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Negligence

BJDC Construction vs. Lanuzo


G.R. No. 161151, March 24, 2014

Bersamin, J.:

FACTS:

Nena Lanuzo (Nena) filed a complaint for damages against BJDC Construction (company). She
alleged that she was the surviving spouse of the late Balbino Los Banos Lanuzo (Balbino) who figured in the
accident that transpired at the site of the re-blocking work; that Balbino’s Honda motorcycle sideswiped
the road Barricade placed by the company in the right lane portion of the road, causing him to lose control
to his motorcycle and to crash on the newly cemented road, resulting in his instant death; and that the
company’s failure to place illuminated warning signs on the site of the project, especially during night time,
was the proximate cause of the death of Balbino.
The company denied Nena’s allegation of negligence, insisting that it had installed warning signs
and lights along the highway and on the barricades of the project; that at the time of the incident, the lights
were working and switched on; that its project was duly inspected by the DPWH, the Office of the Mayor
of Pili, and Pili Municipal Police Station; and that it was found to have satisfactorily taken measures to
ensure the safety of motorists.

ISSUE:

Whose negligence was the proximate cause of the death of Balbino?

RULING:

The Court affirms the findings of the RTC, and the rules that the Lanuzoo heirs, the parties carrying
the burden of proof, did not establish by preponderance of evidence that the negligence on the part of the
company was the proximate cause of the fatal accident of Balbino.
According to the Supreme Court, the test by which the existence of negligence in a particular case
is determined is aptly stated in the leading case of Picart vs. Smith, as follows: The test by which to
determine the existence of negligence in particular case may be stated as follows: Did the defendant in
doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person
would have used in the same situation? If not, then he is guilty of negligence. The law here in effect adopts
the standard supposed to be supplied by the imaginary conduct of the discreet paterfamilias of the Roman
law. The existence of negligence in a given case is not determined by reference to the personal judgment
of the actor in the situation before him. The law considers what would be reckless, blameworthy, or
negligent in the man of ordinary intelligence and prudence and determines liability by that.
Based on the evidence adduced by the Lanuzo heirs, negligence cannot be fairly ascribed to the
company considering that it has shown its installation of the necessary warning signs and lights in the
project site. In that context, the fatal accident was not caused by any instrumentality within the exclusive
control of the company. In contrast, Balbino had the exclusive control of how he operated and managed
his motorcycle. The records disclose that he himself did not take the necessary precautions. As Zamora
declared, Balbino overtook another motorcycle rider at a fast speed, and in the process could not avoid
hitting a barricade at the site, causing him to be thrown off his motorcycle into the newly cemented road.
Moreover, by the time the accident, the project, which had commenced had been going on for more than
a month and was already in the completion stage. Balbino, who had passed there on a daily basis in going
to and from his residence and the school where he then worked as the principal, was thus very familiar
with the risks at the project site. Nor could the Lanuzo heirs justly posit that the illumination was not
adequate, for it cannot be denied that Balbino’s motorcycle was equipped with headlights that would have
enabled him at dusk or night time to see the condition of the road ahead. That the accident occurred surely
indicated that he himself did not exercise the degree of care expected of him as a prudent motorist.
The RTC was correct on its conclusions and findings that the company was not negligent in ensuring
safety at the project site. All the established circumstances showed that the proximate and immediate
cause of the death of Balbino was his own negligence. Hence, the Lanuzo heirs could not recover damages.
Nature and Effect of Obligations; Remedy

Swire Realty Development Corp. vs. Specialty Contracts General and Construction Services, Inc.
G.R. No. 188027, August 9, 2017

Peralta, J.:

FACTS:

Respondent Jayne Yu and petitioner Swire Realty Development Corporation entered into a contract
to Sell covering one residential condominium unit located in Makati City for the total price of P7,519,371.80
payable in equal monthly installments. Respondent likewise purchased a parking slot in the same
condominium building. Respondent paid the full purchased price for the unti while making a down payment
of P20,000.00 for the parking lot. However, notwithstanding full payment of the contract price, petitioner
failed to complete and deliver the subject unit on time. This prompted respondent to file a Complaint for
Rescission of Contract with Damages before the HULRB ENCRFO. The HLURB ENCRFO rendered a decision
dismissing respondent’s complaint. It ruled that rescission is not permitted for slight or causal breach of
the contract but only for such breaches as are substantial and fundamental as to defeat the object of the
parties in making the agreement. However, HLURB Board of Commissioners reversed and set aside the
ruling of HLURB ENCRFO and ordered the rescission of the Contract to Sell.

ISSUE:

Whether Rescission of the Contract is proper in the instant case

RULING:

Article 1191 of the Civil Code sanctions the right to rescind the obligation in the event that specific
performance becomes impossible. Basic is the rule that the right of rescission of a party to an obligation
under Article 1191 of the Civil Code is predicated on a breach of faith by the other party who violates the
reciprocity between them. The breach contemplated in the said provision is the obligor’s failure to comply
with an existing obligation. When the obligor cannot comply with what is incumbent upon it, the oblige
may seek rescission and, in the absence of any just cause for the court to determine the period of
compliance, the court shall decree the rescission.
In the instant case, the CA aptly found that the completion date of the condominium unit was
November 1998 but was extended to December 1999. However, at the time of the ocular inspection
conducted by the HLURB ENCRFO, the unit was not yet completely finished as the kitchen cabinets and
fixtures were not yet installed and the agreed amenities were not yet available. Hence, petitioner had
incurred delay in the performance of its obligation amounting to breach of contract as it failed to finish and
deliver the unit to respondent within the stipulated period. The delay in the completion of the project as
well as of the delay in the delivery of the unit are breaches statutory and contractual obligations which
entitle respondent to rescind the contract, demand a refund and payment of damages.
Reciprocal Obligations

Fil-Estate Properties, Inc. vs. Ronquillo


G.R. No. 185798, January 13, 2014

PEREZ, J.:

FACTS :

Petitioner Fil-Estate Properties, Inc. is the owner and developer of the Central Park Place
Tower while co-petitioner Fil-Estate Network, Inc. is its authorized marketing agent. Respondent
Spouses Conrado and Maria Victoria Ronquillo purchased from petitioners a condominium unit in
Mandaluyong City for a pre-selling contract price of ₱5,174,000.00. Respondents executed and
signed a Reservation Application Agreement wherein they deposited ₱200,000.00 as reservation fee.
As agreed upon, respondents paid the full downpayment of ₱1,552,200.00 and had been paying the
₱63,363.33 monthly amortizations. Upon learning that construction works had stopped, respondents
likewise stopped paying their monthly amortization. Claiming to have paid a total of ₱2,198,949.96
to petitioners, respondents through two successive letters, demanded a full refund of their payment
with interest. When their demands went unheeded, respondents were constrained to file a Complaint
for Refund and Damages before the Housing and Land Use Regulatory Board (HLURB). Respondents
prayed for reimbursement/refund of ₱2,198,949.96 representing the total amortization payments,
₱200,000.00 as and by way of moral damages, attorney’s fees and other litigation expenses. The
HLURB, through Arbiter Atty. Joselito F. Melchor, rendered judgment ordering petitioners to jointly
and severally pay respondents.

ISSUE:

1) Whether or not the Asian financial crisis constitute a fortuitous event which would justify delay
by petitioners in the performance of their contractual obligation.

2) Assuming that petitioners are liable, whether or not 12% interest was correctly imposed on the
judgment award.

3) Whether the award of moral damages, attorney’s fees and administrative fine was proper.

RULING:

1 The Asian financial crisis is not a fortuitous event that would excuse petitioners from performing
their contractual obligation. Also, we cannot generalize that the Asian financial crisis in 1997 was
unforeseeable and beyond the control of a business corporation. It is unfortunate that petitioner
apparently met with considerable difficulty e.g. increase cost of materials and labor, even before
the scheduled commencement of its real estate project as early as 1995. However, a real estate
enterprise engaged in the pre-selling of condominium units is concededly a master in projections
on commodities and currency movements and business risks. The fluctuating movement of the
Philippine peso in the foreign exchange market is an everyday occurrence, and fluctuations in
currency exchange rates happen everyday, thus, not an instance of caso fortuito.

