SBCA SOL Batch 2018 2019 Civil Law Review 2 Cases

CIVIL
LAW REVIEW 2
CASES
(Obligations and Contracts, Sales and Lease, Credit Transactions,
Agency, Partnership and Trusts, Torts and Damages)
2018 – 2019 cases with few from late 2017

CIVIL LAW REVIEW 2 (2018 – 2019)

SAN BEDA COLLEGE ALABANG
SCHOOL OF LAW

CIVIL LAW REVIEW 2 CASES
TABLE OF CONTENTS
Obligations and Contracts ……………………………………… 2
Sales and Lease …………………………………………………….. 192
Credit Transactions …………..………………………………….. 300
Agency, Partnership and Trusts ……………………………. 346
Torts and Damages …………………………………………….... 373
“That in all things,

GOD may be glorified!”
1
SBCA School of Law (Batch 2018 – 2019)


OBLIGATIONS AND CONTRACTS

Heirs of Arao v. Heirs of Eclipse
G.R. No. 211425. November 19, 2018

J.C. REYES, JR.

DOCTRINE: Article 1410 states that an "action to declare the inexistence of a void
contract does not prescribe.” An action that is predicated on the fact that the
conveyance complained of was null and void ab initio is imprescriptible. And if the
action is imprescriptible, it follows then that the defense of laches cannot be
invoked.

FACTS:
Subject of the controversy is a parcel of land originally owned by spouses
Eclipse. In 1994, respondents (spouses Eclipse's successors-in-interest) discovered
that the land in question had been subject of a Deed of Absolute Sale in favor of
Tomas Arao married to Tomasa.
Subsequently, Tomas executed a Deed of Absolute Sale of the subject land in
favor of his children Eulalia, Proceso and Felipa Arao, whose heirs are herein
petitioners. Eventually, Eulalia and Felipa registered the land in their names.
Respondents filed the present action for Nullity of a Deed of Absolute Sale
and Reconveyance of the land by contending that the said Deed of was a forgery
because at the time of its execution, spouses Eclipse were already dead. Petitioners
moved for the dismissal of the complaint and argued that argued that respondents
are barred by laches from pursuing their cause of action against the petitioners
given their inaction for more than 30 years, despite being fully aware of the
petitioners' adverse possession and claim over the subject property
The trial court ruled that the Deed of Sale was a forgery hence, it conferred
no right in favor of Tomas' heirs. But despite the findings of nullity, the RTC still
dismissed the complaint as laches had set in.
The CA ruled that the doctrine of laches is not applicable since respondents'
cause of action is imprescriptible pursuant to Article 1410 of the Civil Code. But
nonetheless, the CA upheld the RTC's findings that there was forgery and
irregularities in the execution of the deed. |||

ISSUE:
2

Whether or not the doctrine of laches is applicable

RULING:
No. Article 1410 states that an "action to declare the inexistence of a void
contract does not prescribe." In the case of Fil-Estate Golf and Development, Inc. v.
Navarro, the SC held that a complaint for cancellation of title based on the nullity of
the deed of conveyance does not prescribe. In other words, an action that is
predicated on the fact that the conveyance complained of was null and void ab initio
is imprescriptible. And if the action is imprescriptible, it follows then that the
defense of laches cannot be invoked. Thus:
Laches is a doctrine in equity and our courts are basically courts of
law and not courts of equity. Equity, which has been aptly
described as "justice outside legality," should be applied only in
the absence of, and never against, statutory law. Aequetas
nunguam contravenit legis. The positive mandate of Art. 1410 of
the New Civil Code conferring imprescriptibility to actions for
declaration of the inexistence of a contract should pre-empt and
prevail over all abstract arguments based only on equity.
Certainly, laches cannot be set up to resist the enforcement of an
imprescriptible legal right, and petitioners can validly vindicate
their inheritance despite the lapse of time.

To reiterate, laches cannot be set up to resist the enforcement of an
imprescriptible right. With the Deed of Sale being null and void ab initio, petitioners
cannot set up the defense of laches to thwart respondents' imprescriptible action.
And with the Court's determination that petitioners' title is null and void, the matter
of direct or collateral attack is a foregone conclusion as well. An action to declare the
nullity of a void title does not prescribe and is susceptible to direct, as well as to
collateral, attack.

3

Heirs of Mariano vs. City of Naga

G.R. No. 197743, March 12, 2018

Tijam, J:

Case Doctrine:
·Generally, contracts are obligatory in whatever form they may have been entered
into, provided all the essential requisites for their validity are present. However,
when the law requires that a contract be in some form to be valid, such requirement
is absolute and indispensable; its non-observance renders the contract void and of
no effect. One such law is Article 749 of the Civil Code of the Philippines which
requires that:
Art. 749. In order that the donation of an immovable may be
valid, it must be made in a public document, specifying therein
the property donated and the value of the charges which the
donee must satisfy.
The acceptance may be made in the same deed of donation or in a
separate public document, but it shall not take effect unless it is
done during the lifetime of the donor.
If the acceptance is made in a separate instrument, the donor shall
be notified thereof in an authentic form, and this step shall be
noted in both instruments. (Emphasis ours)
Thus, donation of real property, which is a solemn contract, is void
without the formalities specified in the foregoing provision.
· Article 749 of the Civil Code requires that donation of real property must be
made in a public instrument to be valid.
· In Department of Education, Culture and Sports (DECS) v. Del Rosario, We
stated:
A deed of donation acknowledged before a notary public is a public
document. The notary public shall certify that he knows the person
acknowledging the instrument and that such person is the same
person who executed the instrument, acknowledging that the
instrument is his free act and deed. xxx
· A void or inexistent contract has no force and effect from the very
beginning, as if it had never been entered into. It is equivalent to nothing and is
absolutely wanting in civil effects. It cannot be validated either by ratification or
prescription.
4

· Void contracts may not be invoked as a valid action or defense in

any court proceeding, including an ejectment suit

Facts:
Eusebio M. Lopez, Faustino Dolor, Soledad Lirio Dolor and Lopez, Jr., President,
Secretary, Treasurer and General Manager of the City Heights Subdivision
(Subdivision), respectively, wrote to the mayor of the City of Naga (City), offering to
construct the Naga City Hall within the premises of the Subdivision.
The City's Municipal Board passed Resolution No. 75, asking the Subdivision for a
bigger area on which the City Hall would stand.
The Subdivision amended its offer and agreed to donate five hectares to the City.
The area is a portion of the land registered in the names of Macario Mariano
(Macario) and Jose A. Gimenez (Gimenez).
The Municipal Board adopted Resolution No. 89 accepting the Subdivision's offer
of donation and its proposed contract.
The Resolution also authorized the City Mayor to execute the deed of donation on
the City's behalf.
The parties submitted divergent accounts on what happened after Resolution No.
89 was passed.
According to the City, the City Mayor of Naga, Imperial, and the registered
landowners, Macario and Gimenez, executed a Deed of Donation, whereby the
latter donated five hectares of land.
By virtue of said Deed, the City entered the property and began construction of the
government center.
In contrast, petitioners averred that the landowners' plan to donate five hectares
to the City did not materialize as the contract to build the City Hall was not
awarded to the Subdivision.
The Subdivision's General Manager, Lopez Jr., supposedly wrote to Macario telling
him to suspend the signing of the deed of donation as the Municipal Board could
not agree on the specific site where the City Hall would be built.
Petitioners alleged that the construction contract was eventually awarded by the
Bureau of Public Works (BPW) to a local contractor, Sabaria, who won in a public
bidding.
5

Mayor Imperial opposed the award, arguing that he and not the BPW had the
authority to initiate the public bidding for the project.
The BPW, however, asserted its authority to bid out and award the contract on the
ground that national funds would be used for the project.
Mayor Imperial and Sabaria litigated the issue, with the former losing before the
trial court and subsequently withdrawing his appeal before the CA.
Afterwards, the Municipal Board adopted Resolution No. 11 authorizing the City
Mayor to enter into a contract with Sabaria for the construction of the City Hall.
Petitioners claimed that Macario and officers of the Subdivision met with Mayor
Imperial to demand the return of the five-hectare lot as the condition for the
donation was not complied with.
Mayor Imperial purportedly assured them that the City would buy the property
from them.
The purchase, however, did not materialize.
Petitioners alleged that ten years later, Macario wrote to Lopez Jr., instructing him
to make a follow-up on the City's payment for the subject lot.
Macario died without receiving payment from the City.
A certain Tirso Mariano filed an action for partition of Macario's estate. The action
was opposed by Macario's widow, Irene, and their adopted children, Jose and
Erlinda Mariano.
As an offshoot of this action, a petition to annul Jose and Erlinda's adoption was
instituted.
Irene died in 1988. Jose died the following year which was also when his and
Erlinda's adoption was declared valid and legal by the appellate court.
In 1994, Irene's marriage to one Reluccio was declared bigamous and void ab
initio. And after a protracted litigation, Jose, then represented by his heirs, and
Erlinda were declared as Irene's heirs to the exclusion of Reluccio who was also
declared to be without right to represent Irene in Macario's estate.
The probate court issued letters of administration to one of the petitioners herein,
Danilo David S. Mariano (Danilo), for the administration of Irene's estate.
Danilo demanded upon then City Mayor of Naga, Robredo, to vacate and return the
subject property.
When the City did not comply, petitioners, as heirs of Jose and Erlinda, filed a
Complaint for unlawful detainer against the City.
6

The MTC denied the motion.

The City filed its Answer.
The parties subsequently submitted their respective Position Papers and evidence.
The MTC dismissed the case for lack of jursidiction.
The RTC set aside the MTC’s dismissal.
The CA partly granted the City’s appeal.
Both parties moved for reconsideration.
The CA amended its decision.
Issue:
Whether or not the donation was valid

Ruling:
NO. The Purported donation lacked the formalities required for validity.
Generally, contracts are obligatory in whatever form they may have been entered
into, provided all the essential requisites for their validity are present. However,
when the law requires that a contract be in some form to be valid, such requirement
is absolute and indispensable; its non-observance renders the contract void and of
no effect.One such law is Article 749 of the Civil Code of the Philippines which
requires that:
Art. 749. In order that the donation of an immovable may be
valid, it must be made in a public document, specifying therein
the property donated and the value of the charges which the
donee must satisfy.
separate public document, but it shall not take effect unless it is
done during the lifetime of the donor.
If the acceptance is made in a separate instrument, the donor shall
be notified thereof in an authentic form, and this step shall be
noted in both instruments. (Emphasis ours)
Thus, donation of real property, which is a solemn contract, is void without the
formalities specified in the foregoing provision.
Article 749 of the Civil Code requires that donation of real property must be
made in a public instrument to be valid. In Department of Education, Culture and
Sports (DECS) v. Del Rosario, We stated:
7

A deed of donation acknowledged before a notary public is a

public document. The notary public shall certify that he
knows the person acknowledging the instrument and that
such person is the same person who executed the instrument,
acknowledging that the instrument is his free act and deed.
separate instrument. An acceptance made in a separate
instrument must also be in a public document. If the acceptance is
in a separate public instrument, the donor shall be notified in
writing of such fact. Both instruments must state the fact of such
notification. (Emphasis ours)
The purported Deed of Donation submitted by the City cannot be
considered a public document. While it contains an Acknowledgment
before a notary public, the same is manifestly defective as it was made
neither by the alleged donors (Macario and Gimenez) and their respective
spouses, or by the donee (the City, through Mayor Imperial), but only by
Eusebio M. Lopez, Faustino Dolor, Soledad Lirio Dolor and Lopez, Jr., as the
Subdivision's President, Vice President, Secretary and General Manager,
respectively.
Said Deed also shows that Mayor Imperial affixed his signature thereon
four days after it was notarized, thus he could not have acknowledged the
same before the notary public. Verily, the notary public could not have
certified to knowing the parties to the donation, or to their execution of the
instrument, or to the voluntariness of their act. This glaring defect is fatal
to the validity of the alleged donation. It is settled that a defective
notarization will strip the document of its public character and reduce it to
a private instrument.
Not being a public document, the purported Deed of Donation is void. A
void or inexistent contract has no force and effect from the very beginning,
as if it had never been entered into. It is equivalent to nothing and is
absolutely wanting in civil effects. It cannot be validated either by
ratification or prescription.
Void contracts may not be invoked as a valid action or defense in any court
proceeding, including an ejectment suit. Thus:
In Spouses Alcantara v. Nido, which involves an action for unlawful
detainer, the petitioners therein raised a defense that the subject
land was already sold to them by the agent of the owner. The
Court rejected their defense and held that the contract of sale was
8

void because the agent did not have the written authority of the
owner to sell the subject land.
Similarly, in Roberts v. Papio, a case of unlawful detainer, the Court
declared that the defense of ownership by the respondent therein
was untenable. The contract of sale invoked by the latter was void
because the agent did not have the written authority of the owner.
A void contract produces no effect either against or in favor of
anyone.
In Ballesteros v. Abion, which also involves an action for unlawful
detainer, the Court disallowed the defense of ownership of the
respondent therein because the seller in their contract of sale was
not the owner of the subject property. For lacking an object, the
said contract of sale was void ab initio.
Since void contracts cannot be the source of rights, the City has no possessory
right over the subject property. In this light, to resolve whether to admit the
copy of the purported Deed of Donation as secondary evidence will be futile as
the instrument in any case produces no legal effect.

9

DALE STRICKLAND vs. ERNST & YOUNG LLP

G.R. No. 193782. August 1, 2018

DALE STRICKLAND vs. PUNONGBAYAN & ARAULLO
G.R. No. 210695. August 1, 2018

JARDELEZA, J.

Case Doctrine: Article 1306 of the Civil Code provides for autonomy of contracts
where the parties are free to stipulate on such terms and conditions except for those
which go against law, morals, and public policy

Facts: On March 26, 2002, National Home Mortgage Finance Corporation (NHMFC)
and Punongbayan & Araullo (PA) entered into a Financial Advisory Services
Agreement (FASA) for the liquidation of the NHMFC's Unified Home Lending
Program (UHLP). At the time of the engagement, PA was the Philippine member of
respondent global company, Ernst & Young LLP (EYLLP) . In the March 26, 2002
letter of PA to NHMFC confirming their engagement as exclusive Financial Advisor
for the UHLP Project, PA is designated as P&A/Ernst & Young.
During this period, Strickland was a partner of EYLLP seconded to respondent
Ernst & Young Asia Pacific Financial Solutions (EYAPFS), who was listed in the
FASA as member of the Engagement Team.
By June 6, 2002, EYLLP wrote PA of the termination of its membership in EYLLP.

Despite the termination, the working relationship among the parties continued.
On July 2004, the transactional relationship between the parties went awry. In an
exchange of letters, notice was given to NHMFC of PA's intention to remove
Strickland from the NHMFC Engagement Team as a result of Strickland's
resignation from EYLLP and/or EYAPFS effective on July 2, 2004. Responding to
NHMFC's concerns on the removal of Strickland from the UHLP Project and his
replacement by Mark Grinis (Grinis), EYAPFS' Managing Director, EYLLP
reiterated Grinis' qualifications and affirmed its team of professionals' dedication
of "all the time necessary to close this transaction and to make NHMFC [their
team's, headed by Grinis,] first priority."
Since NHMFC was intent on retaining Strickland's services despite his separation
from EYLLP and/or EYAPFS, the parties entered into negotiations to define
Strickland's possible continued participation in the UHLP Project. PA, NHMFC, and
10

Strickland exchanged letters containing proposed amendments to cover the new

engagement and Strickland's participation within the UHLP Project. No actual
written and final agreement among the parties amending the original engagement
letter of March 26, 2002 materialized.
On August 20, 2004, PA wrote a letter, signed by its President/Chairman & CEO,
Benjamin R. Punongbayan, to NHMFC to initiate discussions on a "mutual
voluntary termination of the NHMFC Agreement."
On November 18, 2003, PA and NHMFC executed an addendum to the March 26,
2002 original engagement letter covering additional terms of the financial
advisory services.
Subsequently, conflict on Strickland's actual participation and concurrent

designation on the project arose among PA, NHMFC, and Strickland as reflected in
the proposed revisions to the "Draft Financial Advisory Services" initially
prepared by PA.
By May 23, 2005, counsel for Strickland wrote PA asking for "equitable
compensation for professional services" rendered to NHMFC on the UHLP Project
from the time of his separation from EYLLP and/or EYAPFS in July 2004 "up and
through the recent Signing and Closing Ceremony held on 22 April 2004 and his
continued provision of] services as the final closing approaches."
On June 2, 2005, counsel for PA responded, categorically denying any contractual

relationship with Strickland and his assertion that he effectively substituted
EYLLP and/or EYAPFS for the portion of the work he carried out in the UHLP
Project.
Strickland filed a Complaint, dated May 17, 2005, which included EYAPFS,
PA and NHMFC among the defendants.
Subsequent to the complaint, EYLLP and/or EYAPFS filed a "Motion to

Refer to Arbitration," dated February 27, 2006. HEITAD
Issue:
Whether the dispute between Strickland and EYLLP based on Strickland's
complaint is arbitrable.
11

Held: Yes.
In this case, EYLLP initially only quoted the provision of the Partnership
Agreement on Dispute Resolution, including a section on Arbitration, in its
answer dated February 15, 2006. Eventually, it submitted a copy of the
Partnership Agreement in a manifestation dated March 15, 2006. Thus, we agree
with the holding of the CA that EYLLP substantially, and ultimately, complied
with the provision given that Strickland himself did, and does not even deny, the
Partnership Agreement nor the arbitration clause. ATICcS
In Cargill Philippines, Inc. v. San Fernando Regala Trading, Inc, we discussed at

length the nature of an arbitration clause as a contract in itself and the continued
referral of a dispute to arbitration despite a party's repudiation of the main
contract:
Arbitration, as an alternative mode of settling disputes, has long been recognized

and accepted in our jurisdiction. R.A. No. 876 authorizes arbitration of domestic
disputes. Foreign arbitration, as a system of settling commercial disputes of an
international character, is likewise recognized. The enactment of R.A. No. 9285 on
April 2, 2004 further institutionalized the use of alternative dispute resolution
systems, including arbitration, in the settlement of disputes.
A contract is required for arbitration to take place and to be binding. Submission to

arbitration is a contract and a clause in a contract providing that all matters in
dispute between the parties shall be referred to arbitration is a contract. The
provision to submit to arbitration any dispute arising therefrom and the
relationship of the parties is part of the contract and is itself a contract.
In so ruling that the validity of the contract containing the arbitration agreement
does not affect the applicability of the arbitration clause itself, we then applied the
doctrine of separability, thus:
"The doctrine of separability, or severability as other writers call it, enunciates that
an arbitration agreement is independent of the main, contract. The arbitration
agreement is to be treated as a separate agreement and the arbitration agreement
does not automatically terminate when the contract of which it is a part comes to an
end.
12

The separability of the arbitration agreement is especially significant to the

determination of whether the invalidity of the main contract also nullifies the
arbitration clause. Indeed, the doctrine denotes that the invalidity of the main
contract, also referred to as the "container" contract, does not affect the validity of
the arbitration agreement. Irrespective of the fact that the main contract is invalid,
the arbitration clause/agreement still remains valid and enforceable."
Plainly, considering that the arbitration clause is in itself a contract, the setting
forth of its provisions in EYLLP's answer and in its motion to refer to arbitration,
coupled with the actual submission by EYLLP of the Partnership Agreement,
complies with the requirements of Section 7, Rule 8 of the Rules of Court which
Strickland should have specifically denied.
We have consistently affirmed that commercial relationships covered by our

arbitration laws are purely private and contractual in nature. Article 1306 of the
Civil Code provides for autonomy of contracts where the parties are free to
stipulate on such terms and conditions except for those which go against law,
morals, and public policy. In our jurisdiction, commercial arbitration is a purely
private system of adjudication facilitated by private citizens which we have
consistently recognized as valid, binding, and enforceable.
13

ALLIED BANKING CORPORATION V. SPOUSES VILLALUZ, SR.

G.R. No. 202525; September 12, 2018
TIJAM, J.

CASE DOCTRINE: A valid contract requires the concurrence of the following
essential elements: (1) consent or meeting of the minds, that is, consent to transfer
ownership in exchange for the price; (2) determinate subject matter; and (3) price
certain in money or its equivalent. All these elements must be present to constitute
a valid contract. Consent is essential to the existence of a contract, and where it is
wanting, the contract is non-existent. In a contract of sale, its perfection is
consummated at the moment there is a meeting of the minds upon the thing that is
the subject of the contract and upon the price. Consent is manifested by the meeting
of the offer and the acceptance of the thing and the cause, which are to constitute
the contract.

FACTS:

In 1996, Remegio A. Roque, Jr., a nephew of Fe Paulina Roque-Villaluz, made
respondents Spouses Artemio M. Villaluz, Sr. and Fe Paulina Roque-Villaluz
(Spouses Villaluz) agree to his proposed joint loan application that included them
signing a form for a real estate mortgage (REM). A month later, he told them that the
lending bank had disapproved the loan application. Trusting in his word, they did
not ask him to return the signed but unfilled form for the REM, and their owner's
duplicate copy of Transfer Certificate of Title (TCT) No. T-63434 of the Registry of
Deeds of the Province of Isabela.

In 2002, the Spouses Villaluz received a notice of extrajudicial foreclosure of the
property covered by TCT No. T-63434 from herein petitioner, Allied Banking
Corporation, and learned for the first time that the loan had been in fact processed
and granted, and the proceeds thereof released to Remegio, Jr., who ultimately did
not pay back the loan. Thus, they instituted this action in the RTC to seek the
declaration of nullity of the REM, and pray for the issuance of a writ of preliminary
injunction. The RTC enjoined Sheriff Juan Guerrero from conducting the scheduled
extrajudicial foreclosure sale.

At the trial, the petitioner presented Mauricio Toledo and Lorenzo Fernandez to
substantiate the due execution of the REM. Toledo testified that the Spouses Villaluz
had signed the REM in his presence in 1996; and that the additional loan of 4.5M
had been credited in the account of Remegio, Jr. and his wife as the principal
borrowers. Fernandez, a signature verifier of the petitioner, attested that the
signatures of the Spouses Villaluz appearing in the REM were the same as those in
their signature card.
14

The RTC rendered judgment nullifying the REM. Petitioner appealed, but the CA
affirmed the RTC. Petitioner moved for reconsideration but the CA denied its
motion. Hence, this appeal.

ISSUE:
Whether or not the CA was correct in finding that there was no consent to the REM
by the Spouses Villaluz despite the clear showing that they had admitted having
signed the REM for the purpose of obtaining a joint loan from the petitioner?

HELD:

No. A valid contract requires the concurrence of the following essential elements:
(1) consent or meeting of the minds, that is, consent to transfer ownership in
exchange for the price; (2) determinate subject matter; and (3) price certain in
money or its equivalent. All these elements must be present to constitute a valid
contract. Consent is essential to the existence of a contract, and where it is wanting,
the contract is non-existent. In a contract of sale, its perfection is consummated at
the moment there is a meeting of the minds upon the thing that is the subject of the
contract and upon the price. Consent is manifested by the meeting of the offer and
the acceptance of the thing and the cause, which are to constitute the contract.

In this case, petitioner correctly argues that the consent of the parties to the REM
was primarily evidenced by their signatures thereon; and that such consent, when
coupled with their act of delivering the owner's duplicate copy of their TCT to the
petitioner as the mortgagee for the purpose of the annotation of the REM, affirmed
their participation in the transaction. Indeed, even if they signed the form for the
REM in blank, they voluntarily extended the freedom to Remegio, Jr. as the person to
whom the signed blank document was given to fill in the details. Once signed, the
form for the REM came under the assumption that it had been read, understood and
agreed to by the persons affixing their signatures thereon. The contents of the
document became binding thereafter, especially upon its notarization, for a
notarized document is executed to lend truth to the statements contained therein
and to certify to the authenticity of the signatures. This is the reason why a
notarized document enjoys the presumption of regularity which can be overturned
only by clear and convincing evidence to the contrary. The evidence to overthrow
such presumption of regularity must be clear, convincing and more than merely
preponderant. Nonetheless, an examination of the REM attached to the petition for
review on certiorari displayed apparent irregularities that cannot be ignored. The
REM thereby appeared to consist of four pages but the notarial acknowledgment
thereof stated that the document consisted of only two pages. It can only signify that
two additional pages were inserted in the REM after it had been actually
acknowledged before the notary public. The insertion is an index of bad faith on the
part of the petitioner as the party annexing the four-paged copy of the REM to its
petition. Moreover, the first page of the REM bears only the signatures of the
15

mortgagors but the second page carries only the signatures of the witnesses. Worth
underscoring is that the requirement for the signatures of the parties and of their
witnesses to appear on each and every page of the notarially acknowledged
document safeguards that each and every page thereof was validated by them in the
presence of the witnesses. Thus, the REM was likely altered in a manner that
actually rendered it null and void. As a consequence, the presumption of regularity
cannot be drawn, and the lower courts' uniform conclusion about the nullity of the
REM itself becomes unavoidably warranted.

16

SPOUSES LOQUELLANO VS. HONGKONG AND SHANGHAI BANKING

CORPORATION
G.R. No. 200553; December 10, 2018.

PERALTA, J.

CASE DOCTRINES:
• Estoppel is a doctrine that prevents a person from adopting an inconsistent
position, attitude, or action if it will result in injury to another. One who, by his
acts, representations or admissions, or by his own silence when he ought to
speak out, intentionally or through culpable negligence, induces another to
believe certain facts to exist and such other rightfully relies and acts on such
belief, can no longer deny the existence of such fact as it will prejudice the latter.
The doctrine of estoppel is based upon the grounds of public policy, fair dealing,
good faith and justice. It springs from equitable principles and the equities in the
case. It is designed to aid the law in the administration of justice where, without
its aid, injustice might result.
• Article 1235 of the Civil Code provides that when the creditor accepts
performance, knowing its incompleteness and irregularity without protest or
objection, the obligation is deemed complied with. Respondent HSBC-SRP
accepted Rosalina's payment of her housing loan account for almost one year
without any objection.

FACTS:

It is established that petitioners failed to pay the monthly amortizations of their
housing loan secured by a real estate mortgage on their property since after
petitioner was terminated by the bank on December 27, 1993. Thus, respondent
sent demand letters to petitioner asking her to pay the outstanding housing loan
obligation in full. Rosalina's offer of partial payment was rejected by respondent. In
the meantime, no foreclosure proceedings were yet filed by respondent against
petitioners' mortgaged property. Subsequently, petitioner received an Installment
Due Reminder dated July 26, 1995, informing her of the overdue monthly
amortizations, interests and penalty in the amount of P55,681.85, with an
outstanding balance of P315,958.00. On August 11, 1995, petitioner Rosalina then
deposited in her salary savings account the payment for all the principal and
interest arrearages from January 1994 up to August 1995. The payments she made
in her account were accepted by respondent bank and credited them to the payment
of the overdue monthly amortizations of her housing loan. Rosalina still received an
Installment Due Reminder dated September 27, 1995 reminding her of her monthly
installment and interest due, sans penalty charge, which she paid. Thereafter,
petitioner Rosalina continuously received Installment Due Reminders for the
housing loan
17

ISSUE:
Whether the extrajudicial foreclosure and auction sale of petitioners' property by
respondent HSBC-SRP was valid?

HELD:

We find that respondent HSBC-SRP's filing of the extrajudicial foreclosure
proceedings on May 20, 1996 has no basis and, therefore, invalid.

Respondent HSBC-SRP is now estopped from foreclosing the mortgage property.

Article 1431 of the Civil Code defines estoppel as follows:

Art. 1431. Through estoppel an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved as
against the person relying thereon.

And Section 2 (a), Rule 131 of the Rules of Court provides:

SEC. 2. Conclusive presumptions. — The following are instances of conclusive
presumptions:

(a) Whenever a party has, by his own declaration, act, or omission,
intentionally and deliberately led another to believe a particular thing
is true, and to act upon such belief, he cannot, in any litigation arising
out of such declaration, act or omission, be permitted to falsify it.

To stress, respondent HSBC-SRP continuously sent out monthly Installment Due
Reminders to petitioner Rosalina despite its demand letter dated September 25,
1995 to pay the full amount of the loan obligation within 3 days from receipt of the
letter. It, likewise, continuously accepted petitioner Rosalina's subsequent monthly
amortization payments until June 1996; thus, making their default immaterial.
Moreover, there was no more demand for the payment of the full obligation
afterwards. Consequently, petitioners were made to believe that respondent HSBC-
SRP was applying their payments to their monthly loan obligations as it had done
before. It is now estopped from enforcing its right to foreclose by reason of its
acceptance of the delayed payments.

Also, Article 1235 of the Civil Code provides that when the creditor accepts
performance, knowing its incompleteness and irregularity without protest or
objection, the obligation is deemed complied with. Respondent HSBC-SRP accepted
Rosalina's payment of her housing loan account for almost one year without any
objection.

Respondent HSBC-SRP argues that estoppel is not applicable since the payments
upon which petitioners rely were made without its knowledge and consent; that the
18

updated balances were automatically generated by the system; that petitioner

Rosalina made unilateral payments to her salary savings account knowing that any
amount she deposited therein will be automatically credited as payments for her
loan obligations.

We are not persuaded.

It is respondent HSBC-SRP, not petitioner Rosalina, which has access and control of
the computer system with regard to the crediting of the housing loan payments. It
cannot now deny its action of continuously accepting petitioner Rosalina's monthly
amortizations, coupled with the sending out of installment due reminders, and
statements of her updated housing loan account to prejudice petitioners who relied
thereon.

19

SPS. CELONES vs. METROPOLITAN BANK AND TRUST COMPANY

G.R. No. 215691. November 21, 2018

TIJAM, J.

CASE DOCTRINE: In order that an obligation may be extinguished by another which
substitute the same, it is imperative that it be so declared in unequivocal terms, or
that the old and the new obligations be on every point incompatible with each other.

FACTS:

The Spouses Celones obtained various loans amounting to P64,474,058.73 from
Metrobank and for which they mortgaged various properties. They defaulted in
paying their loan, as such, Metrobank foreclosed all the mortgaged properties, was
declared as the winning bidder, and later filed petitions for issuance of writs of
possession.

Sometime in 2007, the spouses Celones offered to redeem the properties, so
Metrobank issued a Conditional Notice of Approval for Redemption (CNAR) dated
December 13, 2007 stating that the offer of Spouses Celones to redeem the property
in the amount of P55 Million has been approved to be paid on or before December
20, 2007. The Spouses found Atty. Dionido who agreed to loan them the said
amount.

In lieu of executing a loan agreement, Spouses Celones, PPPC, Metrobank and Atty.
Dionido executed a Memorandum of Agreement (MOA), wherein the parties agreed
for the subrogation of Atty. Dionido to all the rights, interests of Metrobank over the
loan obligation of Spouses Celones and the foreclosed properties.

Upon receipt of the two manager's checks from Atty. Dionido, Metrobank issued
Payment Slips in favor of Spouses Celones. It likewise caused the dismissal of the
petitions for issuance of writs of possession on the ground that Spouses Celones had
already redeemed the properties.

On the belief that they have redeemed the foreclosed properties, the Spouses
Celones demanded from Metrobank the issuance of a Certificate of Redemption.
However, the latter refused to issue the same on the ground that all its rights and
interests over the foreclosed properties had been transferred to Atty. Dionido, as
such, he should be the one to issue the said certificate.

Metrobank and Atty. Dionido claimed that the MOA being of a later date, superseded
and novated the CNAR. As such, the redemption agreed upon by Metrobank and
Spouses Celones was no longer controlling.

20


ISSUES:
WON there was novation of the prior conditional notice (CNAR) upon execution of
the latter memorandum (MOA)?

HELD:

NO. Novation is a mode of extinguishing an obligation by changing its objects or
principal obligations, by substituting a new debtor in place of the old one, or by
subrogating a third person to the rights of the creditor. In order that an obligation
may be extinguished by another which substitute the same, it is imperative that it be
so declared in unequivocal terms, or that the old and the new obligations be on
every point incompatible with each other. Thus, "[n]ovation must be stated in clear
and unequivocal terms to extinguish an obligation. It cannot be presumed and may
be implied only if the old and new contracts are incompatible on every point."

Examination of the MOA showed no express stipulation as to the novation or
extinction of the CNAR. Thus, for implied novation to exist, it is necessary to
determine whether the CNAR and the MOA are incompatible on every point such
that they cannot be reconciled and stand together.

After careful scrutiny of the records, we find that the CNAR only deals with the
redemption right of Spouses Celones while the MOA deals with the assignment of
credit of Metrobank to Atty. Dionido. As such, the CNAR and the MOA can be
reconciled and can both stand together.

21

SPOUSES ONG VS BPI FAMILY SAVINGS

G.R. No. 208638

Reyes, Jr., J.

CASE DOCTRINE: As a rule, a contract is perfected upon the meeting of the minds of
the parties.

FACTS:

Spouses Francisco Ong and Betty Lim Ong and Spouses Joseph Ong Chuan and
Esperanza Ong Chuan (collectively referred to as the petitioners) are engaged in the
business of printing under the name and style "MELBROS PRINTING CENTER. In
December 1996, Bank of Southeast Asia's (BSA) managers, Ronnie Denila and
Rommel Nayve, visited petitioners' office and discussed the various loan and credit
facilities offered by their bank. In view of petitioners' business expansion plans and
the assurances made by BSA's managers, they applied for the credit facilities offered
by the latter. They executed a real estate mortgage (REM) over their property
situated in Paco, Manila, in favor of BSA as security for a P15,000,000.00 term loan
and P5,000,000.00 credit line or a total of P20,000,000.00. With regard to the term
loan, only P10,444,271.49 was released by BSA. With regard to the P5,000,000.00
credit line, only P3,000,000.00 was released. BSA promised to release the remaining
P2,000,000.00 conditioned upon the payment of the P3,000,000.00 initially released
to petitioners. Petitioners acceded to the condition and paid the P3,000,000.00 in
full. However, BSA still refused to release the P2,000,000.00. Petitioners then
refused to pay the amortizations due on their term loan. Later on, BPI Family
Savings Bank (BPI) merged with BSA, thus, acquired all the latter's rights and
assumed its obligations. BPI filed a petition for extrajudicial foreclosure of the REM
for petitioners' default in the payment of their term loan. In order to enjoin the
foreclosure, petitioners instituted an action for damages with Temporary
Restraining Order and Preliminary Injunction against BPI praying for
P23,570,881.32 as actual damages; P1,000,000.00 as moral damages; P500,000.00
as attorney's fees, litigation expenses and costs of suit. The court ruled in favor of
the plaintiff. BPI appealed to the Court of Appeal averring that petitioners are liable
to them on the principal balance of the mortgage loan agreement.

ISSUES:
1.) WON there was already a binding contract between petitioners and BSA
2.) WON BSA incurred delay in the performance of its obligations?

HELD:

22

1.) Yes, there was a perfected contract. As a rule, a contract is perfected upon the
meeting of the minds of the parties. In the case of Spouses Palada v. Solidbank
Corporation, et al., this Court held that under Article 1934 of the Civil Code, a
loan contract is perfected only upon the delivery of the object of the contract.
Applying this to the case at bench, there is no iota of doubt that when BSA
approved and released the P3,000,000.00 out of the original P5,000,000.00
credit facility, the contract was perfected.

2.) No, BSA did not incur delay. Loan is a reciprocal obligation, as it arises from the
same cause where one party is the creditor and the other the debtor. The
obligation of one party in a reciprocal obligation is dependent upon the
obligation of the other, and the performance should ideally be simultaneous.
This means that in a loan, the creditor should release the full loan amount and
the debtor repays it when it becomes due and demandable. In this case, BSA did
not only incur delay in releasing the pre-agreed credit line of P5,000,000.00 but
likewise violated the terms of its agreement with petitioners when it
deliberately failed to release the amount of P2,000,000.00 after petitioners
complied with their terms and paid the first P3,000,000.00 in full. The default
attributed to petitioners when they stopped paying their amortizations on the
term loan cannot be sustained by this Court because long before they sent a
Letter to BSA informing the latter of their refusal to continue paying
amortizations, BSA had already reneged on its obligation to release the amount
previously agreed upon, i.e., the P5,000,000.00 covered by the credit line.

23

PHILIPPINE INTERNATIONAL TRADING CORPORATION vs. THRESHOLD

PACIFIC CORPORATION and EDGAR REY A. CUALES
G.R. No. 209119

LEONARDO-DE CASTRO, C.J.

CASE DOCTRINE: Contracting parties have the autonomy to establish such terms
and conditions as they deem fit, provided these are not contrary to law, morals,
good customs, public order, or public policy.

FACTS:

The present controversy involves three key instruments executed between PITC
and TPC, viz.: (a) the Import Financing Agreement (IFA) dated July 5, 1993 whereby
PITC agreed to assist TPC financially in the amount of P50,000,000.00 for the latter's
importation of urea fertilizers.; (b) the 1st Addendum to the IFA (1st Addendum)
dated July 6, 1993 whereby PITC agreed to disburse the first tranche of the subject
loan, in the amount of P5,876,498.63, to enable TPC to purchase the fertilizers from
the domestic market for resale to ASPAI members.; and as a result of further delay
in the shipment of the imported fertilizers, the parties further amended the IFA in
order to meet ASPAI's urgent request for additional fertilizer, the 2nd Addendum to
the IFA (2nd Addendum) dated November 4, 1993 (hereinafter collectively referred
to as the Loan).

On the last occasion, instead of opening another letter of credit, PITC issued a check
in the amount of P5,000,000.00 directly payable to TPC for the aforementioned
amount. Upon receipt of the proceeds, TPC issued a promissory note undertaking
"to pay solidarily to the order of [PITC]" the principal amount on April 15, 1994.
On July 7, 1994, claiming that TPC failed to pay the outstanding loan obligation, PITC
filed a Complaint for Sum of Money before the RTC.

Respondent Cuales testified that the parties' real intention is for PITC to purchase
urea fertilizer and subsequently sell the same to ASPAI; that TPC was involved as
ASPAI's agent merely to ensure the delivery of fertilizers to the latter; that ASPAI,
not TPC, provided PITC with the required collaterals, as shown in post-dated checks
and real estate mortgage documents executed by ASPAI; that TPC was not a party to
the LandBank Letter of Credit dated July 9, 1993 issued by PITC directly in favor of
ASPAI's local fertilizer supplier;

RTC RULING: TPC and Cuales became directly liable for the obligation to pay the
loan regardless of their actual personal interest in the obligation or receipt of any
benefit therefrom. TPC and Cuales did not present sufficient evidence to show that
they were mere agents of ASPAI.

24

CA RULING: held that TPC and Cuales sufficiently proved that the IFA and its
addendums were simulated and did not reflect the true intention of the parties. It
considered PITC and ASPAI's acts contemporaneous and subsequent to the
aforementioned loan documents: (i) PITC required ASPAI, not TPC, to issue the
required post-dated checks and execute real estate mortgages to secure the loan;
TPC and Cuales were mere agents of ASPAI and should not be held liable for their
principal's default in the loan payments.

ISSUE:
1.) Whether or not the transaction was indeed between PITC and TPC?
2.) Whether or not the import financing agreement the parties executed on 5 July
1993 and its addenda are simulated?

HELD:

1.) It is undisputed that TPC and Cuales entered into and executed the IFA and its
addendums with PITC. What is at issue then is the true nature of TPC's liability
under the loan agreement, as embodied in the IFA and its addendums.

The settled rule is that the contracting parties have the autonomy to establish
such terms and conditions as they deem fit, provided these are not contrary to
law, morals, good customs, public order, or public policy. Once there is a
meeting of the minds between the parties, the contract constitutes the law
between them.

2.) TPC and Cuales mainly argue that the stipulations contained in the loan
documents do not express the parties' real intention: that ASPAI is petitioner
PITC's actual client and respondent TPC is merely ASPAI's agent.

Respondents TPC and Cuales presented documentary evidence i.e., ASPAI's
postdated checks and real estate mortgages executed to secure the loan,
reimbursements made by PITC to TPC for storage and delivery expenses
incurred by the latter, LandBank Letter of Credit issued directly in the name of
ASPAI's supplier, ASPAI's certification acknowledging its receipt of the loan
proceeds, receipts of fertilizer purchases submitted by ASPAI to PITC, PITC
demand letters directly sent to ASPAI, criminal complaint for the violation of
Batas Pambansa Blg. 22 filed by PITC against ASPAI to show that ASPAI is the
real client and TPC is merely its agent. However, none of these demonstrate an
express and direct order from ASPAI authorizing respondents TPC and Cuales to
enter into the loan. For the purpose of borrowing money, the agent's authority
must be direct, categorical, and cannot be lightly implied.

After careful examination, the totality of respondents TPC and Cuales' evidence
is not preponderant to sufficiently dispute the legal presumptions of fairness,
25

regularity, and observance of the ordinary course of business accorded to loan

transactions. All the more, their evidence is not clear and convincing to
successfully overcome the prima facie presumptions of authenticity,
genuineness, and regular execution of notarized documents.

These supposed acts contemporaneous and subsequent to the loan do not
outweigh the loan instruments' express language: that respondent Cuales, as its
representative, executed the loan and bound respondent TPC as the debtor-
borrower. Thus, respondent TPC shall be liable to pay petitioner PITC, the
creditor, the principal loan plus interests and other charges when these become
due.

WHEREFORE, the petition is hereby GRANTED. The Decision dated November
23, 2012 and Resolution dated August 30, 2013 of the Court of Appeals in CA-
G.R. CV No. 97458 are hereby REVERSED and SET ASIDE.

26

MARIA C. OSORIO, PETITIONER, VS. PEOPLE OF THE PHILIPPINES,

RESPONDENT
G.R. No. 207711. July 2, 2018
LEONEN, J.

CASE DOCTRINE: For there to be a valid ratification, genuine consent is required.
Should there be consent given but was made only because the party had no other
choice, such is not a genuine one which would ratify a contract.

FACTS:

Osorio was charged with estafa for allegedly inducing Josefina Gabriel to part with
her money amounting to P200,000 by reason of a promise that if invested with
Philamlife Fund, the same would earn 20% interest per annum and that the
proceeds of her investment may be channeled to pay for her insurance premiums
for a life insurance policy previously obtained by the latter with Philamlife. Enticed
by the offer, Gabriel tendered P200,000.00 to Osorio, who in turn issued Philam Life
receipts. A few months later, Gabriel discovered that her insurance policies had
lapsed due to non-payment of premiums. Meanwhile, in May 2002, Gabriel received
a letter from Philippine Money Investment Asset Management (PMIAM), thanking
her for investing in the company. In the same letter, PMIAM informed Gabriel that
her investment would earn interest on a semi-annual basis starting June 20, 2002.
Gabriel confronted Osorio on why her investment was diverted to PMIAM. Osorio
explained that PMIAM investments would yield a higher rate of return. Displeased
with what had happened, Gabriel asked for a refund of her initial investment. On
August 2, 2002, Gabriel received P13,000.00 from PMIAM. In spite of this, Gabriel
insisted on the refund. The defense presented Osorio as its sole witness. Osorio
admitted that aside from being a Philam Life agent, she was also a referral agent of
PMIAM. She received P4,000.00 from the company as commission for Gabriel's
investment. She asserted that she initially planned to place Gabriel's investment in
Philam Life but decided later on to divert it to PMIAM since the latter offered a
higher rate of return. When Osorio informed Gabriel of her decision, Gabriel
allegedly gave her consent.

ISSUE:
Whether or not Gabriel consented to the investment to PMIAM?

HELD:

As a final note, the defense that private complainant eventually consented to the
investment in PMIAM deserves scant consideration. Records show that private
complainant asked petitioner for a refund of her initial investment when she
discovered that her investment was placed in PMIAM. The ratification allegedly
given by private complainant hardly qualifies as genuine consent. When private
27

complainant discovered the transaction, her insurance policies had already lapsed.
She was trapped in a difficult situation where she could potentially lose another
investment. Thus, she had no other choice but to agree to the placement. The lack of
genuine consent is further evidenced by private complainant's repeated requests for
a refund of her initial investment even after she received the first tranche of interest
income.

28

VILLA CRISTA MONTE REALTY & DEVELOPMENT CORP. V. EQUITABLE PCI

BANK (NOW BANCO DE ORO UNIBANK, INC.) AND EX-OFFICIO SHERIFF OF
QUEZON CITY AND/OR HIS DEPUTY OR AUTHORIZED REPRESENTATIVES
G.R. No. 208336

Bersamin, J.

CASE DOCTRINE: The unilateral action of the PNB in increasing the interest rate on
the private respondent's loan, violated the mutuality of contracts ordained in Article
1308 of the Civil Code: The contract must bind both contracting parties; its validity
or compliance cannot be left to the will of one of them. In order that obligations
arising from contracts may have the force of law between the parties, there must be
mutuality between the parties based on their essential equality. A contract
containing a condition which makes its fulfilment dependent exclusively upon the
uncontrolled will of one of the contracting parties, is void."

FACTS:

Villa Crista Monte Realty & Development Corp. (appellant) is engaged in the
business of real estate development. To develop its subdivision project, appellant
applied for a credit line of P80 Million with Equitable PCI Bank (E-PCIB), now Banco
De Oro. As security, appellant executed a Real Estate Mortgage over 80,000 sqm of
its properties (covered by TCT No. T-145652) which was later subdivided into 174
lots. Appellant applied for an additional P50 Million credit accommodation from E-
PCIB. As it was established that 41 out of the 174 subdivided lots would already be
sufficient securities for the credit accommodation, appellant asked for the release of
the remaining 133 titles from the earlier mortgage, which E-PCIB granted.

Under its approved P130 Million credit line, appellant obtained different amounts
on various occasions from March 20, 1997 to August 15, 1997, covered by 15
promissory notes with interest rates mostly ranging from 13%-15%, totaling P129.7
Million. Later on, E-PCIB wrote several times to appellant apprising it of the
increased interest rates (21 % to 36%) to be imposed on its loans. The increased
rates was anchored on the uniform provision in the promissory notes on monthly
repricing. Appellant reneged on paying its loan obligations, prompting E-PCIB to
initiate foreclosure proceedings. Appellant filed a complaint to nullify the
promissory notes and the mortgage agreements with prayer for injunctive relief.
The auction sale was initially enjoined but later proceeded with E-PCIB as the
highest bidder. Appellant then filed a Supplemental Complaint with the RTC
assailing the said auction sale alleging that E-PCIB unilaterally made and imposed
the increases in interest rates on appellant's loan without them being discussed and
negotiated with, much less agreed upon by, appellant and, thus, invalid. E-PCIB
underscored that appellant voluntarily and consciously agreed to the complained
monthly repricing of interest as shown by appellant's affixing of its signature in all
29

the promissory notes and acceptance of the loan. RTC ruled in favor of E-PCIB
holding that the loan contracts between the parties were supported by several
promissory notes, a fact admitted by no less than the petitioner's own President,
Cresencio Tiu. Tiu himself testified that the documents included a rider dealing with
the monthly repricing of the interest rates and that they even paid the adjusted
interest rates. The CA affirmed the RTC's ruling.

ISSUE:
Whether or not the monthly repricing of the interest rates on the loans, which is
claimed to have been unilaterally imposed by E-PCIB was valid?

HELD:

Yes, the escalation clause was valid. The promissory note, which was voluntarily
signed by the appellant contains a provision which states: "the interest rate shall be
determined by the Lender without need of prior notice to the Borrower.. Where the
rate is subject to periodic adjustment, the Borrower disagrees with the new rate, he
shall prepay within five (5) days from the notice of the new rate the outstanding
balance of the Loan with interest at the last applicable rate." The agreement
between the parties on the imposition of increasing interest rates on the loan is
commonly known as the escalation clause - a stipulation allowing increases in the
interest rates agreed upon by the contracting parties. The escalation clause is not
void per se. But the escalation clause that "grants the creditor an unbridled right to
adjust the interest independently and upwardly, completely depriving the debtor of
the right to assent to an important modification in the agreement" is void. Such
escalation clause violates the principle of mutuality of contracts, and should be
annulled.

To prevent any one-sidedness that the escalation clause may cause in favor of· the
creditor, PD No. 1684 was promulgated, requiring the inclusion of a de-escalation
clause. As held in PNB vs CA.: "the unilateral action of the PNB in increasing the
interest rate on the private respondent's loan, violated the mutuality of contracts
ordained in Article 1308 of the Civil Code: The contract must bind both contracting
parties; its validity or compliance cannot be left to the will of one of them. In order
that obligations arising from contracts may have the force of law between the
parties, there must be mutuality between the parties based on their essential
equality. A contract containing a condition which makes its fulfilment dependent
exclusively upon the uncontrolled will of one of the contracting parties, is void."

Although no express de-escalation clause was stipulated in the promissory notes
signed by the petitioner, such did not invalidate the repricing of the interest rates.
The repricing notices issued to the petitioner by E-PCIB indicated that on some
occasions, the bank had reduced or adjusted the interest rates downward. The
actual grant by the respondent of the decreases in the interest rates imposed on the
30

loans extended to the petitioner rendered inexistent the evil of inequality sought to
be thwarted by the enactment and application of Presidential Decree No. 1684.

The binding effect on the parties of any agreement is premised on two settled
principles, namely: (1) that any obligation arising from contract has the force of law
between the parties; and (2) that there must be mutuality between the parties
based on their essential equality. Any contract that appears to be heavily weighed in
favor of only one of the parties so as to lead to an unconscionable result is void.

The significance of Article 1308 cannot be doubted. It is elementary that there can
be no contract in the absence of the mutual assent of the parties. When the assent of
either party is wanting, the act of the non-assenting party has no efficacy for his act
is as if it was done under duress or by an incapacitated person. Naturally, any
modification made in the contract must still be with or upon the consent of the
contracting parties. There must still be a meeting of the minds of all the parties on
the modification, especially when the modification relates to an important or
material aspect of the agreement.

Contrary to the petitioner's position, there was mutuality of contracts between itself
and the respondent. Tiu, the petitioner's President, who signed the promissory
notes in behalf of the petitioner, was aware of the provision in the documents
pertaining to the monthly repricing of the interest rates. Although the promissory
notes succinctly stipulated that the loans were subject to interest without need of
prior notice to the borrower, the respondent sent notices to the petitioner each and
every time it increased the interest rate. Also, there was no showing by the
petitioner herein that it had been placed at any disadvantage in dealing with the
respondent was decisive. On the contrary, it appeared that mutuality always
pervaded the relationship between the parties.
31

YUJUICO VS. FAR EAST BANK & TRUST COMPANY

G.R. No. 186196, August 15, 2018

CAGUIOA, J.

CASE DOCTRINE: As to its essence, novation may be classified into: (a) objective or
real, (b) subjective or personal, or (c) mixed. Article 1291(1) contemplates an
objective or real novation where there is a change in the cause, object or principal
conditions of the obligations while (2) and (3) of said Article contemplate a passive
one where there is a substitution of the person of the debtor and an active one
where there is subrogation of a third person in the rights of the creditor. Mixed
novation, on the other hand, refers to a combination of objective and subjective
novation. As to its form or constitution, novation may be express, when it is declared
in unequivocal terms that the old obligation is extinguished by a new one which
substitutes the same, or implied or tacit, when the old and the new obligations are
incompatible with each other on every point. As to extent or effect, novation may be
total or extinctive, when there is an absolute extinguishment of the old obligation, or
partial, when there is merely a modification of the old obligation. Without a total or
extinctive novation, the surety agreement subsists.

FACTS:

On May 14, 1993, Far East Bank and Trust Company approved the renewal of GTI
Sportswear Corporation's Omnibus Credit Line (OCL) with a total amount of P35,
000, 000.00. The credit line was available in the form of letters of credit, trust
receipts, margin loan, export packing credit line, bills purchase line and export bills
purchase line. This was secured by a Comprehensive Surety Agreement executed by
Yujuico in his personal capacity. He was also the president of GTI. Sometime in May
1995, negotiations were undertaken to settle GTI's trust receipt obligation under
the OCL. During these negotiations, appellee GTI made known to appellant bank its
request for the conversion of its peso loan to US dollar-denominated loan. An
exchange of communications concerning the conversion transpired but no definite
agreement on the said conversion was put into writing. On June 26, 1995, Yujuico, in
behalf of appellee GTI and in his personal capacity as surety, and appellant's First
Vice President Ricardo G. Lazatin, in behalf of appellant bank, signed a Loan
Restructuring Agreement (LRA), the subject of which was GTI's outstanding balance
on its OCL in the amount of P25, 208, 874.84 as of May 31, 1995. The agreement
expressly stated that the restructured loan continues to be secured by the
Comprehensive Surety Agreement previously executed by Yujuico in favor of the
Bank. After the signing of the restructuring agreement, GTI reiterated its request for
the re-denomination of its loan obligation to US dollars. The Bank, however, denied
the request and informed appellees that the conversion was not deemed workable
in view of the following considerations: the bank requires long-term FCDU loans to
be fully collateralized and GTI, as borrower, must have adequate FCDU placements
32

with the Bank as well as maintain substantial deposit ADB levels. In a letter dated
September 22, 1997, the Bank demanded that GTI update all its unpaid
amortizations on the outstanding restructured loan with a principal balance of
P11,376,666.25 not later than September 30, 1997 and to settle all its other past due
obligations to avert any legal action. On October 29, 1997, Yujuico and GTI filed
against the Bank a Complaint for Specific Performance with Preliminary Injunction
with the Regional Trial Court of Makati City. Yujuico and GTI alleged that during the
signing of the loan restructuring agreement, they were assured by the officers of the
Bank, namely: Paul Regondola and Jacqueline Fernandez, that after a few payments
on its obligation, appellee GTI's peso loan would be converted to US dollars. Also,
sometime in October 1996, Paul Regondola confirmed by phone that the conversion
of GTI's loan from peso to US Dollars had been approved by the Bank. This
prompted appellee GTFs financial consultant Bermundo to send the Bank a letter
dated October 31, 1996 acknowledging appellant bank's alleged confirmation of the
approval of the conversion of the restructured loan. This letter was not denied by
the Bank until December 18, 1996 when it informed Yujuico and GTI that the
conversion of the restructured loan to US dollars was not deemed workable because
of certain considerations. These considerations, however, were not conveyed to
Yujuico and GTI beforehand. Yujuico and GTI averred further that under the US
dollar-denominated loan, appellee GTI would be paying lower interest and would
save the total amount of P2, 844, 228.00. Hence, they prayed that the Bank be
directed to convert GTI's loan to US dollars retroactively effective October 1, 1996
and that the Bank be directed to pay appellees P2, 844, 228.00 representing savings
that could have accrued in favor of Yujuico and GTI in terms of the difference in
interest payments.

In a Decision dated October 6, 2004, the court a quo ruled that the Bank indeed
agreed to convert to US dollar GTI's peso loan obligation. The conversion also
resulted in the novation of GTI's loan obligation. As a result, Yujuico was accordingly
released from his obligations as surety pursuant to Article 1215 of the New Civil
Code in conjunction with paragraph 1 of Article 1291 of the same Code. The CA
partially granted the appeal. The CA no longer delved on the issue of whether or not
the parties perfected a contract on the conversion of the restructured loan to US
dollars in view of the Bank's acknowledgment and confirmation of its obligation to
convert the restructured loan to US dollars in its Motion for Reconsideration dated
November 2, 2004. The lone issue left for determination as far as the CA was
concerned was whether or not the conversion of the peso-denominated loan is
tantamount to novation warranting the extinguishment of Yujuico's obligations as a
surety. On the said issue, the CA ruled that the Omnibus Credit Line and the Loan
Restructuring Agreement between GTI Sportswear Corporation (GTI) and the Bank
were not novated and Yujuico remained to be liable as a surety under the
Comprehensive Surety Agreement.

ISSUES:
33

1.) Whether or not the CA has legal basis to resolve and declare that there was no
novation between GTI and the Bank?
2.) Whether or not the CA has legal basis to resolve and declare that Yujuico
remains liable as surety of the obligation of GTI?

HELD:

1.) The Court agrees with the finding of the CA that "[t]he attendant facts do not
make out a case of novation" in the sense of a total or extinctive novation. At
best, the agreement to convert the Peso-denominated restructured loan into a
US Dollar-denominated one is an implied or tacit, partial, modificatory novation.
There was merely a change in the method of payment.

2.) Without a total or extinctive novation, the surety agreement subsists. While
Article 1215 of the Civil Code provides that novation, compensation or
remission of the debt, made by any of the solidary creditors or with any of the
solidary debtors, shall extinguish the obligation, the novation contemplated
therein is a total or extinctive novation of the old obligation. Also, the
Comprehensive Surety Agreement that petitioner Yujuico executed in favor of
the Bank is so worded that it covers "any and all other indebtedness of every
kind which is now or may hereafter become due or owing to [the Bank] by the
Borrower."

34

ALLIED BANKING CORP. V. EQUITABLE PCI BANK, INC.

G.R. No. 191939; March 14, 2018

MARTIRES, J.

CASE DOCTRINE: Basic is the principle that the law is deemed written into every
contract, such that while a contract is the law between the parties, the provisions of
positive law which regulate contracts shall limit and govern their relations.

FACTS:

Equitable PCI Bank, Inc. (EPCIB), as creditor, filed a petition for the corporate
rehabilitation of its debtor Steel Corporation of the Philippines (SCP) with the RTC.
Allied Banking Corporation (ABC) granted SCP with a revolving credit facility
denominated as a letter of credit/trust receipt line. Pursuant to this arrangement,
SCP executed a trust receipt (TR), which authorizes ABC to charge SCP's account in
its possession under instances specified.

RTC granted EPCIB’s petition ordering, among others, staying all claims against SCP,
by all other corporations, persons or entities insofar as they may be affected by the
present proceedings, until further notice. Despite such stay order, petitioner applied
the remaining proceeds of SCP's Current Account to its obligations under the TR.
SCP filed an urgent omnibus motion alleging that petitioner violated the
rehabilitation court's stay order when it applied the proceeds of its current account
to the payment of obligations covered by the stay order. ABC filed an opposition,
mainly contending that SCP's obligations with it had become due and demandable,
rendering legal compensation valid and proper; that petitioner did not violate the
stay order, as it had no notice of its issuance at the time of the legal compensation.
RTC issued a resolution ordering ABC to restore SCP's Current Account. ABC filed a
petition for review with the CA.

In affirming the resolution of the RTC, the CA ruled that on the issue of impairment
of contractual rights, the CA held that no impairment exists because no changes
were made in the amount or rate of SCP's debt to ABC. Only the enforcement of the
latter's claims is being stayed or suspended.

ABC contends that when it offset the proceeds in the subject account, it merely
applied the provisions of law on legal compensation, since SCP had already incurred
a default in its obligations rendering operative the terms of the TR it had issued.
According to ABC, the subject resolution constituted an impairment of its contract
with SCP because under the TR it executed in ABC's favor, ABC had the right to
charge SCP's account in case of nonpayment of any indebtedness.

35

ISSUE:
Whether or not there was an impairment of contract?

HELD:

Anent the alleged impairment of contract, basic is the principle that the law is
deemed written into every contract, such that while a contract is the law between
the parties, the provisions of positive law which regulate contracts shall limit and
govern their relations. At the time the Trust Receipt Agreement was entered into by
ABC and SCP, the law expressly allowed corporations to be declared in a state of
suspension of payments under specific instances. Consequently, said law and its
implementing rules are deemed incorporated in the Trust Receipt Agreement,
thereby limiting ABC's right to enforce its claim against SCP once a stay or
suspension order is issued. Clearly, the principle on inviolability of contracts was
not violated.

36

LAND BANK OF THE PHILIPPINES VS. HEREDEROS DE CIRIACO CHUNACO

DISTILERIA, INC.
GESMUNDO, J.

Case Doctrine: Compensation under RA 6657 is ten (10) years pursuant to Art.
1144(2)

FACTS: Respondent Herederos de Ciriaco Chunaco Distileria, Inc. (Herederos) was
the owner of several parcels of land situated in Albay which are covered by TCTs.
Respondent voluntarily offered for sale the subject lots to the Republic under CARP.
Petitioner Land Bank of the Philippines, by virtue of its mandate under RA 6657,
came up with the CARP Compensation for the subject lands and offered the same to
respondent in the amount of P957, 991.30 to which the latter rejected the offered
compensation and averred that the subjects lands were worth P195, 410.07 per
hectare or a total of P4,455,349. Hence, twelve (12) cases for preliminary
administrative determination of just compensation covering the said parcels of land
were conducted by the Provincial Agrarian Reform Adjudicator (PARAD). PARD
rendered a decision in favor of respondent. Petitioner filed a motion for
reconsideration before PARAD but was denied. Petitioner filed a petition for judicial
determination of just compensation before RTC acting as Special Agrarian Court
(SAC) arguing that PARAD erroneously arrived at the amount for the just
compensation without considering the formula set forth by the DAR. PARAD issued
an order declaring its decision final and executory. Petitioner filed a petition for
certiorari before DARAB but was denied due to lack of merit. It held that the petition
for determination of just compensation in the RTC-SAC was filed beyond the 15-day
reglementary period under Sec. 11, Rule XIII of the DARAB Rules. Hence, PARAD
decision already became final and executory.

ISSUE: Whether or not the petition for judicial determination of just compensation
was filed beyond the reglementary period

RULING: While R.A. No. 6657 itself does not provide for a period within which a
landowner can file a petition for the determination of just compensation before the
SAC, it cannot be imprescriptible because the parties cannot be placed in limbo
indefinitely. The Civil Code settles such conundrum. Considering that the payment of
just compensation is an obligation created by law, it should only be ten (10) years
from the time the landowner received the notice of coverage. The Constitution itself
provides for the payment of just compensation in eminent domain cases. Under
Article 1144, such actions must be brought within ten (10) years from the time the
right of action accrues. Article 1144 reads:

Art. 1144. The following actions must be brought within ten years from the time the
right of action accrues:
(1)Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
37

DESIDERIO DALISAY INVESTMENTS, INC., vs. SOCIAL SECURITY SYSTEM

VELASCO, Jr., J.

CASE DOCTRINE
Art. 1319. Consent is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract. The offer must be
certain and the acceptance absolute. A qualified acceptance constitutes a counter-
offer.

FACTS:
Respondent SSS filed a case before the Social Security Commission (SSC) against the
Dalisay Group of Companies (DGC) for the collection of unremitted SSS premium
contributions of the latter's employees. During a meeting (1982 Meeting) attended
by Atty. Cabarroguis, the latter, representing DGC, explained that the DGC is in
financial distress and is in no way capable of settling its obligation in cash. When
asked what the DGC's offer is, he stated that he has "the authority to offer [the
properties] in the amount of 2 million pesos." He also assured them that that they
will turn the properties over to SSS free of liens and encumbrances. The offer for
dación was accepted at the appraised value of P2,000,000. On May 28, 1982, DDII's
total liabilities with SSS covering unpaid premium contributions, inclusive of
penalties and salary/calamity loan amortizations, amounted to P4,421,321.62.

The SSC issued Resolution No. 849-s. 82. In said Resolution, it accepted DDII's
proposed dacion en pago pegged at the appraised value of P2,000,000.Later, the
Philippine National Bank (PNB) executed a Deed of Confirmatory Sale in favor of
DDII for properties that it reacquired, including the property subject of the present
dispute. Eddie A. Jara (Jara), Assistant Vice-President of the SSS-Davao I Branch,
executed an Affidavit of Adverse Claim over the properties subject of the instant
case because of the companies' failure to turn over the certificates of title to SSS.
Meanwhile, despite repeated written and verbal demands made by SSS for DDII to
deliver the titles of the subject property, free from all liens and encumbrances, DDII
still failed to comply. DDII filed a complaint for Quieting of Title, Recovery of
Possession and Damages against SSS with the Regional Trial Court (RTC), Branch 14,
in Davao City, docketed as Civil Case No. 29, 353-02. DDII insists that Atty.
Cabarroguis' alleged acceptance of the proposals of SSS was not covered by any
Board Resolution or Affidavit of Consent by the corporate and individual owners of
the properties. Thus, according to DDII, there was no meeting of the minds between
the parties. Consequently, there was no dation in payment to speak of, contrary to
the claim of SSS.In its Answer, SSS argued that the offer for dacion was categorically
accepted by SSS, thereby perfecting such.

ISSUE:
Whether or not there was a perfected Dacion en pago

RULING:
38

YES. Among other modes, an obligation is extinguished by payment or performance.

There is payment when there is delivery of money or performance of an obligation.
Corollary thereto, Article 1245 of the Civil Code provides for a special mode of
payment called dation in payment (dación en pago).

In dación en pago, property is alienated to the creditor in satisfaction of a debt in
money. The debtor delivers and transmits to the creditor the former's ownership
over a thing as an accepted equivalent of the payment or performance of an
outstanding debt. In such cases, Article 1245 provides that the law on sales shall
apply, since the undertaking really partakes — in one sense — of the nature of sale;
that is, the creditor is really buying the thing or property of the debtor, the payment
for which is to be charged against the debtor's obligation.

As a mode of payment, dación en pago extinguishes the obligation to the extent of
the value of the thing delivered, either as agreed upon by the parties or as may be
proved, unless the parties by agreement — express or implied, or by their silence —
consider the thing as equivalent to the obligation, in which case the obligation is
totally extinguished. It requires delivery and transmission of ownership of a thing
owned by the debtor to the creditor as an accepted equivalent of the performance of
the obligation. There is no dation in payment when there is no transfer of ownership
in the creditor's favor, as when the possession of the thing is merely given to the
creditor by way of security.

Article 1319 of the New Civil Code reads:

Art. 1319. Consent is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract. The offer must be
certain and the acceptance absolute. A qualified acceptance constitutes a counter-
offer.
Acceptance made by letter or telegram does not bind the offeror except from the
time it came to his knowledge. The contract, in such a case, is presumed to have
been entered into in the place where the offer was made. .Within the purview of the
law on sales, a contract of sale is perfected by mere consent, upon a meeting of the
minds on the offer and the acceptance thereof based on subject matter, price and
terms of payment. It is perfected at the moment there is a meeting of the minds
upon the thing which is the object of the contract and upon the price. Applying said
principles to the case at bar convinces us that SSS' acceptance of the offer at
P2,000,000 resulted in a perfected dacion.

39

SPOUSES LAHER vs SPOUSES LOPEZ

G.R. No. 233757. April 18, 2018

Doctrine:
Parties are free to enter into agreements and stipulate as to the terms and
conditions of their contract, but such freedom is not absolute. As Article 1306 of the
Civil Code provides, "[t]he contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy."

Facts:
Petitioner Laher was the owner of a parcel of land. Petitioner spouses borrowed
money from Spouses Lopez. As security, petitioners executed a deed of real estate
mortgage over the said land. When petitioners defaulted payment after demand by
respondents, the latter instituted extrajudicial foreclosure against the mortgage.
After the expiration of the redemption period, a new TCT was issued in the name of
the respondents to the respondents as lone bidder. Petitioner filed for annulment of
the extrajudicial foreclosure, which was ultimately granted by the CA on appeal
because of lack of publication. Consequently, petitioners filed a complaint for
judicial foreclosure before the RTC, which was granted. Part of the imposition was
the payment of the 18% liquidated penalty. This was questioned by petitioners on
appeal to the CA, which affirmed the decision. Hence, this petition.

Issue:
Whether or not the payment of the 18% liquidated damages is proper.

Held:
Yes. There was an express contractual stipulation for the payment of the same. If the
stipulations in the contract are valid, the parties thereto are bound to comply with
them, since such contract is the law between the parties. Herein petitioners
voluntarily agreed to the liquidated penalty of 18% to approximate the opportunity
losses, expenses and damages resulting from the non-payment of the debt and its
interest. The liability for liquidated damages is governed by Articles 2226-2228 of
the Civil Code. Under Article 2227, these damages serve a dual function, it may
either be for purposes of indemnity or serve as a penalty in addition to legal
interests that may attach. Parties to a contract are permitted to stipulate on the
amount or percentage of liquidated penalty to be imposed in case of breach or delay.
The only condition for its imposition is that the same must not be iniquitous or
unconscionable otherwise it shall be equitably reduced by the courts. Although the
penalty charges involved in the above mentioned cases are a bit lower than the 18%
involved in the present case, the Court finds the 18% liquidated penalty agreed
upon by the parties neither iniquitous nor unconscionable and thus valid.

40

VIVE EAGLE LAND, INC. V. NATIONAL HOME MORTGAGE FINANCE CORP.,

G.R. NO. 230817, APRIL 18, 2018.
Carpio J.

Doctrine: Article 1186 of the Civil Code which provides that: the condition shall be
deemed fulfilled when the obligor voluntarily prevents its fulfilment.

FACTS:
Vive Eagle Land, Inc. (Vive), a corporation engaged in realty business filed a
complaint for declaration of nullity of rescission, declaration of suspension of
payment of purchase price and interest and other reliefs against respondents
National Home Mortgage Finance Corporation (NHMFC), a government corporation
created by virtue of Presidential Decree No. 1267, and Cavacon Corporation, a
domestic corporation engaged in the business of construction. Vive entered into a
Deed of Sale of Rights, Interests, and Participation Over Foreclosed Assets, whereby
it agreed to purchase NHMFC's rights, interests, and participation in the foreclosed
property of Alyansa ng mga Maka-Maralitang Asosasyon at Kapatirang
Organisasyon Inc. located at Baranggay Sta. Catalina, Angeles City, for a total
purchase price of P40,000,000.00 payable in the following manner: (1) the amount
of P8,000,000.00 as 20% down payment payable in two equal installments, the first
of which shall be due on or before December 4, 1999, and the second, within thirty
(30) days from the execution of the Deed of Conditional Sale, but in no case shall be
later than January 4, 2000; and (2) the balance of P32,000,000.00 payable in 10
equal semi-annual installments in the amount of P3,200,000.00 per installment, plus
14% interest per annum, with the first installment due on July 4, 2000 and every 6
months thereafter until fully paid. Pursuant to the Deed of Sale, Vive paid the first
installment of the down payment in the amount of P4M.

Vive, however, did not pay the subsequent installments reasoning out that it was
prevented from exercising its right to avail of a developmental loan under Section 8
of the Deed of Sale due to issues on the subject property, particularly: (1) the
issuance of numerous certificates of land awards over the same; and (2) the
classification of the same as agricultural subjecting it to the coverage of the
Comprehensive Agrarian Reform Program.

NHMFC notified Vive in a letter of the rescission/cancellation of the Deed of Sale due
to the alleged non-payment of the balance of the purchase price. According to
NHMFC, its decision to rescind the Deed of Sale was valid in view of Vive's refusal to
pay the subject installments. Moreover, since Vive was well aware of the issues
affecting the property prior to its purchase, it was not justified in suspending its
payment of the purchase price.

The Regional Trial Court of Makati ruled that the rescission was valid. On appeal, the
Court of Appeals affirmed the decision of the RTC declaring that NHMFC as the true
owner. Vive then filed a petition for review on certiorari but was denied by the
Supreme Court for failure to show any reversible error in the assailed judgement of
41

the CA. Vive then filed a Motion for Reconsideration praying that the court take a
second look at the circumstances

ISSUE:
Whether or not the Motion for Reconsideration should be granted as a Deed of Sale
is a valid contract of sale since there is no requirement for NHMFC to execute a Deed
of Absolute Sale to transfer ownership to Vive, then there is no intention to reserve
ownership by NHMFC.

RULING:

WHEREFORE, PREMISES CONSIDERED, the Court resolves to GRANT the motion for
reconsideration giving due course to the petition and REQUIRE the respondents to
file comment on the petition within ten (10) days. SO ORDERED SO ORDERED.

42

NORTHERN MINDANAO INDUSTRIAL PORT AND SERVICES CORPORATION v.

ILIGAN CEMENT CORPORATION
G.R. No. 215387, April 23, 2018

DEL CASTILLO, J.:

CASE DOCTRINE:

Article 1326 of the Civil Code, which specifically tackles offer and acceptance of bids,
provides that advertisements for bidders are simply invitations to make proposals,
and that an advertiser is not bound to accept the highest bidder unless the contrary
appears. In the present case, Section 4.3 of the ASBR explicitly states that APT
reserves the right to reject any or all bids, including the highest bid. Undoubtedly,
APT has a legal right to reject the offer of Dong-A Consortium, notwithstanding that
it submitted the highest bid.

FACTS:
On 27 June 2007, ICC invited NOMIPSCO to a pre-bidding conference for a two-year
cargo handling contract. Apart from NOMIPSCO, RC Barreto Enterprises, MN Seno
Marketing, VIRLO Stevedoring and Oroport also joined the conference. ICC, through
Nestor Camus, required the participants to submit their respective technical
proposals and commercial bids.
NOMIPSCO thereafter submitted its proposal in which it offered the lowest bid of
P1.788 per 40 kilogram bag however ICC awarded the cargo handling contract to
Europort Logistics and Equipment Incorporated (Europort).
On 2 September 2008, NOMIPSCO filed a Complaint for Damages and Attorney's fees
against ICC [alleging] that, as per information from an ICC employee, its bid folder
was marked as "no bid submitted”, that Camus, revealed that, the bid award was
based on the recommendation of the end-user; and a new company policy to
prioritize new contractors [which] were never made known to the bidders.
NOMIPSCO further claimed that ICC was guilty of bad faith when it still invited
NOMIPSCO to join the pre-bidding conference despite prior knowledge of its status
as an old contractor. NOMIPSCO, thus, contended that the acts of ICC amounted to an
abuse of its rights or authority, the same acts that led NOMIPSCO to suffer great
losses and unearned income.

ISSUE:
Whether or not the policy of respondent to award the contract to a new contractor
was contrary to law?

HELD:
On the claim that it became the policy of respondent to award the contract to a new
contractor, the Court finds nothing wrong with this. This is the prerogative of
respondent, and petitioner had no right to interfere in the exercise thereof. The CA
is correct in saying that an advertisement to possible bidders is simply an invitation
to make proposals, and that an advertiser is not bound, to accept the lowest bidder
43

unless the contrary appears; respondent had the right to reject bids, and it cannot
be compelled to accept a bidder's proposal, and execute a contract in its favor.
Indeed, under Article 1326 of the Civil Code, ''advertisements for bidders are simply
invitations to make proposals, and the advertiser is not bound to accept the highest
or lowest bidder, unless the contrary appears." "[A]s the discretion to accept or
reject bids and award contracts is of such wide latitude, courts will not interfere,
unless it is apparent that such discretion is exercised arbitrarily, or used as a shield
to a fraudulent award. The exercise of that discretion is a policy decision that
necessitates prior inquiry, investigation, comparison, evaluation, and deliberation."

Article 1326 of the Civil Code, which specifically tackles offer and acceptance of bids,
provides that advertisements for bidders are simply invitations to make proposals,
and that an advertiser is not bound to accept the highest bidder unless the contrary
appears. In the present case, Section 4.3 of the ASBR explicitly states that APT
reserves the right to reject any or all bids, including the highest bid. Undoubtedly,
APT has a legal right to reject the offer of Dong-A Consortium, notwithstanding that
it submitted the highest bid.

In Leoquinco v. The Postal Savings Bank and C & C Commercial Corporation v.
Menor, we explained that this right to reject bids signifies that the participants of
the bidding process cannot compel the party who called for bids to

44

VILLAMIL VS. SPOUSES ERGUIZA

GR. No. 195999; June 20, 2018
PONENTE: JUSTICE MARTIRES

CASE DOCTRINE:
Intentional failure to perform an obligation under a contract to sell constitutes
constructive fulfillment of suspensive condition under article 1186 of the Civil Code.
Due to the plaintiff’s failure to file the judicial action as required by the contract to
sell entered into by the parties, she does not have a right based on the respondent’s
failure to pay the full purchase price since the condition set upon her is not yet
deemed fulfilled and her intentional violation thereof obligates her to enter into the
sale of the subject property in favor of the prospective buyer.

FACTS:
Plaintiff, Lily Villamil, together with her deceased sister, Corazon Villamil, and
deceased brother, Teddy Villamil, entered into an agreement with Juanito Erguiza
for the purpose of selling a certain parcel of land to the latter subject to the
condition that plaintiff and her siblings would file a petition to secure authorization
for minor children co-owners to sell from the proper courts. Likewise, that in case of
failure of the plaintiff and her siblings to obtain said authority, the partial payment
made by the defendant Juanito Erguiza shall be applied as rent for twenty (20) years
of the premises.

During the course of time, the ownership of the said land has already been
transferred to the plaintiff through deeds by the other co-owners and without filing
the corresponding court actions under the contract entered into by the parties. After
the lapse of twenty (20) years and the expiration of the twenty (20) years lease,
plaintiff demanded from the defendants to return possession of the property but the
latter failed and refused to return possession of the property.

The plaintiff filed an action to recover possession of the property. Plaintiff argues
that the contract between the parties is a contract to sell which, upon failure to
acquire the judicial authorization for the minors with the court, will be converted to
a contract of lease. On the other hand, the respondents argue that the agreement
between the co-heirs of plaintiff and defendants is for the sale on condition of the
subject property. A sale, even if conditional, transfers ownership to the vendees.
And before plaintiff could claim any right, there are certain proceedings which must
first be complied [with]. Defendants did not violate any of the terms and conditions
contained in the agreement to which plaintiff is trying to base her cause of action. It
was plaintiff who made sure that the condition contained under the contract to sell
will not be complied with. She caused the execution of documents to violate such
rights.

45

The lower courts ruled in favor of the plaintiff stating that the condition with
respect to judicial approval of the sale had become irrelevant when ownership over
the subject property was consolidated in favor of petitioner; thus, at that time,
respondent-spouses were bound to comply with their undertaking to pay the
balance of the purchase price which they failed to do. The lower courts concluded
that respondent-spouses had no intention to pay the balance of the purchase price
and that they had become lessees of the subject property for twenty (20) years with
their down payment being treated as rentals.

The CA reversed and set aside the decision of the RTC. The appellate court declared
that the agreement between the parties was a contract to sell involving the subject
property because the vendors reserved ownership and it was subject to a
suspensive condition, i.e., submission of the sellers of lacking documents or court
approval of the sale of the shares of the minor owners. While the appellate court
agreed with the lower courts' disquisition that the court's approval for the minor
children to be represented in the sale would no longer be necessary as the
ownership and title in the subject property were already consolidated to petitioner,
it ruled that the same would not operate like a magic wand to automatically make
respondent-spouses perform what was required of them in the subject agreement.
On the contrary, the sellers had the positive duty to make known to the buyers that
they were ready to comply with what was mandated upon them, which act
petitioner failed to prove by any evidence. Thus, the CA concluded that respondent-
spouses had more right to possess the subject property pending consummation of
the agreement or any outcome thereof.

ISSUES:
Whether the failure to file a judicial authorization for the minors would affect the
cause of action of the plaintiff to recover possession of the parcel of land.

RULING:
Article 1186 of the Civil Code reads:

Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment.

This provision refers to the constructive fulfillment of a suspensive condition, whose
application calls for two requisites, namely: (a) the intent of the obligor to prevent
the fulfillment of the condition, and (b) the actual prevention of the fulfillment. Mere
intention of the debtor to prevent the happening of the condition, or to place
ineffective obstacles to its compliance, without actually preventing the fulfillment, is
insufficient.

Petitioner and her then co-owners undertook, upon receipt of the down payment
from respondent-spouses, the filing of a petition in court, after which they promised
the latter to execute the deed of absolute sale whereupon the latter shall, in turn,
pay the entire balance of the purchase price. The balance of the consideration shall
46

be paid only upon grant of the court's approval and upon execution of the deed of
absolute sale.

Here, there is no doubt that petitioner prevented the fulfillment of the suspensive
condition. She herself admitted that they did not file any petition to seek approval of
the court as regards the sale of the shares of the minor owners. In addition, the
other co-owners sold their shares to petitioner such that she was able to consolidate
the title in her name. Thus, the condition is deemed constructively fulfilled, as the
intent to prevent fulfillment of the condition and actual prevention thereof were
definitely present. Consequently, it was incumbent upon the sellers to enter into a
contract with respondent-spouses for the purchase of the subject property.

Petitioner cannot invoke the non-fulfillment of the condition in the contract to sell
when she and her then co-owners themselves are guilty of preventing the fulfillment
of such condition. When it has become evident that the condition would no longer
be fulfilled, it was incumbent upon petitioner to inform respondent--spouses of such
circumstance because the choice whether to waive the condition or continue with
the agreement clearly belongs to the latter.

Inasmuch as petitioner has not yet complied with her obligation to execute a deed of
sale after the condition has been deemed fulfilled, respondent-spouses are still
entitled to possess the subject property. Petitioner cannot anchor her claim on the
supposed conversion of their agreement from a contract to sell into a contract of
lease as provided in the third paragraph of the agreement which provides that
should the court disapprove the sale of the shares of the minor owners, the down
payment would be treated as rentals for twenty (20) years. The agreement,
however, could not have been converted into a contract of lease for the simple
reason that there was no petition filed before any court seeking the approval of the
sale as regards the shares of the minor owners. Hence, the court did not have any
occasion to approve much less disapprove the sale of such shares. As a result, there
was no reason for the contract to sell to be converted into a contract of lease.

Respondent-spouses did not become lessees. They remained to be prospective
buyers of the subject property who, up to now, are awaiting fulfillment of the
obligation of the prospective sellers to execute a deed of sale. Hence, inasmuch as
the sellers allowed them to have the subject property in their possession pending
the execution of a deed of sale, respondent-spouses are entitled to possession
pending the outcome of the contract to sell.

