Even assuming arguendo, that the individual
respondents signed the continuing surety agreements merely as guarantors, they still
cannot invoke the benefit of excussion. The surety agreements provide that the individual
respondents liability is "solidary, direct, and immediate and not contingent upon" Orixs
remedies against Cardline. The continuing suretyship agreements also provide that the
individual respondents "individually and collectively waive(s) in advance the benefit of
excussion xxx under Articles 2058 and 2065 of the Civil Code."

Without any doubt, the individual respondents can no longer avail of the benefit of
excussion. The individual respondents are solidarily liable for Cardline's obligations and are
not entitled to the benefit of excussion.

WHEREFORE, we hereby GRANT the petition. The January 6, 2012 decision and
April 16, 2012 resolution of the Court of Appeals in CA-GR SP No. 118226 are
hereby REVERSED and SET ASIDE. Costs against the respondents.

PHILIPPINE NATIONAL BANK vs. HEIRS OF BENEDICTO AND AZUCENA ALONDAY


G.R. No. 171865, October 12, 2016

NATURE OF THE ACTION:


82

TOPIC: Dragnet Clause or blanket mortgage clause

PONENTE: BERSAMIN, J.:

FACTS:

Spouses Benedicto and Azucena Alonday (Spouses Alonday) obtained an


agricultural loan of P28,000.00 from PNB Digos Branch secured the obligation by
constituting a real estate mortgage on their parcel of land in Davao Del Sur covered by
(OCT) No. P-3599. On June 11, 1980, the Spouses Alonday obtained a commercial loan for
P16,700.00 from the PNB, Davao City Branch, and constituted a real estate mortgage over
their residential lot situated in Ulas, Davao City under TCT No. T-66139.

It is noted that the mortgage contracts contained the following identical provision,
to wit:

xxx. In case the Mortgagor executes subsequent promissory note or notes either as
renewal of the former note, as an extension thereof, or as a new loan, or is given any other
kind of accommodation, xxx, this mortgage shall also stand as security for the payment of
the said promissory note or notes and/or accommodations without the necessity of
executing a new contract and this mortgage shall have the same force and effect as if the
said promissory note or notes and/or accommodations were existing on the date thereof,
notwithstanding full payments of any or all obligations of the Mortgagors. This mortgage
shall also stand as security for said obligations and any and all other obligations of the
Mortgagor to the Mortgagee of whatever kind and nature, whether such obligations have
been contracted before, during or after the constitution of this mortgage. Xxx

As the consequence of the failure to pay, PNB foreclosed the mortgage over the
property covered by OCT No. P-3599 on August 17, 1984.

It appeared that notwithstanding such foreclosure, a deficiency balance of


P91,525.22 remained. Hence, the PNB applied for the extrajudicial foreclosure of the
mortgage on the property covered by TCT No. T-66139. A notice of extra-judicial sale was
issued on August 20, 1984, and the property covered by TCT No. T-66139 was sold on
September 28, 1984 to the petitioner in the amount of P29,900.00. Since the Alondays were
unable to redeem the property, the petitioner consolidated its ownership.

According to the petitioner, the deed of mortgage relating to the property covered by
TCT No. T-66139 included an "all-embracing clause" whereby the mortgage secured not
only the commercial loan contracted with its Davao City Branch but also the earlier
agricultural loan contracted with its Digos Branch.

Spouses Alonday instituted a complaint against PNB to recover damages and


attorney's fees, averring that the foreclosure and sale of the property covered by TCT No. T-
66139 was illegal.

RTC rendered judgment in favor of the Spouses. The RTC observed that if the
petitioner had intended to have the second mortgage secure the pre-existing agricultural
loan, it should have made an express reservation to that effect; that based on the all-
83

embracing clause, the mortgage was a contract of adhesion, and the ambiguities therein
should be construed strictly against the petitioner; that the last sentence of the all-
embracing clause provided that the mortgage would be null and void upon the payment of
the obligations secured by the mortgage; and that the petitioner was guilty of bad faith in
refusing to nullify the mortgage despite full payment of the commercial loan prior to its
maturity.

CA affirmed the RTC,8 observing that the mortgage, being a contract of adhesion,
should be construed strictly against the petitioner as the party who had drafted the same.

ISSUE:

Whether the all-embracing or dragnet clause contained in the first mortgage


contract executed between the parties for the security of the first loan could authorize the
foreclosure of the property under the mortgage to secure a second loan despite the full
payment of the second loan.

HELD:

NO.

There is no question, indeed, that all-embracing or dragnet clauses have been


recognized as valid means to secure debts of both future and past origins. Even so, we have
likewise emphasized that such clauses were an exceptional mode of securing obligations,
and have held that obligations could only be deemed secured by the mortgage if they came
fairly within the terms of the mortgage contract. For the all-embracing or dragnet clauses to
secure future loans, therefore, such loans must be sufficiently described in the mortgage
contract. If the requirement could be imposed on a future loan that was uncertain to
materialize, there is a greater reason that it should be applicable to a past loan, which is
already subsisting and known to the parties.

The mere fact that the mortgage constituted on the property covered by TCT No. T-
66139 made no mention of the pre-existing loan could only strongly indicate that each of
the loans of the Spouses Alonday had been treated separately by the parties themselves,
and this sufficiently explained why the loans had been secured by different mortgages.

Another indication that the second mortgage did not extend to the agricultural loan
was the fact that the second mortgage was entered into in connection only with the
commercial loan. Our ruling inPrudential Bank v. Alviar is then relevant, to wit:

xxx Thus, when the mortgagor takes another loan for which another security was
given it could not be inferred that such loan was made in reliance solely on the
original security with the "dragnet clause," but rather, on the new security given. This
is the "reliance on the security test." xxx Accordingly, finding a different security was
taken for the second loan no intent that the parties relied on the security of the first
loan could be inferred, so it was held. The rationale involved, the court said, was that
the "dragnet clause" in the first security instrument constituted a continuing offer by
the borrower to secure further loans under the security of the first security
instrument, and that when the lender accepted a different security he did not accept
the offer.
84

To reiterate, in order for the all-embracing or dragnet clauses to secure future and
other loans, the loans thereby secured must be sufficiently described in the mortgage
contract. Considering that the agricultural loan had been pre-existing when the
mortgage was constituted on the property covered by TCT No. T-66139, it would have
been easy for the petitioner to have expressly incorporated the reference to such
agricultural loan in the mortgage contract covering the commercial loan. But the
petitioner did not. Being the party that had prepared the contract of mortgage, its
failure to do so should be construed that it did not at all contemplate the earlier loan
when it entered into the subsequent mortgage.

WHEREFORE, the Court AFFIRMS the decision in all respects.