2 As a result of the breach committed by petitioners, respondents are entitled to rescind the
contract and to be refunded the amount of amortizations paid including interest and damages.
Indeed, the non-performance of petitioners’ obligation entitles respondents to rescission under
Article 1191 of the New Civil Code which states that The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with
payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment,
if the latter should become impossible. More in point is Section 23 of Presidential Decree No. 957, the
rule governing the sale of condominiums, which provides that no installment payment made by a
buyer in a subdivision or condominium project for the lot or unit he contracted to buy shall be
forfeited in favor of the owner or developer when the buyer, after due notice to the owner or
developer, desists from further payment due to the failure of the owner or developer to develop
the subdivision or condominium project according to the approved plans and within the time limit
for complying with the same. Such buyer may, at his option, be reimbursed the total amount paid
including amortization interests but excluding delinquency interests, with interest thereon at the
legal rate. Conformably with these provisions of law, respondents are entitled to rescind the contract
and demand reimbursement for the payments they had made to petitioners.

3. petitioners are likewise obligated to pay attorney’s fees and the administrative fine. The Court
affirms the award of attorney’s fees because respondents were forced to litigate for 14 years and
incur expenses to protect their rights and interest by reason of the unjustified act on the part of
petitioners.18 The imposition of ₱10,000.00 administrative fine is correct pursuant to Section 38 of
Presidential Decree No. 957. Finally, the Court sustains the award of moral damages. In order that moral
damages may be awarded in breach of contract cases, the defendant must have acted in bad faith,
must be found guilty of gross negligence amounting to bad faith, or must have acted in wanton
disregard of contractual obligations.19 The Arbiter found petitioners to have acted in bad faith when
they breached their contract, when they failed to address respondents’ grievances and when they
adamantly refused to refund respondents' payment.
Obligation with Penal Clause

Venzon vs. Rural Bank of Buenavista


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

DEL CASTILLO, J.:

FACTS:

On January 28, 2005, petitioner Virginia M. Venzon filed a Petition to nullify foreclosure
proceedings and Tax Declaration Nos. 96-GR-06-003-7002-R and 96-GR-06-7003-R issued in the name
of respondent Rural Bank of Buenavista (Agusan del Norte), Inc. Petitioner alleged that in 1983 she
and her late spouse, George F. Venzon, Sr., obtained a ₱5,000.00 loan from respondent against a
mortgage on their house and lot in Libertad, Butuan City, covered by Tax Declaration Nos. 28289
and 42710 issued in their names, which were later on replaced with Tax Declaration Nos. 96 GR-
06-003-2884-R and 96 GR-06-003-2885-R; that she was able to pay ₱2,300.00, thus leaving an
outstanding balance of only ₱2,370.00; that sometime in March 1987, she offered to pay the said
balance in full, but the latter refused to accept payment, and instead shoved petitioner away from
the bank premises; that in March 1987, respondent foreclosed on the mortgage, and the property
was sold at auction for ₱6,472.76 to respondent, being the highest bidder; that the foreclosure
proceedings are null and void for lack of notice and publication of the sale, lack of sheriff’s final
deed of sale and notice of redemption period; and that she paid respondent ₱6,000.00 on October
9, 1995, as evidenced by respondent’s Official Receipt No. 4108486 issued on October 9, 1995. In its
Answer with Counterclaims, respondent claimed that petitioner did not make any payment on the
loan; that petitioner never went to the bank in March 1987 to settle her obligations in full; that
petitioner was not shoved and driven away from its premises; that the foreclosure proceedings were
regularly done and all requirements were complied with; that a certificate of sale was issued by
the sheriff and duly recorded in the Registry of Deeds; that petitioner’s claim that she paid ₱6,000.00
on October 9, 1995 is utterly false; that petitioner’s cause of action has long prescribed as the case
was filed only in 2005 or 18 years after the foreclosure sale; and that petitioner is guilty of laches.
Respondent interposed its counterclaim for damages and attorney’s fees as well. In her Reply,
petitioner insisted that the foreclosure proceedings were irregular and that prescription and laches
do not apply as the foreclosure proceedings are null and void to begin with.

ISSUE:

1. Whether or not the Honorable Court Of Appeals Reversibly Erred In Dismissing The Petition For
Certiorari Thereby Preventing The Court From Finding Out That Actually No Extrajudicial Foreclosure
Was Conducted By The Office Of The Provincial Sheriff On Petitioner’s Property At The Instance Of
The Private Respondent.

2. Whether or not the petitioner is entitled to a return of ₱6,000.00.

RULING:

1. The Court finds no error in the CA’s treatment of the Petition for Certiorari. The trial court’s
July 13, 2006 Resolution dismissing the case was indeed to be treated as a final order, disposing
of the issue of publication and notice of the foreclosure sale – which is the very core of petitioner’s
cause of action in Civil Case No. 5535 – and declaring the same to be unnecessary pursuant to the
Rural Banks Act, as petitioner’s outstanding obligation did not exceed ₱10,000.00, and thus leaving
petitioner without basis to maintain her case. This constitutes a dismissal with the character finality.
As such, petitioner should have availed of the remedy under Rule 41, and not Rule 65. The Court
is not prepared to be lenient in petitioner’s case, either. Civil Case No. 5535 was instituted only in
2005, while the questioned foreclosure proceedings took place way back in 1987. Petitioner’s long
inaction and commission of a procedural faux pas certainly cannot earn the sympathy of the Court.
Nor can the Court grant the Petition on the mere allegation that no foreclosure proceedings ever
took place. The February 2, 2005 Certification issued by the Office of the Clerk of Court of Butuan
City to the effect that the record of the foreclosure proceedings could not be found is not sufficient
ground to invalidate the proceedings taken. Petitioner herself attached the Sheriff’s Certificate of
Sale; this should belie the claim that no record exists covering the foreclosure proceedings. Besides,
if petitioner insists that no foreclosure proceedings took place, then she should not have filed an
action to annul the same since there was no foreclosure to begin with. She should have filed a
different action.

2. The redemption period had long lapsed when the payment of ₱6,000.00 was allegedly made.
Thus, there is no point talking about redemption price when the redemption period had long been
gone at the time the alleged payment was made. Even granting, without conceding, that the amount
of ₱6,000.00 was a redemption price, said amount, however, could not constitute as a legal
redemption price since the same was not enough to cover the entire redemption price as mandated
by the rules and laws. Interestingly, respondent did not deny being the issuer of Official Receipt
No. 410848. Instead, it averred that petitioner’s payment to it of ₱6,000.00 was false and self-
serving, but in the same breath argued that, without necessarily admitting that payment of ₱6,000.00
was made, the same cannot be considered as redemption price. By making such an ambiguous
allegation in its Answer with Counterclaims, respondent is deemed to have admitted receiving the
amount of ₱6,000.00 from petitioner as evidenced by Official Receipt No. 410848, which amount
under the circumstances it had no right to receive. If an allegation is not specifically denied or the
denial is a negative pregnant, the allegation is deemed admitted. Where a fact is alleged with some
qualifying or modifying language, and the denial is conjunctive, a ‘negative pregnant’ exists, and only
the qualification or modification is denied, while the fact itself is admitted. A denial in the form of
a negative pregnant is an ambiguous pleading, since it cannot be ascertained whether it is the fact
or only the qualification that is intended to be denied. Profession of ignorance about a fact which
is patently and necessarily within the pleader's knowledge, or means of knowing as ineffectual, is
no denial at all. In fine, respondent failed to refute petitioner’s claim of having paid the amount of
₱6,000.00. Since respondent was not entitled to receive the said amount, as it is deemed fully paid
from the foreclosure of petitioner’s property since its bid price at the auction sale covered all that
petitioner owed it by way of principal, interest, attorney’s fees and charges, it must return the
same to petitioner. If something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises. Moreover, pursuant to Circular No. 799,
series of 2013 of the Bangko Sentral ng Pilipinas which took effect July 1, 2013, the amount of
₱6,000.00 shall earn interest at the rate of 6% per annum computed from the filing of the Petition
in Civil Case No. 5535 up to its full satisfaction.
Tender of Payment and Consignation

Bonrostro vs. Luna


G.R. No. 172346, July 24, 2013

FACTS:

In 1992, respondent Constancia Luna (Constancia), as buyer, entered into a Contract to Sell
with Bliss Development Corporation (Bliss) involving a house and lot in Diliman, Quezon City. Barely
a year after, Constancia, this time as the seller, entered into another Contract to Sell with petitioner
Lourdes Bonrostro concerning the same property under certain terms and conditions. Immediately
after the execution of the said second contract, the spouses Bonrostro took possession of the
property. However, except for the ₱200,000.00 down payment, Lourdes failed to pay any of the
stipulated subsequent amortization payments. On January 11, 1994, Constancia and her husband,
respondent Juan Luna, filed before the RTC a Complaint for Rescission of Contract and Damages
against the spouses Bonrostro praying for the rescission of the contract, delivery of possession of
the subject property, payment by the latter of their unpaid obligation, and awards of actual, moral
and exemplary damages, litigation expenses and attorney’s fees. In their Answer with Compulsory
Counterclaim, the spouses Bonrostro averred that they were willing to pay their total balance of
₱630,000.00 to the spouses Luna after they sought from them a 60-day extension to pay the same.
However, during the time that they were ready to pay the said amount in the last week of October
1993, Constancia and her lawyer, Atty. Arlene Carbon, did not show up at their rendezvous. On
November 24, 1993, Lourdes sent Atty. Carbon a letter expressing her desire to pay the balance, but
received no response from the latter. Claiming that they are still willing to settle their obligation,
the spouses Bonrostro prayed that the court fix the period within which they can pay the spouses
Luna. The spouses Bonrostro likewise belied that they were not paying the monthly amortization to
New Capitol Estates and asserted that on November 18, 1993, they paid Bliss, the developer of
New Capitol Estates, the amount of ₱46,303.44. Later during trial, Lourdes testified that Constancia
instructed Bliss not to accept amortization payments from anyone as evidenced by her March 4,
1993 letter to Bliss.