47

MARIA C. OSORIO VS PEOPLE OF THE PHILIPPINES

GR. NO. 207711. JULY 2, 2018
LEONEN, J.

DOCTRINE:
The ratification allegedly given by private complainant hardly qualifies as genuine
consent.
income.

FACTS:
Josefina O. Gabriel was approached by Maria Osorio and introduced herself as an
agent of Philippine American Life and General Insurance Company (Philam Life).
Gabriel thereafter availed Philam Life's Tri-Life Plan and Excelife Gold Package.
Gabriel consistently paid the quarterly premiums from February 2001 to November
2001. Subsequently, Osorio offered Gabriel an investment opportunity with Philam
Life Fund Management, enticed by the offer, Gabriel tendered P200,000.00 to
Osorio, who in tum issued Philam Life receipts.
A few months later, Gabriel discovered that her insurance policies had lapsed due to
non-payment of premiums. When Gabriel confronted Osorio about the matter,
Osorio assured Gabriel that she would take responsibility. On May 2002, Gabriel
received a letter from Philippine Money Investment Asset Management (PMIAM),
thanking her for investing in the company. In the same letter, PMIAM informed
Gabriel that her investment would earn interest on a semi-annual basis starting June
20, 2002. Gabriel confronted Osorio on why her investment was diverted to PMIAM.
Osorio explained that PMIAM investments would yield a higher rate of return.
Displeased with what had happened, Gabriel asked for a refund of her initial
investment.
Osorio claims that when she informed Gabriel of the diversion of the funds, she
allegedly gave her consent. A case of estafa was filed, which the RTC rendered a
guilty judgment.

ISSUE:
Whether or not Gabriel had given her consent on the diversion of funds.

RULING:
As a final note, the defense that private complainant eventually consented to the
investment in PMIAM deserves scant consideration. Records show that private
complainant asked petitioner for a refund of her initial investment when she
discovered that her investment was placed in PMIAM. The ratification allegedly
given by private complainant hardly qualifies as genuine consent. When private
complainant discovered the transaction, her insurance policies had already lapsed.
48

income.

49

SPOUSES ONG V. BPI FAMILY SAVINGS BANK, INC.,

G.R. NO. 208638, JANUARY 24, 2018
REYES, JR., J

CASE DOCTRINES
1. As a rule, a contract is perfected upon the meeting of the minds of the two parties.
It is perfected by mere consent, that is, from the moment that there is a meeting of
the offer and acceptance upon the thing and the cause that constitute the contract.

2. Loan is a reciprocal obligation, as it arises from the same cause where one party is
the creditor and the other the debtor. The obligation of one party in a reciprocal
obligation is dependent upon the obligation of the other, and the performance
should ideally be simultaneous. This means that in a loan, the creditor should
release the full loan amount and the debtor repays it when it becomes due and
demandable.

FACTS:
Spouses Francisco Ong and Betty Lim Ong and Spouses Joseph Ong Chuan and
Esperanza Ong Chuan (collectively referred to as the petitioners) are engaged in the
business of printing under the name and style "MELBROS PRINTING CENTER."
Sometime in December 1996, Bank of Southeast Asia's (BSA) managers, Ronnie
Denila and Rommel Nayve, visited petitioners' once and discussed the various loan
and credit facilities offered by their bank. In view of petitioners' business expansion
plans and the assurances made by BSA's managers, they applied for the credit
facilities offered by the latter.

Sometime in April 1997, they executed a real estate mortgage (REM) over their
property situated in Paco, Manila, covered by Transfer Certificate of Title No.
143457, in favor of BSA as security for a P15,000,000.00 term loan and
P5,000,000.00 credit line or a total of P20,000,000.00.

With regard to the term loan, only P10,444,271.49 was released by BSA (the amount
needed by the petitioners to pay out their loan with Ayala life assurance, the balance
was credited to their account with BSA).

With regard to the P5,000,000.00 credit line, only P3,000,000.00 was released. BSA
promised to release the remaining P2,000,000.00 conditioned upon the payment of
the P3,000,000.00 initially released to petitioners.
Petitioners acceded to the condition and paid the P3,000,000.00 in full. However,
BSA still refused to release the P2,000,000.00. Petitioners then refused to pay the
amortizations due on their term loan.

Later on, BPI Family Savings Bank (BPI) merged with BSA, thus, acquired all the
latter's rights and assumed its obligations. BPI led a petition for extrajudicial
foreclosure of the REM for petitioners' default in the payment of their term loan.

50

In order to enjoin the foreclosure, petitioners instituted an action for damages with
Temporary Restraining Order and Preliminary Injunction against BPI praying for
P23,570,881.32 as actual damages; P1,000,000.00 as moral damages; P500,000.00
as attorney's fees, litigation expenses and costs of suit.

ISSUES

1. WHETHER OR NOT THERE WAS ALREADY AN EXISTING AND BINDING
CONTRACT BETWEEN PETITIONERS AND BSA WITH REGARD TO THE
OMNIBUS CREDIT LINE;

2. WHETHER OR NOT BSA INCURRED DELAY IN THE PERFORMANCE OF TS
OBLIGATIONS;

RULING:

1. Yes. In the case of Spouses Palada v. Solidbank Corporation, et al., this Court
held that under Article 1934 of the Civil Code, a loan contract is perfected
only upon the delivery of the object of the contract. In that case, although
therein petitioners applied for a P3,000,000.00 loan, only the amount of
P1,000,000.00 was approved by therein respondent bank because
petitioners became collaterally deficient. Nonetheless, the loan contract was
deemed perfected on March 17, 1997, the date when petitioners received the
P1,000,000.00 loan, which was the object of the contract and the date
whenthe REM was constituted over the property. Applying this to the case at
bench, there is no iota of doubt that when BSA approved and released the
P3,000,000.00 out of the original P5,000,000.00 credit facility, the contract
was perfected.
2. No. In this case, BSA did not only incur delay in releasing the pre-agreed
credit line of P5,000,000.00 but likewise violated the terms of its agreement
with petitioners when it deliberately failed to release the amount of
P2,000,000.00 after petitioners complied with their terms and paid the first
P3,000,000.00 in full. The default attributed to petitioners when they
stopped paying their amortizations on the term loan cannot be sustained by
this Court because long before they sent a Letter to BSA informing the latter
of their refusal to continue paying amortizations, BSA had already reneged
on its obligation to release the amount previously agreed upon, i.e., the
P5,000,000.00 covered by the credit line.

WHEREFORE, in light of the foregoing, the petition is hereby GRANTED. The
Decision dated January 31, 2013 of the Court of Appeals in CA-G.R. CV No. 92348 is
hereby REVERSED and SET ASIDE. The questioned extrajudicial foreclosure of real
estate mortgage is likewise declared VOID. Respondent BPI Family Savings Bank,
Inc. is hereby ORDERED to pay petitioners Spouses Francisco Ong and Betty Lim
51

Ong and Spouses Joseph Ong Chuan and Esperanza Ong Chuan the amount of
P2,772,000.00 as actual or compensatory damages; P100,000.00 as exemplary
damages; P300,000.00 as attorney's fees; and interest of six percent (6%) per
annum on all the amounts of damages reckoned from the finality of this decision.

52

THELMA MULLER VERSUS PHILIPPINE NATIONAL BANK

G.R. NO. 215922, OCTOBER 01, 2018

PONENTE: DEL CASTILLO, J.:

DOCTRINE: Article 1670 If at the end of the contract the lessee should continue
enjoying the thing leased for fifteen days with the acquiescence of the lessor, and
unless a notice to the contrary by either party has previously been given, it is
understood that there is an implied new lease, not for the period of the original
contract, but for the time established in articles 1682 and 1687. The other terms of
the original contract shall be revived.

FACTS: Spouses Fritz and Thelma Muller are the occupants of two (2) parcels of
land owned by Philippine National Bank. On May 26, 1987, PNB informed the
Mullers that their lease will expire on June 1, 1987; that they had rental arrears for
two and a half years amounting to PhP18,000.00; Seeking to renew the lease
contract for another year, Fritz Muller wrote to PNB proposing to buy the subject
properties. However, PNB denied the request for renewal of the said lease and the
offer to purchase the said property was not given due course by the Head Office.
PNB demanded for the Mullers to vacate the subject properties within fifteen (15)
day[s] from the said date, in view of the expiration of the lease. But the demand fell
on deaf ears. Due to continued occupation of the Mullers, PNB sent its final demand
letter demanding from them the payment of the rental arrears.

Spouses Mullers failed to pay due attention to the written demands against them
which prompted PNB to institute a Complaint for Ejectment. On the other hand, MTC
rendered a decision ordering the Spouses Mullers to vacate the premises and to pay
the PNB. A notice of appeal has been filed by the petitioners. RTC reversed the
decision but CA set it aside. Thus, petitioners moved to reconsider.

ISSUE:
Whether or Not the award of rentals in an ejectment case may be reckoned from a
date beyond the latest demand to vacate.

RULING:
Yes. The court ruled against the petitioners. It can be said that so long as petitioners
continued to occupy the subject properties - with or without PNB's consent - there
was a lease agreement between them. They cannot escape the payment of rent, by
any manner whatsoever. First of all, given the circumstances where liberality is
obviously not present and was never a consideration for the lease contract,
petitioners cannot be allowed to enjoy PNB's properties without paying
compensation therefor; this would be contrary to fundamental rules of fair play,
equity, and law.

Secondly, even when the parties' lease agreement ended and petitioners failed or
refused to vacate the premises, it may be said that a forced lease was thus created
53

where petitioners were still obligated to pay rent to respondent as reasonable

compensation for the use and occupation of the subject properties. Indeed, even
when there is no lease agreement between the parties, or even when the parties
occupant and property owner - are strangers as against each other, still the
occupant is liable to pay rent to the property owner by virtue of the forced lease that
is created by the former's use and occupation of the latter's property.

Petition is denied. Therefore, petitioners are ordered to pay PNB at 6% interest per
annum.

54

ROYAL PLAINS VIEW, INC. AND/OR RENATO PADILLO VS. NESTOR C. MEJIA
Gr.230832

Reyes,J

DOCTRINE:
This only lends credence to the rule that rescission in its technical sense is not
proper in a contract to sell. Such that failure to pay the price agreed upon is not a
mere breach, casual or serious, rather, nonpayment is a condition that prevents the
obligation from acquiring an obligatory force. This is entirely different from the
situation in a contract of sale, where nonpayment of the price is a negative
resolutory condition. The effects in law are not identical. In a contract of sale, the
vendor has lost ownership of the thing sold and cannot recover it, unless the
contract of sale is rescinded and set aside. In a contract to sell, however, the vendor
remains the owner for as long as the vendee has not complied fully with the
condition ofpaying the purchase price. Strictly speaking, in a contract to sell, there
can be no rescission or resolution of an obligation that is still non-existent due to the
non-happening ofthe suspensive condition.

FACTS:
On March 23, 2005, Nestor and petitioner Corporation, represented by Renato's
wife, Rosemarie Padillo, entered into a contract denominated as Deed of Conditional
Sale involving that said parcel of land covered by TCT No. T-225549 and registered
in the name of Dominador.17 Under that contract, petitioner Corporation bound
itself to pay Nestor the sum of P8,000,000.00 of which P500,000.00 was for down
payment. The balance was to be paid in 36 equal monthly installments of
P208,333.30.

The March 23, 2005 Deed ofConditional Sale was later revoked and a new deed was
executed on April 11, 2007 between Nestor and petitioner Corporation, represented
by Renato.19 The new Deed of Conditional Sale20 stated that petitioner Corporation
had paid respondent the amount of Pl,972,000.00 and the remaining balance was to
be paid in 40 equal monthly of P150,000.00 starting on July 1, 2007 and ending in
June 2010.

One day, Nestor asked petitioner Renato to give him the original owner's duplicate
copy ofTCT No. T-225549.23 Petitioner Renato found out that Nestor had sold the
whole property to the spouses Harris and Caroline Egina (spouses Egina) for the
sum of Pl2,000,000.00.24 As a consequence, eight TCTs were issued by the Register
of Deeds of Davao del Norte in the name of the spouses Egina.25 These eight TCTs
were later on cancelled and the Court reinstated the derivative titles which are TCT
Nos. T-225549 and T-225550. Because of legal controversies besetting TCT No. T-
225549, it is now in the custody of the Registry of Deeds of Tagum City.
55

Renato attempted several times to contact Nestor, but the latter did not reply and
simply vanished. Instead, Renato received a document entitled "Rescission of Deed
of Conditional Sale"28 dated February 5, 2010 from Nestor whereby the latter
rescinded the April 11, 2007 Deed of Conditional Sale alleging that petitioners
(Renato and the Corporation) had defaulted in their installments.

On October 12, 2011, petitioners filed a Complaint for Declaration of Nullity of the
Instrument denominated as Rescission of Conditional Sale, Specific Performance,
Sums of Money, etc. against respondent Nestor.

ISSUE:
The propriety of the rescission and cancellation of the conditional sale executed by
the parties.

HELD:
In order to fully pass upon the validity and propriety of the Rescission of the Deed of
Conditional Sale executed by respondent Nestor, it is vital to characterize the nature
of the agreement between the parties - whether the same is a contract of sale or a
contract to sell. The courts have repeatedly recognized the distinction between the
two concepts.

The rule that rescission in its technical sense is not proper in a contract to sell. Such
that failure to pay the price agreed upon is not a mere breach, casual or serious,
rather, nonpayment is a condition that prevents the obligation from acquiring an
obligatory force. This is entirely different from the situation in a contract of sale,
where nonpayment of the price is a negative resolutory condition. The effects in law
are not identical. In a contract of sale, the vendor has lost ownership of the thing
sold and cannot recover it, unless the contract of sale is rescinded and set aside. In a
contract to sell, however, the vendor remains the owner for as long as the vendee
has not complied fully with the condition ofpaying the purchase price. Strictly
speaking, in a contract to sell, there can be no rescission or resolution of an
obligation that is still non-existent due to the non-happening of the suspensive
condition.

Considering the foregoing, as well as the pronouncement by this Court in the Luzon
Brokerage case, it follows then that respondent Nestor's act of rescinding the Deed
of Conditional Sale, or, more correctly, canceling it, is theoretically valid and the
parties shall stand as if the obligation to sell never existed. The reason is not that
respondent Nestor has the power to rescind such contract, but because their
obligation thereunder did not arise.

56

ALEJAGA, SR. V. SPOUSES LIBARDO

G.R. NO. 239997 (NOTICE)

DOCTRINE :Article 1318 of the New Civil Code enumerates the essential requisites
of a valid contract, following then are the rights and remedies of the Parties involved
in the negotiation or perfection of one.

FACTS:
Salvador Alejaga, Sr. (Salvador), one of the petitioners in this case, and his wife,
Consolacion Arorong, are the registered owners of Lot No. 2878-F, as evidenced by
Transfer Certificate of Title (TCT) No. T-16751. Sometime in 1966, respondents
spouses Saturnino and Aniana Libardo (spouses Libardo) bought a house that was
erected on a segment of Lot No. 2878-F. In 1994, the spouses Libardo purchased the
land on which the house was built. To formalize the agreement, Saturnino and
Salvador executed a notarized document captioned as "SALE OF A PORTION OF
REGISTERED LAND" covering a 140-square meter portion of the lot.

In July 2001, Salvador and his heirs, the other petitioners in this case, wrote the
spouses Libardo, asking them to vacate the property. However, the request went
unheeded. On August 10, 2007, the petitioners reiterated their demand, stating that
they needed the property. They maintained that the spouses Libardo were
occupying the same by mere tolerance. Again, however, the plea fell on deaf ears.
The petitioners filed a complaint for ownership, possession, annulment of
documents, and damages before the Regional Trial Court (RTC) of Mambusao, Capiz.
In their answer, the spouses Libardo countered that they were the legal owners and
possessors of the disputed segment of Lot No. 2878-F, and that they acquired the
same in good faith and for value from Salvador by means of a deed of sale.

RTC dismissed the case. The trial court held that the petitioners failed to prove their
case by a preponderance of evidence. On appeal, the appellate court ruled that the
petitioners availed of the wrong remedy and affirmed the ruling of the trial court.

ISSUE:
Whether or not an action for annulment of contract lies as the proper remedy in this
case.

RULING:
The petition is bereft of merit.

According to the petitioners, the contract between Saturnino and Salvador is void
because of an apparent mistake that prevented a meeting of their minds. Citing a
Commissioner's Report and a Sketch Plan, the petitioners maintain that since a
12.5% portion of the disputed property encroached on an adjacent provincial road,
57

Salvador never consented to selling the 140-square meter lot to the spouses
Libardo. The petitioners additionally averred that Salvador could not have intended
to sell a portion of the provincial road to the spouses Libardo because, then, the
object of the contract would be beyond the commerce of man. Thus, to the
petitioners, the deed entitled "SALE OF A PORTION OF REGISTERED LAND" is void
ab initio. The argument deserves scant consideration.

Article 1318 of the New Civil Code enumerates the essential requisites of a valid
contract, thus:
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Consent is an essential requisite of contracts. It pertains to the meeting of the offer
and the acceptance upon the thing and the cause that constitute the contract.
Let it be recalled that the spouses Libardo remained in undisturbed possession of
the disputed portion of Lot No. 2878-F for 35 years. They bought a house built
thereon in 1966, and later, in order to acquire ownership over the land and secure
their rights to the residence, they purchased a 140-square meter segment of the lot
from Salvador. It was only in July 2001 when the petitioners asked them to vacate
the land.

Taking this into consideration, it defies reason to conclude that the minds of
Salvador and Saturnino never met. Surely, Salvador knew that since the spouses
Libardo already owned a house built on Lot No. 2878-F, what they intended to
purchase was that particular portion of the lot on which their house stood.
Moreover, from the facts, it would be absurd to deduce that Salvador intended to
convey a stretch of provincial road to them. Clearly, therefore, it was a mere
afterthought on the part of the petitioners to contend that there was a mistake as to
the object of the contract in this case.

The CA ruled that the petitioners availed of the wrong remedy. Since the minds of
Saturnino and Salvador met as to the subject of the sale, the contract was held to be
valid, and therefore the petitioners improperly resorted to annulment of contract.
However, the appellate court stated that because the deed failed to reflect the
parties' true intent, the petitioners should have filed an action for reformation of
instrument instead.
Reformation of an instrument is a remedy by which a written instrument is made or
construed so as to express or conform to the real intention of the parties. Such
action presupposes a valid, existing contract, in which there had been a meeting of
the minds of the parties; however, the document, which embodies the agreement,
fails to reflect their true intent.

58

VILLA CRISTA MONTE REALTY & DEV’T CORP V. EQUITABLE PCI BANK
BERSAMIN, J.

DOCTRINE: An escalation clause without a concomitant de-escalation clause is void
and ineffectual for violating Presidential Decree No. 1684, otherwise known as
Amending Further Act No. 2655, As Amended, Otherwise Known as "The Usury
Law," as well as the principle of mutuality of contracts unless the established facts
and circumstances, as well as the admissions of the parties, indicate that the lender
at times lowered the interest rates, or, at least, allowed the borrower the discretion
to continue with the repriced rates. Not all contracts of adhesion are invalid. Only a
contract of adhesion in which one of the parties is shown to be the weaker as to
have been imposed upon may be invalidated and set aside.

FACTS:
Sometime in 1994, plaintiff-appellant Villa Crista Monte Realty Corporation was
organized to engage in the business of real estate development. In order to fully
develop its subdivision project, appellant applied for and was granted a credit line of
P80 Million by then Equitable Philippine Commercial International Bank (E-PCIB),
now Banco De Oro. By way of security for the said credit line, appellant executed a
Real Estate Mortgage over the 80,000 square meters of its properties with all the
existing improvements thereon.Appellant subsequently applied for an additional
P50 Million credit accommodation from E-PCIB to which the latter readily acceded.
It being later established that the 41 lots, out of the 174 subdivided lots, would
already be sufficient securities for the credit accommodation, appellant then asked
for the release of the remaining 133 titles from the earlier mortgage. E-PCIB granted
appellant's request on the condition that the real estate mortgage contract be
amended to conform to the changes in the amount of the credit line and in the
properties subject of the mortgage, to which condition appellant readily agreed.
Under its approved P130 Million credit line, appellant separately obtained loans on
various occasions from March 20, 1997 to August 15, 1997.

Eventually, E-PCIB wrote several times to appellant apprising it of the increased
rates in the interest to be imposed on its loans covered by the promissory notes. The
increased rates ranged from 21% to 36% and were ostensibly anchored on the
uniform provision in the promissory notes on monthly repricing.

Appellant reneged on paying its loan obligations amounting to P129,700,00.00,
prompting E-PCIB to initiate foreclosure proceedings on the mortgaged properties.
This led to appellant's filing of the Supplemental Complaint with the RTC Quezon
City assailing the said auction sale and the amount claimed therein, as well as
praying for the nullification of the titles that were consolidated in the name of E-
PCIB.E-PCIB countered that appellant has no cause of action and that its complaint
does not state any such cause either. E-PCIB underscored that appellant voluntarily
and consciously agreed to the complained monthly re-pricing of interest as shown
by appellant's affixing of its signature in all the promissory notes in due course.
Accordingly, the said interest rates were than re-priced as agreed upon; and that the
59

said re-pricing even started only on July 1997, although the original promissory
notes were executed in 1996, and were only renewed in early 1997. E-PCIB stressed
that appellant then not only accepted the stipulation on monthly re-pricing but also
the new interest rates, as re-priced, by its payment of the corresponding adjusted
interest rates until it later defaulted to pay even the interest rates to keep the loans
current. Inasmuch as the dispute lies only on the rates of interests and no longer on
the fact that appellant was already in default in its payment, E-PCIB argued that
appellant failed to prove its right to an injunction. E-PCIB maintained that it merely
complied with the provisions of the Promissory Notes.

ISSUE:
Whether the promissory notes and the corresponding repricing of interest rates
were valid

RULING:
YES. The agreement between the parties on the imposition of increasing interest
rates on the loan is commonly known as the escalation clause. Generally, the
escalation clause refers to the stipulation allowing increases in the interest rates
agreed upon by the contracting parties. There is nothing inherently wrong with the
escalation clause because it is validly stipulated in commercial contracts as one of
the means adopted to maintain fiscal stability and to retain the value of money in
long term contracts. In short, the escalation clause is not void per se. Yet, the
escalation clause that "grants the creditor an unbridled right to adjust the interest
independently and upwardly, completely depriving the debtor of the right to assent
to an important modification in the agreement" is void. Such escalation clause
violates the principle of mutuality of contracts, and should be annulled. To prevent
or forestall any one-sidedness that the escalation clause may cause in favor of the
creditor, therefore, Presidential Decree No. 1684 was promulgated. Accordingly, the
Court has ruled in Banco Filipino Savings and Mortgage Bank v. Judge Navarro that
there should be a corresponding de-escalation clause that authorizes a reduction in
the interest rates corresponding to downward changes made by law or by the
Monetary Board. Verily, the escalation clause, to be valid, should specifically
provide: (1) that there can be an increase in interest rates if allowed by law or by
the Monetary Board; and (2) that there must be a stipulation for the reduction of the
stipulated interest rates in the event that the applicable maximum rates of interest
are reduced by law or by the Monetary Board. The latter stipulation ensures the
mutuality of contracts, and is known as the de-escalation clause. Although it would
not necessarily prevent the lender from discriminatorily increasing the interest
rates, the de-escalation clause's main objective is to prevent the unwanted one-
sidedness in favor of the lender, a quality that is repugnant to the principle of
mutuality of contracts. The clause proposes to ensure that any unconsented increase
in interest rates is ineffective for transgressing the principle of mutuality of
contracts. Indeed, the clause creates a balance in the contractual relationship
between the lender and the borrower, and tempers the power of the stronger player
between the two, which is the former. No express de-escalation clause was
stipulated in the promissory notes signed by the petitioner. Yet, the absence of the
60

clause did not invalidate the repricing of the interest rates. The repricing notices
issued to the petitioner by E-PCIB indicated that on some occasions, the bank had
reduced or adjusted the interest rates downward. Based on the dictum in Llorin Jr.,
such actual reduction or downward adjustment by the lender bank eliminated any
one-sidedness of its contracts with the borrower. It becomes inescapable for the
Court to uphold the validity and enforceability of the escalation clause involved
herein despite the absence of the de-escalation clause. The actual grant by the
respondent of the decreases in the interest rates imposed on the loans extended to
the petitioner rendered inexistent the evil of inequality sought to be thwarted by the
enactment and application of Presidential Decree No. 1684. We do not see here a
situation in which the petitioner did not stand on equality with the lender bank. The
binding effect on the parties of any agreement is premised on two settled principles,
namely: (1) that any obligation arising from contract has the force of law between
the parties; and (2) that there must be mutuality between the parties based on their
essential equality. Any contract that appears to be heavily weighed in favor of only
one of the parties so as to lead to an unconscionable result is void. Specifically, any
stipulation regarding the validity or compliance of the contract that is left solely to
the will of one of the parties is likewise invalid.

The significance of Article 1308 cannot be doubted. It is elementary that there can
be no contract in the absence of the mutual assent of the parties. When the assent of
either party is wanting, the act of the non-assenting party has no efficacy for his act
is as if it was done under duress or by an incapacitated person. Naturally, any
modification made in the contract must still be with or upon the consent of the
contracting parties. There must still be a meeting of the minds of all the parties on
the modification especially when the modification relates to an important or
material aspect of the agreement. In loan contracts, the rate of interest is always
important or material because it can make or break the capital ventures. Contrary to
the petitioner's position, there was mutuality of contracts between itself and the
respondent. Tio, the petitioner's President, who signed the promissory notes in
behalf of the petitioner, was aware of the provision in the documents pertaining to
the monthly repricing of the interest rates. Although the promissory notes
succinctly stipulated that the loans were subject to interest without need of prior
notice to the borrower, the respondent sent notices to the petitioner each and every
time it increased the interest rate. Equally of significance was that the respondent
allowed the petitioner the sufficient time and opportunity either to reject the
imposition of the increased interest rates by paying the outstanding obligations or
by accepting the same through payment of whatever amounts were due. The
sufficient time and opportunity negated the petitioner's insistence about the
respondent having unilaterally determined the interest rates in violation of the
principle of mutuality of contracts embodied in Article 1308. There is no question,
therefore, that the respondent accorded the petitioner the notice of any repricing of
the interest rates. Although there have been occasions in which the Court struck
down the escalation clauses in loan agreements for violating the mutuality of
contracts, this case will not be one of them. This is because the respondent either
has given notice to the petitioner whenever it repriced the interest rates in order to
61

give the latter the option to reject the repricing, or has implemented the downward
repricing of the interest rates. The respondent thereby served both the letter and
the spirit of Presidential Decree No. 1684.

62


PHILIPPINE NATIONAL BANK vs BACANI, ET AL
REYES, JR., J.

CASE DOCTRINE:
Considering that the reacquisition of the subject property involves a contract, there
should be a meeting of the minds as to its terms and conditions. When the offer is
not accepted by either party, the contract is not perfected and there is no binding
juridical relation between the parties. Article 1318 provides that there is no contract
unless the following requisites concur: (1) Consent of the contracting parties; (2)
Object certain which is the subject matter of the contract; (3) Cause of the obligation
which is established.

FACTS:
Spouses Bacani obtained a loan (Php 80, 000) from PNB. To secure the loan, they
mortgaged a land property registered in their name. When the Spouses Bacani failed
to pay the loan, PNB extrajudicially foreclosed the subject property, which was then
awarded to PNB as the highest bidder. The Spouses failed to redeem the property,
hence a TCT was issued in the name of PNB. 9 years later, PNB issued a circular
revising its policy on the disposition of acquired assets. Subject to certain
conditions, former owners or their heirs were given priority in the re-acquisition of
their foreclosed assets “on negotiated basis without public bidding.” Spouses Bacani
initiated negotiations with PNB and sent written offers to purchase. In their final
letter, they offered to buy back the property at Php 350, 000. PNB rejected the
request for repurchase because of the low offer, which amounted less than the fair
market value. Later on, the Spouses Bacani received a notice from PNB that it had
begun to accept offers for the purchase of various properties, including the subject
property. They were provided with a copy of the Invitation to Bid. PNB then sold the
property through a negotiated sale to Renato de Leon for Php 1.5M. The Spouses
filed a complaint for the annulment of the sale alleging that PNB’s refusal to accept
their offer, and the subsequent sale of the subject property to Renato, were all
badges of bad faith on the part PNB that warrant the annulment of the sale and the
award of damages in their favor. PNB refuted that as the registered owner of the
property, PNB may dispose of the subject property with its own terms and
conditions. The RTC ruled in favor of the Spouses Bacani; such decision was
affirmed by the CA. The CA relied on the supposed time deposit account of the
Spouses Bacani with PNB. According to the CA, PNB should have considered this
deposit as a manifestation of the Spouses Bacani's willingness and ability to pay for
the reacquisition of the subject property.

ISSUE:
Whether or not the time deposit account was meant as an option money intended to
secure the privilege of buying the subject property within a given period of time

63

RULING:
No. Bank deposits are in the nature of a simple loan or mutuum, which must be paid
upon demand by the depositor. As such, the deposit of whatever amount to PNB
creates a debtor-creditor relationship between the bank and the depositor. PNB, as
the recipient of the deposit, is duty-bound to pay or release the amount deposited
whenever the depositor so requires.
By the very nature of the deposit, PNB could not have assumed that the Spouses
Bacani's alleged time deposit account was meant as an option money intended to
secure the privilege of buying the subject property within a given period of time,
especially since there was no option contract between them. Neither may PNB
consider the deposit as a down payment on the price of the subject property
because there was no perfected contract of sale.
Evidently, as far as PNB was concerned, it cannot use the money in the time deposit
to satisfy the purchase price for the subject property, without violating its obligation
to return the amount upon the demand of the depositors. In other words, the time
deposit with PNB did not create a contract of sale, or at the very least, an option
contract, between PNB and the Spouses Bacani. Furthermore, considering that the
reacquisition of the subject property involves a contract, there should be a meeting
of the minds as to its terms and conditions. When the offer is not accepted by either
party, the contract is not perfected and there is no binding juridical relation
between the parties. The Spouses Bacani, therefore, cannot demand to repurchase
the property, in the absence of PNBs consent to the offer. At most, the PNB circular
grants a privilege to the Spouses Bacani as the former owners, to be given priority in
the disposition of the subject property. It does not confer an enforceable and
absolute right to reacquire the property, to the prejudice of PNB as the absolute
owner.

64

FLORO MERCENE vs. GOVERNMENT SERVICE INSURANCE SYSTEM

GR NO. 192971, July 10, 2018
PONENTE: MARTIRES, J.

CASE DOCTRINE: An action to enforce a right arising from a mortgage should be
enforced within ten (10) years from the time the right of action accrues, i.e., when
the mortgagor defaults in the payment of his obligation to the mortgagee; otherwise,
it will be barred by prescription and the mortgagee will lose his rights under the
mortgage. However, mere delinquency in payment does not necessarily mean delay
in the legal concept. To be in default is different from mere delay in the grammatical
sense, because it involves the beginning of a special condition or status which has its
own peculiar effects or results.

FACTS:
Petitioner Floro Mercene (Mercene) obtained a loan from respondent Government
Service Insurance System (GSIS) in the amount of ₱29,500.00. As security, a real
estate mortgage was executed over Mercene's property in Quezon City, registered
under Transfer Certificate of Title No. 90535. The mortgage was registered and
annotated on the title on 24 March 1965. Mercene contracted another loan with
GSIS for the amount of ₱14,500.00. The loan was likewise secured by a real estate
mortgage on the same parcel of land. The following day, the loan was registered and
duly annotated on the title. Mercene opted to file a complaint for Quieting of Title
against GSIS. He alleged that: since 1968 until the time the complaint was filed, GSIS
never exercised its rights as a mortgagee; the real estate mortgage over his property
constituted a cloud on the title; GSIS' right to foreclose had prescribed. In its answer,
GSIS assailed that the complaint failed to state a cause of action and that
prescription does not run against it because it is a government entity. During the
pre-trial conference, Mercene manifested that he would file a motion for judgment
on the pleadings. There being no objection, the RTC granted the motion for
judgment on the pleadings.

The RTC granted Mercene's complaint and ordered the cancellation of the
mortgages annotated on the title.

The CA reversed the RTC decision. The appellate court posited that the trial court
erred in declaring that GSIS' right to foreclose the mortgaged properties had
prescribed.

ISSUE:
Whether the Court of Appeals erred in ruling that the real estate mortgages had yet
to prescribe.

RULING:
The Supreme Court explained, In Maybank Philippines, Inc. v. Spouses Tarrosa, that
the right to foreclose prescribes after ten (10) years from the time a demand for
65

payment is made, or when then loan becomes due and demandable in cases where
demand is unnecessary, viz:

An action to enforce a right arising from a mortgage should be enforced within ten
(10) years from the time the right of action accrues, i.e., when the mortgagor
defaults in the payment of his obligation to the mortgagee; otherwise, it will be
barred by prescription and the mortgagee will lose his rights under the mortgage.
However, mere delinquency in payment does not necessarily mean delay in the legal
concept. To be in default is different from mere delay in the grammatical sense,
because it involves the beginning of a special condition or status which has its own
peculiar effects or results.

In order that the debtor may be in default, it is necessary that: (a) the obligation be
demandable and already liquidated; (b) the debtor delays performance; and (c) the
creditor requires the performance judicially or extrajudicially, unless demand is not
necessary - i.e., when there is an express stipulation to that effect; where the law so
provides; when the period is the controlling motive or the principal inducement for
the creation of the obligation; and where demand would be useless. Moreover, it is
not sufficient that the law or obligation fixes a date for performance; it must further
state expressly that after the period lapses, default will commence. Thus, it is only
when demand to pay is unnecessary in case of the aforementioned circumstances, or
when required, such demand is made and subsequently refused that the mortgagor
can be considered in default and the mortgagee obtains the right to file an action to
collect the debt or foreclose the mortgage.

Therefore, the Supreme Court finds that the CA did not err in concluding that
Mercene's complaint failed to state a cause of action. It is undisputed that his
complaint merely stated the dates when the loan was contracted and when the
mortgages were annotated on the title of the lot used as a security. Conspicuously
lacking were allegations concerning: the maturity date of the loan contracted and
whether demand was necessary under the terms and conditions of the loan.

As such, the RTC erred in ruling that GSIS' right to foreclose had prescribed because
the allegations in Mercene's complaint were insufficient to establish prescription
against GSIS. The only information the trial court had were the dates of the
execution of the loan, and the annotation of the mortgages on the title. As elucidated
in the above-mentioned decisions, prescription of the right to foreclose mortgages is
not reckoned from the date of execution of the contract. Rather, prescription
commences from the time the cause of action accrues; in other words, from the time
the obligation becomes due and demandable, or upon demand by the
creditor/mortgagor, as the case may be.

66

SPOUSES MITRA VS PLANTERS DEVELOPMENT BANK

GR. NO 235494

DOCTRINE: Petitions for extrajudicial foreclosure sale are not judicial proceedings,
actions or suits. As such, extrajudicial foreclosures are not covered by Rule 4 of the
Rules of Court, or by the parties' stipulation in this case. Rather, Section 2 of Act No.
3135 governs.

FACTS:
Petitioners Roger and Maria Mitra obtained a loan from respondent Planters
Development Bank in the amount of P18,550,000.00. In so doing, the Mitras
executed a Promissory Note to pay the loan in 84 equal monthly installments. The
PN also provides that default in paying any installment renders the entire unpaid
amount due and payable. Further, the provision regarding the venue of all suits
arising out of the PN states:
I/We further agree that the venue of any legal action arising out of this note shall
exclusively be at the proper court of Makati City, Philippines or any other venue
chosen by the bank, waiving for this purpose any other venue provided by the
Rules of Court.
To secure payment of the loan, the spouses Mitra executed in favor of the Bank a
Deed of Real Estate Mortgage ("REM") over four (4) properties located in Calinan,
Davao City, and registered in the names of the their children, their co-petitioners
herein, Christian Roger, Mari Ivy, Andrea Liza, and Michael. In turn, the REM
contains the following provision:
18. In the event of suit arising out of or in connection with this
mortgage and/or promissory note/s secured by this mortgage, the
parties hereto agree to bring their causes of action exclusively in
the proper court/s of Makati, Metro Manila, the Mortgagor waiving
for this purpose any other venue.
The Mitras failed to pay several installments despite demand from the Bank.
Hence, the latter extrajudicially foreclosed the mortgaged properties at a public
auction where it emerged as the highest bidder.
In January 2016, the petitioners filed with the Regional Trial Court of Davao City
(RTC-Davao) a Complaint for Nullity of Mortgage, Foreclosure Sale and Damages
with Injunctive Reliefs against the respondents. Petitioners alleged therein, among
others, that the foreclosure is null and void as they had already paid their loan
obligations and the publication requirements for the notices of the sale have not
been satisfied.
The Bank filed a Motion to Dismiss praying for the outright dismissal of the
petitioners' Complaint on the ground of improper venue. In the motion, the Bank
pointed out that the venue stipulation based on the provision in the PN and the
REM is exclusively in Makati, Metro Manila.
67

Sustaining the Bank's position, RTC-Davao rendered an Order on April 15, 2016
dismissing the petitioners' Complaint. Petitioners interposed a Motion for
Reconsideration but were soon denied by the RTC-Davao, prompting them to
elevate the matter to the CA on appeal.
Before the CA, petitioners argued that the Bank is estopped from asserting the
stipulation on the exclusive venue as stated in the PN and the REM considering
that the petition for extrajudicial foreclosure as well as the loan mortgage
documents were executed in Davao City.

The appellate court denied the appeal and affirmed the dismissal of the
petitioners' Complaint by the RTC-DAVAO. The CA held that the venue stipulation
in the PN and then REM, is indeed restrictive in nature, considering that it
effectively limits the venue arising therefrom to the courts of Makati City. Thus,
RTC-Davao correctly declared that the venue was improperly laid in the instant
case. Petitioners moved for, but was denied, reconsideration by the CA in the
assailed Resolution. Hence, the present petition.

ISSUE:
Whether the Planters Development Bank is estopped from asserting the
stipulation on the exclusive venue as stated in the promissory note and Deed of
Real Estate Mortgage.

HELD:
No. The petitioners' contention that the Bank has waived the exclusive venue by
instituting the foreclosure in Davao is without merit. It fails to consider that
petitions for extrajudicial foreclosure sale are, strictly speaking, not judicial
proceedings, actions or suits. An extrajudicial foreclosure of real estate mortgage
is initiated by filing a petition not with any court of justice but with the office of
the sheriff of the province where the sale is to be made. By no stretch of the
imagination can the office of the sheriff come under the category of a court of
justice.

As such, extrajudicial foreclosures are not covered by Rule 4 of the Rules of Court,
or by the parties' stipulation in this case. Rather, Section 2 of Act No. 3135
governs. It states:
Sec. 2. Said sale cannot be made legally outside of the province in
which the property sold is situated; and in case the place within
said province in which the sale is to be made is subject to
stipulation, such sale shall be made in said place or in the
68

municipal building of the municipality in which the property or

part thereof is situated.

By instituting the foreclosure in Davao, the Bank was not acting in disregard of the
venue stipulation in the PN and REM but simply abiding by Sec. 2 of Act 3135. It
could not, therefore, be estopped from invoking the exclusive venue, as argued by
the petitioners.

69

Villa Crista Monte Realty & Development Corporation vs. Equitable PCI Bank
G.R. No. 208336, November 21, 2018

BERSAMIN, J.

CASE DOCTRINE: The principle of mutuality of contracts is embodied in Article
1308 of the Civil Code which provides that, “the contract must bind both contracting
parties; its validity or compliance cannot be left to the will of one of them.”

FACTS: Plaintiff-appellant was organized to engage in the business of real estate
development. Appellant acquired from a certain Alfonso Lim the 80,000 square
meters (8 hectares) parcel of land to which appellant intended to develop it into a
residential subdivision. After successfully putting up its clubhouse, known as the
"Tivoli Royale Country Clubhouse," appellant Corporation later negotiated and
eventually succeeded in purchasing the adjoining 13.5 hectares land, thereby
consolidating its ownership over the 21.5 hectares of lands. In order to fully develop
its subdivision project, appellant applied for and was granted a credit line of P80
Million by then E-PCIB, now Banco De Oro. By way of security for the said credit line,
appellant executed a Real Estate Mortgage over the 80,000 square meters of its
properties with all the existing improvements thereon. Thereafter, appellant
subdivided the parcel of land into 174 lots, each with an average area of 340 square
meters and each covered by a separate certificate of title. Appellant subsequently
applied for an additional P50 Million credit accommodation from E-PCIB to which
the latter readily acceded. It being later established that the 41 lots, out of the 174
subdivided lots, would already be sufficient securities for the credit accommodation,
appellant then asked for the release of the remaining 133 titles from the earlier
mortgage. E-PCIB granted appellant's request on the condition that the real estate
mortgage contract be amended to conform to the changes in the amount of the
credit line and in the properties subject of the mortgage, to which condition
appellant readily agreed. Under its approved P130 Million credit line, appellant
separately obtained the following amounts on various occasions from March 20,
1997 to August 15, 1997. Each of the aforesaid amount was covered by a promissory
note in the prescribed form of the E-PCIB. Eventually, E-PCIB wrote several times to
appellant apprising it of the increased rates in the interest to be imposed on its
loans covered by the promissory notes. The increased rates ranged from 21 % to
36% and were ostensibly anchored on the uniform provision in the promissory
notes on monthly repricing. Appellant reneged on paying its loan obligations,
prompting E-PCIB to initiate foreclosure proceedings on the mortgaged properties.
Thereafter, the auction sale proceeded where E-PCIB emerged as the highest bidder.

ISSUE: Whether or not the monthly repricing of the interest rates on the loans,
which the petitioner claimed to have been unilaterally imposed by E-, PCIB, was
valid.

RULING: Based on their stipulation in the promissory notes, it was provided that
the interest rate shall be determined by the Lender without need of prior notice to
70

the Borrower and in case that the latter disagrees with the new rate, he shall prepay
within five (5) days from the notice of the new rate the outstanding balance of the
Loan. The agreement between the parties on the imposition of increasing interest
rates on the loan is commonly known as the escalation clause. Generally, the
escalation clause refers to the stipulation allowing increases in the interest rates
agreed upon by the contracting parties. There is nothing inherently wrong with the
escalation clause because it is validly stipulated in commercial contracts as one of
the means adopted to maintain fiscal stability and to retain the value of money in
long term contracts. In short, the escalation clause is not void per se. Yet, the
escalation clause that "grants the creditor an unbridled right to adjust the interest
independently and upwardly, completely depriving the debtor of the right to assent
to an important modification in the agreement" is void. Such escalation clause
violates the principle of mutuality of contracts, and should be annulled. To prevent
or forestall any one-sidedness that the escalation clause may cause in favor of· the
creditor, therefore, PD No. 1684 was promulgated. Accordingly, in Banco Filipino
Savings and Mortgage Bank v. Judge Navarro, the escalation clause, to be valid,
should specifically provide: (1) that there can be an increase in interest rates if
allowed by law or by the Monetary Board; and (2) that there must be a stipulation
for the reduction of the stipulated interest rates in the event that the applicable
maximum rates of interest are reduced by law or by the Monetary Board. The latter
stipulation ensures the mutuality of contracts, and is known as the de-escalation
clause. Although it would not necessarily prevent the lender from discriminatorily
increasing the interest rates, the de-escalation clause's main objective is to prevent
the unwanted one-sidedness in favor of the lender, a quality that is repugnant to the
principle of mutuality of contracts. The clause proposes to ensure that any
unconsented increase in interest rates is ineffective for transgressing the principle
of mutuality of contracts. However, no express de-escalation clause was stipulated
in the promissory notes signed by the petitioner. Yet, the absence of the clause did
not invalidate the repricing of the interest rates. The repricing notices issued to the
petitioner by E-PCIB indicated that on some occasions, the bank had reduced or
adjusted the interest rates downward. Based on the dictum in Llorin Jr., such actual
reduction or downward adjustment by the lender bank eliminated any one-
sidedness of its contracts with the borrower. The actual grant by the respondent of
the decreases in the interest rates imposed on the loans extended to the petitioner
rendered inexistent the evil of inequality sought to be thwarted by the enactment
and application of PD No. 1684. The binding effect on the parties of any
agreement is premised on two settled principles, namely: (1) that any obligation
arising from contract has the force of law between the parties; and (2) that there
must be mutuality between the parties based on their essential equality. Any
contract that appears to be heavily weighed in favor of only one of the parties so as
to lead to an unconscionable result is void. Specifically, any stipulation regarding the
validity or compliance of the contract that is left solely to the will of one of the
parties is likewise invalid.

71

Spouses Francis N. Celones and Felicisima Vs. Metropolitan Bank and Trust
Company and Atty. Crisolito O. Dionido

Tijam, J.

DOCTRINE:

Art. 1291. Obligations may be modified by:

(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor.

Art. 1292. In order that an obligation may be extinguished by another which
substitute the same, it is imperative that it be so declared in unequivocal terms, or
that the old and the new obligations be on every point incompatible with each other.

Extinctive novation is never presumed; there must be an express intention to
novate; in cases where it is implied, the acts of the parties must clearly demonstrate
their intent to dissolve the old obligation as the moving consideration for the
emergence of the new one. Implied novation necessitates that the incompatibility
between the old and new obligation be total on every point such that the old
obligation is completely superseded by the new one. The test of incompatibility is
whether they can stand together, each one having an independent existence; if they
cannot and are irreconcilable, the subsequent obligation would also extinguish the
first.

FACTS:

Spouses Francis and Felicisima Celones, along with their Processing Partners and
Packaging Corporation (PPPC), obtained a loan from Metrobank amounting to
P64,474,058.73 which was secured by several of their properties.

Upon defaulting, Metrobank foreclosed all the mortgaged properties and was
declared the winning bidders. Metrobank filed several petitions for the issuance of
writs of possession.

The Spouses offered to redeem the said properties for P55 million within the one
year period for redemption. Metrobank accepted the offer and issued a Conditional
Notice of Approval for Redemption (CNAR). The Spouses sought to obtain a loan
amounting to P55 million from Atty. Crisolito Deonido to pay for the amount of
redemption.

In lieu of executing a loan agreement, Spouses Celones, PPPC, Metrobank and Atty.
Dionido executed a MOA, wherein the parties agreed for the subrogation of Atty.
72

Dionido to all the rights, interests of Metro bank over the loan obligation of Spouses
Celones and the foreclosed properties.

Atty. Dionido issued two manager’s checks amount to P55 million. It was paid to
Metrobank who then issued Payment slips to the Spouses Celones. Metrobank also
caused the dismissal of their petitions for writs of possession on ground that the
Spouses already redeemed the properties.

However, when the Spouses demanded the issuance of the Certificate of
Redemption from Metrobank, the bank refused saying that it should be Atty.
Dionido to issue said certificates on ground that all their rights and interests had
been transferred to him. Atty. Dionido then demanded that the Spouses vacate the
properties on ground that the redemption period was expiring.

The spouses contend that the transaction between them and Atty. Dionido was a
loan. Furthermore, between them and Metrobank, they had already redeemed the
properties pursuant to the CNAR.

On the other hand, Atty. Dionido and Metrobank contend that the CNAR had been
novated by the MOA. As a result, Atty. Dionido should be the one to issue the
Certificate of Redemption.

ISSUE: W.O.N there was novation of the CNAR

RULING:

No. There was no novation so the CNAR and MOA can be reconciled and stand
together.

Novation is a mode of extinguishing an obligation by changing its objects or
principal obligations, by substituting a new debtor in place of the old one, or by
subrogating a third person to the rights of the creditor.

Extinctive novation is never presumed; there must be an express intention to
novate; in cases where it is implied, the acts of the parties must clearly demonstrate
their intent to dissolve the old obligation as the moving consideration for the
emergence of the new one. Implied novation necessitates that the incompatibility
between the old and new obligation be total on every point such that the old
obligation is completely superseded by the new one. The test of incompatibility is
whether they can stand together, each one having an independent existence; if they
cannot and are irreconcilable, the subsequent obligation would also extinguish the
first.

This kind of novation presupposes a confluence of four essential requisites: (1) a
previous valid obligation, (2) an agreement of all parties concerned to a new
73

contract, (3) the extinguishment of the old obligation, and ( 4) the birth of a valid
new obligation.

In this case, the MOA showed no express stipulation as to the novation or extinction
of the CNAR. There is also no implied novation because under the MOA, Metrobank
assigned all its rights and interests over the foreclosed properties to Atty. Dionido.
He merely acquired what right Metrobank has, as of the date of the signing of the
MOA, which was the issuance of a Certificate of Redemption, because as of that date,
the foreclosed properties have already been redeemed by Spouses Celones from
Metrobank.

Therefore, there was no novation. However, Atty. Dionido has the right to demand
payment of the amount of P55 Million from Spouses Celones since it is undisputed
that such amount came from Atty. Dionido. It is unjust enrichment on the part of
Spouses Celones to acquire the amount of P55 Million and not be required to pay the
same.

74

Benedicto V. Yujuico VS. Far East and Trust Company (now Bank of the
Philippine Islands)

Caguioa, J.

CASE DOCTRINE: While Article 1215 of the Civil Code provides that novation,
compensation or remission of the debt, made by any of the solidary creditors or
with any of the solidary debtors, shall extinguish the obligation, the novation
contemplated therein is a total or extinctive novation of the old obligation.

FACTS: Far East Bank and Trust Company approved the renewal of GTI Sportswear
Corporation's Omnibus Credit Line (OCL). This was secured by a Comprehensive
Surety Agreement (CSA) executed by Yujuico in his personal capacity. He was
also the president of GTI. GTI made known to appellant bank its request for the
conversion of its peso loan to US dollar-denominated loan. An exchange of
communications concerning the conversion transpired but no definite agreement on
the said conversion was put into writing. Yujuico, in behalf of appellee GTI and in his
personal capacity as surety, and appellant's First Vice President Ricardo G. Lazatin,
in behalf of appellant bank, signed a Loan Restructuring Agreement (LRA), the
subject of which was GTI's outstanding balance on its OCL. The agreement expressly
stated that the restructured loan continues to be secured by the CSA previously
executed by Yujuico in favor of the Bank. After the signing of the restructuring
agreement, GTI reiterated its request for the re-denomination of its loan
obligation to US dollars. The Bank, however, denied the request and informed
appellees that the conversion was not deemed workable. The Bank demanded that
GTI update all its unpaid amortizations on the outstanding restructured loan and to
settle all its other past due obligations. This prompted Yujuico and GTI to file a case
against the Bank a Complaint for Specific Performance with Preliminary
Injunction with the RTC. The trial court ruled that the Bank indeed agreed to
convert to US dollar GTI's peso loan obligation. The conversion also resulted in the
novation of GTI's loan obligation. As a result, Yujuico was accordingly released from
his obligations as surety pursuant to Article 1215 of the New Civil Code in
conjunction with paragraph 1 of Article 1291 of the same Code. The CA partially
granted the appeal. The CA ruled that there was no novation and Yujuico remained
to be liable as a surety under the Comprehensive Surety Agreement.

ISSUE: Whether or not the CA has legal basis to resolve and declare that there was
no novation between GTI and the Bank.

RULING: YES. The Court agrees with the finding of the CA that the attendant facts do
not make out a case of novation in the sense of a total or extinctive novation. A
perusal of the records reveals that there is no document that states in unequivocal
terms that the agreement to convert the loan from peso to US dollar would abrogate
the Loan Restructuring Agreement (LRA) or the Omnibus Credit Line (OCL). Instead
what is readily apparent from the exchange of communications concerning the
request for conversion is that the parties recognize the subsistence of the LRA. In
75

fact, in the letter sent by GTI to respondent reiterating the former's request to re-
dominate its loan obligation from peso to US dollar, GTI even assured respondent
that the other terms of the LRA would be complied with. Verily, where the parties
to the new obligation expressly recognize the continuing existence and validity of
the old one, there can be no novation. The only modification that the conversion
agreement introduced was that GTI's and petitioner Yujuico's loan obligation would
be payable in US dollars instead of Philippine pesos. Incidentally, the applicable
interest rate is lower on account of the change in currency. These alterations,
however, do not suffice to constitute novation. The well-settled rule is that, with
respect to obligations to pay a sum of money, the obligation is not novated by an
instrument that expressly recognizes the old, changes only the terms of
payment, adds other obligations not incompatible with the old ones, or the new
contract merely supplements the old one. At most, the changes introduced by the
conversion of the loan obligation amount merely to modificatory novation, which
results from the alteration of the terms and conditions of an obligation without
altering its essence. While Article 1215 of the Civil Code provides that novation,
compensation or remission of the debt, made by any of the solidary creditors or
with any of the solidary debtors, shall extinguish the obligation, the novation
contemplated therein is a total or extinctive novation of the old obligation. Also, the
comprehensive characteristic of the surety is evident in the CSA by which Yujuico
guaranteed in joint and several capacity, the punctual payment at maturity of any
and all indebtedness of every kind which, at the time of execution was or may
thereafter become due or owing to respondent by the Borrower, GTI. Indubitably,
these provisions are broad enough to include the loan obligation under the LRA
even after its conversion to US dollar. Without a total or extinctive novation, the
surety agreement subsists.

76

Re: Contracts with Artes International, Inc.

Bersamin, J.
CASE DOCTRINE: A contract that has all the essential requisites for its validity is
binding between the parties regardless of its form. But when the law requires that a
contract be in some form in order that it may be valid or be enforceable, or demands
that a contract be proved in a certain way, the requirement of a particular form or
manner is absolute and indispensable.

FACTS: On Dec. 21, 2005, the then Chief Justice Panganiban conceptualized and
launched the National Forum and the Global Forum. The Court’s Program
Management Office (PMO) thru Ms. Dumdum entered into several contracts with an
event organizer, Artes International to assist the former with the projects. After the
projects were concluded, Artes ask the Court for the reimbursement for the items it
purchased that were used therein. The Court, however, refused payment on the
following grounds; that said items were overpriced; that it does have the authority
to purchase the same; and that the contracts entered into by Ms. Dumdum as the
PMO Administrator were patent nullity.

ISSUE: WON the contracts in dispute were valid?

RULING: No. The PMO resorted to “national shopping” as its mode of procurement.
Under IBRD Guidelines, a Purchase Order (PO) must be furnished, in which the
accepted offer should be indicated. The PO was akin to a "contract between the
parties as it requires inputs showing the requisites of a contract of consent, object
certain, and cause of obligation." Instead of the PO, the PMO used and relied on
letter-quotations to reflect and contain the agreements between the parties.
Consequently, the patent nullity of the contracts with Artes became the only legal
consequence to be reached from the failure to comply with the proper procurement
procedure.
A contract that has all the essential requisites for its validity is binding between the
parties regardless of its form. But when the law requires that a contract be in some
form in order that it may be valid or be enforceable, or demands that a contract be
proved in a certain way, the requirement of a particular form or manner is absolute
and indispensable. Once the formal requirement for the contract is absolute and
indispensable, any procurement contract that does not adhere to the requirement
can only be deemed invalid and unenforceable. As such, every letter-quotation
signed by an unauthorized purchaser in behalf of a government agency in a manner
contrary to the loan agreement with the foreign lender and contrary to the local
procurement law can only be mere scrap of paper that cannot by any means be
accorded any validity or enforceability.

77

D.M. RAGASA ENTERPRISES, INC., petitioner, vs. BANCO DE ORO, INC. (formerly
Equitable PCI Bank, Inc.), respondent

CAGUIOA, J.

CASE DOCTRINE:
• A penal clause (Article 1226 NCC) is an accessory obligation which the
parties attach to a principal obligation for the purpose of insuring the
performance thereof by imposing on the debtor a special prestation
(generally consisting in the payment of a sum of money) in case the
obligation is not fulfilled or is irregularly or inadequately fulfilled. Quite
common in lease contracts, this clause functions to strengthen the coercive
force of the obligation and to provide, in effect, for what would be the
liquidated damages resulting from a breach.

FACTS:
Ragasa and then Equitable Banking Corporation (Equitable Bank) executed a
Contract of Lease (Lease Contract), as lessor and lessee, respectively, over the
ground and second floors of a commercial building located at 175 Tomas Morato
Avenue corner Scout Castor, Quezon City (subject premises), for a period of five
years, commencing on February 1, 1998 up to January 31, 2003, with a monthly
rental of P122,607.00
Meanwhile, Equitable Bank entered into a merger with Philippine Commercial
International Bank (PCI Bank) thereby forming Equitable PCI Bank, Inc. The latter
would eventually, pending the present case, merge with Banco de Oro, Inc. to form
the respondent bank.

The bank sent a notice dated May 28, 2001, informing Ragasa that the former was
pre-terminating their Lease Contract effective June 30, 2001 (Notice of Pre-
termination).
Ragasa responded with a demand letter dated June 20, 2001 for payment of
monthly rentals for the remaining term of the Lease Contract from July 1, 2001 to
January 31, 2003 totaling P3,146,596.42, inasmuch as there is no express provision
in the Lease Contract allowing pre-termination. The bank countered, through a
letter dated June 26, 2001, that its only liability for pre-terminating the contract is
the forfeiture of its security deposit pursuant to item 8 (m) of the Lease Contract.
Ragasa filed with the RTC the Complaint for Collection of Sum of Money
(amounting to P3,146,596.42 representing the monthly rentals under the Lease
Contract for the period July 1, 2001 to January 31, 2003) and Damages. Ragasa
argued that under the Lease Contract, the forfeiture of the bank's security
deposit does not exempt it from payment of the rentals for the remaining term of
the lease because the bank's act of pre-terminating the contract was a major
78

breach of its terms. Moreover, item 8 (m) expressly provides that the security
deposit shall not be applied to the rentals.
In its Answer, the bank argued, in gist, that item 8 (m) of the Lease Contract is
actually a penalty clause which, in line with Article 1226 of the Civil Code,
takes the place of damages and interests in case of breach. Hence, for breaching
the Lease Contract by pre-terminating the same, the bank is liable to forfeit its
security deposit in favor of Ragasa but would not be liable for rentals
corresponding to the remaining life of the Contract.

The RTC ruled in Ragasa’s favor and it ordered the bank to pay the plaintiff the
following:
The amount of Php3,146,596.42 Philippine Currency,
representing the monthly rentals from July 1, 2001 to
January 31, 2003;
2. A penalty of 3% of the monthly rental for every month of
delay;
3. An interest of 14% per annum on the full amount due until
fully paid;
4. Attorney's fees in the amount of Php30,000.00; and
5. Costs of litigation.

The bank filed a Motion for Reconsideration but was denied by the RTC. The bank
then filed a Notice of Appeal to the CA which granted the bank’s appeal and reversed
and set aside the RTC’s ruling.

The CA ruled that the bank's failure to continue the Lease Contract until its
expiration constituted a breach of its provision. As such, the Lease Contract was
automatically terminated by virtue of item 8 (p) thereof providing for its outright
termination in case of breach of any of its provisions. Hence, there is no legal basis
to hold the bank liable for payment of rentals for the unexpired period of the
contract. However, the bank is liable to forfeit its security deposit pursuant to the
penalty clause under item 8 (m) of the contract. The CA ruled that to allow Ragasa to
collect the value of the unexpired term of the lease plus penalty would constitute
unjust enrichment.

Ragasa filed a Motion for Reconsideration which the CA denied. Hence, this petition.

ISSUE:
Whether or not the Court of Appeals seriously erred in law in ruling that the Penalty
Clause applicable in the case is Item No. 8(m) of the contract and not item 8 (n) of
the same contract.
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RULING:
NO. The the provision or clause that is applicable in case of non-compliance of the
Term or period of the Lease Contract is item 8 (m) which mandates that the full
deposit of P367,821.00 or the equivalent of three months rentals shall be forfeited
with the proviso that the deposit cannot be applied to rental.

The Court believes and so holds that item No. 8 (m) is a penalty or penal clause.

A penal clause is an accessory obligation which the parties attach to a principal
obligation for the purpose of insuring the performance thereof by imposing on the
debtor a special prestation (generally consisting in the payment of a sum of money)
in case the obligation is not fulfilled or is irregularly or inadequately fulfilled. Quite
common in lease contracts, this clause functions to strengthen the coercive force of
the obligation and to provide, in effect, for what would be the liquidated damages
resulting from a breach.

As defined, liquidated damages are those agreed upon by the parties to a contract, to
be paid in case of breach thereof. The amount of the liquidated damages is purely
contractual between the parties; and the courts will intervene only to equitably
reduce the liquidated damages, whether intended as an indemnity or a penalty, if
they are iniquitous or unconscionable, pursuant to Articles 2227 and 1229 of the
Civil Code.

Also, proof of actual damages suffered by the creditor is not necessary in order
that the penalty may be demanded.
Item 8 (m) seeks to insure or guarantee the completion of the lease period since
its non-compliance shall be met with a penalty. The degree of the coercive effect
or impact of the penalty to insure or guarantee the performance of the principal
obligation depends largely on the stipulated amount of the liquidated damages.
If the amount is substantial, then the compulsion to perform may be greater. The
obligor may not, however, be willing to accept a very stiff penalty. As expressed
earlier, the amount is purely discretionary on the parties provided that it will
pass the test of unconscionability or excessiveness. Since the herein parties have
agreed on a specific amount of penalty, P367,821.00 or the full deposit, the Court
will not even second guess whether it is substantial enough to insure the
compliance of the lease period. The Court will simply rule that it is reasonable.
Being provisions on default, item 8 (m) and item 10 must be applied jointly and
simultaneously. Thus, aside from the forfeiture of the full deposit, the party at fault
or in default is liable, pursuant to item 10 of the Lease Contract, for the payment of
attorney's fees in an amount which is not less than P15,000.00, other damages that
the court may allow, cost of litigation, and 14% interest per annum on unpaid
accounts and obligations.

80

However, Ragasa cannot insist on the performance of the lease, i.e. for the lease to
continue until expiration of its term, because the lease has been automatically
terminated when the bank breached it by pre-termination terms. Thus, Ragasa is
entitled to damages.

But Ragasa, as the injured party, is nonetheless required to prove the "other
damages" that it actually suffered before it can be entitled thereto. However,
a review of the records shows that Ragasa presented nothing. Ragasa simply
insisted that the bank should be liable for the amount representing the monthly
rentals from July 1, 2001 up to January 31, 2003 or the unexpired term of the
Lease Contract, equivalent to P3,146,596.42. Ragasa did not adduce any evidence
to support its claim that it actually suffered damages of such amount in terms of
lost income.

In conclusion, the Court ruled that Ragasa is not entitled to the rental for the
unexpired period of the Lease Contract, and it is only entitled to the forfeiture of
the full deposit pursuant to item 8 (m) and P15,000.00 as attorney's fees pursuant
to item 10.

Wherefore, the resolution of the CA is Affirmed with Modification, awarding
attorney’s fees in the amount of P15, 000.00 in favour of petitioner D.M. Ragasa
Enterprise, Inc.

81

Excellent Essentials International Corp. v. Extra Excel International

Philippines, Inc., G.R. No. 192797, April 18, 2018

Martires, J.

CASE DOCTRINE: Under the principle of relativity of contracts, only those who are
parties to a contract are liable to its breach. Under Article 1314 of the Civil Code,
however, any third person who induces another to violate his contract shall be liable
to damages to the other contracting party. Said provision of law embodies what we
often refer to as tortuous or contractual interference. In So Ping Bun v. CA, 33 we
laid out the elements of tortuous interference: (1) existence of a valid contract; (2)
knowledge on the part of the third person of the existence of contract; and (3)
interference of the third person is without legal justification or excuse.

FACTS: The present controversy started from a complaint filed by E. Excel
International, Inc. (Excel International) and Excellent Essentials against Excel
Philippines for damages and to enjoin the latter from selling, distributing, and
marketing E. Excel products in the Philippines.
On 9 August 1996, Excel International and Excel Philippines entered into an
exclusive rights contract wherein the latter was granted exclusive rights to
distribute E. Excel products in the Philippines. 2 Under the same contract, Excel
International reserved the right to discontinue or alter their agreement at any time.
Over the span of four (4) years, Excel International experienced intra-corporate
struggle over the control of the corporation and the operations of its various
exclusive distributors in Asia. The dispute even reached the Judicial District Court of
Utah (Utah Court). Eventually, the conflict between the principal stakeholders of
Excel International, Jau-Hwa Stewart (Stewart) and Jau-Fei Chen (Chen), took a turn
and Stewart somehow succeeded in gaining control of the company.
On 1 December 2000, Stewart, in her capacity as president of Excel International,
revoked Excel Philippines' exclusive rights contract and appointed Excellent
Essentials as its new exclusive distributor in the Philippines. Despite the revocation
of its exclusive rights contract and the appointment of Excellent Essentials, Excel
Philippines continued its operation in violation of the new exclusive distributorship
agreement. Thus, on 26 January 2001, Excel International, through counsel,
demanded that Excel Philippines cease from selling, importing, distributing, or
advertising, directly or indirectly, any and all of E. Excel products.
With its demand unheeded, Excel International and Excellent Essentials filed a
complaint for injunction and damages against Excel Philippines. The complaint was
originally filed before the RTC, Branch 56, of Makati City (RTC, Branch 56).

On its part, Excel Philippines filed its answer with counterclaims saying that Excel
International had no right to unilaterally revoke its exclusive right to distribute E.
Excel products in the Philippines. Attached to its answer was an agreement dated 22
May 1995 between Excel International and Bright Vision Consultants, Ltd. (Bright
Vision) showing that Excel Philippines' exclusive distributorship was irrevocable.

82

ISSUE; Whether Excellent Essentials', who is a third party to the contract, may be
held liable for damages caused to Excel Philippines

RULING: YES. A corporation, who is a third party to a contract, may be held liable for
damages if used as a means to breach the obligations between the contracting
parties. Prior to the revocation of its exclusive distributorship, Excel International
had an existing contract with Bright Vision wherein they agreed to set up a
corporation to exclusively distribute E. Excel products within the Philippines. This
corporation, eventually, turned out to be Excel Philippines who was given the
irrevocable and exclusive right to distribute, market, and/or sell. Under its
agreement with Bright Vision, Excel Philippines' exclusive distributorship right was
irrevocable and may only be modified, transferred, or terminated upon the mutual
consent of both parties. This agreement was effective from 22 May 1995 until 21
May 2005.
Excel International had already breached its contractual obligations by unilaterally
revoking Excel Philippines' exclusive distributorship even if it was prohibited from
doing so under the 22 May 1995 agreement. Stewart could not have done what she
did during her temporary control over Excel International because, under clause 8.5
of the agreement, any change in the management of Excel International shall not
affect the validity and continuity of the rights and obligations of both parties. In
other words, Stewart, as Excel International's interim president, was bound by the
company's grant of exclusive distributorship to Excel Philippines and the conditions
that came with it.

Having established the first element of tortuous interference, we now have to
determine if Excellent Essentials had knowledge of Excel Philippines' exclusive
right. On this score, we note that the exclusive distributorship right was granted to
Excellent Essentials before it existed. This circumstance suggests that even before
Excellent Essentials was organized, its incorporators had the preconceived plan to
maneuver around Excel Philippines. Worse, after going over the records, there is
evidence showing that Excellent Essentials' incorporators were officers of and/or
affiliated with Excel Philippines. In fact, these incorporators remained at work with
Excel Philippines during this time and started to pirate its supervisors, employees,
and agents to join Excellent Essentials' multi-level marketing system.

Under these circumstances, we can conclude that those behind Excellent Essentials
not only had knowledge that Excel International had the obligation to honor Excel
Philippines' exclusive right, but also conspired with Stewart to undermine Excel
Philippines. Thus, we agree with the CA when it said: It does not escape this Court's
attention the stealthy maneuverings that [Excellent Essentials'] incorporators did
while still working for [Excel Philippines]. As narrated above, they anticipated the
revocation of [Excel Philippines'] exclusive right contract and the award to
[Excellent Essentials] of the same gratuity while the latter has yet to be organized.
With this expectation comes not a foreknowledge of divine origin but a conspiracy
to rig existing contractual obligations so they could swaddle themselves with the
benefits that go along with such maneuverings. The Utah Court made same
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observations as this Court now does because the coincidence of the revocation of
the exclusive rights contract and its conferment later appears so surreal if they were
not planned at all. It is in this sequence of events that this Court finds bad faith in
[Excellent Essentials'] actuations. Contrary to its assertions, it did not just stand as
an innocent bystander but a conspirator in the manner by which [Excel
International's] corporate structure and contracts were skewed to fit the best
interests of some.

84

Diampoc v. Buenaventura
G.R. No. 200383, March 19, 2018
DEL CASTILLO, J.

CASE DOCTRINE: Article 1358 of the Civil Code requires that the form of a contract
that transmits or extinguishes real rights over immovable property should be in a
public document, yet the failure to observe the proper form does not render the
transaction invalid. The necessity of a public document for said contracts is only for
convenience; it is not essential for validity or enforceability. Even a sale of real
property, though not contained in a public instrument or formal writing, is
nevertheless valid and binding, for even a verbal contract of sale or real estate
produces legal effects between the parties. Consequently, when there is a defect in
the notarization of a document, the clear and convincing evidentiary standard
originally attached to a duly-notarized document is dispensed with, and the
measure to test the validity of such document is preponderance of evidence.

FACTS:

The Diampocs alleged in their Complaint that they owned a 174-square meter parcel
of land (subject property) in Signal Village, Taguig City; that Buenaventura became
their friend; that Buenaventura asked to borrow the owner's copy of TCT to be used
as security for a P1 million loan she wished to secure; that they acceded, on the
condition that Buenaventura should not sell the subject property; that
Buenaventura promised to give them P300,000.00 out of the P1 million loan
proceeds; that on July 2, 2000, Buenaventura caused them to sign a folded document
without giving them the opportunity to read its contents; that Buenaventura failed
to give them a copy of the document which they signed; that they discovered later
on that Buenaventura became the owner of a one-half portion (87 square meters) of
the subject property by virtue of a supposed deed of sale in her favor; that they
immediately proceeded to the notary public who notarized the said purported deed
of sale, and discovered that the said 87-square meter portion was purportedly sold
to Buenaventura for P200,000.00; that barangay conciliation proceedings were
commenced, but proved futile; that the purported deed of sale is spurious; and that
the deed was secured through fraud and deceit, and thus null and void. The
Diampocs thus prayed that the purported deed of sale be annulled and the
annotation thereof on TCT 25044 be canceled; that the owner's duplicate copy of
TCT 25044 be returned to them; and that attorney's fees and costs of suit be
awarded to them.

RTC dismissed the case after evaluating the evidence on hand. The Court finds that
plaintiffs fall short of the required evidence to substantiate their allegations that
subject Deed of Sale x x x is illegal and spurious. Citing the pertinent provision of the
New Civil Code which reads:'Art. 1159. Obligations arising from contracts have the
force of law between the contracting parties and should be complied with in good
faith.
85


Respondents filed an appeal before the CA, which denied the same. The CA ruled
that notarized documents, like the deed in question, enjoy the presumption of
regularity which can be overturned only by clear, convincing and more than merely
preponderant evidence. It also ruled that as borne out by the notarized deed, a
perfected contract of sale was forged between the parties. Appellants received in full
the payment of P200,000.00, having sold to appellee a portion of their lot. If the
terms of the deed were not in consonance with their expectations, they should have
objected to it and insisted on the provisions they wanted. Courts are not authorized
to extricate parties from the necessary consequences of their acts, and the fact that
the contractual stipulations may turn out to be financially disadvantageous will not
relieve parties thereto of their obligations.

ISSUE:
WHETHER OR NOT THE COURT OF APPEALS ERRED ERRED IN APPLYING THE
PRIMA FACIE PRESUMPTION OF REGULARITY OF NOTARIZED DOCUMENTS AND
UPHOLDING THE VALIDITY OF THE NOTARIZED DEED OF SALE
NOTWITHSTANDING THE UNDISPUTED FACT THAT THERE WERE
IRREGULARITIES IN THE EXECUTION AND NOTARIZATION OF THE DEED OF SALE

RULING:
NO.

x x x Article 1358 of the Civil Code requires that the form of a contract that transmits
or extinguishes real rights over immovable property should be in a public
document, yet the failure to observe the proper form does not render the
transaction invalid. The necessity of a public document for said contracts is only for
convenience; it is not essential for validity or enforceability. Even a sale of real
property, though not contained in a public instrument or formal writing, is
nevertheless valid and binding, for even a verbal contract of sale or real estate
produces legal effects between the parties. Consequently, when there is a defect in
the notarization of a document, the clear and convincing evidentiary standard
originally attached to a duly-notarized document is dispensed with, and the
measure to test the validity of such document is preponderance of evidence.

x x x Nevertheless, the defective notarization of the deed does not affect the validity
of the sale of the house. Although Article 1358 of the Civil Code states that the sale of
real property must appear in a public instrument, the formalities required by this
article is not essential for the validity of the contract but is simply for its greater
efficacy or convenience, or to bind third persons, and is merely a coercive means
granted to the contracting parties to enable them to reciprocally compel the
observance of the prescribed form. Consequently, the private conveyance of the
house is valid between the parties.
The rule that one who signs a contract is presumed to know its contents has been
86

applied even to contracts of illiterate persons on the ground that if such persons are
unable to read, they are negligent if they fail to have the contract read to them. If a
person cannot read the instrument, it is as much his duty to procure some reliable
persons to read and explain it to him, before he signs it, as it would be to read it
before he signed it if he were able to do so and his failure to obtain a reading and
explanation of it is such gross negligence as will estop him from avoiding it on the
ground that he was ignorant of its contents.
It is also a well-settled principle that "the law will not relieve parties from the effects
of an unwise, foolish or disastrous agreement they entered into with all the required
formalities and with full awareness of what they were doing. Courts have no power
to relieve them from obligations they voluntarily assumed, simply because their
contracts turn out to be disastrous deals or unwise investments. Neither the law nor
the courts will extricate them from an unwise or undesirable contract which they
entered into with all the required formalities and with full knowledge of its
consequences."

87

LANECO vs PGLM
G.R. No. 185420, August 29, 2017
Velasco, J.

CASE DOCTRINE: LANECO failed to establish how the administrative remedy of levy
on real properties will impair the rights of NEA and PSALM. Instead, it merely
reiterated its argument that R.A. No. 9136 prohibits the disposition of its assets and
properties during the period of rehabilitation and modernization program. In fact, it
failed to differentiate how exclusive resort to judicial action as opposed to the
administrative remedy of levy would be a better option to preserve the rights of
NEA and PSALM. It is the option of the LGU to choose which remedy to avail

Section 10, Article III of the Constitution, which provides that no law impairing the
obligation of contracts shall be passed.

FACTS:
LANECO contracted several loans from respondent National Electrification
Administration (NEA) from 1972 until 1991, secured by real estate mortgage
contracts over its properties.3 The NEA also gave LANECO grants and subsidies
from 1996 to 2006 to fund its various rural electrification programs in the
countryside.4 LANECO's total loans from the NEA amounted to P117,645,358.00, a
substantial portion of which, however, had already been paid.

Local Government Code of 1991 (LGC), which conferred power to local government
units (LGUs) to impose taxes on real properties located within their territories.8

LANECO received a letter from respondent Provincial Treasurer of the PGLN,
demanding payment of P22,841,842.60 representing real property taxes assessed
against the cooperative for the municipalities of Bacolod, Baroy, Kolambugan, Balo-i,
Kapatagan, Magsaysay, Maigo, and Tubod for the period of 1995 to 2005

LANECO learned that the PGLN, through its Provincial Treasurer, issued a
Memorandum dated March 30, 2009, directing the Municipal Treasurers of Baroy,
Kolambugan, Bacolod, Kapatagan, Magsaysay, Maigo, Lala, and Tubod to issue
warrants of levy on its properties thereat.25 Consequently, on April 7, 2009,
LANECO received the warrants of levy from the Municipality of Tubod for deficient
real property tax amounting to P10,066,234.48. LANECO thereafter received
warrants of levy of its real property from the Municipality of Baroy on April 17,
2009 for deficient real property tax amounting to P3,260,452.58.

ISSUE; Whether or not the PGLN gravely abused its discretion when it levied on the
real properties of LANECO to enforce payment of unpaid real property taxes, in
violation of Section 60 of R.A. No. 9136 and EO 119

RULING:
88

Provincial Government of Lanao del Norte did not commit grave abuse of discretion
in levying on the real properties of LANECO

LANECO failed to establish how the administrative remedy of levy on real properties
will impair the rights of NEA and PSALM. Instead, it merely reiterated its argument
that R.A. No. 9136 prohibits the disposition of its assets and properties during the
period of rehabilitation and modernization program. In fact, it failed to differentiate
how exclusive resort to judicial action as opposed to the administrative remedy of
levy would be a better option to preserve the rights of NEA and PSALM. It is the
option of the LGU to choose which remedy to avail

The court do not find merit in LANECO's argument that the levy caused by the PGLN
upon its real properties impairs the government contracts entered into by NEA and
PSALM and violates the constitutional right of national agencies to enter into a
contract

89

SWIRE REALTY DEVELOPMENT CORPORATION, Petitioner, v. SPECIALTY

CONTRACTS GENERAL AND CONSTRUCTION SERVICES, INC. AND JOSE
JAVELLANA, Respondents. G.R. No. 188027, August 09, 2017
REYES, JR., J.

CASE DOCTRINE: The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if there
has been no performance, the penalty may also be reduced by the courts if it is
iniquitous or unconscionable. (Article 1229, Civil Code)

FACTS: The controversy arose from a Complaint for Sum of Money and Damages
filed by Swire Realty Development Corporation against Specialty Contracts General
and Construction Services, Inc., represented by its President and General Manager
Jose Javellana, Jr. The Complaint alleges breach of an Agreement to Undertake
Waterproofing Works on the basis that the Site Information Form constitutes
additional works contrary to the agreement entered into on December 27, 1996 by
the petitioner and the respondents. By virtue of this, the respondents undertook to
perform waterproofing works on the petitioner's condominium project known as
the Garden View Tower for the amount of Php 2,000,000.00 over a period of 100
calendar days from the execution of the Agreement or until April 6, 1997. The
amount agreed upon is to be paid as follows: 20% as down payment, and the
balance of 80% payable through monthly progress billings based on accomplished
work, subject to a 10% retention fee and 1% withholding tax.

ISSUE: Whether the waterproofing of the swimming pool constitutes additional
works for which the respondents must be compensated

RULING: The petition is meritorious. A mere statement in the Site Information Form
that "2nd waterproofing after lightweight concrete topping" should be done on the
swimming pool, does not automatically mean that the same constitutes additional
work. In the absence of evidence to the contrary, it is implied that such work is
deemed included in the enumeration of the Swimming Pool as a covered area in the
Agreement. By entering into the Agreement and signifying their acceptance thereto,
it is understood therefore that the respondents undertook to perform all works
necessary to accomplish the waterproofing requirements in the entire 234.20
square meters of the swimming pool. Had the respondent really believed the same
to be an additional work to be performed, it should have, prior to performing the
same, raised the matter with the petitioner and sought the implementation of Article
VII of the Agreement which provides that if the oWner shall, upon written notice to
the contractor, order change or deviation from the plan or specification either by
omitting or adding works, the corresponding charges for deductive works shall be
based on the unit cost. However, the unit prices for additive works shall be subject
90

to further agreement between the owner and the contractor. Evident from the
foregoing facts, there being a clear breach of contract on the part of the respondents
when they failed to fully comply with their obligation under the contract, having
accomplished only 90% of the waterproofing works within the time agreed upon,
and failing to perform the necessary repairs, they are liable for damages and are
bound to refund the excess in payment made by the petitioner.

91

Paradigm Development Corp. of the Philippines v. Bank of the Philippine

Islands
G.R. No. 191174, June 7, 2017
Reyes J.

CASE DOCTRINE:
1. Article 2125. In addition to the requisites stated in Article 2085, it is
indispensable, in order that a mortgage may be validly constituted, that the
document in which it appears be recorded in the Registry of Property. If the
instrument is not recorded, the mortgage is nevertheless binding
between the parties.
Under Article 1344 of the Civil Code, the fraud must be serious to annul or
avoid a contract and render it voidable. This fraud or deception must be so
material that had it not been present, the defrauded party would not have
entered into the contract.
2. The well-settled rule is that novation is never presumed. Novation will not be
allowed unless it is clearly shown by express agreement, or by acts of equal
import. Thus, to effect an objective novation it is imperative that the new
obligation expressly declare that the old obligation is thereby extinguished,
or that the new obligation be on every point incompatible with the new one.
In the same vein, to effect a subjective novation by a change in the person of
the debtor it is necessary that the old debtor be released expressly from
the obligation, and the third person or new debtor assumes his place in
the relation. There is no novation without such release as the third person
who has assumed the debtor's obligation becomes merely a co-debtor or
surety.
3. General rule is that personal notice to the mortgagor in extrajudicial
foreclosure proceedings is not necessary, and posting and publication will
suffice. Sec. 3 of Act3135 governing extra-judicial foreclosure of [REMs], as
amended by Act 4118, requires only posting of the notice of sale in three
public places and the publication of that notice in a newspaper of general
circulation. The exception is when the parties stipulate that personal notice is
additionally required to be given the mortgagor. Failure to abide by the
general rule, or its exception, renders the foreclosure proceedings null and
void.

