Civil Law

Assignment of credits. Was Reyes’ sale of the property to
the Vegas binding on PDC (one of Reyes’ creditors) which
tried to enforce the judgment credit against Reyes in its
favor on the property? The CA ruled that Reyes’
assignment of the property to the Vegas did not bind PDC,
which had a judgment credit against Reyes, since such
assignment neither appeared in a public document nor was
registered with the register of deeds as Article 1625 of the
Civil Code required. Article 1625 reads:
they are deemed in pari delicto or in equal fault. This
rule, however, is not absolute. Article 1412 of the Civil
Code provides an exception, and permits the return of
that which may have been given under a void contract.
Thus:
Art. 1412. If the act in which the unlawful or forbidden
cause consists does not constitute a criminal offense, the
following rules shall be observed:

Art. 1625. An assignment of a credit, right or action (1) When the fault is on the part of both contracting
shall produce no effect as against third persons, unless it parties, neither may recover what he has given by virtue
appears in a public instrument, or the instrument is of the contract, or demand the performance of the other’s
recorded in the Registry of Property in case the assignment undertaking;
involves real property. (1526)
(2) When only one of the contracting parties is at fault,
But Article 1625 referred to assignment of credits and he cannot recover what he has given by reason of the
other incorporeal rights. Reyes did not assign any credit or contract, or ask for the fulfillment of what has been
incorporeal right to the Vegas. She sold the Vegas her promised him. The other, who is not at fault, may demand
house and lot. They became owner of the property from the return of what he has given without any obligation to
the time she executed the deed of assignment covering comply with his promise.
the same in their favor. PDC had a judgment for money
against Reyes only. A court’s power to enforce its judgment The evidence on record established that petitioners
applies only to the properties that are indisputably owned indeed permitted an unlicensed trader and salesman, like
by the judgment obligor. Here, the property had long Mendoza, to handle respondent’s account. On the other
ceased to belong to Reyes when she sold it to the Vegas in hand, the record is bereft of proof that respondent had
1981. Sps. Antonio and Leticia Vega vs. Social Security knowledge that the person handling his account was not a
System, et al., G.R. No. 181672, September 20, 2010 licensed trader. Respondent can, therefore, recover the
amount he had given under the contract. The SEC Hearing
Attorney’s fees. Article 2208(2) of the Civil Code allows Officer and the CA, therefore, committed no reversible
the award of attorney’s fees in cases where the error in holding that respondent is entitled to a full
defendant’s act or omission has compelled the plaintiff to recovery of his investments. Queensland-Tokyo
litigate with third persons or to incur expenses to protect Commodities, Inc., et al. vs. Thomas George, G.R. No.
his interest. Attorney’s fees may be awarded by a court to 172727, September 8, 2010
one who was compelled to litigate with third persons or to
incur expenses to protect his or her interest by reason of Damages; moral; exemplary. Moral damages are meant to
an unjustified act or omission of the party from whom it is compensate the claimant for any physical suffering,
sought. Metropolitan Bank & trust Company, Inc. vs. The mental anguish, fright, serious anxiety, besmirched
Board of Trustees of Riverside Mills Corp. Provident and reputation, wounded feelings, moral shock, social
Retirement Fund, et al., G.R. No. 176959, September 8, humiliation, and similar injuries unjustly caused. Although
2010 incapable of pecuniary estimation, the amount must
somehow be proportional to and in approximation of the
Conjugal property and sale thereof; various rules. (1) What suffering inflicted. Moral damages are not punitive in
law applies to a sale or purported sale of a conjugal nature and were never intended to enrich the claimant at
property entered into after the Family Code’s effectivity? the expense of the defendant.
The Family Code, even if the couple owning the conjugal
property were married before the Family Code took As for exemplary damages, Article 2229 of the Civil Code
effect. (2) Under the Family Code, conjugal property can provides that such damages may be imposed by way of
only be sold with the consent of both spouses. (3) For a example or correction for the public good. While
buyer of conjugal property to be considered a purchaser in exemplary damages cannot be recovered as a matter of
good faith, he must observe two kinds of requisite right, they need not be proved, although plaintiff must
diligence, namely: (a) the diligence in verifying the show that he is entitled to moral, temperate, or
validity of the title covering the property; and (b) the compensatory damages before the court may consider the
diligence in inquiring into the authority of the transacting question of whether or not exemplary damages should be
spouse to sell conjugal property in behalf of the other awarded. Exemplary damages are imposed not to enrich
spouse. Sps. Rex and Concepcion Aggabao vs. Dionisio Z. one party or impoverish another, but to serve as a
Parulan, Jr. and Ma. Elena Parulan, G.R. No. 165803, deterrent against or as a negative incentive to curb
September 1, 2010. socially deleterious actions.