ISSUE:

Whether or not Lourdes' letter amounts to tender of payment of the remaining balance.

RULING:

Tender of payment "is the manifestation by the debtor of a desire to comply with or pay
an obligation. If refused without just cause, the tender of payment will discharge the debtor of the
obligation to pay but only after a valid consignation of the sum due shall have been made with
the proper court." "Consignation is the deposit of the proper amount with a judicial authority in
accordance with rules prescribed by law, after the tender of payment has been refused or because
of circumstances which render direct payment to the creditor impossible or inadvisable." "Tender of
payment without more, produces no effect." "To have the effect of payment and the consequent
extinguishment of the obligation to pay, the law requires the companion acts of tender of payment
and consignation." As to the effect of tender of payment on interest, noted civilist Arturo M.
Tolentino explained as follows: When a tender of payment is made in such a form that the creditor
could have immediately realized payment if he had accepted the tender, followed by a prompt
attempt of the debtor to deposit the means of payment in court by way of consignation, the accrual
of interest on the obligation will be suspended from the date of such tender. But when the tender
of payment is not accompanied by the means of payment, and the debtor did not take any
immediate step to make a consignation, then interest is not suspended from the time of such
tender. Here, the subject letter merely states Lourdes’ willingness and readiness to pay but it was
not accompanied by payment. She claime that she made numerous telephone calls to Atty. Carbon
reminding the latter to collect her payment, but, neither said lawyer nor Constancia came to collect
the payment. After that, the spouses Bonrostro took no further steps to effect payment. They did
not resort to consignation of the payment with the proper court despite knowledge that under the
contract, non-payment of the installments on the agreed date would make them liable for interest
thereon. The spouses Bonrostro erroneously assumed that their notice to pay would excuse them
from paying interest. Their claimed tender of payment did not produce any effect whatsoever
because it was not accompanied by actual payment or followed by consignation. Hence, it did not
suspend the running of interest. The spouses Bonrostro are therefore liable for interest on the subject
installments from the date of default until full payment of the sums of ₱300,000.00 and ₱330,000.00.
Novation

Vector Shipping Corporation vs. American Home Assurance Co.


G.R. No. 159213, July 3, 2013

BERSAMIN, J.:

FACTS:

Vector was the operator of the motor tanker M/T Vector, while Soriano was the registered
owner of the M/T Vector. Respondent is a domestic insurance corporation. On September 30, 1987,
Caltex entered into a contract of Affreightment with Vector for the transport of Caltex’s petroleum
cargo through the M/T Vector. Caltex insured the petroleum cargo with respondent for ₱7,455,421.08
under Marine Open Policy No. 34-5093-6. In the evening of December 20, 1987, the M/T Vector
and the M/V Doña Paz, the latter a vessel owned and operated by Sulpicio Lines, Inc., collided in
the open sea near Dumali Point in Tablas Strait, located between the Provinces of Marinduque and
Oriental Mindoro. The collision led to the sinking of both vessels. The entire petroleum cargo of Caltex
on board the M/T Vector perished. On July 12, 1988, respondent indemnified Caltex for the loss of
the petroleum cargo in the full amount of ₱7,455,421.08. On March 5, 1992, respondent filed a
complaint against Vector, Soriano, and Sulpicio Lines, Inc. to recover the full amount of ₱7,455,421.08
it paid to Caltex. The case was raffled to the Regional Trial Court (RTC) in Makati City.

ISSUE:

Whether or not the nature of the cause of action as arising either from a quasi-delict or a
breach of contract.

RULING:

We need to clarify, however, that we cannot adopt the CA’s characterization of the cause
of action as based on the contract of affreightment between Caltex and Vector, with the breach of
contract being the failure of Vector to make the M/T Vector seaworthy, as to make this action
come under Article 1144 (1), supra. Instead, we find and hold that that the present action was not
upon a written contract, but upon an obligation created by law. Hence, it came under Article 1144
(2) of the Civil Code. This is because the subrogation of respondent to the rights of Caltex as the
insured was by virtue of the express provision of law embodied in Article 2207 of the Civil Code,
which states that, if the plaintiff’s property has been insured, and he has received indemnity from
the insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover
the deficiency from the person causing the loss or injury. The juridical situation arising under Article
2207 of the Civil Code is well explained in Pan Malayan Insurance Corporation v. Court of Appeals:
Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured
property is destroyed or damaged through the fault or negligence of a party other than the assured,
then the insurer, upon payment to the assured, will be subrogated to the rights of the assured to
recover from the wrongdoer to the extent that the insurer has been obligated to pay. Payment by
the insurer to the assured operates as an equitable assignment to the former of all remedies which
the latter may have against the third party whose negligence or wrongful act caused the loss. The
right of subrogation is not dependent upon, nor does it grow out of, any privity of contract or
upon written assignment of claim. It accrues simply upon payment of the insurance claim by the
insurer. Verily, the contract of affreightment that Caltex and Vector entered into did not give rise
to the legal obligation of Vector and Soriano to pay the demand for reimbursement by respondent
because it concerned only the agreement for the transport of Caltex’s petroleum cargo. As the
Court has aptly put it in Pan Malayan Insurance Corporation v. Court of Appeals, respondent’s right
of subrogation pursuant to Article 2207, was "not dependent upon, nor did it grow out of, any
privity of contract or upon written assignment of claim but accrued simply upon payment of the
insurance claim by the insurer.
Contracts; Definition/Concept
Hilltop Market Fish Vendors' Association, Inc vs. Yaranon
G.R. No. 188057, July 12, 2017

CARPIO, J.:

FACTS:

On 22 June 1974, petitioner Hilltop Market Fish Vendors' Association, Inc., represented by
its president Gerardo Rillera, and respondent City of Baguio, represented by its then Mayor Luis
Lardizabal, entered into a Contract of Lease over a lot owned by the City of Baguio located at the
Hilltop Market, Baguio City. The contract provided that the period of lease is 25 years, renewable
for the same period at the option of both parties, and the annual lease rental is ₱25,000, with the
first payment commencing upon the issuance by the City Engineer's Office of the Certificate of full
occupancy of the building to be constructed by Hilltop on the lot. Before the Certificate is issued,
the City of Baguio can continue collecting market fees from the vendors who are allowed to occupy
any portion of the building. At the termination of the lease period, the City of Baguio will own the
building without payment or reimbursement for Hilltop's costs. Sometime in 1975, Hilltop constructed
the building, on the lot. Even though the City Engineer's Office did not issue a Certificate, Hilltop's
members occupied the building and conducted business in it. On 16 October 1980, the City Council
of Baguio issued a Resolution rescinding the contract of lease with Hilltop, for its continued failure
to comply with its obligation to complete the building. In two Resolutions, the City Council of Baguio
reiterated its resolution to rescind the contract and sought to undertake the completion of the
building. On 20 February 1990, then Mayor Jaime Bugnosen ordered the closure of the two upper
floors of the building based on the City Council's Resolution No. 24, that the building failed to
comply with the minimum sanitary standards under Presidential Decree No. 856. In a Letter to the
Building Official, City Administrator Leonardo dela Cruz stated that Rillera and his officers would like
to discuss the possibility of completing the necessary requirements for the permit to occupy the
Rillera building. Subsequently, the City Engineer's Office issued its finding that the two upper floors
of the Rillera building were unsafe for occupancy. Thereafter, it recommended to condemn the building.
Sometime in 2003, then Mayor Bernardo Vergara issued a notice to take over the building. On 28
February 2005, respondent then Mayor Braulio Yaranon (Yaranon) issued an Administrative Order,
ordering the CBAO and Public Order and Safety Division to immediately close the building to have
it cleaned, sanitized and enclosed; to prevent illegal activities in it; and for its completion and
preparation for commercial use. Hilltop filed with the RTC a Complaint with Very Urgent Application
for Temporary Restraining Order and Writ of Preliminary Injunction praying that the court issue an
injunction against the implementation of The Administrative Order and order the concerned office to
issue the Certificate to make the contract of lease effective. In their Answer, Yaranon and respondent
Galo Weygan alleged that the Certificate was not issued to Hilltop because the building was not
completed, and there were no provisions for electrical and plumbing systems or facilities for conduct
of regular business. In any case, they argued that the issuance of the Certificate shall only signal
the start of payment of annual lease rental and not the effectivity of the contract. They further
alleged that even without the Certificate, Hilltop's members occupied the building and conducted
business in it; hence, Hilltop already waived the condition.