FACTS:
Sengkon Trading , a sole proprietorship owned by Anita Go, obtained a loan
from Far East Bank and Trust Company (FEBTC) under a credit facility denominated
as Omnibus Line in the amount of P100 Million
FEBTC again granted Sengkon another credit facility in the amount of P60
Million. Two real estate mortgage (REM) contracts were executed by PDCP
President Anthony L. Go (Go) to partially secure Sengkon's obligations under
this Credit Line. One REM, acknowledged on April 22, 1996, was constituted and
92

secured the amount of P8 Million. The other REM, acknowledged on December

19, 1997, was constituted and secured the amount of P42,400,000.00.
FEBTC informed Sengkon regarding the renewal, increase and conversion
of its P100 Million Omnibus Line to P150 Million LC-TR Line and P20 Million
Discounting Line, the renewal of the P60 Million Credit Line and P8 Million Bills
Purchased Line.
FEBTC also approved the request of Sengkon to change the account name
from SENGKON TRADING to SENGKON TRADING, INC. (STI).|||
Sengkon defaulted in the payment of its loan obligations. Thus FEBTC
demanded payment from PDCP of alleged Credit Line and Trust Receipt
availments with a principal balance of P244,277,199.68 plus interest and other
charges which Sengkon failed to pay. PDCP responded by requesting for
segregation of Sengkon's obligations under the Credit Line and for the pertinent
statement of account and supporting documents.
PDCP proposed to pay approximately P50 Million, allegedly
corresponding to the obligations secured by its property, for the release of its
properties but FEBTC pressed for a comprehensive repayment scheme for the
entirety of Sengkon's obligations.
Meanwhile, the negotiations were put on hold because BPI acquired
FEBTC and assumed the rights and obligations of the latter.
FEBTC initiated foreclosure proceedings against the mortgaged
properties of PDCP before the Regional Trial Court (RTC) of Quezon City. FEBTC
submit its Bid for the Real Properties including all improvements existing
thereon in the amount of P76,500,000.00 as PARTIAL SETTLEMENT of the
obligation of PDCP
PDCP discovered that FEBTC extra-judicially foreclosed and second
mortgage without notice to it as mortgagor and sold the mortgaged properties to
FEBTC as the lone bidder. Thereafter, corresponding Certificate of Sale was
registered.
PDCP filed a Complaint for Annulment of Mortgage, Foreclosure,
Certificate of Sale and Damages with the RTC of Quezon City, against BPI,
successor-in-interest of FEBTC, alleging that the REMs and their foreclosure
were null and void.
PDCP alleged that FEBTC assured it that the mortgaged properties will
only secure the Credit Line sub-facility of the Omnibus Line. With this
understanding, PDCP President Go allegedly agreed to sign on two separate
dates a pro-forma and blank REM, securing the amount of P42.4 Million and
P8 Million, respectively. PDCP, however, claimed that it had no intent to be
bound under the second REM, which was not intended to be a separate
contract, but only a means to reduce registration expenses.
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PDCP alleged that FEBTC, [BPI's] predecessor-in-interest, fraudulently

made it appear that said [REM] was separate and distinct caused the registration
of both mortgages with separate considerations totaling Php50.4 Million; that no
notice was given to or received by [PDCP] of the projected foreclosure since the
notice of said foreclosure was sent by defendant SHERIFF to an address other
than [PDCP's] known address as stated in the [REMs] themselves; that only one
(1) bidder was present and participated at the foreclosure sale and that, without
the knowledge and consent of [PDCP], obligation of SENGKON has been
transferred to STI[,] a juridical personality separate and distinct from SENGKON,
a single proprietorship. This substitution of SENGKON as debtor by STI
effectively novated the obligation of [PDCP] to FEBTC.
RTC: rendered its decision nullifying the REMs and the foreclosure proceedings. It
also awarded damages to PDCP. RTC agreed with PDCP that novation took place in
this case, which resulted in discharging the latter from its obligations as third-party
mortgagor.|||
CA: reversed the RTC's ruling on all points|||

ISSUES:
1. Whether or not contract of Real Estate Mortgage is valid
2. Whether or not there is novation
3. Whether or not FEBTC's failure to send personal notice to the mortgagor is fatal
to the validity of the foreclosure proceedings|||

RULING:
1. The registration of the REMs, even if contrary to the supposed intent of the parties,
did not affect the validity of the mortgage contracts
The Court cannot see its way clear through PDCP's argument. To begin with, the
registration of the REM contract is NOT essential to its validity. Article 2085 of the
Civil Code provides:
Art. 2085. The following requisites are essential to the contracts of
pledge and mortgage:
(1) That they be constituted to secure the fulfillment
of a principal obligation;
(2) That the pledgor or mortgagor be the absolute
owner of the thing pledged or mortgaged;
(3) That the persons constituting the pledge or
mortgage have the free disposal of their property,
and in the absence thereof, that they be legally
authorized for the purpose.
Third persons who are not parties to the principal
obligation may secure the latter by pledging or mortgaging their
own property.
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In relation thereto, Article 2125 of the Civil Code reads:

Article 2125. In addition to the requisites stated in Article
2085, it is indispensable, in order that a mortgage may be validly
constituted, that the document in which it appears be recorded in
the Registry of Property. If the instrument is not recorded, the
mortgage is nevertheless binding between the parties.
PDCP argued that what its President signed is a pro-forma REM whose
important details were still left in blank at the time of its execution. But notably,
nowhere in PDCP's Amended Complaint did it anchor its cause of action for the
nullity of the REMs on this ground. While it indeed alleged this circumstance,
PDCP's Amended Complaint is essentially premised on the supposed fraud
employed on it by FEBTC consisting of the latter's assurances that the REMs it
already signed would not be registered. In Solidbank Corporation v. Mindanao
Ferroalloy Corporation, the Court discussed the nature of fraud that would annul
or avoid a contract, thus:
Fraud refers to all kinds of deception — whether through
insidious machination, manipulation, concealment or
misrepresentation — that would lead an ordinarily prudent
person into error after taking the circumstances into account. In
contracts, a fraud known as dolo causante or causal fraud is
basically a deception used by one party prior to or simultaneous
with the contract, in order to secure the consent of the other.
Needless to say, the deceit employed must be serious. In
contradistinction, only some particular or accident of the
obligation is referred to by incidental fraud or dolo incidente, or
that which is not serious in character and without which the other
party would have entered into the contract anyway.
Under Article 1344 of the Civil Code, the fraud must be serious to annul or
avoid a contract and render it voidable. This fraud or deception must be so
material that had it not been present, the defrauded party would not have
entered into the contract.
In the present case, even if FEBTC represented that it will not register one
of the REMs, PDCP cannot disown the REMs it executed after FEBTC reneged on
its alleged promise. As earlier stated, with or without the registration of the
REMs, as between the parties thereto, the same is valid and PDCP is already
bound thereby. The signature of PDCP's President coupled with its act of
surrendering the titles to the four properties to FEBTC is proof that no fraud
existed in the execution of the contract. Arguably at most, FEBTC's act of
registering the mortgage only amounted to dolo incidente which is not the kind
of fraud that avoids a contract.
2. No novation took place
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The Court likewise agrees with the CA that no novation took place in the
present case. Novation is a mode of extinguishing an obligation by changing its
objects or principal obligations, by substituting a new debtor in place of the old
one, or by subrogating a third person to the rights of the creditor. Article 1293 of
the Civil Code defines novation as "consists in substituting a new debtor in the
place of the original one, [which] may be made even without the knowledge or
against the will of the latter, but not without the consent of the creditor."
However, while the consent of the creditor need not be expressed but may be
inferred from the creditor's clear and unmistakable acts, to change the person of
the debtor, the former debtor must be expressly released from the obligation,
and the third person or new debtor must assume the former's place in the
contractual relation.

3. FEBTC's failure to send personalnotice to the mortgagor is fatal to the validity of
the foreclosure proceedings|||
General rule is that personal notice to the mortgagor in extrajudicial foreclosure
proceedings is not necessary, and posting and publication will suffice. Sec. 3 of Act
3135 governing extra-judicial foreclosure of [REMs], as amended by Act 4118,
requires only posting of the notice of sale in three public places and the publication
of that notice in a newspaper of general circulation. The exception is when the
parties stipulate that personal notice is additionally required to be given the
mortgagor. Failure to abide by the general rule, or its exception, renders the
foreclosure proceedings null and void.
Personal notice is necessary if the parties so agreed in their mortgage
contract. In the present case, the parties provided in their REMs that:
cHECAS
12. All correspondence relative to this mortgage, including
demand letters, summonses, subpoenas, or notifications of any
judicial or extrajudicial action shall be sent to the [PDCP] at
___________________ or at the address that may hereafter be given in
writing by the [PDCP] to the [FEBTC].
This provision clearly establishes the agreement between the parties that
personal notice is required before FEBTC may proceed with the foreclosure of
the property and thus, FEBTC's act of proceeding with the foreclosure despite
the absence of personal notice to the mortgagor was its own lookout.
That the portion on the mortgagor's address was left in blank cannot be
simply swept under the rug as "an expression of general intent" that cannot
prevail of the parties' specific intent not to require personal notice. The CA
ruling completely ignored the fact that the mortgage contract containing said
stipulation was a standard contract prepared by FEBTC itself. If the latter did not
intend to require personal notice, on top of the statutory requirements of
posting and publication, then said provision should not have at all been included
in the mortgage contract. In other words, the REMs in this case are contracts of
96

adhesion, and in case of doubt, the doubt should be resolved against the party
who prepared it.
The fact that FEBTC caused the sending of a notice, albeit at a wrong
address, to PDCP is itself a clear proof that the parties did intend to impose a
contractual requirement of personal notice, FEBTC's undisputed breach of which
sufficiently nullifies the foreclosure proceeding.
RUTCHER T. DAGASDAS vs. GRAND PLACEMENT AND GENERAL SERVICES
CORPORATION
G.R. No. 205727, January 18, 2017
DEL CASTILLO, J.

CASE DOCTRINE:
While our Civil Code recognizes that parties may stipulate in their contracts such
terms and conditions as they may deem convenient, these terms and conditions
must not be contrary to law, morals, good customs, public order or policy. (Article
1306 of the New Civil Code)

FACTS: Respondent (GPGS) is a licensed recruitment or placement agency in the
Philippines while Saudi Aramco (Aramco) is its counterpart in Saudi Arabia. On the
other hand, Industrial & Management Technology Methods Co. Ltd. (ITM) is the
principal of GPGS, a company existing in Saudi Arabia.
GPGS, for and on behalf of ITM, employed Dagasdas as Network Technician.
Dagasdas contended that although his position under his contract was as a Network
Technician, he actually applied for and was engaged as a Civil Engineer. When
Dagasdas arrived in Saudi Arabia, he signed with ITM a new employment contract
which stipulated that the latter contracted him as Superintendent or in any capacity
within the scope of his abilities. Under this contract, Dagasdas shall be placed under
a three-month probationary period.
When Dagasdas reported at ITM's worksite, he was allegedly given tasks suited for a
Mechanical Engineer. After raising his concern to his Supervisor, he was transferred
to the Civil Engineering Department. Later, Dagasdas averred that the Site
Coordinator Manager severed his employment with ITM. He was informed that he
was dismissed pursuant to clause 17.4.3 of his contract, which provided that ITM
reserved the right to terminate any employee within the three-month probationary
period without need of any notice to the employee. After returning to the
Philippines, he filed an illegal dismissal case against GPGS, ITM, and Aramco.
Dagasdas argued, among others, that although he was engaged as a project
employee, he was still entitled to security of tenure for the duration of his contract.

ISSUE: Whether or not the subsequent employment contract was valid.

RULING: No, the new contract which was used as basis for dismissing Dagasdas is
void. It is in clear violation of his right to security of tenure. ITM terminated him for
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violating clause 17.4.3 of his new contract which provided that the Company
reserves the right to terminate the agreement without serving any notice if the
termination is within the probation period of 3 months.
There is no clear justification for the dismissal of Dagasdas other than the exercise
of ITM's right to terminate him within the probationary period. While our Civil Code
recognizes that parties may stipulate in their contracts such terms and conditions as
they may deem convenient, these terms and conditions must not be contrary to law,
morals, good customs, public order or policy. The above-cited clause is contrary to
law because our Constitution guarantees that employees, local or overseas, are
entitled to security of tenure. To allow employers to reserve a right to terminate
employees without cause is violative of this guarantee of security of tenure.

98

Iloilo Jar Corporation v. COMGLASCO Corporation/Aguila Glass

GR No. 219509, January 18, 2017

J. Mendoza
CASE DOCTRINE: Obligations and Contracts: Petitioner cannot, however,
successfully take refuge in the said article, since it is applicable only to obligations
"to do," and not to obligations "to give." An obligation "to do" includes all kinds of
work or service; while an obligation "to give" is a prestation which consists in the
delivery of a movable or an immovable thing in order to create a real right, or for the
use of the recipient, or for its simple possession, or in order to return it to its owner.
The obligation to pay rentals or deliver the thing in a contract of lease falls within
the prestation "to give

FACTS: On August 16, 2000, petitioner Iloilo Jar Corp., as lessor, and respondent
Comglasco/Aguila, as lessee, entered into a lease contract over a portion of a
warehouse building in La Paz, Iloilo City for a term of 3 years or until August 15,
2003.
On December 1, 2001, Comglasco requested for the pre-termination of the lease
effected on the same date. Iloilo Jar, however, rejected the request on the ground
that the pre-termination of the lease contract was not stipulated therein. Despite the
denial of the request, Comglasco still removed all its stock, merchandise and
equipment from the leased premises. From the time of the withdrawal of the
equipment, and notwithstanding several demand letters, Comglasco no longer paid
all rentals accruing from the same date.
Consequently, Iloilo Jar filed a civil action for breach of contract and damages before
the RTC on October 10, 2003.
Comglasco filed its answer and raised an affirmative defense that by virtue of Article
1267 of the Civil Code. It was released from its obligation from the leas contract
since the consideration thereof had become so difficult due to the global and
regional economic crisis that had plagued the economy. Likewise, Comglaso
admitted that it had removed its stocks and merchandise but it did not refuse to pay
the rentals because the lease contract was already deemed terminated.

ISSUE: Whether or not Comglasco may raise as its affirmative defense Article 1267
of the Civil Code?

RULING: No. Comglasco's position fails to impress because Article 1267 applies only
to obligations to do and not to obligations to give. Thus, in Philippine National
Construction Corporation v. Court of Appeals the Court expounded:
Petitioner cannot, however, successfully take refuge in the said article, since it is
applicable only to obligations "to do," and not to obligations "to give." An obligation
"to do" includes all kinds of work or service; while an obligation "to give" is a
prestation which consists in the delivery of a movable or an immovable thing in
order to create a real right, or for the use of the recipient, or for its simple
possession, or in order to return it to its owner.
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The obligation to pay rentals or deliver the thing in a contract of lease falls within
the prestation "to give"; xxx

The principle of rebus sic stantibus neither fits in with the facts of the case. Under
this theory, the parties stipulate in the light of certain prevailing conditions, and
once these conditions cease to exist, the contract also ceases to exist. xxx
This article, which enunciates the doctrine of unforeseen events, is not, however, an
absolute application of the principle of rebus sic stantibus, which would endanger
the security of contractual relations. The parties to the contract must be presumed
to have assumed the risks of unfavorable developments. It is therefore only in
absolutely exceptional changes of circumstances that equity demands assistance for
the debtor.
Considering that Comglasco's obligation of paying rent is not an obligation to do, it
could not rightfully invoke Article 1267 of the Civil Code. Even so, its position is still
without merit as financial struggles due to an economic crisis is not enough reason
for the courts to grant reprieve from contractual obligations.
In COMGLASCO Corporation/Aguila Glass v. Santos Car Check Center Corporation,
the Court ruled that the economic crisis which may have caused therein petitioner's
financial problems is not an absolute exceptional change of circumstances that
equity demands assistance for the debtor. It is noteworthy that Comglasco was also
the petitioner in the above-mentioned case, where it also involved Article 1267 to
pre-terminate the lease contract.
Thus, the RTC was correct in ordering Comglasco to pay the unpaid rentals because
the affirmative defense raised by it was insufficient to free it from its obligations
under the lease contract. In addition, Iloilo Jar is entitled to attorney's fees because
it incurred expenses to protect its interest. The trial court, however, erred in
awarding exemplary damages and litigation expenses

100

SECURITY BANK CORPORATION, vs. SPOUSES RODRIGO and ERLINDA

MERCADO

JARDELEZA, J

CASE DOCTRINE: The principle of mutuality of contracts is found in Article 1308 of
the New Civil Code, which states that contracts must bind both contracting parties,
and its validity or compliance cannot be left to the will of one of them.

FACTS: Security Bank granted spouses Mercado a revolving credit line in the
amount of P1,000,000.00. To secure the credit line, the spouses Mercado executed a
Real Estate Mortgage in favor of Security Bank on July 3, 1996 over their properties.
On September 13, 1996, the spouses Mercado executed another Real Estate
Mortgage in favor of Security Bank this time over their properties located in
Batangas City, Batangas to secure an additional amount of P7,000,000.00 under the
same revolving credit agreement. Subsequently, the spouses Mercado defaulted in
their payment under the revolving credit line agreement. Security Bank requested
the spouses Mercado to update their account, and sent a final demand letter.
Thereafter, it filed a petition for extrajudicial foreclosure pursuant to Act No. 3135,
as amended, with the Office of the Clerk of Court and Ex-Officio Sheriff of the
properties mortgage by the spouses.

On November 8, 2000, the spouses Mercado filed a complaint for annulment of
foreclosure sale, damages, injunction, specific performance, and accounting with
application for temporary restraining order and/or preliminary injunction. In the
complaint, the spouses Mercado averred that: (1) the parcel of land in San Jose,
Batangas should not have been foreclosed together with the properties in Batangas
City because they are covered by separate real estate mortgages; (2) the
requirements of posting and publication of the notice under Act No. 3135, as
amended, were not complied with; (3) Security Bank acted arbitrarily in disallowing
the redemption of the foreclosed properties for P10,000,000.00; (4) the total price
for all of the parcels of land only amounted to P4,723,620.00; and (5) the interests
and the penalties imposed by Security Bank on their obligations were iniquitous and
unconscionable.

ISSUE; Whether the provisions on interest rate in the revolving credit line
agreement and its addendum are void for being violative of the principle of
mutuality of contracts.
RULING: The principle of mutuality of contracts is found in Article 1308 of the New
Civil Code, which states that contracts must bind both contracting parties, and its
validity or compliance cannot be left to the will of one of them. The binding effect of
any agreement between parties to a contract is premised on two settled principles:
(1) that any obligation arising from contract has the force of law between the
parties; and (2) that there must be mutuality between the parties based on their
essential equality. As such, any contract which appears to be heavily weighted in
favor of one of the parties so as to lead to an unconscionable result is void. Likewise,
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any stipulation regarding the validity or compliance of the contract that is

potestative or is left solely to the will of one of the parties is invalid. This holds true
not only as to the original terms of the contract but also to its modifications.

Stipulations as to the payment of interest are subject to the principle of mutuality of
contracts. As a principal condition and an important component in contracts of loan,
interest rates are only allowed if agreed upon by express stipulation of the parties,
and only when reduced into writing. Any change to it must be mutually agreed upon,
or it produces no binding effect.

Unlike in cases involving escalation clauses that allowed us to impose the original
rate of interest, we cannot do the same here as there is none. Nevertheless, while we
find that no stipulated interest rate may be imposed on the obligation, legal interest
may still be imposed on the outstanding loan. Eastern Shipping Lines, Inc. v. Court of
Appeals and Nacar v. Gallery Frames provide that in the absence of a stipulated
interest, a loan obligation shall earn legal interest from the time of default, i.e., from
judicial or extrajudicial demand.

102

Virata v. Wee
G.R. 220926, July 5, 2017
Velasco, Jr., J.

CASE DOCTRINE:
Under Article 1170 of the New Civil Code, those who in the performance of their
obligations are guilty of fraud are liable for damages. The fraud referred to in this
Article is the deliberate and intentional evasion of the normal fulfillment of
obligation.
The vendor in good faith shall be responsible for the existence and legality of the
credit at the time of the sale, unless it should have been sold as doubtful; but not for
the solvency of the debtor, unless it has been so expressly stipulated or unless the
insolvency was prior to the sale and of common knowledge.
The vendor in bad faith shall always be answerable for the payment of all expenses,
and for damages.

FACTS:
Ng Wee was a valued client of Westmont Bank. Sometime in 1998, he was enticed by
the bank manager to make money placements with Westmont Investment
Corporation (Wincorp), a domestic corporation organized and licensed to operate as
an investment house, and one of the bank's affiliates. Offered to him were "sans
recourse" transactions.
Lured by representations that the "sans recourse" transactions are safe, stable, high-
yielding, and involve little to no risk, Ng Wee, placed investments thereon under
accounts in his own name, or in those of his trustees. In exchange, Wincorp issued
Ng Wee and his trustees Confirmation Advices informing them of the identity of the
borrower with whom they were matched, and the terms under which the said
borrower would repay them.
Ng Wee's initial investments were matched with Hottick Holdings Corporation
(Hottick), one of Wincorp's accredited borrowers, the majority shares of which was
owned by a Malaysian national by the name of Tan Sri Halim Saad (Halim Saad).
Halim Saad was then the controlling shareowner of UEM-MARA, which has
substantial interests in the Manila Cavite Express Tollway Project (Cavitex).
Hottick was extended a credit facility with a maximum drawdown of
₱l,500,908,026.87 in consideration of securities it issued in favor of Wincorp,
Hottick fully availed of the loan facility extended by Wincorp, but it defaulted in
paying its outstanding obligations when the Asian financial crisis struck. As a result,
Wincorp filed a collection suit against Hottick, Halim Saad, and NSC for the
repayment of the loan and related costs. A Writ of Preliminary Attachment was then
issued against Halim Saad's properties, which included the assets of UEM-MARA
Philippines Corporation (UEM-MARA). Virata was not impleaded as a party
defendant in the case.
To induce the parties to settle, petitioner Virata offered to guarantee the full
payment of the loan. The guarantee was embodied in the Memorandum of
Agreement between him and Wincorp. Virata was then able to broker a compromise
between Wincorp and Halim Saad that paved the way for the execution of a
103

Settlement Agreement . In the Settlement Agreement, Halim Saad agreed to pay

USDl,000,000.00 to Wincorp in satisfaction of any and all claims the latter may have
against the former under the Surety Agreement that secured Hottick's loan. As a
result, Wincorp dropped Halim Saad from the case and the Writ of Preliminary
Attachment over the assets of UEM-MARA was dissolved.
Thereafter, Wincorp executed a Waiver and in favor of Virata, releasing the latter
from any obligation arising from the Memorandum of Agreement, except for his
obligation to transfer 40% equity of UEM Development Philippines, Inc. (UPDI) and
40% of UPDI's interest in the tollway project to Wincorp. Apparently, the
Memorandum of Agreement is a mere accommodation that is not meant to give rise
to any legal obligation in Wincorp's favor as against Virata, other than the stipulated
equity transfer.
Alarmed by the news of Hottick's default and financial distress, Ng Wee confronted
Wincorp and inquired about the status of his investments. Wincorp assured him that
the losses from the Hottick account will be absorbed by the company and that his
investments would be transferred instead to a new borrower account. In view of
these representations, Ng Wee continued making money placements, rolling over
his previous investments in Hottick and even increased his stakes in the new
borrower account - Power Merge Corporation (Power Merge).
Power Merge is a domestic corporation, the primary purpose of which is to "invest
in, purchase, or othe-rwise acquire and own, hold, use, sell, assign, transfer, mortgage,
pledge, exchange or otherwise dispose of real or personal property of every kind and
description." Petitioner Virata is the majority stockholder of the corporation, owning
374 ,996 out of its 375, 000 subscribed capital stock.
In a special meeting of Wincorp's board of directors, the investment house resolved
to file the collection case against Halim Saad and Hottick, and, on even date,
approved Power Merge' s application for a credit line, extending a credit facility to
the latter in the maximum amount of ₱l,300,000,000.00. Based on the minutes of the
special meeting, board chairman John Anthony B. Espiritu, Wincorp President
Antonio T. Ong (Ong), Mariza Santos-Tan (Santos-Tan), Manuel N. Tankiansee
(Tankiansee), and petitioners Manuel A. Estrella (Estrella), Simeon Cua, Henry T.
Cualoping, and Vicente Cualoping (Cua and the Cualopings) were allegedly in
attendance. Thus, Wincorp President Ong and Vice-President for Operations
petitioner Anthony Reyes (Reyes) executed a Credit Line Agreement in favor of
Power Merge with petitioner Virata's conformity.
Barely a month later, Wincorp, through another board meeting allegedly attended
by the same personalities, increased Power Merge's maximum credit limit to
₱2,500,000,000.00. Accordingly, an Amendment to the Credit Line Agreement
(Amendment) was executed by the same representatives of the two parties.
Power Merge made a total of six (6) drawdowns from the amended Credit Line
Agreement in the aggregate amount of P2,183,755,253.11. Following protocol,
Power Merge issued Promissory Notes in favor of Wincorp, either for itself or as
agent for or on behalf of certain investors, for each drawdown.
After receiving the promissory notes from Power Merge, Wincorp, in turn, issued
Confirmation Advices to Ng Wee and his trustees, as well as to the other investors
who were matched with Power Merge. A summary of the said Confirmation Advices
104

reveals that out of the ₱2,183,755,253.11 drawn by Power Merge, the aggregate
amount of ₱213,290,410.36 was sourced from Ng Wee's money placements under
the names of his trustees.

Unknown to Ng Wee, however, was that on the very same dates the Credit Line
Agreement and its subsequent Amendment were entered into by Wincorp and
Power Merge, additional contracts (Side Agreements) were likewise executed by the
two corporations absolving Power Merge of liability as regards the Promissory
Notes it issued.
Save for the amount, identical provisions were included in the Side Agreement. By
virtue of these contracts, Wincorp was able to assign its rights to the uncollected
Hottick obligations and hold Power Merge papers instead. However, this also meant
that if Power Merge subsequently defaults in the payment of its obligations, it would
refuse, as it did in fact refuse, payment to its investors.
Despite repeated demands, Ng Wee was not able to collect Power Merge's
outstanding obligation under the Confirmation Advices in the amount of
₱213,290,410.36. This prompted Ng Wee to institute a Complaint for Sum of Money
with Damages with prayer for the issuance of a Writ of Preliminary Attachment
(Complaint) before the Regional Trial Court (RTC), Branch 39 of Manila (R TC). Of
the seventeen (17) named defendants therein, only Virata, Power Merge, UPDI,
UEM-MARA, Wincorp, Ong, Reyes, Cua, Tankiansee, Santos-Tan, Vicente and Henry
Cualoping, and Estrella were duly served with summons.
In his Complaint, Ng Wee claimed that he fell prey to the intricate scheme of fraud
and deceit that was hatched by Wincorp and Power Merge. As he later discovered,
Power Merge's default was inevitable from the very start since it only had
subscribed capital in the amount of ₱37,500,000.00, of which only ₱9,375,000.00 is
actually paid up. He then attributed gross negligence, if not fraud and bad faith, on
the part of Wincorp and its directors for approving Power Merge's credit line
application and its subsequent increase to the amount of ₱2,500,000,000.00 despite
its glaring inability to pay.
Wincorp officers Ong and Reyes were likewise impleaded for signing the Side
Agreements that would allow Power Merge to avoid paying its obligations to the
investors.1âwphi1 Ng Wee also sought to pierce the separate juridical personality of
Power Merge since Virata owns almost all of the company's stocks. It was further
alleged that Virata acquired interest in UEM-MARA using the funds swindled from
the Wincorp investors.
As an annex to the Complaint, Ng Wee cited the Cease and Desist Order issued by the
Prosecution and Enforcement Department of the Securities and Exchange
Commission (SEC) in PED Case No. 20-2378 after its routine audit of the operations
of the investment house. Data gathered by the SEC showed that, as of December 31,
1999, Wincorp has sourced funds from 2,200 individuals with an average of
₱7,000,000,000.00 worth of commercial papers per month. In its subsequent
Resolution, the SEC found that the Confirmation Advices that Wincorp had been
issuing to its investors takes the form of a security that ought to have been
registered before being offered to the public, and that the investment house had also
105

been advancing the payment of interest to the investors to cover up its borrowers'
insolvency.
The defendants moved for the dismissal of the case for failure to state a cause of
action, among other reasons, moored on the fact that the investments were not
recorded in the name of Ng Wee. These motions, however, were denied by the RTC,
which denial was elevated by way of certiorari to the CA, only for the trial court
ruling to be affirmed. The issue eventually made its way to this Court. The Court
however, found no reversible error on the part of the CA when the appellate court
sustained the denial of the motions to dismiss.
In their respective Answers, the Wincorp and Power Merge camps presented
opposing defenses.
Wincorp admitted that it brokered Power Merge Promissory Notes to investors
through "sans recourse" transactions. It contended, however, that its only role was to
match an investor with corporate borrowers and, hence, assumed no liability for the
monies that Ng Wee loaned to Power Merge. As proof thereof, Wincorp brought to
the attention of the R TC the language of the SP as executed by the investors.
"Sans recourse" transactions, Wincorp added, are perfectly legal under Presidential
Decree No. 129 (PD 129), otherwise known as the Investment Houses Law, and forms
part of the brokering functions of an investment house. As a duly licensed
investment house, it was authorized to offer the "sans recourse" transactions to the
public, even without a license to perform quasi-banking functions.
For their part, the Wincorp directors argued that they can only be held liable under
Section 31 of Batas Pambansa Big. (BP) 68, the Corporation Code, if they assented to
a patently unlawful act, or are guilty of either gross negligence or bad faith in
directing the affairs of the corporation. They explained that the provision is
inapplicable since the approval of Power Merge's credit line application was done in
good faith and that they merely relied on the vetting done by the various
departments of the company. Additionally, Estrella and Tankiansee argued that they
were not present during the special meetings when Power Merge's credit line
application was approved and even objected against the same when they came to
know of such fact.
Reyes meanwhile asseverated that the first paragraph of Sec. 31 cannot find
application to his case since he is not a director of Wincorp, but its officer. It is his
argument that he can only be held liable under the second paragraph of the
provision if he is guilty of conflict of interest, which he is not. He likewise claimed
that he was duly authorized to sign the side Credit Line Agreements and Side
Agreements on behalf of Wincorp.
The Wincorp camp reiterated that Ng Wee's Complaint failed to state a cause of
action because the money placements were not registered under his name. It was
their postulation then that the alleged trustees should have instituted the case in
their own names.
On the other hand, petitioners Virata and UEM-MARA harped on the underlying
arrangement between Hottick, Power Merge, and Wincorp. Under the framework,
Hottick will issue Promissory Notes to Wincorp, which will then transfer the same to
Power Merge. In exchange for the transfer, Power Merge will issue its own
106

Promissory Notes to Wincorp. That way, Wincorp will be holding Power Merge
papers, instead of Hottick.
To implement this arrangement, Wincorp and Power Merge entered into a Credit
Line Agreement with the understanding that Power Merge and Virata's only
obligation thereunder would be to collect payments on the Hottick papers. The
Credit Line Agreement and the issuance of the promissory notes, according to
Virata, were mere accommodations to help Wincorp enforce the outstanding
obligations of Hottick. It was then contrary to their agreement for Wincorp to have
offered the Power Merge papers to investors since it was allegedly agreed upon that
Power Merge would incur no liability to pay the promissory notes it issued Wincorp.
The RTC rendered a in favor of Ng Wee. The CA promulgated the challenged ruling
substantially affirming the findings of the trial court.

ISSUE:

Whether or not Ng Wee was able to establish his cause/s of action against Wincorp
and Power Merge

RULING:

Yes. Only Wincorp is liable to Ng Wee for fraud; Power Merge is liable based on
contract.
That Wincorp defrauded Ng Wee is a finding of fact that is conclusive on this Court.
Jurisprudence defines "fraud" as the voluntary execution of a wrongful act, or a
willful omission, knowing and intending the effects which naturally and necessarily
arise from such act or omission. In its general sense, fraud is deemed to comprise
anything calculated to deceive, including all acts and omissions and concealment
involving a breach of legal or equitable duty, trust, or confidence justly reposed,
resulting in damage to another, or by which an undue and unconscientious
advantage is taken of another. Fraud is also described as embracing all multifarious
means which human ingenuity can device, and which are resorted to by one
individual to secure an advantage over another by false suggestions or by
suppression of truth and includes all surprise, trick, cunning, dissembling, and any
unfair way by which another is cheated.
Under Article 1170 of the New Civil Code, those who in the performance of their
obligations are guilty of fraud are liable for damages. The fraud referred to in this
Article is the deliberate and intentional evasion of the normal fulfillment of
obligation. Clearly, this provision is applicable in the case at bar. It is beyond quibble
that Wincorp foisted insidious machinations upon Ng Wee in order to inveigle the
latter into investing a significant amount of his wealth into a mere empty shell of a
corporation. And instead of guarding the investments of its clients, Wincorp
executed Side Agreements that virtually exonerated Power Merge of liability to
them; Side Agreements that the investors could not have been aware of, let alone
authorize.
The summation of Wincorp's actuations establishes the presence of actionable
fraud, for which the company can be held liable. In Jason vs. People, the Court upheld
107

the ruling that where one states that the future profits or income of an enterprise
shall be a certain sum, but he actually knows that there will be none, or that they
will be substantially less than he represents, the statements constitute an actionable
fraud where the hearer believes him and relies on the statement to his injury.
Just as in Jason, it is abundantly clear in the present case that the profits which
Wincorp promised to the investors would not be realized by virtue of the Side
Agreements. The investors were kept in the dark as regards the existence of these
documents, and were instead presented with Confirmation Advices from Wincorp to
give the transactions a semblance of legitimacy, and to convince, if not deceive, the
investors to roll over their investments or to part with their money some more.
Power Merge is not guilty of fraud, but is liable under contract nonetheless.
The story, however, is different for Power Merge. The circumstances of this case
points to the conclusion that Power Merge and Virata were not active parties in
defrauding Ng Wee. Instead, the company was used as a mere conduit in order for
Wincorp to be able to conceal its act of directly borrowing funds for its own account.
This is made evident by one highly peculiar detail- the date of the Power Merge's
drawdowns.
It must be remembered that the special meeting of Wincorp's board of directors was
conducted on February 9 and March 11 of 1999, while the Credit Line Agreement
and its Amendment were entered into on February 15 and March 15 of 1999,
respectively. But as indicated in Power Merge's schedule of drawdowns, Wincorp
already released to Power Merge the sum of ₱l,133,399,958.45 as of February 12,
1999, before the Credit Line Agreement was executed. And as of March 12, 1999,
prior to the Amendment, ₱l,805,018,228.05 had already been released to Power
Merge.
The fact that the proceeds were released to Power Merge before the signing of the
Credit Line Agreement and the Amendment thereto lends credence to Virata's claim
that Wincorp did not intend for Power Merge to be strictly bound by the terms of
the credit facility; and that there had already· been an understanding between the
parties on what their respective obligations will be, although this agreement had not
yet been reduced into writing. The underlying transaction would later on be
revealed in black and white through the Side Agreements, the tenor of which
amounted to Wincorp's intentional cancellation of Power Merge and Virata's
obligation under their Promissory Notes. In exchange, Virata and Power Merge
assumed the obligation to transfer equity shares in UPDI and the tollway project in
favor of Wincorp. An arm's length transaction has indeed taken place, substituting
Virata and Power Merge's obligations under the Promissory Notes, in pursuance of
the Memorandum of Agreement and Waiver and Quitclaim executed by Virata and
Wincorp. Thus, as far as Wincorp, Power Merge, and Virata are concerned, the
Promissory Notes had already been discharged.
It was the understanding of the two companies that the Promissory Notes would not
be passed on to the hands of third persons and that, in any event, Wincorp
guaranteed Virata that he and Power Merge would not be held liable thereon. Driven
by the desire to completely settle his obligation as a surety under the Hottick
account, V irata took the deal and relied in good faith that Wincorp's officials would
honor their gentleman's agreement. But as events unfolded, it turned out that
108

Wincorp was in evident bad faith when it subsequently assigned credits pertaining
to portions of the loan and the corresponding interests in the Promissory Notes to
the investors in the form of Confirmation Advices when it knew fully well of Power
Merge's discharge from liability.
Between Wincorp and Power Merge, it is Wincorp, as the assignor of the portions of
credit, that is under obligation to disclose to the investors the existence and
execution of the Side Agreements. Failure to do so, to Our mind, only goes to show
that the target of Wincorp' s fraud is not any particular individual, but the public at
large. On the other hand, it was not Power Merge's positive legal duty to forewarn
the investors of its discharge since the company did not deal with them directly.
Power Merge and Virata were agnostic as to the source of funds since they relied on
their underlying agreement with Wincorp that they would not be liable for the
Promissory Notes issued.
As far as it was concerned, Power Merge was merely laying the groundwork
prescribed by Wincorp towards fulfilling its obligations under the Waiver and
Quitclaim. Virata was not impelled by any Machiavellian mentality when he signed
the Side Agreements in Power Merge's behalf. Therefore, only Wincorp can be held
liable for fraud. Nevertheless, as will later on be discussed, Power Merge and Virata
can still be held liable under their contracts, but not for fraud.
Wincorp is liable as a vendor in bad faith and for breach of warranty.
Aside from its liability arising from its fraudulent transactions, Wincorp is also liable
to Ng Wee for breach of warranty. It cannot be emphasized enough that Wincorp is
not the mere agent that it claims to be; its operations ought not be reduced to the
mere matching of investors with corporate borrowers. Instead, it must be borne in
mind that it not only performed the functions of a financial intermediary duly
registered and licensed to perform the powers of an investment house, it is also
engaged in the selling of securities, albeit in violation of various commercial laws.
And just as in any other contracts of sale, the vendor of securities is likewise bound
by certain warranties, including those contained in Article 1628 of the New Civil
Code on assignment of credits, to wit:
Article 1628. The vendor in good faith shall be responsible for the existence and
legality of the credit at the time of the sale, unless it should have been sold as
doubtful; but not for the solvency of the debtor, unless it has been so expressly
stipulated or unless the insolvency was prior to the sale and of common knowledge.
x x x x
and for damages. (emphasis added)
That the securities sold to Ng Wee turned out to be "with recourse," not "sans
recourse" as advertised, does not remove it from the coverage of the above article. In
fact, such circumstance would even classify Wincorp as a vendor in bad faith, within
the contemplation of the last paragraph of the provision. But other than the
fraudulent designation of the transaction as "sans recourse," Wincorp's bad faith was
also brought to the fore by the execution of the Side Agreements, which cast serious
suspicion over, if it did not effectively annul, the existence and legality of the credits
assigned to Ng Wee under the numerous Confirmation Advices in the name of his
trustees.
109

Verily, the same acts of misrepresentations that constituted fraud in Wincorp's

transactions with Ng Wee are the very same acts that amounted to bad faith on its
part as vendor of securities. Inescapably, liability attaches because of Wincorp's
dishonest dealings.

110

Industrial Personnel and Management Services, Inc. v. Country Bankers

Insurance Corp., G.R. No. 194126, October 17, 2018

Caguioa, J.

Case Doctrine:

It is elementary that when the terms of an agreement have been reduced to writing,
it is considered as containing all the terms agreed upon and there can be no
evidence on such terms other than the contents of the written agreement. Further,
when the terms of the contract are clear and leave no doubt upon the intention of
the contracting parties, the stipulations of the parties are controlling.

Facts:
A contract of surety had been entered into by petitioner and applicant nurses to be
deployed supposedly to the United States, with herein respondent signed as the
surety thereof. Petitioner and respondent thereafter agreed on the stipulations and
dates of payment, but respondent had delayed payment for several months.
Respondent had asked for numerous extensions but failed to pay nonetheless.
Subsequently, the counsel of Country Bankers, Atty. Marisol Caleja, started to
oppose the payment of claims and insisted on the production of official receipts of
IPAMS on the expenses it incurred for the application of nurses.

IPAMS opposed this, saying that the Country Bankers' insistence on the production
of official receipts was contrary to, and not contemplated in, the MOA and was an
impossible condition considering that the U.S. authorities did not issue official
receipts. In lieu of official receipts, IPAMS submitted statements of accounts, as
provided in the MOA.

The CA held that respondent Country Bankers was justified in delaying the payment
of the claims to petitioner IPAMS because of the purported lack of submission by
petitioner IPAMS of official receipts and other "competent proof" on the expenses
incurred by petitioner IPAMS in its recruitment of nurse applicants.

Dissatisfied, petitioner appealed to the Supreme Court.

Issue:
Whether or not respondent Country Bankers was justified in refusing the payment
of petitioner IPAMS' claims?

Ruling:
The court rules in the NEGATIVE.
111


Petitioner IPAMS and respondent Country Bankers in essence made a stipulation to
the effect that mere demand letters, affidavits, and statements of accounts are
enough proof of actual damages — that more direct and concrete proofs of
expenditures by the petitioner such as official receipts have been dispensed with in
order to prove actual losses.

As to why the parties agreed on the sufficiency of the listed requirements under the
MOA goes into the motives of the parties, which is not hard to understand,
considering that the covered transactions, i.e., the processing of applications of
nurses in the U.S., are generally not subject to the issuance of official receipts by the
U.S. government and its agencies.

Considering the foregoing, the question is crystallized: Can the parties stipulate on
the requirements that must be presented in order to claim against a surety bond?
And the answer is a definite YES, pursuant to the autonomy characteristic of
contracts, they can. In an insurance contract, founded on the autonomy of contracts,
the parties are generally not prevented from imposing the terms and conditions that
determine the contract's obligatory force.

Thus, the view posited by the CA that the Requirements for Claim Clause is contrary
to law because it is incongruent with Article 2199 of the Civil Code and, therefore, an
exception to the rule on autonomy of contracts is erroneous. A more thorough
examination of Article 2199 does not support the CA's view.

Article 2199 of the Civil Code states:

Article 2199. Except as provided by law or by stipulation, one is entitled to an
adequate compensation only for such pecuniary loss suffered by him as he has duly
proved. Such compensation is referred to as actual or compensatory damages.
(Emphasis and underscoring supplied)

The law is clear and unequivocal when it states that one is entitled to adequate
compensation for pecuniary loss only for such losses as he has duly proved EXCEPT:
(1) when the law provides otherwise, or (2) by stipulation of the parties. Otherwise
stated, the amount of actual damages is limited to losses that were actually incurred
and proven, except when the law provides otherwise, or when the parties stipulate
that actual damages are not limited to the actual losses incurred or that actual
damages are to be proven by specific documents agreed upon.

Hence, it is crystal clear that the petitioner IPAMS and respondent Country Bankers,
by express stipulation, agreed that in order for the former to have a valid claim
under the surety bond, the only requirements that need to be submitted are the two
demand letters, an Affidavit stating reason of any violation to be executed by
responsible officer of the Recruitment Agency, a Statement of Account detailing the
expenses incurred, and the Transmittal Claim Letter. Evidently, the parties did not
112

include as preconditions for the payment of claims the submission of official

receipts or any other more direct or concrete piece of evidence to substantiate the
expenditures of petitioner IPAMS. If the parties truly had the intention of treating
the submission of official receipts as a requirement for the payment of claims, they
would have included such requirement in the MOA. But they did not.

113

NOELL WHESSOE, INC. vs. INDEPENDENT TESTING CONSULTANTS, INC.,

PETROTECH SYSTEMS, INC., and LIQUIGAZ PHILIPPINES CORP. G.R. No. 199851.
November 7, 2018.

LEONEN, J.

CASE DOCTRINE: Article 1729 creates a solidary liability between the owner, the
contractor, and the subcontractor. A solidary obligation is "one in which each debtor
is liable for the entire obligation, and each creditor is entitled to demand the whole
obligation." The contractor may be solidarily liable with the owner and the
subcontractor for any unpaid obligations to the subcontractor's supplier despite the
absence of a contract between the contractor and supplier. Full payment to the
subcontractor, however, serves as a valid defense against this liability.

FACTS: Independent Testing Consultants is engaged in the business of conducting
non-destructive testing on the gas pipes and vessels of its industrial customers.
Sometime in June 1998, Petrotech, a subcontractor of Liquigaz, engaged the services
of Independent Testing Consultants to conduct non-destructive testing on Liquigaz's
piping systems and liquefied petroleum gas storage tanks located in Barangay Alas-
Asin, Mariveles, Bataan. Independent Testing Consultants conducted the agreed
tests. It later billed Petrotech, on separate invoices, the amounts of P474,617.22 and
P588,848.48 for its services. However, despite demand, Petrotech refused to pay.
Independent Testing Consultants filed a Complaint for collection of sum of money
with damages against Petrotech, Liquigaz, and Noell Whessoe for P1,063,465.70
plus legal interest. It joined Noell Whessoe as a defendant, alleging that it was
Liquigaz's contractor that subcontracted Petrotech.

In its Answer, Liquigaz argued that Independent Testing Consultants had
no cause of action against it since there were no contractual relations between
them and that any contract that Independent Testing Consultants had was with
its subcontractors. Noell Whessoe, on the other hand, denied that it was
Liquigaz's contractor and that its basic role was merely to supervise the
construction of its gas plants. It argued that any privity of contract was only with
Petrotech. Thus, it asserted that Petrotech alone should be liable to Independent
Testing Consultants. Noell Whessoe later submitted a Formal Offer of
Documentary Exhibits showing that Liquigaz engaged Whessoe Projects Limited
(Whessoe UK), a limited company organized under the laws of the United
Kingdom, for the construction of its storage facilities. Whessoe UK, in turn,
engaged Noell Whessoe, a separate and distinct entity, to be the construction
manager for the Mariveles Terminal Expansion Project. The documents further
stated that Whessoe UK had already paid in full its contractual obligations to
Petrotech.
For its part, Petrotech alleged that upon Noell Whessoe's approval,
Independent Testing Consultants was chosen to conduct the non-destructive
testing on Liquigaz's liquefied petroleum gas storage vessel under the
supervision of OIS, an inspection firm from the United Kingdom, and of Nick
114

Stephenson (Stephenson). However, it averred that it later received a letter from

Noell Whessoe withdrawing its approval for Independent Testing Consultants'
continued services. Independent Testing Consultants' services allegedly failed to
satisfy the standards set by the OIS and Stephenson. Petrotech further claimed
that due to Independent Testing Consultants' poor performance, it incurred
additional costs. Thus, it prayed that Independent Testing Consultants be
ordered to pay the additional costs as actual damages.
Petitioner asserts that it should not have been made solidarily liable to
respondent Independent Testing Consultants since it had no privity of contract
with the latter. It maintains that the Contract Agreement for the Mariveles
Terminal Expansion Project was between Liquigaz and Whessoe UK, an entity
separate and distinct from petitioner. It likewise asserts that the Pipework and
Mechanical Equipment Installation Subcontract for the testing and delivery of
subcontracting works was between Whessoe UK and Petrotech. It explained that
the Conditions of Contract for Supply of Professional, Technical and Management
Services between Whessoe UK and petitioner was not intended to be a deed of
assignment where petitioner would step into Whessoe UK's shoes as contractor
but was rather merely an undertaking to supply professional, technical, and
management services.
Petitioner maintains that it cannot be bound by the contract between
Whessoe UK and Petrotech simply because it sent a letter to Petrotech
expressing dissatisfaction or disapproval of respondent Independent Testing
Consultants' services. It likewise points out that even assuming that there was
privity of contract, Whessoe UK had already paid in full its contractual
obligations to Petrotech. Thus, it asserts that it was entitled to moral damages of
P1,000,000.00 since "the filing of this baseless and unfounded case . . . has
tarnished its good business name and standing by giving the erroneous and false
impression to the public that it is a company that reneges on its obligations."
Respondent Independent Testing Consultants, on the other hand,
counters that petitioner directly approved and commissioned its services, as
admitted by Petrotech in its Answer before the Regional Trial Court. It claims
that petitioner never introduced evidence that it had already paid Petrotech, and
that its allegation that it was not the same entity being sued was negated by its
Answer before the Regional Trial Court. Thus, respondent argues that petitioner
was not entitled to any of its counterclaims.

ISSUE; 1) This Court is asked to resolve the issue of whether or not petitioner Noell
Whessoe, Inc. can be held solidarily liable with respondents Liquigaz Philippines
Corporation and Petrotech Systems, Inc. for unpaid fees to respondent Independent
Testing Consultants, Inc. Assuming that petitioner Noell Whessoe, Inc. was not
liable?
2) This Court is further asked to resolve the issue of whether or not it was entitled
to moral damages?

RULING: 1) No. Article 1729 talks of three (3) different parties: the owner, the
contractor, and the supplier. In certain situations, the supplier may also be referred
115

to as a subcontractor to provide materials or services. There are also situations

where, as in this case, the subcontractor further subcontracts some materials and
services to another subcontractor. This sub-subcontractor would be considered the
supplier of materials and services. In this case, the owner is Liquigaz, the contractor
is petitioner, the subcontractor is Petrotech, and the supplier/sub-subcontractor is
respondent Independent Testing Consultants.
Considering that the rationale behind the provision is to protect suppliers
from possible connivance between the owners and the contractors, there would
be no reason to apply the same rationale when it was the subcontractor that
hired the supplier. The liability will extend from the owner to the contractor to
the subcontractor.
Under Article 1729, respondent Independent Testing Consultants had a
cause of action against Liquigaz and petitioner, even if its contract was only with
Petrotech. The Regional Trial Court and the Court of Appeals, therefore, did not
err in concluding that petitioner was solidarily liable with Liquigaz and
Petrotech for unpaid fees to respondent Independent Testing Consultants.
Article 1729 creates a solidary liability between the owner, the
contractor, and the subcontractor. A solidary obligation is "one in which each
debtor is liable for the entire obligation, and each creditor is entitled to demand
the whole obligation." Respondent Independent Testing Consultants may
demand payment for all of its unpaid fees from Liquigaz, petitioner, or Petrotech,
even if its contract was only with the latter.
However, Article 1729, while serving as an exception to the general rule
on the privity of contracts, likewise provides for an exception to this exception.
The contractor is solidarily liable with the owner and subcontractor for any
liabilities against a supplier despite the absence of contract between the
contractor and the supplier, except when the subcontractor has already been fully
paid for its services.

2) While petitioner is absolved from its solidary liability, it is not,
however, entitled to any moral damages.
Petitioner asserts that it was entitled to moral damages of P1,000,000.00
on the basis that respondent Independent Testing Consultants' collection suit
"has tarnished its good business name and standing[.]"
Moral damages are awarded when the claimant suffers "physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and similar injury." "These
damages must be understood to be in the concept of grants, not punitive or
corrective in nature, calculated to compensate the claimant for the injury
suffered." Its award is "aimed at a restoration, within the limits possible, of the
spiritual status quo ante; and therefore, it must be proportionate to the suffering
inflicted."
A corporation is not a natural person. It is a creation of legal fiction and
"has no feelings[,] no emotions, no senses[.]"A corporation is incapable of fright,
anxiety, shock, humiliation, and physical or mental suffering. "Mental suffering
can be experienced only by one having a nervous system and it flows from real
116

ills, sorrows, and griefs of life[.]"A corporation, not having a nervous system or a
human body, does not experience physical suffering, mental anguish,
embarrassment, or wounded feelings. Thus, a corporation cannot be awarded
moral damages.

117

WERR CORPORATION INTERNATIONAL, Petitioner, v. HIGHLANDS PRIME, INC.

G.R. No. 187543 & G.R. No. 187580, February 08, 2017
Jardeleza, J.

Case Doctrine:

Deemed incorporated into every contract are the general provisions on obligations
and interpretation of contracts found in the Civil Code. The Civil Code provides:
Art. 1234. If the obligation has been substantially performed in good faith, the
obligor may recover as though there had been a strict and complete fulfillment, less
damages suffered by the obligee.
Art. 1376. The usage or custom of the place shall be borne in mind in the
interpretation of the ambiguities of a contract, and shall fill the omission of
stipulations which are ordinarily established.

FACTS: Highlands Prime, Inc. (HPI) and Werr Corporation International (Werr) are
domestic corporations engaged in property development and construction,
respectively. For the construction of 54 residential units contained in three clusters
of five-storey condominium structures, known as "The Horizon-Westridge Project,"
in Tagaytay Midlands Complex, Talisay, Batangas.
The project, however, was not completed on the initial completion date of February
19, 2006, which led HPI to grant several extensions and a final extension until
October 15, 2006. On May 8, 2006, Werr sought the assistance of HPI to pay its
obligations with its suppliers under a "Direct Payment Scheme" totaling
P24,503,500.08, which the latter approved only up to the amount of
P18,762,541.67. The amount is to be charged against the accumulated retention
money. As of the last billing on October 25, 2006, HPI had already paid the amount
of P232,940,265.85 corresponding to 93.18% accomplishment rate of the project
and retained the amount of P25,738,258.01 as retention bond.
The project was not completed on the last extension given. Thus, HPI terminated its
contract with Werr on November 28, 2006, which the latter accepted on November
30, 2006.16 No progress billing was adduced for the period October 28, 2006 until
the termination of the contract.
Werr demanded the balance of the contract price while HPI demanded for
liquidated damages.
The CIAC ruled that since the agreement did not state when liquidated damages
should accrue it should follow industry practice, the liquidated damages will not
accrue after achieving substantial compliance.

ISSUE: Whether or not liquidated damages should be computed based on industry
practice.

RULING: Yes, However Werr cannot benefit from the application of such.
We reject this claim of Werr and find that while this industry practice may
supplement the Agreement, Werr cannot benefit from it.
118

At the outset, we do not agree with the CA that industry practice be rejected because
liquidated damages are provided in the Agreement, autonomy of contracts prevails,
and industry practice is completely set aside. Contracting parties are free to
stipulate as to the terms and conditions of the contract for as long as they are not
contrary to law, morals, good customs, public order or public policy. Corollary to
this rule is that laws are deemed written in every contract.
Deemed incorporated into every contract are the general provisions on obligations
and interpretation of contracts found in the Civil Code. The Civil Code provides:
Art. 1234. If the obligation has been substantially performed in good faith, the
obligor may recover as though there had been a strict and complete fulfillment, less
damages suffered by the obligee.
Art. 1376. The usage or custom of the place shall be borne in mind in the
interpretation of the ambiguities of a contract, and shall fill the omission of
stipulations which are ordinarily established.
In previous cases, we applied these provisions in construction agreements to
determine whether the project owner is entitled to liquidated damages. We held
that substantial completion of the project equates to achievement of 95% project
completion which excuses the contractor from the payment of liquidated damages.
Considering the foregoing, it: was error for the CA to immediately dismiss the
application of industry practice on the sole ground that there is an existing
agreement as to liquidated damages. As expressly stated under Articles 1234 and
1376, and in jurisprudence, the construction industry’s prevailing practice may
supplement any ambiguities or omissions in the stipulations of the contract.
In this case, clause 41.5 of the Agreement is undoubtedly a valid stipulation.
However, while clause 41.5 requires payment of liquidated damages if there is
delay, it is silent as to the period until when liquidated damages shall run. The
Agreement does not state that liquidated damages is due until termination of the
project; neither does it completely reject that it is only due until substantial
completion of the project. This omission in the Agreement may be supplemented by
the provisions of the Civil Code, industry practice, and the CIAP Document No. 102.
Hence, the industry practice that substantial compliance excuses the contractor
from payment of liquidated damages applies to the Agreement.
Nonetheless, we find that Werr cannot benefit from the effects of substantial
compliance. Here, there is no dispute that Werr failed to prove that it completed
95% of the project before or at the time of the termination of the contract. As found
by CIAC, it failed to present evidence as to what accomplishment it achieved from
the time of the last billing until the termination of the contract. What was admitted
as accomplishment at the last billing is 93.18%.

119

SM SYSTEMS CORPORATION (formerly SPRINGSUN MANAGEMENT SYSTEMS

CORPORATION) vs OSCAR CAMERINO, EFREN CAMERINO, CORNELIO MANTILE,
DOMINGO ENRIQUEZ AND HEIRS OF NOLASCO DEL ROSARIO
G.R. No. 178591
March 29, 2017

Reyes, J.

CASE DOCTRINE: There is no justification to disallow a compromise agreement,
solely because it was entered into after final judgment. The validity of the agreement
is determined by compliance with the requisites and principles of contracts, not by
when it was entered into. As provided by the law on contracts, a valid compromise
must have the following elements: (1) the consent of the parties to the compromise;
(2) an object certain that is the subject matter of the compromise; and (3) the cause
of the obligation that is established. Thus, the compromise agreements executed by
and between SMS and four of the farmers are valid, thus, a novation of the judgment
in the redemption case.

FACTS: Victoria Homes, Inc. was the registered owner of the subject lots.
Respondents were farmers-tenants of Victoria Homes, cultivating and planting rice
and corn on the lots. Victoria Homes sold them to SMS SM SYSTEMS CORPORATION.
Springsun subsequently mortgaged the subject lots to Banco Filipino Savings and
Mortgage Bank (Banco Filipino) as security for its various loans amounting to ₱ll,
545,000.00. When Springsun failed to pay its loans, the mortgage was foreclosed
extra-judicially. At the public auction sale, the lots were sold to Banco Filipino, being
the highest bidder, but they were eventually redeemed by Springsun.

Respondents filed with the RTC a complaint against Springsun and Banco Filipino
for Temporary Restraining Order or, simply, an action for Redemption. On January
25, 2002, the RTC rendered a decision in favor of respondents authorizing them to
redeem the subject lots from SMS. On appeal to the CA, the appellate court affirmed
the RTC decision. On August 20, 2005, [SMS] and [the farmers] (except [Oscar])
executed a document, denominated as Kasunduan, wherein the latter agreed to
receive ₱300,000.00 each from the SMS, as compromise settlement. SMS then filed a
Motion to Hold Execution in Abeyance on the Ground of Supervening Event.

On September 7, 2005, the RTC denied motion and the Kasunduan separately
entered into by are disapproved. Aggrieved SMS elevated the matter to the CA. The
CA concluded that the compromise agreement could not novate the Court’s earlier
Decision because only four out of five parties executed the agreement.

ISSUE: Whether or not the Kasunduan effectively novated the judgment obligation.

RULING: The Supreme Court ruled that there was a novation of the judgment in the
redemption case.

120

There is no justification to disallow a compromise agreement, solely because it was

entered into after final judgment. The validity of the agreement is determined by
compliance with the requisites and principles of contracts, not by when it was
entered into. As provided by the law on contracts, a valid compromise must have the
following elements: (1) the consent of the parties to the compromise; (2) an object
certain that is the subject matter of the compromise; and (3) the cause of the
obligation that is established.

In the course of the proceedings of the instant case, the farmers themselves raised
no challenge relative to the existence of the elements of a valid contract. The
execution of the compromise agreements between SMS and four of the farmers is an
undisputed fact. There are likewise no claims of vitiated consent and no proof that
the agreements were "rescissible, voidable, unenforceable, or void."40 Moreover,
the Court does not find the amount of ₱300,000.00 paid to each of the four farmers
as unconscionable especially in the fight of Efren's subsequent declaration that they
tilled the land on their own initiative, without procuring anybody's permission, and
sans a harvest sharing agreement.41

The Court, thus, finds no compelling grounds to invalidate the compromise
agreements. In Heirs of Servando Franco v. Spouses Gonzales, the Court discussed
novation in this wise:

A novation arises when there is a substitution of an obligation by a subsequent one
that extinguishes the first, either by changing the object or the principal conditions,
or by substituting the person of the debtor, or by subrogating a third person in the
rights of the creditor: For a valid novation to take place, there must be, therefore: (a)
a previous valid obligation; (b) an agreement of the parties to make .a new contract;
(c) an extinguishment of the old contract; and (d) a valid new contract. In short, the
new obligation extinguishes the prior agreement only when the substitution is
unequivocally declared, or the old and the new obligations are incompatible on
every point. A compromise of a final judgment operates as a novation of the
judgment obligation upon compliance with either of these two conditions.

In the case at bar, SMS’ obligation to allow redemption of the three parcels of land
was superseded by the terms of the compromise agreements executed with the four
farmers. SMS’ new obligation consisted of the payment of ₱300,000.00 each to the
four farmers, who, in turn, waived their redemption rights. Novation, thus, arose as
the old obligation became incompatible with the new.

The Court also notes that Oscar, the farmer who did not execute a compromise
agreement with SMS, filed before the RTC a Manifestation and Motion, dated
September 15, 2006, indicating that “he has no plans, as he is in no financial
position, to exercise the right of redemption” granted to him.

121

DEVELOPMENT BANK OF PHILIPPINES v. STA. INES MELALE FOREST

PRODUCTS CORPORATION (GR No. 193068, February 01, 2017); AND
NATIONAL DEVELOPMENT CORPORATION, v. STA. INES MELALE FOREST
PRODUCTS CORPORATION, RODOLFO M. CUENCA, MANUEL I. TINIO, CUENCA
INVESTMENT CORPORATION AND UNIVERSAL HOLDINGS CORPORATION (G.R.
No. 193099, February 1, 2017)

LEONEN, J.

CASE DOCTRINE:

“A condition shall be deemed fulfilled when the obligor voluntarily prevents
its fulfilment and a debtor loses the right to make use of the period when a condition
is violated, making the obligation immediately demandable.”

“It should be noted that in order to give novation its legal effect, the law
requires that the creditor should consent to the substitution of a new debtor. This
consent must be given expressly for the reason that, since novation extinguishes the
personality of the first debtor who is to be substituted by new one, it implies on the
part of the creditor a waiver of the right that he had before the novation, which
waiver must be express under the principle that renuntiatio non præsumitur,
recognized by the law in declaring that a waiver of right may not be performed
unless the will to waive is indisputably shown by him who holds the right.”

FACTS:
DBP guaranteed Galleon’s foreign loans. In return, Galleon undertook to secure a
first mortgage on its five new vessels and two second-hand vessels.
On July 21, 1981, President Marcos issued Letter of Instructions addressed to the
NDC, DBP, and the Maritime Industry Authority. To acquire 100% of the
shareholdings of Galleon Shipping Corporation from its present owners. For the
furtherance of the government’s policy to provide a reliable liner service between
the Philippines and its major trading partners
Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings claimed that
“DBP can no longer go after them for any deficiency judgment since NDC had been
subrogated in their place as borrower[s], hence the Deed of Undertaking between
[Sta. Ines, Cuenca Investment, Universal Holdings, Cuenca, and Tinio and DBP] had
been extinguished and novated.”

ISSUE: Whether or not the Memorandum of Agreement novated the Deed of
Undertaking executed between DBP and the shareholders of Galleon.

RULING:
122

The Supreme Court ruled that there exist no novation in the present case.
It should be noted that in order to give novation its legal effect, the law requires that
the creditor should consent to the substitution of a new debtor. This consent must
be given expressly for the reason that, since novation extinguishes the personality of
the first debtor who is to be substituted by new one, it implies on the part of the
creditor a waiver of the right that he had before the novation, which waiver must be
express under the principle that renuntiatio non prcesumitur, recognized by the law
in declaring that a waiver of right may not be performed unless the will to waive is
indisputably shown by him who holds the right. (Emphasis supplied)
The general rule is that, “[i]n the absence of an authority from the board of
directors, no person, not even the officers of the corporation, can validly bind the
corporation.” A corporation is a juridical person, separate and distinct from its
stockholders and members, having “powers, attributes and properties expressly
authorized by law or incident to its existence.”
“A corporate officer or agent may represent and bind the corporation in

transactions with third persons to the extent that [the] authority to do so has been
conferred upon him, and this includes powers which have been intentionally
conferred, and also such powers as, in the usual course of the particular business,
are incidental to, or may be implied from, the powers intentionally conferred,
powers added by custom and usage, as usually pertaining to the particular officer or
agent, and such apparent powers as the corporation has caused persons dealing
with the officer or agent to believe that it has conferred.”
Aside from Ongpin being the concurrent head of DBP and NDC at the time the
Memorandum of Agreement was executed, there was no proof presented that
Ongpin was duly authorized by the DBP to give consent to the substitution by NDC
as a co-guarantor of Galleon’s debts. Ongpin is not DBP, therefore, it is wrong to
assume that DBP impliedly gave its consent to the substitution simply by virtue of
the personality of its Governor.
Novation is never presumed. The animus novandi, whether partial or total, “must
appear by express agreement of the parties, or by their acts which are too clear and
unequivocal to be mistaken.”
There was no such animus novandi in the case at bar between DBP and respondents,
thus, respondents have not been discharged as Galleon’s co-guarantors under the
Deed of Undertaking and they remain liable to DBP.
123

PROVINCE OF CAMARINES SUR v. BODEGA GLASSWARE

GR No. 194199, Mar 22, 2017

PONENTE: Jardeleza, J.

CASE DOCTRINE:

“We explained in De Luna that Article 1306 of the Civil Code allows the
parties "to establish such stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law, morals, good customs,
public order or public policy." In contracts law, parties may agree to give one or
both of them the right to rescind a contract unilaterally. This is akin to an automatic
revocation clause in an onerous donation. The jurisprudence on automatic
rescission in the field of contracts law therefore applies in an automatic revocation
clause.

Hence, in De Luna, we applied our rulings in University of the Philippines v.
De los Angeles and Angeles v. Calasanz where we held that an automatic rescission
clause effectively rescinds the contract upon breach without need of any judicial
declaration.”

FACTS:

Petitioner is the registered owner of a parcel of land in Peñafrancia, Naga
City under Original Certificate of Title (OCT) No. 22. On September 28, 1966,
through then Provincial Governor Apolonio G. Maleniza, petitioner donated around
600 square meters of this parcel of land to the Camarines Sur Teachers' Association,
Inc. (CASTEA) through a Deed of Donation Inter Vivos

The Deed of Donation included a Automatic Revocation Clause which states
that hat the DONEE shall use the above-described portion of land subject of the
present donation for no other purpose except the construction of its building to be
owned and to be constructed by the above-named DONEE to house its offices to be
used by the said Camarines Sur Teachers' Association, Inc., in connection with its
functions under its charter and by-laws and the Naga City Teachers' Association as
well as the Camarines Sur High School Alumni Association.. PROVIDED
FURTHERMORE, that the DONEE shall not sell, mortgage or incumber the
property herein donated including any and all improvements thereon in favor
of any party and provided, lastly, that the construction of the building or buildings
referred to above shall be commenced within a period of one (1) year from and after
the execution of this donation, otherwise, this donation shall be deemed
automatically revoked and voided and of no further force and effect.

124

CASTEA accepted donation However, CASTEA entered into a Contract of

Lease with respondent Bodege Glassware over the donated property.

The Office of the Provincial Legal Officer asked Bodega to show proof of
ownership over the subject land to which the latter failed to comply. Nevertheless,
petitioner left Bodega undisturbed and merely tolerated its possession of the
property.

Petitioner, through its then Provincial Governor Luis Raymund F. Villafuerte,
Jr., revoked its donation through a Deed of Revocation of Donation (Deed of
Revocation) dated October 14, 2007. It asserted that CASTEA violated the conditions
in the Deed of Donation when it leased the property to Bodega.

Bodega alleged that it has right of possession over the subject property
because it is based on the Contract of Lease, not on the Deed of Donation. Petitioner
it should have first filed an action for reconveyance of the property against CASTEA.
This is based on the theory that judicial intervention is necessary to ascertain if the
automatic revocation clause suffices to declare the donation revoked.

ISSUE;

The core issue in this case is who between petitioner and Bodega has the
right to the actual physical possession of the property. The resolution of this issue
requires us to look into the basis of their claims of possession. Essential to this is the
determination of the effect of the automatic revocation clause in the Deed of
Donation.

RULING:

This Court has affirmed the validity of an automatic revocation clause in
donations in the case of De Luna v. Abrigo promulgated in 1990. We explained the
nature of automatic revocation clauses by first identifying the three categories of
donation. In De Luna, we said that a donation may be simple, remuneratory or
onerous. A donation is simple when the cause is the donor's pure liberality. It is
remuneratory when the donor "gives something to reward past or future services or
because of future charges or burdens, when the value of said services, burdens or
charges is less than the value of the donation." A donation is onerous when it is
"subject to burdens, charges, or future services equal (or more) in value than that of
the thing donated x x x." This Court found that the donation in De Luna was onerous
as it required the donee to build a chapel, a nursery, and a kindergarten. We then
went on to explain that an onerous donation is governed by the law on contracts
and not by the law on donations. It is within this context that this Court found an
automatic revocation clause as valid.

We explained in De Luna that Article 1306 of the Civil Code allows the parties
"to establish such stipulations, clauses, terms and conditions as they may deem
125

convenient, provided they are not contrary to law, morals, good customs, public
order or public policy." In contracts law, parties may agree to give one or both of
them the right to rescind a contract unilaterally. This is akin to an automatic
revocation clause in an onerous donation. The jurisprudence on automatic
rescission in the field of contracts law therefore applies in an automatic revocation
clause.

Hence, in De Luna, we applied our rulings in University of the Philippines v.
De los Angeles and Angeles v. Calasanz where we held that an automatic rescission
clause effectively rescinds the contract upon breach without need of any judicial
declaration

We, however, clarified that the other party may contest the extrajudicial
rescission in court in case of abuse or error by the rescinder. It is only in this case
where a judicial resolution of the issue becomes necessary.

We then reiterated in Roman Catholic Archbishop of Manila that where a
donation has an automatic revocation clause, the occurrence of the condition agreed
to by the parties as to cause the revocation, is sufficient for a party to consider the
donation revoked without need of any judicial action. A judicial finding that the
revocation is proper is only necessary when the other party actually goes to court
for the specific purpose of challenging the propriety of the revocation.

Thus, as petitioner validly considered the donation revoked and CASTEA
never contested it, the property donated effectively reverted back to it as owner. In
demanding the return of the property, petitioner sources its right of possession on
its ownership. Under Article 428 of the Civil Code, the owner has a right of action
against the holder and possessor of the thing in order to recover it.

This right of possession prevails over Bodega's claim which is anchored on
its Contract of Lease with CASTEA. CASTEA's act of leasing the property to Bodega,
in breach of the conditions stated in the Deed of Donation, is the very same act
which caused the automatic revocation of the donation. Thus, it had no right, either
as an owner or as an authorized administrator of the property to lease it to Bodega.
While a lessor need not be the owner of the property leased, he or she must, at the
very least, have the authority to lease it out. None exists in this case. Bodega finds no
basis for its continued possession of the property.

126

Loadstar Shipping Company, Inc. and Loadstar International Shipping

Company, Inc. v. Malayan Insurance Company, Inc. (Resolution)
G.R. No.185565, April 26, 2017
J. Reyes

CASE DOCTRINE:
In the Separate Opinion, J. Peralta noted:

Under Art. 1170 of the Civil Code, those who in the performance of their obligations
are guilty of fraud, negligence, or delay and those who in any manner contravene the
tenor thereof, are liable for damages. (Sps. Guanio v. Makati Shangri-La Hotel and
Resort, Inc.[656 Phil 608]

FACTS:
This resolves the Motion for Reconsideration filed by respondent Malayan against
the favorable ruling rendered by the same court in favor of Loadstar, disregarding
the conclusion of the Court of Appeals that petitioner acted as a common carrier;
that there was a breach of contract of affreightment and that it failed to produce
evidence of a calamity to be exculpated from liability. Petitioner Loadstar contended
that the case is moot since Malayan itself did not adduce proof of pecuniary loss to
the insured, Philippine Associated Smelting and Refining Corp. (PASAR). It also
argued that Malayan cannot make Loadstar answerable for its mistake of
indemnifying PASAR.
Malayan ultimately filed Motion to Refer the case to the Court En Banc alleging that
the 2014 Decision deviated from the doctrine enunciated in Delsan Transport Lines,
Inc. v. CA., where the Court held that upon payment of the insurance company of the
insurance claim, the insurance company of the insurance claim, the insurance
company should be subrogated to the rights of the insured; it is not even necessary
to present the insurance policy because subrogation is a matter of equity.

ISSUE:
Whether or not respondent is entitled to the right of recovery by virtue of
subrogation against petitioners, on the basis of PASAR’s claim?

RULING:
Yes.
The court deems it proper to award nominal damages to Malayan, in recognition of
the breach of contract committed by the petitioners. “so long as there is a violation
of the right of the plaintiff – whether based on law, contract or other sources of
obligations, an award of damages is proper. [Art. 2221 and Art. 2222 of the Civil
Code]:

Art. 2221. Nominal damages are adjudicated in order that
a right of the plaintiff, which has been violated or invaded by the
defendant, may be vindicated or recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered by him
127

Art. 2222. The court may award nominal damages

in every obligation arising from any source enumerated in Art. 1157, or
in every case where any property right has been invaded.

Petitioners failed to comply with some of the terms of their contract of
affreightment with PASAR. It was stipulated that the vessel to be used must not
exceed 25 years of age yet the vessel, MV Bobcat, was more than that age when the
subject copper concentrates were transported. Additionally, the petitioners failed to
keep the cargo holds and hatches of MV Bobcat clean and fully secured as agreed
upon, which resulted in the wettage of the cargo.

Wherefore, the motion for reconsideration is partly granted. The 2014 decision is
modified in that nominal damages in the amount of {1,7169,374.725 is awarded to
Malayan Insurance Company, with legal interest at the rate of 6% per annum from
the finality of this Resolution until fully paid.

128

KA KUEN CHUA vs COLORITE MARKETING CO.

GR NO. 193969-70 JULY 5, 2017
J. REYES
CASE DOCTRINE:

Article 1370 of the Civil Code in part states that "if 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 rule is that where the language of a contract is plain and unambiguous, its
meaning should be determined without reference to extrinsic facts or aids. The
intention of the parties must be gathered from that language, and from that language
alone. Stated differently, where the language of a written contract is clear and
unambiguous, the contract must be taken to mean that which, on its face, it purports
to mean, unless some good reason can be assigned to show that the words used should
be understood in a different sense. Courts cannot make for the parties better or more
equitable agreements than they themselves have been satisfied to make, or rewrite
contracts because they operate harshly or inequitably as to one of the parties, or alter
them for the benefit of one party and to the detriment of the other, or by construction,
relieve one of the parties from terms which he voluntarily consented to, or impose on
him those which he did not.

FACTS:
Colorite and Architect Chua, doing business under the name KA KUEN CHUA
ARCHITECTURAL (KKCA) signed a construction contract whereby the latter
undertook to construct a four-storey residential/commercial building for the
former. The parties agreed to a full contract price of Thirty-Three Million Pesos (Php
33,000,000.00), subject, among others, to the following stipulations:

a) the project will commence in seven days from the time KKCA received a notice to
proceed from Colorite, and will be completed within 365 days reckoned from the
seventh day after the release of the down payment;
b) in the event that the project is not completed on time, the amount of Php 10,000.00
for each calendar day of delay shall be paid by KKCA to Colorite;
c) only a maximum of 20% of slippage, or 73 calendar days of delay, is allowed, and
Colorite has the right to terminate the contract if the delay exceeded the maximum
number of days allowed; and
d) Colorite has the right to take over and complete the construction of the project, and
all costs incurred thereby will be deducted from the amount due to KKCA.

After payment of the initial price, KKCA contracted the services of WE
CONSTRUCTION COMPANY (WCC) for the construction. Full-blast excavation began
but the excavation resulted in soil erosion which destroyed the adjacent property
owned by the Hontiveros family. The Hontiveros filed a complaint with the City
Government of Makati and the latter issued a Hold Order, directing KKCA and WCC
to hold all excavations until they restored the property of the Hontiveros. The
129

restoration was completed but resulted in the delay of the performance of the
contract between KKCA and Colorite. Colorite demanded from KKCA to pay damages
pursuant to the contract. KKCA refused contending that: (a) the agreed completion
period was suspended when the City Government of Makati issued the Hold Order;
and (b) Colorite failed to pay the costs of soil protection, as well as the 70% of the
restoration cost of the Hontiveros property, which allegedly formed part of the
agreement.
The dispute impelled Colorite to file the instant claim before the CIAC. Colorite
prayed for payment of liquidated damages and payment of loss of rentals while
KKCA prayed for payment of expenses for restoring the Hontiveros property and
soil protection works. CIAC ruled that Colorite was entitled only to liquidated
damages only and KKCA was entitled only payment of the soil protection works and
design fee. Unsatisfied with the decision, the case was elevated to the CA.

The CA affirmed the decision of the CIAC. According to the CA, the construction
contract shows that Colorite was indeed liable for the payment of the design fee, it
being not really included in the summary of the bid proposal, which itemized all the
works that KKCA proposed to perform. On the other hand, soil protection and
excavation works were deemed included in the KKCA's scope of work; hence,
expenses for said items should be deemed as necessarily contained in the agreed
contract cost and no separate computation and payment for the same is necessary.
Nevertheless, the CA adjudged that KKCA is entitled to its claim for soil protection
works in the amount proved by the evidence presented, and the same shall be
deducted from the total down payment already made.

As further found by the CA, the original construction contract categorically states
that Colorite shall be held free from any liability arising from damages to third
parties; thereupon, only KKCA should be made to bear the costs of the restoration of
the Hontiveros property. However, the CA maintained that said stipulation was
deemed superseded when the parties agreed that Colorite will share in the cost of
restoration of the Hontiveros property (restoration agreement). Due to this fact, and
because of Colorite's contributory negligence owing to its failure to deliver the share
it promised, it is partly to blame for the protracted delay of the project

ISSUE:
Whether or not Soil Protection Works, though not stated in the contract was part of
the obligation of KKCA.

RULING:
The Court ruled that Soil Protection Works is a part of the contract between Colorite
and KKCA. When the parties met on December 15, 2003 for the signing of the
contract, Colorite presented Addendum #01 and Addendum #02. Paragraph 21 of
Addendum #01 included all excavation works within the scope of works of the
general contractor, while paragraph 33 of Addendum #01 stipulates that the general
contractor shall be responsible for soil protection works, i.e., provide, erect and
maintain all necessary bracing, shoring, planking, etc., as required to protect the
130

adjoining property against settlement and damages, and to make sure that the
methodology to be used will protect the adjacent properties against erosion and
settlement.

The provisions of paragraphs 21 and 33 of Addendum #01 are clear and
unambiguous:
21. All excavation works as required for, should be included on the scope of works of
the Contractor. Disregard Pre-Bid Minutes Item II-G at Page 3.
NOTE: Corresponding cost to be paid to the contractor based on sub-contractor's cost.
33. The Contractor to provide, erect and maintain all necessary bracing, shoring,
planking, etc. as required to protect the adjoining property against settlement and
damages. Adequate dewatering equipments (sic) and pumps to be provided. The
Contractor has the prerogative to choose what type of methodology that he would use
for the project but he have (sic) to make sure that they will protect the adjacent
properties against erosion and settlement.
Article 1370 of the Civil Code in part states that "if 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."

As worded, paragraph 21 is only concerned with excavation works, and no other.
Paragraph 21 provides that all excavation works are within the scope of works of
KKCA but it does not oblige KKCA to directly perform the same as it admits the
employment of excavation sub-contractors, albeit for the account of Colorite. On the
other hand, paragraph 33 explicitly makes soil protection works, and the installation
of adequate dewatering equipment and pumps as KKCA's direct contractual
obligation. While soil protection works and adequate dewatering system have
distinct purposes, they are similar since both are continuing necessities while the
foundation and the basement are not yet secured. It was thus logical that both items
were placed under the general contractor's direct responsibilities under paragraph
33.

In Rizal Commercial Banking Corporation v. Teodoro G. Bernardino, the Court is
emphatic that:

The rule is that where the language of a contract is plain and unambiguous, its
meaning should be determined without reference to extrinsic facts or aids. The
intention of the parties must be gathered from that language, and from that
language alone. Stated differently, where the language of a written contract is clear
and unambiguous, the contract must be taken to mean that which, on its face, it
purports to mean, unless some good reason can be assigned to show that the words
used should be understood in a different sense. Courts cannot make for the parties
better or more equitable agreements than they themselves have been satisfied to
make, or rewrite contracts because they operate harshly or inequitably as to one of
the parties, or alter them for the benefit of one party and to the detriment of the
other, or by construction, relieve one of the parties from terms which he voluntarily
consented to, or impose on him those which he did not
131

METRO RAIL TRANSIT DEVELOPMENT CORPORATION, Petitioner, v. GAMMON

PHILIPPINES, INC., Respondent.
G.R. No. 200401, January 17, 2018

J. Leonen
CASE DOCTRINE:

In bidding contracts, this Court has ruled that the award of the contract to the
bidder is an acceptance of the bidder's offer. Its effect is to perfect a contract
between the bidder and the contractor upon notice of the award to the bidder.
Failure to sign the physical contract does not affect the contract's existence or the
obligations arising from it.

FACTS:

This case involves MRT's MRT-3 North Triangle Description Project (Project),
covering 54 hectares of land, out of which 16 hectares were allotted for a
commercial center. Half of the commercial center would be used for a podium
structure (Podium), which was meant to provide the structure for the Project's
Leasable Retail Development and to serve as the maintenance depot of the rail
transit system.

On April 30, 1997, Gammon received from Parsons, the management team
authorized to oversee the construction's execution, an invitation to bid for the
complete concrete works of the Podium. The scope of the work involved supplying
the necessary materials, labor, plants, tools, equipment, facilities, supervision, and
services for the construction of Level 1 to Level 4 of the Podium.

Gammon won the bid. On August 27, 1997, Parsons issued a Letter of Award and
Notice to Proceed (First Notice to Proceed) to Gammon. It was accompanied by the
formal contract documents.