Contract; void contract; consequences. It is settled that a
void contract is equivalent to nothing; it produces no civil
effect. It does not create, modify, or extinguish a juridical
relation. Parties to a void agreement cannot expect the
aid of the law; the courts leave them as they are, because
1
However, the same statutory and jurisprudential standards
dictate reduction of the amounts of moral and exemplary
damages fixed by the SEC. Certainly, there is no hard-and-
fast rule in determining what would be a fair and
reasonable amount of moral and exemplary damages,
Civil Law
since each case must be governed by its own peculiar
facts. Courts are given discretion in determining the
amount, with the limitation that it should not be palpably
and scandalously excessive. Indeed, it must be
commensurate to the loss or injury suffered. Queensland-
Tokyo Commodities, Inc., et al. vs. Thomas George, G.R.
No. 172727, September 8, 2010
it was immediately operative and final. The reason is that
such kind of donation is deemed perfected from the
moment the donor learned of the donee’s acceptance of
the donation. The acceptance makes the donee the
absolute owner of the property donated. Jarabini G. Del
Rosario vs. Asuncion F. Ferrer, et al., G.R. No. 187056,
September 20, 2010.

Donation mortis causa vs. donation inter vivos. That a Lease; return of leased property in the leased premises.
document is captioned “Donation Mortis Causa” is not Here is the first paragraph of this case, with Digester’s
controlling. If a donation by its terms is inter vivos, this responses in capitals: “What happens when personal
character is not altered by the fact that the donor styles it properties inside leased premises are stipulated as
mortis causa. included in the contract of lease?” THE PARTIES CAN DO
THIS UNDER FREEDOM TO CONTRACT. “Does a judgment on
“Irrevocability” is a quality absolutely incompatible with a suit for unlawful detainer ejecting the lessees from the
the idea of conveyances mortis causa, where subject property carry with it the return of these personal
“revocability” is precisely the essence of the act. A properties as well?” YES, BECAUSE UPON THE ISSUANCE OF
donation mortis causa has the following characteristics: THE EJECTMENT ORDER, THE LEASE TERMINATES AND
CLAUSE REQURING RETURN OR REPLACEMENT OF CERTAIN
1. It conveys no title or ownership to the transferee before PERSONAL PROPERTIES FOUND IN THE LEASED PREMISES, IS
the death of the transferor; or, what amounts to the same TRIGGERED. “Finally, the trickier part which is the crux of
thing, that the transferor should retain the ownership (full this petition: what if some of these personal properties
or naked) and control of the property while alive; are lost, destroyed or sold by the lessor? May the ejected
lessees still be ordered to pay for their value?” YES.
2. That before his death, the transfer should be revocable University Physicians Services, Inc. vs. Marian Clinics,
by the transferor at will, ad nutum; but revocability may Inc. and Dr. Lourdes Mabanta, G.R. No. 152303,
be provided for indirectly by means of a reserved power in September 1, 2010.
the donor to dispose of the properties conveyed; and
Mortgaged property; what happens when mortgagor sells
3. That the transfer should be void if the transferor should property without mortgagee’s consent. The question is:
survive the transferee. was Reyes’ disposal of the property in favor of the Vegas
valid given a provision in the mortgage agreement
In this case, the donors plainly said that it is “our will that (between Reyes and SSS) that she could not do so without
this Donation Mortis Causa shall be irrevocable and shall the written consent of the SSS? The CA ruled that, under
be respected by the surviving spouse.” The intent to make Article 1237 of the Civil Code, the Vegas who paid
the donation irrevocable becomes even clearer by the amortizations to the SSS except the last on behalf of
proviso that a surviving donor shall respect the Reyes, without the latter’s knowledge or against her
irrevocability of the donation. Consequently, the donation consent, cannot compel the SSS to subrogate them in her
was in reality a donation inter vivos. rights arising from the mortgage. Further, said the CA, the
Vegas’ claim of subrogation was invalid because it was
The donors in this case of course reserved the “right, done without the knowledge and consent of the SSS as
ownership, possession, and administration of the required under the mortgage agreement. But Article 1237
property” and made the donation operative upon their cannot apply in this case since Reyes consented to the
death. But this Court has consistently held that such transfer of ownership of the mortgaged property to the
reservation (reddendum) in the context of an irrevocable Vegas. Reyes also agreed for the Vegas to assume the
donation simply means that the donors parted with their mortgage and pay the balance of her obligation to SSS.