ISSUE:

Whether or not the contract of lease commenced

RULING

In a contract of lease, one of the parties binds himself to give to another the enjoyment
or use of a thing for a price certain, and for a period which may be definite or indefinite. Being a
consensual contract, a lease is perfected at the moment there is a meeting of the minds upon the
thing and the cause or consideration which are to constitute the contract. Thereafter, the lessor is
obliged to deliver the thing which is the object of the contract in such a condition as to render it
fit for the use intended, and the lessee is obliged to use the thing leased as a diligent father of a
family, devoting it to the use stipulated or that which may be inferred from the nature of the
thing leased. In a contract of lease, the cause or essential purpose is the use and enjoyment of
the thing. The thing or subject matter of the contract in this case was clearly identified and agreed
upon as the lot where the building would be constructed by Hilltop. The consideration were the
annual lease rental and the ownership of the building upon the termination of the lease period.
Considering that Hilltop and the City of Baguio agreed upon the essential elements of the contract,
the contract of lease had been perfected. From the moment that the contract is perfected, the
parties are bound to fulfill what they have expressly stipulated. Thus, the City of Baguio gave the
use and enjoyment of its lot to Hilltop. Both the RTC and the CA found that upon the execution
of the contract on 22 June 1974, Hilltop took possession of the lot and constructed the Rillera
building on it. Thereafter, Hilltop's members occupied the Rillera building and conducted business in
it up to the present. Hilltop is also estopped from claiming that the contract of lease did not
commence since it based its occupancy of the Rillera building on the contract of lease. Since the
contract of lease already commenced, Hilltop has been occupying the Rillera building even after the
termination of the lease period. The contract of lease provides that the period of lease is 25 years
and it is renewable for the same period at the option of both parties. Based on the findings of the
RTC that Hilltop started occupying the lot in 1974 and 25 years have lapsed without the parties
renewing the contract, the contract of lease is already terminated. Thus, the City of Baguio is
justified in issuing AO No. 30, and in taking over the Rillera building being its owner under the
contract of lease. There is no basis in granting damages to Hilltop. In a reciprocal contract like a lease,
the period must be deemed to have been agreed upon for the benefit of both parties, absent
language showing that the term was deliberately set for the benefit of the lessee or lessor alone.
The continuance, effectivity, and fulfillment of a contract of lease cannot be made to depend
exclusively upon the free and uncontrolled choice of the lessee. Mutuality does not obtain in such
a contract of lease and no equality exists between the lessor and the lessee since the life of the
contract would be dictated solely by the lessee.

Relativity/Privity
Inocencio vs. Hospicio de San Jose
G.R. No. 201787, September 25, 2013
CARPIO, J.:

FACTS:

Hospicio de San Jose (HDSJ) leased a parcel of land located in Pasay City to German
Inocencio. The lease contract was effective for a period of one year, and was renewed for one-year
periods several times. The last written contract was executed on 31 May 1951. German constructed two
buildings on the parcel of land which he subleased. He also designated his son Ramon Inocencio
(Ramon) to administer the said property. On 21 September 1990, German received a letter from
HDSJ informing him that the increased rentals shall take effect in November 1990 instead of August
1990, "to give him ample time to make the necessary rental adjustments with his sublessees. German
passed away in 1997. Evidence on record shows that Ramon did not notify HDSJ of German’s death.
After German’s passing, Ramon collected the rentals from the sublessees, and paid the rentals to
HDSJ, and the taxes on the property. On 1 March 2001, HDSJ’s property administrator, Five Star
Multi-Services, Inc., notified Ramon that HDSJ is terminating the lease contract. Ramon then sent a
letter to HDSJ suggesting that the lease contract be renegotiated for the welfare of the sublessees
occupying the parcel of land. On 3 April 2001, HDSJ notified Ramon that the lease contract shall
not be renewed because Ramon has continually subleased the subject premises to about 20 families
without the knowledge and consent of the lessor, [HDSJ]. Also, HDSJ sent a letter to Ramon: (1)
reiterating its stand that the lease contract was terminated;(2) demanding payment of ₱756,449.26
as unrealized fruits; and (3) giving him 30 days to vacate the property. The sublessees were given
written notices to vacate within 30 days. HDSJ also posted a Patalastas stating that it is willing to
work out an amicable arrangement with the sublessees, although the latter are not considered as
legal occupants or tenants of the property. Because of this, some of the sublessees refused to pay
rentals to Ramon. HDSJ also entered into lease contracts with: (1) Harish Chetandas; (2) Enrique
Negare; (3) Lamberto Estefa and (4) Sofronio Chavez, Jr. On 28 June 2005, HDSJ filed a Complaint
before Metropolitan Trial Court of Pasay (MeTC-Pasay) for unlawful detainer against Ramon and his
sublessees. The complaint alleged that Ramon and his sublessees have been illegally occupying the
leased premises.

ISSUE:

1. Whether or not the sublease contracts were invalid;

2. Whether or not there was no tortious interference on the part of HDSJ;

RULING:

1. Article 1311 of the Civil Code provides that 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. The Court previously ruled that lease
contracts, by their nature, are not personal. The general rule, therefore, is lease contracts survive
the death of the parties and continue to bind the heirs except if the contract states otherwise.
Section 6 of the lease contract provides that "this contract is nontransferable unless prior consent
of the lessor is obtained in writing." Section 6 refers to transfers inter vivos and not transmissions
mortis causa. What Section 6 seeks to avoid is for the lessee to substitute a third party in place
of the lessee without the lessor’s consent. In any case, HDSJ also acknowledged that Ramon is its
month-to-month lessee. Thus, the death of German did not terminate the lease contract executed
with HDSJ, but instead continued with Ramon as the lessee. HDSJrecognized Ramon as its lessee in
its letter. In addition, Ramon had a right to sublease the premises since the lease contract did not
contain any stipulation forbidding subleasing. Therefore, we hold that the sublease contracts executed
by Ramon were valid.
2. The Supreme Court finds that HDSJ did not commit tortious interference. Article1314 of the Civil Code
states that any third person who induces another to violate his contract shall be liable for damages
to the other contracting party. As correctly pointed out by the Inocencios, tortious interference has
the following elements: (1) existence of a valid contract; (2) knowledge on the part of the third
person of the existence of the contract; and (3) interference of the third person without legal
justification or excuse. The facts of the instant case show that there were valid sublease contracts
which were known to HDSJ. However, we find that the third element is lacking in this case. The
evidence shows that HDSJ entered into agreements with Ramon’s former sublessees for purely
economic reasons (payment of rentals). HDSJ had a right to collect the rentals from the sublessees
upon termination of the lease contract. It does not appear that HDSJ was motivated by spite or ill
will towards the Inocencios.
Intimidation
Binua vs. Ong
G.R. No. 207176, June 18, 2014

REYES, J.:

FACTS:

Petitioner Edna was found guilty of Estafa and was sentenced to imprisonment. She sought
to avoid criminal liability by settling her indebtedness through the execution of separate real estate
mortgages over petitioner Victor’s properties on February 2, 2006, and covering the total amount
of ₱7,000,000.00. Mortgaged were 2 portions of lot located in Tuguegarao City. Thereafter, petitioner
Edna filed a motion for new trial, which was granted by the RTC-Branch 2. Consequently, the RTC-
Branch 2 rendered a Decision ordering petitioner Edna to pay the respondent the amount of
₱2,285,000.00 as actual damages, with ten percent (10%) interest, and other damages. The
RTCBranch 2 ruled that the presentation of a promissory note dated March 4, 1997 novated the
original agreement between them into a civil obligation. Petitioner Edna nonetheless that she is indebted
to the respondent. Thus, she must pay her just debt. Petitioner Edna, however, failed to settle her
obligation, forcing the respondent to foreclose the mortgage on the properties, with the latter as
the highest bidder during the public sale. The petitioners then filed the case for the Declaration of
Nullity of Mortgage Contracts, alleging that the mortgage documents were "executed under duress,
as the petitioners at the time of the execution of said deeds were still suffering from the effect of
the conviction of petitioner Edna, and could not have been freely entered into said contracts.