In a letter dated September 2, 1997 (First Letter), Gammon signed and returned the
First Notice to Proceed to signify its consent to its prestations without the contract
documents, stating that the said documents were being reviewed.
In its Second Letter, Gammon transmitted to Parsons the signed Letter of Comfort to
guarantee its obligations in the Project.

However, in a Letter dated September 8, 1997, MRT wrote Gammon that it would
need one (1) or two (2) weeks before it could issue the latter the Formal Notice to
Proceed.
On September 9, 1997, Gammon returned to Parsons the contract documents.

On September 11, 1997, Gammon sent Parsons a facsimile to confirm if all
requirements in the contract documents were temporarily suspended pending the
clarification of the scope and programming of the Project.
132


In a facsimile transmission dated September 12, 1997, Parsons confirmed "the
temporary suspension of all [the] requirements under the contract except the re-
design of the project floor slabs and the site de-watering and clean up."

MRT argues that the return of the contract documents occurred after it had already
revoked its offer, i.e., after it sent its September 8, 1997 Letter. It reiterates that no
contract was perfected because it withdrew its offer to Gammon before Gammon
returned the contract documents. Thus, Gammon's acceptance only came after the
offer had been withdrawn and nothing that could have been accepted remained.

Gammon maintains that there was a perfected contract between the parties. It
insists that MRT did not withdraw or modify its offer before Gammon signed and
returned the First Notice to Proceed and the contract documents. It claims that the
contract was not cancelled and was only temporarily and partially suspended, and
this did not affect its perfection.

ISSUE:

Whether or not there is a perfected contract between petitioner Metro Rail Transit
Development Corporation and respondent Gammon Philippines, Inc.

RULING:

This Court rules that there is a perfected contract between MRT and Gammon.

The contract is perfected when both parties have consented to the object and cause
of the contract. There is consent when the offer of one party is absolutely accepted
by the other party. The acceptance of the other party may be express or implied.
However, the offering party may impose the time, place, and manner of acceptance
by the other party, and the other party must comply.

Thus, there are three (3) stages in a contract: negotiation, perfection, and
consummation.
Negotiation refers to the time the parties signify interest in the contract up until the
time the parties agree on its terms and conditions. The perfection of the contract
occurs when there is a meeting of the minds of the parties such that there is a
concurrence of offer and acceptance, and all the essential elements of the contract—
consent, object and cause—are present. The consummation of the contract covers
the period when the parties perform their obligations in the contract until it is
finished or extinguished.

To determine when the contract was perfected, the acceptance of the offer must be
unqualified, unconditional, and made known to the offeror. Before knowing of the
acceptance, the offeror may withdraw the offer. Moreover, if the offeror imposes the
manner of acceptance to be done by the offerree, the offerree must accept it in that
133

manner for the contract to be binding. If the offeree accepts the offer in a different
manner, it is not effective, but constitutes a counter-offer, which the offeror may
accept or reject.

In bidding contracts, this Court has ruled that the award of the contract to the
bidder is an acceptance of the bidder's offer. Its effect is to perfect a contract
between the bidder and the contractor upon notice of the award to the bidder.
Failure to sign the physical contract does not affect the contract's existence or the
obligations arising from it.

Applying this principle to the case at bar, this Court finds that there is a perfected
contract between the parties. MRT has already awarded the contract to Gammon,
and Gammon's acceptance of the award was communicated to MRT before MRT
rescinded the contract.

This Court has ruled that the meeting of the minds need not always be put in
writing, and the fact that the documents have not yet been signed or notarized does
not mean that the contract has not been perfected. A binding contract may exist
even if the signatures have not yet been affixed because acceptance may be express
or implied.

Thus, the parties have become bound to consummate the contract such that the
failure by one party to comply with its obligations under the contract entitles the
other party to damages. Clearly, Gammon was expected to comply with the award
when it signified its concurrence. Thus, it is not just or equitable for the perfection of
the contract to be one (1)-sided such that the contract only binds Gammon but not
MRT just because the contract documents were not yet returned before MRT
suspended the contract.

The usage of the words "temporary suspension" is clear. It is a settled rule that
when the words in a contract are clear and leave no doubt on the parties' intentions,
the literal meaning shall control. Thus, the above communications cannot be
interpreted to mean that the contract has been cancelled or rescinded.

134

THE PROVINCIAL BUS OPERATORS ASSOCIATION OF THE PHILIPPINES

(PBOAP), et al, Petitioners,
v.
DEPARTMENT OF LABOR AND EMPLOYMENT (DOLE) AND LAND
TRANSPORTATION FRANCHISING AND REGULATORY BOARD (LTFRB),
Respondents.
(G.R. No. 202275, July 17, 2018)

LEONEN, J

Doctrine :

“The prohibition to impair the obligation of contracts is not absolute and unqualified
and that the policy of protecting contracts against impairment presupposes the
maintenance of a government by virtue of which contractual relations are worthwhile.
A government which retains adequate authority to secure the peace and good order of
society. A statute passed to protect labor is a "legitimate exercise of police power,
although it incidentally destroys existing contract rights. Contracts regulating
relations between capital and labor are not merely contractual, and said labor
contracts are impressed with public interest, and must yield to the common good”

Facts :
Government created policy based on the finding that the boundary payment
scheme that has since determined the take-home pay of bus drivers and conductors
has been proven inadequate in providing our public utility bus drivers and
conductors a decent and living wage. It decided that this was the best approach to
ensure that they get the economic and social welfare benefits that they deserve.

To ensure road safety and address the risk-taking behavior of bus drivers as its
declared objective, the LTFRB issued Memorandum Circular No. 2012-0011 on
January 4, 2012, requiring "all Public Utility Bus (PUB) operators ... to secure Labor
Standards Compliance Certificates" under pain of revocation of their existing
certificates of public convenience or denial of an application for a new certificate.

Issue :

Whether or not the DOLE Department Order No. 118-12 and the LTFRB
Memorandum Circular No. 2012-001 impair public utility bus operators' right to
non-impairment of obligation of contracts

Held:
No. There is no violation of the non-impairment clause. Related to due process is the
135

non-impairment clause. The Constitution's Article III, Section 10 provides:Section

10. No law impairing the obligation of contracts shall be passed.

Since the non-impairment clause was adopted here, this Court has said that its
purpose is to protect purely private agreements from State interference. This is to
"encourage trade and credit by promoting confidence in the stability of contractual
relations.” A law imposing a new penalty, or a new liability or disability, or giving a
new right of action, must not be construed as having a retroactive effect. It is an
elementary rule of contract that the laws in force at the time the contract was made
must govern its interpretation and application. Laws must be construed
prospectively and not retrospectively. If a contract is legal at its inception, it cannot
be rendered illegal by any subsequent legislation. If that were permitted then the
obligations of a contract might be impaired, whichi is prohibited by the organic law
of the Philippine Islands.

There is an impairment when, either by statute or any administrative rule
issued in the exercise of the agency's quasi-legislative power, the terms of the
contracts are changed either in the time or mode of the performance of the
obligation. There is likewise impairment when new conditions are imposed or
existing conditions are dispensed with. Not all contracts, however, are protected
under the non-impairment clause. Contracts whose subject matters are so related to
the public welfare are subject to the police power of the State and, therefore, some
of its terms may be changed or the whole contract even set aside without offending
the Constitution; otherwise, "important and valuable reforms may be precluded by
the simple device of entering into contracts for the purpose of doing that which
otherwise may be prohibited."

On the claim that Republic Act No. 3350 violated the obligation of contract,
specifically, of the union security clause found in the collective bargaining
agreement, this Court conceded that "there was indeed an impairment of the union
security clause." Nevertheless, this Court noted that the "prohibition to impair the
obligation of contracts is not absolute and unqualified" and that "the policy of
protecting contracts against impairment presupposes the maintenance of a
government by virtue of which contractual relations are worthwhile . A government
which retains adequate authority to secure the peace and good order of society." A
statute passed to protect labor is a "legitimate exercise of police power, although it
incidentally destroys existing contract rights. “Contracts regulating relations
between capital and labor ... are not merely contractual, and said labor contracts ...
are impressed with public interest, and must yield to the common good."
This Court found the purpose behind Republic Act No. 3350 legitimate. Republic Act
No. 3350 protected labor by "preventing discrimination against those members of
religious sects which prohibit their members from joining labor unions, confirming
thereby their natural, statutory and constitutional right to work, the fruits of which
work are usually the only means whereby they can maintain their own life and the
life of their dependents." This Court, therefore, upheld the constitutionality of
Republic Act No. 3350.
136

FLIGHT ATTENDANTS AND STEWARDS ASSOCIATION OF THE PHILIPPINES

(FASAP), petitioner, vs. PHILIPPINE AIRLINES, INC., PATRIA CHIONG and THE
COURT OF APPEALS;

IN RE: LETTERS OF ATTY . ESTELITO P. MENDOZA RE: G.R. NO. 178083 —
FLIGHT ATTENDANTS AND STEWARDS ASSOCIATION OF THE PHILIPPINES
(FASAP) vs. PHILIPPINE AIRLINES, INC., ET AL.

G.R. Nos. 178083 & A.M. No. 11-10-1-SC (Resolution), March 13, 2018;
Bersamin, J.

Case Doctrine:
Not all quitclaims are per se invalid or against public policy. A quitclaim is invalid or
contrary to public policy only: (1) where there is clear proof that the waiver was
wrangled from an unsuspecting or gullible person; or (2) where the terms of
settlement are unconscionable on their face.

Facts:
Petitioner FASAP is the duly certified collective bargaining representative of
PAL flight attendants and stewards, or collectively known as PAL cabin crew
personnel. Respondent PAL is a domestic corporation organized and existing under
the laws of the Republic of the Philippines, operating as a common carrier
transporting passengers and cargo through aircraft.
On June 15, 1998, PAL retrenched 5,000 of its employees, including more
than 1,400 of its cabin crew personnel, to take effect on July 15, 1998. PAL adopted
the retrenchment scheme allegedly to cut costs and mitigate huge financial losses as
a result of a downturn in the airline industry brought about by the Asian financial
crisis. During said period, PAL claims to have incurred P90 billion in liabilities, while
its assets stood at P85 billion.
In implementing the retrenchment scheme, PAL adopted its so-called "Plan
14" whereby PAL's fleet of aircraft would be reduced from 54 to 14, thus requiring
the services of only 654 cabin crew personnel. 4 PAL admits that the retrenchment
is wholly premised upon such reduction in fleet, 5 and to "the strike staged by PAL
pilots since this action also translated into a reduction of flights."
Prior to the full implementation of the assailed retrenchment program,
FASAP and PAL conducted a series of consultations and meetings and explored all
possibilities of cushioning the impact of the impending reduction in cabin crew
personnel. However, the parties failed to agree on how the scheme would be
implemented. Thus PAL unilaterally resolved to utilize the criteria set forth in
Section 112 of the PAL-FASAP (CBA) in retrenching cabin crew personnel: that is,
that retrenchment shall be based on the individual employee's efficiency rating and
seniority.
On July 15, 1998, PAL carried out the retrenchment of its more than 1,400
cabin crew personnel.
Meanwhile, in June 1998, PAL was placed under corporate rehabilitation and
a rehabilitation plan was approved per (SEC) Order.
137

PAL contends that the reduction of its workforce had resulted from a
confluence of several events, like the flight expansion; the 1997 Asian financial
crisis; and the ALPAP pilots' strike. PAL explains that when the pilots struck in June
1998, it had to decide quickly as it was then facing closure in 18 days due to serious
financial hemorrhage; hence, the strike came as the final blow.
PAL posits that its business decision to downsize was far from being a hasty,
knee-jerk reaction; that the reduction of cabin crew personnel was an integral part
of its corporate rehabilitation, and, such being a management decision, the Court
could not supplant the decision with its own judgment' and that the inaccurate
depiction of the strike as a temporary disturbance was lamentable in light of its
imminent financial collapse due to the concerted action.

Issue: ASSUMING THAT PAL VALIDLY IMPLEMENTED ITS RETRENCHMENT
PROGRAM, DID THE RETRENCHED EMPLOYEES SIGN VALID QUITCLAIMS?

Held: YES.
In order to prevent disputes on the validity and enforceability of quitclaims
and waivers of employees under Philippine laws, said agreements should contain
the following:
1. A fixed amount as full and final compromise settlement; 2. The benefits of
the employees if possible with the corresponding amounts, which the employees are
giving up in consideration of the fixed compromise amount; 3. A statement that the
employer has clearly explained to the employee in English, Filipino, or in the dialect
known to the employees — that by signing the waiver or quitclaim, they are
forfeiting or relinquishing their right to receive the benefits which are due them
under the law; and 4. A statement that the employees signed and executed the
document voluntarily, and had fully understood the contents of the document and
that their consent was freely given without any threat, violence, duress,
intimidation, or undue influence exerted on their person.
The release and quitclaim signed by the affected employees substantially
satisfied the aforestated requirements. The consideration was clearly indicated in
the document in the English language, including the benefits that the employees
would be relinquishing in exchange for the amounts to be received. There is no
question that the employees who had occupied the position of flight crew knew and
understood the English language. Hence, they fully comprehended the terms used in
the release and quitclaim that they signed.
Indeed, not all quitclaims are per se invalid or against public policy. A
quitclaim is invalid or contrary to public policy only: (1) where there is clear proof
that the waiver was wrangled from an unsuspecting or gullible person; or (2) where
the terms of settlement are unconscionable on their face. Based on these standards,
we uphold the release and quitclaims signed by the retrenched employees herein.

138

BANGKO SENTRAL NG PILIPINAS AND ITS MONETARY BOARD, Petitioners, v.

BANCO FILIPINO SAVINGS AND MORTGAGE BANK, Respondent. (G.R. No.
178696, July 30, 2018);
LEONARDO-DE CASTRO, J.

DOCTRINE: (PRESCRIPTION OF ACTION)

The foregoing provision, however, must be read in conjunction with Articles 1144
(paragraph 3) and 1152, both of the Civil Code, which provide:

Article 1144. The following actions must be brought within ten years from the time
the right of action accrues:

xxxx

(3) Upon judgment.

Article 1152. The period for prescription of actions to demand the fulfillment of
obligation declared by a judgment commences from the time the judgment became
final. (Emphases supplied.)

Accordingly, the prevailing party may move for the execution of a final and
executory judgment as a matter of right within five years from the entry of
judgment. If no motion is filed within this period, the judgment is converted to a
mere right of action and can only be enforced by instituting a complaint for the
revival of judgment in regular court within 10 years from finality of judgment.

In this case, our Decision in G.R. No. 70054 attained finality and was entered in the
Book of Entries of Judgment on February 4, 1992. Hence, with respect to its right of
action, BFSMB only had ten years from February 4, 1992 within which to file its
petition for revival of judgment. That it only filed the said petition on July 14, 2004,
or more than 12 years from February 4, 1992, it is evident that the subject action
was filed out of time.

FACTS:

Pursuant to Resolution No. 223 dated February 14, 1963 of the Monetary
Board (MB) of the Central Bank of the Philippines (CB), BFSMB commenced its
operations as savings and mortgage bank on July 9, 1964.

In MB Resolution No. 955 dated July 27, 1984, however, the CB-MB placed BFSMB
under conservatorship of one Basilio Estanislao. Eventually, pursuant to another
resolution, MB Resolution No. 75 dated January 25, 1985, the CB-MB ordered the
closure of BFSMB on the ground that the latter was found to be "insolvent and that
its continuance in business would involve probable loss to its depositors and
139

creditors. On February 28, 1985, BFSMB filed before the Court a petition for
certiorari and mandamus under Rule 65 of the Rules of Court seeking to annul MB
Resolution No. 75 "as made without or in excess of jurisdiction or with grave abuse
of discretion x x."The petition was docketed as G.R. No. 70054 entitled, "Banco
Filipino Savings and Mortgage Bank v. The Monetary Board, Central Bank of the
Philippines, Jose B. Fernandez, Carlota P. Valenzuela, Arnulfo B. Aurellano and
Ramon V. Tiaoqui," which was later consolidated with eight other cases. In a
consolidated Decision dated December 11, 1991, the Court, among others, annulled
and set aside MB Resolution No. 75, and ordered the CB-MB to allow BFSMB to
resume business.

Less than two years thereafter, or on July 6, 1993, Republic Act No. 7653, otherwise
known as The New Central Bank Act of 1993, took effect. This new law abolished the
CB and a new central monetary authority was established known as Bangko Sentral
ng Pilipinas. But also under the said law, the CB will continue to exist under the
name Central Bank-Board of Liquidators (CB-BOL) for the sole purpose of
administering and liquidating the assets and liabilities of the CB that were not
transferred to the BSP.

During meeting held on November 6, 1993, the BSP-MB, resolved

4. To allow the Banco Filipino Savings and Mortgage Bank (BFSMB) to reopen,
subject to submission of its proposed organization including the list of officers and
its plan of operations;

2. To instruct Management to write BFSMB officially, advising them of this decision
and to ask the bank to collateralize its advances from the Bangko Sentral ng
Pilipinas (BSP); and

3. To authorize Management to file a case in Court for the recovery of its advances
including interest thereon and look for private a counsel to (a) advise the Monetary
Board on the ancillary legal issues and (b) to act as counsel for the BSP Monetary
Board in the filing of a civil case against the BFSMB for recovery of money.

Thus, on July 1, 1994, BFSMB reopened and resumed business under the
comptrollership of the BSP.

Sometime in December 2002, BFSMB experienced massive withdrawals. Thus,
BFSMB applied for emergency financial assistance from the BSP to maintain
liquidity.

However, such assistance appeared to have been insufficient to stem the effects of
the massive withdrawals. Thus, in letter dated October 9, 2003, BFSMB further
140

requested BSP for financial assistance "similar [to] arrangements" that had been
extended to other banks similarly situated.

In response thereto, the BSP, through a letter dated November 21, 2003 by Director
Candon B. Guerrero, Supervision and Examination Department III, and Director
Rolando Alejandro Q. Agustin, Department of Loans and Credit, advised BFSMB that
because of "strict requirements imposed by [Republic Act No. 7653], BSP is not in a
position to assist BFSMB at this time." But they added that, "should BFSMB be able
to comply with all the legal requirements [relative to its requests], ESP would not
hesitate to extend its support and assistance." One such requirement is "BSP-
approved rehabilitation program."

Taking its cue from the above-narrated letter, on April 14, 2004, BFSMB transmitted
a long term business plan23 (business plan) for consideration of the BSP-MB.
BFSMB's business plan was premised on the assertion that, having "stepped into the
shoes of the old Central Bank," the BSP was obligated to "reorganize" it (BFSMB)
through the following: (i) restoring its 89 branches that used to operate prior to its
closure in 1985; and (ii) extending financial support that are not subjected to
stringent requirements.

In reply thereto, however, BSP-MB stated that it had no basis to act on the business
plan considering that the latter appeared to have been taken up and approved by
BFSMB's Executive Committee, and not by its Board of Directors, and because of
BFSMB's insistence that BSP-MB are the successors-in-interest of CB-MB, "an
allegation that [BSP-MB] have consistently denied in x x x previous communications
x x x [and which issue] is still subject to contest in pending [court] proceedings."

Hence, on July 14, 2004, BFSMB filed Petition for Revival of Judgment to enforce the
Decision of the Court in G.R. No. 70054 that became final and executory on February
4, 1992. Said petition was filed against the CB-MB, represented by the CB-BOL, and
the BSP-MB.

Among other things, BFSMB alleged in said petition that:

5.1. Under the judgment herein sought to be revived, the respondents, having
allowed Petitioner to resume business in the Philippines, are under mandate to
reorganize Petitioner and place it in such a condition or footing that it can continue
in business with safety to its depositors, creditors and the general public.

BSP-MB moved to dismiss the petition with one of its grounds being that:
(ii) The cause of action is barred by prescription - the petition for revival of
judgment was filed only on July 15, 2004, or more than 12 years from the time the
Court's Decision in G.R. No. 70054 became final and executory;

141

ISSUE: Whether or not the action by Banco Filipino has already been barred by
prescription under the Civil Code.

RULING: Yes. Section Rule 39 of the Rules of Court, as amended, provides the two
ways of executing a final and executory judgment, viz.

Sec. 6. Execution by motion or by independent action. - A final and executory
judgment or order may be executed on motion within five (5) years from the date of
its entry. After the lapse of such time, and before it is barred by the statute of
limitations, a judgment may be enforced by action x x x.

The foregoing provision, however, must be read in conjunction with Articles 1144
(paragraph 3) and 1152, both of the Civil Code, which provide:

Article 1144. The following actions must be brought within ten years from the time
the right of action accrues:

xxxx

(3)Upon judgment.

Article 1152. The period for prescription of actions to demand the fulfilment of
obligation declared by a judgment commences from the time the judgment became
final. (Emphases supplied.)

Accordingly, the prevailing party may move for the execution of a final and
executory judgment as a matter of right within five years from the entry of
judgment. If no motion is filed within this period, the judgment is converted to a
mere right of action and can only be enforced by instituting a complaint for the
revival of judgment in regular court within 10 years from finality of judgment.

In this case, our Decision in G.R. No. 70054 attained finality and was entered in the
Book of Entries of Judgment on February 4, 1992. Hence, with respect to its right of
action, BFSMB only had ten years from February 4, 1992 within which to file its
petition for revival of judgment. That it only filed the said petition on July 14, 2004,
or more than 12 years from February 4, 1992, it is evident that the subject action
was filed out of time.

BFSMB insists that the passage of RA No. 7653 tolled the period of prescription
because it rendered the enforceability of the judgment sought to be revived
uncertain, i.e., when the enforceability of a final judgment becomes uncertain, the
period for such purpose is tolled and prescription does not operate. Further, it
asserts that the partial performance by BSP of the subject judgment obligation
further tolled the running period.

142

We disagree.

As correctly held by the Court of Appeals in CA-G.R. SP No. 96280 -

First of all, contrary to BF's proposal, there was no vacuum created with the passage
of R.A. 7653 that would render BF uncertain as against whom it can enforce its
rights. All powers, duties and functions vested by law in the Central Bank of the
Philippines were deemed transferred to the BSP. The law provides that all
references to the Central Bank of the Philippines in any law or special charters shall
be deemed to refer to the BSP. Further, R.A. 7653 states that any asset or liability of
the Central Bank not transferred to the Bangko Sentral shall be retained and
administered, disposed of and liquidated by the Central Bank itself which shall
continue to exist as the CB Board of Liquidators or CB-BOL. In other words, the
entities where the assets and liabilities of the Central Bank have been transferred
are readily identifiable. There is, thus, no reason for BF to use, as an excuse for its
delay to file an action to revive judgment, the creation of the BSP as the new central
monetary authority. It is apparent that there has been merely transfer of interest
between the two entities, with the organization made more efficient by the creation
of a body known as the CB-BOL.
And worth noting is the fact that when BFSMB finally filed the petition for revival of
judgment in 2004, it filed it against both the BSP-MB and CB-BOL. BFSMB could have
done the same and filed the action against both entities anytime within the ten year
prescriptive period if it was really unsure which of the two to go against.

Therefore, the petition for revival of judgment filed on July 14, 2004 should be
dismissed for having been filed beyond the prescriptive period of ten years from the
finality of our judgment in G.R. No. 70054 on February 4, 1992, or more than 12
years later.

143

Ka Kuen Chua v. Colorite Marketing Corp.

G.R. No. 193969-193970
REYES, J

Doctrine

FACTS:

Colorite Marketing Corporation (Colorite) and Architect Ka Kuen Tan Chua (Chua),
doing business under the name and style "Ka Kuen Chua Architectural" (KKCA),
signed a construction contract whereby the latter undertook to build a four-storey
residential/commercial building for the former on a parcel of land located at St. Paul
Road, comer Estrella Avenue, Makati City. The parties, set forth in their agreement,
the following stipulations: a) the project will commence in seven days from the time
KKCA received a notice to proceed from Colorite, and will be completed within 365
days reckoned from the seventh day after the release of the down payment; b) in the
event that the project is not completed on time, the amount of Php 10,000.00 for
each calendar day of delay shall be paid by KKCA to Colorite; c) only a maximum of
20% of slippage, or 73 calendar days of delay, is allowed, and Colorite has the right
to terminate the contract if the delay exceeded the maximum number of days
allowed; and d) Colorite has the right to take over and complete the construction of
the project, and all costs incurred thereby will be deducted from the amount due to
KKCA. As per their contract, KKCA had until March 5, 2005 (from January 10, 2004)
to finish the construction. However, on January 22, 2004, a Hold Order was issued
by the Building Officials of Makati City against KKCA directing it to stop all its
excavation activities in the premises as the construction had affected and damaged
the property of the Hontiveros family. KKCA was not allowed to continue until the
property damaged was restored. In October 2005, the restoration was completed,
however KKCA failed to secure the quitclaim from the Hontiveros family which
prevented it from continuing with the project. Thus, after 878 days of delay, Colorite
filed the instant claim before the CIAC for payment of liquidated damages. The CIAC
in turn, rendered an award in favor of Colorite. Aggrieved by the decision, KKCA
appealed to the Court of Appeals which affirmed the award of the CIAC.

ISSUE: Whether or not KKCA may be held liable for damages

HELD: Yes. According to the CA, as it is KKCA's obligation to complete the project,
then it should also be tasked to perform whatever is necessary for the purpose, and
this includes securing the Hontiveros family's quitclaim and the lifting of the City
Government of Makati' s Hold Order. For its part, however, KKCA is adamant in its
position that excavation and soil protection works are not its responsibilities; hence,
the lifting of the Hold Order should not be assigned to it.

144

The Court now holds that KKCA is under the obligation to secure the quitclaim from
the Hontiveros family and to work for the lifting of the Hold Order. This obligation is
deemed written in Article XIII of the construction contract, which reads:
The owner shall be held free and harmless from any liability arising from
claims of third parties arising from the construction such as but not limited to
wages, pay, compensation for injury or death to laborers, SSS premiums, adjoining
property settlement, etc. all of which shall be for the account of the CONTRACTOR.
By express provision of Article 1315 of the Civil Code, the parties are bound not only
to the fulfilment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith,
usage and law.

Without a doubt, Article XIII was stipulated to secure Colorite from any liability
arising from third-party claims. Needless to say, the security under contemplation is
necessarily anchored on Colorite's interest in the completion of the project. In
expressly anticipating the probability of causing damages to adjacent properties, the
stipulation comprehends as well as the resolution of legal issues, which may arise
incidental to the construction project.

The records show that KKCA was remiss in its obligation to secure the quitclaim
from the Hontiveros family and work for the lifting of the City Government of
Makati's Hold Order. In spite of the fact that the Hontiveros property has already
been restored, it appears that KKCA did not bother to secure the needed quitclaim
or even a certificate of completion from the contractor of the subject rehabilitation.

WHEREFORE, the Decision and Resolution of the Court of Appeals, dated July 28,
2009 and October 4, 2010, respectively, in CA-G.R. SP Nos. 103892 and 103899, are
AFFIRMED with MODIFICATIONS.

145

REY VS. ANSON

G.R. No. 219340, November 7, 2018
Peralta, J.

CASE DOCTRINE:
Interest rates of 7.5% and 7% monthly are excessive, unconscionable, iniquitous,
and contrary to law and morals; and, therefore, void ab initio. Article 1956 of the
Civil Code provides that "no interest shall be due unless it has been stipulated in
writing.” Article 1253 of the Civil Code states that “if the debt produces interest,
payment of the principal shall not be deemed to have been made until the interests
have been covered.”

FACTS:
Rosemarie Rey is the President and one of the owners of Southern Luzon
Technological College Foundation Incorporated, a computer school in Legazpi City.
Sometime in August 2002, she needed a quick infusion of cash for the said school.
She approached a friend, Ben Del Castillo, who introduced her to his acquaintance,
Cesar Anson. On August 23, 2002, Rosemarie Rey borrowed from Cesar Anson the
amount of P200,000.00 payable in one year, and subject to 7.5% interest per month
or Pl 5,000.00 monthly interest, which would be paid bi-monthly by way of
postdated checks. The loan was secured by a real estate mortgage on Spouses
Teodoro and Rosemarie Rey's property, Lot 1271-C-4, covered by Transfer
Certificate of Title (TCT) No. 50872. In the event of default, the Spouses Rey would
pay a penalty charge of 10% of the total amount, plus 12% attorney's fees. The
terms and conditions of the loan were embodied in a Deed of Real Estate Mortgage"
dated August 23, 2002. Rosemarie Rey thereafter issued 24 postdated checks for
P7,500.00 each, as well as another postdated check for the principal amount of
P200,000.00. Three days later, or on August 26, 2002, Rosemarie Rey again
borrowed from Cesar Anson P350,000.00, subject to 7% interest per month, and
payable in four months. The second loan was secured by a real estate mortgage over
a parcel of land covered by TCT No. 2776, registered in the name of Rosemarie Rey's
mother, Isabel B. Quinto. The parties executed a second Deed of Real Estate
Mortgage dated August 26, 2002. Rosemarie Rey faithfully paid the interest on the
first loan for twelve (12) months. She was, however, unable to pay the principal
amount of P200,000.00 when it became due on August 24, 2003. She appealed to
Cesar Anson not to foreclose the mortgage or to impose the stipulated penalty
charges, but instead to extend the terms thereof. Cesar Anson agreed and Rosemarie
Rey later signed a promissory note" dated April 23, 2004 and executed a Deed of
Real Estate Mortgage dated May 3, 2004, stating that the Spouses Rey's principal
obligation of P200,000.00 shall be payable in four (4) months from the execution of
the Deed of Real Estate Mortgage, and it shall be subject to interest of 7.5% per
month. These two documents cancelled, updated and replaced the original
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agreement on the first loan. Rosemarie Rey once again issued postdated checks to
cover the interest payments on the amended first loan, the latest of which was dated
August 23, 2004, and another postdated check for P200,000.00 for the principal
amount. Rosemarie Rey was able to make good on her interest payments, but
thereafter failed to pay the principal amount of P200,000.00. Anent the second loan
of P350,000.00, Rosemarie Rey failed to faithfully pay monthly interest thereon and
she was unable to pay the principal amount thereof when it became due on
December 26, 2002. Rosemarie Rey appealed to Cesar Anson not to foreclose the
mortgage securing the same or to impose the penalty charges, but instead to extend
the terms thereof. Cesar Anson agreed, and the parties executed anew a Deed of Real
Estate Mortgage" dated January 19, 2003 wherein Rosemarie Rey acknowledged her
indebtedness to Cesar Anson in the amount of P611,340.00, payable within four
months from the execution of the Deed of Real Estate Mortgage, and subject to 7%
interest per month. Four months thereafter, Rosemarie Rey again failed to fulfill her
obligation on the second loan. The same was extended once more in a Deed of Real
Estate Mortgage" dated June 19, 2003 wherein Rosemarie Rey acknowledged
indebtedness to Cesar Anson in the amount of P761,450.00, payable within six
months from the execution of the Deed of Real Estate Mortgage, and subject to the
same 7% interest per month. On February 24, 2004, Rosemarie Rey obtained a third
loan from Cesar Anson in the amount of Pl 00,000.00. The third loan was not put in
writing, but the parties verbally agreed that the same would be subject to 3%
monthly interest. A week later or on March 2, 2004, Rosemarie Rey obtained a
fourth loan from Cesar Anson for P100,000.00. It was also not put in writing, but
there was an oral agreement of 4% monthly interest. On February 25, 2005, Cesar
Anson sent Rosemarie Rey a Statement of Account" seeking full payment of all four
loans amounting to P2,214,587.50. Instead of paying her loan obligations,
Rosemarie Rey, through counsel, sent Cesar Anson a letter dated August 8, 2005,
stating that the interest rates imposed on the four loans were irregular, if not
contrary to law. The 7.5% and 7% monthly interest rates imposed on the first and
second loans, respectively, were excessive and unconscionable and should be
adjusted to the legal rate. Moreover, no interest should have been imposed on the
third and fourth loans in the absence of any written agreement imposing interest.
Per Rosemarie Rey's computation using the legal rate of interest, all four loans were
already fully paid, as well as the interests thereon. Rey contended that she had
overpaid the amount of P283,434.19. She demanded from Cesar Anson the return of
the excess payment; otherwise, she would be compelled to seek redress in court. On
August 16, 2005, the Spouses Rey and Isabel Quinto filed a Complaint for
Recomputation of Loans and Recovery of Excess Payments and Cancellation of Real
Estate Mortgages and Checks against Cesar Anson with the RTC of Legazpi City. RTC
ruled for Spouses Rey. CA reversed.

ISSUES:
1. WON the interest rates on the first and second loans are unconscionable and
contrary to morals
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2. WON the interest rates on the third and fourth loans are valid

RULING:
1. YES. As case law instructs, the imposition of an unconscionable rate of interest on
a money debt, even if knowingly and voluntarily assumed, is immoral and unjust.
In this case, the first loan had a 7.5% monthly interest rate or 90% interest
per annum, while the second loan had a 7% monthly interest rate or 84% interest
per annum, which rates are very much higher than the 3% monthly interest rate
imposed in Ruiz v. Court of Appeals and the 5% monthly interest rate imposed in
Sps. Albos v. Sps. Embisan, et al. Based on the ruling of the
Spouses Albos case, the Court holds that the interest rates of 7.5% and 7% are
excessive, unconscionable, iniquitous, and contrary to law and morals; and,
therefore, void ab initio. Hence, the Court of Appeals erred in sustaining the
imposition of the said interest rates, while the RTC correctly imposed the legal
interest of 12% per annum in place of the said interest rates.

2. NO. Anent the third and fourth loans both in the amount of P100,000.00, the Court
of Appeals correctly held that as the agreement of 3% monthly interest on the third
loan and 4% monthly interest on the fourth loan was merely verbal and not put in
writing, no interest was due on the third and fourth loans.
This is in accordance with Article 1956 of the Civil Code which provides that
" [n]o interest shall be due unless it has been stipulated in writing."
Hence, the payments made as of March 18, 2005 in the third loan amounting to
P141,360.00 resulted in the overpayment of P41,360.00. Moreover, the payments
made as of February 2, 2005 in the fourth loan amounting to P117,960.00 resulted
in an overpayment of P17,960.00. Consequently, as found by the Court of Appeals,
there was a total overpayment of P59,320.00 for the third and fourth loans.

148

HOME DEVELOPMENT MUTUAL FUND (HDMF),petitioner vs. (SAGUM) GLOBE

ASIATIQUE REALTY HOLDINGS CORPORATION, DELFIN S. LEE, in his capacity
as the President of the Corporation, and TESSIE G. WANG , Respondents.
G.R. No. 209424 July 31, 2018
TIJAM,J.
Case doctrine related to Civ Rev: Breach of contract/ specific performance
(The Court, however, did not rule on this issue as it ordered that the civil aspect be
remanded to the lower court for further hearing)
FACTS:
In 2008, Globe Asiatique, through its president Delfin Lee, entered into a Window I-
Contract to Sell (CTS) Real Estate Mortgage (REM) with Buy-back Guaranty take out
mechanism with the HDMF, also known as the Pag-Ibig Fund, for its Xevera Bacolor
Project in Pampanga.
Globe Asiatique and HDMF also executed various Funding Commitment Agreements
(FCAs) and Memoranda of Agreement (MO As). Under the FCAs, Delfin Lee
warranted that the loan applicants that Globe Asiatique would allow to pre-process,
and whose housing loans it would approve, were existing buyers of its real estate
and qualified to avail themselves of loans from HDMF under the Pag-Ibig Fund; that
all documents submitted to the HDMF in behalf of the applicants, inclusive of the
individual titles and the corresponding Deeds of Assignment, were valid, binding
and enforceable; that any person or agent employed by Globe Asiatique or allowed
to transact or do business in its behalf had not committed any act of
misrepresentation; and that in the event of a default of the three-month payment on
the amortizations by said members or any breach of warranties, Globe Asiatique
would buy back the CTS/REM accounts during the first two years of the loan.
The parties further agreed that Globe Asiatique would collect the monthly
amortizations on the loans obtained by its buyers in the first two years of the loan
agreements and remit the amounts collected to HDMF through a Collection
Servicing Agreement (CSA). In this regard, Delfin Lee undertook to maintain at least
90% Performing Accounts Ratio (PAR) under the CSA.
On June 10, 2008, Delfin Lee proposed the piloting of a Special Other Working Group
(OWG) Membership Program for its Xevera Bacolor Project while the FCA was in
effect. The OWG Membership Program would comprise of HDMF members who
were not formally employed but derived income from non-formal sources (e.g.,
practicing professionals, selfemployed members, Overseas Filipino Workers
(OFWs), and entrepreneurs). Delfin Lee offered to extend the buy-back guarantee
from two to five years to bolster his position that the project was viable.
HDMF eventually entered into another agreement for this purpose. Corollary to the
foregoing, the parties entered into a second FCA worth P200million. Globe Asiatique
likewise undertook that the PAR for all of its projects would be increased to at least
95%; that the buy-back guaranty for all accounts taken out from the Xevera Bacolor
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Project would be increased to five years; that it would assign all its housing loan
proceeds from its other projects to HDMF to cover any unpaid obligations from the
Xevera Project; and that the OWG borrowers, to be eligible for Pag-Ibig Membership,
would be required to present their Income Tax Returns (ITRs) and affidavits
ofincome.
On July 13, 2009, the parties executed a MOA granting Globe Asiatique an additional
P5 Billion funding commitment line for its Xevera Projects in Pampanga on the
condition that Globe Asiatique would maintain a 95% PAR, and that the housing
loan take-outs would be covered by a buy-back guaranty of five years. More FCAs
were executed between the parties. According to HDMF, the aggregate amount of
P7Billion was released to Globe Asiatique in a span of two years from 2008 to
September 24, 2010, representing a total of 9 ,951 accounts. In the course of its
regular validation of buyers' membership eligibilities for taking out loans for the
Xevera Project, HDMF allegedly discovered some fraudulent transactions and false
representations purportedly committed by Globe Asiatique, its owners, officers,
directors, employees, and agents/representatives, in conspiracy with HDMF
employees. HDMF invited the attention of Delfin Lee regarding some 351 buyers
who surrendered or withdrew their loans and were no longer interested in pursuing
the same, and requested Globe Asiatique to validate the 351 buyers. Delfin Lee
replied that Globe Asiatique was actually monitoring about 1,000 suspicious buyers'
accounts. Subsequently, HDMF ostensibly found out about an additional 350 buyers
who either denied knowledge of having availed of loans or manifested their
intention to terminate their account. As a result, HDMF revoked the authority of
Globe Asiatique under the FCA; suspended all take-outs for new housing loans;
required the buyback of the 701 fraudulent accounts; and cancelled the release of
funds to Globe Asiatique in August 2010. About a month later, Globe Asiatique
discontinued remitting the monthly amortization collections from all borrowers of
Xevera.
Finally, HDMF terminated the CSA with Globe Asiatique on August 31,2010.
Meanwhile, HDMF continued its post take-out validation of the borrowers, and
discovered that at least 644 supposed borrowers under the OWG Membership
Program who were processed and approved by Globe Asiatique for the take-out by
HDMF were not aware of the loans they had supposedly signed in relation to the
Xevera Project; and assuming they were aware of the loan agreements, they had
merely signed the same in consideration of money given to them by Globe Asiatique;
that some borrowers were neither members of HDMF nor qualified to take out a
housing loan from HDMF because they had insufficient or no income at all or they
did not have the minimum number of contributions in HDMF; and that some of the
borrowers did not live in the units they purchased. HDMF alleged that at least 805
borrowers could not be located or were unknown in the addresses they had
provided in the loan agreements, or had indicated non-existent addresses therein;
and that it incurred damages totalling Pl.04 billion covering the loans of 644
fraudulent and 805 fake borrowers attributed to the fraudulent and criminal
misrepresentations of Delfin Lee and Globe Asiatique's officials and employees.
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Various criminal and civil complaints were filed by both parties against each other.
Among which is a civil complaint filed by Globe Asiatique against HDMF for alleged
breach of contract and a prayer for specific performance and damages.
The Civil Case (Proceedings before the Makati RTC)
Globe Asiatique and Delfin Lee initiated the complaint for specific performance and
damages against HDMF on November 15, 2010. Docketed as Civil Case No. 10-1120,
the case was assigned to Branch 58 of the Makati RTC. Globe Asiatique and Delfin
Lee thereby sought to compel HDMF to accept the proposed replacements of the
buyers/borrowers who had become delinquent in their amortizations, asserting
that HDMF's inaction to accept the replacements had forced Globe Asiatique to
default on its obligations under the MOA and FCAs Globe Asiatique and Delfin Lee
filed a Motion for Summary Judgment, which the Makati RTC, after due proceedings,
resolved on January 30, 2012, disposing thusly:
WHEREFORE, premises considered, a Summary Judgment is hereby rendered
declaring that:
1. Plaintiff (sic) have proven their case by preponderance of evidence. As such, they
are entitled to specific performance and right to damages as prayed for in the
Complaint, except that the exact amount of damages will have to be determined
during trial proper.
2. Pursuant to the provisions of their MOA amending the continuing FCAs and CSAs,
defendant HDMF is hereby ordered to comply faithfully and religiously with its
obligation under the said contracts, including but not limited to the release of loan
take-out proceeds of those accounts whose Deed [ s] of Assignment with Special
Power of Attorney have already been annotated in the corresponding Transfer
Certificate of Title covering the houses and lots purchased by the PagIBIG member-
borrowers from plaintiff GARHC as well as the evaluation of the loan applications of
those who underwent or will undergo plaintiff GARHC's loan counselling and are
qualified or PAG-IBIG FUND loans under the MOA and continuing FCAs and process
the approval thereof only if qualified, under the Window 1 Facility as provided for in
the MOA and continuing FCAs;
3. The unilateral cancellation by defendant HDMF of the continuing FCAs specifically
the latest FCAs of December 15, 2009, January 5 and March 17, 2010 and CSA dated
10 February 2009, is hereby SET ASIDE[;]
4. Defendants are ordered to automatically off-set the balance of those listed in
Annex "E" of the Motion for Summary Judgment against the retention money,
escrow money, funding commitment fees, loan takeout proceeds and other
receivables of plaintiff GARHC which are still in the control and possession of
defendant HDMF;
5. Defendants are ordered to accept the replacement-buyers listed in Annex "F" of
the Motion for Summary Judgment, which list is unopposed by defendants, without
interest or penalty from the time of defendant HDMF's cancellation of the Collection
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Servicing Agreement (CSA) resulting to the refusal to accept the same up to the time
that these replacement buyers are actually accepted by defendant HDMF;
6. Defendants are ordered to release the corresponding Transfer Certificate of
Title[s] (TCTs) of those accounts which are fully paid or subjected to automatic off-
setting starting from the list in Annex "E" of the Motion for Summary Judgment and
thereafter from those listed in Annex "F" thereof and cause the corresponding
cancellation of the annotations in the titles thereof. Let this case be set for the
presentation of evidence on the exact amount of damages that plaintiffs are entitled
to on March 12, 2012 at 8:30 in the morning.
Decision of the Court of Appeals
On October 7, 2013, the CA promulgated its decision dismissing the HDMF petition
in C.A.-G.R. SP No. 128262, to wit:
WHEREFORE, there being no grave abuse of discretion amounting to lack or excess
of jurisdiction on the part of public respondent in rendering the assailed Resolution
dated January 30, 2012 containing the Summary Judgment and the Resolution dated
December 11, 2012 denying HDMF, Faria and Atty. Berberabe's Motion for
Reconsideration, the instant petition is hereby DISMISSED.
Issue settled by the Court: Whether or not a certiorari is proper.
The January 30, 2012 summary judgment was an interlocutory order

RULING OF THE SUPREME COURT
In Civil Case No. 10-1120, Globe Asiatique and Delfin Lee specifically averred
separate causes of action against the HDMF, including that for damages.
Considering that the January 30, 2012 partial summary judgment was interlocutory,
the remedy could not be an appeal, for only a final judgment or order could be
appealed.
Consequently, the interlocutory January 30, 2012 summary judgment could be
assailed only through certiorari under Rule 65 of the Rules of Court. Thus, the HDMF
properly instituted the special civil action for certiorari to assail and set aside the
resolutions dated January 30, 2012 and December 11, 2012 of the Makati RTC.
Thus, the petitions for review on certiorari in G.R. No. 209424 and, accordingly,
ANNULS and SETS ASIDE the decision promulgated on October 7, 2013 by the Court
of Appeals in C.A.-G.R. No. SP No. 128262; REVERSES the resolution of December 11,
2012 issued in Civil Case No. 10-1120 by the Regional Trial Court, Branch 58, in
Makati City declaring the partial summary judgment rendered on January 30, 2012
final and executory; PRONOUNCES that the partial summary judgment rendered on
January 30, 2012 may still be appealed by the aggrieved party upon rendition of the
final judgment in Civil Case No. 10-1120; and DIRECTS the Regional Trial Court,
Branch 58, in Makati City to conduct further proceedings in Civil Case No. 10-1120
with dispatch.
152

Ferro Chemicals, Inc. v. Garcia

G.R. Nos. 168134, 168183 & 16819. October 5, 2016
Perez, J.

DOCTRINE:
Fraud, in its general sense, is deemed to comprise anything calculated to deceive,
including all acts, omissions, and concealment involving a breach of legal or
equitable duty, trust or confidence justly reposed, resulting in the damage to
another, or by which an undue and unconscionable advantage is taken of another.
Fraud has been defined to include an inducement through insidious machination.
Insidious machination refers to a deceitful scheme or plot with an evil or devious
purpose. Deceit exists where the party, with intent to deceive, conceals or omits to
state material facts and, by reason of such omission or concealment, the other party
was induced to give consent that would not otherwise have been given. These are
allegations of fact that demand clear and convincing proof. They are serious
accusations that can be so conveniently and casually invoked, and that is why they
are never presumed
The basic principle of relativity of contracts is that contracts can only bind the
parties who entered into it, and cannot favor or prejudice a third person, even if he
is aware of such contract and has acted with knowledge thereof. Where there is no
privity of contract, there is likewise no obligation or liability to speak about.
Elements of tortious interference with contractual relations: (1) existence of a valid
contract; (2) knowledge on the part of the third person of the existence of the
contract and (3) interference on the part of the third person without legal
justification or excuse.

FACTS:
On 15 July 1988, Antonio Garcia and Ferro Chemicals entered into a Deed of Absolute
Sale and Purchase of Shares of Stock over 1,717,678 shares of capital stock of
Chemical Industries registered under the name of Antonio Garcia for a consideration
of P79,207,331.28 (subject shares). Antonio Garcia, the Chairman of the Board of
Directors of Chemical Industries is the brother of Ferro Chemical's President,
Ramon Garcia.
Then, Antonio Garcia entered into a Compromise Agreement with Philippine
Investments System Organization (PISO), Bank of the Philippine Islands (BPI),
Philippine Commercial International Bank (PCIB), Rizal Commercial Banking
Corporation (RCBC) and Land Bank of the Philippines (LBP) (collectively known as
Consortium Banks). The settlement was entered in connection with the Surety
Agreements previously contracted by Antonio Garcia and Dynetics Corporation with
the Consortium Banks.
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On 17 January 1989, Antonio Garcia and Consortium Banks entered into a

Compromise Agreement with respect to the First Consortium Case which sprang
when Antonio Garcia filed a case seeking to enjoin the Consortium Banks from
collecting the amount of P117,800,000.00, excluding interests, penalties and
attorney's fees, purportedly representing their liability under surety contracts. The
RTC, upon application therefor by the Consortium Banks, issued a Notice of
Garnishment over the 1,717,678 shares of stocks of Antonio Garcia in Chemical
Industries to secure any contingent claims that may be awarded in favor of the
banks.
On 3 March 1989, Antonio Garcia and Ferro Chemicals entered into a Deed of Right
to Repurchase after the parties in the First Consortium Case forged a Compromise
Agreement. Under the repurchase contract, Ferro Chemicals stipulated to sell back
the subject shares to Antonio Garcia. On 12 July 1989, Antonio Garcia notified Ferro
Chemicals of his intention to exercise his right to buy back the sold shares under the
repurchase deed; On 31 July 1989, Antonio Garcia reiterated his intent to reacquire
the subject shares by sending another notice to Ferro Chemicals coupled with the
tender of the amount of the agreed repurchase price. Ferro Chemicals refused to sell
back the shares to him. Instead, Ferro Chemicals opted to cede its rights over the
subject shares to Chemphil Export and Import Corporation (Chemphil Export) by
virtue of an Agreement. Antonio Garcia then initiated an action for Specific
Performance for the enforcement of the seller's right under the repurchase
agreement and prayed that the buyer be ordered to reconvey the subject shares to
him. Finding that the issues raised involved an intra-corporate dispute cognizable
by the Securities and Exchange Commission (SEC), the RTC dismissed the case.
Undeterred, Antonio Garcia filed a Second Repurchase Case before the SEC.
On 11 August 1989, the RTC issued a Writ of Execution to enforce the Judgment by
Compromise in the First Consortium Case. The sheriff levied the 1,717,678 shares of
capital stocks in Chemical Industries that were previously attached upon order the
RTC in the First Consortium Case. A public auction was conducted whereby the
Consortium Banks were declared as the highest bidders. On 26 September 1989,
Ferro Chemicals (thru Chemphil Export) successor-in-interest, opposed the
consolidation of ownership of the subject shares in the names of the Consortium
Banks; From 26 September 1989 up to 12 December 1995, the Second Consortium
Case (question as to the ownership of the disputed shares between Chempil Export and
the Consortium Banks) was under litigation; On 1 April 1996, Ferro Chemicals lost
the Second Consortium Case with finality.
On 3 December 1996, Ferro Chemicals initiated the Ferro Chemicals Case for the
payment of damages based on fraud claiming that defendants conspired and abetted
to fraudulently induce the buyer to purchase Antonio Garcia's shares by falsely
warranting that these shares are free from liens and encumbrances. These
representations were made despite their knowledge that the subject shares were
previously garnished by Consortium Banks.
In refuting liability, defendants Chemical Industries and Antonio Garcia averred that
all the outstanding claims against the subject shares were fully disclosed to Ferro
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Chemicals' President, Ramon Garcia, during the negotiation of the sale. While the
subject lien was not mentioned in the purchase agreement, Ramon Garcia, however,
was wholly apprised of the status of the encumbrance who went to the extent of
inserting the "reimbursement clause" and "the obligation to defend the sale clause" in
the agreement in order to protect Ferro Chemicals' rights in the event that prior
lienholders will exercise their right over the subject properties.
The RTC rendered a Decision in favor of Ferro Chemicals and found Chemical
Industries, Antonio Garcia, Jaime Gonzales and Rolando Navarro solidarily liable for
the total amount of P269,355,537.41, representing the value of the lost shares, costs
of litigation, attorney's fees and exemplary damages. The CA rendered a Decision
affirming with modification the RTC Decision. Finding no sufficient evidence on
record that Rolando Navarro actively participated in the fraud perpetrated by
Antonio Garcia against Ferro Chemicals, the CA discharged him from liability.
ISSUE: Whether Antonio Garcia is liable for fraud and breach of obligation?
RULING: NO. There are two clearly crucial evidentiary matters that were without
warrant overlooked by the lower tribunals: (1) the execution by Ferro Chemicals
and Antonio Garcia of the Deed of Right to Repurchase on 3 March 1989; and (2) that
on two separate occasions, Antonio Garcia conveyed in writing his intent to buy
back the shares in accordance with the terms of the repurchase deed. These pieces
of evidence, if appreciated in light of the allegation of fraud, would overthrow the
very foundation upon which the Ferro Chemicals rested its case.
Fraud, in its general sense, is deemed to comprise anything calculated to deceive,
including all acts, omissions, and concealment involving a breach of legal or
equitable duty, trust or confidence justly reposed, resulting in the damage to
another, or by which an undue and unconscionable advantage is taken of another. It
is a question of fact and the circumstances constituting it must be alleged and
proved in the court below.
There are two types of fraud contemplated in the performance of contracts: dolo
incidente or incidental fraud and dolo causante or fraud serious enough to render a
contract voidable. In Geraldez v. Court of Appeals, this Court held that: This fraud or
dolo which is present or employed at the time of birth or perfection of a contract
may either be dolo causante or dolo incidente. The first, or causal fraud referred to in
Article 1338, are those deceptions or misrepresentations of a serious character
employed by one party and without which the other party would not have entered
into the contract. Dolo incidente, or incidental fraud which is referred to in Article
1344, are those which are not serious in character and without which the other
party would still have entered into the contract. Dolo causante determines or is the
essential cause of the consent, while dolo incidente refers only to some particular or
accident of the obligation. The effects of dolo causante are the nullity of the contract
and the indemnification of damages, and dolo incidente also obliges the person
employing it to pay damages.
Under Article 1344, the fraud must be serious to annul or avoid a contract and
render it voidable. This fraud or deception must be so material that had it not been
155

present, the defrauded party would not have entered into the contract. Article 1344
also provides that if fraud is incidental, it follows that this type of fraud is not
serious enough so as to render the original contract voidable.
To summarize, if there is fraud in the performance of the contract, then this fraud
will give rise to damages. If the fraud did not compel the imputing party to give his
or her consent, it may not serve as the basis to annul the contract; which exhibits
dolo causante. However, the party alleging the existence of fraud may prove the
existence of dolo incidente. This may make the party against whom fraud is alleged
liable for damages."
Applying the foregoing precepts in this case, we find it hard to believe that Antonio
Garcia, in view of his impassioned efforts to buy back the disputed shares way
before the Second Consortium Case commenced and even after the shares were
assigned already to Chemphil Export, could be motivated by his fraudulent desire to
extract money and then ease out Ferro Chemicals from its ownership of the subject
shares. The flagrancy of the Deed of the Right to Repurchase ought to have caused the
lower courts to delve into the repurchase issue since this could have very well
dispelled the fraud alleged to have attended the acts of Antonio Garcia. By
disregarding the repurchase contract and Antonio Garcia's intent in good faith to
buy back the shares, the lower tribunals fell prey into the skewed representations of
Ferro Chemicals of the factual incidents of this case. Indeed, both the contractual
agreement on Antonio Garcia's right to repurchase and Antonio Garcia's actual
earnest attempts at repurchase were central to the cause of Antonio Garcia in the
proceedings below.
Though it fashioned itself as the vulnerable party, who was lured into buying shares
of stocks that later turned out to be overburdened by liens, the fact is that Ramon
Garcia is the President of Ferro Chemicals and the brother of Antonio Garcia of
Chemical Industries which, like Ferro Chemicals, is into initiated business ventures.
The transactions that Ramon and Antonio Garcia had with each other were between
brothers about their businesses. Ramon Garcia, both in buying the subject shares
from Antonio Garcia, and later on, in refusing to sell back the shares to Antonio
Garcia did so in furtherance of his interests. It would be rash judgment to say it was
not so and hold that business dealings in multimillions were done without
conducting due diligence on the subject of the contract.
Indeed, the allegation that Antonio Garcia employed fraudulent machinations to
hide the subject lien to facilitate the disposal of his shares and to lure Ferro
Chemicals to part with its money is diametrically opposed to Antonio Garcia's
subsequent offers to repurchase the shares and tender of the repurchase price. On
the other hand, Ferro Chemicals' explanation that the reason why it did not agree to
the reacquisition was because the repurchase price tendered did not include the
amount of taxes and interest due, is flimsy and unacceptable under the
circumstances. It must be pointed out that no negotiation in good faith between the
parties as to the correct amount of taxes and interests should be paid took place
since Ferro Chemicals at the outset flatly refused the offer to buy. As a matter of fact,
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Antonio Garcia was constrained to initiate two repurchase cases in his effort to
reacquire the property.
The succession of events shows that Ferro Chemical's refusal to sell back the shares
to Antonio Garcia was a calculated move by Ramon Garcia who measured the risk of
losing the subject shares to the Consortium Banks against the visible returns on the
shares during the pendency of the Consortium Bank Case. Between the time of the
initial offer of Antonio Garcia to buy back the shares on 31 July 1989 up to the
finality of the Court's decision in the Second Consortium Case on 12 December 1995,
Ferro Chemicals thru Chemphil Export, profited from the Chemical Industries'
shares. It was only after it had lost the shares to the Consortium Banks by the
decision of the Court that Ferro Chemicals went back to Antonio Garcia and his co-
defendants for the enforcement of the sale contract asking for the reimbursement of
the amount of the shares that was lost. The buying and selling of stocks and the
subsequent agreement on reversed activities were in the exercise of business
judgment.
Fraud has been defined to include an inducement through insidious machination.
Insidious machination refers to a deceitful scheme or plot with an evil or devious
purpose. Deceit exists where the party, with intent to deceive, conceals or omits to
state material facts and, by reason of such omission or concealment, the other party
was induced to give consent that would not otherwise have been given. These are
allegations of fact that demand clear and convincing proof. They are serious
accusations that can be so conveniently and casually invoked, and that is why they
are never presumed. Applying the doctrines to the case at bar, a judgment on fraud
requires allegation and proof of facts and circumstances by which undue and
unconscionable advantage is taken by Antonio Garcia. Ramon Garcia failed in this
regard. In contrast, the succession of transaction between Antonio and Ramon
Garcia indicated that Ramon Garcia wanted to have a way out of his failed business
decision of holding on to his shares instead of selling it back to Antonio Garcia when
he had the opportunity to do so. He saw that it was better to hold on to the shares he
bought from Antonio Garcia. The Court cannot save him from the fall that came from
his own choice.
On the liability of Rolando Navarro and Jaime Gonzales for tortious interference
The basic principle of relativity of contracts is that contracts can only bind the
parties who entered into it, and cannot favor or prejudice a third person, even if he
is aware of such contract and has acted with knowledge thereof. Where there is no
privity of contract, there is likewise no obligation or liability to speak about.
The Court, in the case of So Ping Bun v. Court of Appeals, et al., laid down the
elements of tortious interference with contractual relations: (1) existence of a valid
contract; (2) knowledge on the part of the third person of the existence of the
contract and (3) interference on the part of the third person without legal
justification or excuse.
A duty which the law of torts is concerned with is respect for property of others, and
cause of action ex delicto may be predicated by an unlawful interference by any
157

person of the enjoyment of the other of his private property. This may pertain to a
situation where a third person induces a person to renege on or violate his
undertaking under a contract.
A perusal of the allegations proffered against Rolando Navarro would show that
none of his conduct prior or even subsequent to the execution of the subject deed,
which was primarily done in furtherance of his duties as corporate secretary,
constitutes tortious interference. To imply that by preparing a draft of a contract,
signing as instrumental witness of the deed and recording of transfer of shares on
the corporate books, Rolando Navarro can now be held liable for tortious
interference, is incredulous. Nothing from his acts as found by the trial court, which
were clearly carried out within the bounds of his office devoid of malice and bad
faith, would suggest involvement in the sinister design to deprive Ferro Chemicals
of its property right over the disputed shares.

158

Re: Contracts with Artes International

Inc. A.M. No. 12-6-18-SC (Resolution)
BERSAMIN, J :

DOCTRINE:
It is also true that a contract that has all the essential requisites for its validity is
manner is absolute and indispensable. Once the formal requirement for the contract
is absolute and indispensable, any procurement contract that does not adhere to the
requirement can only be deemed invalid and unenforceable.

FACTS:
Chief Justice Panganiban, shortly after his assumption of office announced his
"judicial philosophy of safeguarding the liberty and nurturing the prosperity of the
people under the rule of law." Conformably with his philosophy, the National Forum
and the Global Forum were conceptualized and launched. | In planning for the
National Forum and the Global Forum, Ad Hoc Committees whose memberships
consisted of officers and employees of the Court's various offices were created. The
PMO further engaged an event organizer, Artes International, Inc., to assist the Ad
Hoc Committees. |||

The PMO first engaged the services of Artes for the International Conference and
Showcase for Judicial Reform (ICSJR) in 2005. Based on the records, the OCAt found
that Ms. Dumdum as the Administrator of the PMO entered into several contracts
with Artes, represented by its Executive Producer Helen R. Dabao (Ms. Dabao), and
directly took part in authorizing several disbursements.
As the winning and awarded bidder, Artes, through Ms. Dabao, entered into the
"Quotation Contract" dated August 14, 2006 and written on its stationery. Ms.
Dumdum then affixed her signature therein. SDHT
In furtherance of their contract, Artes rendered its service in the event, The Global
Forum on October 18-20 2006 held at the Shangri-La Makati Hotel. OCAt then noted
that then Chief Accountant Lilian Ulgado's Memorandum addressed to the PMO
Finance Division about a claim by the Makati Shangri-la Hotel for the unpaid amount
of P651,000.00. The pertinent portion of the Memorandum was as follows, 2018
Per our records, the total claim of Makati Shangri-La was already paid in full per
voucher 06-11-33736. Please attach an explanation why there is still an (sic)
remaining balance of P651,000.00.
Also, it appears that there is no basis in paying the said remaining balance of
P651,000.00. Please attach authority to pay the said amount and charging it to Fiscal
Autonomy. TCAScE
Further, in going over the supporting papers of the full payment to Makati Shangri-
La per voucher 11-33736, we noted that the Court paid for the accommodation of
159

Ms. Helen Dabao in Room Nos. 512 and 516. In the Articles of Incorporation
submitted to this office, Ms. Helen Dabao is listed as one of the incorporators of
Artes International. Is Ms. Dabao a participant to the said event? Is (sic) so, please
attach copy of memo circular of those who are authorized to attend the Global
Conference showing the inclusion of Ms. Dabao in the said list. (Emphasis supplied)
17
In her responding Memorandum dated February 28, 2007, PMO Financial
Management Analyst Paula Cheryl Dumlao expressed that because the hotel
accommodations for Ms. Dabao were being questioned, the expenses therefore
should be treated as a "disputed item" that could be excluded from the bill to avoid
further delays in the settlement of the obligations to Makati Shangri-La Hotel.
Thereafter, Chief Accountant Ulgado referred the matter to Judicial Staff Head Midas
P. Marquez of the Office of Chief Justice Reynato Puno to resolve whether the
"remaining balance" of P651,000.00 for the conduct of the Global Forum could be
charged to JR-FA GOP Counterpart Funds.
The transactions between the PMO and Artes continued even after the holding of the
National Forum and Global Forum.
Ms. Dumdum then requested authority from Chief Justice Panganiban to fund
certain activities. Chief Justice Panganiban then approved the same. Ms. Dumdum
then entered into another contract with Artes.
Throughout the services rendered by Artes, OCAt has observed several
discrepancies in its transactions and the budget breakdowns and reports submitted.
Upon the conclusion of the Global Forum, the PMO forwarded to the FMBO pertinent
documents relative to the items supplied by Artes in order to facilitate payment to
the latter. The FMBO declined to process the payment for lack of the necessary
purchase orders (POs) as required by law.
Considering that no payment could be processed without the requisite POs, the PMO
requested the Property Division of the Office of Administrative Services (OAS) to
issue the POs for the supplies delivered by Artes. Being responsible for the
determination of the reasonableness of the prices of supplies, the Property Division
surveyed suppliers of the conference bags, the ID holders, and ball pens, but not the
jewelry boxes which Artes claimed to have been sourced from Cebu. Based on its
survey, the Property Division concluded that the following items were overpriced
and excessive.
Puno, SC Judicial Staff Head Felicitas D. Caunca (Ms. Caunca) of the Property
Division declared that the PMO had itself conducted the canvassing for the supplies
on the ground that it had already been pressed for time; that such canvassing could
have been done through the Philippine Government Electronic Procurement System
(Phil-GEPS) by the Property Division in no time at all; that if the amounts involved
were within the Property Division's authority to canvass, it would have issued the
requested POs regardless of whether the canvassing had been done by the proper
bids committee or by the Property Division itself; and that because the PMO did not
160

observe the proper procurement procedure, what had resulted were "advance
deliveries," which were disallowed by law.

ISSUES:
1. Whether or not Artes is entitled for payment for the services it rendered in
the contract it entered with the PMO -No
2. Whether or not such contract was valid. -No
3. Whether or not Ms. Dumdum committed splitting of contracts -Yes

HELD:
The Court, albeit fiscally autonomous, could not simply authorize and justify the
release of funds to pay Artes' demand in view of the many questions that were
raised against the contracts entered into with Artes by Ms. Dumdum as the PMO
Administrator. To decide on whether to pay or not, the Court had to be guided by
the law on the proper disbursement of public funds, whether emanating from the
National Treasury or sourced from loans or credits extended by foreign funding
partners.
Re: Validity of the Contract
Considering that the National Forum and the Global Forum were projects
conceptualized under the aegis of the JRSP, SC Administrative Circular No. 60-2003
governed the procurement of goods, works and services. AHCETa
By resorting to national shopping, however, the PMO ignored the last sentence of
the IBRD Guidelines on such alternative method of procurement that required a
purchase order (PO) in which the accepted offer should be indicated. The PO was
akin to a "contract between the parties as it requires inputs showing the requisites
of a contract of consent, object certain, and cause of obligation." Instead of the PO,
the PMO used and relied on letter-quotations to reflect and contain the agreements
between the parties. All that Ms. Dumdum as the Program Director had to do was to
affix her signature on the letter-quotations beneath the word Conforme to indicate
conformity to the terms stated therein. This manner of contracting was yet again a
clear violation of the IBRD Guidelines and the Standard Bidding Documents,
Procurement of Goods.
What were to be contained in the contracts was quite clearly stated in the law. In the
1999 version of the IBRD Guidelines, the following parameters were expressly
written, to wit:
Conditions of Contract
2.37 The contract documents shall clearly define the scope of work to be performed,
the goods to be supplied, the rights and obligations of the Borrower and of the
supplier or contractor, and the functions and authority of the engineer, architect, or
construction manager, if one is employed by the Borrower, in the supervision and
administration of the contract. In addition to the general conditions of contract, any
161

special conditions particular to the specific goods or works to be procured and the
location of the project shall be included.
Moreover, as the OCAt has correctly observed, the IBRD Guidelines mentioned of
contract documents instead of a single document. This observation is consistent
with the Generic Procurement Manual (GPM) that synchronized the provisions of
R.A. No. 9184 with the procurement rules of the Asian Development Bank, Japan
Bank for International Cooperation, and the World Bank itself by requiring that
contracts resulting from procurement activities for goods should be supported not
only by a contract document but by a number of documents, including the bid
documents. Yet, based on the detailed study made by the OCAt, no proper bidding
procedure pursuant to the guidelines of SC Administrative Circular No. 60-2003 was
followed by the JRSP-BAC in choosing Artes as the service provider for the National
Forum and the Global Forum. Consequently, the patent nullity of the contracts with
Artes became the only legal consequence to be reached from the failure to comply
with the proper procurement procedure.
We are not also prepared to find that the PMO conducted the canvassing for the
supplies for having been already pressed for time. Such explanation was a feeble
and implausible excuse in the face of the statement by Caunca of the Property
Division to the effect that the Property Division could have done the canvassing in
time through the Phil-GEPS despite time constraints. Indeed, the records revealed
no immediate or compelling justification for dispensing with the requirement of
public bidding in choosing the service provider for the procurement of the goods
involved thereon. To insist that a public bidding would have unnecessarily delayed
the implementation of the program was truly unacceptable. By conducting the
canvass without prior coordination with the Property Division, Ms. Dumdum and
the PMO ignored the proper procurement procedure, and unavoidably caused the
making of "advance deliveries" in contravention of the law. ScHADI
The assertion by the JRP Administrator that Artes had itself conducted the
canvassing of suppliers, and that the PMO had only facilitated the process was
fundamentally discredited by the documents reviewed by the OCAt. The records
disclosed that Ms. Dumdum as the JRP Administrator had approved the
recommended award of contracts to Artes as the winning bidder despite Artes
having itself conducted the bidding. We advert to the points cogently made by the
OCAt thereon, viz.:
If indeed it is true that the PMO merely facilitated the process as an overseer, and Artes
was the actual canvasser, then a lot of questions are raised by the fact that Artes itself
emerged the winner in the canvasses "facilitated" by the PMO, as evidenced by the
undated Abstracts of Bids approved by the JRP Administrator. Notably, Artes emerged
the firm with the "lowest quotation" for jewelry boxes and ball pens even though the
JRP Administrator conformed to its quotation and Artes delivered the said goods
days before OfficeMAN and Chateau offered their quotations for the same goods.
162

At the very least, the resulting situation of the canvasser later emerging as the
winning bidder was highly irregular because of the plainly obvious conflict of
interest.
Considering that most of the expenditures whose payments were sought by Ms.
Dumdum as the authorized approving official came within the threshold allowed in
SC Administrative Circular No. 60-2003 n (i.e., P1,000,000.00 and below), the
payment of contracts on the goods, works, and services procured under the JRSP
would have been presumed to have initially complied with the proper procurement
procedure conducted by the JRSP-BAC. Yet, we cannot even presume regularity
simply because of several indicia of non-compliance with the proper procurement
procedure. The presumption of regularity vanished with the appearance of even just
one irregularity. We agree with the OCAt that it was doubtful if the actual canvass
had been conducted in view of the abstracts of canvass, particularly with respect to
the jewelry boxes and the ball pens, being undated.
It is also true that a contract that has all the essential requisites for its validity is
manner is absolute and indispensable. Once the formal requirement for the contract
is absolute and indispensable, any procurement contract that does not adhere to the
requirement can only be deemed invalid and unenforceable. As such, every letter-
quotation signed by an unauthorized purchaser in behalf of a government agency in
a manner contrary to the loan agreement with the foreign lender and contrary to the
local procurement law can only be a mere scrap of paper that cannot by any means
be accorded any validity or enforceability.
We cannot but notice that the records do not show that the PMO had secured the
CAF for each of the contracts. According to the OCAt, the CAFs were still required
because the Government Auditing Code of the Philippines, the Administrative Code of
1987, and the General Provisions of the relevant General Appropriations Act
uniformly required expenditures of appropriated funds to be supported by CAFs.
We hold that the loan proceeds were undoubtedly appropriated funds. In addition,
R.A. No. 9184, which was definitely applicable, has specified "confirming the
certification of availability of funds, as well as reviewing all relevant documents in
relation to their adherence to law" as parts of the assessment of the readiness of the
procurement during the pre-procurement conference. With the requirement for the
CAFs being sine qua non in government procurement and contracts, every contract
without the corresponding CAF should be characterized as null and void.

Re: Splitting of contracts
That Ms. Dumdum committed splitting of contracts was undeniable.
Splitting of contracts means the breaking up of contracts into smaller quantities and
amounts, or dividing contract implementation into artificial phases or subcontracts,
for the purpose of making them fall below the threshold for shopping or small value
163

procurement, or evading or circumventing the requirement of public bidding. Public

officers and agencies are called upon by the COA to ensure that no splitting of
requisitions, purchase orders, vouchers, and the like, is resorted to in order to
circumvent the control measures provided in the circulars it issued and other laws
and regulations. In this connection, a project funded under a single obligating
authority and implemented in several phases whether by the same or different
contractors shall be deemed splitting of contracts. HaASD
Under the general guidelines of the Government Procurement Policy Board (GPPB),
splitting of contracts is strictly prohibited.
COA Circular No. 76-41, dated July 30, 1976, is instructive on the matter of splitting
of contracts, to wit:
Forms of Splitting:
1) Splitting of Requisitions consists in the non-consolidation of requisitions for one
or more items needed at or about the same time by the requisitioner;
2) Splitting of Purchase Orders consists in the issuance of two or more purchase
orders based on two or more requisitions for the same or at about the same time by
different requisitioners; and
3) Splitting of Payments consists in making two or more payments for one or more
items involving one purchase order.
The above-enumerated forms of splitting are usually resorted to in the following
cases:
1) Splitting of requisitions and purchase orders to avoid inspection of deliveries;
2) Splitting of requisitions and purchase orders to avoid action, review or approval
by higher authorities; and
3) Splitting of requisitions to avoid public bidding.
The foregoing enumeration of the forms of splitting is merely illustrative and by no
means exhaustive. But in whatever form splitting has been resorted to, the idea is to
do away with and circumvent control measures promulgated by the government. It
is immaterial whether or not loss or damage has been sustained by, or caused to, the
government. In a celebrated administrative case wherein a ranking official was
charged with and found guilty of splitting of purchases, the Office of the President of
the Philippines was quite emphatic when it ruled that "his liability is not contingent
on proof of loss to the Government because of said violations of rules on
procurement." For this reason, except "requisitions for supplies materials and
equipment spare parts x x x acquired through emergency purchase from reputable
firms x x x:" (Section 18, Letter of Implementation No. 44, dated April 8, 1976 of the
President of the Philippines), Auditors should be on the lookout for cases of splitting
in varied forms such as splitting of requisitions and purchase orders to avoid
inspection of deliveries; splitting of requisitions, purchase orders, and payments to
avoid action, review or approval by higher authorities; and splitting of requisitions
to avoid public bidding.
164

The Commission on Audit, therefore, cognizant of its responsibility under the

Constitution to safeguard expenditures and uses of government funds and property
hereby enjoins all concerned to strictly enforce and faithfully adhere to all laws,
rules, regulations, and policies calculated to prevent or prohibit splitting in any or
all forms for the protection of the government. (Emphasis supplied) DaIAcC
The foregoing COA circular is addressed to all heads of departments; chiefs of
bureaus and offices; managing heads of government-owned or -controlled
corporations; etc., and proscribes the splitting of requisitions, purchase orders,
vouchers and others. The heads of the departments, bureaus or offices are expressly
enjoined to observe prudence, accountability and transparency in ensuring that no
such splitting of requisitions, POs, vouchers, etc. escape their attention or happen
under their charge. With the increasing volume of transactions involving purchases
of goods, equipment, supplies and materials, there arises the need to enforce control
measures to insure that procurement is effected in a manner that is most
advantageous to the Government. The control measures protect the Government
from losing millions of pesos through irregularities in the procurement process.
The following elements constitute the act of splitting of contracts or procurement
project, to wit:
1. That there is a government contract or procurement project;
2. That the requisitions, purchase orders, vouchers, and the like of the project are
broken up into smaller quantities and amounts, or the implementation thereof is
broken into subcontracts or artificial phases; and
3. That the splitting of the contract falls under any of the following or similar
purposes, namely:
a. evading the conduct of a competitive bidding;
b. circumventing the control measures provided in the circulars and other laws and
regulations; or
c. making the contract or project fall below the threshold for shopping or small
value procurement.
Applying the foregoing elements to Artes' contracts, we find that the JRSP WB loan
was used to fund both the National Forum and the Global Forum in the respective
amounts of P7.5 million and P20.6 million; but instead of conducting a public
bidding for the two events, Ms. Dumdum entered into several letter-contracts or
quotation-contracts with Artes for various phases of the events, each phase
involving amounts that were well within her authority to approve under SC
Administrative Circular No. 60-2003. Such letter-contracts or quotation-contracts
were aimed not only at dispensing with competitive bidding but also at avoiding the
control measures set in place under SC Administrative Circular No. 60-2003, the
COA Circulars, R.A. No. 9184 and other relevant laws and regulations on government
procurement.
165

Had the PMO engaged Artes as the events organizer of the two events, Ms. Dumdum
should have executed with Artes a lump sum contract that covered all the details
and incidentals of the events instead of the several letter-contracts and quotation-
contracts for each and every phase of the events. That the value of each of the letter-
contracts and quotation-contracts entered into by Ms. Dumdum was within her
authority to approve (i.e., P1 million and below) was another strong manifestation
of splitting of contracts.
Splitting of contracts is a serious transgression of the procurement rules of the
Government. Section 65 (4) of R.A. No. 9184 penalizes public officers who commit
"splitting of contracts which exceed procedural purchase limits and competitive
bidding" with "imprisonment of not less than six (6) years and one (1) day but not
more than fifteen years."

166

TOURISM INFRASTRUCTURE AND ENTERPRISE ZONE AUTHORITY vs. GLOBAL-

V BUILDERS CO.
G.R. No. 219708, October 03, 2018
Peralta J.

Doctrine:
Art. 1306. The contracting parties may establish such stipulations, clauses, terms
and conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order or public policy.
In 2007 and 2008, the Philippine Tourism Authority (PTA) entered into five
Memoranda of Agreement (MOA) with respondent Global-V Builders Co. (Global-V)
involving five construction projects. Two were procured through competitive
bidding, while the rest of the projects aforementioned were obtained through
negotiated procurement pursuant to Section 53, paragraphs (b) and (d) of Republic
Act (R.A.) No. 9184 (The Government Procurement Reform Act). On July 31, 2012,
Global-V filed a Request for Arbitration and a Complaint before the CIAC, seeking
payment from the Tourism Infrastructure and Enterprise Zone Authority (TIEZA),
the office that took over the functions of PTA, of unpaid bills in connection with the
five projects, as well as payment of interest, moral and exemplary damages, and
attorney's fees. On August 30, 2012, TIEZA filed a Refusal of Arbitration (Motion to
Dismiss for Lack of Jurisdiction), instead of filing an Answer. TIEZA argued that CIAC
has no jurisdiction over the case filed by Global-V because the Complaint does not
allege an agreement to arbitrate and the contracts do not contain an arbitration
agreement in accordance with Sections 2.3 and 2.3.1 of the CIAC Revised Rules of
Procedure Governing Construction Arbitration (CIAC Rules). In its
Comment/Opposition to Respondent's Refusal of. Arbitration, Global-V countered
that R.A. No. 9184 vests on CIAC jurisdiction over disputes involving government
infrastructure projects like the projects in this case. Section 59 of R.A. No. 9184
provides that "[a]ny and all disputes arising from the implementation of a contract
covered by this Act shall be submitted to arbitration in the Philippines according to the
provisions of Republic Act No. 876, otherwise known as the "Arbitration Law":
Provided, however, That, disputes that are within the competence of the Construction
Industry Arbitration Commission to resolve shall be referred thereto."

Global-V asserted that the pertinent provisions of R.A. No. 9184 governing the
subject infrastructure projects are deemed part of the contracts entered into by the
parties.
TIEZA filed its Rebuttal to Comment/Opposition, arguing that an arbitration clause
is a condition sine qua non before CIAC can acquire jurisdiction over the subject
matter, as provided for in the CIAC Rules.

167

Issue: Whether or not the contracts entered by the parties contain an arbitration
agreement which is a condition for the CIAC to have jurisdiction.
Held: Yes. The CIAC shall have original and exclusive jurisdiction over disputes
arising from, or connected with, contracts entered into by parties involved in
construction in the Philippines, whether the dispute arises before or after the
completion of the contract, or after the abandonment or breach thereof. For the
CIAC to acquire jurisdiction, the parties to a dispute must be bound by an arbitration
agreement in their contract or subsequently agree to submit the same to voluntary
arbitration. Such submission may be an exchange of communication between the
parties or some other form showing that the parties have agreed to submit their
dispute to arbitration. Section 4.1 of the CIAC Law provides that “An arbitration
clause in a construction contract or a submission to arbitration of a construction
dispute shall be deemed an agreement to submit an existing or future controversy to
CIAC jurisdiction, notwithstanding the reference to a different arbitration institution
or arbitral body in such contract or submission. “(Emphasis supplied)

From the foregoing, it is evident that for CIAC to acquire jurisdiction over a
construction controversy, the parties to a dispute must be bound by an arbitration
agreement in their contract or subsequently agree to submit the same to voluntary
arbitration, and that an arbitration clause in a construction contract or a submission
to arbitration of a construction dispute shall be deemed an agreement to submit an
existing or future controversy to CIAC's jurisdiction.

In this case, the Court found that there was an agreement to arbitrate in the General
Conditions of Contract, particularly in Clause 20.2 thereof, which formed part of the
MOAs dated September 6, 2007 which provides “20.2. Any and all disputes arising
from the implementation of this Contract covered by x x x R.A. 9184 and its IRR-A shall
be submitted to arbitration in the Philippines according to the provisions of [R]epublic
Act 9285, otherwise known as the "Alternative Dispute Resolution Act 2004.”
Undoubtedly, Clause 20.2 of the General Conditions of Contract is an arbitration
clause that clearly provides that all disputes arising from the implementation of the
contract covered by R.A. No. 9184 shall be submitted to arbitration in the Philippines.
In accordance with Section 4.1 of the CIAC Rules, the existence of the arbitration
clause in the General Conditions of Contract that formed part of the said MOAs shall
be deemed an agreement of the parties to submit existing or future controversies to
CIAC's jurisdiction.

168

EXCELLENT ESSENTIALS INTERNATIONAL CORPORATION, v. EXTRA EXCEL

INTERNATIONAL PHILIPPINES,INC.
J.Martires

DOCTRINE: A corporation, who is a third party to a contract, may be held
liable for damages if used as a means to breach the obligations between the
contracting parties.

FACTS: Excel International and Excel Philippines entered into an exclusive rights
contract wherein the latter was granted exclusive rights to distribute E. Excel
products in the Philippines. Under the same contract, Excel International reserved
the right to discontinue or alter their agreement at any time.

On 1 December 2000, Stewart, in her capacity as president of Excel International,
revoked Excel Philippines' exclusive rights contract and appointed Excellent
Essentials as its new exclusive distributor in the Philippines.

Despite the revocation of its exclusive rights contract and the appointment of
Excellent Essentials, Excel Philippines continued its operation in violation of the
new exclusive distributorship agreement.

Excel International demanded that Excel Philippines cease from selling, importing,
distributing, or advertising, directly or indirectly, any and all of E. Excel products.

With its demand unheeded, Excel International and Excellent Essentials filed a
complaint for injunction and damages against Excel Philippines.

ISSUE: Whether Excellent Essentials' corporate existence and its business
operations caused damage to Excel Philippines?