naked title, maintaining only beneficial ownership of the
donated property while they lived. Of course, paragraph 4 of the mortgage contract covering
the property required Reyes to secure SSS’ consent before
Notably, the three donees signed their acceptance of the selling the property. But, although such a stipulation is
donation, which acceptance the deed required. This Court valid and binding, in the sense that the SSS cannot be
has held that an acceptance clause indicates that the compelled while the loan was unpaid to recognize the
donation is inter vivos, since acceptance is a requirement sale, it cannot be interpreted as absolutely forbidding her,
only for such kind of donations. Donations mortis causa, as owner of the mortgaged property, from selling the same
being in the form of a will, need not be accepted by the while her loan remained unpaid. Such stipulation
donee during the donor’s lifetime. contravenes public policy, being an undue impediment or
interference on the transmission of property.
Finally, as Justice J. B. L. Reyes said in Puig v. Peñaflorida,
in case of doubt, the conveyance should be deemed a Besides, when a mortgagor sells the mortgaged property to
donation inter vivos rather than mortis causa, in order to a third person, the creditor may demand from such third
avoid uncertainty as to the ownership of the property person the payment of the principal obligation. The reason
subject of the deed. for this is that the mortgage credit is a real right, which
follows the property wherever it goes, even if its
Since the donation in this case was one made inter vivos, ownership changes. Article 2129 of the Civil Code gives the
2
Civil Law
mortgagee, here the SSS, the option of collecting from the
third person in possession of the mortgaged property in
the concept of owner. More, the mortgagor-owner’s sale of
the property does not affect the right of the registered
mortgagee to foreclose on the same even if its ownership
had been transferred to another person. The latter is
bound by the registered mortgage on the title he
acquired.
After the mortgage debt to SSS had been paid, however,
the latter had no further justification for withholding the
release of the collateral and the registered title to the
party to whom Reyes had transferred her right as owner.
Under the circumstance, the Vegas had the right to sue for
the conveyance to them of that title, having been validly
subrogated to Reyes’ rights. Sps. Antonio and Leticia Vega
vs. Social Security System, et al., G.R. No. 181672,
September 20, 2010.
Mortgaged Property; what happens when a person sells
property, and then borrows, and lender seeks to recover
on loan by attaching the property that had been sold. A
party with a judgment for money can only go against
properties that undisputably belong to the borrower. If
prior to the judgment, the borrower had sold the property,
a creditor can no longer go after that property. Sps.
Antonio and Leticia Vega vs. Social Security System, et
al., G.R. No. 181672, September 20, 2010
Obligations; solidary liability with a corporation. Doctrine
dictates that a corporation is invested by law with a
personality separate and distinct from those of the persons
composing it, such that, save for certain exceptions,
corporate officers who entered into contracts in behalf of
the corporation cannot be held personally liable for the
liabilities of the latter. Personal liability of a corporate
director, trustee, or officer, along (although not
necessarily) with the corporation, may validly attach, as a
rule, only when – (1) he assents to a patently unlawful act
of the corporation, or when he is guilty of bad faith or
gross negligence in directing its affairs, or when there is a
conflict of interest resulting in damages to the
corporation, its stockholders, or other persons; (2) he
consents to the issuance of watered down stocks or who,
having knowledge thereof, does not forthwith file with the
corporate secretary his written objection thereto; (3) he
agrees to hold himself personally and solidarily liable with
the corporation; or (4) he is made by a specific provision
of law personally answerable for his corporate action.