ISSUE:

Whether or not the petitioners' consent was vitiated when they executed the subject deeds.

RULING:

Article 1390(2) of the Civil Code provides that contracts where the consent is vitiated by
mistake, violence, intimidation, undue influence or fraud are voidable or annullable. Article 1335 of
the Civil Code, meanwhile, states that "[t]here is intimidation when one of the contracting parties
is compelled by a reasonable and well-grounded fear of an imminent and grave evil upon his person
or property, or upon the person or property of his spouse, descendants or ascendants, to give his
consent." The same article, however, further states that "[a] threat to enforce one’s claim through
competent authority, if the claim is just or legal, does not vitiate consent."
In De Leon v. Court of Appeals, the Court held that in order that intimidation may vitiate consent
and render the contract invalid, the following requisites must concur: (1) that the intimidation must
be the determining cause of the contract, or must have caused the consent to be given; (2) that
the threatened act be unjust or unlawful; (3) that the threat be real and serious, there being an
evident disproportion between the evil and the resistance which all men can offer, leading to the
choice of the contract as the lesser evil; and (4) that it produces a reasonable and wellgrounded
fear from the fact that the person from whom it comes has the necessary means or ability to
inflict the threatened injury. In cases involving mortgages, a preponderance of the evidence is
essential to establish its invalidity, and in order to show fraud, duress, or undue influence of a
mortgage, clear and convincing proof is necessary. Based on the petitioners’ own allegations, what
the respondent did was merely inform them of petitioner Edna’s conviction in the criminal cases
for estafa. It might have evoked a sense of fear or dread on the petitioners’ part, but certainly
there is nothing unjust, unlawful or evil in the respondent's act. The petitioners also failed to show
how such information was used by the respondent in coercing them into signing the mortgages.
The petitioners must remember that petitioner Edna's conviction was a result of a valid judicial
process and even without the respondent allegedly "ramming it into petitioner Victor's throat,"
petitioner Edna's imprisonment would be a legal consequence of such conviction. In Callanta v.
National Labor Relations Commission, the Court stated that the threat to prosecute for estafa not
being an unjust act, but rather a valid and legal act to enforce a claim, cannot at all be considered
as intimidation. As correctly ruled by the CA, if the judgment of conviction is the only basis of the
petitioners in saying that their consents were vitiated, such will not suffice to nullify the real estate
mortgages and the subsequent foreclosure of the mortgaged properties. No proof was adduced to
show that the respondent used force, duress, or threat to make petitioner Victor execute the real
estate mortgages.
Interpretation of Contracts

CE Construction Corporation vs. Araneta Center, Inc


GR No. 192725, August 9 2017

FACTS:

Petitioner CECON was a construction contractor, which, for more than 25 years, had been doing
business with respondent ACI, the developer of Araneta Center, Cubao, Quezon City. In June 2002, ACI sent
invitations to different construction companies, including CECON, for them to bid on a project identified as
“Package #4 Structure/Mechanical, Electrical, and Plumbing/Finishes, a part of its redevelopment plan for
Araneta Center Complex. The project would eventually be the Gateway Mall. As described by ACI, the
Project involved the design, coordination, construction and completion of all architectural and structural
portions of Part B of the Works and the construction of the architectural and structural portions of Part A
of the Works known as Package 4 of the Araneta Center Redevelopment Project. As part of its invitation to
prospective contractors, ACI furnished bidders with Tender Documents. The Tender Documents described
the project’s contract sum to be a “lump sum” or “lump sum fixed price” and restricted cost adjustments.
The bidders’ proposals for the project were submitted on August 30, 2002. These were based on “design
and construct” bidding.
CECON submitted its bid. CECON’s proposal specifically stated that its bid was valid for only ninety
(90) days, or only until 29 November 2002. This tender proposed a total of 400 days, or until January 10,
2004, for the implementation and completion of the project. CECON offered the lowest tender amount.
However, ACI did not award the project to any bidder. ACI only subsequently informed CECON that the
contract was being awarded to it. ACI elected to inform CECON verbally and not in writing. In a phone call,
ACI instructed CECON to proceed with excavation works on the project. ACI and CECON subsequently
agreed to include in the project the construction of an office tower atop the portion identified as Part A of
the project. Despite these developments, ACI still failed to formally award the project to CECON. The parties
had yet to execute a formal contract.
By January 2003 and with the project yet to be formally awarded, the prices of steel products had
increased by 5% and of cement by P5.00 per bag. On January 8, 2003, CECON again wrote ACI notifying it
of these increasing costs and specifically stating that further delays may affect the contract sum. Still
without a formal award, CECON again wrote to ACI on January 21, 2003 indicating cost and time
adjustments to its original proposal. Specifically, it referred to an 11.52% increase for the cost of steel
products for the project; and costs incurred because of changes to the project’s structural framing,. The
contract sum, therefore, needed to be increased. CECON also specifically stated that its tender relating to
these adjusted prices were valid only until January 31, 2003, as further price changes may be forthcoming.
CECON emphasized that its steel supplier had actually already advised it of a forthcoming 10% increase in
steel prices by the first week of February 2003. CECON further impressed upon ACI the need to adjust the
400 days allotted for the completion of the project. ACI delivered to CECON the initial tranche of its down
payment for the project. By then, prices of steel had been noted to have increased by 24% from December
2002 prices. This increase was validated by ACI. Subsequently, ACI informed CECON that it was taking upon
itself the design component of the project, removing from CECON’s scope of work the task of coming up
with designs.
Araneta Center, Inc. (ACI) hereby accepts the C-E Construction Corporation (CEC) tender submitted
to ACI in the adjusted sum of P1,540,000,000.00, which sum includes all additionally quoted and accepted
items within the acceptance letter and attachments. This acceptance letter explicitly recognized that “all
design except support to excavation sites, is now by ACI. It thereby confirmed that the parties were not
bound by a design-and-construct agreement but by a construct-only agreement. The letter stated that
CECON acknowledges that a binding contract is now existing. However, consistent with ACI’s admitted
changes, it also expressed ACI’s corresponding undertaking: “This notwithstanding, formal contract
documents embodying these positions will shortly be prepared and forwarded to you for execution. Despite
ACI’s undertaking, no formal contract documents were delivered to CECON or otherwise executed between
ACI and CECON. As it assumed the design aspect of the project, ACI issued to CECON the construction
drawings for the project. Unlike schematics, these drawings specified “the kind of work to be done and the
kind of material to be used. CECON laments, however, that “ACI issued the construction drawings in piece-
meal fashion at times of its own choosing. With many changes to the project and ACI’s delays in delivering
drawings and specifications, CECON increasingly found itself unable to complete the project.
ISSUE:
1. Whether or not the tender documents may have characterized the contract sum as fixed and lump-
sum, but the premises for this arrangement have undoubtedly been repudiated by intervening
circumstances.

2. Whether or not the CIAC Arbitral Tribunal correctly found that ACI had gained no solace in statutory
provisions on the immutability of prices stipulated between a contractor and a landowner.