HELD: Yes. A corporation, who is a third party to a contract, may be held liable for
damages if used as a means to breach the obligations between the contracting
parties. Under the principle of relativity of contracts, only those who are parties to
a contract are liable to its breach. Under Article 1314 of the Civil Code, however,
any third person who induces another to violate his contract shall be liable to
damages to the other contracting party. Said provision of law embodies what we
often refer to as tortuous or contractual interference.

169


Sps. Pamplona vs. Cueto
G.R. No. 204735; February 19, 2018

BERSAMIN, J.

Case Doctrine: A contract to sell is akin to a conditional sale where the efficacy
or obligatory force of the vendor's obligation to transfer title is subordinated
to the happening of a future and uncertain event, so that if the suspensive
condition does not take place, the parties would stand as if the conditional
obligation had never existed. The suspensive condition is commonly full

Facts:

Defendants are the registered owners of the disputed lot in Batangas. Plaintiff and
defendants mutually agreed for the sale of the property, verbally, with a total
amount of USD25,000 payable on a monthly installment of USD300. Though verbal,
a notebook evidencing their agreement was produced and sent to the plaintiff at her
residence in Italy. The plaintiff’s son occupied the property during her absence, who,
however, was evicted after failing to attend hearings for the unlawful detainer case
filed by the defendants. Petitioner, upon return to the Philippines, heard the
incident and filed an Adverse Claim. The defendants alleged that the stay of the
plaintiff’s son was by mere tolerance only, and as such, the unlawful detainer case
was proper. The RTC ruled in favor of respondents, due to failure of the plaintiff to
present preponderance of evidence. The CA reversed the decision of the RTC,
holding that by virtue of Lilia's partial payments to Bibiana, it removed the contract
from the application of the Statute of Frauds.

Issues:
Whether or not there was sufficient evidence to show the existence of a partially
executed contract to sell.

Held:
Petition is denied. The existence of the partially executed contract to sell between
Bibiana and Lilia was sufficiently established. It is uncontested that Lilia sent money
to Bibiana. The latter did not deny her receipt of the money. Moreover, the records
showed that the parties further agreed for Vedasto and Roilan to occupy the
170

property during the period when Lilia was remitting money to Bibiana; and that
Lilia immediately took steps to protect her interests in the property once the
petitioners started to deny the existence of the oral contract to sell by annotating
her adverse claim on the petitioners' title and instituting this action against the
latter.

Also, in the context of the norms set by jurisprudence for the application of the rule
on admission by silence, Lilia could not be properly held to have admitted by her
silence her lack of interest in the property. On the contrary, the records reveal
otherwise. Upon her return to the country, she communicated with Bibiana on the
terms of payment, and immediately took steps to preserve her interest in the
property by annotating the adverse claim in the land records, and by commencing
this suit against the petitioners. Such affirmative acts definitively belied any claim of
her being silent in the face of the assault to her interest.

The rule on admission by silence applies to adverse statements in writing only when
the party to be thereby bound was carrying on a mutual correspondence with the
declarant. Without such mutual correspondence, the rule is relaxed on the theory
that although the party would have immediately reacted had the statements been
orally made in his presence, such prompt response can generally not be expected if
the party still has to resort to a written reply.

171

DIONELLA A. GOPIO, DOING BUSINESS UNDER THE NAME AND STYLE, JOB ASIA
MANAGEMENT SERVICES, Petitioner, v. SALVADOR B. BAUTISTA, Respondents
G.R. No. 205953; June 06, 2018

Jardeleza, J.:

CASE DOCTRINE: The liability of the principal/employer and the
recruitment/placement agency for any and all claims under this section shall
be joint
and several.

FACTS: On September 26, 2008, respondent Salvador A. Bautista (Bautista) was
hired as a Project Manager for Shorncliffe (PNG) Limited (Shorncliffe) in Papua New
Guinea through Job Asia Management Services (Job Asia), a single proprietorship
owned by petitioner Dionella A. Gopio (Gopio), which is engaged in the business of
recruitment, processing, and deployment of land¬-based manpower for overseas
work. just nine months after his deployment in Papua New Guinea, Bautista was
served a notice of termination effective July 10, 2009 on the alleged grounds of
unsatisfactory performance and failure to meet the standards of the company. He
was paid his salary for the period July 1 to 10, 2009, annual leave credits, and one-
month pay net of taxes. Thereafter, he was repatriated on July 11, 2009. Bautista
lodged a complaint with the arbitration branch of the NLRC against Job Asia, Gopio,
and Shorncliffe for illegal dismissal and monetary claims. Petitioner argued that she
should not be held jointly and severally liable with Shorncliffe for the payment of
monetary awards to Bautista as she had no control over the manner of
implementation of the employment contract, she had no hand whatsoever in
Bautista's dismissal, and that her agency was extinguished as soon as the employee
was deployed to and have worked in Shorncliffe's construction project in Papua
New Guinea.

ISSUE: Whether or not Gopio is jointly and severally liable with Shorncliffe

HELD: Yes. In the first place, such joint and solidary liability is required prior to the
issuance of a license to petitioner to operate a recruitment agency. Thus, Section
1(f)(3), Rule II, Part II of the 2002 POEA Rules and Regulations Governing the
Recruitment and Employment of Land-Based Overseas Workers provides:

RULE II
172


ISSUANCE OF LICENSE

Sec. 1. Requirements for Licensing. Every applicant for license to operate a private
employment agency shall submit a written application together with the following
requirements:
x x x x

f. A verified undertaking stating that the applicant:
x x x x

3) Shall assume joint and solidary liability with the employer for all claims and
liabilities which may arise in connection with the implementation of the contract,
including but not limited to payment of wages, death and disability compensation
and repatriations[.] (Emphasis supplied.)

Furthermore, Section 10 of R.A. No. 8042 provides:

Sec. 10. Money Claims. x x x

The liability of the principal/employer and the recruitment/placement agency for
any and all claims under this section shall be joint and several. This provision shall
be incorporated in the contract for overseas employment and shall be a condition
precedent for its approval. The performance bond to be filed by the
recruitment/placement agency, as provided by law, shall be answerable for all
money claims or damages that may be awarded to the workers.If the
recruitment/placement agency is a juridical being, the corporate officers and
directors and partners as the case may be, shall themselves be jointly and solidarily
liable with the corporation or partnership for the aforesaid claims and damages.
(Emphasis supplied.)

Petitioner thus cannot evade liability by claiming that she did not have any control
over the foreign employer and had nothing to do with Bautista's dismissal, because
her liability is defined by law and contract.

We have held that the burden devolves not only upon the foreign-based employer
173

but also on the employment or recruitment agency to adduce evidence to

convincingly show that the worker's employment was validly and legally
terminated. This is because the latter is not only an agent of the former, but is also
solidarity liable with the foreign principal for any claims or liabilities arising from
the dismissal of the worker.

174

Asian Terminals Inc. vs. Padoson Stainless Steel Corp.,

GR No. 211876. June 25, 2018

Tijam, J:

Case Doctrine: The basic principle of relativity of contracts is that contracts can
only bind the parties who entered into it, and cannot favor or prejudice a third
person, even if he is aware of such contract and has acted with knowledge thereof.
Indeed, "[w]here there is no privity of contract, there is likewise no obligation or
liability to speak about."
Summary of Facts: Respondent Padoson Stainless Steel Corporation (Padoson)
hired ATI to provide arrastre, wharfage and storage services at the South Harbor,
Port of Manila. ATI rendered storage services in relation to a shipment, consisting
of nine stainless steel coils and 72 hot-rolled steel coils which were imported on
October 5, 2001 and October 30, 2001, respectively in favor of Padoson, as
consignee. The shipments were stored within ATI's premises until they were
discharged on July 29, 2006. Meanwhile, the shipments became the subject of a
Hold-Order issued by the Bureau of Customs (BOC) on September 7, 2001. This
was an offshoot of a Customs case filed by the BOC against Padoson due to the
latter's tax liability over its own shipments. For the storage services it rendered,
ATI made several demands from Padoson for the payment of arrastre, wharfage
and storage services. The demands, however, went unheeded. Thus, on August 4,
2006, ATI filed a Complaint with the RTC of Manila, Branch 41 for a Sum of Money
and Damages with Prayer for the Issuance of Writ of Preliminary Attachment
against Padoson. RTC dismissed the case. The RTC held that the liability to pay
should be borne by the BOC. the RTC reasoned out that by virtue of the Hold-Order
over Padoson's shipments, the BOC has acquired constructive possession over the
same. CA Affirmed decision.
Issue: WoN Padoson can no longer be held liable to ATI for arrastre, wharfage and
storage fees because of said constructive possession.
Held: The basic principle of relativity of contracts is that contracts can only bind
the parties who entered into it, and cannot favor or prejudice a third person, even
if he is aware of such contract and has acted with knowledge thereof. Indeed,
"[w]here there is no privity of contract, there is likewise no obligation or liability
to speak about."
Guided by this doctrine, Padoson, cannot shift the burden of paying the
storage fees to BOC since the latter has never been privy to the contract of service
between Padoson and ATI. To rule otherwise would create an absurd situation
175

wherein a private party may free itself from liability arising from a contract of
service, by merely invoking that the BOC has constructive possession over its
shipment by the issuance of a Hold-Order.
In this case, the ultimate relief sought by ATI in its complaint for a sum of money
with damages, is the recovery of the storage fees from Padoson, which arose from
the contract of service which they have validly entered into. BOC, as explained
earlier, was never privy to this contract. It was Padoson who engaged ATI's
storage services. It was Padoson who benefited from ATI's storage services. It was
Padoson who subsequently sold the shipments and suffered losses.
Recall too, that ATI was not a party to the Customs case filed by BOC against
Padoson for the latter's tax delinquency. BOC's interest over the shipment which is
the subject matter of the Customs case is merely to collect from Padoson its tax
dues; it is separate and distinct from the claim of ATI in its complaint for a sum of
money — which is to demand from Padoson the payment of storage fees based on
their contract of service. The BOC's Hold-Order did not have the effect of relieving
Padoson from its contractual obligation with ATI.

176

DEPARTMENT OF EDUCATION, CULTURE AND SPORTS, (now DEPARTMENT of

EDUCATION), represented by its REGIONAL DIRECTOR, TERESITA
DOMALANTA, petitioner, vs. HEIRS OF REGINO BANGUILAN, namely: BENIGNA
GUMABAY, FILOMENA BANGUILAN, ESTER KUMMER, AIDA BANGUILAN, and
ELISA MALLILLIN, respondents.
G.R. No. 230399. June 20, 2018.

REYES JR., J

Case Doctrine: Estoppel by Laches Civil Code Article 1431

Facts:
Herein respondents, the heirs of Regino Banguilan, instituted a complaint for the
recovery of a parcel of land from petitioner, Department of Education. They allege
that petitioner was granted by Regino Banguilan permission to build temporary
facilities for classrooms on the disputed property during the lead up to the Second
World War. Banguilan agreed since the subject land was currently not being used.
However, after Banguilan’s death, the temporary facilities were replaced by the
concrete building of the Caritan Norte Elementary School (CNES). Respondents
demanded reasonable compensation for the rent over said property as they, and
their predecessors in interest, were being deprived of its use. However, petitioner
denied the respondents’ claim stating that the same had already been barred by
prescription and/or laches because they had been occupying and using the subject
lot adversely, peacefully, continuously, and in the concept of an owner for more than
fifty (50) years without question.
The trial court ruled in favor of respondents, declaring them as the undisputed
owners of the contested property wherein CNES was built. However, the trial court
also declared respondents to be estopped by laches and prescription from assailing
the petitioner’s right over the subject property. On appeal to the CA, the trial court’s
decision was reversed stating that petitioner’s possession over the property was
that of mere tolerance, hence laches could not prevent respondents from asserting
their right over said property. Aggrieved, DepEd filed the instant Petition for Review
on Certiorari under Rule 45 of the Rules of Court arguing that respondent's right
over the subject property, if any, is barred by laches due to their inaction for more
than fifty (50) years.

Issue:
Whether or not Respondents’ cause of action was barred by laches

Held:
177

The petition is bereft of merit.

The principle of laches or "stale demands" is the failure or neglect, for an
unreasonable and unexplained length of time, to do that which by exercising due
diligence could or should have been done earlier. It is based on the grounds of
public policy in order to maintain peace in the society and equity in order to avoid
recognizing a right when to do so would result in a clearly unfair situation.

Nevertheless, the Court has held that there is no fast and hard rule as to what
constitutes laches or staleness of demand; the determination of which is addressed
to the sound discretion of the court. As prescribed in the ruling of Phil-Air
Conditioning Center vs. RCJ Lines, the following elements must all be present in
order to constitute laches:

(1) Conduct on the part of the defendant, or of one under whom he claims, giving
rise to the situation of which complaint is made for which the complaint seeks a
remedy;

(2) Delay in asserting the complainant's rights, the complainant having had
knowledge or notice, of the defendant's conduct and having been afforded an
opportunity to institute a suit;

(3) Lack of knowledge or notice on the part of the defendant that the complainant
would assert the right on which he bases his suit; and

(4) Injury or prejudice to the defendant in the event relief is accorded to the
complainant, or the suit is not held to be barred.

In the instant case, a close scrutiny of the records reveals that petitioner failed to
establish the concurrence of the above-mentioned elements for the reason that
CNES' possession over the subject property was merely being tolerated by
respondents and their predecessor-in-interest. Petitioner, through CNES, was only
occupying the subject lot through the permission and here tolerance of Regino and
eventually his successors-in-interest, herein respondents. Therefore, the petitioner's
claim that their possession of the subject lot was adverse and in the concept of an
owner, must fail.

Being the owners of the subject property, respondents have the right to recover
possession from the petitioner because such right is imprescriptible. Even if the
Department of Education has been occupying the subject property for a
considerable length of time, respondents, as lawful owners, have the right to
178

demand the return of their property at any time as long as the possession was only
through mere tolerance. The same precept holds true even if the tolerance resulted
from a promise that the possessor will pay for the reasonable value of the land.

As correctly ruled by the Court of Appeals, respondents may exercise their rights
under Article 448, in relation to Article 546 of the New Civil Code. Said provision
provides them with the option of either: (1) appropriating the improvements, after
payment of indemnity representing the value of the improvements introduced and
the necessary and useful expenses defrayed on the subject lots; or (2) obliging the
petitioner to pay the price of the land. However, petitioner cannot be obliged to buy
the land if its value is considerably more than that of the improvements and
buildings it built. In such a scenario, the petitioner may instead enter into a lease
agreement with respondent heirs and pay them reasonable rent. In case of
disagreement, the Court shall fix the terms thereof.

Nonetheless, considering that the subject lot is now being used as school premises
by the Caritan Norte Elementary School and permanent structures have already
been erected thereon, respondent's exercise of their rights under Article 448 and
payment of indemnity pursuant to Article 546 would undoubtedly hinder the
Department of Education's prerogative of providing basic education to said locality.
In consonance with previous rulings by the Court, the petitioner's remedy to
address such inconvenience is to file an action for expropriation over said land.

WHEREFORE, given the foregoing disquisition, the Petition for Review on Certiorari,
dated April 26, 2017 of the Department of Education, represented by its Regional
Director, is hereby DENIED. Accordingly, the Decision dated February 24, 2017 of
the Court of Appeals in CA-G.R. CV No. 100288, reversing and setting aside the
Decision dated September 11, 2012 of the Regional Trial Court of Tuguegarao City,
Cagayan, Branch 2 is hereby AFFIRMED in toto.

179

Rolando De Roca v. Eduardo Dabuy et. al.

Del Castillo, J:

Case Doctrine Related to Civil Law Review 2: Contracts take effect only between
the parties, their assigns and heirs, except in cases where the rights and obligations
arising from the contract are not transmissible by their nature, or by stipulation, or
by provision of law. The contract of employment between respondents and Oceanic
and Ewayan is effective only between them and does not extend to petitioner, who
is not a party thereto. Therefore, to allow respondents to recover their monetary
claims from petitioner would result in their unjust enrichment.

FACTS:
Herein private respondents filed a complaint for illegal dismissal against RAF
Mansion Hotel Old Management and New Management and Victoriano Ewayan.
Later, private respondents amended the complaint and included herein petitioner
Rolando De Roca as co-respondent.
A conference was set but only complainants attended. Summons was again issued
and personally served to petitioner. Petitioner still failed to attend subsequent
hearings prompting the labor arbiter to direct private respondents to submit their
position paper.
Thereafter, on the same day private respondents submitted their position paper,
petitioner also filed his motion to dismiss on the ground of lack of jurisdiction,
alleging that while he was the owner of RAF Mansion Hotel, the same was being
leased by Victoriano Ewayan, the owner of Oceanics Travel and Tour Agency.
Furthermore, petitioner claims that Ewayan was the employer of private
respondents. Petitioner was claiming there was no employer-employee relationship
between him and private respondents.
The labor arbiter denied the motion to dismiss. Petitioner then filed a petition for
annulment of judgement on the ground of lack of jurisdiction before the NLRC. The
same was dismissed as it was filed out of time.
Petitioner filed a petition for certiorari before the CA. However, the CA dismissed
the petition, ruling that the NLRC did not commit any error in denying the petition
as it was filed 31 days after the receipt of the decision of the NLRC. Furthermore,
there was no grave abuse of discretion on the part of the labor arbiter as the motion
to dismiss was filed at about the period when the case was about to be submitted for
decision.

ISSUE:
180

Whether petitioner should be solidarily liable with Victoriano Ewayan or Oceanic

Travel and Tour Agency despite the patent lack of employer-employee relationship
between the petitioner and private respondents.

HELD:
The petition is granted. The lease agreement between the petitioner and Oceanic
Tours and Travel Agency, represented by Victoriano Ewayan, shows that petitioner
was the owner of a building called the RAF Mansion Hotel and that Oceanic had
agreed to lease the entire premises of RAF Mansion Hotel. The only claim
respondents have in resorting to implead petitioner as a co-respondent is the fact
that he is the owner of the entire building called RAF Mansion Hotel, which happens
to be the very same hotel which Ewayan and Oceanic agreed to continue to operate
under the same name. Petitioner was never considered as Ewayan’s partner and co-
employer. Respondents merely viewed petitioner as the subsequent manager taking
over from Ewayan.
Contracts take effect only between the parties, their assigns and heirs, except in
cases where the lights and obligations arising from the contract are not
transmissible by their nature, or by stipulation, or by provision of law. The contract
of employment between respondents and Oceanic and Ewayan is effective only
between them and does not extend to petitioner, who is not a party thereto.
Therefore, to allow respondents to recover their monetary claims from petitioner
would result in their unjust enrichment.

181

Vive Eagle Land, Inc. v. National Home Mortgage Finance Corp.,

G.R. No. 230817 (Notice), April 18, 2018
PONENTE: (Not indicated)

DOCTRINE: . Vive's failure to pay the purchase price is an event of default giving
NHMFC the right to annul/cancel the contract and forfeiting whatever right Vive had
acquired.

FACTS: Petitioner Vive Eagle Land, Inc. (Vive) filed a complaint for declaration of
nullity of rescission, declaration of suspension of payment of purchase price and
interest and other reliefs against respondents National Home Mortgage Finance
Corporation (NHMFC) and Cavacon Corporation. In its complaint, Vive alleged that it
entered into a Deed of Sale of Rights, Interests, and Participation Over Foreclosed
Assets, whereby it agreed to purchase NHMFC's rights, interests, and participation
in the foreclosed property of Alyansa ng mga Maka-Maralitang Asosasyon at
Kapatirang Organisasyon, Inc. located at Barangay Sta. Catalina, Angeles City. for a
total purchase price of P40,000,000.00.
Pursuant to the Deed of Sale, Vive paid the first installment of the downpayment in
the amount of P4M. Vive, however, did not pay the subsequent installments
reasoning out that it was prevented from exercising its right to avail of a
developmental loan under Section 8 of the Deed of Sale due to issues on the subject
property. While awaiting the resolution of said issues, Vive requested NHMFC for a
moratorium or suspension of the period of payment, the corresponding waiver of
interest, and a 10% reduction of the purchase price for litigation costs it incurred. In
a letter, NHMFC, through its then President (Atty. Salud) initially agreed on the
moratorium, but advised Vive to submit its request of waiver and interest reduction
to the NHMFC's Board of Directors.

Notwithstanding the agreement, NHMFC, through its new President Sison, notified
Vive in a letter dated February 10, 2006 of the rescission/cancellation of the Deed of
Sale due to the alleged non-payment of the balance of the purchase price. Said non-
payment by Vive became NHMFC's defense in its Answer to Vive's complaint.
According to NHMFC, its decision to rescind the Deed of Sale was valid in view of
Vive's refusal to pay the subject installments. Moreover, since Vive was well aware
of the issues affecting the property prior to its purchase, it was not justified in
suspending its payment of the purchase price.

ISSUE: Whether the rescission of the Deed of Sale was Valid

182

HELD (CA RULING ONLY): YES. Vive's failure to pay the purchase price is an event
of default giving NHMFC the right to annul/cancel the contract and forfeiting
whatever right Vive have acquired thereunder pursuant to Section 5 thereof.
Second, it is clear from Section 7 1 of the Deed of Sale that the parties intended their
agreement to be a contract to sell or a conditional sale. The title to the property was
not immediately transferred, through a formal deed of conveyance, in the name of
Vive prior to or at the time of the first payment. Thus, since the title and ownership
remains with NHMFC until Vive fully pays the balance, the Deed of Sale was merely a
contract to sell. Failure to pay is not a mere breach, casual or serious which prevents
the obligation of the vendor to convey the title from acquiring obligatory force. The
non-fulfillment by Vive of its obligation to pay, which is a suspensive condition for
the obligation of NHMFC to sell and deliver the title to the property, rendered the
Deed of Sale ineffective and without force and effect. Thus, since the Deed of Sale
was validly annulled/cancelled, the subsequent sale entered into by NHMFC and
Cavacon is valid.

In a Resolution the Supreme Court denied Vive's petition for review on
certiorari for failure to sufficiently show any reversible error in the assailed
judgment of the CA to warrant the exercise of discretionary appellate jurisdiction.

On July 19, 2017, Vive filed the instant Motion for Reconsideration praying that
the Court take a second look at the circumstances of the case. This was a
notice approving such motion.

183

Hongkong Bank Independent Labor Union (HBILU) vs. Hongkong and

Shanghai Banking Corporation Limited
G.R. No. 218390. February 28, 2018

Velasco, Jr., J.

Case Doctrine:
In order to ascertain the intention of the contracting parties, their contemporaneous
and subsequent acts shall be principally considered. The VA may also consider and
rely upon negotiating and contractual history of the parties, evidence of past
practices interpreting ambiguous provisions. The VA has to examine such practices
to determine the scope of their agreement, as where the provision of the CBA has
been loosely formulated. Moreover, the CBA must be construed liberally rather than
narrowly and technically and the Court must place a practical and realistic
construction upon it.

Summary of Facts:
In 2001, the Bangko Sentral ng Pilipinas (BSP) issued the Manual of Regulations for
Banks (MoRB) which provides that:

“Banks may provide financial assistance to their officers and employees, as part of
their fringe benefits program, to meet housing, transportation, household and
personal needs of their officers and employees. Financing plans and amendments
thereto shall be with prior approval of the BSP.”

Pursuant to the above-cited provision, Hongkong and Shanghai Banking Corporation
Limited (HSBC), on March 12, 2003, submitted its Financial Assistance Plan (Plan)
to the BSP for approval. The Plan allegedly contained a credit checking proviso
stating that "[r]epayment defaults on existing loans and adverse information on
outside loans will be considered in the evaluation of loan applications." The BSP
approved the Plan.

Meanwhile, petitioner HBILU, the incumbent bargaining agent of HSBC's rank-and-
file employees, entered into a CBA with the bank covering the period from April 1,
2010 to March 31, 2012.

When the CBA was about to expire, the parties started negotiations for a new one to
cover the period from April 1, 2012 to March 31, 2017. During the said negotiations,
HSBC proposed amendments to the above-quoted CBA allegedly to align the
wordings of the CBA with its BSP-approved Plan.
184


HBILU vigorously objected to the proposed amendments, claiming that their
insertions would curtail its members' availment of salary loans. This, according to
the Union, violates the existing exceptions set forth in BSP Circular. In view of
HBILU's objection, HSBC withdrew its proposed amendments and, consequently, the
remained unchanged.

Despite the withdrawal of the proposal, HSBC sent an e-mail to its employees on
April 20, 2012 concerning the enforcement of the Plan, including the Credit
Checking provisions thereof.

With the strict implementation of these provisions, adverse credit findings may
result to disapproval of loan or credit card applications.

Thereafter, in September 2012, HBILU member Vince Mananghaya (Mananghaya)
applied for a loan under the provisions of Article XI of the CBA. His first loan
application in March 2012 was approved, but adverse findings from the external
checks on his credit background resulted in the denial of his September application.
HBILU then raised the denial as a grievance issue with the National Conciliation
Mediation Board (NCMB).

Issue:
Whether or not HSBC could validly enforce the credit-checking requirement under
its BSP-approved Plan in processing the salary loan applications of covered
employees even when the said requirement is not recognized under the CBA.

Ruling:
No. If the terms of a CBA are clear and [leave] no doubt upon the intention of the
contracting parties, the literal meaning of its stipulation shall prevail.

However, if, in a CBA, the parties stipulate that the hirees must be presumed of
employment qualification standards but fail to state such qualification standards in
said CBA, the VA may resort to evidence extrinsic of the CBA to determine the full
agreement intended by the parties. When a CBA may be expected to speak on a
matter, but does not, its sentence imports ambiguity on that subject. The VA is not
merely to rely on the cold and cryptic words on the face of the CBA but is mandated
to discover the intention of the parties. Recognizing the inability of the parties to
anticipate or address all future problems, gaps may be left to be filled in by
reference to the practices of the industry, and the step which is equally a part of the
CBA although not expressed in it. In order to ascertain the intention of the
185

contracting parties, their contemporaneous and subsequent acts shall be principally

considered. The VA may also consider and rely upon negotiating and contractual
history of the parties, evidence of past practices interpreting ambiguous provisions.
The VA has to examine such practices to determine the scope of their agreement, as
where the provision of the CBA has been loosely formulated. Moreover, the CBA
must be construed liberally rather than narrowly and technically and the Court
must place a practical and realistic construction upon it.

Thus, in resolving issues concerning CBAs, We must not forget that the foremost
consideration therein is upholding the intention of both parties as stated in the
agreement itself, or based on their negotiations. Should it appear that a proposition
or provision has clearly been rejected by one party, and said provision was
ultimately not included in the signed CBA, then We should not simply disregard this
fact. We are dutybound to resolve the question presented, albeit on a different
ground, so long as it is consistent with law and jurisprudence and, more
importantly, does not ignore the intention of both parties.

Separate Opinion:
Ponente: Leonen, J.

Its terms and conditions must be respected and complied with until it expires. A
collective bargaining agreement is a contract between an employer and his or her
employees, establishing particular arrangements between them with respect to
wages, hours of work, grievances, and other terms and conditions of employment.

A collective bargaining agreement is binding and is the law between its parties. Its
terms and conditions must be respected and complied with until it expires.

Nonetheless, a collective bargaining agreement is still subject to laws and public
policy. It is still a contract limited by Article 1306 of the Civil Code, which states:

Article 1306. The contracting parties may establish such stipulations, clauses, terms
and conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy.

Thus, although it is not explicitly provided for, as in all contracts, laws, morals, good
customs, public order, or public policy is deemed written in collective bargaining
agreements.

186

Maricalum Mining Corp vs. Florentino

G.R. No. 221813 & 222723, January 17, 2018

Gesmundo, J.

Case Doctrine: Art. 1387. All contracts by virtue of which the debtor alienates
property by gratuitous title are presumed to have been entered into in fraud of
creditors, when the donor did not reserve sufficient property to pay all debts
contracted before the donation.

Alienations by onerous title are also presumed fraudulent when made by persons
against whom some judgment has been issued. The decision or attachment need not
refer to the property alienated, and need not have been obtained by the party
seeking the rescission.
In addition to these presumptions, the design to defraud creditors may be proved in
any other manner recognized by the law of evidence.

Facts: The PNB and the DBP previously owned Maricalum Mining. When Maricalum
Mining became a non-performing asset, both banks transferred their ownership of
Maricalum Mining to the National Government for disposition or privatization.

On October 2, 1992, the National Government, through the Asset Privatization
Trust, sold 90% of Maricalum Mining's shares and financial claims to G Holdings, a
domestic corporation engaged in owning and holding shares of stock of different
companies.

The Asset Privatization Trust and G Holdings executed a Purchase and Sale
Agreement. It provided for the purchase price for Maricalum Mining's shares. As for
the value of Maricalum Mining's financial claims, Maricalum Mining executed
promissory notes in favor of G Holdings. The notes were secured by Maricalum
Mining's properties. When G Holdings had paid the down payment, it immediately
took possession of Maricalum Mining's mine site, facilities, and took full control of
the latter's management and operations.

On June 1, 2001, Maricalum Mining informed the cooperatives that it was
undergoing continuing losses because of high cost of production and low metal
prices. Consequently, it would cease its mining and milling operations beginning
July 1, 2001.

187

In July 2001, Maricalum Mining's properties mortgaged in favor of G Holdings were

extra-judicially foreclosed. On December 3, 2001, the properties were sold to G
Holdings as the highest bidder. On September 23, 2010, the complainants filed an
illegal dismissal case against G Holdings and the cooperatives. They also sought
payment for several money claims, damages, and attorney's fees. Complainants filed
a complaint for illegal dismissal and corresponding monetary claims with the LA
against G Holdings.

During the hearings, complainants presented the affidavits which attested that,
prior to the formation of the manpower cooperatives, their services were
terminated by Maricalum Mining as part of its retrenchment program. They claimed
that, in 1999, they were called by the top executives of Maricalum Mining and G
Holdings and informed that they will have to form a cooperative for the purpose of
providing manpower services in view of the retrenchment program. Thus, they
were "rehired" only after their respective manpower cooperative services were
formed.

After the hearings were concluded, complainants presented their Position Paper
claiming that the manpower cooperatives were mere alter egos of G Holdings
organized to subvert the "tenurial rights" of the complainants; G Holdings
implemented a retrenchment scheme to dismiss the caretakers it hired before the
foreclosure of Maricalum Mining's assets; and G Holdings was their employer
because it allegedly had the power to hire, pay wages, control working methods and
dismiss them.

Issue: Whether or not the mortgages executed were fictitious or fraudulent

Held: While it is true that the Deed of Real Estate and Chattel Mortgage was
executed only on September 5, 1996, it is beyond cavil that this formal document of
mortgage was merely a derivative of the original mortgage stipulations contained in
the Promissory Notes of October 2, 1992.

The negotiations between the G Holdings and the Government through the APT,
cannot be depicted as a contrived transaction. In fact, this Court adjudged that G
Holdings was entitled to its rightful claims-not just to the shares of Maricalum
Mining itself, or just to the financial notes that already contained the mortgage
clauses over Maricalum Mining's disputed assets, but also to the delivery of those
instruments. Certainly, we cannot impute to this Court's findings on the case any
badge of fraud. Thus, we reject the Court of Appeal's conclusion that it was right to
pierce the veil of corporate fiction.
188


We also cannot agree that the presumption of fraud in Article 1387 of the Civil Code
relative to property conveyances, when there was already a judgment rendered or a
writ of attachment issued, authorizes piercing the veil of corporate identity in this
case. We find that Article 1387 finds less application to an involuntary alienation
such as the foreclosure of mortgage made before any final judgment of a court. We
thus hold that when the alienation is involuntary, and the foreclosure is not
fraudulent because the mortgage deed has been previously executed in accordance
with formalities of law, and the foreclosure is resorted to in order to liquidate a
bona fide debt, it is not the alienation by onerous title contemplated in Article 1387
of the Civil Code wherein fraud is presumed.

Since the tactual antecedents of this case do not warrant a finding that the mortgage
and loan agreements between Maricalum Mining and G Holdings were simulated,
then their separate personalities must be recognized. To pierce the veil of corporate
fiction would require that their personalities as creditor and debtor be conjoined,
resulting in a merger of the personalities of the creditor. G Holdings, and the debtor,
Maricalum Mining, in one person, such that the debt of one to the other is thereby
extinguished. But the debt embodied in the 1992 Financial Notes has been
established, and even made subject of court litigation. This can only mean that G
Holdings and Maricalum Mining have separate corporate personalities.

189

Steamship Mutual Underwriting Association (Bermuda) Limited v. Sulpicio

Lines, Inc. GR. No. 196072, 208603, September 20, 2017

LEONEN, J.

DOCTRINE: (1). Freedom of contract principle states that parties to a contract may
stipulate on a particular method of settling any conflict between them. Artbitration
and other alternative dispute resolution methods are favored over court action.
Arbitration as a mode of settling disputes, was already recognized in the Civil Code.
(2). A contract is embodied in two (2) or more writings, the writings of
the parties should be read and interpreted together in such a way as to render their
intention effective.

FACTS:
Sulpicio insured its fleet of inter-island vessel with Steamship, a Bermuda-
based Protection and Indemnity Club managed outside London, England, for
Protection Indemnity risks through insurance agents ,Pioneer insurance or
Seaboard-Eastern insurance.

On July 7, 2005, one of Sulpicio’s vessels, M/V Princess of the World was
gutted by fire while on voyage from Iloilo to Zamboanga City, resulting in total loss
of its cargoes.

Sulpicio claimed indemnity from Steamship under the insurance policy.
Steamship denied the claim and subsequently rescinded the insurance coverage on
the ground that Sulpicio was grossly negligent in conducting its business regarding
safety, maintaining the seaworthiness of its vessels as well as proper training of its
crew.

Sulpicion filed a complaint with the Regional Trial Court of Makati City
against Steamship for specific performance and damages. Steamship filed its Motion
to Dismiss and/or to refer cases to Arbitration pursuant to Rule 47 of the
2005/2006 Club Rules, which supposedly provided for artbitration in London of
disputes between Steamship and its members.
The RTC denied the motion to dismiss. The CA affirmed the decision of the
RTC.

Steamship filed a Petition for Review with the Supreme Court. It alleged that
the arbitration agreement set forth in its Club Rules, which in turn is incorporated
190

be reference in the Certificate of Entry and Acceptance of M/V Princess of the World
is valid and binding upon Sulpicio.

ISSUE:
Whether or not there is a valid and binding arbitration agreement between
Steamship and Sulpicio Lines.

HELD:
Yes. The Supreme Court ruled that under the freedom of contract principle,
parties to a contract may stipulate on a particular method of settling any conflict
between them. Artbitration and other alternative dispute resolution methods are
favored over court action. Arbitration as a mode of settling disputes, was already
recognized in the Civil Code.

The contract between Sulpicio and Steamship is more than a contract of
insurance between a marine insurer and shipowner. By entering its vessels in
Steamship, Sulpicio not only obtains insurance coverage for its vessels but also
becomes a member of steamship.

The Club Rules contains the terms and condition of the relationship between
the Steamships and its members. Sulpicio’s acceptance of the Certificate of Entry
and Acceptance manifests its acquiescence to all its provisions. There was no
showing in the records or in Sulpicio’s contentions that it objected to any of the
terms in this Certificate. Its acceptance, likewise, operated as an acceptance of the
entire provisions of the Club Rules.

The Supreme Court reasoned that when a contract is embodied in two (2) or
more writings, the writings of the parties should be read and interpreted together in
such a way as to render their intention effective.

191


SALES AND LEASE

HEIRS OF THE LATE ATTY. EDILBERTO C. PAMA, SR., AND EMMA T. PAMA vs.
HEIRS OF THE LATE ARNALDO AND IRENE BAUTISTA, ET AL.
G.R. No. 226534. January 31, 2018

Ponente: Notice (by the Division Clerk of Court)
Doctrine: When doubt exists as to the true nature of the parties' transaction, courts
must construe such transaction purporting to be a sale as an equitable mortgage, as
the latter involves a lesser transmission of rights and interests over the property in
controversy.

FACTS:
Sometime in August 2003, the respondents instituted with the RTC an action for
Redemption, Recovering of Possession, Declaration of Deed of Absolute Sale as Null
and Void, Damages and Attorney's Fees as well as Cancellation of Entries of the
subject property from Edilberto Pama, Sr., which was registered under the names of
their late parents, Arnaldo and Irene. Respondents alleged that Arnaldo and Irene
passed away on December 13, 1971 and November 13, 1999, respectively.
Sometime in 1975, Irene mortgaged the subject property with right of usufruct to
Emma, wife of Edilberto, for a consideration of P17,000.00. Seven years thereafter,
Irene sought to pay her debt and recover the land but Edilberto, whose wife Emma
had already died, demanded the payment of additional amounts as interest. For
Irene, the demand was contrary to her agreement with Emma. Their arrangement
was that Emma would no longer charge any interest on the loan as she already
exercised her rights as usufructuary over the land. Irene then failed to recover the
mortgaged land from Edilberto. On several instances thereafter, Irene still sought to
recover the property from Edilberto but failed in her attempts. Irene died in 1999
without effecting payment and recovery of the land, but her heirs still sought to later
redeem the property from Edilberto. Besides their assertions on Irene's mortgage to
Emma and the failed attempts to pay and recover the land, the respondents alleged
in their complaint that sometime in July 2003, they discovered that Edilberto caused
the annotation on the subject certificate of title of a Deed of Absolute Sale that was
purportedly executed by Arnaldo and Irene on February 19, 1972. Petitioners
claimed that the deed was falsified, as they pointed out that: (1) the supposed
signatures of Arnaldo and Irene on the deed were forged, as they were not similar to
their real signatures; (2) their father Arnaldo had already died in 1971; (3)
Edilberto misrepresented that he was already a widower at the time the deed was
192

allegedly executed; and (4) the signature of Restituta Bautista, a supposed witness
to the deed's execution, was likewise forged. After trial, the RTC rendered its
decision that favored the respondents. The CA affirmed with modifications the RTC
decision. The CA cited Edilberto's failure to refute the respondents' claim that at
most, the transaction that transpired among the parties was only an equitable
mortgage. Respondents were also able to successfully impeach the genuineness and
due execution of the 1975 Deed of Sale, upon proof that the supposed signatures of
Irene and the alleged witnesses to its execution were forgeries. Since the contract
was spurious, no rights could accrue therefrom. It was a void contract, such that an
action based thereon could not prescribe under Article 1410 of the NCC. Hence, the
present petition for review.

ISSUE: Can the transaction between the late Irene Bautista and Emma Pama be
considered as sale?

RULING: No. The Court denies the petition and held that the records support the
finding that the transaction between Irene and Emma was merely a mortgage. There
was no valid sale to speak of. The authenticity of the two deeds of sale dated 1972
and 1975 were satisfactorily negated by the respondents. It was established that the
signatures appearing thereon were mere forgeries. The original mortgage, on the
other hand, between Irene and Emma was not disputed. Petitioners failed to present
persuasive reasons for the Court to now deviate from the factual findings of both the
trial and appellate courts. The following considerations upon which the CA based its
ruling that favored the respondents are also material:

[T]he records disclosed that Atty. Pama never exercised
dominion and ownership over the property. It is worthy to
restate that the [respondents'] effort to redeem the property
in the years 1982 and 1983 proved unsuccessful only because
of the unreasonable demands set by Atty. Pama and not by
any bona fide claim of title on his part. Equally important,
the records reveal that the tax declarations covering the
property is still in the name of Arnaldo Bautista and the
[respondents] had been paying the taxes on the property in
the years 1988, 1991, 1992, 1997, 1998 and 1999.

xxx xxx xxx

In any event, when doubt exists as to the true nature of the
parties' transaction, courts must construe such transaction
193

purporting to be a sale as an equitable mortgage, as the

latter involves a lesser transmission of rights and interests
over the property in controversy.

On repeated instances, Irene and her heirs sought to pay the mortgage loan and
recover the land from Edilberto. Their failure to do so was for fault or acts
attributable to Edilberto. As there was also no showing that Edilberto foreclosed the
mortgage that was constituted on the subject land, the petitioners could not validly
claim ownership or continued possession over the property. Edilberto instead
committed fraud when he caused the registration of the falsified 1972 Deed of Sale,
a void contract, a matter that was discovered by the respondents only in 2003.

194

THELMA MULLER et al vs PHILIPPINE NATIONAL BANK

GR No. 215922 October 1, 2018

Del Castillo, J.:
CASE DOCTRINE:
Under Article 1670 of the Civil Code, "If at the end of the contract the lessee
should continue enjoying the thing leased for fifteen days with the acquiescence of
the lessor, and unless a notice to the contrary by either party has previously been
given, it is understood that there is an implied new lease, not for the period of the
original contract, but for the time established in Articles 1682 and 1687. The other
terms of the original contract shall be revived."
Even when the parties' lease agreement ended and petitioners failed or
when there is no lease agreement between the parties, or even when the parties -

FACTS:
Spouses Fritz and Thelma Muller are the occupants of two (2) parcels of land
with improvements owned by Philippine National Bank (PNB). On May 26, 1987,
PNB informed the Mullers that their lease will expire on June 1, 1987 and that they
had rental arrears for two and a half years amounting to PhP18,000.00. Seeking to
renew the lease contract for another year, Fritz Muller wrote to PNB proposing to
buy the subject properties. PNB denied the request for renewal of the lease. PNB
Iloilo informed Fritz that his offer to purchase the subject properties was not given
due course by the Head Office.

On March 17, 1988, PNB demanded for the Mullers to vacate the subject
properties within fifteen (15) days from the said date, in view of the expiration of
the lease. The demand fell on deaf ears. Due to continued occupation of the Mullers,
PNB sent its final demand letter dated July 17, 2006, demanding from them the
payment of the rental arrears from June 1984 up to June 1, 2006. The Mullers failed
to pay due attention to the written demands against them which prompted PNB to
institute a Complaint for Ejectment.

ISSUE:
Whether respondent PNB is entitled to rentals in arrears prior to July 17,
2006 and whether its claims therefore have prescribed.

HELD:
195


Petitioners argue that rentals may be awarded to respondent only from the
time of the latest demand and not prior ones; that prior to said latest demand, PNB
had no right to collect rent, since it is only after receipt thereof that they may be
considered illegal occupants of the bank's property and thus obligated to pay rent;
and that prior to said latest or last demand, their possession of the subject
properties may be said to have been tolerated by PNB, and as such, they were "not
required to pay the rent within the period prior to their receipt of the latest demand
to vacate." Such arguments are, however, fundamentally logically flawed, because if
they were to be believed, then no lessor would be compensated under a lease; the
lessee's outstanding rental obligations would simply be condoned. Any lessee would
simply withhold the payment of rent and wait until the lessor makes a demand to
vacate - at which point the former will simply vacate the premises, with no
obligation to pay rent at all.

Under Article 1670 of the Civil Code, "If at the end of the contract the lessee
should continue enjoying the thing leased for fifteen days with the acquiescence of
the lessor, and unless a notice to the contrary by either party has previously been
given, it is understood that there is an implied new lease, not for the period of the
original contract, but for the time established in Articles 1682 and 1687. The other
terms of the original contract shall be revived." Thus, when petitioners' written
lease agreement with respondent expired on June 1, 1987 and they did not vacate
the subject properties, the terms of the written lease, other than that covering the
period thereof, were revived. The lease thus continued. In this sense, the
prescriptive periods cited by petitioners - as provided for in Articles 1144 and 1145
of the Civil Code - are inapplicable. As far as the parties are concerned, the lease
between them subsisted and prescription did not even begin to set in.

Even then, it can be said that so long as petitioners continued to occupy the
subject properties - with or without PNB's consent - there was a lease agreement
between them. They cannot escape the payment of rent, by any manner whatsoever.
First of all, given the circumstances where liberality is obviously not present and
was never a consideration for the lease contract, petitioners cannot be allowed to
enjoy PNB's properties without paying compensation therefor; this would be
contrary to fundamental rules of fair play, equity, and law. Basically, Article 19 of the
Civil Code states that "Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe
honesty and good faith," and Article 20 provides that "Every person who, contrary
to law, wilfully or negligently causes damage to another, shall indemnify the latter
for the same."

Secondly, even when the parties' lease agreement ended and petitioners
failed or refused to vacate the premises, it may be said that a forced lease was thus
created where petitioners were still obligated to pay rent to respondent as
reasonable compensation for the use and occupation of the subject properties.
Indeed, even when there is no lease agreement between the parties, or even when
196

the parties - occupant and property owner - are strangers as against each other, still
the occupant is liable to pay rent to the property owner by virtue of the forced lease
that is created by the former's use and occupation of the latter's property.

197

CARMEN ALEDRO-RUÑA, Petitioner, v. LEAD EXPORT AND AGRO-

DEVELOPMENT CORPORATION, Respondent.

Ponente: GESMUNDO, J.

Case Doctrine: While this Court protects the right of the innocent purchaser for
value and does not require him to look beyond the certificate of title, this protection
is not extended to a purchaser who is not dealing with the registered owner of the
land. In case the buyer does not deal with the registered owner of the real property,
the law requires that a higher degree of prudence be exercised by the purchaser.
While registration is not necessary to transfer ownership, it is, however, the
operative act to convey or affect the land insofar as third persons are concerned.

Facts:
This case originated from three (3) different civil cases involving two (2) parcels of
land, covered by 2 Original Certificate of Title The two parcels of land were
registered under the name of Segundo Aledro

Segundo allegedly executed two (2) contracts covering the subject parcels of land on
separate dates: 1) Contract of Lease executed on August 4, 1972 between him and
Alfredo A. Rivera for a period of fifteen (15) years; and 2) Deed of Absolute Sale
involving the same lands executed by Segundo and Mario D. Advento on March 24,
1981.
On October 8, 1982, Advento sold the subject properties to Andres M. Ringor.
On April 25, 1988, Farmingtown Agro-Developers, Inc. (FADI), a corporation
engaged in the growing and selling of Cavendish bananas, leased the two (2) parcels
of land from Ringor for a period of twenty-five (25) years.

The first case was filed by the heirs of Segundo for Real Action over an Immovable,
Declaration of Nullity of Deed, and Damages.Another complaint was filed by Sofia,
widow of Segundo, in 2005 against Advento for Declaration of Nullity of Deed of Sale
and Quieting of Title, alleging that through fraud, she and Segundo were made to
believe that they were signing a contract of lease and not a deed of absolute sale.
The last case was filed by the petitioner for unlawful detainer, damages and
attorney's fees against respondent.
Respondent countered that it had a right of possession over the subject properties
based on the contract of lease executed on April 25, 1988 between Ringor and FADI.
It further argued that its possessory rights were based on the deeds of absolute sale
between Segundo and Advento, and later between Advento and Ringor.

198

Issues:
1. Whether or not the subsequent buyers are in bad faith and that the petitioner has
the better right to possess the land.
2. Whether or not the registered owner's action to recover possession is not barred
by prescription or by laches.

Held:
1. INNOCENT PURCHASER FOR VALUE
Yes.
Respondent's possession as a lessee was based on a contract of lease executed in its
favor by the alleged subsequent buyers of the subject properties, namely Ringor and
later, by Gonzales and Cabuñas. These buyers only had unregistered deeds of sale in
their favor.
Since 1981 when Segundo allegedly sold the subject property to Advento, two
subsequent transfers have been made, the last buyers being Gonzales and Cabuñas.
Yet, the certificates of title of the parcels of land undisputedly remain under the
name of Segundo and have never been transferred to any of the subsequent buyers
up to the present.

Thus, when Ringor purchased the lands from Advento, and was later purchased by
Gonzales and Cabuñas from Ringor, they did not directly deal with the registered
owner of the land. The fact that the lands were not in the name of their sellers
should have put them on guard and should have prompted them to inquire on the
status of the properties being sold to them.

Clearly, Ringor, Gonzales and Cabuñas cannot be considered buyers in good faith
because of their failure to exercise due diligence as regards their respective sale
transactions. While this Court protects the right of the innocent purchaser for value
and does not require him to look beyond the certificate of title, this protection is not
extended to a purchaser who is not dealing with the registered owner of the land. In
case the buyer does not deal with the registered owner of the real property, the law
requires that a higher degree of prudence be exercised by the purchaser.

While registration is not necessary to transfer ownership, it is, however, the
operative act to convey or affect the land insofar as third persons are
concerned.Since Advento did not register the deed of sale and no transfer certificate
was issued in his name, it did not bind the land insofar as Ringor, Gonzales and
Cabuñas, as subsequent buyers, are concerned.
Moreover, the Court observes that Gonzales and Cabuñas represented themselves as
the registered owners of the subject property in the Contract of Lease they
199

executed in favor of Lapanday Foods Corporation, a corporation which the

respondent admitted as its affiliate. Ordinarily, with such a representation, it is
human nature to require the presentation of the certificate of title to prove one's
alleged ownership. In this case, however, Lapanday Foods Corporation did not
require the presentation of the certificates of title. This led Us to the belief that
respondent, including its affiliate Lapanday Foods Corporation, and its
predecessors-in-interest knew right from the beginning that the unregistered deeds
of sale, which showed the transfers of the subject properties to different persons
while the former maintain in possession thereof, were but a sham.

2. IMPRESCRIPTIBILITY OF RECOVERY OF POSSESSION BY REGISTERED
OWNER
No.
An action to recover possession of a registered land never prescribes in view of the
provision of Sec. 44 of Act No. 496 to the effect that no title to registered land in
derogation of that of a registered owner shall be acquired by prescription or
adverse possession. It follows that an action by the registered owner to recover a
real property registered under the Torrens System does not prescribe. The rule on
imprescriptibility of registered lands not only applies to the registered owner but
extends to the heirs of the registered owner as well. Therefore, petitioner's right
to recover possession did not prescribe.
Likewise, laches did not bar petitioner's right of recovery. An action to recover
registered land covered by the Torrens System may not generally be barred by
laches. Neither can laches be set up to resist the enforcement of an imprescriptible
legal right. It is a principle based on equity and may not prevail against a specific
provision of law, because equity, which has been defined as "justice outside
legality," is applied in the absence of and not against statutory law or rules of
procedure.

200

J.V. LAGON REALTY CORP. vs. HEIRS OF LEOCADIA VDA. DE TERRE

G.R. No. 219670, June 27, 2018

MARTIRES, J.
DOCTRINE: The existence of a tenancy relationship cannot be presumed, and claims
that one is a tenant do not automatically give rise to security of tenure.

FACTS:
Antonio Pedral (Pedral) instituted Leocadia and her spouse Delfin, (the Spouses
Terre), to work as share tenants over his 5-hectare agricultural landholding known
as Lot 587 located at Tacurong, Sultan Kudarat. Three (3) years later, Pedral sold the
land to Jose Abis (Abis) who, in turn, sold the same to Augusto Gonzales (Gonzales)
in 1958.

During the said transfers of ownership, the Spouses Terre were allegedly retained as
tenants of the entire 5-hectare landholding. In the 1960s, Gonzales reduced their
tillage to 2.5 hectares, and the other half was given to Landislao Bedua and Antonillo
Silla to till.

In 1988, J.V. Lagon informed the Spouses Terre that it had already bought the entire
5-hectare land from the heirs of Gonzales. In 1989, J.V. Lagon warned the spouses to
stop cultivating the land because the whole lot was to be developed for commercial
or industrial use. Hence, Leocadia filed a complaint for illegal ejectment, payment of
disturbance compensation, and damages against J V. Lagon before the Provincial
Adjudicator (PARAD).

Leocadia averred that she was not duly notified in writing about the sale between
Gonzales and J.V. Lagon. Thus, her 180-day right of redemption pursuant to Section
12 of R.A. No. 3844, as amended by R.A. No. 6389, did not commence. Accordingly, it
was prayed that she be allowed to exercise her right of redemption over the land.

J.V. Lagon countered that Leocadia had no cause of action simply because there was
no tenancy to speak of. Also, at the time the landholding was purchased from
Gonzales in 1988, no tenant was found cultivating the land. It also raised the
affirmative defense of prescription, contending that the complaint was filed more
than three (3) years after the cause of action accrued in 1988.

The PARAD ruled in favor of J.V. Lagon. It opined that the complaint was already
barred by prescription and laches, as the cause of action accrued in 1988 when J.V.
Lagon constructed a scale house in the allegedly tenanted area. With respect to the
201

issue on redemption, the PARAD observed that as vendee, J.V. Lagon failed to give
Leocadia a written notice of the sale. Nevertheless, it resolved to deny the claim for
redemption on the finding that Leocadia had actual knowledge of the sale as early as
1988 when she confronted J.V. Lagon about the scale house. As to whether there was
tenancy, the PARAD held that Leocadia failed to establish her status as a de jure
tenant.

Leocadia filed an appeal before the DARAB, which reversed and set aside the
PARAD's ruling. It held that Leocadia's action was not barred by prescription
because the filing of the complaint with the BARC on 7 May 1991 tolled the running
of the prescriptive period. It concluded that tenancy existed, as evinced by the fact
that Leocadia's house was erected inside the subject landholding, and that Pedral’s
affidavit declaring that he installed the Spouses Terre as share tenants sufficiently
proved the existence of tenancy relationship. Citing Section 10 of R.A. No. 3844, it
held that tenancy is attached to the land regardless of whoever may have become
the owner thereof. Thus, Leocadia's status as a tenant was not extinguished by the
successive transfers of ownership from Pedral to Abis, and then to Gonzales, and
finally to J.V. Lagon, as the latter assumed the rights and obligations of the preceding
transferors. It further ruled that Leocadia was entitled to redeem the land from J.V.
Lagon citing Section 12 of R.A. No. 3844, which provides that the right of
redemption may be exercised within 180 days from notice in writing which shall be
served by the vendee on all lessees affected and on the DAR upon registration of the
sale.

J.V. Lagon filed a petition for review before the CA, which was denied. Meanwhile,
Leocadia died, prompting her heirs to file a manifestation with motion for
substitution before the CA. CA affirmed in toto the DARAB's ruling. Considering that
there was tenancy between Pedral and Leocadia, the CA decreed that there was
subrogation of rights to Abis, then to Gonzales, and finally to J.V. Lagon, as
landowners. The tenancy relationship was not terminated by changes of ownership
pursuant to Section 10 of R.A. No. 3844. As a tenant, Leocadia was entitled to
redeem the land consequent to the lack of written notice of the sale.

Hence, this petition for review on certiorari. - Granted

ISSUE: W/N there is a tenancy relationship between J.V. Lagon Realty and Leocadia.

HELD: NO.
There is a tenancy relationship if the following essential elements concur: 1) the
parties are the landowner and the tenant or agricultural lessee; 2) the subject
202

matter of the relationship is an agricultural land; 3) there is consent between the

parties to the relationship; 4) the purpose of the relationship is to bring about
agricultural production; 5) there is personal cultivation on the part of the tenant or
agricultural lessee; and 6) the harvest is shared between landowner and tenant or
agricultural lessee.

All of the above requisites are indispensable in order to create or establish tenancy
relationship between the parties. The absence of at least one requisite does not
make the alleged tenant a de facto one, for the simple reason that unless an
individual has established one's status as a de jure tenant, he is not entitled to
security of tenure guaranteed by agricultural tenancy laws.

The issue of tenancy, whether a person is an agricultural tenant or not, is generally a
question of fact. Accordingly, it is crucial to go through the evidence and documents
on record in order to arrive at a proper resolution of the case.

Being the party alleging the existence of tenancy relationship, Leocadia carried the
burden of proving her allegation. With only Pedral's affidavit as proof, the Court is
unable to agree with the DARAB and the CA that tenancy was established by
substantial evidence. Pedral's affidavit is inadequate basis to support a conclusion
that Leocadia remained as a tenant on the land throughout the three decades
preceding J.V. Lagon's ownership. Agricultural tenancy is not presumed. It is a
matter of jurisprudence that tenancy is not purely a factual relationship dependent
on what the alleged tenant does upon the land. More importantly, it is a legal
relationship the existence of which must be proven by the quantum of evidence
required by law.

It is the juridical tie of tenancy relationship that breathes life to these kindred rights
provided for by our agricultural laws. There being no tenancy relationship, the
issues raised on these points have thus become moot and academic.

203

ROYAL PLAINS VIEW, INC. and/or RENATO PADILLO, petitioners, vs.

NESTOR C. MEJIA, respondent
G.R. NO.: 230832, November 12, 2018

CASE DOCTRINE: Sec. 3 of R.A. 6552 or MACEDA law recognizes the vendor’s right
of cancellation of sale on installments of industrial and commercial properties with
full retention of previous payment but there must be notice to the other party
concerned, as discussed in the case of Luzon Brokerage Co., Inc. v. Maritime Building
Co., Inc.

FACTS:
The subject parcel of land was owned by the late Dominador Ramones who
executed a contract of sale in favor of Blas Mejia, the father of the respondent.
Despite the sale the title remained in the name of the deceased. After the
transaction, Blas died and was survived by the herein respondent, Nestor, who was
in the actual physical occupation of the land. Nestor and the president of the
petitioner corporation entered into a contract denominated as Deed of Conditional
sale which stated that the petitioner bound itself to pay PHP 8,000,000.00 with an
initial down payment and the remaining balance of which is to be paid in 40 equal
monthly installments. Petitioner sought to contact Nestor because the former found
out that the latter attempted to sell the subject property but instead, petitioner
received a document entitled “Rescission of Deed of Conditional Sale” alleging that
the petitioner had defaulted in payment of monthly installments. Petitioners then
filed a complaint for Declaration of Nullity of the Instrument denominated as
Rescission of Conditional Sale with the RTC but was dismissed because the court
found that the petitioners did not come to court with clean hands. On appeal, CA
reversed RTC’s decisions ruling that such contract is a contract to sale and that there
was no valid rescission. Subsequent Motion for reconsideration was also denied.

ISSUE: Whether or not the rescission and cancellation of the conditional sale is
valid. – NO

HELD:
The seller unqualifiedly cancelled the sale upon the buyer’s default. While it is true
that buyer’s protection under the MACEDA law is not applicable in this case and that
the seller can validly avail of the remedy of cancellation in case of nonpayment of
installments, Nestor’s act of rescinding the Deed of Conditional Sale or, more
correctly, cancelling it must be made with notice to the other party who failed to
perform his end part of the bargain. In this case there was no showing that
respondent (extrajudicially/judicially) demanded payment of the remaining
204

installments and that he sent a notice to the petitioners that he was already
cancelling the contract. Considering that the Deed of Conditional Sale was not
validly cancelled, it follows that the same subsists and remains effective. Thus the
petition is partially granted and the petitioners are hereby ordered to pay the
balance of the unpaid purchase price within a reasonable period of time.

205

Heirs of Roger Jarque v. Marcial Jarque, et. al.

G.R. No. 196733, November 21, 2018

Jardeleza, J.

DOCTRINE: As a rule, the right to repurchase under Article 1601 may only be
exercised by the vendor, or his successors. If so exercised, the ownership of the
property reverts back to the vendor or his successor. On the other hand, if a third
person redeems the property on behalf of the vendor, he or she does not become
owner of the property redeemed, but only acquires a lien over the property for the
amount advanced for its repurchase.

FACTS: Petitioners claim that since their grandfather Laureano's death, their father,
Roger, inherited Lot No. 2560 and exercised all attributes of ownership and
possession over it. Upon Servanda's death, their children orally partitioned among
themselves the properties of their parents' estate such that the lot were ceded to
Roger. Roger mortgaged the property to Benito Coranes. However, when Roger was
about to redeem the property, Benito told him that it had already been redeemed by
Lupo, his brother. Lupo pleaded with Roger to let the property remain with him as
he needed a source of income. Roger acceded to Lupo's request. When Lupo died, his
wife, Asuncion also requested the same. Upon Asuncion's death, her eldest child,
Dominga, likewise pleaded with Roger. When Dominga died, single and without
issue, her siblings, respondents, continued to possess the property under the same
terms and conditions as their predecessors-in-interest. Roger and his children
repeatedly asked to take back the property, which respondents rejected under the
same assurance that they will take care of the property. Petitioners went to
Casiguran to finally take back the property for good. However, respondents were
already claiming ownership over the lot.

Upon inquiry with the Municipal Assessor's Office, they found that Dominga,
during her lifetime, executed and registered a Ratification of Ownership of Real
Property, where she claimed to have acquired the property thru redemption from
Benito. This prompted Roger to file a complaint. For their part, respondents claim
that upon Laureano's death, Servanda took charge of the estate. Servanda sold the
lot to Benito, with a reservation of the right to repurchase. When the period to
repurchase was about to expire, Servanda requested her granddaughter, Dominga
to redeem the property. Dominga yielded to her grandmother's request and
repurchased the property. Thereafter, she took possession and religiously paid the
taxes due on it.

206

ISSUE: Whether or not redemption is a mode of conveyance that would vest in

Dominga, as redemptioner, title to the property

RULING:
In a sale with right to repurchase (pacto de retro), the title and ownership of
the property sold are immediately vested in the vendee, subject to the resolutory
condition of repurchase by the vendor within the stipulated period. The right of
repurchase agreed upon is one of conventional redemption governed by Article
1601, in relation to Article 1616, of the New Civil Code. This right is separate and
distinct from the legal redemption granted to co-owners under Article 1620 of the
New Civil Code. More importantly, the right to repurchase is separate from the title
or ownership over the property subject of the sale with pacto de retro.

As a rule, the right to repurchase under Article 1601 may only be exercised
by the vendor, or his successors. If so exercised, the ownership of the property
reverts back to the vendor or his successor. On the other hand, if a third person
redeems the property on behalf of the vendor, he or she does not become owner of
the property redeemed, but only acquires a lien over the property for the amount
advanced for its repurchase. As such, the third person's right merely consists of the
right to be reimbursed for the price paid to the vendee.

In this case, the right to repurchase belonged to Servanda which she may,
undoubtedly, transfer to anyone, including Dominga. However, we find that the
claim that Servanda transferred her right of repurchase to Dominga so as to make
the latter acquire title to or ownership over the aliquot share of Servanda in her
own right is not supported by evidence.

There was no evidence that Servanda transferred or assigned ownership
over her aliquot share in the co-ownership to Dominga. Thus, at most, Dominga may
only be considered as agent of Servanda in redeeming Lot No. 2560. However,
Dominga, as an agent, merely re-acquired the rights Servanda previously possessed,
i.e., her aliquot share in the co-ownership or her usufruct. On the other hand, if
Dominga acted in her own name in redeeming the property, she may only be
considered as a third person paying the purchase price on behalf of Servanda. In
both cases, Dominga's exercise of Servanda's right of redemption does not vest in
her title to, or ownership over, Lot No. 2560. The title devolved back to the co-
ownership, subject only to the lien over the property in the amount advanced by
Dominga.

207

EDITHA B. ALBOR vs. COURT OF APPEALS, NERY A MACASIL joined by her

husband RUDY MACASIL and NORMA BELUSO, joined by her husband NOLI
BELUSO
G.R. No. 196598, January 17, 2018

MARTIRES, J.

Case Doctrine: The full amount of the redemption price should be consigned in
court. Only by such means can the buyer become certain that the offer to redeem is
one made seriously and in good faith. A buyer cannot be expected to entertain an
offer of redemption without the attendant evidence that the redemptioner can and
is willing to accomplish the repurchase immediately. A different rule would leave
the buyer open to harassment by speculators or crackpots, as well as to unnecessary
prolongation of the redemption period, contrary to the policy of the law in fixing a
definite term to avoid prolonged and anti-economic uncertainty as to ownership of
the thing sold. Consignation of the entire price would remove all controversies as to
the redemptioner's ability to pay at the proper time.

Facts:

Editha was the agricultural lessee of a 1.60-hectare riceland portion and a 1.5110-
hectare sugarland portion of Lot 2429 located at Barangay Dinginan, Roxas City. Lot
2429 was covered by Transfer Certificate of Title (TCT) No. RT-108 (522), registered
in the name of Rosario Andrada (Rosario), married to Ramon Gardose.

As agricultural lessee, Editha had been paying rent to the agricultural lessors, the
heirs of Rosario. On 22 September 2000, the Municipal Agrarian Reform Officer
(MARO) of Roxas City, invited Editha to appear before the MARO office on 20
October 2000. Editha heeded the invitation and there met respondents who
informed her that they had purchased Lot 2429 from the heirs of Rosario. No Deed
of Sale, however, was shown to Editha. Asserting that she had the right to redeem
Lot 2429 from respondents, Editha lodged a complaint for redemption of
landholding and damages before the Provincial Agrarian Reform Adjudicator
(PARAD). In the main, Editha alleged that under Section 12 of Republic Act (R.A.) No.
3844, as amended by R.A. No. 6389, she had the right to redeem Lot 2429 within
180 days from notice in writing of the sale which shall be served by the vendee on
all lessees affected and on the Department of Agrarian Reform upon registration of
the sale. Considering that the said extrajudicial settlement with deed of sale had not
yet been registered with the Register of Deeds of Roxas City, her 180-period for
208

redemption did not commence. Thus, she prayed that judgment be rendered
declaring her entitled to redeem the said lot, at the price of ₱60,000.00.

Respondents further claimed that Editha was well-informed in writing regarding the
sale of Lot 2429. They alleged that Felisa Aga-in and Teresita Gardose, acting in
behalf of the other heirs of Rosario, executed a notice, dated 16 March 1998,
informing Editha that respondents were interested in buying Lot 2429; and that if
she so desired, she could still repurchase the property from respondents. Finally,
respondents averred that they sent Editha a written demand for payment of rentals
reckoned from 1998. Instead of complying, Editha instituted the complaint for
redemption. Accordingly, respondents prayed for collection of back rentals,
termination of the agricultural leasehold agreement, moral damages, attorney's fees,
and litigation expenses.

In its 30 June 2003 decision, the PARAD found that Editha was not properly notified
of the sale. It observed that the 16 March 1998 notice which respondents presented
failed to indicate the terms and particulars of the sale. As such, it ruled that Editha's
right of redemption did not prescribe for want of a valid written notice.

While the PARAD sustained Editha's right of redemption, it nevertheless resolved to
dismiss her complaint after finding that only ₱216,000.00 was consigned as
redemption price. Citing jurisprudence on the matter, the PARAD opined that tender
of payment must be for the full amount of the repurchase price; otherwise, the offer
to redeem would be held ineffectual. It noted that in the extrajudicial settlement and
deed of sale which Editha herself procured, the purchase price stated was
₱600,000.00, and that such price was never disputed. Hence, absent evidence to the
contrary, there can be no doubt that ₱600,000.00 was the actual amount that
respondents paid for Lot 2429. The decretal portion of the PARAD's decision reads.

Aggrieved, Editha filed an appeal before the DARAB. On 25 November 2008, Editha
filed before the CA a motion for extension of time to file a Rule 43 petition for
review. She prayed for an additional fifteen (15) days, or from 25 November 2008
until 10 December 2008. On 9 December 2008, Editha's new counsel filed with the
CA a notice of appearance and at the same time moved for an extension of thirty
(30) days, or from 10 December 2008 until 9 January 2009, within which to file the
petition for review. The second motion for extension of time was grounded on heavy
workload and the need for more time to study the case. Eventually, Editha's petition
for review was filed on 5 January 2009.

209

Issue:

WHETHER OR NOT THE CA ERRED IN DISMISSING EDITHA'S PETITION FOR
REVIEW FOR HAVING BEEN FILED OUT OF TIME.

Held:

Editha's petition fails. Editha availed of the wrong mode of appeal in bringing her
case before this Court.

The proper remedy of a party aggrieved by a decision of the CA is a petition for
review under Rule 45; and such is not similar to a petition for certiorari under Rule
65 of the Rules of Court. As provided in Rule 45 of the Rules of Court, decisions, final
orders or resolutions of the CA in any case, i.e., regardless of the nature of the action
or proceedings involved, may be appealed to this Court by filing a petition for
review, which in essence is a continuation of the appellate process over the original
case.

On the other hand, a special civil action under Rule 65 is a limited form of review
and is a remedy of last recourse. It is an independent action that lies only where
there is no appeal nor plain, speedy and adequate remedy in the ordinary course of
law. Certiorari will issue only to correct errors of jurisdiction, not errors of
procedure or mistakes in the findings or conclusions of the lower court. As long as
the court a quo acts within its jurisdiction, any alleged errors committed in the
exercise of its discretion will amount to nothing more than mere errors of judgment,
correctible by an appeal or a petition for review under Rule 45 of the Rules of Court.

WHEREFORE, the petition for certiorari is DISMISSED. The assailed CA Resolutions
in CA-G.R. SP No. 03895 are hereby AFFIRMED.

210

FIRST SARMIENTO PROPERTY HOLDINGS, INC. v. PHILIPPINE BANK OF

COMMUNICATIONS

CASE DOCTRINE: The registration of the certificate of sale issued by the sheriff after
an extrajudicial sale is a mandatory requirement; thus, if the certificate of sale is not
registered with the Registry of Deeds, the property sold at auction is not conveyed
to the new owner and the period of redemption does not begin to run.

LEONEN, J.

SUMMARY OF FACTS: Petitioner First Sarmiento Property Holdings, Inc. took out a
loan from Respondent PBComm amounting to P100,000,000.00. To secure the loan,
Petitioner executed a real estate mortgage over 1,076 parcels of land. A few years
thereafter, for allegedly failing to pay both the principal and the accrued interest,
Respondent PBComm foreclosed on the mortgaged properties. Because of this,
Petitioner First Sarmiento filed a Complaint seeking to annul the real estate
mortgage with the RTC of the City of Malolos, Bulacan on the ground that it never
received the loan proceeds to begin with. However, the RTC dismissed the complaint
for lack of jurisdiction, citing Home Guaranty Corp. vs. R. II Builders, Inc. and
National Housing Authority (G.R. No. 192549), holding that the filing fees should
have been based on the fair market value of the mortgaged properties given that the
true nature of Petitioner’s action was to recover real property, a real action. Having
failed to pay the appropriate filing fees, the RTC did not acquire jurisdiction over the
subject matter.

Aggrieved, Petitioner, by way of Rule 45, appealed with the Supreme Court, insisting
that its Complaint for the annulment of the real estate mortgage was incapable of
pecuniary estimation. Petitioner argues that Home Guaranty, which was decided by
a division of the Supreme Court, cannot supersede the doctrine laid down by the
Supreme Court En Banc in Lu vs. Lu Ym which declared that an action questioning
the legality of a conveyance is one not capable of pecuniary estimation. Respondent
however insists on the legality of the real estate mortgage as well as the foreclosure
proceedings that followed, arguing that Petitioner’s complaint involved a real action
hence the estimated value of the mortgaged properties should have been alleged
and used as the basis for the computation of the docket fees.

ISSUE: Whether or not Petitioner’s complaint was an action incapable of pecuniary
estimation.

RULING: Yes. Petitioner contends that its Complaint for annulment of real estate
mortgage has a subject incapable of pecuniary estimation because it was not
intended to recover ownership or possession of the mortgaged properties sold to
respondent during the auction sale. It insists that it had ownership and possession
211

of the mortgaged properties when it filed its Complaint; hence, it never expressly or
impliedly sought recovery of their ownership or possession.

Lapitan v. Scandia instructed that to determine whether the subject matter of an
action is incapable of pecuniary estimation, the nature of the principal action or
remedy sought must first be established. This finds support in this Court's repeated
pronouncement that jurisdiction over the subject matter is determined by
examining the material allegations of the complaint and the relief sought.

Heirs of Dela Cruz v. Heirs of Cruz stated, thus: “It is axiomatic that the jurisdiction of
a tribunal, including a quasi-judicial officer or government agency, over the nature
and subject matter of a petition or complaint is determined by the material
allegations therein and the character of the relief prayed for, irrespective of whether
the petitioner or complainant is entitled to any or all such reliefs.

However, Lapitan stressed that where the money claim is only a consequence of the
remedy sought, the action is said to be one incapable of pecuniary estimation:

“A review of the jurisprudence of this Court indicates that in
determining whether an action is one the subject matter of which is
not capable of pecuniary estimation, this Court has adopted the
criterion of first ascertaining the nature of the principal action or
remedy sought. If it is primarily for the recovery of a sum of money,
the claim is considered capable of pecuniary estimation, and
whether jurisdiction is in the municipal courts or in the courts of
first instance would depend on the amount of the claim. However,
where the basic issue is something other than the right to recover a
sum of money, or where the money claim is purely incidental to, or
a consequence of, the principal relief sought like in suits to have the
defendant perform his part of the contract (specific performance)
and in actions for support, or for annulment of a judgment or to
foreclose a mortgage, this Court has considered such actions as
cases where the subject of the litigation may not be estimated in
terms of money, and are cognizable exclusively by courts of first
instance. The rationale of the rule is plainly that the second class
cases, besides the determination of damages, demand an inquiry
into other factors which the law has deemed to be more within the
competence of courts of first instance, which were the lowest courts
of record at the time that the first organic laws of the Judiciary were
enacted allocating jurisdiction.”

Heirs of Sebe v. Heirs of Sevilla likewise stressed that if the primary cause of action is
based on a claim of ownership or a claim of legal right to control, possess, dispose,
or enjoy such property, the action is a real action involving title to real property.

212

A careful reading of petitioner's Complaint convinces this Court that petitioner

never prayed for the reconveyance of the properties foreclosed during the auction
sale, or that it ever asserted its ownership or possession over them. Rather, it
assailed the validity of the loan contract with real estate mortgage that it entered
into with respondent because it supposedly never received the proceeds of the
P100,000,000.00 loan agreement.

It is not disputed that even if the Complaint were filed a few days after the
mortgaged properties were foreclosed and sold at auction to respondent as the
highest bidder, the certificate of sale was only issued to respondent after the
Complaint was filed.

Section 6 of Act No. 3135, as amended, provides that a property sold through an
extrajudicial sale may be redeemed "at any time within the term of one year from
and after the date of the sale":

Section 6. In all cases in which an extrajudicial sale is made under
the special power hereinbefore referred to, the debtor, his
successors in interest or any judicial creditor or judgment creditor
of said debtor, or any person having a lien on the property
subsequent to the mortgage or deed of trust under which the
property is sold, may redeem the same at any time within the term
of one year from and after the date of the sale; and such redemption
shall be governed by the provisions of sections four hundred and
sixty-four to four hundred and sixty-six, inclusive, of the Code of
Civil Procedure, in so far as these are not inconsistent with the
provisions of this Act.”

Mahinay v. Dura Tire & Rubber Industries Inc. clarified that "[t]he date of the sale'
referred to in Section 6 is the date the certificate of sale is registered with the
Register of Deeds. This is because the sale of registered land does not 'take effect as
a conveyance, or bind the land' until it is registered."

The registration of the certificate of sale issued by the sheriff after an extrajudicial
sale is a mandatory requirement; thus, if the certificate of sale is not registered with
the Registry of Deeds, the property sold at auction is not conveyed to the new owner
and the period of redemption does not begin to run.

In the case at bar, the Ex-Officio Sheriff of the City of Malolos, Bulacan was
restrained from registering the certificate of sale with the Registry of Deeds of
Bulacan and the certificate of sale was only issued to respondent after the Complaint
for annulment of real estate mortgage was filed. Therefore, even if the properties
had already been foreclosed when the Complaint was filed, their ownership and
possession remained with petitioner since the certificate of sale was not registered
with the Registry of Deeds. This supports petitioner's claim that it never asked for
213

the reconveyance of or asserted its ownership over the mortgaged properties when
it filed its Complaint since it still enjoyed ownership and possession over them.

Considering that petitioner paid the docket fees as computed by the clerk of court,
upon the direction of the Executive Judge, this Court is convinced that the Regional
Trial Court acquired jurisdiction over the Complaint for annulment of real estate
mortgage.

214

SPOUSES AVELINA RIVERA-NOLASCO and EDUARDO A. NOLASCO, vs. RURAL

BANK OF PANDI, INC.
G.R. No. 194455. June 27, 2018

MARTIRES, J:

Case doctrine: The kind of "temporary arrangement" as to the "ownership" or
"tillage" of a piece of real property which is owned in common by several brothers
and sisters is a common practice in the rural areas especially if some of the co-
owners are still minors (as in the instant case) or the co-owners are financially
incapable to subdivide the whole parcel and have a separate titling for the share of
each and every co-owner. It is neither illegal nor immoral.

Summary of facts: On 23 February 1995, the spouses Reynaldo and Primitiva
Rivera obtained a Two Hundred Thousand Peso loan from the Rural Bank of Pandi,
Inc. The loan was secured with a mortgage over a parcel of land and registered in
the spouses' names. The spouses Rivera failed to pay their loan, prompting
respondent bank to extrajudicially foreclose the mortgage. At the resultant auction
sale, the bank was declared the highest bidder for the property. When Primitiva
(Reynaldo had by then died) failed to exercise the right of redemption, respondent
bank filed an Affidavit of Consolidation with the Register of Deeds. The TCT was
then cancelled and a new certificate of title was issued in respondent bank's name.

The spouses now solely represented by Primitiva, refused to vacate the property,
prompting the bank to seek relief from the RTC of Malolos. Said court issued a writ
of possession in favor of the bank, directing its sheriff to eject the spouses. The next
month, by virtue of the writ, the bank was placed in possession of the property.

On 10 April 2008, Petitioners spouses Avelina Rivera-Nolasco and Eduardo Nolasco
filed a Complaint before the DARAB alleging, in the main, that they were tenants of
the subject property. The spouses narrated that the property was part of a larger
landholding which was then owned by the Sarmiento Family of Meycauayan,
Bulacan. The land was tenanted by Ireneo Rivera, the father of petitioner Avelina.
When Ireneo died in 1974, Reynaldo Rivera, the eldest of his children, continued
Ireneo's tenancy with the assistance of his siblings. In 1981, Reynaldo became
financially distressed and sold his tenancy rights to Avelina. From then on, Avelina
became the Sarmiento Family's sole agricultural tenant of the landholding.

In 1986, the Sarmiento Family sold half of the landholding as disturbance
compensation; the family transferred the remaining half to Ireneo's heirs, his
215

children, who then agreed that the land be registered solely in the name of
Reynaldo, in deference to his being the eldest. The siblings acknowledged that they
were co-owners of the land, and that they would partition it in the future.

The spouses alleges that the mortgage to the bank was without their and the
Avelina’s siblings' prior knowledge. After the RTC issued the aforementioned writ of
possession, the bank had the entire property fenced and forthwith denied Avelina
entry. She and her workers were thus prevented from tending to their palay crop
which by April 2008, was ready for harvest. Avelina's counsel wrote respondent
bank, requesting that she be allowed entry so she may conduct the necessary
harvest. The bank verbally responded that it would agree, on the condition that
Avelina and her husband renounce their tenancy rights over the property.

Issue: Whether petitioner spouses' averment of co-ownership of the land subject of
the complaint sufficiently negates their claim of tenancy.

Held: The theory on the co-existence of agricultural tenancy and co-ownership
merits a closer look.

In this case, we are presently ill persuaded that co-ownership ipso facto, or at the
very least the mere averment thereof, should be enough to thwart a co-owner's suit
for recognition as tenant. While the appellate court's aphorism on the mutual
exclusivity between land ownership and tenancy may hold true when the ownership
involved is reposed in a single entity, should the same be deemed as automatically
true for coownerships, as well?

Without prejudice to the eventual findings of the administrative agency concerned,
we deem petitioner spouses' proposition to be within the realm of possibility. It is
thus worthy of examination by the DARAB and its adjudicators, which has the
expertise to undertake such an examination.

216

Heirs of Nuñez, Sr. v. Heirs of Villanoza,

G.R. No. 218666, April 26, 2017

Leonen, J.