Queensland-Tokyo Commodities, Inc., et al. vs. Thomas
George, G.R. No. 172727. September 8, 2010
Prescription. Petitioners argue that the CA erroneously
treated the action they filed at the trial court as one (1)
for annulment of the extrajudicial settlement and applied
the four (4)-year prescriptive period in dismissing the
same. They contend that the action they filed was one (1)
for Declaration of Nullity of Documents and Titles,
Recovery of Real Property and Damages, and as such, their
action was imprescriptible pursuant to Article 1410 of the A trust is a “fiduciary relationship with respect to property
Civil Code. which involves the existence of equitable duties imposed
upon the holder of the title to the property to deal with it
Respondents, for their part, maintain that the CA did not for the benefit of another.” A trust is either express or
err in holding that the deed of extrajudicial partition implied. Express trusts are those which the direct and
3
executed without including some of the heirs, who had no
knowledge of the partition and did not consent thereto, is
merely fraudulent and not void. They stress that the
action to rescind the partition based on fraud prescribes in
four (4) years counted from the date of registration, which
is constructive notice to the whole world.
We affirm the ruling of the CA. As the records show, the
heirs of Doroteo and Esteban did not participate in the
extrajudicial partition executed by Salina with the other
compulsory heirs, Leona, Maria and Pedro. Undeniably, the
said deed was fraudulently obtained as it deprived the
known heirs of Doroteo and Esteban of their shares in the
estate. A deed of extrajudicial partition executed without
including some of the heirs, who had no knowledge of and
consent to the same, is fraudulent and vicious. Hence, an
action to set it aside on the ground of fraud could be
instituted. Such action for the annulment of the said
partition, however, must be brought within four (4) years
from the discovery of the fraud. Eugenio Feliciano, et al.
vs. Pedro Canoza, et al., G.R. No. 161746, September 1,
2010.
Property; co-ownership; prescription. Co-heirs or co-
owners cannot acquire by acquisitive prescription the
share of the other co-heirs or co-owners absent a clear
repudiation of the co-ownership, as expressed in Article
494 of the Civil Code which states:
Art. 494. x x x No prescription shall run in favor of a co-
owner or co-heir against his co-owners or co-heirs as long
as he expressly or impliedly recognizes the co-ownership.
Since possession of co-owners is like that of a trustee, in
order that a co-owner’s possession may be deemed
adverse to the cestui que trust or other co-owners, the
following requisites must concur: (1) that he has
performed unequivocal acts of repudiation amounting to
an ouster of the cestui que trust or other co-owners, (2)
that such positive acts of repudiation have been made
known to the cestui que trust or other co-owners, and (3)
that the evidence thereon must be clear and convincing.
Heirs of Juanita Padilla, represented by Claudio Padilla
vs. Dominador Magdua, G.R. No. 176858, September 15,
2010
Retirement funds; trust. RMC was a company that set up a
fund for its employees called RMCPRF. Petitioner contends
that RMC’s closure in 1984 rendered the RMCPRF Board of
Trustees functus officio and devoid of authority to act on
behalf of RMCPRF. It thus belittles the RMCPRF Board
Resolution dated June 2, 1998, authorizing the release of
the Fund to several of its supposed beneficiaries. Without
known claimants of the fund for 11 years since RMC closed
shop, it claims that fund had “technically reverted” to,
and formed part of RMC’s assets. Hence, it could be
applied to satisfy RMC’s debts to Philbank. The court
disagreed with the petitioner in this case.
Civil Law
positive acts of the parties create, by some writing or
deed, or will, or by words evincing an intention to create a
trust.

Here, an express trust was created to provide retirement

benefits to the regular employees of RMC. RMC retained
legal title to the Fund but held the same in trust for the
employees-beneficiaries. Employees’ trusts or benefit
plans are intended to provide economic assistance to
employees upon the occurrence of certain contingencies,
particularly, old age retirement, death, sickness, or
disability. They give security against certain hazards to
which members of the Plan may be exposed. They are
independent and additional sources of protection for the
working group and established for their exclusive benefit
and for no other purpose. Here, while the plan provides
for a reversion of the fund to RMC, this cannot be done
until all the liabilities of the plan have been paid. And
when RMC ceased operations in 1984, the fund became
liable for the payment not only of the benefits of qualified
retirees at the time of RMC’s closure but also of those who
were separated from work as a consequence of the
closure. Metropolitan Bank & trust Company, Inc. vs. The
Board of Trustees of Riverside Mills Corp. Provident and
Retirement Fund, et al., G.R. No. 176959, September 8,
2010.