RULING:

1. The tender documents may have characterized the contract sum as fixed and lump-sum, but the
premises for this arrangement have undoubtedly been repudiated by intervening circumstances. When
CECON made its offer of P1,540,000,000.00, it proceeded from several premises. Contrary to CECON’s
reasonable expectations, ACI failed to timely act either on CECON’s bid or on those of its competitors.
Negotiations persisted for the better part of two (2) calendar years, during which the quoted contract sum
had to be revised at least five (5) times. The object of the contract and CECON’s scope of work widely varied.
There were radical changes like the addition of an entire office tower to the project and the change in the
project’s structural framing. There was also the undoing of CECON’s freedom to design, thereby rendering
it entirely dependent on configurations that ACI was to unilaterally resolve, It turned out that ACI took its
time in delivering construction drawings to CECON, with almost 38% of construction drawings being
delivered after the intended completion date. There were many other less expansive changes to the
project, such as ACI’s fickleness on which equipment it would acquire by itself. ACI even failed to
immediately deliver the project site to CECON so that CECON may commence excavation, the most basic
task in setting up a structure’s foundation. ACI also failed to produce definite instruments articulating its
agreement with CECON, the final contract documents.With the withering of the premises upon which a
lump-sum, fixed price arrangement would have been founded, such an arrangement must have certainly
been negated: The contract is fixed and lump sum when it was tendered and contracted as a design and
constant package. The contract scope and character significantly changed when the design was taken over
by the Respondent. At the time of the negotiation and agreement of the amount of Php1.54 billion, there
were no final plans for the change to structural steel, and all the mechanical, electrical and plumbing
drawings were all schematics. It is apparent to the Tribunal that the quantity and materials at the time of
the P1.54B agreement are significantly different from the original plans to the finally implemented plans.
The price increases in the steel products and cement were established to have already increased by 11.52%
and by P5.00 per bag respectively by January 21, 2003. The Tribunal finds agreement with the Claimant
that it is fairer to award the price increase. It should also be mentioned that Respondent had changed the
scope and character of the agreement. First, there were major changes in the plans and specifications.
Originally, the contract was for design and construct. The design was deleted from the scope of the
Claimant. It was changed to a straight construction contract. As a straight construction contract, there were
no final plans to speak of at the time of the instructions to change. Then there was a verbal change to
structural steel frame. No plans were available upon this instruction to change. Next, the [mechanical,
electrical and plumbing] plans were all schematics. It is therefore expected that changes of plans are
forthcoming, and that changes in costs would follow. It has been established that the original tender,
request for proposal and award is for a design and construct contract. The contract documents are
therefore associated for said system of construction. When Respondent decided to change and take over
the design, such as the change from concrete to structural steel framing, “take-out” equipment from the
contract and modify the [mechanical, electrical and plumbing works, the original scope of work had been
drastically changed. To tie down the Claimant to the tmit prices for the proposal for a different scope of
work would be grossly unfair. This Tribunal will hold that unit price adjustment could be allowed but only
for change orders that were not in the original scope of work, such as the change order from concrete to
structural framing, the [mechanical, electrical and plumbing w]orks, [schematic drawings to construction
drawings] and the Miscellaneous Change Order Works.

2. Contrary to ACI’s oft-repeated argument, the CIAC Arbitral Tribunal correctly found that ACI had gained
no solace in statutory provisions on the immutability of prices stipulated between a contractor and a
landowner. Article 1724 of the Civil Code provides that the contractor who undertakes to build a structure
or any other work for a stipulated price, in conformity with plans and specifications agreed upon with the
land-owner, can neither withdraw from the contract nor demand an increase in the price on account of the
higher cost of labor or materials, save when there has been a change in the plans and specifications,
provided:
(1) Such change has been authorized by the proprietor in writing; and
(2) The additional price to be paid to the contractor has been determined in writing by both parties.
Article 1724 demands two (2) requisites in order that a price may become immutable: first, there
must be an actual, stipulated price; and second, plans and specifications must have definitely been agreed
upon. Neither requisite avails in this case. Yet again, ACI is begging the question. It is precisely the crux of
the controversy that no price has been set. Article 1724 does not work to entrench a disputed price and
make it sacrosanct. Moreover, it was ACI which thn1st itself upon a situation where no plans and
specifications were immediately agreed upon and from which no deviation could be made. It was ACI, not
CECON, which made, revised, and deviated from designs and specifications.
Estoppel
Dy vs. Bibat-Palamos
G.R. No. 196200, September 11, 2013

MENDOZA, J.:

FACTS:

Petitioner Ernesto Dy and his wife, Lourdes Dy, were the proprietors of Limchia Enterprises
which was engaged in the shipping business. In 1990, Limchia Enterprises, with Lourdes as co-
maker, obtained a loan from Orix Metro Leasing and Finance Corporation (respondent) to fund its
acquisition of M/V Pilar-I, a cargo vessel. As additional security for the loan, Limchia Enterprises
executed the Deed of Chattel Mortgage over M/V Pilar-I. Due to financial losses suffered when M/V
Pilar-I was attacked by pirates, Spouses Dy failed to make the scheduled payments as required in
their promissory note. After receiving several demand letters from respondent, Spouses Dy applied
for the restructuring of their loan. Meanwhile, Lourdes issued several checks to cover the remainder
of their loan but the same were dishonored by the bank, prompting respondent to institute a
criminal complaint for violation of the Bouncing Checks Law. Lourdes appealed to respondent with
a new proposal to update their outstanding loan obligations. However, respondent filed the Complaint
and Petition for Extrajudicial Foreclosure of Preferred Ship Mortgage with Urgent Prayer for
Attachment with the RTC. Following the filing of an affidavit of merit and the posting of bond by
respondent, the RTC ordered the seizure of M/V Pilar-I and turned over its possession to respondent.
On September 28, 1994, respondent transferred all of its rights, title to and interests, as mortgagee,
in M/V Pilar-I to Colorado Shipyard Corporation (Colorado). In 1997, the RTC rendered a decision in
favor of Sps Dy, ruling that they had not yet defaulted on their loan because respondent agreed to a
restructured schedule of payment. There being no default, the foreclosure of the chattel mortgage was
premature. The RTC ordered that the vessel be returned to Spouses Dy. The CA and SC affirmed such order.
Ernesto Dy filed a motion for execution of the judgment with the RTC. Colorado filed a Manifestation
informing the RTC that the vessel has sustained severe damage and deterioration and had sunk in its
shipyard. For this reason, it sought permission to cut the sunken vessel into pieces, sell its parts and deposit
the proceeds in escrow. Dy objected and insisted that the vessel be returned to him in same condition as
it was when it was wrongfully seized by Orix or if no longer possible, that another vessel be delivered.

ISSUE:

Whether or not the petitioner is barred from demanding return of the vessel in its former
condition

RULING:

No. For estoppel to take effect, there must be knowledge of the real facts by the party
sought to be estopped and reliance by the party claiming estoppel on the representation made by
the former. In this case, petitioner cannot be estopped from asking for the return of the vessel in
the condition that it had been at the time it was seized by respondent because he had not known
of the deteriorated condition of the ship. The Court further rules that petitioner is entitled to the
return of M/V Pilar-I in the same condition in which respondent took possession of it. Considering,
however, that this is no longer possible, then respondent should pay petitioner the value of the
ship at such time. After having been deprived of his vessel for almost two decades, through no fault
of his own, it would be the height of injustice to permit there turn of M/V Pilar-I to petitioner in
pieces, especially after a judgment by this very same Court ordering respondent to restore possession
of the vessel to petitioner. To do so would leave petitioner with nothing but a hollow and illusory
victory for although the Court ruled in his favor and declared that respondent wrongfully took
possession of his vessel, he could no longer enjoy the beneficial use of his extremely deteriorated
vessel that it is no longer seaworthy and has no other commercial value but for the sale of its
parts as scrap.
Implied Trust

Tong vs. Go Tiat Kun


G.R. No. 196023, April 21, 2014

REYES, J.:

FACTS:

Spouses Juan Tong and Sy Un have 10 children. Sometime in 1957, Juan Tong had a meeting
with all his children to inform them of his intention to purchase Lot 998 to be used for the family’s
lumber business called "Juan Tong Lumber". However, since he was a Chinese citizen and was
disqualified from acquiring the said lot, the title to the property will be registered in the name of
his eldest son, Luis, Sr., who at that time was already of age and was the only Filipino citizen
among his children. On May 11, 1957, Juan Tong bought Lot 998 from the heirs of Jose Ascencio.
Accordingly, on May 16, 1957, TCT was issued by the Register of Deeds in the name of Luis, Sr.
On December 8, 1978, the single proprietorship of Juan Tong Lumber was incorporated into a
corporation known as the Juan Tong Lumber, Inc.4 However, Sy Un and Juan Tong both died
intestate. Meanwhile, on May 30, 1981, Luis, Sr. died and the respondents, being his surviving heirs,
claimed ownership over Lot 998 by succession, alleging that no trust agreement exists and it was
Luis, Sr. who bought Lot 998. On July 2, 1982, the respondents executed a Deed of Extra-Judicial
Settlement of Estate of Luis, Sr., adjudicating unto themselves Lot 998 and claiming that the said
lot is the conjugal property of Luis, Sr., and his wife, which the Juvenile and Domestic Relations
Court of Iloilo City approved on June 28, 1982. On July 19, 1982, the said deed was registered
causing the cancellation of TCT No. 10346 and the issuance of TCT No. T-60231 in the name of
the respondents. The petitioners, on the other hand, claimed that Luis Sr. was a mere trustee and not the
owner of Lot 998.