Doctrine: The right of retention of a deceased landowner may be exercised by his
heirs provided that the heirs must first show proof that the decedent landowner had
manifested during his lifetime his intention to exercise his right of retention prior to
23 August 1990

Facts:

Leonilo Sebastian Nuñez (Sebastian) owned a land measuring "more or less"
2.833 hectares (28,333 square meters) located at Barangay Castellano, San
Leonardo, Nueva Ecija. This land was covered by Transfer Certificate of Title
and was registered on March 16, 1976 to "Leonilo Sebastian . . . married to
Valentina Averia."
On July 7, 1976, Sebastian mortgaged this property to then ComSavings Bank or
Royal Savings and Loan Association, now GSIS Family Bank, to secure a loan. His
loan matured on June 30, 1978, but the bank did nothing to collect the payment
due at that time. In 1981, tenant-farmer Gabino T. Villanoza (Villanoza) started
tilling Sebastian's land.
It was only on December 11, 1997, about 19 years after the maturity of
Sebastian's loan, that GSIS Family Bank extrajudicially foreclosed his mortgaged
properties including the land tenanted by Villanoza. A public auction was held,
and GSIS Family Bank emerged as "the highest and only bidder."
Sebastian's land title was cancelled and titlewas issued in the name of the new
owner, GSIS Family Bank.
On June 20, 2000, Sebastian filed a complaint before the Regional Trial Court to
annul the extrajudicial foreclosure sale. Sebastian argued that an action to
foreclose the mortgage prescribed after 10 years. GSIS Family Bank's right of
action accrued on June 30, 1978, but it only foreclosed the property 19 years
later. Thus, its right to foreclose the property was already barred.
While the case was pending at the Regional Trial Court, the Department of
Agrarian Reform sent a notice of coverage under Republic Act No. 6657 or the
Comprehensive Agrarian Reform Program to GSIS Family Bank, then landowner
217

of the disputed property. Neither GSIS Family Bank nor Sebastian exercised any
right of retention within 60 days from this notice of coverage.
On November 10, 2000, the government compulsorily acquired from GSIS
Family Bank the land covered Title. The bank's land title was cancelled, and Title
was issued in the name of the Republic of the Philippines. The Department of
Agrarian Reform put a portion of what is now the property under agrarian
reform.
On November 27, 2000, the Department of Agrarian Reform issued an
emancipation patent or Certificate of Land Ownership Award to Villanoza. The
Certificate of Land Ownership Award title was generated but not yet released as
of February 23, 2005.
During the pendency of his complaint to annul the extrajudicial foreclosure sale,
Sebastian died and his heirs substituted him.
On August 9, 2002, the Regional Trial Court found that GSIS Family Bank's cause
of action had prescribed. Therefore, the proceedings for extrajudicial
foreclosure of real estate mortgages [against Sebastian, as substituted by his
heirs,] were null and void."
Issue

Whether petitioners have a right of retention over the land measuring "more or
less" 2.833 hectares awarded to farmer beneficiary Gabino T. Villanoza.|||

Held

Assuming that Sebastian could properly exercise his retention right, this could
not cover the land awarded to Villanoza.
Petitioners cite Santiago, et al. v. Ortiz-Luiz to claim that an emancipation grant
cannot "defeat the right of the heirs of the deceased landowner to retain the
[land]." However, in that case, this Court denied the landowner's retention right
for exceeding what the law provides. There is no cogent reason why this Court
should rule differently in this case.
Section 6 of Republic Act No. 6657 gives the landowner the option to choose the
area to be retained only if it is compact or contiguous. The Department of
Agrarian Reform, the Office of the President, and the Court of Appeals have
consistently found that the land subject of the dispute is neither compact nor
contiguous.
218

Section 6 also provides that if the area selected for retention is tenanted, it is for
the tenant to choose whether to remain in the area or be a beneficiary in the
same or a comparable agricultural land. Petitioners' Application for Retention
stated that Villanoza occupied the property as a tenant and farmer beneficiary.
Thus, the option to remain in the same land was for Villanoza to make.
The landowner's retention right is subject to another condition. Under Section
3.3 of Administrative Order No. 02-03, the heirs of a deceased landowner may
exercise the retention right only if the landowner signified his or her intention to
exercise the right of retention before August 23, 1990. Section 3.3 states:
3.3. The right of retention of a deceased landowner may be
exercised by his heirs provided that the heirs must first
show proof that the decedent landowner had
manifested during his lifetime his intention to exercise
his right of retention prior to 23 August 1990 (finality
of the Supreme Court ruling in the case of Association of
Small Landowners in the Philippines Incorporated
versus the Honorable Secretary of Agrarian Reform).
Petitioners cannot claim the right of retention through "Leonilo Sebastian" or
"Leonilo P. Nuñez, Sr." when the alleged predecessor-in-interest himself failed to
do so. The Court of Appeals correctly ruled that during his lifetime, Sebastian did
nothing to signify his intent to retain the property being tilled by Villanoza. It
was only two (2) years after his death that petitioners started to take interest
over it.
Neither was any right of retention exercised within 60 days from the notice of
Comprehensive Agrarian Reform Program coverage. The Court of Appeals
properly considered this as a waiver of the right of retention pursuant to Section
6.1 of Administrative Order No. 02-03.
Section 6.1 provides that the landowner's "[f]ailure to manifest an intention to
exercise his right to retain within sixty (60) calendar days from receipt of notice
of CARP coverage" is a ground for losing his or her right of retention.
The Department of Agrarian Reform sent a notice of Comprehensive Agrarian
Reform Program coverage to GSIS Family Bank, which was then landowner of
the disputed property. Neither GSIS Family Bank nor Sebastian exercised any
right of retention within 60 days from this notice of coverage.
While all agrarian reform programs have always accommodated some forms of
retention for the landowner, all rights of retention have always been subject to
conditions. Unfortunately in this case, the landowner has miserably failed to
219

invoke his right at the right time and in the right moment. The farmer
beneficiary should not, in equity, be made to suffer the landowner's negligence.
Finally, the issuance of the title to Villanoza could no longer be revoked or set
aside by Secretary Pangandaman. Acquiring the lot in good faith, Villanoza
registered his Certificate of Land Ownership Award title under the Torrens
system. He was issued a new and regular title, in fee simple; that is to say, it is
an absolute title, without qualification or restriction.
|

220

HEIRS OF ILDEFONSO LOYOLA vs. SPOUSES ISIDRO L. NAVEA AND LYDIA R.

NAVEA
G.R. No. 211958. March 14, 2018

DOCTRINE: The Civil Code provides that an action for the reconveyance of a
fraudulently registered property is 10 years reckoned from the date of the issuance
of the certificate of title. However, where the party seeking reconveyance on the
ground of fraud is in actual, continuous, and peaceful possession of the property
involved, prescription does not run as the action partakes of the nature of a suit for
quieting of title, which is imprescriptible.
An action for reconveyance based on a void contract, as in this controversy where it
is alleged that there was no consent on the part of the real owner of the property,
the action does not prescribe.

FACTS: Following the death of Isidro Loyola, his heirs sold a portion of the lot to the
respondent spouses on November 16, 1971. The lot was thereafter occupied and
cultivated by the respondent spouses, and declared for taxation purposes under the
name of respondent Isidro.
In 1984, petitioners contracted the services of Engineer Felomino Ramirez (Engr.
Ramirez) to cause the segregation survey of the mother lot. Allegedly Engr. Ramirez
was at that time unaware that a portion of the lot to be segregated has already been
sold to the respondent spouses, thus he included therein the portion already sold to
respondent spouses.
In November 1995, the petitioners applied for a free patent over their share in the
mother lot. It included portion sold to respondent spouses.
Alleging that their property has wrongfully been included in the partition and
distributed to the petitioners, a Complaint for Cancellation/Annulment of Original
and Transfer Certificates of Title and Damages filed by respondent spouses before
the Regional Trial Court of Masbate City.
RTC: dismissed the complaint by respondents and held that since one year has
lapsed since the issuance of OCT, without any petition for reopening and review
being filed, such title has become indefeasible and conclusive as to the petitioners'
title over the lot. While the RTC recognized the validity of the notarized deed of sale
executed in favor respondent spouses, it nonetheless adjudged the latter to be
guilty of laches which thus bars them from asserting their claim.
CA: Ruled in favor of respondents and their right of ownership must be respected
and that prescription does not run to bar them of asserting the same considering
that they are in possession of the property since 1972.
ISSUE: Whether or not the Honorable CA erred in reversing the appealed Decision
off the RTC of Masbate-Branch 46, on the sole ground that respondent spouses are
221

not guilty of laches, since they were allegedly in possession of the property in
question (Whether or not the respondents were barred by laches.)
RULING: No. An action for reconveyance is a recognized remedy available to a
person whose property has been wrongfully registered under the Torrens System in
the name of another.
The Civil Code provides that an action for the reconveyance of a fraudulently
registered property is 10 years reckoned from the date of the issuance of the
certificate of title. However, where the party seeking reconveyance on the ground of
fraud is in actual, continuous, and peaceful possession of the property involved,
prescription does not run as the action partakes of the nature of a suit for quieting of
title, which is imprescriptible.
Likewise, an action for reconveyance based on a void contract, as in this controversy
where it is alleged that there was no consent on the part of the real owner of the
property, the action does not prescribe.
In the instant controversy therefore, the one-year prescriptive period within which
to file an action for reconveyance does not apply as the respondent spouses were in
actual possession of the property
Also, contrary to petitioners' understanding of the RTC's decision, what vested
ownership in favor of the respondent spouses is not the fact that laches has already
set in. Respondent spouses' right of ownership over the property has been acquired
and vested by virtue of the contract of sale they have executed with the Heirs of
Isidro Loyola on November 16, 1971.
It is settled that the act of registration of a piece of land under the Torrens System is
not a mode of acquiring ownership, as such it does not create or vest title.
A certificate of title is merely an evidence of ownership or title over the particular
property described therein. It cannot be used to protect a usurper from the true
owner; nor can it be used as a shield for the commission of fraud; neither does it
permit one to enrich himself at the expense of others. Its issuance in favor of a
particular person does not foreclose the possibility that the real property may be co-
owned with persons not named in the certificate, or that it may be held in trust for
another person by the registered owner.

222

Republic of the Philippines vs. Jose Gamir-Consuelo Diaz Heirs Association,

inc.
G.R. No. 218732

Ponente: Associate Justice Jose C. Reyes, Jr.

Case Doctrine: The award of legal interest in cases where the government acquires
private property through voluntary sale is not a matter of law

Facts:
Jose Gamir-Consuelo Diaz Heirs Association is a corporation composed of the heirs
of Jose Gamir and Consuelo Diaz. It was the registered owner of a parcel of land
under negotiation with the Department of Public Works and Highways (DPWH). It
was agreed on August 2005 that respondent would sell the land to petitioner after
receipt of the full consideration. The land formed part of Sta. Ana Avenue, a national
road.

On November 2006, respondent filed a complaint with the RTC alleging that the
subject parcel of land was actually taken by the DPWH sometime in 1957 using the
land’s value at that time as the purchase price in their 2005 agreement.
Respondents demanded that they be paid interest on the basis that they had a right
to receive interest because DPWH had not paid Just Compensation when it occupied
the property in 1957.

The RTC dismissed respondent’s complaint for lack of merit. In December 2013, the
Court of Appeals granted respondent’s appeal and reversed the RTC’s decision. The
appellate court posited that legal interest accrued from the time of the actual taking
of the property until actual payment to place the landowner in a position as good as
the position he was before the taking occurred.

Petitioner moved for reconsideration, but it was denied by the CA. Hence, this
present petition raising the issue:
“WHETHER RESPONDENT IS ENTITLED TO RECEIVE PAYMENT OF INTEREST
NOTWITHSTANDING THE ABSENCE OF ANY STIPULATION IN THE DEED OF
ABSOLUTE SALE WITH PETITIONER”

Held:
Petitioner and respondent voluntarily and freely executed and entered into a deed
of sale covering the latter's property. The said document purports to represent the
will of the parties concerning the transaction after a series of negotiations. It must
223

be remembered that the contract is the law between the parties and they are bound
by its stipulations. The CA erred in relying on the pronouncements in Apo because
in the said case, there was no consensual contract between the parties as the
landowner disagreed with the valuation done by the DAR on its property. In sum,
the award of legal interest in cases where the government acquires private property
through voluntary sale is not a matter of law. Unlike in cases where the state
exercises its power of eminent domain or a party initiates expropriation
proceedings and other similar actions, in negotiated sale, there is an existing
contract that governs the relations of the parties and determines their respective
rights and obligations. In tum, these contractual stipulations should be complied
with in good faith, unless they are contrary to law, morals, good customs, public
order or public policies. Hence, the laws relating to contracts should govern in case
of controversy in their application.

224

Sps. Pamplona vs. Cueto

G.R. No. 204735, February 19, 2018

BERSAMIN, J.

Case Doctrine: A contract to sell is akin to a conditional sale where the efficacy
or obligatory force of the vendor's obligation to transfer title is subordinated
to the happening of a future and uncertain event, so that if the suspensive
condition does not take place, the parties would stand as if the conditional
obligation had never existed. The suspensive condition is commonly full

Summary of Facts:

Defendants are the registered owners of the disputed lot in Batangas. Plaintiff and
defendants mutually agreed for the sale of the property, verbally, with a total
amount of USD25,000 payable on a monthly installment of USD300. Though verbal,
a notebook evidencing their agreement was produced and sent to the plaintiff at her
residence in Italy. The plaintiff’s son occupied the property during her absence, who,
however, was evicted after failing to attend hearings for the unlawful detainer case
filed by the defendants. Petitioner, upon return to the Philippines, heard the
incident and filed an Adverse Claim. The defendants alleged that the stay of the
plaintiff’s son was by mere tolerance only, and as such, the unlawful detainer case
was proper. The RTC ruled in favor of respondents, due to failure of the plaintiff to
present preponderance of evidence. The CA reversed the decision of the RTC,
holding that by virtue of Lilia's partial payments to Bibiana, it removed the contract
from the application of the Statute of Frauds.

Issue: Validity of a verbally executed contract to sell

Issues:
Whether or not there was sufficient evidence to show the existence of a partially
executed contract to sell.

Held:
Petition is denied.
225


The existence of the partially executed contract to sell between Bibiana and Lilia
was sufficiently established. It is uncontested that Lilia sent money to Bibiana. The
latter did not deny her receipt of the money. Moreover, the records showed that the
parties further agreed for Vedasto and Roilan to occupy the property during the
period when Lilia was remitting money to Bibiana; and that Lilia immediately took
steps to protect her interests in the property once the petitioners started to deny
the existence of the oral contract to sell by annotating her adverse claim on the
petitioners' title and instituting this action against the latter.

Also, in the context of the norms set by jurisprudence for the application of the rule
on admission by silence, Lilia could not be properly held to have admitted by her
silence her lack of interest in the property. On the contrary, the records reveal
otherwise. Upon her return to the country, she communicated with Bibiana on the
terms of payment, and immediately took steps to preserve her interest in the
property by annotating the adverse claim in the land records, and by commencing
this suit against the petitioners. Such affirmative acts definitively belied any claim of
her being silent in the face of the assault to her interest.

The rule on admission by silence applies to adverse statements in writing only when
the party to be thereby bound was carrying on a mutual correspondence with the
declarant. Without such mutual correspondence, the rule is relaxed on the theory
that although the party would have immediately reacted had the statements been
orally made in his presence, such prompt response can generally not be expected if
the party still has to resort to a written reply.

226


SPOUSES BELTRAN VS. SPOUSES CANGAYDA
G.R. No. 225033; August 15, 2018

CAGUIOA, J.

CASE DOCTRINES:
• In a contract of sale, title passes to the vendee upon the delivery of the thing sold;
whereas in a contract to sell, by agreement the ownership is reserved in the
vendor and is not to pass until the full payment of the price. In a contract of sale,
the vendor has lost and cannot recover ownership until and unless the contract is
resolved or rescinded; whereas in a contract to sell, title is retained by the vendor
until the full payment of the price.
• Article 1592 extends to the vendee in a sale of immovable property the right to
effect payment even after expiration of the period agreed upon, as long as no
demand for rescission has been made upon him by the vendor.

FACTS:

Sometime in August 1989, respondents verbally agreed to sell the disputed property
to petitioners for P35,000.00. After making an initial payment, petitioners took
possession of the disputed property and built their family home thereon. Petitioners
subsequently made additional payments, which, together with their initial payment,
collectively amounted to P29,690.00.

However, despite respondents' repeated demands, petitioners failed to pay their
remaining balance of P5,310.00. This prompted respondents to refer the matter to
the Office of the Barangay Chairman of Barangay Magugpo, Tagum City (OBC).
Petitioners failed to pay within the period set forth in the Amicable Settlement.

On January 14, 2009, or nearly 17 years after the expiration of petitioners' period to
pay their remaining balance, respondents served upon petitioners a "Last and Final
Demand" to vacate the disputed property within 30 days from notice. This demand
was left unheeded.

Consequently, on March 12, 2009, respondents filed a complaint for recovery of
possession and damages (Complaint) before the RTC. Respondents alleged, among
others, that petitioners had been occupying the disputed property without
authority, and without payment of rental fees.

In their Answer, petitioners admitted that they failed to settle their unpaid balance
of P5,310.00 within the period set in the Amicable Settlement. However, petitioners
alleged that when they later attempted to tender payment two days after said
227

deadline, respondents refused to accept their payment, demanding, instead, for an

additional payment of P50,000.00.
The petitioners alleged in the Court of Appeals that the contract they entered into
was not a contract to sell but a contract of sale which had the effect of transferring
ownership of the disputed property upon its delivery.

ISSUES:
1.) What was the contract entered into by the parties?
2.) Was there already a delay in the performance of the buyer to pay the purchase
price?

HELD:

2.) Based on the foregoing distinctions, the Court finds, and so holds, that the oral
agreement entered into by the parties constitutes a contract of sale and not a
contract to sell.

A contract of sale is consensual in nature, and is perfected upon the concurrence
of its essential requisites, thus:

The essential requisites of a contract under Article 1318 of the New Civil Code
are: (1) consent of the contracting parties; (2) object certain which is the subject
matter of the contract; and (3) cause of the obligation which is established.
Thus, contracts, other than real contracts are perfected by mere consent which
is manifested by the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract. Once perfected, they bind other
contracting parties and the obligations arising therefrom have the force of law
between the parties and should be complied with in good faith. The parties are
bound not only to the fulfillment of what has been expressly stipulated but also
to the consequences which, according to their nature, may be in keeping with
good faith, usage and law.

Being a consensual contract, sale is perfected at the moment there is a meeting
of minds upon the thing which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject
to the provisions of the law governing the form of contracts. A perfected
contract of sale imposes reciprocal obligations on the parties whereby the
vendor obligates himself to transfer the ownership of and to deliver a
determinate thing to the buyer who, in turn, is obligated to pay a price certain in
money or its equivalent. Failure of either party to comply with his obligation
entitles the other to rescission as the power to rescind is implied in reciprocal
obligations. (Emphasis supplied)

228

Contrary to the CA's findings, neither respondent Loreta's testimony nor clause
6 of the Amicable Settlement supports the conclusion that the parties'
agreement is not contract of sale, but only a contract to sell — the reason being
that it is not evident from said testimony and clause 6 that there was an express
agreement to reserve ownership despite delivery of the disputed property.

A plain reading of respondent Loreta's testimony shows that the parties' oral
agreement constitutes a meeting of the minds as to the sale of the disputed
property and its purchase price. Respondent Loreta's statements do not in any
way suggest that the parties intended to enter into a contract of sale at a later
time. Such statements only pertain to the time at which petitioners expected, or
at least hoped, to acquire the sufficient means to pay the purchase price agreed
upon.

3.) A reading of Article 1592 in conjunction with Article 1191 thus suggests that in
the absence of any stipulation to the contrary, the vendor's failure to pay within
the period agreed upon shall not constitute a breach of faith, so long as payment
is made before the vendor demands for rescission, either judicially, or by
notarial act.

In Taguba v. Peralta, (Taguba) the Court held that slight delay in the payment of
the purchase price does not serve as a sufficient ground for the rescission of a
sale of real property:

Despite the denomination of the deed as a "Deed of Conditional Sale" a reading
of the conditions x x x therein set forth reveals the contrary. Nowhere in the
said contract in question could we find a proviso or stipulation to the effect that
title to the property sold is reserved in the vendor until full payment of the
purchase price. There is also no stipulation giving the vendor (petitioner
Taguba) the right to unilaterally rescind the contract the moment the vendee
(private respondent de Leon) fails to pay within a fixed period x x x.

Considering, therefore, the nature of the transaction between petitioner Taguba
and private respondent, which We affirm and sustain to be a contract of sale,
absolute in nature the applicable provision is Article 1592 of the New Civil Code
x x x.

Here, petitioners acknowledge that they failed to settle the purchase price of the
disputed property in full within the deadline set by the Amicable Settlement.
Nevertheless, the Court does not lose sight of the fact that petitioners have
already paid more than three-fourths of the purchase price agreed upon.
Further, petitioners have constituted their family home on the disputed
property in good faith, and have lived thereon for 17 years without protest.

229

In addition, respondents do not dispute that petitioners offered to settle their

outstanding balance of P5,310.00 "two (2) days after the deadline [set by the
Amicable Settlement] and a few times thereafter," which offers respondents
refused to accept. Respondents also do not claim to have made a demand for
rescission at any time before petitioners made such offers to pay, either through
judicial or extra-judicial means, such as through a notarial act.

230

PCI LEASING AND FINANCE V. TROJAN METAL INDUSTRIES

G.R. No. 212988; October 3,2018

CARPIO, J.

CASE DOCTRINE: The lease agreement must be presumed valid as the law between
the parties even if some of its provisions constituted unjust enrichment.

FACTS:

Sometime in 1997, Trojan Metal Industries sought to obtain a loan from PCI Leasing
and Finance (PCILF). Instead of extending the loan, PCILF proposed to purchase
some of Trojan Metal Industries' pieces of equipment. The parties executed deeds of
sale evidencing Trojan Metal Industries' sale to PCI Leasing of the various
equipment for the total amount of P2,865,070.00.

The parties then entered into a lease agreement whereby Trojan Metal Industries
leased from PCI Leasing the various equipment which it previously owned. The
lease agreement required Trojan Metal Industries to give PCI Leasing a guaranty
deposit of P1,030,350.00, which would serve as security for the timely performance
of Trojan Metal Industries' obligations under the lease agreement. This guaranty
deposit would automatically be forfeited should Trojan Metal Industries return the
leased equipment before the expiration of the lease agreement.

To secure an additional loan from another financing company, Trojan Metal
Industries used the leased equipment as temporary collateral. PCI Leasing
considered the second mortgage a violation of their lease agreement. At that time,
Trojan Metal Industries' partial payments had reached P1,717,091.00. On December
8, 1998, PCI Leasing sent a demand letter for the payment of Trojan Metal
Industries' outstanding obligation.

On 7 May 1999, PCILF filed in the Regional Trial Court (Branch 79) of Quezon City a
complaint 13 against TMI, spouses Dizon, and John Doe for recovery of sum of
money and personal property with prayer for the issuance of a writ of replevin. On 7
September 1999, the RTC issued the writ of replevin PCILF prayed for, directing the
sheriff to take custody of the leased equipment. Not long after, PCILF sold the leased
equipment to a third party and collected the proceeds amounting to P1,025,000.00.

The lower court ruled that the lease agreement must be presumed valid as the law
between the parties even if some of its provisions constituted unjust enrichment on
the part of PCILF. When respondents appealed to the Court of Appeals, the appellate
court ruled that the sale with lease agreement was in fact a loan secured by chattel
mortgage. It held that since PCI leasing sold the equipment to a third party, the
231

amount of which, in addition to the guaranty deposit by the respondent, the amount
in excess should be returned to the respondents.

ISSUE:
Whether the sale with lease agreement the parties entered into was a financial lease
or a loan secured by chattel mortgage; and whether PCILF should pay TMI, by way
of refund, the amount in excess of the guaranty deposit and the proceed of sale?

HELD:

The petition lacks merit.

PCILF contends that the transaction between the parties was a sale and leaseback
financing arrangement where the client sells movable property to a financing
company, which then leases the same back to the client. PCILF insists the
transaction is not financial leasing, which contemplates extension of credit to assist
a buyer in acquiring movable property which the buyer can use and eventually own.
PCILF claims that the sale and leaseback financing arrangement is not contrary to
law, morals, good customs, public order, or public policy. PCILF stresses that the
guaranty deposit should be forfeited in its favor, as provided in the lease agreement.
PCILF points out that this case does not involve mere failure to pay rentals, it deals
with a flagrant violation of the lease agreement.

Respondents counter that from the very beginning, transfer to PCILF of ownership
over the subject equipment was never the intention of the parties. Respondents
claim that under the lease agreement, the guaranty deposit would be forfeited if TMI
returned the leased equipment to PCILF before the expiration of the lease
agreement; thus, since TMI never returned the leased equipment voluntarily, but
through a writ of replevin ordered by the RTC, the guaranty deposit should not be
forfeited. In the present case, since the transaction between PCILF and TMI involved
equipment already owned by TMI, it cannot be considered as one of financial
leasing, as defined by law, but simply a loan secured by the various equipment
owned by TMI.

Therefore, PCILF is hereby ordered to pay respondent Trojan Metal Industries, Inc.,
by way of refund, the excess amount to be computed by the Regional Trial Court
based on the formula specified in the decision, with interest at 12% per annum from
finality of this Decision until fully paid.

232

SPOUSES GODFREY AND MA. TERESA TEVES, Petitioners, v. INTEGRATED

CREDIT & CORPORATE SERVICES, CO. (NOW CAROL AQUI), Respondent.
G.R. No. 216714, April 04, 2018

DEL CASTILLO, J.

CASE DOCTRINE: The procedure under Section 7 of Act No. 3135, as amended, may
be availed of by a purchaser seeking possession of the foreclosed property he
bought at the public auction sale after the redemption period has expired without
redemption having been made.

FACTS:

Standard Chartered Bank (Standard) extended various loans to petitioners Godfrey
and Ma. Teresa Teves. As security, petitioners mortgaged their (the subject
property). Petitioners defaulted in their loan payments, Standard extrajudicially
foreclosed on the mortgage, and the property was sold to Integrated Credit and
Corporate Services Co. (ICCS). A new certificate of title was issued in favor of ICCS
after petitioners failed to redeem the subject property upon the expiration of the
redemption period. ICCS filed a petition for the issuance of a writ of possession, ICCS
was substituted by respondent Carol Aqui (Aqui), who appears to have acquired the
property from ICCS, and a new certificate of title was issued in Aqui's favor. The RTC
issued a Decision ordering the issuance of a writ of possession over the subject
property in favor of ICCS.

Sometime later, the RTC issued two Orders: The first (First Order) declared that the
duty of the court to grant a writ of possession is ministerial. This Court having found
that the procedural requirements of law for issuance of writ of possession have
been dutifully complied with.
The second Order (Second Order) contained the following pronouncement: based
on the Sheriffs Initial Report dated October 22, 2008, the subject property is being
leased to Ms. Sarah Park for monthly rental of P50,000.00 and it is respondent Mr.
Godfrey Teves who collects the monthly rental; that Mr. Teves has no more right to
collect the monthly rental as his right ceased from the time the right of redemption
lapsed relative to the Petition for Extrajudicial Foreclosure consistent with, the
provision of Art. 544 of the Civil Code; and that accordingly, respondents should
turn over to petitioner and/or deposit with the Court the monthly rentals in the
amount they have collected up to the time of respondents' surrender of possession
of the subject property.

Petitioners filed a Partial Motion for Reconsideration of the Second Order,they aver
that the Notice of Lis Pendens of the case of Annulment of Contract annotated in the
Title of the subject property binds the subsequent buyer, Ms. Carol Aqui, giving
emphasis on the fact of termination of the Makati case wherein the Standard
233

Chartered Bank specifically waived its right to claim for deficiency and to settle fee
case or anything arising from it; that as a successor-in-interest, her right cannot rise
above the rights of Standard Chartered Bank which specifically waived its right to
claim for deficiency of anything arising from it. RTC denied the same. Petitioners
filed for reconsideration but was also denied.

RTC ruled that the respondent is entitled to the monthly rentals of the subject
property which were collected by the petitioners who are shown to have no more
right over the same after the period for them to redeem die subject property had
already lapsed.

The petitioner having no more right to collect the rentals upon the lapse of the
period for them to redeem the property without redeeming the same, which gave
way to the auction sale in the foreclosure proceeding of the subject property
wherein the highest and winning bidder was the herein petitioner Integrated Credit
& Corporate Services (ICCS for brevity). As such highest and winning bidder, the
respondent is entitled to the possession of the subject property and to collect the
subject monthly rentals from the respondents. The essence of a writ of possession is
the right of petitioner to possess the subject property which has been duly
established.

The Compromise Agreement executed by and between the parties in the Makati case
cannot bind the herein petitioner, now by Ms. Carol Aqui as substituting petitioner,
not being a party to the said case.

ISSUE:
Whether or not collection of back rentals can be awarded in an ex parte application
for writ of possession?

HELD:

Yes. In China Banking Corporation v. Spouses Lozada, the Court held that:

In IFC Service Leasing and Acceptance Corporation v. Nera, the Court reasoned that if
under Section 7 of Act No. 3135, as amended, the RTC has the power during the
period of redemption to issue a writ of possession on the ex parte application of the
purchaser, there is no reason why it should not also have the same power after the
expiration of the redemption period, especially where a new title has already been
issued in the name of the purchaser. Hence, the procedure under Section 7 of Act No.
3135, as amended, may be availed of by a purchaser seeking possession of the
foreclosed property he bought at the public auction sale after the redemption period
has expired without redemption having been made.

234

PP VS RANDOLPH TING AND SALVACION GARCIA

G.R. NO. 221505, DECEMBER 5, 2018
PERALTA J.

DOCTRINE: Payment of the purchase price is not a condition for the transfer of title,
in the absence of stipulation to the contrary.

FACTS:

On or about 30 April 2004 during the period of forty five (45) days preceding the 10
May 2004 National and Local Elections in the City of Tuguegarao, the respondent
issued Treasury Warrant No. 0001534514 undertaking future delivery of money
chargeable against public funds amounting to P 8,486,027.00 as payment for the
acquisition of two (2) parcels to be used as a public cemetery.

A complaint was filed against respondent for violation of the Omnibus Election Code
but the same was dismissed by the COMELEC. The court set aside the ruling of the
COMELEC and ordered the filing of the appropriate criminal information against
respondent. Upon arraignment the respondent entered a plea of not guilty. At the
pre-trial, it was stipulate and admitted that Ting, as representative of the City
Government of Tuguegarao, entered into a Contract of Sale with the Almazan’s for
the purchase of two (2) parcels of land identified as Lot Nos. 5860 and 5861.
Payment of the price was made by the respondents in favor of the Almazan’s which
was against the law under the Omnibus Election Code.

After pre-trial, the prosecution filed its Formal Offer of Evidence. The respondent,
instead of filing his evidence, filed a Motion for Leave to File a Demurrer of Evidence
which was granted by the RTC and later on acquitted the respondent. Petitioner
filed a Petitioner for Certiorari under Rule 65 which was denied by the CA.

ISSUE:

WON the transfer of title is deemed to have been automatically instituted upon

RULING:

The court ruled in the negative. The payment of the purchase price is not a condition
for the transfer of title, in the absence of stipulation to the contrary. When the City of
Tuguegarao caused the registration of the sale and issuance of the new TCTs in its
name, it does not follow that payment of the purchase price was made on the same
day.

235

IVQ LANDHOLDINGS INC VS REUBEN BARBOSA

LEONARDO-DE CASTRO, J

CASE DOCTRINE:
Deed of sale cannot be considered a public document if not properly notarized

FACTS:
On June 10, 2004, Barbosa filed a Petition for Cancellation and Quieting of Titles
against Jorge Vargas III, Benito Montinola, IVQ, and the Register of Deeds of Quezon
City. Barbosa averred that on October 4, 1978, he bought from Therese Vargas a
parcel of land located on Visayas Avenue, Culiat, Quezon City (subject property).
Thereafter, Vargas surrendered to Barbosa the owner's duplicate copy of her title.
Barbosa said that he took possession of the subject property and paid real estate
taxes thereon in the name of Vargas. Sometime in 2003, Barbosa learned that
Vargas's name was cancelled and replaced with that of IVQ in the tax declaration of
the subject property. Upon investigation, Barbosa found out that the subject
property was previously registered in the name of Kawilihan Corporation. Vargas
acquired the subject property from Kawilihan Corporation and the date of entry of
her TCT was November 6, 1970. On the other hand, IVQ supposedly bought the
subject property from Jorge Vargas III who, in turn, acquired it also from Kawilihan
Corporation. The date of entry of Jose Vargas Ill's TCT was October 14, 1976. This
title was later reconstituted and was issued on August 6, 2003.

Barbosa argued that even without considering the authenticity of Jorge Vargas Ill's
title, Vargas's title bore an earlier date. Barbosa, thus, prayed for the trial court to
issue an order directing the Office of the Register of Deeds of Quezon City to cancel
Jorge Vargas Ill title and adjudicate the ownership of the subject property to him.
Respondents countered that the alleged title from where Barbosa's title was
allegedly derived from was the one that was fraudulently acquired and that Barbosa
was allegedly part of a syndicate that falsified titles for purposes of "land grabbing."
They argued that it was questionable that an alleged lot owner would wait for 30
years before filing an action to quiet title. The Register of Deeds of Quezon City
neither filed an answer to Barbosa's petition nor participated in the trial of the case.
During trial, Barbosa testified, inter alia, that he is the owner of the subject property
that he bought from Vargas. The property was at that time registered in her name.
Barbosa paid real estate taxes on the subject property in the name of Kawilihan
Corporation from 1978 until 2002. From 2003 to 2006, he paid real estate taxes
thereon in the name of Therese Vargas. Barbosa added that in the year 2000,
Santiago Sio Soy Une, allegedly the president of Lisan Realty and Development
Corporation (Lisan Realty), presented to Barbosa's caretaker a Deed of Sale with
Assumption of Mortgage, which was allegedly executed by Jorge Vargas III and Lisan
Realty involving the subject property. Barbosa secured a certification from the EDP
Division of the Office of the City Assessor in Quezon City that there were no records
of real property assessments in the name of Jorge Vargas III as of August 15, 2006.
As to the supposed sale to Lisan Realty and Lisan Realty's assignment of rights to
IVQ, the counsel for Barbosa agreed to stipulate on the same if the transactions were
236

annotated in Jorge Vargas Ill's title. The counsel for IVQ said that they were so
annotated. Upon inquiry of the trial court judge, the counsel for IVQ clarified that the
transfers or assignment of rights were done at the time that the subject property
was mortgaged with PNB. The property was then redeemed by IVQ on behalf of
Jorge Vargas III. Petitioner further contends that respondent did not have the
Absolute deed of sale notarized and thus defective.

ISSUE: Whether or not the lack of notarization of the deed of absolute sale between
Barbosa and Vargas is a substantial defect

RULING: The court ruled that the alleged defects in the notarization of the Deed of
Absolute Sale dated September 11, 1970 between Kawilihan Corporation and
Therese Vargas and the Deed of Absolute Sale dated October 4, 1978 between
Therese Vargas and Barbosa are by no means trivial. As the Court stressed in V da.
De Rosales v. Ramos:

“The importance attached to the act of notarization cannot be overemphasized.
Notarization is not an empty, meaningless, routinary act. It is invested with
substantive public interest, such that only those who are qualified or authorized
may act as notaries public. Notarization converts a private document into a public
document thus making that document admissible in evidence without further proof
of its authenticity. A notarial document is by law entitled to full faith and credit upon
its face. Courts, administrative agencies and the public at large must be able to rely
upon the acknowledgment executed by a notary public and appended to a private
instrument.”
x x x x

Furthermore, in Bitte v. Jonas, the Court had occasion to discuss the consequence of
an improperly notarized deed of absolute sale. Thus –
Article 1358 of the New Civil Code requires that the form of a contract transmitting
or extinguishing real rights over immovable property should be in a public
document. x x x.

x x x x

Not having been properly and validly notarized, the deed of sale cannot be
considered a public document. It is an accepted rule, however, that the failure to
observe the proper form does not render the transaction invalid. It has been settled
that a sale of real property, though not consigned in a public instrument or formal
writing is, nevertheless, valid and binding among the parties, for the time-honored
rule is that even a verbal contract of sale or real estate produces legal effects
between the parties.

Accordingly, the party invoking the validity of the deed of absolute sale had the
burden of proving its authenticity and due execution.x x x.

237

In the instant case, should the Deeds of Absolute Sale in favor of Therese Vargas and
Barbosa, respectively, be found to be indeed improperly notarized, the trial court
would have erred in admitting the same in evidence without proof of their
authenticity and in relying on the presumption regarding the regularity of their
execution. Barbosa would then have the additional burden of proving the
authenticity and due execution of both deeds before he can invoke their validity in
establishing his claim of ownership. Therefore, IVQ should be allowed to formally
offer in evidence the documents it belatedly submitted to this Court and that
Barbosa should equally be given all the opportunity to refute the same or to submit
controverting evidence.

238

SPOUSES CIPRIANO PAMPLONA and BIBIANA INTAC v SPOUSES LILIA I. CUETO

and VEDASTO CUETO
G.R. No. 204735, 19 FEBRUARY 2018
BERSAMIN, J.:

DOCTRINE:
A contract to sell is akin to a conditional sale where the efficacy or obligatory force
of the vendor's obligation to transfer title is subordinated to the happening of a
future and uncertain event, so that if the suspensive condition does not take place,
the parties would stand as if the conditional obligation had never existed. The
suspensive condition is commonly full payment of the purchase price.

FACTS:
This case involves conflicting claims between the parties involving their transaction
over a parcel of land and its improvements, with the respondents claiming, on the
one hand, that they had purchased the property on installment pursuant to an oral
contract to sell, and the petitioners insisting, on the other, that the amounts paid by
the respondents to them were in payment of the latter's indebtedness for a previous
loan. The trial court sided with the petitioners - dismissing the respondents'
complaint in Civil Case No. 5120. The appellate court, however, reversed the trial
court, ordering the petitioners instead to execute a deed of sale on the property in
favor of the respondents upon the release of the consigned amount. The CA further
ordered the Register of Deeds of Batangas City to cancel the transfer certificate of
title of the petitioners, and to issue a new one in favor of the respondents.

ISSUES:
Whether or not there is a contract to sell or a contract of sale.

HELD/RULING:
Contract to Sell. The Court held that a careful review of the records calls for them to
affirm the CA. In their view, the existence of the partially executed contract to sell
between Bibiana and Lilia was sufficiently established.

It is uncontested that Lilia sent money to Bibiana. The latter did not deny her receipt
of the money. Moreover, the records showed that the parties further agreed for
Vedasto and Roilan to occupy the property during the period when Lilia was
remitting money to Bibiana; and that Lilia immediately took steps to protect her
interests in the property once the petitioners started to deny the existence of the
oral contract to sell by annotating her adverse claim on the petitioners' title and
instituting this action against the latter.

The petitioners have contended that the sums of money received from Lilia were
payments of the latter's obligations incurred in the past; that the admission by
Roilan and his wife that the petitioners owned the property negated the absence of
the contract to sell; and that the admission by Vedasto that the petitioners owned
239

the property was an admission against interest that likewise belied the contract to
sell between Lilia and Bibiana.

The contentions of the petitioners are factually and legally unwarranted.

To start with, it was incumbent upon Bibiana to prove her allegation in the answer
that the money sent to her by Lilia was in payment of past debts. This conforms to
the principle that each party must prove her affirmative allegations. Yet, the
petitioners presented nothing to establish the allegation. They ought to be reminded
that allegations could not substitute for evidence. Without proof of the allegation,
therefore, the inference to be properly drawn from Bibiana's receipt of the sums of
money was that the sums of money were for the purchase of the property, as
claimed by the respondents.

Secondly, the admissions by Roilan and Vedasto of the petitioners' ownership of the
property could not be appreciated in favor of the petitioners. That Bibiana and Lilia
had entered into a contract to sell instead of a contract of sale must be well-noted.
The distinctions between these kinds of contracts are settled. In Serrano v. Caguiat,
the Court has explained:

A contract to sell is akin to a conditional sale where the efficacy or obligatory
force of the vendor's obligation to transfer title is subordinated to the
happening of a future and uncertain event, so that if the suspensive condition
does not take place, the parties would stand as if the conditional obligation
had never existed. The suspensive condition is commonly full payment of the
purchase price.

The differences between a contract to sell and a contract of sale are well-settled in
jurisprudence. As early as 1951, in Sing Yee v. Santos, we held that:
x x x [a] distinction must be made between a contract of sale in which title passes
to the buyer upon delivery of the thing sold and a contract to sell x x x where by
agreement the ownership is reserved in the seller and is not to pass until the full
payment, of the purchase price is made. In the first case, non-payment of the price is
a negative resolutory condition; in the second case, full payment is a positive
suspensive condition. Being contraries, their effect in law cannot be identical. In the
first case, the vendor has lost and cannot recover the ownership of the land sold
until and unless the contract of sale is itself resolved and set aside. In the second
case, however, the title remains in the vendor if the vendee does not comply with
the condition precedent of making payment at the time specified in the contract.
In other words, in a contract to sell, ownership is retained by the seller and is not to
pass to the buyer until full payment of the price. x x x

Under the oral contract to sell, the ownership had yet to pass to Lilia, and Bibiana
retained ownership pending the full payment of the purchase price agreed upon.

240

ALBOR V. COURT OF APPEALS

G.R. NO. 196598
MARTIRES, J.

DOCTRINE: In order for the right of redemption to be validly claimed, the full
redemption price must be consigned in court. Payment of any amount lesser than
that offered to the redemption buyer leaves the consignment with no effect.
Pursuant to RA 3844, the period of redemption for agricultural land is 180 days
from the date of registration of the sale.

FACTS:
Petitioner was the lessee of an agricultural land registered to Mrs. Rosario Andrada.
Rent was regularly paid, eventually to the Heirs of Rosario. The latter adjudicated
the land to themselves and sold the parcel of land to the Sps. Macasil for Php
600,000.oo

Petitioner was called to the DAR, and was duly notified of the sale to the Sps.
Macasil. She received herself the copy of the “Extrajudicial Settlement with Deed of
Sale” which detailed the sale to the Sps. Macasil. She claims that she has a period of
180 days from the registration of the sale. Having not yet been registered, it is
argued that the period has not yet tolled. It is also argued that the true purchase
price was Php 60,000.oo Regardless, petitioner consigned with the Court the total
price of Php 216,000.oo

Respondents aver that there was a failure to exercise the right of redemption; that
Petitioner was in fact informed of the true amount of the sale, that her receipt of the
copy constituted due notice, and that her consignment of the incomplete amount
had no legal effect. There being no exercise of the right of redemption, the sale is
final and binding between the buyer and the seller.

Petitioner appealed to the PARAD, and gained a favorable decision. It held that prior
to the registration of the sale, the period of redemption has not yet tolled.
Consequently, the PARAD ordered the payment of the full purchase price in order
for redemption to be exercised - Php 600,000.oo

ISSUE: Was redemption properly exercised?

HELD:
NO. Anent the procedural defects of Petitioner’s appeal, the Court held that even on
the merits, her arguments must fail. While the period of redemption for the sale of
agricultural land is tolled from the period of registration, it cannot be unjustly
delayed. The purpose of registration is to serve notice to the redeeming buyer, and
where evidence shows that she was in fact duly notified, technicalities of law cannot
shield her failure to properly exercise her right of redemption to the prejudice of
innocent third parties.

241

Both the PARAD and the DARAB found that Editha only consigned the amount of
₱216,000.00 as redemption price for Lot 2429. As aptly observed in the PARAD's
decision, it was Editha herself who secured a copy of the extrajudicial settlement
and deed of sale from the Clerk of Court of the RTC in Roxas City. The purchase price
stated in the deed of conveyance was ₱600,000.00, and the administrative tribunals
correctly held that absent sufficient evidence to the contrary, it must be accepted
the reasonable price of the land as purchased by the respondents.The full amount of
the redemption price should be consigned m court.

As explained in Quiño v. CA:Only by such means can the buyer become certain that
the offer to redeem is one made seriously and in good faith. A buyer cannot be
expected to entertain an offer of redemption without the attendant evidence that
the redemptioner can, and is willing to accomplish the repurchase immediately. A
different rule would leave the buyer open to harassment by speculators or
crackpots, as well as to unnecessary prolongation of the redemption period,
contrary to the policy of the law in fixing a definite term to avoid prolonged and
anti-economic uncertainty as to ownership of the thing sold. Consignation of the
entire price would remove all controversies as to the redemptioner's ability to pay
at the proper time.The redemption price Editha consigned falls short of the
requirement of the law, leaving the Court with no choice but to rule against her
claim.In fine, there is an abundance of reasons, both procedural and substantive,
which has proved fatal to Editha's cause.

242

RACELIS V. SPOUSES JAVIER

G.R. NO. 189609
LEONEN, J

DOCTRINE: Earnest money, therefore, is paid for the seller's benefit. It is part of the
purchase price while at the same time proof of commitment by the potential buyer.
Absent proof of a clear agreement to the contrary, it is intended to be forfeited if the
sale does not happen without the seller's fault. The potential buyer bears the burden
of proving that the earnest money was intended other than as part of the purchase
price and to be forfeited if the sale does not occur without the fault of the seller.

Lessees are entitled to suspend the payment of rent under Article 1658 of the Civil
Code if their legal possession is disturbed. Acts of physical disturbance that do not
affect legal possession is beyond the scope of this rule.

FACTS:

Victoria Racelis was appointed as administrator of her father Pedro Nacu, Sr., among
which was a residential house in Marikina City. Nacu requested his heirs to sell this
property first. Thus, Racelis immediately advertise it for sale.

In August 2001, the Spouses Javier offered to purchase the Marikina property.
However, they could not afford to pay the price of P3,500,000.00. They offered
instead to lease the property while they raise enough money. Racelis hesitated at
first but she eventually agreed. The parties agreed on a month-to-month lease and
rent of P10,000.00 per month. This was later increased to P11,000.00. The Spouses
Javier used the property as their residence and as the site of their tutorial school, the
Niño Good Shepherd Tutorial Center.

Sometime in July 2002, Racelis inquired whether the Spouses Javier were still
interested to purchase the property. The Spouses Javier reassured her of their
commitment and even promised to pay P100,000.00 to buy them more time within
which to pay the purchase price. On July 26, 2002, the Spouses Javier tendered the
sum of P65,000.00 representing "initial payment or goodwill money." On several
occasions they tendered small amount of money to comply with the 100,000.00 but
they only delivered 78,000.00

It prompted Racelis for the termination and the immediate vacation of the property
because the Sps. Javier are not interested in buying the said lot . The Sps. Javier
refused to vacate and and to apply the 78,000 as an advance payment as they were
able to find an affordable lot. Thus, Racelis disconnected the electric service.

ISSUES:
1. Whether or not respondents can invoke their right to suspend payment of rent
under Article 1658
243

2. Whether or not the 78,000 can be offset for the accrued rent

HELD:

1. NO. The failure to maintain the lessee in the peaceful and adequate enjoyment
of the property leased does not contemplate all acts of disturbance. Lessees may
suspend the payment of rent under Article 1658 of the Civil Code only if their legal
possession is disrupted.

In this case, the disconnection of electrical service over the leased premises on May
14, 2004 was not just an act of physical disturbance but one that is meant to remove
respondents from the leased premises and disturb their legal possession as lessees.

However, this rule will not apply in the present case because the lease had already
expired when petitioner requested for the temporary disconnection of electrical
service. Petitioner demanded respondents to vacate the premises by May 30, 2004.
Instead of surrendering the premises to petitioner, respondents unlawfully withheld
possession of the property. Respondents continued to stay in the premises until
they moved to their new residence on September 26, 2004. At that point, petitioner
was no longer obligated to maintain respondents in the "peaceful and adequate
enjoyment of the lease for the entire duration of the contract." Therefore,
respondents cannot use the disconnection of electrical service as justification to
suspend the payment of rent.

2. NO. The P78,000.00 initial payment cannot be characterized as advanced rent.
First,
records show that respondents continued to pay monthly rent until February 2004
despite having delivered the P78,000.00 to petitioner on separate dates in 2003.
Second, as observed by the Metropolitan Trial Court, respondents indicated in the
receipt that the P78,000.00 was initial payment or goodwill money. They could have
easily stated in the receipt that the P78,000.00 was advanced rent instead of
denominating it as "initial payment or goodwill money." Respondents even
proposed that the initial payment be used to offset their accrued rent.

In this case, since respondents failed to deliver the purchase price at the end of
2003, the contract to sell was deemed cancelled. The contract's cancellation entitles
petitioner to retain the earnest money given by respondents.

Earnest money, under Article 1482 of the Civil Code, is ordinarily given in a
perfected contract of sale. However, earnest money may also be given in a contract
to sell.

In a contract to sell, earnest money is generally intended to compensate the seller
for the opportunity cost of not looking for any other buyers. It is a show of
commitment on the part of the party who intimates his or her willingness to go
244

through with the sale after a specified period or upon compliance with the
conditions stated in the contract to sell.

Earnest money, therefore, is paid for the seller's benefit. It is part of the purchase
price while at the same time proof of commitment by the potential buyer. Absent
proof of a clear agreement to the contrary, it is intended to be forfeited if the sale
does not happen without the seller's fault. The potential buyer bears the burden of
proving that the earnest money was intended other than as part of the purchase
price and to be forfeited if the sale does not occur without the fault of the seller.
Respondents were unable to discharge this burden.

There is no unjust enrichment on the part of the seller should the initial payment be
deemed forfeited. After all, the owner could have found other offers or a better deal.
The earnest money given by respondents is the cost of holding this search in
abeyance.

Respondents Spouses Germil and Rebecca Javier are ordered to pay petitioner
Vanessa N. Racelis the sum of P54,000.00, representing accrued rentals, with
interest at the rate of six percent (6%) per annum from the date of the finality of this
judgment until fully paid.

245

SM INVESTMENTS CORPORATION v. MAC GRAPHICS CARRANZ

INTERNATIONAL CORP.
G.R. Nos. 224131-32, June 25, 2018;
PRIME METROESTATE, INC. v. MAC GRAPHICS CARRANZ INTERNATIONAL
CORP.
G.R. Nos. 224337-38, June 25, 2018
CAGUIOA, J.:

CASE DOCTRINE:
Writ of Preliminary Mandatory Injunction (WPMI) – Under Article 539 of the New
Civil Code, a lawful possessor is entitled to be respected in his possession and any
disturbance of possession is a ground for the issuance of a writ of preliminary
mandatory injunction to restore the possession. A writ of mandatory injunction is
granted upon showing that (a) the invasion of the right is material and substantial;
(b) the right of complainant is clear and unmistakable; and (c) there is an urgent and
permanent necessity for the writ to prevent serious damage. (Pelejo v. CA, L-60800,
October 18, 1982, 117 SCRA 665). Accordingly, the issuance of a writ of preliminary
mandatory injunction is justified only in a clear case, free from doubt or dispute.
When the complainant's right is doubtful or disputed, he does not have a clear legal
right and, therefore, the issuance of a writ of preliminary mandatory injunction is
improper. While it is not required that the right claimed by applicant, as basis for
seeking injunctive relief, be conclusively established, it is still necessary to show, at
least tentatively, that the right exists and is not vitiated by any substantial challenge
or contradiction.

FACTS
On November 24, 2006, respondent Mac Graphics Carranz International Corp. (Mac
Graphics), which is engaged in advertising and operation of billboards and other
outdoor advertising media, entered into a Contract of Lease with Pilipinas Makro,
Inc. (Makro) for exclusive use of the latter's billboard sites located at Makro EDSA
Cubao, Quezon City (Makro-Cubao) and Makro Makati City (Makro-Makati) for a
period of 20 years. SMIC owns 10% of the capital stock of Makro but contended that
it was not a party to the lease contract as Makro operated independently. The lease
contract was implemented for almost two years from its effectivity on January 15,
2007 but in its letter dated October 6, 2008, Makro terminated the lease contract
effective immediately because of Mac Graphics’ alleged failure to obtain the relevant
Metro Manila Development Authority (MMDA) and local government permits and to
obtain a comprehensive all-risk property insurance for the sites.

On November 12, 2009, Mac Graphics filed before the Regional Trial Court, Branch
204 (RTC), Muntinlupa City, a Complaint for "Permanent Injunction and Declaration
of Subsistence of Contract; Damages with Application for Temporary Restraining
Order and/or Writ of Preliminary Injunction" against Makro and SMIC.

RTC issued an Order dated April 22, 2013 granting the application for a Writ of
Preliminary Mandatory Injunction (WPMI), upon the filing of a P5 million bond. The
246

RTC ruled that the evidence presented by Mac Graphics initially showed that there
was a breach of the lease contract with respect to the period of its existence, and
that the lease contract was pre-terminated by Makro without giving Mac Graphics a
chance to remedy any violation that Makro alleged to have been committed by Mac
Graphics. SMIC and Prime MetroEstate, Inc. (amended name of Makro) filed their
respective Rule 65 Petitions for Certiorari52 with the CA (CA Petitions) alleging
grave abuse of discretion but the Court of Appeals denied the petitions and affirmed
the RTC Orders, stating that the rule is well-entrenched that the issuance of a WPMI
rests upon the sound discretion of the trial court.

ISSUE
Whether or not the grant of a Writ of Preliminary Mandatory Injunction (WPMI) is
valid

RULING
No. Mac Graphics has failed to establish prima facie a right in esse or a clear and
unmistakable right, rendering the issuance of the WPMI improper. The CA
committed grave error for upholding the grant of the WPMI by the RTC in favor of
Mac Graphics given the patent absence of a clear and unmistakable right of Mac
Graphics and its injury, if any, that is easily quantifiable and reparable.

247

JEROME K. SOLCO v. MEGAWORLD CORPORATION

GR No. 213669, 05 MARCH 2018

DOCTRINE: Settled is the rule that one who purchases a real property which is in
possession of another should at least make some inquiry beyond the face of the title.
A purchaser cannot close his eyes to the facts which should put a reasonable man
upon his guard, and then claim that he acted in good faith under the belief that there
was no defect in the title of the vendor.

FACTS:
Megaworld Corporation (Megaworld) was the registered owner of parking slots
covered by Condominium Certificates of Title (CCT) No. 593823 located in Two
Lafayette Square Condominium and No. 64023 located in Manhattan Square
Condominium.

For failure to pay real property taxes from year 2000-2008, the Government of
Makati issued a Warrant of Levy over the subject properties. The properties were
sold at a public auction, wherein Jerome Solco (Solco) emerged as the highest bidder
for the two properties. On the same day, Makati Government issued Certificates of
Sale to Solco. Thereafter, a Final Deed of Conveyance was executed by the local
treasurer. Since the CCTs were still under Megaworld’s name and possession, Solco
filed a Petition for Issuance of 4 New CCTs and to declare the CCTs in Megaworld’s
possession as null and void.

In its Comment, Megaworld claimed that it entered into a Contract to Buy and Sell
with Abdullah D. Dimaporo (Dimaporo) covering a unit in the condominium in the
Two Lafayette Property. Further, Megaworld also entered into another Contract to
Buy and Sell with Jose V. Delos Santos (Delos Santos) covering another unit in the
Manhattan Property. Both properties were delivered in 1999 to the respective
buyers. Thus, beginning 2000, Megaworld admittedly did not pay the real property
taxes thereon.

Megaworld alleged that it discovered in 2006 that the subject properties were
already auctioned off and that the redemption period has already expired during
which it was undergoing proceedings of transferring the properties. In conducting
its own investigation, it revealed that the auction proceedings were tainted with
fatal anomalies.

Delos Santos instituted a separate action impleading Solco, Megaworld, the City
Treasurer of Makati and the Register of Deeds as defendants which was settled
between Solco and Delos Santos by virtue of a Compromise Agreement. Thus, the
case was dismissed insofar as the Manhattan Property. Hence, the case proceeded
only with respect to the Two Lafayette Property.

248

The RTC rendered a judgment in favor of Jerome K. Solco ordering Megaworld and
any other person withholding the CCTs to surrender the same to the Register of
Deeds and directed it to issue new CCTs in favor of Solco.

On appeal, the Court of Appeals found merit on Megaworld’s arguments as to the
irregularities which attended the entire delinquency proceedings. The CA found that
Solco failed to present proof of compliance to the applicable provisions of RA 7160.
Thus, the appeal was granted.

ISSUES:

1. Whether or not the Tax Sale subject of this case was valid due to irregularities in
the proceedings?
2. Assuming the Tax Sale was invalid, may Solco be considered as a purchaser in
good faith to uphold the sale of the subject property in his favor?

HELD:

1. No. The Supreme Court had previously held that “The auction sale of land to
satisfy alleged delinquencies in the payment of real estate taxes derogates or
impinges on property rights and due process. Thus, the steps prescribed by law for
the sale, particularly the notices of delinquency and sale, must be followed strictly.
Failure to observe those steps invalidates the sale.”

A careful review of the records of the case would show that the CA correctly ruled
that Solco utterly failed to present evidence to show compliance with the rules on
tax delinquency sale. Clearly, as correctly found by the CA, nothing in the said
evidence presented and formally offered would sufficiently show that the tax sale,
from which Solco’s claim upon the subject property is based, was properly
conducted in accordance with the rules governing the same.

For these reasons, we are constrained to affirm the CA’s ruling, which is to strike
down the tax sale as null and void. We cannot deny that there is insufficiency of
evidence to prove compliance with the mandatory requirements under RA 7160 for
a valid tax delinquency sale.

2. No. In arguing that he was a buyer in good faith, Solco merely relied upon the
presumption of good faith and also averred that he merely relied on the
presumption of regularity of the acts of public officials in the conducts of the tax
sale. However, well-established is the rule that the presumption of regularity in the
performance of a duty enjoyed by public officials, cannot be applied to those
involved in the conduct of a tax sale.

Secondly, good faith is a question of intention, determined by outward acts and
proven conduct. The circumstances of the case restrain us from ruling that Solco
was a buyer in good faith. Records show that the subject property had been in
249

Dimaporo’s possession since 1999. This fact has never been refuted by Solco in the
entire proceedings. Settled is the rule that one who purchases a real property which
is in possession of another should at least make some inquiry beyond the face of the
title. A purchaser cannot close his eyes to the facts which should put a reasonable
man upon his guard, and then claim that he acted in good faith under the belief that
there was no defect in the title of the vendor. Admittedly, in this case, Solco never
made any inquiry to such a significant fact.

WHEREFORE, premises considered, the instant petition is DENIED. Accordingly, the
Decision and Resolution of the Court of Appeals are hereby AFFIRMED. In view
hereof, Respondent Megaworld Corporation is ORDERED to deposit with the trial
court the amount to be paid to petitioner Jerome Solco, pursuant to Republic Act No.
7160, as the buyer in the tax delinquency sale adjudged to be null and void in this
case.

250

LIM V. PEOPLE
G.R. NO. 226590, APRIL 23, 2018
REYES, JR., J.

DOCTRINE:
Whether the party to the sale of a real property is a natural or a juridical person, as
long as it is entered into by someone other than its registered owner, the written
authority of the party's representative is an explicit requirement to the validity of
the sale itself.

FACTS:
Petitioners Shirley, Mary and Jimmy Lim were charged with falsification of public
document. Information showed that the Lim siblings conspired to falsify a board
resolution of Pentel Merchandising, Co., Inc. by signing the name of their father
Quintin in it, which was then attached to the secretary’s certificate, then notarized.
In truth, Quintin already died three years ago. Through the falsified secretary's
certificate and board resolution, Pentel, Inc., through Jimmy, was able to sell a lot
owned by the corporation to Spouses Emerson and Dorris Lee. The sale was then
registered at the Registry of Deeds, then, a transfer title was issued to the Spouses
Lee. The Regional Trial Court convicted the Lims. On appeal, the Court of Appeals
affirmed the RTC ruling. Hence, the petition.

ISSUE:
Whether or not the falsified board resolution has legal effect on the sale and
registration of the lot

HELD
YES. When the sale of a piece of land, or any interest therein, is made through an
agent (such as Jimmy in this case), the grant of authority must be in writing,
otherwise, the sale itself is void. The grant of power to the agent must also be
expressly stated in clear and unmistakable language; otherwise, only acts of
administration are deemed conferred. As previously mentioned, a corporation
grants authority to its representative through its board of directors, which issues a
board resolution relative to the appointment of an agent. The corporate secretary
then certifies this board resolution under oath, pursuant to Article 1358(1) of the
Civil Code.

Whether the party to the sale of a real property is a natural or a juridical person, as
long as it is entered into by someone other than its registered owner, the written
authority of the party's representative is an explicit requirement to the validity of
the sale itself. While the Register of Deeds is not required to inquire into the
intrinsic validity of the transaction and should, as a matter of course, record the
instrument presented for registration, this ministerial duty is subject to the
condition that all the requisites for registration are present. In the absence of a
251

prescribed requirement, the Register of Deeds acts in excess of their authority

should they proceed to register the instrument.

Clearly, the registration of the falsified Secretary's Certificate dated February 29,
2000, which proves the authority granted in favor of Jimmy, is indispensable for the
validity of the sale of Pentel's property and for this sale to take effect as against third
persons. Without this document being presented for registration, the Register of
Deeds of Pasay City cannot effectively transfer the title of Pentel to the Spouses Lee,
absent any basis that the Deed of Absolute Sale dated March 21, 2000 was executed
under the authority of Pentel's Board of Directors.

When a conveyance has been properly recorded, such record is constructive notice
of its contents and all interests, legal and equitable, included therein. Under the rule
of notice, it is presumed that the purchaser has examined every instrument of
record affecting the title. Such presumption is irrefutable. He is charged with notice
of every fact shown by the record and is presumed to know every fact which an
examination of the record would have disclosed.

252

ALEDRO-RUNA V. LEAD EXPORT AND AGRO-DEVELOPMENT CORPORATION

GESMUNDO, J.

DOCTRINE: Period provided under Article 1144 of the New Civil Code to institute
an action upon a written contract. Moreover, it is beyond the four-year prescriptive
period provided under Article 1391 of the New Civil Code. Signing a contract of lease
on 24 March 1981 and not a Deed of Absolute Sale.
23 July 2018.

FACTS
This case originated from three different civil cases involving two parcels of land.
These were registered the name of Segundo Aledro. Segundo allegedly executed two
contracts on the lands on separate dates, Contract of Lease between him and Rivera,
and a Deed of Absolute Sale involving the same lands executed by Segundo and
Advento. Advento sold the properties to Ringor. FADI Corporation leased two
parcels of land from Ringor for a period of twenty five years.

In the first case, Civil Case No. 95-13, on 31 January 1995, Segundo’s heirs filed a
complaint for Real Action over an Immovable, Declaration of Nullity of Deed, and
Damages. Two years later, the RTC dismissed the complaint. The heirs appealed.
Meanwhile, FADI merged with respondent Lead Export Corporation, consequently,
the latter absorbed FADI’s occupational and possessory rights pertaining to the
subject properties. Court of Appeals reversed the RTC, and remanded the case to the
latter. On 18 September 2003, the Segundo heirs, represented by their attorney-in-
fact, Nilo Aledro, filed a Motion to Dismiss with prejudice on the ground of lack of
interest to prosecute the case and to protect Advento and FADI from further
prosecution. The RTC dismissed the case with prejudice.

In the second case, Civil Case No. 41-2005, the widow of Segundo, in 2005, filed a
complaint against Advento for Declaration of Nullity of Deed of Sale and Quieting of
Title, alleging that through fraud, she and Segundo were made to believe that they
were signing a Contract of Lease and not a Deed of Absolute Sale. RTC ruled in favor
of Sofia. It ordered the removal of cloud cast upon the OCTs of the subject parcels of
land. It also declared the agreements of lease as having expired and terminated.
Lastly, the Deed of Absolute Sale executed by Segundo in favor of Advento was
declared as null and void.

In the present case, Civil Case No. 218-10, petitioner Carmen Aledro-Runa, filed a
case for unlawful detainer, damages and attorney’s fees against respondent in the
Davao MCTC. Respondent countered that it had a right of possession after subject
properties based on the contract of lease. It also argued that its possessory rights
were based on the Deeds of Absolute Sale between Segundo and Advento, and later
between Advento and Ringor. MCTC ruled in favor of petitioner. Respondent
appealed before the RTC. Meanwhile, Ringor sold the properties to Gonzales and
Cabunas. They entered into a contract of lease with Lapanday Corporation, an
affiliate of respondent. RTC took cognizance of the case and referred it to JDR. RTC
253

dismissed the case since it was barred by res judicata. Petitioner appealed to the CA.
CA dismissed the appeal. CA observed that during Segundo’s lifetime, he did not take
any act to impugn the validity of the sale or the lease.

ISSUES
Whether the CA erred when it did not rule that petitioner has the better right to
possess the subject parcels of land, and whether the CA erred when it ruled that the
plaintiff’s action has already prescribed.

HELD
Respondent argues that petitioner and her predecessors-in-interest’s inaction for
almost twenty three years from the time of execution of the lease contract in 1972,
and fourteen years in the case of the Deed of Absolute Sale executed in 1981 barred
them from seeking the nullification of the said agreements. Said agreements were
not resolved in the first case which was dismissed allegedly by motion of the
plaintiff heirs. Parenthetically, the SC cannot simply ignore the fact that the second
case, an action for declaration of nullity of Deed of Sale and Quieting of Titles where
the trial court declared the Deed of Absolute Sale executed by Segundo in favor of
Advento as null and void, and removal of cloud, had long attained finality. Such
decision was annotated at the back of the certificates of title. When Ringor
purchased the lands from Advento, and was later purchased by Gonzales and
Cabunas from Ringor, they did not directly deal with the registered owner of the
land. The fact that the lands were not in the name of their sellers should have put
them on guard and should have prompted them to inquire on the status of the
properties being sold to them.

Clearly, Ringor, Gonzales and Cabunas cannot be considered buyers in good faith
because of their failure to exercise due diligence as regards their sale transactions.
While the SC protects the right of the innocent purchaser for value and does not
require him to look beyond the certificate of title, this protection is not extended to a
purchaser who is not dealing with the registered owner of the land. In case the
buyer does not deal with the registered owner of the real property, the law requires
that a higher degree of prudence be exercised by the purchaser. Hence, subsequent
buyers are buyers in bad faith; petitioner has the better right to possess the land.

With regard to prescription, an action to recover possession of a registered land
never prescribes in view of the provision of Section 44 of Act. No. 496 to the effect
that no title to registered land in derogation of that of a registered owner shall be
acquired by prescription or adverse possession. An action by the registered owner
to recover a real property registered under the Torrens System does not prescribe.
The rule on imprescriptibility of registered lands not only applies to the registered
owner but extends to the heirs of the registered owner as well. Petitioner’s right to
recover possession did not prescribe.

Likewise, laches did not bar petitioner’s right of recovery. An action to recover
registered land covered by the Torrens System may not generally be barred by
254

laches. Neither can laches be set up to resist the enforcement of an imprescriptible

legal right. It is a principle based on equity and may not prevail against a specific
provision of law, because equity, which has been defined as “justice outside legality,
is applied in the absence of fraud and not against statutory law or rules of
procedure.

255

SPOUSES ANTONIO BELTRAN and FELISA BELTRAN VS. SPOUSES APOLONIO

CANGAYDA, JR. and LORETA E. CANGAYDA
[G.R. No. 225033. August 15, 2018.]
CAGUIOA, J p:

DOCTRINE:
Contract to sell vis-à-vis Contract of Sale,; Articles 1477-1478.

Facts:
Sometime in August 1989, respondents verbally agreed to sell the disputed property
to petitioners for P35,000.00. After making an initial payment, petitioners took
possession of the disputed property and built their family home thereon.Petitioners
subsequently made additional payments, which, together with their initial payment,
collectively amounted to P29,690.00. However, despite respondents' repeated
demands, petitioners failed to pay their remaining balance of P5,310.00. This
prompted respondents to refer the matter to the Office of the Barangay Chairman of
Barangay Magugpo, Tagum City (OBC). Before the OBC, the parties signed an
Amicable Settlement dated August 24, 1992.

Petitioners failed to pay within the period set forth in the Amicable Settlement. On
January 14, 2009, or nearly 17 years after the expiration of petitioners' period to
pay their remaining balance, respondents served upon petitioners a "Last and Final
Demand" to vacate the disputed property within 30 days from notice. This demand
was left unheeded. Consequently, on March 12, 2009, respondents filed a complaint
for recovery of possession and damages (Complaint) before the RTC. In their
Answer, petitioners admitted that they failed to settle their unpaid balance of
P5,310.00 within the period set in the Amicable Settlement. However, petitioners
alleged that when they later attempted to tender payment two days after said
deadline, respondents refused to accept their payment, demanding, instead, for an
additional payment of P50,000.00. On July 15, 2013, the RTC issued a Decision, the
dispositive portion of which reads: WHEREFORE, premises considered,
[petitioners], their heirs, successors-in- interest and/or assigns are ordered to
vacate the portion of Lot No. 11 presently occupied by them within [60 days] from
receipt of this Decision. However, as there was no express agreement between the
parties that [respondents] may retain the sum of P29,600.00 already paid to them
by [petitioners], [respondents] are hereby ordered to return the said sum to
[petitioners], likewise within [60] days from receipt of this Decision. (Emphasis
supplied) In so ruling, the RTC characterized the oral agreement between the
parties as a contract to sell. The RTC held that the consummation of this contract to
sell was averted due to petitioners' failure to pay the purchase price in full.Hence
the RTC held that ownership over the disputed property never passed to petitioners.
Petitioners filed a Motion for Reconsideration, which the RTC denied. CA
Proceedings Aggrieved, petitioners brought the case to the CA via ordinary appeal.
Therein, petitioners argued that the oral agreement they had entered into with
respondents was not a contract to sell but rather, a contract of sale which had the
effect of transferring ownership of the disputed property upon its delivery.
256

Petitioners also raised, for the first time on appeal, that the sale of the disputed
property constitutes a sale on installment covered by Republic Act (R.A.) No. 6552,
otherwise known as the Maceda Law. Corollarily, petitioners argued that
respondents should not be granted relief, since they failed to comply with the
specific procedure for rescission of sales of real estate on installment basis set forth
under the statute.

On October 19, 2015, The CA affirmed the findings of the RTC anent the nature of
the contract entered into by the parties. In addition, it rejected petitioners'
invocation of the Maceda Law. According to the CA, to allow petitioners to seek
protection under said law for the first time on appeal would violate the tenets of due
process and fair play. Petitioners led a Motion for Reconsideration which was later
denied through the assailed Resolution.Thus, the present Petition now prays that
the Court: (i) reverse the judgment of the CA and RTC; and (ii) direct respondents to
allow them to settle their remaining balance of P5,310.00 and, subsequently, convey
the disputed property in their favor.

Petitioners maintain, as they did before the CA, that the oral agreement they entered
into with respondents is a contract of sale, and that, as a necessary incident of such
contract, ownership over the disputed property had been transferred in their favor
when they took possession and built improvements thereon.

ISSUES:
Whether the CA erred when it affirmed the RTC Decision characterizing the oral
agreement between the parties as a contract to sell;

COURT'S RULING:
The Petition is meritorious. The agreement between the parties is an oral contract of
sale. As a consequence, ownership of the disputed property passed to petitioners
upon its delivery. The CA's finding is erroneous. Article 1458 of the Civil Code
defines a contract of sale: By the contract of sale one of the contracting parties
obligates himself to transfer the ownership of and to deliver a determinate thing,
and the other to pay therefor a price certain in money or its equivalent. "[A] contract
to sell, [on the other hand], is defined as a bilateral contract whereby the
prospective seller, while expressly reserving the ownership of the subject property
despite its delivery to the prospective buyer, commits to sell the property
exclusively to the prospective buyer" upon full payment of the purchase price.
Jurisprudence defines the distinctions between a contract of sale and a contract to
sell to be as follows:
In a contract of sale, title passes to the vendee upon the delivery of the thing sold;
whereas in a contract to sell, by agreement the ownership is reserved in the vendor
and is not to pass until the full payment of the price. In a contract of sale, the vendor
has lost and cannot recover ownership until and unless the contract is resolved or
rescinded; whereas in a contract to sell, title is retained by the vendor until the full
payment of the price, x x x.

257

Reference to Articles 1477 and 1478 of the Civil Code is in order:

Article 1477. The ownership of the thing sold shall be transferred to the vendee
upon the actual or constructive delivery thereof.

Article 1478. The parties may stipulate that ownership in the thing shall not pass to
the purchaser until he has fully paid the price.

In accordance with the cited provisions, ownership of the disputed property passed
to petitioners when its possession was transferred in their favor, as no reservation
to the contrary had been made. Considering that respondents' Complaint is
anchored upon their alleged ownership of the disputed property, their prayer to
recover possession thereof as a consequence of such alleged ownership cannot
prosper.

258

CRESCINI vs. E. ASPE PAWNSHOP

G.R. No. 195130. August 8, 2018
NOTICE

DOCTRINE:
Consistent with the ruling in Nacar v. Gallery Frames: (1) the amount of P7,000.00
per month representing reasonable compensation for the use of the property shall
earn legal interest at the rate of 12% computed from the date of filing of the action
for unlawful detainer until June 30, 2013, and an interest rate of 6% to be computed
from July 1, 2013 up to the date of finality of this Resolution; and (2) the attorney's
fees and costs of suits in favor of Crescini shall likewise earn legal interest at the rate
of 6% from the date of finality of this Resolution. The total monetary awards shall
thereafter earn interest at the rate of 6% per annum from the finality of judgment
until its full satisfaction.

FACTS:
The dispute involves an unlawful detainer case filed by Crescini against Aspe over
one commercial door of the building standing on the former's land located at San
Roque, Iriga CITY. Crescini acquired the land and building from its former owner
Purita Lee by virtue of a sale when he assumed and paid the latter's mortgage with
the Bank of the Philippine Islands. Crescini registered his ownership and was issued
TCT No. 1521 on October 19, 1998. At that time, Lee had an existing six-year lease
contract from December 28, 1999 until December 28, 2005 with Aspe over the
property. With knowledge of this lease, Crescini sent a written notice to Aspe on
October 19, 1998, informing the latter that the property was transferred to him.
However, those letters were ignored. Without the knowledge of Crescini, Aspe
entered into another lease contract with Lee. Crescini, through counsel, made a
formal demand on October 12, 2006 for Aspe to vacate and pay the monthly rentals
of P15,000.00 starting from January 1, 2006. For Aspe's failure to comply with his
demands, Crescini initiated the action for unlawful detainer. Subsequently, the
MTCC dismissed the case for lack of cause of action. It ruled that Crescini is not
entitled to rents because there is no lessor-lessee relationship between him and
Aspe. Upon appeal, the RTC reversed the MTCC finding that Crescini established that
he is the owner of property, it ruled that Crescini has the right not only to exclude
any and all persons from enjoyment, use, and disposition of the property, but also to
receive the natural, industrial, and civil fruits from the occupants of the property.

ISSUE:
Whether or not Aspe is liable for rental payments or reasonable compensation to
Crescini for the period of January 2006 until surrender of the property to the latter

HELD:
The Supreme Court ruled in the affirmative.

259

The MTCC and CA erred when they concluded that a lease contract is always
necessary to establish a cause of action for an unlawful detainer case.

An action for unlawful detainer pertains to specific circumstances of dispossession.
It refers to a situation where the current occupant's initially lawful possession
became unlawful due to the expiration of the right to possess, which may be sourced
from a contract, express or implied, or by mere tolerance. Thus, a lease contract is
not at all times necessary for a successful unlawful detainer action. An ejectment
complaint based on possession by tolerance of the owner is a category of unlawful
detainer cases, which may also succeed after establishing the key jurisdictional
facts. For an unlawful detainer action to be successful, the plaintiff must allege and
establish the following key jurisdictional facts: (1) initially, possession of property
by the defendant was by contract with, or by tolerance of, the plaintiff; (2)
eventually, such possession became illegal upon notice by the plaintiff to the
defendant of the termination of the latter's right of possession; (3) thereafter, the
defendant remained in possession of the property and deprived the plaintiff of the
enjoyment thereof; and (4) within one year from the last demand on the defendant
to vacate the property, the plaintiff instituted the complaint for ejectment. If
successful, the plaintiff in an unlawful detainer case is entitled to the following
reliefs: (1) restitution of the premises; (2) rental arrears or reasonable
compensation for the use and occupation of the premises; and (3) attorney's fees
and costs.

The finding that Crescini did not have a lease contract with Aspe is incorrect. When
Crescini bought the land and building covered by TCT No. 1521, he was subrogated
to the rights and obligations of Lee as lessor in the 1999 lease over the property as
the latter's successor-in-interest. Thereafter, upon expiration of the lease in 2006,
Aspe's possession and occupation of the property was converted into one by mere
tolerance or permission of Crescini. This was evident in Crescini's letters to Aspe,
allowing the latter to occupy the property with the view that they will eventually
enter into a formal lease contract. Later, this tolerance ceased upon Crescini's
written notice to vacate to Aspe, making Aspe's possession unlawful.

In this case, a declaration on the issue of possession still has practical value. Here,
Crescini asked for three reliefs: (1) restitution of the premises; (2) rental arrears or
reasonable compensation for the use and occupation of the premises; and (3) moral
damages, attorney's fees and costs. We note that the turnover of the possession of
the property rendered only the first relief moot and fait accompli, but the second
and third reliefs remain available. It recognized that while the issue of possession de
facto was rendered moot, there is still value in determining the issues on the
propriety of: (1) reasonable compensation for the use and occupation of the
property for that period; and (2) damages, attorney's fees and costs. Unfortunately,
the MTCC incorrectly ruled that there is no lease contract between Aspe and
Crescini, and that Aspe's possession finds its legitimacy under the invalid lease
contract with Lee.

260

WHEREFORE, the petition is GRANTED. The Court of Appeals' Decision dated

September 17, 2010 is REVERSED and SET ASIDE. The Regional Trial Court's
Decision dated February 4, 2009 is hereby REINSTATED.

261

VIVE EAGLE LAND, INC. VS. CA

CALLEJO, SR., J.

FACTS:
Petitioner Vive Eagle Land, Inc. (Vive), a corporation engaged in the realty business
and represented by its President, Virgilio O. Cervantes, filed a complaint for
declaration of nullity of rescission, declaration of suspension of payment of
purchase price and interest and other reliefs against respondents National Home
Mortgage Finance Corporation (NHMFC) Joseph Peter S. Sison (Sison), President of
NHMFC, and Cavacon Corporation. Vive alleged that on November 17, 1999, it
entered into a Deed of Sale of Rights, Interests, and Participation Over Foreclosed
Assets, whereby it agreed to purchase NHMFC's rights, interests, and participation
in the foreclosed property of Alyansa ng mga Maka-Maralitang Asosasyon at
Kapatirang Organisasyon, Inc. for a total purchase price of P40,000,000.00 payable
in the following manner: (1) the amount of P8,000,000.00 as 20% downpayment
payable in two equal installments, the first of which shall be due on or before
December 4, 1999, and the second, within thirty (30) days from the execution of the
Deed of Conditional Sale.

Vive, however, did not pay the subsequent installments reasoning out that it was
prevented from exercising its right to avail of a developmental loan under Section 8
of the Deed of Sale due to issues on the subject property, particularly: (1) the
issuance of numerous certificates of land awards (CLOAs) over the same; and (2) the
classification of the same as agricultural subjecting it to the coverage of the
Comprehensive Agrarian Reform Program, thus, they asked for a moratorium for
the payment. NHMFC, through its then President, Atty. Angelico T. Salud (Atty.
Salud), initially agreed on the moratorium, but notwithstanding the agreement,
NHMFC, through its new President Sison, notified Vive in a letter dated February 10,
2006 of the rescission/cancellation of the Deed of Sale due to the alleged non-
payment of the balance of the purchase price. According to NHMFC, its decision to
rescind the Deed of Sale was valid in view of Vive's refusal to pay the subject
installments. Moreover, since Vive was well aware of the issues affecting the
property prior to its purchase, it was not justified in suspending its payment of the
purchase price.

ISSUES:

1. Whether or not the Deed of Sale is a valid contract of sale which absolutely
transferred all of NHMFC's rights over the property to Vive.
2. Whether or not Vive should be considered as having been constructively fulfilled
its obligation in view of Article 1186 of the Civil Code which provides that the
condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfilment, when NHMFC failed to assist Vive from obtaining the loan
3. Whether or not there was a valid moratorium

262

HELD: WHEREFORE, PREMISES CONSIDERED, the Court resolves to GRANT the

motion for reconsideration giving due course to the petition and REQUIRE the
respondents to file comment on the petition within ten (10) days.

263

THELMA MULLER VERSUS PHILIPPINE NATIONAL BANK

G.R. NO. 215922, OCTOBER 01, 2018
DEL CASTILLO, J.:

DOCTRINE: Article 1670 If at the end of the contract the lessee should continue
enjoying the thing leased for fifteen days with the acquiescence of the lessor, and
unless a notice to the contrary by either party has previously been given, it is
understood that there is an implied new lease, not for the period of the original
contract, but for the time established in articles 1682 and 1687. The other terms of
the original contract shall be revived.

FACTS:
Spouses Fritz and Thelma Muller are the occupants of two (2) parcels of land owned
by Philippine National Bank. On May 26, 1987, PNB informed the Mullers that their
lease will expire on June 1, 1987; that they had rental arrears for two and a half
years amounting to PhP18,000.00;
Seeking to renew the lease contract for another year, Fritz Muller wrote to PNB
proposing to buy the subject properties. However, PNB denied the request for
renewal of the said lease and the offer to purchase the said property was not given
due course by the Head Office. PNB demanded for the Mullers to vacate the subject
properties within fifteen (15) day[s] from the said date, in view of the expiration of
the lease. But the demand fell on deaf ears. Due to continued occupation of the
Mullers, PNB sent its final demand letter demanding from them the payment of the
rental arrears.

Spouses Mullers failed to pay due attention to the written demands against them
which prompted PNB to institute a Complaint for Ejectment. On the other hand, MTC
rendered a decision ordering the Spouses Mullers to vacate the premises and to pay
the PNB. A notice of appeal has been filed by the petitioners. RTC reversed the
decision but CA set it aside. Thus, petitioners moved to reconsider.

ISSUE: Whether or Not the award of rentals in an ejectment case may be reckoned
from a date beyond the latest demand to vacate.

RULING: Yes. The court ruled against the petitioners. It can be said that so long as
petitioners continued to occupy the subject properties - with or without PNB's
consent - there was a lease agreement between them. They cannot escape the
payment of rent, by any manner whatsoever. First of all, given the circumstances
where liberality is obviously not present and was never a consideration for the lease
contract, petitioners cannot be allowed to enjoy PNB's properties without paying
compensation therefor; this would be contrary to fundamental rules of fair play,
equity, and law.

Secondly, even when the parties' lease agreement ended and petitioners failed or
264

when there is no lease agreement between the parties, or even when the parties

Petition is denied. Therefore, petitioners are ordered to pay PNB at 6% interest per
annum.

265

REPUBLIC V. JOSE GAMIR-CONSUELO DIAZ HEIRS ASSOCIATION, INC.

J.C. REYES, JR., J

CASE DOCTRINE: No parol evidence can be admitted to support respondent's claim
of interest because it never put in issue in its complaint the ambiguity or validity of
the Deed of Absolute Sale

FACTS:
Jose Gamir- Consuelo Diaz Heirs Association, Inc. (respondent) is a duly
incorporated corporation composed of the heirs of Jose Gamir and Consuelo Diaz. It
was the registered owner of a parcel of land with an area of 1,836 square meters
covered under TCT No. T-7550.

On August 9, 2005, after a series of negotiations, respondent and the Republic of the
Philippines (petitioner), through the DPWH, executed a Deed of Absolute Sale where
it was agreed that respondent would sell the above-mentioned property to
petitioner in consideration of P275,099.24. The propert was eventually registered in
petitioner’s name under TCT No. T-390639 after respondent’s receipt of the full
consideration. The said parcel of land forms part of Sta. Ana Avenue, a national road.
On November 15, 2006, respondent filed a Complaint8 before the RTC. It alleged
that: the subject parcel of land was taken by the DPWH sometime in 1957; the value
of P275,099.24 as just compensation stated in the Deed of Absolute Sale, was based
on the value of the property in 1957; it made verbal and written demands to
petitioner for the payment of interest from 1957; and it had a right to receive
interest because the DPWH had not paid just compensation when it occupied the
property in 1957.

In its December 12, 2013 Decision, the CA granted respondent's appeal and
reversed the RTC decision. The appellate court noted that petitioner had been
occupying respondent's property since 1957 and it was only in 2005 when the
parties entered into a contract of sale for the said lot. It explained that the Deed of
Absolute Sale was not equivalent to the constitutionally mandated just
compensation because it refers not only to the correct amount to be paid but also
the payment within a reasonable time from the taking. The CA expounded that
without prompt payment, compensation cannot be considered just if the property is
taken immediately because the property owner suffers the immediate deprivation
of both the land and the fruits and income thereto. Relying on the pronouncements
in Apo Fruits Corporation v. Land Bank of the Philippines (Apo), 9 the appellate
court posited that legal interest accrued from the time of the actual taking of the
property until actual payment to place the landowner in a position as good as the
position he was before the taking occurred.

ISSUE
266

WHETHER RESPONDENT IS ENTITLED TO RECEIVE PAYMENT OF INTEREST

NOTWITHSTANDING THE ABSENCE OF ANY STIPULATION IN THE DEED OF
ABSOLUTE SALE WITH PETITIONER.

HELD
In the present case, it is undisputed that the Deed of Absolute Sale between
petitioner and respondent does not contain any provision regarding the payment of
interest. Petitioner agreed to convey its property upon full payment of the purchase
price without reservation for any claim of interest. No parol evidence can be
admitted to support respondent's claim of interest because it never put in issue in
its complaint the ambiguity or validity of the Deed of Absolute Sale, or its failure to
reflect the parties' true intention.

267

SPOUSES ANTONIO BELTRAN and FELISA BELTRAN, petitioners, vs. SPOUSES

APOLONIO CANGAYDA, JR. and LORETA E. CANGAYDA, respondents
G.R. No. 225033, August 15, 2018

CAGUIOA, J.

CASE DOCTRINE:
In a contract of sale, title passes to the vendee upon the delivery of the thing sold;
whereas in a contract to sell, by agreement the ownership is reserved in the vendor
and is not to pass until the full payment of the price. In a contract of sale, the vendor
has lost and cannot recover ownership until and unless the contract is resolved or
rescinded (Article 1458)

FACTS:
This is a Petition for Review on Certiorari|. Sometime in August 1989,
respondents verbally agreed to sell the disputed property to petitioners for
P35,000.00. After making an initial payment, petitioners took possession of the
disputed property and built their family home thereon. Petitioners subsequently
made additional payments, which, together with their initial payment, collectively
amounted to P29,690.00.
However, despite respondents' repeated demands, petitioners failed to
pay their remaining balance of P5,310.00. This prompted respondents to refer
the matter to the Office of the Barangay Chairman of Barangay Magugpo, Tagum
City (OBC).E
Before the OBC, the parties signed an Amicable Settlement. Petitioners
failed to pay within the period set forth in the Amicable Settlement.
17 years after the expiration of petitioners' period to pay their remaining
balance, respondents served upon petitioners a "Last and Final Demand" to
vacate the disputed property within 30 days from notice. This demand was left
unheeded.TACa
RTC Proceedings
RTC characterized the oral agreement between the parties as a contract to

sell. The RTC held that the consummation of this contract to sell was averted due
to petitioners' failure to pay the purchase price in full. Hence the RTC held that
ownership over the disputed property never passed to petitioners. Petitioners
filed a Motion for Reconsideration, which the RTC denied.
CA Proceedings
The CA affirmed the findings of the RTC anent the nature of the contract
entered into by the parties. In addition, it rejected petitioners' invocation of the
Maceda Law. According to the CA, to allow petitioners to seek protection under
said law for the first time on appeal would violate the tenets of due process and
fair play.
268

ISSUE: Whether the CA erred when it affirmed the RTC Decision characterizing
the oral agreement between the parties as a contract to sell|||
RULING:
The Petition is meritorious. The agreement between the parties is an oral
contract of sale. As a consequence, ownership of the disputed property passed to
petitioners upon its delivery.
The CA's finding is erroneous.
Article 1458 of the Civil Code defines a contract of sale:
By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate
thing, and the other to pay therefor a price certain in money or its
equivalent. "[A] contract to sell, [on the other hand], is defined as a
bilateral contract whereby the prospective seller, while expressly
reserving the ownership of the subject property despite its
delivery to the prospective buyer, commits to sell the property
exclusively to the prospective buyer" upon full payment of the
purchase price.
Jurisprudence defines the distinctions between a contract of sale and a contract
to sell to be as follows:
In a contract of sale, title passes to the vendee upon the delivery of
the thing sold; whereas in a contract to sell, by agreement the
ownership is reserved in the vendor and is not to pass until the full
payment of the price. In a contract of sale, the vendor has lost and
cannot recover ownership until and unless the contract is resolved
or rescinded; whereas in a contract to sell, title is retained by the
vendor until the full payment of the price, x x x. (Emphasis
supplied)
Based on the foregoing distinctions, the Court finds, and so holds, that the
oral agreement entered into by the parties constitutes a contract of sale and not
a contract to sell.
A plain reading of respondent Loreta's testimony shows that the parties'
oral agreement constitutes a meeting of the minds as to the sale of the disputed
property and its purchase price. Respondent Loreta's statements do not in any
way suggest that the parties intended to enter into a contract of sale at a later
time. Such statements only pertain to the time at which petitioners expected, or
at least hoped, to acquire the sufficient means to pay the purchase price agreed
upon. In a contract of sale, ownership of a thing sold shall pass to the buyer upon
actual or constructive delivery thereof in the absence of any stipulation to the
contrary. Reference to Articles 1477 and 1478 of the Civil Code is in order.
Ownership of the disputed property passed to petitioners when its possession
was transferred in their favor, as no reservation to the contrary had been made.
In a contract of sale, the vendor's failure to pay the price agreed upon generally
269

constitutes breach, and extends to the vendor the right to demand the contract's
fulfillment or rescission.
Petitioners acknowledge that they failed to settle the purchase price of
the disputed property in full within the deadline set by the Amicable Settlement.
Nevertheless, the Court does not lose sight of the fact that petitioners have
already paid more than three-fourths of the purchase price agreed upon.
Further, petitioners have constituted their family home on the disputed property
in good faith, and have lived thereon for 17 years without protest.
In addition, respondents do not dispute that petitioners offered to settle
their outstanding balance of P5,310.00 "two (2) days after the deadline [set by
the Amicable Settlement] and a few times thereafter," which offers respondents
refused to accept. Respondents also do not claim to have made a demand for
rescission at any time before petitioners made such offers to pay, either through
judicial or extra-judicial means, such as through a notarial act.
Respondents' Complaint was filed 17 years after the expiration of the
payment period stipulated in the Amicable Settlement. Assuming that
petitioners' failure to pay within said period constitutes sufficient breach which
gives rise to a cause of action, such action has clearly prescribed.

270

INTRAMUROS ADMINISTRATION v. OFFSHORE CONSTRUCTION

DEVELOPMENT COMPANY
G.R. No. 196795, March 7, 2018

PONENTE: J. LEONEN

CASE DOCTRINE: Tolerance of occupation and use of the leased premises after the
end of the lease contract does not give the lessee a permanent and indefeasible right
of possession in its favor. When a demand to vacate has been made, lessee’s
possession becomes illegal and it should have left the leased premises.

Article 1643. In the lease of things, 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. However, no lease for more than ninety-nine years
shall be valid.

FACTS: In 1998, Intramuros leased certain real properties of the national
government, which it administered to Offshore Construction. Three properties were
subjects of Contracts of Lease and all (3) properties were leased for five (5) years
and renewable for every five (5) years upon the parties' mutual agreement as
embodied in their Memorandum of Stipulations. Offshore Construction occupied
and introduced improvements in the leased premises. However, Intramuros and the
Department of Tourism (DOT) halted the projects due to violation of P.D. 1616.

Eventually, the parties executed a Compromise Agreement. During the lease period,
Offshore Construction failed to pay its utility bills and rental fees, despite several
demand letters. Intramuros tolerated the continuing occupation, hoping that
Offshore Construction would pay its arrears. To settle the bill, Offshore Construction
proposed to pay DOT’s monthly operational expenses for lights and sound
equipment, electricity, and performers in one of their leased properties. Petitioner
accepted the offer as stated in their Memorandum of Agreement. However, Offshore
Construction continued to fail to pay the amount due which ballooned to
₱13,448,867.45. Finally, Intramuros filed a Complaint for Ejectment before the
Manila Metropolitan Trial Court. Respondent countered, alleging inter alia, that
while there were lease contracts between the parties, the existence of the other
contracts between them made Intramuros and Offshore Construction's relationship
as one of concession.

ISSUE: Whether or not the relationship between the parties was not one of lessor-
lessee but governed by a concession agreement?

RULING: No, it is one of lessor-lessee agreement. In the Compromise Agreement, the
parties affirmed the validity of the lease contracts, but agreed to transfer the areas
to be occupied and used by respondent due to improvements that it had introduced
to the leased premises. Thereafter, the Contracts of Lease expired. There is no proof
of any contract for extensions of the leases. Respondent can only argue that
271

petitioner's continuing tolerance of respondent's possession and acceptance of

respondent's rental payments impliedly renewed the Contracts of Lease.

A review of the Contracts of Lease show that they are lease contracts as the
restrictions and limitations on respondent's use of the leased premises are
consistent with petitioner’s right as lessor to stipulate the use of the properties
being leased in accordance with Art. 1463 of the New Civil Code. Neither the
Contracts of Lease nor their respective Addendums to the Contract contain any
stipulation that respondent may occupy and use the leased premises until it
recovers the expenses it incurred for improvements it introduced there. Instead, the
lease period was fixed at five (5) years, renewable for another five (5) years upon
mutual agreement. The subsequent contracts, namely, the Compromise Agreement
and Memorandum of Agreement, also do not point to any creation of a "concession"
in favor of respondent. The former affirms the validity of the lease contracts, while
the latter was for the payment of respondent's arrears until July 2004.

272

UCPB V SPS UY
GR 204039, JANUARY 10, 2018

MARTIRES, J.

CASE DOCTRINE: Assignment of credit - an agreement by virtue of which the owner
of a credit, known as the assignor, by a legal cause - such as sale, dation in payment
or exchange or donation - and without need of the debtor's consent, transfers that
credit and its accessory rights to another, known as the assignee, who acquires the
power to enforce it to the same extent as the assignor could have enforced it against
the debtor. In every case, the obligations between assignor and assignee will depend
upon the judicial relation which is the basis of the assignment. An assignment will
be construed in accordance with the rules of construction governing contracts
generally, the primary object being always to ascertain and carry out the intention
of the parties. This intention is to be derived from a consideration of the whole
instrument, all parts of which should be given effect, and is to be sought in the
words and language employed.

FACTS: Prime Town Property Group, Inc. (PPGI) and E. Ganzon Inc. were the
joint developers of the Kiener Hills Mactan Condominium Project. Sps Uy bought a
unit in Kiener Hills from PPGI amounting to ₱1, 151,718. 7 5 to be payed in
installments. On 23 April 1998, PPGI and petitioner UCPB executed the following:
Memorandum of Agreement (MOA), and Sale of Receivables and Assignment of
Rights and Interests. By virtue of the said agreements, PPGI transferred the right to
collect the receivables of the buyers, which included respondents, of units in Kiener
Hills. The parties entered into the said agreement as PPGI's partial settlement of its
loan with UCPB. PPGI failed to complete the construction and development of Kiener
Hills Mactan Condominium Project. Sps Uy filed a complaint in HLURB for sum of
money and damages against PPGI and UCPB. They claimed that in spite of their full
payment of the purchase price, PPGI failed to complete the construction of their
units. HLURB ruled that Sps Uy are entitled for reimbursement and that UCPB is
solidarily liable with PPGI based on their Memorandum of agreement. On appeal CA
ruled that UCPB is not solidarily liable with PPGI, and as such cannot be held liable
for the full satisfaction of respondents' payments. It limited UCPB's liability to the
amount respondents have paid upon the former's assumption as the party entitled
to receive payments when the MOA was made between UCPB and PPGI.

ISSUE; WON under the Memorandum of Agreement UCPB assumed the liabilities
and obligations of PPGI under its contract to sell with Spouses Uy.

RULING: No, UCPB did not assume the liabilities and obligations of PPGI. An
assignment of credit has been defined as an agreement by virtue of which the owner
of a credit, known as the assignor, by a legal cause - such as sale, dation in payment
or exchange or donation - and without need of the debtor's consent, transfers that
credit and its accessory rights to another, known as the assignee, who acquires the
273

power to enforce it to the same extent as the assignor could have enforced it against
the debtor. In every case, the obligations between assignor and assignee will depend
upon the judicial relation which is the basis of the assignment. An assignment will
be construed in accordance with the rules of construction governing contracts
generally, the primary object being always to ascertain and carry out the intention
of the parties. This intention is to be derived from a consideration of the whole
instrument, all parts of which should be given effect, and is to be sought in the
words and language employed.

The Agreement conveys the straightforward intention of Primetown to "sell,
assign, transfer, convey and set over" to UCPB the receivables, rights, titles, interests
and participation over the units covered by the contracts to sell. It explicitly
excluded any and all liabilities and obligations, which Primetown assumed
under the contracts to sell. The intention to exclude Primetown's liabilities
and obligations is further shown by Primetown's subsequent letters to the
buyers, which stated that "this payment arrangement shall in no way cause
any amendment of the other terms and conditions, nor the cancellation of the
Contract to Sell you have executed with [Primetown]."

While respondents alleged that they had paid in full the purchase price of the
condominium units, only ₱157,757.82 was sufficiently substantiated to have been
actually received by UCPB. Thus, UCPB should only be held liable for ₱157,757.82
because it was the only amount which was unequivocally shown it had received.
This is especially true considering that one who pleads payment has the burden of
proving the fact of payment.30
Thus, it was incumbent upon respondents to prove the actual amount UCPB had
unquestionably received.

WHEREFORE, the 23 May 2012 Decision of the Court of Appeals m CA-G.R. SP No.
118534 is AFFIRMED with MODIFICATION. Petitioner United Coconut Planters
Bank shall pay the amount of ₱157,757.82 to Spouses Walter and Lily Uy, with legal
interest at six percent (6%) per annum, without prejudice to any action which the
parties may have against Prime Town Property Group, Inc.
SO ORDERED.

274

NEW MINTRADE VILLAGERS ASSOCIATION vs. HEIRS OF TOMAS L. GOTIANSE,

ET AL

CASE DOCTRINE:
In a contract to sell, x x x the vendor remains the owner for as long as the vendee
has not complied fully with the condition of paying the purchase price. If the vendor
should eject the vendee for failure to meet the condition precedent, he is enforcing
the contract and not rescinding it

FACTS
Tomas Gotianse (Tomas) owned the parcels of land which are all situated in
Barangay Centro, Agdao, Davao City. Beginning 1986, NMVAI 5 occupied the subject
properties without the consent of Tomas.

Eventually, NMVAI and Tomas were able to negotiate and come up with the
Contract/Agreement (Contract) dated February 19, 1992 for a sale by Tomas of the
subject lots. The Contract expressly provided that it should only be effective
until April 15, 1992, after which time, the contract would cease to have any
effect whatsoever, unless both parties should decide to extend it.

Following successive renewal agreements that carried substantially the original
terms and conditions, the Contract's effectivity was extended until April 30, 1993.
When the agreement still remained unenforced, Tomas sent a letter dated January
28, 1994 to NMVAI, giving the latter 15 days to signify its willingness to still comply
with the contract; otherwise, he would be withdrawing his offer to sell the subject
lots. Tomas' letter remained unanswered, prompting his son and attorney-in-fact
Peter to send a letter on May 24, 1994, informing NMVAI that the Gotianse family
was no longer interested in pursuing the Contract and remained firm in its decision
to no longer sell the subject properties, as signified in its notices dated August 17,
1995, August 28, 1995 and April 3, 1996.

Sometime in October 1995, NRMFC required from NMVAI an amended Land
Purchase Agreement. Tomas, however, refused to execute the agreement, prompting
the filing of the complaint for specific performance, with prayer for the issuance of
injunctive writs.

The defendants argued that NMVAI lacked cause of action because the Contract had
expired, and had no capacity to file the complaint as it was unsupported by a
majority of its members.

ISSUE
Whether or not the Contract is a contract of sale, which Tomas could not have
validly rescinded or revoked without judicial intervention.

RULING
The CA correctly classified the Contract as a contract to sell, instead of a contract of
275

sale. By the terms of the original agreement, Tomas clearly retained his title to and
ownership of the subject properties, only with the undertaking that he "shall sell,
cede, convey and transfer" unto NMVAI the subject properties upon the payment of
the agreed consideration. There was no immediate transfer or conveyance of the
lots subject of the agreement. "[I]n a contract to sell, the prospective seller agrees to
transfer ownership of the property to the buyer upon the happening of an event,
which normally is the full payment of the purchase price." These were the same
conditions indicated in the parties' Contract and the Amended Contract/Agreement
that extended it until April 30, 1993. Clearly, upon the lapse of the agreed period,
Tomas was relieved of the obligation to sell, cede and transfer the lots considering
that NMVAI failed to pay the purchase price.

The Court underscores the inapplicability of the provisions on rescission, and the
requirements for the validity thereof, in contracts to sell. When Tomas sent to
NMVAI the notices of cancellation, he did not seek the Contract's rescission but an
enforcement of an express stipulation that limited the agreement's effectivity.

The remedy of rescission is not available in contracts to sell. As explained in
Spouses Santos v. Court of Appeals:

x x x In a contract to sell, x x x the vendor remains the owner for as long as the
vendee has not complied fully with the condition of paying the purchase price. If the
vendor should eject the vendee for failure to meet the condition precedent, he
is enforcing the contract and not rescinding it. x x x As petitioners correctly point
out, the [CA] erred when it ruled that petitioners should have judicially rescinded
the contract pursuant to Articles 1592 and 1191 of the Civil Code. Article 1592
speaks of non-payment of the purchase price as a resolutory condition. It does not
apply to a contract to sell. As to Article 1191, it is subordinated to the provisions of
Article 1592 when applied to sales of immovable property. Neither provision is
applicable in the present case.

276

Renato R. Peralta vs Jose Roy Raval

G.R. No. 188467 and G.R. No. 188764, March 29, 2017
Reyes, J.

CASE DOCTRINE: In rescission of lease agreements, Article 1659 of the NCC applies
as a rule, “if the lessor or the lessee should not comply with the obligations set forth
in Articles 1654 and 1657, the aggrieved party may ask for the rescission of the
contract and indemnification for damages, or only the latter, allowing the contract to
remain in force”.

FACTS:
The controversy involves a lease agreement for 40 years over two parcels of land
between Spouses Argaza and Petitioner Peralta executed on February 19, 1974.
Under the lease contract, petitioner was to construct on the leased land a building
that should become property of the Spouses Arzaga upon lease termination, to pay
realty taxes for both lots, and to develop a water system for the use of both parties
to the lease contract. On July 28, 1995, a Deed of Assignment was executed by
Argaza transferring all all his interests, rights and participation in the subject
properties for a consideration to respondent Raval. Petitioner refused to recognize
the validity of the assignment, prompting him to still deposit his rental payments for
the account of Flaviano Jr., more specifically to bank accounts that were opened by
Peralta's wife, Gloria Peralta, under the name "Gloria F. Peralta [in-trust-for] (ITF):
Flaviano Arzaga, Jr.” Beginning August 1995, respondent demanded from
petitioner compliance with the lease contract's terms and conditions but the latter
fails to do so. Consequently, respondent filed an action for rescission of the lease
agreement based on Article 1191 for failure to comply with his obligations under
the contract. Petitioner then file a counterclaim assailing the action for rescission
has already prescribed based on Article 1389 and that the deed of assignment is null
and void. The RTC dismissed the complaint and denied the rescission which was
affirmed by the CA. Hence, this instant petition for review.

ISSUES:
1. Whether or not the action for rescission of lease agreement was filed on time.
2. Whether or not the deed of assignment is valid

RULING:
1. No. There are various provisions under the NCC that apply to rescissions of
contracts. It must be emphasized though that specifically on the matter of
rescission of lease agreements, Article 1659 of the NCC applies as a rule. It
reads: Article 1659. If the lessor or the lessee should not comply with the
obligations set forth in Articles 1654 and 1657, the aggrieved party may ask
for the rescission of the contract and indemnification for damages, or only
the latter, allowing the contract to remain in force. Given the rules that
exclusively apply to leases, the other provisions of the NCC that deal with the
issue of rescission may not be applicable to contracts of lease. The
277

prescriptive period applicable to rescission under Articles 1191 and 1592, is

found in Article 1144, which provides that the action upon a written contract
should be brought within ten years from the time the right of action accrues.
The same prescriptive period of 10 years, counted from the time that the
right of action accrues, applies in the case at bar. Respondent’s cause of
action did not refer to Article 1389, yet one that was based on a written
contract and it accrued not on the date of the lease agreement's execution in
1974, but from the time that there was a violation and default by petitioner
in his obligations under the lease agreement. Thus, the filing of the action for
rescission in 1998 was within the 10-year prescriptive period that applies to
the suit.

2. Yes, it is valid. On this matter, the Court refers to the outcome of a separate
petition for the registration of the deed of assignment and cancellation of TCT Nos.
T-3538 and T-240p that was filed by respondent. The ruling in Cad. Case No. 51
resulted in an acknowledgment of respondent’s rights over the property, his interest
in the court action and entitlement to monthly rentals from petitioner. New TCTs
were· issued by virtue of the decision. When later called upon to rule on the petition
for rescission of lease, the RTC then correctly rejected petitioner’s claim against the
agreement's legality, as it cited the prohibition against a collateral attack on the land
titles. By being the assignee under the deed, respondent obtained the rights,
interests and privileges of his predecessors-in-interest over the property, including
the right to seek the rescission of the agreement, should valid grounds exist to
support it. Moreover, Section 48 of Presidential Decree No. 1529, otherwise known
as the Property Registration Decree, provides that "[a] certificate of title shall not be
subject to collateral attack. It cannot be altered, modified, or cancelled except in a
direct proceeding in accordance with law."

278

Amoguis v. Ballado and St. Joseph, LTD

G.R. No. 189626
Leonen, J.

CASE DOCTRINE:
A buyer in good faith is one who purchases and pays fair price for a property
without notice that another has an interest over or right to it. If a land is registered
and is covered by a certificate of title, any person may rely on the correctness of
the certificate of title, and he or she is not obliged to go beyond the four (4)
corners of the certificate to determine the condition of the property. This rule does
not apply, however, when the party has actual knowledge of facts and
circumstances that would impel a reasonably cautious man to make such inquiry
or when the purchaser has knowledge of a defect or the lack of title in his vendor
or of sufficient facts to induce a reasonably prudent man to inquire into the status
of the title of the property in litigation.

It is incumbent upon a buyer to prove good faith should he or she assert this status.
This burden cannot be discharged by merely invoking the legal presumption of good
faith.|||

FACTS: On November 24, 1969, the Ballado Spouses entered into Contract nos. 5
and 6 with owner and developer St. joseph Realty, Ltd to buy on installment parcels
of land, which were designated as Lot Nos. 1 and 2.

The Ballado Spouses initially paid a total of P500.00 for the lots, and had to pay
P107.13 and P97.15 per month for Lot Nos. 1 and 2, respectively, both for 180
months starting on December 30, 1969.|||

St. Joseph Realty characterized the contracts as contracts to sell and provided for
automatic rescission and cancellation.

The Ballado Spouses amortized until 1979 when Crisanto Pinili (Pinili), St. Joseph
Realty's collector, refused to receive their payments. They erected a small house
made of light materials for their caretaker. Pinili informed them that it was an
eyesore and was against the rules of the subdivision. He advised to suspend the
payment for the lots, and directed the Ballado Spouses to remove the small house
before payments could continue. He also promised to return and collect after he had
put their records in order, but he never did. Francisco informed St. Joseph Realty
that the small house had already been taken down, but Pinili still did not come to
collect

Later on, the Ballado Spouses discovered that St. Joseph Realty rescinded their
contracts.|||They found out that St. Joseph Realty had sent written demands to pay
to the address of Lot Nos. 1 and 2, and not to their residence as declared in the
279

contracts. They were only able to receive the last letter dated December 31, 1986 in
January 1987 as it had their home address handwritten beside the typewritten
address of the lots.

Meanwhile, on February 9, 1987, St. Joseph Realty sold Lot Nos. 1 and 2 to Epifanio
Amoguis, father of Gregorio Amoguis (Gregorio) and Tito Amoguis (Tito)
(collectively, the Amoguis Brothers). The Amoguis Brothers then occupied the lots
and titles were issued in the Amoguis Brothers' names.

Francisco Ballado confronted the Amoguis Brothers when he saw that the barbed
fences, which he had installed around the lots, were taken down. Epifanio told him
that he bought the lots from St. Joseph Realty. Thereafter, the Amoguis Brothers
took down Francisco's mango and chico trees.||| Compelling private respondents to
file a case to court.

ISSUE: Whether or not petitioners Gregorio Amoguis and Tito Amoguis are buyers
in good faith and have preferential right to Lot Nos. 1 and 2.

RULING: No. A buyer in good faith is one who purchases and pays fair price for a
property without notice that another has an interest over or right to it. If a land is
registered and is covered by a certificate of title, any person may rely on the
correctness of the certificate of title, and he or she is not obliged to go beyond the
four (4) corners of the certificate to determine the condition of the property.||| This
rule does not apply, however, when the party has actual knowledge of facts and
circumstances that would impel a reasonably cautious man to make such inquiry or
when the purchaser has knowledge of a defect or the lack of title in his vendor or of
sufficient facts to induce a reasonably prudent man to inquire into the status of the
title of the property in litigation.

It is incumbent upon a buyer to prove good faith should he or she assert this status.
This burden cannot be discharged by merely invoking the legal presumption of good
faith.|||

This Court rules that based on the evidence on record, petitioners failed to discharge
this burden. Though they were informed by Francisco on his claim to the properties
only after their purchase, it is undisputed from the records that mango and chico
trees were planted on the properties, and that they were cordoned off by barbed
wires.

280

Atty. Reyes G. Geromo, Florencio Buentipo, Jr., Ernaldo Yambot and Lydia
Bustamante, petitioners Vs. La Paz Housing and Development Corporation and
Government Service Insurance System, respondents
G.R. No. 211175, January 18, 2017

J. Mendoza

CASE DOCTRINE: Art. 1561. The vendor shall be responsible for warranty against
the hidden defects which the thing sold may have, should they render it unfit for the
use for which it is intended, or should they diminish its fitness for such use to such
an extent that, had the vendee been aware thereof, he would not have acquired it or
would have given a lower price for it; but said vendor shall not be answerable for
patent defects or those which may be visible, or for those which are not visible if the
vendee is an expert who, by reason of this trade or profession, should have known
them.
For the implied warranty against hidden defects to be applicable, the following
conditions must be met:
a. Defect is Important or Serious
i. The thing sold is unfit for the use which it is intended
ii. Diminishes its fitness for such use or to such an extent that the buyer would not
have acquired it had he been aware thereof
b. Defect is Hidden
c. Defect Exists at the time of the sale
d. Buyer gives Notice of the defect to the seller within reasonable time

FACTS: Atty. Geromo, Bustamante and Yambot started occupying their respective
residential units from Adelina 1−A subdivision in San Pedro, Laguna from La Paz,
through GSIS financing. The properties were all situated along the old Litlit
Creek. After more than two (2) years of occupation, cracks started to appear on the
floor and walls on their houses. The petitioners requested La Paz, being the
owner/developer to take remedial action. They collectively decided to construct a
riprap/retaining wall in which La Paz contributed p3,000 for each but petitioners
claimed that despite of this retaining wall, the condition of their housing units
worsened as the years passed. La Paz alleged that the structural defects could have
been caused by the 1990 earthquake. Year 1998, the petitioners decided to leave
their housing units.

On May 2002, the DENR found that there was “differential settlement of the area
where the affected units were constructed”. On the basis thereof, Atty. Geromo filed
a complaint for breach of contract with damages against La Paz and GSIS before
Housing and Land Regulatory Board (HLURB) on May 3, 2003, Buentipo, Yambot
and Bustamante filed a similar complaint against La Paz and GSIS. They asserted
that La Paz was liable for implied warranty against hidden defects and it was
negligent in building their houses on unstable land. La Paz averred that it had
secured the necessary permits and licenses for the subdivision project. The GSIS
281

moved for the dismissal of the complaint for its only participation in the transaction
was to grant loans to the petitioners for the purchase of their respective properties.

ISSUE: Whether La Paz should be held liable for the structural defects on its implied
warranty against hidden defects

RULING: Yes. After a judicious review of the records of this case, the Court finds
merit in the petition.
Under the Civil Code, the vendor shall be answerable for warranty against hidden
defects on the thing sold under the following circumstances:

Art. 1561. The vendor shall be responsible for warranty against the hidden defects
which the thing sold may have, should they render it unfit for the use for which it is
intended, or should they diminish its fitness for such use to such an extent that, had
the vendee been aware thereof, he would not have acquired it or would have given a
lower price for it; but said vendor shall not be answerable for patent defects or
those which may be visible, or for those which are not visible if the vendee is an
expert who, by reason of this trade or profession, should have known them.
(Emphasis supplied)
Art. 1566. The vendor is responsible to the vendee for any hidden faults or defects in
the thing sold, even though he was not aware thereof.
This provision shall not apply if the contrary has been stipulated and the vendor
was not aware of the hidden faults or defects in the thing sold.
For the implied warranty against hidden defects to be applicable, the following
conditions must be met:
a. Defect is Important or Serious
i. The thing sold is unfit for the use which it is intended
ii. Diminishes its fitness for such use or to such an extent that the buyer would not
have acquired it had he been aware thereof
b. Defect is Hidden
c. Defect Exists at the time of the sale
d. Buyer gives Notice of the defect to the seller within reasonable time
Here, the petitioners observed big cracks on the walls and floors of their dwellings
within two years from the time they purchased the units. The damage in their
respective houses was substantial and serious. They reported the condition of their
houses to La Paz, but the latter did not present a concrete plan of action to remedy
their predicament. They also brought up the issue of water seeping through their
houses during heavy rainfall, but again La Paz failed to properly address their
concerns. The structural cracks and water seepage were evident indications that the
soil underneath the said structures could be unstable. Verily, the condition of the
soil would not be in the checklist that a potential buyer would normally inquire
about from the developer considering that it is the latter's prime obligation to
ensure suitability and stability of the ground.
Furthermore, on June 11, 2002, HLURB Director Belen G. Ceniza, after confirming
the cracks on the walls and floors of their houses, requested MGB-DENR and the
Office of the Municipal Mayor to conduct a geological/geohazard assessment and
282

thorough investigation on the entire Adelina subdivision. Thus, in its August 8,

2002 Letter-Report, MGB reported that there was evident ground settlement in the
area of the Litlit Creek where the houses of the petitioners were located, probably
"caused by hydrocompaction of the backfill and or alluvial deposits xxx." The
Engineering Department of San Pedro Municipality, on the other hand, confirmed
the settlement affecting at least six (6) houses along Block 2, Pearl St., including that
of Geromo, resulting in various structural damage. Records reveal that a portion of
Pearl Street itself had sunk, cracking the concrete pavement of the road. For several
years, the petitioners had to endure the conditions of their homes while La Paz
remained silent on their constant follow-ups. Eventually, they had to leave their own
dwellings due to safety concerns.

La Paz remained unconcerned even after receiving incident reports of structural
issues from homeowners and despite constant follow-ups from them for many
years. In fact, the petitioners took it upon themselves to build a riprap/retaining
wall due to La Paz's indifference.
One of the purposes of P.D. No. 957, also known as The Subdivision and
Condominium Buyers' Protective Decree, is to discourage and prevent unscrupulous
owners, developers, agents, and sellers from reneging on their obligations and
representations to the detriment of innocent purchasers.
Considering the nature of the damage sustained by the structures, even without the
findings of the local governmental agency and the MGB-DENR, La Paz is still liable
under the doctrine of res ipsa loquitur.

283

Racelis v. Spouses Javier

G.R. No. 189609, January 29, 2018

J. LEONEN
CASE DOCTRINE:

Doctrine 1:
In a contract to sell, the payment of earnest money represents the seller's
opportunity cost of holding in abeyance the search for other buyers or better deals.
Absent proof of a clear agreement to the contrary, it should be forfeited if the sale
does not happen without the seller's fault. The potential buyer bears the burden of
proving that the earnest money was intended other than as part of the purchase
price and to be forfeited if the sale does not occur without the seller's fault.|||
Doctrine 2:
Lessees are entitled to suspend the payment of rent under Article 1658 of the Civil
Code if their legal possession is disturbed. Acts of physical disturbance that do not
affect legal possession is beyond the scope of this rule.|||

FACTS:
Racelis administers her deceased father’s estate. Among the properties is a
residential house in Marikina City which she was tasked to sell. Spouses Javier
offered to buy the property, but asked to be given time to come up with the
purchase amount of Php 3.5 million. In the meantime, the parties agreed to enter
into month-to-month lease for Php 10,000 per month. After a year of such
arrangement, Racelis asked the spouses if they were still interested to buy the
property. To reiterate their interest, the spouses promised to advance Php100,000
of the purchase price but tendered only a total of Php 78,000 in irregular
installment. Meanwhile, the spouses continued leasing the property until they fall
behind in their dues. Realizing that the spouses had no genuine intention of buying
the property, Racelis terminated the lease and demanded that the spouses vacate
the property by May 30, 2004. The spouses continued to occupy the property
beyond the given date, and refused to pay rent which prompted Racelis to have the
power and water supply disconnected. She instituted an ejectment case with a
demand that the Javier spouses pay the unpaid rent. She also forfeited the Php
78,000 earnest money.
The spouses on the other hand insisted that the earnest money they earlier
tendered must be set-off from the unpaid rent, the amount being advance rental;
that they were only liable for the unpaid rents until May 30, 2004 since Racelis
failed to maintain for them the peaceful and adequate enjoyment of the property by
cutting the power and water supply lines that justified their refusal to pay rent.

ISSUE:
1. Whether the Php78,000 tendered be properly treated as earnest money
or advance rental payment?
284

2. Whether the cutting of the power and water supply lines an act of
disturbance which gave the spouses Javier the right to postpone
payment as may be properly invoked in Article 1658 of the Civil Code.

RULING:
1. The amount tendered is earnest money.
Earnest money, under Article 1482 of the Civil Code is ordinarily given in a
perfected contract of sale.However, earnest money may also be given in a contract
to sell. In a contract to sell, earnest money is generally intended to compensate the
seller for the opportunity cost--"the cost of the foregone alternative.” The seller
reserves the property for a potential buyer and foregoes the alternative of searching
for other offers which may even be more lucrative. It is a show of commitment on
the part of the party who intimates his or her willingness to go through with the sale
after a specified period or upon compliance with the conditions stated in the
contract to sell. Absent proof of a clear agreement to the contrary, it is intended to
be forfeited if the sale does not happen without the seller's fault. Raceli’s act of
forfeiture is therefore proper.

2. The disconnection was not just an act of physical disturbance but one that is
meant to remove respondents from the leased premises and disturb their legal
possession as lessees.
Ordinarily, this would have entitled respondents to invoke the right accorded by
Article 1658. However, this rule will not apply in the present case because the lease
had already expired on May 30, 2004. The spouses unlawfully withheld possession
of the property and Racelis was no longer obligated to maintain them in the
"peaceful and adequate enjoyment of the lease. Therefore, respondents cannot use
the disconnection of electrical service as justification to suspend the payment of
rent.

285


PHILIPPINE STEEL COATING CORP. vs EDUARD QUINONES
GR NO. 194533, APRIL 19, 2017
PONENTE: SERENO, CJ;

CASE DOCTRINE:
Art. 1546, NCC: Any affirmation of fact or any promise by the seller relating to the
thing is an express warranty if the natural tendency of such affirmation or promise
is to induce the buyer to purchase the same, and if the buyer purchases the thing
relying thereon. No affirmation of the value of the thing, nor any statement
purporting to be a statement of the seller's opinion only, shall be construed as a
warranty, unless the seller made such affirmation or statement as an expert and it
was relied upon by the buyer.

In case of breach of warranty, the applicable prescription period is therefore that
which is specified in the contract; in its absence, that period shall be based on the
general rule on the rescission of contracts: four years.

ART. 1599, NCC

Where there is a breach of warranty by the seller, the buyer may, at his election:
(l) Accept or keep the goods and set up against the seller, the breach of warranty by
way of recoupment in diminution or extinction of the price;

(2) Accept or keep the goods and maintain an action against the seller for damages
for the breach of warranty;

(3) Refuse to accept the goods, and maintain an action against the seller for damages

(4) Rescind the contract of sale and refuse to receive the goods or if the goods have
already been received, return them or offer to return them to the seller and recover
the price or any part thereof which has been paid.

When the buyer has claimed and been granted a remedy in anyone of these ways, no
other remedy can thereafter be granted, without prejudice to the provisions of the
second paragraph of article 1191.

Where the goods have been delivered to the buyer, he cannot rescind the sale if he
knew of the breach of warranty when he accepted the goods without protest, or if he
fails to notify the seller within a reasonable time of the election to rescind, or if he
fails to return or to offer to return the goods to the seller in substantially as good
condition as they were in at the time the ownership was transferred to the buyer.
But if deterioration or injury of the goods is due to the breach or warranty, such
286

deterioration or injury shall not prevent the buyer from returning or offering to
return the goods to the seller and rescinding the sale.

Where the buyer is entitled to rescind the sale and elects to do so, he shall cease to
be liable for the price upon returning or offering to return the goods. If the price or
any part thereof has already been paid, the seller shall be liable to repay so much
thereof as has been paid, concurrently with the return of the goods, or immediately
after an offer to return the goods in exchange for repayment of the price.

Where the buyer is entitled to rescind the sale and elects to do so, if the seller
refuses to accept an offer of the buyer to return the goods, the buyer shall thereafter
be deemed to hold the goods as bailee for the seller, but subject to a lien to secure
the payment of any portion of the price which has been paid, and with the remedies
for the enforcement of such lien allowed to an unpaid seller by article 1526.

(5) In the case of breach of warranty of quality, such loss, in the absence of special
circumstances showing proximate damage of a greater amount, is the difference
between the value of the goods at the time of delivery to the buyer and the value
they would have had if they had answered to the warranty.

FACTS:

Richard Lopez, a sales engineer of PhilSteel, offered Quinones (owner of Amianan
Motors) their new product: primer-coated, long-span, rolled galvanized iron (G.I.)
sheets. The latter showed interest, but asked Lopez if the primer-coated sheets were
compatible with the Guilder acrylic paint process used by Amianan Motors in the
finishing of its assembled buses. Uncertain, Lopez referred the query to his
immediate superior, Ferdinand Angbengco, PhilSteel's sales manager.

Angbengco assured Quinones that the quality of their new product was superior to
that of the non-primer coated G.l. sheets being used by the latter in his business.
Quinones expressed reservations, as the new product might not be compatible with
the paint process used by Amianan Motors.

Angbengco further guaranteed that a laboratory test had in fact been conducted by
PhilSteel, and that the results proved that the two products were compatible; hence,
Quinones was induced to purchase the product and use it in the manufacture of bus
units.

However, sometime later, Quinones received several complaints from customers
who had bought bus units, claiming that the paint or finish used on the purchased
vehicles was breaking and peeling off. Quinones then sent a letter-complaint to
PhilSteel invoking the warranties given by the latter. According to respondent, the
damage to the vehicles was attributable to the hidden defects of the primer-coated
sheets and/or their incompatibility with the Guilder acrylic paint process used by
Amianan Motors, contrary to the prior evaluations and assurances of PhilSteel.
287

Because of the barrage of complaints, Quinones was forced to repair the damaged
buses.

Thus the present complaint for damages filed by respondent Quinones against
petitioner PhilSteel.

PhilSteel counters that Quinones himself offered to purchase the subject product
directly from the former without being induced by any of PhilSteel's
representatives. According to its own investigation, PhilSteel discovered that the
breaking and peeling off of the paint was caused by the erroneous painting
application done by Quinones.

Both the RTC and the CA ruled in Quinones' favor and found that the assurance
made by Angbengco constituted an express warranty under Article 1546 of the Civil
Code.

ISSUES:
1. Whether Angbengco's statements were mere vague oral statements made by
seller on the characteristics of a generic good

2. Whether general warranties on the suitability of products sold prescribe in six (6)
months under Article 1571 of the Civil Code;

3. Whether non-payment of price is justified on allegations of breach of warranty.

RULING:
1. NO, ANGBENGCO's STATEMENTS ARE CONSIDERED AS AN EXPRESS WARRANTY

Art. 1546 of the New Civil Code provides that:

Any affirmation of fact or any promise by the seller relating to the thing is an
express warranty if the natural tendency of such affirmation or promise is to induce
the buyer to purchase the same, and if the buyer purchases the thing relying
thereon. No affirmation of the value of the thing, nor any statement purporting to be
a statement of the seller's opinion only, shall be construed as a warranty, unless the
seller made such affirmation or statement as an expert and it was relied upon by the
buyer.

As held in Carrascoso, Jr. v. CA, the following requisites must be established in order
to prove that there is an express warranty in a contract of sale: (1) the express
warranty must be an affirmation of fact or any promise by the seller relating to the
subject matter of the sale; (2) the natural effect of the affirmation or promise is to
induce the buyer to purchase the thing; and (3) the buyer purchases the thing
relying on that affirmation or promise.
Contrary to the assertions of petitioner, the finding of the CA was that the former,
288

through Angbengco, did not simply make vague oral statements on purported
warranties. Petitioner expressly represented to respondent that the primer-coated
G.I. sheets were compatible with the acrylic paint process used by the latter on his
bus units. This representation was made in the face of respondent's express
concerns regarding incompatibility. Petitioner also claimed that the use of their
product by Quinones would cut costs. Angbengco was so certain of the compatibility
that he suggested to respondent to assemble a bus using the primer-coated sheet
and have it painted with the acrylic paint used in Amianan Motors.

Quinones had reservations about the compatibility of his acrylic paint primer with
the primer-coated G.I. sheets of PhilSteel. Only after several meetings was Quinones
persuaded to buy their G.I. sheets. Later, he placed an initial order for petitioner's
product and, following Angbengco's instructions, had a bus painted with acrylic
paint. The results of the painting test turned out to be successful. Satisfied with the
initial success of that test, respondent made subsequent orders of the primer-coated
product and used it in Amianan Motors' mass production of bus bodies.

Taken together, the oral statements of Angbengco created an express warranty.
They were positive affirmations of fact that the buyer relied on, and that induced
him to buy petitioner's primer-coated G.I. sheets.

Also, petitioner was an expert in the eyes of the buyer Quinones. Former employee,
Lopez, testified that he had to refer Quinones to the former's immediate supervisor,
Angbengco, to answer that question. As the sales manager of PhilSteel, Angbengco
made repeated assurances and affirmations and even invoked laboratory tests that
showed compatibility. In the eyes of the buyer Quinones, PhilSteel - through its
representative, Angbengco - was an expert whose word could be relied upon.

The so-called dealer's or trader's talk cannot be treated as mere exaggeration in
trade as defined in Article 1340 of the Civil Code. Quinones did not talk to an
ordinary sales clerk such as can be found in a department store or even a sari-sari
store. If Lopez, a sales agent, had made the assertions of Angbengco without true
knowledge about the compatibility or the authority to warrant it, then his would be
considered dealer's talk. But sensing that a person of greater competence and
knowledge of the product had to answer Quinones' concerns, Lopez wisely deferred
to his boss, Angbengco. Angbengco undisputedly assured Quinones that laboratory
tests had been undertaken, and that those tests showed that the acrylic paint used
by Quinones was compatible with the primer-coated G.I. sheets of Philsteel. Thus,
Angbengco was no longer giving a mere seller's opinion or making an exaggeration
in trade. Rather, he was making it appear to Quinones that Phil Steel had already
subjected the latter's primed G.I. sheets to product testing.

2. THIS IS A CASE OF A BREACH OF EXPRESS WARRANTY.

The applicable prescription period is therefore that which is specified in the
289

contract; in its absence, that period shall be based on the general rule on the
rescission of contracts: four years.

3. YES, NON-PAYMENT OF THE PURCHASE PRICE MAY BE JUSTIFIED IN CASE OF
BREACH OF WARRANTY.

ART. 1599 of the NCC provides:

Where there is a breach of warranty by the seller, the buyer may, at his election:
(l) Accept or keep the goods and set up against the seller, the breach of warranty by
way of recoupment in diminution or extinction of the price;

(2) Accept or keep the goods and maintain an action against the seller for damages

(3) Refuse to accept the goods, and maintain an action against the seller for damages

(4) Rescind the contract of sale and refuse to receive the goods or if the goods have
already been received, return them or offer to return them to the seller and recover
the price or any part thereof which has been paid.

When the buyer has claimed and been granted a remedy in anyone of these ways, no
other remedy can thereafter be granted, without prejudice to the provisions of the
second paragraph of article 1191.

Where the goods have been delivered to the buyer, he cannot rescind the sale if he
knew of the breach of warranty when he accepted the goods without protest, or if he
fails to notify the seller within a reasonable time of the election to rescind, or if he
fails to return or to offer to return the goods to the seller in substantially as good
condition as they were in at the time the ownership was transferred to the buyer.
But if deterioration or injury of the goods is due to the breach or warranty, such
deterioration or injury shall not prevent the buyer from returning or offering to
return the goods to the seller and rescinding the sale.

Where the buyer is entitled to rescind the sale and elects to do so, he shall cease to
be liable for the price upon returning or offering to return the goods. If the price or
any part thereof has already been paid, the seller shall be liable to repay so much
thereof as has been paid, concurrently with the return of the goods, or immediately
after an offer to return the goods in exchange for repayment of the price.

Where the buyer is entitled to rescind the sale and elects to do so, if the seller
refuses to accept an offer of the buyer to return the goods, the buyer shall thereafter
be deemed to hold the goods as bailee for the seller, but subject to a lien to secure
the payment of any portion of the price which has been paid, and with the remedies
for the enforcement of such lien allowed to an unpaid seller by article 1526.
290


(5) In the case of breach of warranty of quality, such loss, in the absence of special
circumstances showing proximate damage of a greater amount, is the difference
between the value of the goods at the time of delivery to the buyer and the value
they would have had if they had answered to the warranty.

The nonpayment of the balance cannot be premised on a mere allegation of
nonexisting warranties. This Court has consistently ruled that whenever a breach of
warranty is not proven, buyers who refuse to pay the purchase price - or even the
unpaid balance of the goods they ordered - must be held liable therefor.

However, we uphold the finding of both the CA and the RTC that petitioner's breach
of warranty was proven by respondent.

Since what was proven was express warranty, the remedy for implied warranties
under Article 1567 of the Civil Code does not apply to the instant case.

291

MARIBELLE Z. NERI, petitioner, vs. RYAN ROY YU, respondent. G.R. No. 231111.
October 17, 2018
PERALTA, J.
DOCTRINE:
It is clear from the testimonies that Yu's group, of whom only Lao is known to Neri,
directly went to her and transacted directly with her for the purchase of their
respective Toyota vehicles, and she was the one who ordered these vehicles for
them online. Add this to the undisputed fact that Neri received their payments in her
bank account and issued an acknowledgment receipt without qualification that such
acknowledgment of payment was only for Insoy. The conclusion becomes
inescapable that Neri transacted as a seller, not as a mere conduit or middleman or
agent.
FACTS:
Yu filed a Complaint before the Regional Trial Court (RTC), for "Sum of Money,
Damages, Attorney's Fees, Etc." against Maribelle Z. Neri and Bridgette "Gigi" Insoy
(Insoy) to recover his payment of PHP 1,200,000.00 for the purchase of a Toyota
Grandia. Yu and his friends went on a leisure trip to Cebu City on June 24, 2007 and
checked out an SUV at a Toyota yard. At said yard, petitioner introduced
respondent's group to Insoy, petitioner's supposed business partner in Cebu.
Thereafter, respondent's group was shown different models of Toyota vehicles that
the two women claimed they were authorized to sell. Since the Toyota Prado that
Matalam wanted to see was not there and he was not interested in other vehicles,
the group left the yard. Petitioner joined respondent's group for lunch at Café
Laguna in the Ayala Mall, during which, she convinced respondent and Lao to
consider buying Toyota vehicles from her, saying they can get a big discount if they
buy from her as a group, because it would be considered a bulk purchase.
Respondent further alleged that while preparing for their trip to Davao City later
that same day, petitioner convinced and accompanied them back to the Toyota yard
for a second look at the vehicles there. Respondent test-drove a Toyota Grandia
which petitioner claimed that she can sell to him at a discounted price of P1.2
Million under bulk purchase as Lao and Matalam already committed to purchase
their respective Toyota vehicles from her. Petitioner assured respondent that her
transaction is legitimate and aboveboard, and that she can immediately cause the
delivery of the vehicle within a week after her receipt of the payment. Petitioner
then gave respondent her personal bank account number for fund transfer in case
he decides to proceed with the sales transaction. Yu's group returned to Davao City
convinced by petitioner's representations. On June 26, 2007, respondent alleged
that he transferred the amount of P1.2 Million from his Account (No. 1187097203)
in Equitable PCI Bank (EPCIB) to petitioner's Account (No. 0254022012) in said
bank. Thereafter, respondent went to see and inform petitioner of the fund transfer
and after the bank's confirmation of the same, she issued respondent a receipt
acknowledging payment for a Toyota Super Grandia. Petitioner then assured
respondent that the vehicle will be delivered after a week. However, a week after,
petitioner told respondent that the delivery of his vehicle will be delayed without
292

giving any reason and she asked for a week's extension. After several extensions and
despite repeated demands, no vehicle was delivered to respondent and petitioner
started avoiding him and ignoring his calls. Consequently, respondent sought legal
counsel and a demand letter was sent to petitioner. Instead of complying with her
commitment, the latter denied any liability and passed on the blame to Insoy saying
that respondent directly transacted with the latter. Thus, respondent filed a
complaint with the RTC.

The RTC ruled in favor of respondent Yu awarding him P1,200,000.00 as actual
damages for reimbursement of the amount paid, moral damages, exemplary
damages, attorney’s fees and costs of the suit. Petitioner elevated the case to the CA,
and the CA partially granted petitioner's appeal awarding him the same amount as
actual damages and deleting awards of moral and exemplary damages, as well as
attorney's fees.

ISSUE:
WON the petitioner is engaged in the business of selling cars and that respondent's
group directly transacted with her for the purchase of their vehicle

HELD:
YES. It is clear from the testimonies that Yu's group, of whom only Lao is known to
Neri, directly went to her and transacted directly with her for the purchase of their
respective Toyota vehicles, and she was the one who ordered these vehicles for
them online. Add this to the undisputed fact that Neri received their payments in her
bank account and issued an acknowledgment receipt without qualification that such
acknowledgment of payment was only for Insoy. The conclusion becomes
inescapable that Neri transacted as a seller, not as a mere conduit or middleman or
agent.

It is apparent that the participation of Neri here cannot be discounted as merely
accommodating Yu because in the first place Yu had no intention to buy the subject
vehicle when he visited Cebu. It was through the sales talk of Neri plus the discount
that she gave to YU and his group that Yu was enticed to purchase the subject
vehicle. In this regard, how can Neri offer such discounts if she were not the seller?

The testimonies of Yu's witnesses point to Neri as representing herself as a seller. Yu
and Hsipin Liu never spoke to Insoy. In fact, when the two Avanzas ordered by
Hsipin Liu (known as Steven Lao) were not delivered a week after payments were
made to them, Hsipin Liu talked to Neri regarding the status of the vehicles
purchased. Neri did not reveal the cause of the delay and merely requested for an
extension of another week. Neri gave assurance that she paid for the units which
Lao ordered. Why would Neri go to all these trouble if she has absolutely no
obligation as a seller?
293


WHEREFORE, the Petition for Review on Certiorari under Rule 45 of the Rules of
Court, dated March 8, 2017, of petitioner Maribelle Z. Neri is DENIED for lack of
merit. Consequently, the Decision dated August 19, 2016 and the Resolution dated
January 25, 2017 of the Court of Appeals in CA-G.R. CV No. 03495-MIN are
AFFIRMED. Consequently, the amount of P1,200,000.00 due to respondent Ryan
Roy Yu shall be paid with legal interest of twelve percent (12%) per annum of the
said amount from March 12, 2009 to June 30, 2013 and six percent (6%) per annum
from July 1, 2013 until fully satisfied.

294

Noell Whessoe, Inc. v. Independent Testing Consultants, Inc.

G.R. No. 199851, November 7, 2018
LEONEN, J

DOCTRINE:
The contractor may be solidarily liable with the owner and the subcontractor for
any unpaid obligations to the subcontractor's supplier despite the absence of a
contract between the contractor and supplier. Full payment to the subcontractor,
however, serves as a valid defense against this liability under Article 1729 of the
Civil Code which provides that “Those who put their labor upon or furnish materials
for a piece of work undertaken by the contractor have an action against the owner
up to the amount owing from the latter to the contractor at the time the claim is
made. However, the following shall not prejudice the laborers, employees and
furnishers of materials:
1. Payments made by the owner to the contractor before they are due;
2. Renunciation by the contractor of any amount due him from the owner.”

FACTS:
Sometime in June 1998, Petrotech, a subcontractor of Liquigaz, engaged the services
of Independent Testing Consultants to conduct non-destructive testing on Liquigaz's
piping systems and liquefied petroleum gas storage tanks located in Barangay Alas-
Asin, Mariveles, Bataan.
Independent Testing Consultants conducted the agreed tests. It later billed
Petrotech, on separate invoices, the amounts of P474,617.22 and P588,848.48 for its
services. However, despite demand, Petrotech refused to pay. Thus, they filed a
Complaint for collection of sum of money with damages against Petrotech, Liquigaz,
and Noell Whessoe for P1,063,465.70 plus legal interest. It joined Noell Whessoe as
a defendant, alleging that it was Liquigaz's contractor that subcontracted Petrotech.
In its Answer, Liquigaz argued that Independent Testing Consultants had no cause
of action against it since there were no contractual relations between them and that
any contract that Independent Testing Consultants had was with its subcontractors.
Noell Whessoe, on the other hand, denied that it was Liquigaz's contractor and that
its basic role was merely to supervise the construction of its gas plants. It argued
that any privity of contract was only with Petrotech. Thus, it asserted that Petrotech
alone should be liable to Independent Testing Consultants. Noell Whessoe later
submitted a Formal Offer of Documentary Exhibits showing that Liquigaz engaged
Whessoe Projects Limited (Whessoe UK), a limited company organized under the
laws of the United Kingdom, for the construction of its storage facilities. Whessoe
UK, in turn, engaged Noell Whessoe, a separate and distinct entity, to be the
construction manager for the Mariveles Terminal Expansion Project. The documents
295

further stated that Whessoe UK had already paid in full its contractual obligations to
Petrotech.
For its part, Petrotech alleged that upon Noell Whessoe's approval, Independent
Testing Consultants was chosen to conduct the non-destructive testing on Liquigaz's
liquefied petroleum gas storage vessel under the supervision of OIS, an inspection
firm from the United Kingdom, and of Nick Stephenson (Stephenson). However, it
averred that it later received a letter from Noell Whessoe withdrawing its approval
for Independent Testing Consultants' continued services. Independent Testing
Consultants' services allegedly failed to satisfy the standards set by the OIS and
Stephenson. Petrotech further claimed that due to Independent Testing Consultants'
poor performance, it incurred additional costs. Thus, it prayed that Independent
Testing Consultants be ordered to pay the additional costs as actual damages.
The Regional Trial Court later declared Petrotech in default for failure to appear
during the pre-trial conference.
In its March 7, 2005 Decision, the Regional Trial Court found Liquigaz, Noell
Whessoe, and Petrotech solidarily liable to Independent Testing Consultants. It
ruled that Liquigaz was liable considering that it was the entity which directly
benefited from Independent Testing Consultants' services. It likewise held that Noell
Whessoe, as the main contractor of the project, could not escape liability. Petrotech,
as the subcontractor of the project, was also held liable. The dispositive portion of
the Regional Trial Court March 7, 2005 Decision read:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff and against the defendants Liquigaz Philippine Corp., Noell Whessoe, Inc.
and Petrotech Systems, Inc.
1) Ordering all defendants to pay plaintiff jointly and severally the amount of
Php1,063,465.70 plus legal rate of interest from December 1, 1998 until it is fully
paid;
2) Ordering the defendants to pay attorney's fees equivalent to 25% of the principal
amount of claim; and, the costs of suit.
SO ORDERED.
Only Noell Whessoe and Liquigaz appealed to the Court of Appeals. Thus, the
Regional Trial Court March 7, 2005 Decision became final as to Petrotech.
Court of Appeals affirmed the Regional Trial Court March 7, 2005 Decision and
found that Noell Whessoe, Petrotech, and Liquigaz were liable to Independent
Testing Consultants. It found that Whessoe UK, as contractor, assigned construction
management to Noell Whessoe, effectively stepping into the shoes of Whessoe UK.
Hence, Noell Whessoe could not disclaim knowledge that Petrotech engaged the
services of Independent Testing Consultants, considering its admission that it later
sent a letter to Petrotech withdrawing its approval of the engagement. The Court of
Appeals, however, held that Noell Whessoe's liability did not preclude it from
demanding reimbursement from Petrotech for any amount paid.
296

The Court of Appeals likewise found that Liquigaz had knowledge, as early as
January 1999, that one of its subcontractors, Petrotech, failed to fulfill its contractual
obligations in the amount of P1,063,465.70 to another subcontractor, Independent
Testing Consultants. It likewise found that Liquigaz still owed Noell Whessoe the
amount of US$9,000.00, which it could have withheld subject to Petrotech's
fulfillment of its contractual obligations. Thus, Liquigaz was liable to Independent
Testing Consultants, but only up to the amount of US$9,000.00, which it could also
demand from Petrotech.
Noell Whessoe filed a Motion for Reconsideration, which was denied by the Court of
Appeals in its December 7, 2011 Resolution. Hence, it filed this Petition before this
Court. etitioner asserts that it should not have been made solidarily liable to
respondent Independent Testing Consultants since it had no privity of contract with
the latter. It maintains that the Contract Agreement for the Mariveles Terminal
Expansion Project was between Liquigaz and Whessoe UK, an entity separate and
distinct from petitioner. It likewise asserts that the Pipework and Mechanical
Equipment Installation Subcontract for the testing and delivery of subcontracting
works was between Whessoe UK and Petrotech. It explained that the Conditions of
Contract for Supply of Professional, Technical and Management Services between
Whessoe UK and petitioner was not intended to be a deed of assignment where
petitioner would step into Whessoe UK's shoes as contractor but was rather merely
an undertaking to supply professional, technical, and management services.
Petitioner maintains that it cannot be bound by the contract between Whessoe UK
and Petrotech simply because it sent a letter to Petrotech expressing dissatisfaction
or disapproval of respondent Independent Testing Consultants' services. It likewise
points out that even assuming that there was privity of contract, Whessoe UK had
already paid in full its contractual obligations to Petrotech. Thus, it asserts that it
was entitled to moral damages of P1,000,000.00 since "the filing of this baseless and
unfounded case . . . has tarnished its good business name and standing by giving the
erroneous and false impression to the public that it is a company that reneges on its
obligations."
ISSUE:
Whether petitioner is solidarily liable with Liquigaz and Petrotech
RULING
No. "[A] contract is law between the parties[.]" Generally, contracts only take effect
between the parties, and their assigns and heirs. Thus, subject to certain exceptions,
those not privy to the contract would not be bound by any of its provisions.
Considering this stipulation, petitioner cannot be considered as a mere
subcontractor of Whessoe UK. Otherwise, Whessoe UK would be in breach of its
Contract with Liquigaz.
There was insufficient evidence proving that Whessoe UK and petitioner were two
(2) separate and distinct entities. As with Pioneer International, prior acts by
Liquigaz and Petrotech indicate that they were contracting with the same entity,
297

albeit with different names. Thus, petitioner failed to prove that for the Mariveles
Terminal Expansion Project, it was a separate and distinct entity from Whessoe UK.
Therefore, it cannot set up the defense of privity of contract to escape liability.
Article 1729 of the Civil Code provides:
Article 1729. Those who put their labor upon or furnish materials for a piece of
work undertaken by the contractor have an action against the owner up to the
amount owing from the latter to the contractor at the time the claim is made.
However, the following shall not prejudice the laborers, employees and furnishers of
materials:
1. Payments made by the owner to the contractor before they are due;
2. Renunciation by the contractor of any amount due him from the owner.
This article is subject to the provisions of special laws.
In JL Investment and Development, Inc. v. Tendon Philippines, Inc., this Court
explained that Article 1729 of the Civil Code is an exception to the general rule on
the privity of contracts:
This provision imposes a direct liability on an owner of a piece of work in favor of
suppliers of materials (and laborers) hired by the contractor "up to the amount
owing from the [owner] to the contractor at the time the claim is made." Thus, to
this extent, the owner's liability is solidary with the contractor, if both are sued
together. By creating a constructive vinculum between suppliers of materials (and
laborers), on the one hand, and the owner of a piece of work, on the other hand, as an
exception to the rule on privity of contracts, Article 1729 protects suppliers of
materials (and laborers) from unscrupulous contractors and possible connivance
between owners and contractors. As the Court of Appeals correctly ruled, the
supplier's cause of action under this provision, reckoned from the time of judicial or
extra-judicial demand, subsists so long as any amount remains owing from the
owner to the contractor. Only full payment of the agreed contract price serves as a
defense against the supplier's claim.
Article 1729 talks of three (3) different parties: the owner, the contractor, and the
supplier. In certain situations, the supplier may also be referred to as a
subcontractor to provide materials or services. There are also situations where, as
in this case, the subcontractor further subcontracts some materials and services to
another subcontractor. This sub-subcontractor would be considered the supplier of
materials and services. In this case, the owner is Liquigaz, the contractor is
petitioner, the subcontractor is Petrotech, and the supplier/sub-subcontractor is
respondent Independent Testing Consultants.
Considering that the rationale behind the provision is to protect suppliers from
possible connivance between the owners and the contractors, there would be no
reason to apply the same rationale when it was the subcontractor that hired the
supplier. The liability will extend from the owner to the contractor to the
subcontractor.
298

Under Article 1729, respondent Independent Testing Consultants had a cause of

action against Liquigaz and petitioner, even if its contract was only with Petrotech.
The Regional Trial Court and the Court of Appeals, therefore, did not err in
concluding that petitioner was solidarily liable with Liquigaz and Petrotech for
unpaid fees to respondent Independent Testing Consultants.
Article 1729 creates a solidary liability between the owner, the contractor, and the
subcontractor. A solidary obligation is "one in which each debtor is liable for the
entire obligation, and each creditor is entitled to demand the whole obligation.”
Respondent Independent Testing Consultants may demand payment for all of its
unpaid fees from Liquigaz, petitioner, or Petrotech, even if its contract was only with
the latter.
However, Article 1729, while serving as an exception to the general rule on the
privity of contracts, likewise provides for an exception to this exception. The
contractor is solidarily liable with the owner and subcontractor for any liabilities
against a supplier despite the absence of contract between the contractor and the
supplier, except when the subcontractor has already been fully paid for its services.
Here, the Court of Appeals found that there was "uncontroverted evidence that
PETROTECH had already been paid for its services. Since Whessoe UK and
petitioner should be considered the same entity for the purposes of the Mariveles
Terminal Expansion Project, Whessoe UK's full payment to Petrotech would serve as
a valid defense against petitioner's solidary liability. Thus, petitioner still cannot be
held solidarily liable with Liquigaz and Petrotech for any remaining receivables
from respondent Independent Testing Consultants. Any remaining obligations to it
should be solidarily borne by the owner, Liquigaz, and the subcontractor, Petrotech.

299

CREDIT TRANSACTIONS

Coca-Cola Bottlers Phils., Inc. v. Spouses Soriano,
G.R. No. 211232 , [April 11, 2018]

Tijam, J:

Case Doctrine: Article 2125. In addition to the requisites stated in Article 2085, it is
indispensable, in order that a mortgage may be validly constituted, that the
document in which it appears be recorded in the Registry of Property. If the
instrument is not recorded, the mortgage is nevertheless binding between the
parties.

Facts: Plaintiffs-appellees spouses Efren and Lolita Soriano are engaged in the
business of selling defendant-appellant Coca-Cola products in Tuguegarao City,
Cagayan. Sometime in 1999, defendant-appellant thru Cipriano informed plaintiffs-
appellees that the former required security for the continuation of their business.
Plaintiffs-appellees were convinced to hand over two (2) certificates of titles over
their property and were made to sign a document. Defendant Cipriano assured
plaintiffs-appellees that it will be a mere formality and will never be notarized.
Subsequently, plaintiffs-appellees informed defendant-appellant Coca-Cola of their
intention to stop selling Coca-Cola products due to their advanced age. Thus,
plaintiffs-appellees verbally demanded from defendant-appellant the return of their
certificates of titles. However, the titles were not given back to them.
When plaintiffs-appellees were contemplating on filing a petition for the issuance of
new titles, they discovered for the first time that their land was mortgaged in favor
of defendant-appellant Coca-Cola. Worse, the mortgage land was already foreclosed.
Hence, plaintiffs-appellees filed a complaint for annulment of sheriff's foreclosure
sale. They alleged that they never signed a mortgaged document and that they were
never notified of the foreclosure sale. In addition, plaintiffs-appellees aver that they
never had monetary obligations or debts with defendant-appellant. They always
paid their product deliveries in cash.
Furthermore, plaintiffs-appellees claimed that they merely signed a document in
Tuguegarao. They never signed any document in Ilagan, Isabela nor did they appear
before a certain Atty. Reymundo Ilagan on 06 January 2000 for the notarization of
the said mortgage document.
On their part, defendant-appellant alleged that plaintiffs-appellees are indebted to
them. Plaintiffs-appellees' admission that they signed the real estate mortgage
document in Tuguegarao, Cagayan indicates that the mortgage agreement was duly
300

executed. The failure of the parties to appear before the notary public for the
execution of the document does not render the same null and void or unenforceable.

Issue:
Ultimately, the question posed before Us is the validity of a REM, the deed of which
was: (1) admittedly signed by the mortgagors, albeit in a place other than that stated
in the document, on the belief that the same would not be notarized; and (2)
notarized without authority and compliance with the prescribed form under Section
112 of P.D. 1529.

Held:
At the outset, We stress that the registration of a REM deed is not essential to its
validity. The law is clear on the requisites for the validity of a mortgage, to wit:
Art. 2085. The following requisites are essential to the contracts of
pledge and mortgage:
(1) That they be constituted to secure the fulfillment of a principal
obligation;
(2) That the pledgor or mortgagor be the absolute owner of the
thing pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the
free disposal of their property, and in the absence thereof, that
they be legally authorized for the purpose.
Third persons who are not parties to the principal obligation may
secure the latter by pledging or mortgaging their own property.
In relation thereto, Article 2125 provides:
Article 2125. In addition to the requisites stated in Article 2085, it
is indispensable, in order that a mortgage may be validly
constituted, that the document in which it appears be recorded in
the Registry of Property. If the instrument is not recorded, the
mortgage is nevertheless binding between the parties.
(Emphasis supplied)
Thus, as between the parties to a mortgage, the non-registration of a REM deed
is immaterial to its validity.
Nonetheless, the defective notarization of the REM agreement merely strips it
of its public character and reduces it to a private document. Although Article
1358 of the New Civil Code requires that the form of a contract transmitting or
301

extinguishing real rights over immovable property should be in a public document,

the failure to observe such required form does not render the transaction invalid.
The necessity of a public document for the said contracts is only for convenience; it
is not essential for its validity or enforceability.

302

CONCHITA GLORIA and MARIA LOURDES GLORIA- PAYDUAN vs. BUILDERS

SAVINGS AND LOAN ASSOCIATION INC.
G.R. No. 202324; June 04, 2018

DEL CASTILLO, J.

CASE DOCTRINE: In a real estate mortgage contract, it is essential that the
mortgagor be the absolute owner of the property to be mortgaged; otherwise, the
mortgage is void. And when the instrument presented for registration is forged,
even if accompanied by the owner's duplicate certificate of title, the registered
owner does not thereby lose his title, and neither does the mortgagee acquire any
right or title to the property. In such a case, the mortgagee under the forged
instrument is not a mortgagee protected by Law. Lastly, when the person applying
for the loan is other than the registered owner of the real property being mortgaged,
it should have already raised a red flag and x x x should have induced the mortgagee
to make inquiries into and confirm the authority of the mortgagor.

FACTS:

Spouses Juan and Conchita Gloria (Conchita) are registered owners of a parcel of
land located in Kamuning, Quezon City covered by TCT 35814. Petitioner Maria
Lourdes Gloria-Payduan (Lourdes) is their daughter. In 1987, Juan passed away. In
1993, Conchita and Lourdes filed before the RTC a Complaint against respondent
Builders Savings, Biag, and Lorenzo for "declaration of null and void real estate
mortgage, promissory note, cancellation of notation in the transfer certificate of
title, and damages" with prayer for injunctive relief. Petitioners claimed that Biag
duped them into surrendering TCT 35814 to him under the pretense that Biag
would verify the title, which he claimed might have been fraudulently transferred to
another on account of a fire that gutted the Quezon City Registry of Deeds; that Biag
claimed that the title might need to be reconstituted; that Biag instead used the title
to mortgage the Kamuning property to respondent Builders Savings; that Conchita
was fraudulently made to sign the subject loan and mortgage documents by Biag,
who deceived Conchita into believing that it was actually Lourdes who requested
that these documents be signed; that the subject Mortgage and Promissory Note
contained the signature not only of Conchita, but of Juan, who was by then already
long deceased, as mortgagor and co-maker; that at the time the loan and mortgage
documents were supposedly executed, Conchita was already sickly and senile, and
could no longer leave her house; that Biag and Builders Savings conspired in the
execution of the forged loan and mortgage documents, that the forged loan and
mortgage documents were not signed/affirmed before a notary public; that on
account of Biag and Builders Savings' collusion, the subject property was foreclosed
and sold at auction to the latter; and that the loan and mortgage documents, as well
as the foreclosure and sale proceedings, were null and void and should he annulled.

303

ISSUE:
Whether or not the subject documents were null and void?
HELD:

YES. The evidence indicates that these documents were indeed simulated; as far as
petitioners were concerned, they merely entrusted the title to the subject property
to Biag for the purpose of reconstituting the same as he claimed that the title on file
with the Registrar of Deeds of Quezon City may have been lost by fire. Petitioners
did not intend for Biag to mortgage the subject property in 1991 to secure a loan;
yet the latter, without petitioners' knowledge and consent, proceeded to do just
that, and in the process, he falsified the loan and mortgage documents and the
accompanying promissory note by securing Conchita's signatures thereon through
fraud and misrepresentation and taking advantage of her advanced age and naivete
and forged Juan's signature and made it appear that the latter was still alive at the
time, when in truth and in fact, he had passed away in 1987.

Under the Civil Code:

Art. 1346. An absolutely simulated or fictitious contract is void. x x x

Art. 1409. The following contracts are in existent and void from the
beginning:

(2) Those which are absolutely simulated or fictitious;

As a consequence of Biag's fraud and forgery of the loan and mortgage documents,
the same were rendered null and void. This proceeds from the fact that Biag was not
the owner of the subject property and may not thus validly mortgage it, as well as
the well-entrenched rule that a forged or fraudulent deed is a nullity and conveys no
title. "In a real estate mortgage contract, it is essential that the mortgagor be the
absolute owner of the property to be mortgaged; otherwise, the mortgage is void."
And "when the instrument presented for registration is forged, even if accompanied
by the owner's duplicate certificate of title, the registered owner does not thereby
lose his title, and neither does the mortgagee acquire any right or title to the
property. In such a case, the mortgagee under the forged instrument is not a
mortgagee protected by Law." Lastly, when "the person applying for the loan is
other than the registered owner of the real property being mortgaged, it should
have already raised a red flag and x x x should have induced the mortgagee to make
inquiries into and confirm the authority of the mortgagor."

304

CATALINA F. ISLA, ELIZABETH ISLA, AND GILBERT F. ISLA, Petitioners vs.

GENEVIRA P. ESTORGA, Respondent.
G.R. No. 233974

PERLAS-BERNABE, J.

CASE DOCTRINE: Case law states that there are two (2) types of interest, namely,
monetary interest and compensatory interest. Monetary interest is the
compensation fixed by the parties for the use of forbearance of money. On the other
hand, compensatory interest is that imposed by law or by the courts as penalty or
indemnity for damages. Accordingly, the right to recover interest arises only either
by virtue of a contract (monetary interest) or as damages for delay or failure to pay
the principal loan on which the interest is demanded (compensatory interest).

FACTS:

Catalina, Elizabeth, and Gilbert Isla obtained a 100,000-peso loan from Genevira
Estorga subject to a term of six months to one year, a 10% interest rate, and a real
estate mortgage over a parcel of land owned by Edilberto in Pasay City. Upon failure
to pay the loan, a Kasulatan ng Pautang was entered into by the parties before the
barangay, prompting Estorga to send a demand letter. Nonetheless, the Islas failed
to pay causing Estorga to file for Judicial Foreclosure of the real estate mortgage.
The Islas claim that the mortgage was not a real estate mortgage but a mere loan
with 10% interest and that the land allegedly mortgaged was not owned in entirety
by Edilberto. Eventually, RTC foreclosed the property and held the Islas solidarily
liable for the principal debt as an alternative remedy. On appeal, the Court of
Appeals affirmed the decision but barred the solidary liability of the parties since
the remedies are mutually exclusive and added attorney’s fees in the judgment.

ISSUE:
Whether or not the award of (a) 12% interest and; (b) attorney’s fees is proper?

HELD:

a. YES. The court reiterated that there are 2 types of interest, namely, monetary
interest and compensatory interest. Case law states that there are two (2) types
of interest, namely, monetary interest and compensatory interest. Monetary
interest is the compensation fixed by the parties for the use of forbearance of
money. On the other hand, compensatory interest is that imposed by law or by
the courts as penalty or indemnity for damages. Accordingly, the right to recover
interest arises only either by virtue of a contract (monetary interest) or as
damages for delay or failure to pay the principal loan on which the interest is
305

demanded (compensatory interest). In this case, since the monetary interest of

10% PER MONTH was found to be unconscionable by the trial court, then the
12% PER ANNUM legal rate should be followed.

b. NO. on the issue on attorney’s fees, the general rule is that the same cannot be
recovered as part of damages because of the policy that no premium should be
placed on the right to litigate. They are not to be awarded every time a party wins
a suit. The power of the court to award attorney’s fees under Article 2208 of the
Civil Code demands factual, legal, and equitable justification. It must clearly state
the reasons for awarding attorney’s fees in the body of its decision, and not
merely in its dispositive portion. In this case, since the attorney’s fees were
merely premised on the general statement of the Court of Appeals failed to
“clearly state the reasons for awarding attorney’s fees in the body of its decision”,
hence, must be deleted.

306

SOFIA TABUADA v. ELEANOR TABUADA

GR No. 196510, September 12, 2018

BERSAMIN, J.

CASE DOCTRINE: A person constituting a mortgage should be the owner of the
property, or should have the right of free disposal of it, or, in the absence of the right
of free disposal, such person should be legally authorized for the purpose.
Otherwise, the mortgage is null and void.

FACTS:

On January 27, 2005, the petitioners commenced Civil Case No. 05- 28420 in the
RTC against respondents Spouses Bernan and Eleanor Certeza (Spouses Certeza),
Eleanor Tabuada, Julieta Trabuco and Laureta Redondo. The complainant included a
prayer for a temporary restraining order (TRO) and for the issuance of the writ of
preliminary injunction.
Summons and the copy of the complaint and its annexes, along with the notice of
raffle, were served by personal and substituted service on the respondents at their
respective stated addresses but for failure of the respondents to file their answers
within the reglementary period, the petitioners filed a Motion to Declare Defendants
in Default and for Judgment Based on Complaint.An ex parte hearing was held and
the following evidence were presented: petioners received the notice sent by the
Spouses Certeza regarding their land, known as Lot 4272-B-2, located at Barangay
Tacas, Jaro, Iloilo City that her husband had inherited from his mother, Loreta
Tabuada, and where they were residing, informing them that the land had been
mortgaged to them (Spouses Certeza); that she immediately inquired from Eleanor
Tabuada and Trabuco about the mortgage, and both admitted that they had
mortgaged the property to the Spouses Certeza; that she was puzzled to see the
signature purportedly of Loreta Tabuada on top of the name Loreta Tabuada
printed on the Mortgage of Real Rights dated July 1, 1994 and the Promissory Note
dated July 4, 1994 despite Loreta Tabuada having died on April 16, 1990; that the
property under mortgage was the where she and her daughters were residing.

RTC: The RTC declared the Mortgage of Real Rights dated July 1, 1994 null and void
for not complying with the essential requisites of a real estate mortgage. It opined
that based on the complaint and the testimony of Sofia Tabuada "Eleanor Tabuada,
who [was] not the absolute owner of Lot No. 4272-B-2, and without having the legal
authority to mortgage said property [had] misrepresented herself as the deceased
LoretaTabuada and mortgaged the property without the knowledge of herein
plaintiffs, and benefited from said mortgage to the detriment of the rights and
interests of plaintiffs.

307

CA: Reversed and set aside ruling of RTC. Petitioners moved for reconsideration but
CA denied.

ISSUE:
1.) Whether or not real estate mortgage was null and void?
2.) Whether or not respondent Spouses Certeza were mortgagees in good faith?

HELD:

1.) Under Article 2085 of the Civil Code, a mortgage, to be valid, must have the
following requisites, namely: (a) that it be constituted to secure the fulfillment
of a principal obligation; (b) that the mortgagor be the absolute owner of the
thing mortgaged; and (c) that the person constituting the mortgage has free
disposal of the property, and in the absence of the right of free disposal, that the
person be legally authorized for the purpose.

It is uncontested that the late Loreta Tabuada had died in 1990, or four years
before the mortgage was constituted; and that Eleanor Tabuada and Trabuco
admitted to petitioner Sofia Tabuada that they had mortgaged the property to
the Spouses Certezas. Accordingly, the RTC was fully justified in declaring the
nullity of the mortgage based on its finding that Eleanor Tabuada had
fraudulently represented herself to the Spouses Certeza as the late Loreta
Tabuada, the titleholder. That the titleholder had been dead when the mortgage
was constituted on the property by Eleanor Tabuada was not even contested by
Eleanor Tabuada and Tabuco. In any event, Eleanor Tabuada had not been
legally authorized to mortgage the lot to the Spouses Certeza.

2.) The Spouses Certeza contend that they were mortgagees in good faith
considering that they had no notice prior to the filing of Civil Case No. 05- 28420
that the real owner of the property had died several years before the execution
of the mortgage; and that they had believed in good faith in the representations
made by Eleanor Tabuada that she had been Loreta Tabuada, the titleholder.

The contentions of the Spouses Certeza lack persuasion. The Spouses Certeza
admitted that the petitioners were the relatives by blood or affinity of their co-
defendants Eleanor Tabuada, et al.; and that Sofia Tabuada, et al. and the
petitioners had been living in their respective residences built on the property
subject of the mortgage. Such admissions belied the Spouses Certeza's
contention of being mortgagees in good faith. At the very least, they should have
been prudent and cautious enough as to have inquired about Eleanor Tabuada's
assertion of her capacity and authority to mortgage in view of the actual
presence of other persons like the petitioners herein on the property. Such
prudence and caution were demanded of persons like them who are about to
deal with realty; they should not close their eyes to facts that should put a
reasonable man on his guard and still claim he acted in good faith. Indeed, the
308

status of a mortgagee in good faith does not apply where the title is still in the
name of the rightful owner and the mortgagor is a different person pretending
to be the owner. In such a case, the mortgagee is not an innocent mortgagee for
value and the registered owner will generally not lose his title.

309

VAN DE BRUG v. PHILIPPINE NATIONAL BANK

G.R. No. 207004, June 6, 2018

CAGUIOA, J.