ISSUE:

1. Whether or not there was an implied resulting trust constituted over Lot 998 when Juan Tong
purchased the property and registered it in the name of Luis, Sr.

2. Whether or not parol evidence be used as proof of the establishment of the trust

3. Whether or not the petitioners’ action is barred by prescription, laches and estoppel

RULING:

1 Yes. The appellate court’s conclusion that an express trust was created because there was a direct
and positive act by Juan Tong to create a trust must inevitably yield to the clear and positive
evidence on record which showed that what was truly created was an implied resulting trust. As
what has been fully established, in view of the mutual trust and confidence existing between said
parties who are family members, the only reason why Lot 998 was registered in the name of Luis,
Sr. was to facilitate the purchase of the said property to be used in the family’s lumber business
since Luis, Sr. is the only Filipino Citizen in the Juan Tong family at that time. As the registered
owner of Lot 998, it is only natural that tax declarations and the corresponding tax payment receipts
be in the name of Luis, Sr. so as to effect payment thereof. The principle of a resulting trust is
based on the equitable doctrine that valuable consideration and not legal title determines the
equitable title or interest and are presumed always to have been contemplated by the parties.
They arise from the nature or circumstances of the consideration involved in a transaction whereby
one person thereby becomes invested with legal title but is obligated in equity to hold his legal
title for the benefit of another. On the other hand, a constructive trust, unlike an express trust,
does not emanate from, or generate a fiduciary relation. Constructive trusts are created by the
construction of equity in order to satisfy the demands of justice and prevent unjust enrichment.
They arise contrary to intention against one who, by fraud, duress or abuse of confidence, obtains
or holds the legal right to property which he ought not, in equity and good conscience, to hold.
Guided by the foregoing definitions, the Court is in conformity with the finding of the trial court
that an implied resulting trust was created as provided under the first sentence of Article 1448
which is sometimes referred to as a purchase money resulting trust, the elements of which are: (a)
an actual payment of money, property or services, or an equivalent, constituting valuable
consideration; and (b) such consideration must be furnished by the alleged beneficiary of a resulting
trust. Here, the petitioners have shown that the two elements are present in the instant case. Luis,
Sr. was merely a trustee of Juan Tong and the petitioners in relation to the subject property, and
it was Juan Tong who provided the money for the purchase of Lot 998 but the corresponding
transfer certificate of title was placed in the name of Luis, Sr. The principle that a trustee who puts
a certificate of registration in his name cannot repudiate the trust by relying on the registration is
one of the well-known limitations upon a title. A trust, which derives its strength from the confidence
one reposes on another especially between families, does not lose that character simply because
of what appears in a legal document.

2. Yes. it is not error for the trial court to rely on parol evidence, i.e., the oral testimonies of
witnesses Simeon Juan Tong and Jose Juan Tong, to arrive at the conclusion that an implied
resulting trust exists. What is crucial is the intention to create a trust. "Intention—although only
presumed, implied or supposed by law from the nature of the transaction or from the facts and
circumstances accompanying the transaction, particularly the source of the consideration—is always
an element of a resulting trust and may be inferred from the acts or conduct of the parties rather
than from direct expression of conduct. Certainly, intent as an indispensable element is a matter
that necessarily lies in the evidence, that is, by evidence, even circumstantial, of statements made
by the parties at or before the time title passes. Because an implied trust is neither dependent
upon an express agreement nor required to be evidenced by writing, Article 1457 of our Civil Code
authorizes the admission of parol evidence to prove their existence. Parol evidence that is required
to establish the existence of an implied trust necessarily has to be trustworthy and it cannot rest
on loose, equivocal or indefinite declarations.

3. As a rule, implied resulting trusts do not prescribe except when the trustee repudiates the trust.
Further, the action to reconvey does not prescribe so long as the property stands in the name of
the trustee. To allow prescription would be tantamount to allowing a trustee to acquire title against
his principal and true owner. It should be noted that the title of Lot 998 was still registered in the
name of Luis Sr. even when he predeceased Juan Tong. Considering that the implied trust has been
repudiated through such death, Lot 998 cannot be included in his estate except only insofar as his
undivided share thereof is concerned. It is well-settled that title to property does not vest ownership
but it is a mere proof that such property has been registered. And, the fact that the petitioners
are in possession of all the tax receipts and tax declarations of Lot 998 all the more amplify their
claim of ownership over Lot 998-A. Although these tax declarations or realty tax payments of
property are not conclusive evidence of ownership, nevertheless, they are good indicia of possession
in the concept of owner, for no one in his right mind would be paying taxes for a property that
is not in his actual or at least constructive possession. Such realty tax payments constitute proof
that the holder has a claim of title over the property. Therefore, the action for reconveyance of
Lot 998-A, which forms part of Lot 998, is imprescriptible and the petitioners are not estopped
from claiming ownership thereof. Moreso, when the petitioners received a letter from VGCC, and
discovered about the breach of the trust agreement committed by the heirs of Luis, Sr., they
immediately instituted an action to protect their rights, as well as upon learning that respondent
Go Tiat Kun executed a Deed of Sale of Undivided Interest over Lot 998-A in favor of her children.
Clearly, no delay may be attributed to them. The doctrine of laches is not strictly applied between
near relatives, and the fact that the parties are connected by ties of blood or marriage tends to
excuse an otherwise unreasonable delay.
Agency

International Exchange Bank vs. Briones


G.R. No. 205657, March 29, 2017

LEONEN, J.:

FACTS:

On July 2, 2003, spouses Jerome and Quinnie Briones (Spouses Briones) took out a loan of
₱3,789,216.00 from iBank to purchase a BMW Z4 Roadster. The Spouses Briones executed a
promissory note with chattel mortgage that required them to take out an insurance policy on the
vehicle. The promissory note also gave iBank irrevocable authority to file an insurance claim in case
of loss or damage to the vehicle. The insurance proceeds were to be made payable to iBank.
However, the mortgaged BMW Z4 Roadster was carnapped by 3 armed men in Tandang Sora, Quezon
City. Jerome Briones immediately reported the incident to the PNP. The Spouses Briones declared
the loss to iBank, which instructed them to continue paying the next 3 monthly installments "as a
sign of good faith," a directive they complied with. After the Spouses Briones finished paying the 3-
month installment, iBank sent them a letter demanding full payment of the lost vehicle. On April
30, 2004, the Spouses Briones submitted a notice of claim with their insurance company, which
denied the claim due to the delayed reporting of the lost vehicle. On May 14, 2004, iBank filed a
complaint for replevin and/or sum of money against the Spouses Briones and a person named John
Doe. The Complaint alleged that the Spouses Briones defaulted in paying the monthly amortizations
of the mortgaged vehicle. However, there was no settlement between the parties.

ISSUE:

1. Whether or not an agency relationship existed between the parties;

2. Whether or not the agency relationship was revoked or terminated;

3. Whether or not petitioner is entitled to the return of the mortgaged vehicle or, in the alternative,
payment of the outstanding balance of the loan taken out for the mortgaged vehicle.

RULING:

1. Yes. In a contract of agency, a person binds himself to render some service or to do something
in representation or on behalf of another, with the consent or authority of the latter. Furthermore,
Article 1884 of the Civil Code provides that 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.
Rallos v. Felix Go Chan & Sons Realty Corporation lays down the elements of agency: Out of the
above given principles, sprung the creation an acceptance of the relationship of agency whereby
one party, called the principal (mandante), authorizes another, called the agent (mandatario), to act
for and in his behalf in transactions with third persons. The essential elements of agency are: (1)
there is consent, express or implied, of the parties to establish the relationship; (2) the object is
the execution of a juridical act in relation to a third person; (3) the agent acts as a representative
and not for himself; and (4) the agent acts within the scope of his authority.All the elements of
agency exist in this case. Under the promissory note with chattel mortgage, Spouses Briones
appointed iBank as their attorney-in-fact, authorizing it to file a claim with the insurance company
if the mortgaged vehicle was lost or damaged. Petitioner was also authorized to collect the insurance
proceeds as the beneficiary of the insurance policy. Also, Article 1370 of the Civil Code is categorical
that when "the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control." The determination of agency
is ultimately factual in nature and this Court sees no reason to reverse the findings of the Regional
Trial Court and the Court of Appeals. They both found the existence of an agency relationship
between the Spouses Briones and iBank, based on the clear wording of Sections 6 and 22 of the
promissory note with chattel mortgage, which petitioner prepared and respondents signed.
2. Revocation as a form of extinguishing an agency under Article 1924 of the Civil Code only applies
in cases of incompatibility, such as when the principal disregards or bypasses the agent in order to
deal with a third person in a way that excludes the agent. In the case at bar, the mortgaged vehicle
was camapped and the Spouses Briones immediately informed petitioner about the loss. The Spouses
Briones continued paying the monthly installment for the next 3 months following the vehicle's loss
to show their good faith. However, petitioner demanded full payment from Spouses Briones for the
lost vehicle. The Spouses Briones were thus constrained to file a claim for loss with the insurance
company, precisely because petitioner failed to do so despite being their agent and being authorized
to file a claim under the insurance policy. Not surprisingly, the insurance company declined the
claim for belated filing. The Spouses Briones' claim for loss cannot be seen as an implied revocation
of the agency or their way of excluding petitioner. They did not disregard or bypass petitioner when
they made an insurance claim; rather, they had no choice but to personally do it because of their
agent's negligence. This is not the implied termination or revocation of an agency provided for
under Article 1924 of the Civil Code. While a contract of agency is generally revocable at will as it
is primarily based on trust and confidence, Article 1927 of the Civil Code provides the instances
when an agency becomes irrevocable. A bilateral contract that depends upon the agency is
considered an agency coupled with an interest, making it an exception to the general rule of
revocability at will. Lim v. Saban emphasizes that when an agency is established for both the
principal and the agent, an agency coupled with an interest is created and the principal cannot
revoke the agency at will. In the promissory note with chattel mortgage, the Spouses Briones
authorized petitioner to claim, collect, and apply· the insurance proceeds towards the full satisfaction
of their loan if the mortgaged vehicle were lost or damaged. Clearly, a bilateral contract existed
between the parties, making the agency irrevocable. Petitioner was also aware of the bilateral
contract; thus, it included the designation of an irrevocable agency in the promissory note with
chattel mortgage that it prepared for the Spouses Briones to sign.
Quasi-Contract

Venzon vs. Rural Bank of Buenavista


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

DEL CASTILLO, J.:

FACTS:

On January 28, 2005, petitioner Virginia M. Venzon filed a Petition to nullify foreclosure
proceedings and Tax Declaration Nos. 96-GR-06-003-7002-R and 96-GR-06-7003-R issued in the name
of respondent Rural Bank of Buenavista (Agusan del Norte), Inc. Petitioner alleged that in 1983 she
and her late spouse, George F. Venzon, Sr., obtained a ₱5,000.00 loan from respondent against a
mortgage on their house and lot in Libertad, Butuan City, covered by Tax Declaration Nos. 28289
and 42710 issued in their names, which were later on replaced with Tax Declaration Nos. 96 GR-
06-003-2884-R and 96 GR-06-003-2885-R; that she was able to pay ₱2,300.00, thus leaving an
outstanding balance of only ₱2,370.00; that sometime in March 1987, she offered to pay the said
balance in full, but the latter refused to accept payment, and instead shoved petitioner away from
the bank premises; that in March 1987, respondent foreclosed on the mortgage, and the property
was sold at auction for ₱6,472.76 to respondent, being the highest bidder; that the foreclosure
proceedings are null and void for lack of notice and publication of the sale, lack of sheriff’s final
deed of sale and notice of redemption period; and that she paid respondent ₱6,000.00 on October
9, 1995, as evidenced by respondent’s Official Receipt No. 4108486 issued on October 9, 1995. In its
Answer with Counterclaims, respondent claimed that petitioner did not make any payment on the
loan; that petitioner never went to the bank in March 1987 to settle her obligations in full; that
petitioner was not shoved and driven away from its premises; that the foreclosure proceedings were
regularly done and all requirements were complied with; that a certificate of sale was issued by
the sheriff and duly recorded in the Registry of Deeds; that petitioner’s claim that she paid ₱6,000.00
on October 9, 1995 is utterly false; that petitioner’s cause of action has long prescribed as the case
was filed only in 2005 or 18 years after the foreclosure sale; and that petitioner is guilty of laches.
Respondent interposed its counterclaim for damages and attorney’s fees as well. In her Reply,
petitioner insisted that the foreclosure proceedings were irregular and that prescription and laches
do not apply as the foreclosure proceedings are null and void to begin with.

ISSUE:

1. Whether or not the Honorable Court Of Appeals Reversibly Erred In Dismissing The Petition For
Certiorari Thereby Preventing The Court From Finding Out That Actually No Extrajudicial Foreclosure
Was Conducted By The Office Of The Provincial Sheriff On Petitioner’s Property At The Instance Of
The Private Respondent.

2. Whether or not the petitioner is entitled to a return of ₱6,000.00.

RULING:

1. The Court finds no error in the CA’s treatment of the Petition for Certiorari. The trial court’s
July 13, 2006 Resolution dismissing the case was indeed to be treated as a final order, disposing
of the issue of publication and notice of the foreclosure sale – which is the very core of petitioner’s
cause of action in Civil Case No. 5535 – and declaring the same to be unnecessary pursuant to the
Rural Banks Act, as petitioner’s outstanding obligation did not exceed ₱10,000.00, and thus leaving
petitioner without basis to maintain her case. This constitutes a dismissal with the character of finality.
As such, petitioner should have availed of the remedy under Rule 41, and not Rule 65. The Court
is not prepared to be lenient in petitioner’s case, either. Civil Case No. 5535 was instituted only in
2005, while the questioned foreclosure proceedings took place way back in 1987. Petitioner’s long
inaction and commission of a procedural faux pas certainly cannot earn the sympathy of the Court.
Nor can the Court grant the Petition on the mere allegation that no foreclosure proceedings ever
took place. The February 2, 2005 Certification issued by the Office of the Clerk of Court of Butuan
City to the effect that the record of the foreclosure proceedings could not be found is not sufficient
ground to invalidate the proceedings taken. Petitioner herself attached the Sheriff’s Certificate of
Sale; this should belie the claim that no record exists covering the foreclosure proceedings. Besides,
if petitioner insists that no foreclosure proceedings took place, then she should not have filed an
action to annul the same since there was no foreclosure to begin with. She should have filed a
different action.

2. The redemption period had long lapsed when the payment of ₱6,000.00 was allegedly made.
Thus, there is no point talking about redemption price when the redemption period had long been
gone at the time the alleged payment was made. Even granting, without conceding, that the amount
of ₱6,000.00 was a redemption price, said amount, however, could not constitute as a legal
redemption price since the same was not enough to cover the entire redemption price as mandated
by the rules and laws. Interestingly, respondent did not deny being the issuer of Official Receipt
No. 410848. Instead, it averred that petitioner’s payment to it of ₱6,000.00 was false and self-
serving, but in the same breath argued that, without necessarily admitting that payment of ₱6,000.00
was made, the same cannot be considered as redemption price. By making such an ambiguous
allegation in its Answer with Counterclaims, respondent is deemed to have admitted receiving the
amount of ₱6,000.00 from petitioner as evidenced by Official Receipt No. 410848, which amount
under the circumstances it had no right to receive. If an allegation is not specifically denied or the
denial is a negative pregnant, the allegation is deemed admitted. Where a fact is alleged with some
qualifying or modifying language, and the denial is conjunctive, a ‘negative pregnant’ exists, and only
the qualification or modification is denied, while the fact itself is admitted. A denial in the form of
a negative pregnant is an ambiguous pleading, since it cannot be ascertained whether it is the fact
or only the qualification that is intended to be denied. Profession of ignorance about a fact which
is patently and necessarily within the pleader's knowledge, or means of knowing as ineffectual, is
no denial at all. In fine, respondent failed to refute petitioner’s claim of having paid the amount of
₱6,000.00. Since respondent was not entitled to receive the said amount, as it is deemed fully paid
from the foreclosure of petitioner’s property since its bid price at the auction sale covered all that
petitioner owed it by way of principal, interest, attorney’s fees and charges, it must return the
same to petitioner. If something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises. Moreover, pursuant to Circular No. 799,
series of 2013 of the Bangko Sentral ng Pilipinas which took effect July 1, 2013, the amount of
₱6,000.00 shall earn interest at the rate of 6% per annum computed from the filing of the Petition
in Civil Case No. 5535 up to its full satisfaction.