FACTS:

The late spouses Aguilar used to be borrowing clients of PNB. The late spouses
Aguilar's sugar crop loans were secured by real estate mortgage over four
registered parcels of land. However, for failure of the late spouses Aguilar to pay
their obligations with PNB, the mortgage was foreclosed in 1985 and subsequently,
ownership of the subject four pieces of property was consolidated under the name
of PNB.

With the enactment of RA 7202 and after the death of Romulus Aguilar, his spouse,
the late Evelyn Aguilar, received a letter from PNB, during which occasion it
informed the late Evelyn Aguilar that while the subject loan account was covered by
the provisions of RA 7202 and have been audited by the COA, the late Evelyn Aguilar
was still required to comply with the following matters: (1) to arrange and
implement restructuring of accounts within sixty (60) days from receipt of the
notice, (2) to signify her conformity to the computation of the account, and (3) to
submit the ten (10) year crop production for the period 1974/1975 to 1984/1985
to which plaintiffs-appellees the Aguilars claimed that they complied with, and that
subsequently, PNB furnished them with Statements of Account.

Following the Memorandum of Valuation, the Aguilars requested PNB to commence
restructuring of the loan account, and on three occasions, i.e., February 8, 2000,
March 15, 2000 and April 24, 2000, one of the children of the late spouses Aguilar,
wrote PNB and asked that they be accorded the benefits of RA 7202.

Consequently PNB replied in writing and stated, among other matters, that: "Since
PNB has already acquired the properties at the foreclosure sale, it can now exercise its
rights as owner of these properties, including the right to convey the same to the DAR
and to receive the proceeds thereof from Land Bank of the Philippines, without any
right to the excess proceeds, if any, inuring/accruing to your favor."

Hence, the case for implementation of RA 7202, with prayer for payment of
P200,000.00 moral damages, P200,000.00 exemplary damages, P100,000.00
attorney's fees plus P1,500.00 fee per appearance and P25,000.00 litigation
expenses, was filed by the Aguilars.

For its part, PNB emphasized that the Aguilars failed to comply with the
requirements enumerated. Hence, PNB argued that the Aguilars have no cause of
action against PNB because whatever rights the Aguilars have under RA 7202 were
already forfeited when they failed to comply with the requirements.

310

The RTC found PNB guilty of malice and bad faith in not pursuing its duty in helping
the Aguilars avail of the benefits of RA 7202 and, pursuant to Articles 19 and 21 of
the Civil Code, justified the award of moral and exemplary damages as well as
attorney's fees and litigation expenses in favor of the Aguilars.
Aggrieved by the RTC Decision, PNB appealed to the CA. The CA granted the appeal
and reversed the RTC Decision. The Aguilars filed a Motion for Reconsideration,
which was denied by the CA in its Resolution. Hence, The Aguilars filed their Petition
with the Court.

ISSUE:
Whether the CA erred in not including the sums and amounts which accrued to PNB
from DAR's payment on account of the properties of the Aguilars?

HELD:

NO. To this Court, this position of the Aguilars cannot be justified under RA 7202
and its IRR. To recall, Section 6 of the IRR, in part, provides that:

where sugar producers have no outstanding loan balance with said financial
institutions as of the date of effectivity of RA No. 7202 (i.e., sugar producers who
have fully paid their loans x x x through x x x foreclosure of collateral x x x), said
producers shall be entitled to the benefits of recomputation in accordance with
Sections 3 and 4 of RA No. 7202, but the said financial institutions, instead of
refunding the interest in excess of twelve (12%) per cent per annum, interests,
penalties and surcharges, apply the excess payment as an offset and/or as payment
for the producers' outstanding loan obligations. x x x

And, based on PNB's recomputation which the CA upheld, there is no excess
payment made by the late spouses Aguilar that has to be restituted to the Aguilars.

311

PHIL. NATIONAL BANK V. BACANI

G.R. No. 194983; 2018

REYES, JR., J

CASE DOCTRINE: In extrajudicial foreclosures of real estate mortgage, the debtor,
his or her successors-in-interest, or any judicial creditor or judgment creditor of
said debtor, is granted a period of one (1) year within which to redeem the
property. The redemption period is reckoned from the registration of the certificate
of sale with the Register of Deeds. When the debtor, or the successors-in-interest as
the case may be, fails to redeem the property within the prescribed statutory period,
the consolidation of ownership in favor of the purchaser becomes a matter of right.
At that point, the purchaser becomes the absolute owner of the property, and may,
as a necessary consequence, exercise all the essential attributes of ownership.

FACTS:

Respondent Rodolfo was the registered owner of a parcel of land located in Centro
East, Santiago, Isabela, the other respondents in this case were the occupants of the
subject property. The subject property was used to secure the Php80,000.00 loan
that Rodolfo and his wife, Nellie Bacani (collectively, the Spouses Bacani) obtained
from PNB. When the Spouses Bacani failed to pay their loan, PNB extrajudicially
foreclosed the subject property on September 9, 1986. It was awarded to PNB as the
highest bidder, who had a bid amount of Php148,960.74. The Spouses Bacani failed
to redeem the property. Consequently, on June 6, 1989, Rodolfo's title was
cancelled, PNB issued SEL Circular No. 8-7/89, In light of this PNB circular, the
Spouses Bacani initiated negotiations with PNB several times regarding the re-
acquisition of their property. PNB later informed the Spouses Bacani in its letter
dated December 10, 1992 that the request for repurchase was refused and instead,
the subject property would be sold in a public auction. At that time, the subject
property's fair market value was appraised at Php494,000.00.

On January 29, 1996, the Spouses Bacani received a notice from Mr. Pua that the
PNB Special Assets Management Department (SAMD) had begun to accept offers for
the purchase of various properties, including the subject property. They were
provided with copy of the Invitation to Bid, stating that the public bidding was
scheduled on February 8, 1996.

On January 30, 1996, PNB sold the subject property through a negotiated sale to
Renato de Leon (Renato), for the price of Php1,500,000.00. Pursuant to this sale, the
title of PNB was cancelled, and was issued in the name of Renato. Renato later on
filed an ejectment case against the respondents on, which was favorably granted by
the Municipal Trial Court of Santiago City. The respondents were consequently
directed to vacate the subject property, and their houses were later on demolished.
312


On March 19, 1997, the respondents filed a complaint for the annulment of the sale
and Renato's title over the subject property, together with a prayer for the payment
of damages. 21 The respondents alleged that PNB schemed to prevent the Spouses
Bacani from buying back the subject property. They also claimed that PNB's refusal
to accept their offer, and the subsequent sale of the subject property to Renato
despite its earlier scheduled auction sale, were all badges of bad faith on the part of
PNB that warrant the annulment of Renato's title and the award of damages in their
favor.

ISSUE:
1.) WON Sps. Bacani has Right to Repurchase?
2.) WON the PNB committed fraud in the invitation to bid?

HELD:

1.) It is thus settled that the buyer in a foreclosure sale becomes the absolute
owner of the property purchased if it is not redeemed during the period of one
year after the registration of the sale. As such, he is entitled to the possession of
the said property and can demand it at any time following the consolidation of
ownership in his name and the issuance to him of a new transfer certificate of
title. The buyer can in fact demand possession of the land even during the
redemption period except that he has to post a bond in accordance with Section
7 of Act No. 3135, as amended. No such bond is required after the redemption
period of the property is not redeemed. Possession of the land then becomes an
absolute right of the purchaser as confirmed owner. Upon proper application
and proof of title, the issuance of the writ of possession becomes a ministerial
duty of the court.

2.) With respect to the allegation of fraud, it is settled that fraud is never presumed
— it must be proven by clear and convincing evidence. 68 In this case, the
Spouses Bacani were unable to establish that PNB and Renato committed fraud
in the disposition of the subject property. There was no showing that PNB
assured the sale of the subject property to the Spouses Bacani during the
auction. As a matter of fact, the Spouses Bacani did not even attend the
scheduled auction sale to make an offer on the subject property. e publication
of the Invitation to Bid, which included the subject property, was not a binding
obligation on the part of PNB. Article 1326 of the Civil Code clearly provides
Advertisements for bidders are simply invitations to make proposals, and the
advertiser is not bound to accept the highest or lowest bidder, unless the
contrary appears.

313

ABACUS CAPITAL AND INVESTMENT CORPORATION, Petitioner, v. DR.

ERNESTO G. TABUJARA, Respondent.
G.R. No. 197624; July 23, 2018

TIJAM, J.

CASE DOCTRINE: Money market placement partakes of the nature of loan, Sesbreno
v. CA elucidates: In money market placement, the investor is a lender who loans his
money to a borrower through a middleman or dealer. Petitioner here loaned his
money to a borrower through Philfinance. When the latter failed to deliver back
petitioner's placement with the corresponding interest earned at the maturity date,
the liability incurred by Philfinance was a civil one. As such, petitioner could have
instituted against Philfinance before the ordinary courts a simple action for
recovery of the amount he had invested and he could have prayed therein for
damages.

FACTS:

Abacus is an investment house engaged in activities related to dealing with
securities and other commercial papers. On July 6, 2000, Tabujara engaged Abacus
as his lending agent for purposes of investing his money in the principal amount of
P3,000,000.00. Abacus, in turn, lent the P3,000,000.00 to Investors Financial
Services Corporation (IFSC, formerly CIPI Leasing and Finance Corporation) with a
term of 32 days.

After the giving the money, IFSC filed with SEC a Petition for Declaration of
Suspension of Payments resulting to Tabujara gaviving notice to Abacus and IFSC
that he is opting to pre-terminate his money placement. Unfortunately, when the
loan matured, Tabujara did not receive either the interest amount or the principal.

Tabujara filed a complaint a quo against Abacus and IFSC for collection of sum of
money with damages while by the way of defense, Abacus insisted that Tabujara
directly transacted with IFSC and that its involvement therein was limited only to
acting as collecting and paying agent for Tabujara.

ISSUE:
Whether or not Tabujara has no cause of action against Abacus because the actual
and real borrower is IFSC?

HELD:

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Abacus is the creditor and not the IFSC. Purportedly in keeping with its nature as an
investment house, Abacus claims to have facilitated Tabujara's purchase of debt
instruments issued by IFSC. According to Abacus, it merely purchased a unit of
participation in Loan Agreement No. 0003 issued by IFSC for Tabujara's account,
using the latter's money in the amount of P3,000,000.00.

As it turns out, Abacus had an existing Loan Agreement with IFSC whereby it agreed
to grant the latter a credit line facility in the amount of P700,000,000.00. By
testimonial evidence, it was established that the moneys used to fund the
P700,000,000.00 credit line facility were gathered from various sources.

That Tabujara's investment in the amount of P3,000,000.00 was used as part of the
pool of funds made available to IFSC is confirmed by the facts that it is Abacus, and
not Tabujara, which was actually regarded as IFSC's creditor in the rehabilitation
plan and that Abacus even proposed to assign all its rights and privileges in
accordance with the rehabilitation plan to its "funders" in proportion to their
participation.

As such, in a letter dated November 6, 2000, Abacus proposed passing on and
assigning to Tabujara all the proceeds and rights which it has under the
rehabilitation plan in proportion to Tabujara's principal participation in the amount
of P3,000,000.00. In other words, it was really Abacus who was the creditor entitled
to the proceeds of IFSC's rehabilitation plan - thus necessitating the assignment by
Abacus of said proceeds to the actual source of funds, Tabujara included.

315

EVELYN V. RUIZ VS. BERNARDO F. DIMAILIG

G.R. No. 204280, November 9, 2016

CASE DOCTRINE: To be a mortgagee in good faith, the innocent purchaser for value
must show that he/she purchased a property in good faith relying on the face of the
title believing that the title is clean provided that said purchaser took the necessary
steps in determining that fraud is not present.

FACTS: Bernardo is the owner of a parcel of land in Cavite where he entrusted the
owner’s copy of the said TCT to his brother Jovannie who then gave it to Editha
Sanggalang, a broker, for its intended sale. The property, however, was mortgaged
to Evelyn V. Ruiz (Evelyn) Jovannie inquired from Evelyn if Editha mortgaged
Bernardo’s property to which she confirmed and told him that she will not return
the owner’s copy of the TCT. Jovannie informed her that Bernardo’s alleged
signature in the REM was not genuine since he was abroad at the time of its
execution. Evelyn claims that she is an “innocent purchaser for value” since before
she accepted the mortgage of the subject property she went to visit the property.
She also admitted that she did not verify the neighborhood regarding the owner of
the property and the occupant thereof. Evelyn transacted only with Editha, not with
“Bernardo” throughout the negotiation despite the fact that Editha had no power of
attorney.

ISSUE: Whether or not Evelyn is a mortgagee in good faith?

HELD: No. Evelyn is not a mortgagee in good faith. During the time of its execution,
Bernardo was abroad and Jovannie informed Evelyn regarding such matter
therefore he could not have signed the REM. It being a forged instrument, the Deed
of REM is a nullity and conveys no title. To be considered as a mortgagee in good
faith, Evelyn must take the necessary steps to determine any defect in the title and if
the alleged owner of the mortgaged property is the real owner, but she did not make
sure that the person claiming to be Bernardo is not an impostor. “Bernardo’s” failure
to sufficiently establish his identity should have aroused suspicion on the part of
Evelyn whether the person she was transacting with is the real Bernardo or a mere
impostor. Lastly, even assuming that the impostor has caused the property to be
titled in his name as if he had rightful ownership thereof, Evelyn would still not be
deemed a mortgagee in good faith because “Bernardo” did not participate in the
negotiations/transactions leading to the execution of the Deed of REM and the
person she transacted was Editha who had no power of attorney. Evelyn acted with
haste in granting the loan, without first determining the ownership of the property
mortgaged, the mortgagee cannot be considered as an innocent mortgagee in good
faith.

316

Erma Industries, Inc. vs. Security Bank Corporation

G.R. No. 191274, December 6, 2017
J. Leonen

CASE DOCTRINE: Whether a penalty is reasonable or iniquitous is addressed to the sound
discretion of the courts and determined according to the circumstances of the case. The
reasonableness or unreasonableness of a penalty would depend on such factors as the type,
extent and purpose of the penalty, the nature of the obligation, the mode of breach and its
consequences, the supervening realities, the standing and relationship of parties.

Art. 1229 “The judge shall equitably reduce the penalty when the principal obligation has
been partly or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable.

FACTS: Erma Industries, Inc. obtained from Security Bank a credit facility and executed
Continuing Suretyship agreement in favor of Security Bank, and signed by Spouses Marcelo
and Spouses Ortiz. The sureties agreed to be bound by the provisions of the Credit
Agreement and to be jointly and severally liable with Erma in case the latter defaults in any
of its payments with Security Bank.

Erma obtained various peso and dollar denominated loans from Security Bank evidenced by
promissory notes.
These promissory notes uniformly contain the following stipulations:
a) Interest on the principal at varying rates (7.5% per annum for dollar obligation and
16.75% or
21% per annum on peso obligation);

b) Interest not paid when due shall be compounded monthly from due date;
c) Penalty charge of 2% per month of the total outstanding principal and interest due
and unpaid; and
d) Attorney’s fees equivalent to 20% of the total amount due plus expenses and costs
of collection.
After defaulting in the payment of the loans, Erma requested for restructuring of the whole
of Erma’s obligations and converting it into a 5-year loan. A certain property valued at ₱12
million covered by TCT No. M-7021 was offered as security. Security Bank approved the
partial restructuring of the loans or only up to ₱5 million. Security Bank demanded payment
from Erma and the sureties but they failed to pay. Security Bank filed a complaint with RTC
of Makati for payment of Erma’s outstanding obligation plus interests and penalties. Erma
requested the return of the TCT but Security Bank retained possession of it. Security filed its
Amended Complaint for Sum of Money praying that Erma, Spouses Marcelo and Spouses
Ortiz be compelled to execute a Real Estate Mortgage in its favor over the property covered
by TCT.
A counterclaim against Security Bank was included for the return of said title to its rightful
owner, Marcelo. Spouses Ortiz denied liability claiming that he signed the Suretyship
Agreement only as an accommodation party and nominal surety; and his obligation was
extinguished by novation when loan was restructured without his knowledge and consent.
RTC adjudged Erma liable to pay ₱17,995,214.47 and USD 289,730.10 inclusive of
stipulated interest and penalty plus legal interest of 12% per annum.
317


CA affirmed RTC’s decision in toto. It held that the 2% penalty per month on top of the 20%
on the peso obligation and 7.5% interest per annum on the dollar obligation was iniquitous.
It held that a straight 12% per annum interest on the total amount due would be fair and
equitable.

ISSUE: Whether the CA and RTC erred in finding that the petitioners are liable to pay
Security Bank the amounts of ₱17,995,314.47 and USD 289,730.10 inclusive of interests and
penalty charge plus legal interest 12% per annum?

RULING: No. The court find no cogent reason to disturb the sums of ₱17,995,214.47 and
USD289,730.10 adjudged against the petitioners in favor of Security Bank. Factual
determinations of the RTC, especially when adopted and confirmed by the CA, are final and
conclusive barring a showing that the findings were devoid of support or that a substantial
matter had been overlooked by the lower courts, which would have materially affected the
result if considered.
RTC did not delete altogether the 2% monthly penalty charges and stipulated interests of
7.5% on the dollar obligations and 20% on peso obligations. RTC adjudged the said amount
on the basis of Art 1308 of the Civil Code and jurisprudential pronouncements on the
obligatory force of contracts – not otherwise contrary to law, morals, good customs or
public policy – between contracting parties. The 7.5% or 21% per annum interests
constitutes monetary or conventional interest for borrowing money and is allowed under
Art. 1956 of the New Civil Code. The penalty of 2% is penalty or compensatory interest for
the delay in the payment of a fixed sum of money, which is separate and distinct from
conventional interest on the principal of the loan.
Art 1959 of the Civil Code states that “Without prejudice to the provisions of Art. 2212,
interest due and unpaid shall not earn interest. However, the contracting parties may by
stipulation capitalize the interest due and unpaid, which as added principal, shall earn new
interest.”
The RTC, as affirmed by the CA, acted in accordance with Art 1229 of the Civil Code, which
allows judges to equitably reduce the penalty when there is partial or irregular compliance
with the principal obligation, or when the penalty is iniquitous or unconscionable. Whether
a penalty is reasonable or iniquitous is addressed to the sound discretion of the courts and
determined according to the circumstances of the case. The reasonableness or
unreasonableness of a penalty would depend on such factors as the type, extent and
purpose of the penalty, the nature of the obligation, the mode of breach and its
consequences, the supervening realities, the standing and relationship of parties.

318

Spouses Chua v. United Coconut Planters Bank

G.R. No. 215999, August 16, 2017
J. Bersamin

CASE DOCTRINE: In this case, what prompted the foreclosure sale of the mortgaged
properties was petitioners’ failure to pay their obligations. When the proceeds of the
foreclosure sale were applied to their outstanding obligations, the payment of the balance of
the P68,000,000.00 was deliberately left out, and the proceeds were conveniently applied to
settle P75,000,000.00 of Revere and/or Jose Go’s unpaid obligations with UCPB. This
application was in blatant contravention of the agreement that Revere’s or Jose Go’s
obligations would be paid only if there were excess in the application of the foreclosure
proceeds. Accordingly, the CA should have applied the proceeds to the entire outstanding
obligations of petitioners, and only the excess, if any, should have been applied to pay off
Revere and/or Jose Go’s obligations.

FACTS: It is undisputed that petitioners Spouses Chua and LGCTI as well as respondents
Jose Go, had existing loan obligations with UCPB prior to the March 1997 JVA. As an offshoot
of the JVA, two deeds of trust were executed by the parties involving petitioners’ 44-hectare
property covered by 32 titles. The deeds of trust were neither expressly cancelled not
rescinded despite the fact that the project under the JVA never came to fruition. On March
21, 2000, UCPB and petitioners entered into the MOA consolidating the outstanding
obligations of the Spouses Chua and LGCTI. Petitioners exchanged their 30 parcels of land to
effectively reduce their total unpaid obligations to only P68,000,000.00. To settle the
balance, they agreed to convert it into equity in LGCTI in case they would default in their
payment. To implement the MOA, they signed the REM drafted by UCPB, which included the
properties listed in the MOA as security for the credit accommodation of P404,597,177.04.
Unknown to them, however, Jose Go, acting in behalf of Revere, likewise executed another
REM covering the properties that Revere was holding in trust for them. When UCPB
foreclosed the mortgages, it applied about P75.09 million out of the P227,700,000.00
proceeds of the foreclosure sale to the obligations of Revere and Jose Go. Moreover, UCPB
pursued petitioners for their supposed deficiency amounting to P68,000,000.00, which was
meanwhile assigned to respondent Asset Pool A by UCPB.

ISSUE: Did the REM subsist even after the foreclosure sale of the subject properties?

RULING:NO. A review of the MOA dated March 21, 2000 would reveal that petitioners’
outstanding obligation referred to, after deducting the amount of the thirty properties, was
reduced to only P68,000,000.00. To settle this balance, petitioners agreed to convert this
into equity in LGCTI in case they defaulted in their payment. In this case, what prompted the
foreclosure sale of the mortgaged properties was petitioners’ failure to pay their
obligations. When the proceeds of the foreclosure sale were applied to their outstanding
obligations, the payment of the balance of the P68,000,000.00 was deliberately left out, and
the proceeds were conveniently applied to settle P75,000,000.00 of Revere and/or Jose Go’s
unpaid obligations with UCPB. This application was in blatant contravention of the
agreement that Revere’s or Jose Go’s obligations would be paid only if there were excess in
the application of the foreclosure proceeds. Accordingly, the CA should have applied the
proceeds to the entire outstanding obligations of petitioners, and only the excess, if any,
should have been applied to pay off Revere and/or Jose Go’s obligations.

319

Rosemarie Rey vs. Cesar Anson

G.R. No. 211206
November 7, 2018
PONENTE: Peralta (Third Division)

CASE DOCTRINE:
Interest rates of 7.5% and 7% monthly are excessive, unconscionable, iniquitous,
and contrary to law and morals; and, therefore, void ab initio.

Article 1956 of the Civil Code provides that " [n]o interest shall be due unless it has
been stipulated in writing."
Article 1253 of the Civil Code states that “[i]f the debt produces interest, payment of
the principal shall not be deemed to have been made until the interests have been
covered.”

FACTS:
On August 23, 2002, Rosemarie Rey borrowed from Cesar Anson the amount of
P200,000.00 payable in one year, and subject to 7.5% interest per month. The loan
was secured by a real estate mortgage on Spouses Teodoro and Rosemarie Rey's
property. In the event of default, the Spouses Rey would pay a penalty charge of
10% of the total amount, plus 12% attorney's fees. Rosemarie Rey thereafter issued
24 postdated checks for P7,500.00 each, as well as another postdated check for the
principal amount of P200,000.00. Three days later, or on August 26, 2002,
Rosemarie Rey again borrowed from Cesar Anson P350,000.00, subject to 7%
interest per month, and payable in four months. The second loan was secured by a
real estate mortgage over a parcel of land, registered in the name of Rosemarie
Rey's mother, Isabel B. Quinto. Rosemarie Rey faithfully paid the interest on the first
loan for twelve (12) months. She was, however, unable to pay the principal amount
of P200,000.00 when it became due on August 24, 2003. She appealed to Cesar
Anson not to foreclose the mortgage or to impose the stipulated penalty charges, but
instead to extend the terms thereof. Cesar Anson agreed and Rosemarie Rey later
signed a promissory note and executed a Deed of Real Estate Mortgage, stating that
the Spouses Rey's principal obligation of P200,000.00 shall be payable in four (4)
months from the execution of the Deed of Real Estate Mortgage, and it shall be
subject to interest of 7.5% per month. These two documents cancelled, updated and
replaced the original agreement on the first loan. Rosemarie Rey once again issued
postdated checks to cover the interest payments on the amended first loan, the
latest of which was dated August 23, 2004, and another postdated check for
P200,000.00 for the principal amount. Rosemarie Rey was able to make good on her
interest payments, but thereafter failed to pay the principal amount of P200,000.00.
Anent the second loan of P350,000.00, Rosemarie Rey failed to faithfully pay
monthly interest thereon and she was unable to pay the principal amount thereof
when it became due on December 26, 2002. Rosemarie Rey appealed to Cesar Anson
not to foreclose the mortgage securing the same or to impose the penalty charges,
but instead to extend the terms thereof. Cesar Anson agreed, and the parties
executed anew a Deed of Real Estate Mortgage" wherein Rosemarie Rey
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acknowledged her indebtedness to Cesar Anson in the amount of P611,340.00,

payable within four months from the execution of the Deed of Real Estate Mortgage,
and subject to 7% interest per month. Four months thereafter, Rosemarie Rey again
failed to fulfill her obligation on the second loan. The same was extended once more
in a Deed of Real Estate Mortgage" dated June 19, 2003 wherein Rosemarie Rey
acknowledged indebtedness to Cesar Anson in the amount of P761,450.00, payable
within six months from the execution of the Deed of Real Estate Mortgage, and
subject to the same 7% interest per month. On February 24, 2004, Rosemarie Rey
obtained a third loan from Cesar Anson in the amount of Pl00,000.00. The third loan
was not put in writing, but the parties verbally agreed that the same would be
subject to 3% monthly interest. A week later or on March 2, 2004, Rosemarie Rey
obtained a fourth loan from Cesar Anson for P100,000.00. It was also not put in
writing, but there was an oral agreement of 4% monthly interest. On February 25,
2005, Cesar Anson sent Rosemarie Rey a Statement of Account" seeking full
payment of all four loans amounting to P2,214,587.50. Instead of paying her loan
obligations, Rosemarie Rey, through counsel, sent Cesar Anson a letter dated August
8, 2005, stating that the interest rates imposed on the four loans were irregular, if
not contrary to law. The 7.5% and 7% monthly interest rates imposed on the first
and second loans, respectively, were excessive and unconscionable and should be
adjusted to the legal rate. Moreover, no interest should have been imposed on the
third and fourth loans in the absence of any written agreement imposing interest.
Per Rosemarie Rey's computation using the legal rate of interest, all four loans were
already fully paid, as well as the interests thereon. Rey contended that she had
overpaid the amount of P283,434.19. She demanded from Cesar Anson the return of
the excess payment; otherwise, she would be compelled to seek redress in court. On
August 16, 2005, the Spouses Rey and Isabel Quinto filed a Complaint for
Recomputation of Loans and Recovery of Excess Payments and Cancellation of Real
Estate Mortgages and Checks against Cesar Anson with the RTC of Legazpi City. RTC
ruled for Spouses Rey. CA reversed.

ISSUE;
1.) WoN the interest rates on the first and second loans are unconscionable and
contrary to morals
2.) WoN the interest rates on the third and fourth loans are valid
3.) WoN the computation of payment of interest and the principal amount is correct
in Loan 1 and Loan 2
4.) WoN Anson is liable to pay interest on the overpayment made by Rey

RULING:
1.) YES. As case law instructs, the imposition of an unconscionable rate of interest
on a money debt, even if knowingly and voluntarily assumed, is immoral and unjust.
o In this case, the first loan had a 7.5% monthly interest rate or 90% interest per
annum, while the second loan had a 7% monthly interest rate or 84% interest per
annum, which rates are very much higher than the 3% monthly interest rate
imposed in Ruiz v. Court of Appeals and the 5% monthly interest rate imposed in
Sps. Albos v. Sps. Embisan, et al. Based on the ruling of the Spouses Albos case, the
321

Court holds that the interest rates of 7.5% and 7% are excessive, unconscionable,
iniquitous, and contrary to law and morals; and, therefore, void ab initio. Hence, the
Court of Appeals erred in sustaining the imposition of the said interest rates, while
the RTC correctly imposed the legal interest of 12% per annum in place of the said
interest rates.

2.) NO. Anent the third and fourth loans both in the amount of P100,000.00, the
Court of Appeals correctly held that as the agreement of 3% monthly interest on the
third loan and 4% monthly interest on the fourth loan was merely verbal and not
put in writing, no interest was due on the third and fourth loans. This is in
accordance with Article 1956 of the Civil Code which provides that " [n]o interest
shall be due unless it has been stipulated in writing." Hence, the payments made as
of March 18, 2005 in the third loan amounting to P141,360.00 resulted in the
overpayment of P41,360.00. Moreover, the payments made as of February 2, 2005
in the fourth loan amounting to P117,960.00 resulted in an overpayment of
P17,960.00. Consequently, as found by the Court of Appeals, there was a total
overpayment of P59,320.00 for the third and fourth loans.

3.) YES. Rey contends that the manner by which the RTC recomputed the four loans
after the reduction of the interest rates to 12% per annum was erroneous and
contrary to law. It did not take into consideration the principle that each particular
payment should be applied and credited on the precise time it is made, to be applied
first on the interest and thereafter on the principal of the loan, pursuant to Article
1253 of the Civil Code. Thus, Rey contends that she has made excess payments for
the four loans in the total sum of P269,700.68, which ought to be returned by Cesar
Anson in accordance with the principle of solutio indebiti under Article 2154 of the
Civil Code. The Court agrees with Rey that Articles 1253 and 2154 of the Civil Code
apply to this case, and Cesar Anson is obliged to return to Rey excess payments
received by him. Article 1253 of the Civil Code states that “[i]f the debt produces
interest, payment of the principal shall not be deemed to have been made until the
interests have been covered.” The Court reviewed the computation above made by
Rey for Loan 1 and Loan 2, and found the computation to be correct. The Court finds
that in Loan 1, Rey already paid in full the principal amount of P200,000.00
and monthly interest thereon on November 8, 2003, leaving an excess payment of
P1,759.64. Further payments made by Rey from November 23, 2003 to August 23,
2004 resulted in overpayment amounting to P144,259.64. The excess payment of
P9,259.64 as of November 23, 2003 plus excess payments made from December 23,
2003 to April 23, 2004 amounting to P84,259.64 in Loan 1 may be applied to Loan 2,
leaving a final excess payment of P60,000.00 for Loan 1. As regards Loan 2, Rey fully
paid the principal amount of P350,000.00 and monthly interest thereon on May 26,
2004, leaving an excess payment of P31,856.68. Payments made thereafter, from
June 26, 2004 to September 26, 2004, resulted in excess payments amounting to
Pl50,380.68 for Loan 2. Rey also made excess payments of P41,360.00 in Loan 3, and
P17,960.00 in Loan 4. Hence, the total excess payments made by Rey in the four
loans amounted to P269,700.68 Since Cesar Anson received a total overpayment of
322

P269,700.68 from Rey, he is obliged to return the amount in accordance with the
principle of solutio indebiti under Article 2154 of the Civil Code, to wit:
Article 2154. 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.

4.) YES. In this case, the excess payments made by Rey were also borne out of a
mistake that they were due; hence, the Court deems it in the better interest of equity
not to hold Cesar Anson liable for interest on the excess payments. Nevertheless, an
interest at the rate of 6% per annum is imposable on the total judgment award
pursuant to Nacar v. Gallery Frames, et al., which held that "[w]hen the judgment of
the court awarding a sum of money becomes final and executory, the rate of legal
interest x xx shall be 6% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit.
Decision of CA REVERSED AND SET ASIDE.

323

SPS. FLAVIO P. BAUTISTA AND ZENAIDA L. BAUTISTA v. PREMIERE

DEVELOPMENT BANK, GR No. 201881, Sep 05, 2018
BERSAMIN, J.

DOCTRINE:
The publication and posting of the notice of the rescheduled extrajudicial
foreclosure sale are
mandatory and jurisdictional. The ensuing foreclosure sale held without the
publication and posting of the notice is void ab initio. This is because the
requirements of publication and posting emanate from public policy considerations,
and are not for the benefit of the parties to the mortgage. Act No. 3135 prescribes
the requirements of posting and publication of the notice for the extrajudicial
foreclosure sale. The law specifically mandates the publication of the notice in a
newspaper of general circulation for at least three consecutive weeks if the value of
the property is more than P400,000.00.

FACTS:

The petitioners are the registered owners of the parcel of land located in Rodriguez,
Montalban, Rizal, with an area of 1,248 square meters, and covered by Transfer
Certificate of Title (TCT) No. 150668 of the Registry of Deeds of Marikina City.

On January 7, 1994, the petitioners obtained a loan of P500,000.00 from respondent
Premiere Development Bank (Premiere Bank) for which they executed the
corresponding promissory note. To secure the performance of their obligation, they
also executed a real estate mortgage over the above stated parcel of land and its
improvements. The loan agreement stipulated that the obligation would be payable
in three years through monthly amortizations of P20,412.51, subject to interest and
penalty charges.

For failure of the petitioners to settle their obligation in full, the sheriff sent the first
notice of extrajudicial foreclosure sale to them. The sheriff posted the notice of the
sale in public places within San Mateo, Rizal and in the place where the property
was located. However, the sale did not push through as scheduled because the
representative of Premiere Bank did not appear.

Although no publication and posting of the notice of the rescheduled date of
February 18, 2002 were made thereafter, the sheriff conducted the foreclosure sale
on February 18, 2002, and struck off the property of the petitioners to Premiere
Bank as the lone bidder. The sheriff issued the certificate of sale in the name of
Premiere Bank.

The petitioners redeemed the property within the required period by tendering the
amount of P401,820.00. The sheriff issued the certificate of redemption in their
name, but Premiere Bank refused to accept the redemption price because their total
unpaid outstanding obligation. Premiere Bank then consolidated its ownership, and
324

the Register of Deeds of Marikina Cityissued TCT No. 452198 in the name of
Premiere Bank.

RTC rendered judgment dismissing the petitioners; complaint. In upholding the
extrajudicial foreclosure sale despite the lack of publication and posting of the
notice of the public sale.

CA promulgated the assailed decision, affirming the validity of the February 18,
2002
foreclosure sale despite the non-posting and non-publication of the notice of the
rescheduled sale.

ISSUE:
Whether or not the CA erred in declaring that the extrajudicial foreclosure sale was
valid
despite the failure to publish and post the notice of the rescheduled foreclosure sale.

RULING:
The extrajudicial foreclosure sale held on February 18, 2002 was void ab initio.

Act No. 3135 prescribes the requirements of posting and publication of the notice
for the
extrajudicial foreclosure sale. The law specifically mandates the publication of the
notice in a newspaper of general circulation for at least three consecutive weeks if
the value of the property is more than P400,000.00.

The sale set on January 15, 2002 did not push through because the representative of
Premiere Bank did not appear, and was rescheduled to February 18, 2002.
Thereafter, the notice for the rescheduled foreclosure sale was not posted and
published as required by Act No. 3135.

325

G.R. No. 230144 THE MANILA BANKING CORPORATION,Petitioner vs. BASES

CONVERSION AND DEVELOPMENT AUTHORITY, Respondent, January 22, 2018
VELASCO, JR., J

Doctrine:
the issuance of BSP-MB Circular No. 799, Series of 2013, however, which became
effective on July 1, 2013, in the absence of an express stipulation as to the rate of
interest that would govern the parties, the rate of legal interest for loans or
forbearance of any money, goods or credits and the rate allowed in judgments shall
no longer be twelve percent (12%) per annum but shall now be six percent (6%)
per annum effective July 1, 2013. Consequently, the twelve percent (12%) per
annum legal interest shall apply only until June 30, 2013, and from July 1, 2013 the
new rate of six percent (6%) per annum shall be the prevailing rate of interest when
applicable.

Facts:
Respondent Bases Conversion and Development Authority ("BCDA") was created as
a government corporation on March 13, 1992 by virtue of Republic Act No. 7227
(RA 7227). It is tasked mainly to manage the Clark and Subic military
reservations/camps and their extensions and to adopt and implement a
comprehensive development plan for their conversion into productive uses, with a
view to promoting the economic and social development of the country (Section 4,
RA 7227). Among the powers expressly granted to it is the power to exercise the
right of eminent domain (Section 5[k]).

BCDA filed a complaint against herein petitioner The Manila Banking Corporation
("TMBC") and Bangko Sentral ng Pilipinas ("BSP"), seeking to expropriate a parcel of
land registered in the name of TMBC with a total area of Ten Million Two Hundred
Forty Thousand square meters (10,240,000 sq.m.) situated in Pampanga. The area
to be affected by expropriation was estimated to be One Hundred Eighty-Six
Thousand Three Hundred Fifty-Five square meters (186,355 sq.m.), more or less.
BCDA also alleged that the subject property was classified as agricultural land and
had the zonal value of P30 per square meter at the time of filing of the complaint.

According to BCDA, the subject property was being expropriated to pave the way for
the implementation of the Subic-Clark-Tarlac Expressway (SCTEX) Project of the
national government.

BCDA prayed for the issuance of a writ of possession upon payment to the
landowner of an amount equivalent to 100% of the value of the subject property
based on the current zonal valuation, pursuant to Section 4(a) of RA 7227, and
thereafter, an order of expropriation requiring the defendants to answer within the
time specified in the summons and authorizing BCDA to take the property sought to
be expropriated for public purpose as stated in the complaint.
326


Prior to the filing of the complaint, it appears that the property was the subject of a
Dacion En Pago Con Pacto de Retro agreement between TMBC and the Central Bank
Board of Liquidators ("CB-BOL"). Pursuant to a revised repayment plan, TMBC
delivered several properties in settlement of the balance of its debt to CB-BOL
amounting to ₱2,265,953,378.83. Then CB-BOL assigned all its rights and interests
under the Dacion agreement in favor of the BSP. Thus, BSP sought the release of
100% of the value of the property based on the current zonal valuation of the
Bureau of Internal Revenue ("BIR"), in accordance with Section 2, Rule 67 of the
1997 Rules of Procedure. TMBC opposed the motion and the issue was submitted
for resolution at the trial during the pre-trial conference.

Records also reveal that a Final Offer to Buy was sent by BCDA to TMBC, whereby
BCDA offered the price of P75 per square meter for the subject property.

BCDA deposited the amount of Five Million Five Hundred Ninety Thousand and Six
Hundred Fifty Pesos (₱5,590,650) before the Office of the Clerk of Court of Angeles,
Pampanga. This amount was equivalent to the value of the actual affected area of the
subject property based on the then current zonal valuation provided by the BIR.

The trial court issued a writ of possession and the subject property was placed in
the possession of BCDA.

Ruling of the Court of Appeals: ruling in favor of respondent BCDA.

#The dispositive portion:

Just compensation for the portions of the property of The Manila Banking
Corporation consisting of 173,059 square meters, expropriated by BCDA for the
SCTEX Project, is hereby fixed at Php75.00 per square meter, or a total of Twelve
Million Nine Hundred Seventy Nine Thousand Four Hundred Twenty Five Pesos
(Php12,979,425.00). Since BCDA already deposited the amount of Five Million Three
Hundred Sixty Six Thousand and Ten Pesos (Php5,366,010.00), BCDA is DIRECTED
to pay to TMBC the balance of Seven Million Six Hundred Thirteen Thousand Four
Hundred Fifteen Pesos (Php7,613,415.00), which shall earn interest at the rate of
12% per annum from November 21, 2003 up to June 30, 2013, and 6% per annum
from July 1, 2013 until fully paid. Said amount shall further earn interest at 6% per
annum from the date of the finality of this Decision until full payment.

Issue:
Whether the Court of Appeals was correct in imposing an interest rate of 12% per
annum from November 21, 2003 up to June 30, 2013, and 6% per annum from July
1, 2013 until full payment.
327


Held: YES

The Court of Appeals committed no reversible error in modifying the interest rates
to be imposed on the just compensation

For the final issue raised by petitioner, it argues that the award of interest of 6% per
annum as imposed under the BSP - Monetary Board (BSP-MB) Circular No. 799,
Series of 2013, should only be reckoned from the date of finality of judgment and
not from July 1, 2013 as ruled by the CA.

Petitioner is mistaken.

In the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals, the Court
laid down the guidelines regarding the manner of computing legal interest,
particularly declaring that when judgments of the court awarding a sum of money
become final and executory, the rate of legal interest shall be 12% per annum from
such finality until its satisfaction, since this interim period is deemed to be by then
an equivalent to a forbearance of credit.

With the issuance of BSP-MB Circular No. 799, Series of 2013, however, which
became effective on July 1, 2013, in the absence of an express stipulation as to the
rate of interest that would govern the parties, the rate of legal interest for loans or
forbearance of any money, goods or credits and the rate allowed in judgments shall
no longer be twelve percent (12%) per annum but shall now be six percent (6%)
per annum effective July 1, 2013. Consequently, the twelve percent (12%) per
annum legal interest shall apply only until June 30, 2013, and from July 1, 2013 the
new rate of six percent (6%) per annum shall be the prevailing rate of interest when
applicable.

In the recent case of Secretary of the Department of Public Works and Highways v.
Spouses Tecson, the Court explained:

Lastly, from finality of the Court's Resolution on reconsideration until full payment,
the total amount due to respondents-movants shall earn a straight six percent (6%)
legal interest, pursuant to Circular No. 799 and the case of Nacar. Such interest is
imposed by reason of the Court's decision and takes the nature of a judicial debt.
Clearly, the award of interest on the value of the land at the time of taking in 1940
until full payment is adequate compensation to respondents movants for the
deprivation of their property without the benefit of expropriation proceedings. Such
interest, however meager or enormous it may be, cannot be inequitable and
unconscionable because it resulted directly from the application of law and
jurisprdence-standards that have taken into account fairness and equity in setting
the interest rates due for the use or forbearance of money. Thus, adding the interest
328

computed to the market value of the property at the time of taking signifies the real,
substantial, full and ample value of the property. Verily, the same constitutes due
compliance with the constitutional mandate on eminent domain and serves as a
basic measure of fairness.

From the foregoing, it is clear that the CA was correct in imposing an interest on the
just compensation at the rate of 12% per annum from November 21, 2003 up to
June 30, 2013, and 6% per annum from July 1, 2013 until full payment.

WHEREFORE, the petition is DENIED. The Decision dated October 26, 2016 and the
Resolution dated February 22, 2017 of the Court of Appeals in CA-G.R. CV No.
104234 are hereby AFFIRMED.

SO ORDERED.

329

Gopio v. Bautista; GR No. 205953; June 6, 2018

Ponente: J. Jardeleza

Doctrine:
Torts and Damages -- The [employment or recruitment agency] is not only an agent
of the [foreign-based employer], but is also solidarily liable with the foreign
principal for any claims of liabilities arising from the dismissal of the of the worker.

Section 10 of R.A. No. 8042 provides:

any and all claims under this section shall be joint and several. Xxx

Facts:
Salvador Bautista has been hired as a Project Manager for Shorncliffe (PNG) Limited
in Papua New Guinea through Job Asia Management Services, a single
proprietorship owned by Dionella Gopio, which is engaged in the the business of
recruiting of land-based manpower for overseas.
Bautista has been notified on July 6, 2009 that his services will be terminated
effective on the close of business hours on July 10, 2009, allegedly because his
performance was "unsatisfactory and did not meet the standards of the Company."
He has also been paid one-month salary in lieu of one month's notice of the
termination of his employment. Thus, he has lodged a complaint with the Labor
Arbiter (LA) for illegal dismissal.

LA- has declared that Bautista was illegally dismissed: dismissal is not proven for
just cause and due process has not been observed.
National Labor Relations Commission (NLRC) - has set aside the decision of the LA:
parties are bound by the terms and conditions of the contract that bore the stamp of
the POEA. There has been unsatisfactory performance and incompetence on the part
of Bautista.
Court of Appeals (CA) - has set aside the decision of the NLRC: there have been no
proof to back the claim of performance below standards.
Supreme Court - has upheld the decision of the CA: Bautista has been illegally
dismissed because due process has not been observed - twin notice rule and his
security of tenure have been violated. He has to be indemnified by the principal
and/or the recruitment agency, to which the agency is arguing against because it
had no control over the manner and implementation of the contract, had no hand in
the dismissal, and its agency had been extinguished upon the deployment of the
worker.

Issue/s:
Whether the recruitment agency is liable to pay the monetary claims of Bautista.

Ruling:
330

Yes.
Section 10 of R.A. No. 8042 provides:

any and all claims under this section shall be joint and several. Xxx

WHEREFORE, the petition is DENIED. Petitioner is ordered to pay respondent:
1 Reimbursement of respondent's placement fee with interest at the rate of 12%
per annum;
2
3 Two Million Five Hundred Forty-Eight Thousand Seven Hundred Pesos
(P2,548,700.00) representing Bautista's salaries for the unexpired portion of his
contract;
4
5 Moral damages in the amount of One Hundred Fifty Thousand Pesos
(P150,000.00);
6
7 Exemplary damages in the amount of One Hundred Fifty Thousand Pesos
(P150,000.00); and
8
9 Attorney's fees at the rate of 10% of the monetary award exclusive of damages
and reimbursement of placement fee in the amount of Two Hundred Fifty-Four
Thousand Eight Hundred Seventy Pesos (P254,870.00).

All monetary awards and damages (except reimbursement of placement fee) shall
earn 6% interest from finality of this judgment until fully paid

331

TORREON VS. APARRA, JR.,

GR No. 188493, December 13, 2017.
Leonen, J.

DOCTRINE:
Simolde's testimony proves his failure to supervise his employees. His failure to
control the behavior of his employees makes him liable for the consequences of
their actions. Thus, Simolde is solidarity liable with Caballes and Aparra for the
payment of the damages granted by law. The Civil Code holds Simolde liable for the
damages that his actions have caused. Article 2206 specifically applies when a death
occurs as a result of a crime or a quasi-delict: Article 2206. The amount of damages
for death caused by a crime or quasi-delict shall be at least Three thousand pesos,
even though there may have been mitigating circumstances. In addition: (1) The
defendant shall be liable for the loss of the earning capacity of the deceased, and the
indemnity shall be paid to the heirs of the latter; such indemnity shall in every case
be assessed and awarded by the court, unless the deceased on account of permanent
physical disability not caused by the defendant, had no earning capacity at the time
of his death; Civil or death indemnity is mandatory and granted to the heirs of the
victim without need of proof other than the commission of the crime.

FACTS:
On November 1, 1989, Vivian's husband, Rodolfo Torreon (Rodolfo), and
daughters, Monalisa Torreon (Monalisa) and Johanna Ava Torreon (Johanna),
arrived with Felomina Abellana (Abellana) at the municipal wharf of Jetafe, Bohol.
They came from Cebu City aboard M/B Island Traders, a motor boat owned and
operated by Carmelo Simolde (Simolde). After they disembarked from the motor
boat, they looked for a vehicle that would transport them from the wharf to the
poblacion of Jetafe. A cargo truck entered the wharf and their fellow passengers
boarded it. Abellana, Rodolfo, and his daughters chose not to board the already-
overcrowded truck. Instead, they waited for a different vehicle to bring them to the
poblacion. However, they were informed that only the cargo truck, which was also
owned and operated by Simolde, would enter the wharf.

Approximately 10 minutes later, the same cargo truck returned to the wharf.
Again, fellow passengers from M/B Island Traders started embarking it. This time,
Rodolfo, Monalisa, Johanna, and Abellana also boarded it. Abellana was seated in
front, while Rodolfo and his daughters were with the rest of the passengers at the
back of the truck. Because there were no proper seats at the back of the truck, the 30
or more passengers were either standing or sitting on their bags. While passengers
were getting on the truck, Simolde called Felix Caballes (Caballes), the official truck
driver. Caballes approached Simolde but left the engine running. While Simolde and
Caballes were talking, Generoso Aparra, Jr. (Aparra), Simolde's chief diesel
mechanic, started driving the truck. Upon seeing the truck move, Caballes rushed to
the truck and sat beside Aparra. However, instead of taking control of the vehicle,
Caballes allowed Aparra to drive

332

Shortly thereafter, Aparra maneuvered the truck to the right side of the road
to avoid hitting a parked bicycle. But as he turned, Aparra had to swerve to the left
to avoid hitting Marcelo Subiano, who was allegedly standing on the side of the road.
Because the road was only four (4) meters and 24 inches wide, rough, and full of
potholes, Aparra lost control of the truck and they fell off the wharf. Consequently,
Rodolfo and Monalisa died while Johanna and Abellana were injured. On April 3,
1990, Vivian and Abellana filed a criminal complaint for Reckless Imprudence
resulting to Double Homicide, Multiple Serious Physical Injuries and Damage to
Property against Aparra and Caballes

On January 4, 1991, Vivian and Abellana filed a separate complaint for
damages against Simolde, Caballes, and Aparra.
Regional Trial Court: Caballes and Aparra committed acts constituting a
quasi-delict. Since these acts were the proximate cause of the deaths of Rodolfo and
Monalisa and the injuries sustained by Abellana and Johanna, Simolde, Caballes, and
Aparra were held liable for damages

Court of Appeals: Simolde is solidarity liable with Caballes and Aparra.
According to the Court of Appeals, Caballes and Aparra were clearly negligent in
transporting the passengers. Given that the road was narrow and fall of pot holes, it
was apparent that an experienced driver was needed to safely navigate the vehicle
out of the wharf. In allowing Aparra to drive the truck despite having only a student
driver's permit, Caballes risked the lives of the passengers on board the truck. The
Court of Appeals also held Simolde solidarity liable with his employees for failing to
exercise due diligence in supervising them. However, the Court of Appeals deleted
the award of actual damages for Rodolfo's loss of earning capacity. According to the
Court of Appeals, documentary evidence should be presented to substantiate a claim
for loss of earning capacity.

Petitioner Vivian argues that the Court of Appeals gravely erred in deleting
the compensatory damages awarded for Rodolfo's loss of earning capacity. She
posits that Abellana's testimony is enough to prove Rodolfo's income. As Rodolfo's
employer, Abellana had direct and personal knowledge of the compensation that he
was receiving prior to his death; thus, she is qualified to testify on his income.
Petitioner Vivian cites Philippine Airlines, Inc. v. Court of Appeals to point out that
the Court of Appeals gravely erred in concluding that Abellana's testimony, without
any documentary evidence, did not suffice to claim damages for lack of earning
capacity. Based on Abellana's testimony, Rodolfo had an estimated gross monthly
income of P15,000.00 or an annual gross income of P195,000.00. Using the formula
laid down in Negros Navigation Co., Inc. v. Court of Appeals, Rodolfo's lost earnings
would amount to P2,079,675.00.

ISSUE:
Whether or not actual damages for loss of earning capacity should be
awarded to petitioner Vivian B. Torreon.

333

RULLING:
YES.

Instead of helping his defense, Simolde's testimony proves his failure to
supervise his employees. Simolde should have been more diligent in ensuring that
his employees acted within the parameters of their jobs. He should have taken steps
to ensure that his instructions were followed. His failure to control the behavior of
his employees makes him liable for the consequences of their actions. Thus, Simolde
is solidarity liable with Caballes and Aparra for the payment of the damages granted
by law. The Civil Code holds Simolde liable for the damages that his actions have
caused. Article 2206 specifically applies when a death occurs as a result of a crime
or a quasi-delict: Article 2206. The amount of damages for death caused by a crime
or quasi-delict shall be at least Three thousand pesos, even though there may have
been mitigating circumstances. In addition: (1) The defendant shall be liable for the
loss of the earning capacity of the deceased, and the indemnity shall be paid to the
heirs of the latter; such indemnity shall in every case be assessed and awarded by
the court, unless the deceased on account of permanent physical disability not
caused by the defendant, had no earning capacity at the time of his death; Civil or
death indemnity is mandatory and granted to the heirs of the victim without need of
proof other than the commission of the crime.

Initially fixed by the Civil Code at P3,000.00, the amount of the indemnity is
currently fixed at P50,000.00. Thus, respondents are liable to pay Rodolfo's heirs
P50,000.00. They are liable to pay another P50,000.00 to answer for the death of
Monalisa. In Pestaño v. Spouses Sumayang, this Court applied Article 2206 of the
Civil Code and awarded compensation for the deceased's lost earning capacity in
addition to the award of civil indemnity. The indemnity for the deceased's lost
earning capacity is meant to compensate the heirs for the income they would have
received had the deceased continued to live. It is well-settled in jurisprudence that
the factors that should be taken into account in determining the compensable
amount of lost earnings are: (1) the number of years for which the victim would
otherwise have lived; and (2) the rate of loss sustained by the heirs of the deceased.
Jurisprudence provides that the first factor, i.e., life expectancy, is computed by
applying the formula (2/3 x [80 - age at death]) adopted in the American Expectancy
Table of Mortality or the Actuarial Combined Experience Table of Mortality. As to
the second factor, it is computed by multiplying the life expectancy by the net
earnings of the deceased, i.e., the total earnings less expenses necessary in the
creation of such earnings or income and less living and other incidental expenses.
The net earning is ordinarily computed at fifty percent (50%) of the gross earnings.
Thus, the formula used by this Court in computing loss of earning capacity is: Net
Earning Capacity = [2/3 x (80 - age at time of death) x (gross annual income -
reasonable and necessary living expenses)].[64] (Emphasis supplied, citations
omitted). It has been consistently held that earning capacity, as an element of
damages to one's estate for his death by wrongful act is necessarily his net earning
capacity or his capacity to acquire money, "less the necessary expense for his own
living." Stated otherwise, the amount recoverable is not loss of the entire earning,
334

but rather the loss of that portion of the earnings which the beneficiary would have
received. In other words, only net earnings, not gross earning, are to be considered
that is, the total of the earnings less expenses necessary in creation of such earnings
or income and less living and other incidental expenses. The formula provided in
these cases is presumptive, i.e., it should be applied in the absence of proof in terms
of statistics and actuarial presented by the plaintiff. The Court of Appeals deleted
the award of actual damages granted to petitioner for Rodolfo's lost earnings.
According to the Court of Appeals, documentary evidence should be presented to
substantiate a claim for the deceased's lost income. The Court disagrees. In civil
cases, Vivian is only required to establish her claim by a preponderance of evidence.
Allowing testimonial evidence to prove loss of earning capacity is consistent with
the nature of civil actions.

335

People vs. Divinagracia

GR No. 207765, July 26, 2017
PONENTE: Leonen, J.
DOCTRINE:
Civil indemnity ex delicto, as a form of monetary restitution or compensation to the
victim, attaches upon a finding of criminal liability because "[e]very person
criminally liable for a felony is also civilly liable."

On the other hand, moral damages are treated as "compensatory damages awarded
for mental pain and suffering or mental anguish resulting from a wrong." The award
of moral damages is meant to restore the status quo ante; thus, it must be
commensurate to the suffering and anguish experienced by the victim.

Finally, exemplary or corrective damages are imposed as an example to the public,
serving as a deterrent to the commission of similar acts. Exemplary damages are
also awarded as a part of the civil liability may be imposed when the crime was
committed with one or more aggravating circumstances.

FACTS:
Divinagracia and CCC were husband and wife with seven (7) children. The family
lived in a one (1)-room house at Jagobiao, Mandaue City near the boundary of
Riverside, Consolacion. Sometime in November 1996, Divinagracia and CCC
quarrelled, prompting CCC to leave and spend the night at her sibling's house. Their
daughters AAA and BBB were then left by themselves since their other siblings were
either at their grandmother's house or with their friends.

Later that evening, while AAA and BBB were sleeping side by side inside their house,
BBB suddenly woke up to her father's tight embrace from behind and felt him
roughly running his hand over her leg and breasts. BBB then felt her father poking
his hard penis against her buttocks. BBB begged her father to stop, saying that she
still had to go to school the following day. Divinagracia moved away from BBB and
went out of the house. BBB was nine (9) years old at that time. A few minutes later,
Divinagracia went back inside the house and lay down beside AAA. AAA woke up
and asked her father where her mother was. Divinagracia pinched her ear and
ordered her to keep quiet. Divinagracia pulled AAA towards him and made her face
him. Divinagracia pulled down AAA's shorts and put his finger inside her vagina.
Afterwards, Divinagracia got on top of AAA and inserted his penis inside her vagina.
AAA's father then continued to molest her. AAA was eight (8) years old at that time.

336

On January 19, 1999, or a little over two (2) years after the incident, Sister Mary Ann
Abuna (Sister Mary Ann), CCC's sister and a nun, visited her family in Cebu. That
same day, AAA told Sister Mary Ann that she wanted to stop her schooling and
begged to go with her back to Manila because she did not want to see her father
anymore. Sister Mary Ann asked the sisters to leave Cebu and go back with her to
Manila to prevent their father from further molesting them. She brought AAA, BBB,
their other sister, and CCC back with her to Manila. A few days later they all went to
Pampanga where Sister Mary Ann was a missionary.

While in Pampanga, their mother came to fetch her daughters. AAA then went to
Sister Mary Ann and declared that if CCC would return to Cebu, she would not go
back with her. It was at this point that AAA opened up to Sister Mary Ann about the
sexual abuse she suffered from her father. Sister Mary Ann brought AAA to the
Hospital Ning in Angeles City to be examined by a doctor. After examining AAA, Dr.
Lauro C. Biag (Dr. Biag) issued a medical certificate, a portion of which read:
Genitalia: labia majora/minora - well coaptated.
Hymen: orifice 0.7 cm old healed complete laceration on 11, 8, 2 o'clock.
old healed incomplete laceration 5 & 10 o'clock.
(-) abrasion, (-) hematoma, (-) discharge[26]
Sister Mary Ann helped the girls file their respective complaints against their father.
At first, BBB was hesitant to file a complaint but she finally agreed because AAA
would not stop crying and was always afraid.
Regional Trial Court’s Decision: Guilty beyond reasonable doubt of rape and acts of
lasciviousness
Court of Appeal’s Decision: Appeal was denied and affirmed in toto the decision of
the Regional Trial Court
Issue: Whether or not the private complainants should be awarded civil indemnities
Ruling: Yes
Civil indemnity ex delicto, as a form of monetary restitution or compensation to the
victim, attaches upon a finding of criminal liability because "[e]very person
criminally liable for a felony is also civilly liable."
On the other hand, moral damages are treated as "compensatory damages awarded
for mental pain and suffering or mental anguish resulting from a wrong." The award
of moral damages is meant to restore the status quo ante; thus, it must be
commensurate to the suffering and anguish experienced by the victim.
Finally, exemplary or corrective damages are imposed as an example to the public,
serving as a deterrent to the commission of similar acts. Exemplary damages are
also awarded as a part of the civil liability may be imposed when the crime was
committed with one or more aggravating circumstances.

337


ABROGAR V. COSMOS BOTTLING AND INTERGA
PONENTE: BERSAMIN

DOCTRINE:
A. The test by which to determine the existence of negligence in a 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
B. In order to establish his right to a recovery, must establish by competent
evidence:
(1) Damages to the plaintiff.
(2) Negligence by act or omission of which defendant personally or some person
for whose acts it must respond, was guilty.
(3) The connection of cause and effect between the negligence and the damage.
To be considered the proximate cause of the injury, the negligence need not be the
event closest in time to the injury; a cause is still proximate, although farther in time
in relation to the injury, if the happening of it set other foreseeable events into
motion resulting ultimately in the damage
C. As a defense in negligence cases, therefore, the assumption of risk doctrine
requires the concurrence of three elements, namely: (1) the plaintiff must know that
the risk is present; (2) he must further understand its nature; and (3) his choice to
incur it must be free and voluntary.
D. Compensation of this nature is awarded not for loss of earnings but for loss of
capacity to earn money. Evidence must be presented that the victim, if not yet
employed at the time of death, was reasonably certain to complete training for a
specific profession. Compensation should be allowed for loss of earning capacity
resulting from the death of a minor who has not yet commenced employment or
training for a specific profession if sufficient evidence is presented to establish the
amount thereof.
FACTS:
This case involves a claim for damages arising from the negligence causing the death
of a participant in an organized marathon bumped by a passenger jeepney on the
route of the race.
To promote the sales of "Pop Cola", defendant Cosmos, jointly with Intergames,
organized an endurance running contest billed as the "1st Pop Cola Junior
Marathon”. The organizers plotted a 10-kilometer course starting from the premises
of the Interim Batasang Pambansa (IBP for brevity), through public roads and
streets, to end at the Quezon Memorial Circle. Plaintiffs' son Rommel applied with
the defendants to be allowed to participate in the contest and after complying with
defendants' requirements, his application was accepted and he was given an official
number. Rommel joined the other participants and ran the course plotted by the
338

defendants. As it turned out, the plaintiffs further alleged, the defendants failed to
provide adequate safety and precautionary measures and to exercise the diligence
required of them by the nature of their undertaking, in that hey failed to insulate
and protect the participants of the marathon from the vehicular and other dangers
along the marathon route. Rommel was bumped by a jeepney that was then running
along the route of the marathon on Don Mariano Marcos Avenue (DMMA for
brevity), and in spite of medical treatment given to him at the Ospital ng Bagong
Lipunan, he died later that same day due to severe head injuries. The petitioners
sued the respondents in the then Court of First Instance of Rizal (Quezon City) to
recover various damages for the untimely death of Rommel (i.e., actual and
compensatory damages, loss of earning capacity, moral damages, exemplary
damages, attorney's fees and expenses of litigation). Cosmos denied liability,
insisting that it had not been the organizer of the marathon, but only its sponsor;
ISSUES: 1. Whether the organizer and the sponsor of the marathon were guilty of
negligence, and if so, was their negligence the proximate cause of the death of the
participant; - Yes
2. Whether the doctrine of assumption of risk was applicable to the fatality; - No
3. Whether Cosmos can held solidary liable - No
4. Whether the heirs of the fatality can recover damages for loss of earning
capacity of the latter who, being then a minor, had no gainful employment. - Yes
HELD:
1. To determine the existence of negligence, the following time-honored test has
been set in Picart v. Smith:
The test by which to determine the existence of negligence in a 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
A careful review of the evidence presented, particularly the testimonies of the
relevant witnesses, in accordance with the foregoing guidelines reasonably leads to
the conclusion that the safety and precautionary measures undertaken by
Intergames were short of the diligence demanded by the circumstances of persons,
time and place under consideration. Hence, Intergames as the organizer was guilty
of negligence.
The race organized by Intergames was a junior marathon participated in by young
persons aged 14 to 18 years. It was plotted to cover a distance of 10 kilometers,
starting from the IBP Lane, then going towards the Batasang Pambansa, and on to
the circular route towards the Don Mariano Marcos Highway, and then all the way
back to the Quezon City Hall compound where the finish line had been set. In staging
the event, Intergames had no employees of its own to man the race, and relied only
on the "cooperating agencies" and volunteers who had worked with it in previous
races.
339

The consider the "safeguards" employed and adopted by Intergames not adequate
to meet the requirement of due diligence.
The negligence of Intergames as the organizer was the proximate cause of the death
of Rommel
In order for liability from negligence to arise, there must be not only proof of
damage and negligence, but also proof that the damage was the consequence of the
negligence.
In order to establish his right to a recovery, must establish by competent evidence:
(1) Damages to the plaintiff.
(2) Negligence by act or omission of which defendant personally or some person
for whose acts it must respond, was guilty.
(3) The connection of cause and effect between the negligence and the damage.
SC hold that the negligence of Intergames was the proximate cause despite the
intervening negligence of the jeepney driver. Proximate cause is "that which, in
natural and continuous sequence, unbroken by any new cause, produces an event,
and without which the event would not have occurred."
To be considered the proximate cause of the injury, the negligence need not be the
event closest in time to the injury; a cause is still proximate, although farther in time
in relation to the injury, if the happening of it set other foreseeable events into
motion resulting ultimately in the damage
An examination of the records in accordance with the foregoing concepts supports
the conclusions that the negligence of Intergames was the proximate cause of the
death of Rommel; and that the negligence of the jeepney driver was not an efficient
intervening cause.
First of all, Intergames' negligence in not conducting the race in a road blocked off
from vehicular traffic, and in not properly coordinating the volunteer personnel
manning the marathon route effectively set the stage for the injury complained of.
The submission that Intergames had previously conducted numerous safe races did
not persuasively demonstrate that it had exercised due diligence because, as the
trial court pointedly observed, "they were only lucky that no accident occurred
during the previous marathon races but still the danger was there.
Secondly, injury to the participants arising from an unfortunate vehicular accident
on the route was an event known to and foreseeable by Intergames, which could
then have been avoided if only Intergames had acted with due diligence by
undertaking the race on a blocked-off road, and if only Intergames had enforced and
adopted more efficient supervision of the race through its volunteers.
And, thirdly, the negligence of the jeepney driver, albeit an intervening cause, was
not efficient enough to break the chain of connection between the negligence of
Intergames and the injurious consequence suffered by Rommel. An intervening
cause, to be considered efficient, must be "one not produced by a wrongful act or
340

omission, but independent of it, and adequate to bring the injurious results. Any
cause intervening between the first wrongful cause and the final injury which might
reasonably have been foreseen or anticipated by the original wrongdoer is not such
an efficient intervening cause as will relieve the original wrong of its character as
the proximate cause of the final injury.
In fine, it was the duty of Intergames to guard Rommel against the foreseen risk, but
it failed to do so.
2. Unlike the RTC, the CA ruled that the doctrine of assumption of risk applied
herein; hence, it declared Intergames and Cosmos not liable.
As a defense in negligence cases, therefore, the doctrine requires the concurrence of
three elements, namely: (1) the plaintiff must know that the risk is present; (2) he
must further understand its nature; and (3) his choice to incur it must be free and
voluntary.
The concurrence of the three elements was not shown to exist. Rommel could not
have assumed the risk of death when he participated in the race because death was
neither a known nor normal risk incident to running a race. Although he had
surveyed the route prior to the race and should be presumed to know that he would
be running the race alongside moving vehicular traffic, such knowledge of the
general danger was not enough, for some authorities have required that the
knowledge must be of the specific risk that caused the harm to him.
Neither was the waiver by Rommel, then a minor, an effective form of express or
implied consent in the context of the doctrine of assumption of risk. Clearly, the
doctrine of assumption of risk does not apply to bar recovery by the petitioners.
3. The sponsorship of the marathon by Cosmos was limited to financing the race.
Cosmos did nothing beyond that, and did not involve itself at all in the preparations
for the actual conduct of the race.
SC uphold the finding by the CA that the role of Cosmos was to pursue its corporate
commitment to sports development of the youth as well as to serve the need for
advertising its business. In the absence of evidence showing that Cosmos had a hand
in the organization of the race, and took part in the determination of the route for
the race and the adoption of the action plan, including the safety and security
measures for the benefit of the runners, we cannot but conclude that the
requirement for the direct or immediate causal connection between the financial
sponsorship of Cosmos and the death of Rommel simply did not exist. Indeed,
Cosmos' mere sponsorship of the race was, legally speaking, too remote to be the
efficient and proximate cause of the injurious consequences.
4. Although we will not disturb the foregoing findings and determinations, we need
to add to the justification for the grant of exemplary damages. Article 2231 of the
Civil Code stipulates that exemplary damages are to be awarded in cases of quasi-
delict if the defendant acted with gross negligence. The foregoing characterization
by the RTC indicated that Intergames' negligence was gross. . We agree with the
characterization. Gross negligence, according to Mendoza v. Spouses Gomez, is the
341

absence of care or diligence as to amount to a reckless disregard of the safety of

persons or property; it evinces a thoughtless disregard of consequences without
exerting any effort to avoid them. Indeed, the failure of Intergames to adopt the
basic precautionary measures for the safety of the minor participants like Rommel
was in reckless disregard of their safety.
The RTC did not recognize the right of the petitioners to recover the loss of earning
capacity of Rommel. It should have, for doing so would have conformed to
jurisprudence whereby the Court has unhesitatingly allowed such recovery in
respect of children, students and other non-working or still unemployed victims.
The legal basis for doing so is Article 2206 (1) of the Civil Code, which stipulates that
the defendant "shall be liable for the loss of the earning capacity of the deceased,
and the indemnity shall be paid to the heirs of the latter; such indemnity shall in
every case be assessed and awarded by the court, unless the deceased on account of
permanent physical disability not caused by the defendant, had no earning capacity
at the time of his death.
Indeed, damages for loss of earning capacity may be awarded to the heirs of a
deceased non-working victim simply because earning capacity, not necessarily
actual earning, may be lost.
The petitioners suficiently showed that Rommel was, at the time of his untimely but
much lamented death, able-bodied, in good physical and mental state, and a student
in good standing.It should be reasonable to assume that Rommel would have
finished his schooling and would turn out to be a useful and productive person had
he not died. Under the foregoing jurisprudence, the petitioners should be
compensated for losing Rommel's power or ability to earn. The basis for the
computation of earning capacity is not what he would have become or what he
would have wanted to be if not for his untimely death, but the minimum wage in
effect at the time of his death.
Net Earning Capacity = Life Expectancy x [Gross Annual Income less Necessary
Living Expenses]
Life expectancy is equivalent to 2/3 multiplied by the difference of 80 and the age of
the deceased. Since Rommel was 18 years of age at the time of his death, his life
expectancy was 41 years. His projected gross annual income, computed based on
the minimum wage for workers in the non-agricultural sector in effect at the time of
his death, 97 then fixed at P14.00/day, is P5,535.83. Allowing for necessary living
expenses of 50% of his projected gross annual income, his total net earning capacity
is P113,484.52.

342

METROPOLITAN BANK v. JUNNEL'S MARKETING CORPORATION

GR No. 235511, June 20, 2018
PONENTE: Velasco Jr., J

DOCTRINES:
The doctrine of comparative negligence is a legal principle that limits the extent of
reparation that may be recovered by a person who is guilty of contributory
negligence. Under this doctrine, a person who is guilty of contributory negligence,
though allowed to seek recourse against the principal tortfeasor, must nonetheless
bear a portion of the losses proportionate to the amount of his negligence.
When an obligation, regardless of its source, i.e., law, contracts, quasi¬contracts,
delicts or quasi-delicts is breached, the contravener can be held liable for damages.

FACTS:
Respondent Junnel's Marketing Corporation (JMC) is a domestic corporation
engaged in the business of selling wines and liquors. It has a current account with
Metrobank from which it draws checks to pay its different suppliers. Among JMC's
suppliers are Jardine Wines and Spirits (Jardine) and Premiere Wines (Premiere).
JMC discovered an anomaly involving eleven (11) checks (subject checks) it had
issued to the orders of Jardine and Premiere on various dates. As it was, the subject
checks had already been charged against JMC's current account but were, for some
reason, not covered by any official receipt from Jardine or Premiere. The subject
checks are all crossed checks amounting to P1,481,292.00 in total.
Meanwhile, on 30 April 2000, respondent Purificacion Delizo (Delizo), a former
accountant of JMC, executed a handwritten letter addressed to one Nelvia Yusi,
President of JMC. In the said letter, Delizo confessed that, during her time as an
accountant for JMC, she stole several company checks drawn against JMC's current
account. She professed that the said checks were never given to the named payees
but were forwarded by her to one Lita Bituin (Bituin). Delizo further admitted that
she, Bituin and an unknown bank manager colluded to cause the deposit and
encashing of the stolen checks and shared in the proceeds thereof.
On 28 January 2002, JMC filed before the Regional Trial Court (RTC) of Pasay City a
complaint for sum of money[8] against Delizo, Bankcom and Metrobank.
In its complaint, JMC alleged that the wrongful conversion of the subject checks was
caused by a combination of the "tortious and felonious" scheme of Delizo and the
"negligent and unlawful acts" of Bankcom and Metrobank. JMC prayed that Delizo,
Bankcom and Metrobank be held solidarily liable in its favor for the amount of the
subject checks.
On 28 May 2013, the RTC rendered a decision holding both Bankcom and
Metrobank liable to JMC-on a 2/3 to 1/3 ratio, respectively-for the amount of
subject checks plus interest as well as attorney's fees, but absolving Delizo from any
liability.
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ISSUES:
1.
Whether or not Bankcom and Metrobank should be held liable to JMC, on a ⅔ to ⅓
ratio, respectively, for the amount of subject checks plus interest in view of the
comparative negligence of Bankcom and Metrobank.
2.
Whether or not legal interest should be imposed upon the respective principal
liabilities of Metrobank and Bankcom.

Ruling on the first issue:
Doctrine of Comparative Negligence Does Not Apply to the Instant Case
Metrobank, though guilty of the unauthorized check payments, only acted upon the
guarantees deemed made by Bankcom under prevailing banking practices. While
Metrobank's reliance upon the guarantees of Bankcom did not excuse it from being
answerable to JMC, such reliance does enable Metrobank to seek reimbursement
from Bankcom on the ground of the breach in the latter's warranties as a collecting
bank.
Under such circumstances, we cannot deny Metrobank's right to seek
reimbursement from Bankcom.
We find that the doctrine of comparative negligence cannot be applied so as to
apportion
the respective liabilities of Metrobank and Bankcom. The liabilities of Metrobank
and Bankcom must be governed by the rule on sequential recovery.

Ruling on the second issue:
When an obligation, regardless of its source, i.e., law, contracts, quasi¬contracts,
delicts or quasi-delicts is breached, the contravener can be held liable for damages.
The provisions under Title XVIII on "Damages" of the Civil Code govern in
determining the measure of recoverable damages.
With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 6% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.
344

2. When an obligation, not constituting a loan or forbearance of money, is

breached, an interest on the amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages, except when or until the demand can
be established with
reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any case, be on the
amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 6% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.

And, in addition to the above, judgments that have become final and executory prior
to July 1, 2013, shall not be disturbed and shall continue to be implemented
applying the rate of interest fixed therein. Applying the foregoing guidelines to the
case at bench, we fix the legal interests due against Metrobank and Bankcom thusly:

1. Current accounts, like all bank deposits, are considered under the law as
loans. Normally, current accounts are interest-bearing by express contract. Under
these circumstances, we find it proper to subject Metrobank's principal liability to
JMC to a legal interest of 6% per annum from 28 January 2002 until full
satisfaction.The date 28 January 2002 is the date when JMC filed its complaint with
the RTC.
2. The liability of Bankcom to Metrobank, on the other hand, consists in
returning the amount it was paid by Metrobank. This stems from a breach by
Bankcom of its warranties as a collecting bank. Accordingly, we find it proper to
subject Bankcom's principal liability to Metrobank to a legal interest of 6% per
annum from 5 March 2003 until full satisfaction. The date 5 March 2003 is the date
when Metrobank filed its answer with cross-claim against Bankcom.

345

PARTNERSHIP, AGENCY AND TRUSTS

BELINA CANCIO AND JEREMY PAMPOLINA, Petitioners, v. PERFORMANCE
FOREIGN EXCHANGE CORPORATION, Respondent.
G.R. No. 182307, June 06, 2018

Leonen, J:

Case doctrine: Article 1900. So far as third persons are concerned, an act is deemed
to have been performed within the scope of the agent's authority, if such act is
within the terms of the power of attorney, as written, even if the agent has in fact
exceeded the limits of his authority according to an understanding between the
principal and the agent.

Facts: Cancio and Pampolina executed an application for the opening of a joint
account with a trust/trading facilities agreement with Performance Forex, and
appointed Hipol as their commission agent. It was agreed that Cancio and
Pampolina would make use of Performance Forex's credit line to trade in the forex
market while Hipol would deal on their behalf in the forex market.
During the period of March 9, 2000 to April 4, 2000, Cancio and Pampolina earned
US$7,223.98 and stopped trading for more or less two weeks. Hipol was instructed
by Cancio to execute trading currency orders and to close her position. Cancio later
found out that Hipol did not execute her orders and the latter confessed that he
made unauthorized transactions using the joint account from April 5, 2000 to April
12, 2000, resulting in the loss of all their money.
Performance Forex offered US$5,000.00 to settle the matter but Cancio and
Pampolina rejected this offer, who later filed a Complaint for damages against
Performance Forex and Hipol. The Regional Trial Court of Mandaluyong City found
Performance Forex solidarity liable with Hipol for unauthorized trade transactions
he made on Cancio Pampolina's joint trading account. It added that Performance
Forex should have disclosed that Hipol made similar unauthorized trading activities
in the past. The Trial Court also added that innocent third persons should not be
prejudiced due to Performance Forex’s failure to adopt the necessary measures to
prevent unauthorized trading by its agents.
Performance Forex appealed to the Court of Appeals and argued that Cancio and
Pampolina vested Hipol with broad powers to conduct trading on their behalf and
that there were adequate safeguards in place concerning dealings with commission
agents. The CA granted the appeal, stating that the action should be against Hipol
only, considering that under the trust/trading facilities agreement, Performance
Forex exempted itself from liability from losses incurred by acting on the
346

instructions of its clients or their authorized representatives. It also found that

Performance Forex had no duty to disclose Hipol’s prior unauthorized transactions
with another client since Hipol was an independent broker who was not employed
with the former.

The CA denied Cancio and Pampolina’s Motion for Reconsideration and so they filed
a petition before the Supreme Court arguing that respondent is liable for damages
due to its bad faith and breach of contractual obligations.Respondent countered that
it is not liable for damages caused by Hipol since the latter is not its employee.
Furthermore, respondent claimed that petitioners gave Hipol very broad and vast
powers to transact on their behalf and that under the trust/trading facilities
agreement, petitioners agreed that respondent would not be responsible for any act,
warranty, or representation made by their agent on their behalf.
issue: Whether or not respondent Performance Forex Exchange Corporation should
be held solidarity liable with petitioners Belina Cancio and Jeremy Pampolina's
broker, Hipol, for damages due to the latter's unauthorized transactions in the
foreign currency exchange trading market.
Held: A principal who gives broad and unbridled authorization to his or her agent
cannot later hold third persons who relied on that authorization liable for damages
that may arise from the agent's fraudulent acts. Respondent likewise did not have
the duty to disclose to petitioners any previous infractions committed by their
agent.
Hipol, petitioners' agent, was not employed with respondent. He was categorized as
an independent broker for commission. In Behn, Meyer, and Co. v. Nolting:
A broker is generally defined as one who is engaged, for others, on a commission,
negotiating contracts relative to property with the custody of which he has no
concern; the negotiator between other parties. never acting in his own name, but in
the name of those who employed him; he is strictly a middleman and for some
purposes the agent of both parties.
When Hipol became petitioners' agent, he had committed only one (1) known prior
infraction against a client of respondent. Respondent might have construed this as
an isolated incident that did not warrant heightened scrutiny. Hipol's infraction
committed against petitioners was his second known infraction. Respondent
cancelled his accreditation when petitioners informed them of his unauthorized
transactions.
Moreover, petitioners and respondent signed and agreed to absolve respondent
from actions, representations, and warranties of their agent made on their behalf.
Petitioners conferred trading authority to Hipol. Respondent was not obligated to
question whether Hipol exceeded that authority whenever he made purchase
orders. Respondent was likewise not privy on how petitioners instructed Hipol to
347

carry out their orders. It did not assign Hipol to be petitioners' agent. Hipol was the
one who approached petitioners and offered to be their agent. Petitioners were
highly educated and were already knowledgeable in playing in this foreign exchange
trading. They would have been aware of the extent of authority they granted to
Hipol when they handed to him 10 pre-signed blank purchase order forms. Under
Article 1900 of the Civil Code:
Article 1900. So far as third persons are concerned, an act is deemed to have been
performed within the scope of the agent's authority, if such act is within the terms of
the power of attorney, as written, even if the agent has in fact exceeded the limits of
his authority according to an understanding between the principal and the agent.
WHEREFORE, the Petition is DENIED. The January 31, 2008 Decision and March 31,
2008 Resolution of the Court of Appeals in CA-G.R. CV No. 88439 are AFFIRMED.

348

MARCELINO E. LOPEZ vs. THE HON. COURT OF APPEALS and PRIMEX

CORPORATION
G.R. No. 163959

Bersamin, J.:

Case Doctrine:
An agency is extinguished by the death of the principal. Any act by the agent
subsequent to the principal's death is void ab initio, unless any of the exceptions
expressly recognized in Article 1930 and Article 1931 of the Civil Code is applicable.

Facts:
In its complaint, PRIMEX alleged that it had, on 12 September 1989, as
vendee, entered into a Deed of Conditional Sale (DCS) relative to a portion of land.
PRIMEX claimed that from the time of the execution of the DCS with the
defendants-appellees, the company had dutifully complied with all its monetary
obligations under the said contract and was again ready to pay another
2,000,000.00 upon presentation by the defendants-appellees, among others, of a
valid certificate of title in tahe name of one or all of the vendors as sanctioned under
paragraph II(d) of the DCS. However, instead of delivering a valid title to PRIMEX,
the defendants-appellees delivered to the former Transfer Certificate of Title [TCTJ
No. 196256 of the Register of Deeds of Rizal. The problem with this certificate
according to PRIMEX was that while it was indeed registered under the name of one
of the vendors - Marcelino Lopez, among several others, the title was nonetheless
derived from Original Certificate of Title [OCT] No. 537, which had been declared by
the Supreme Court in G.R. No. 90380 dated 13 September 1990 as null and void
together with all the other TCTs emanating from the said OCT.

Issue:
Whether the agency was extinguished

Held:
One of the modes of extinguishing a contract of agency is by the death of
either the principal or the agent. 14 In Rallos v. Felix Go Chan & Sons Realty
Corporation, 15 the Court declared that because death of the principal extinguished
the agency, it should follow a fortiori that any act of the agent after the death of his
principal should be held void ab initio unless the act fell under the exceptions
established under Article 193 016 and Article 1931 17 of the Civil Code. The
exceptions should be strictly construed. In other words, the general rule is that the
death of the principal or, by analogy, the agent extinguishes the contract of agency,
349

unless any of the circumstances provided for under Article 193 0 or Article 1931
obtains; in which case, notwithstanding the death of either principal or agent, the
contract of agency continues to exist.
The want of authority in favor of Atty. Angeles was aggravated by the fact that he did
not disclose the death of the late Marcelino Lopez to the Court. His omission
reflected the height of unprofessionalism on his part, for it engendered the suspicion
that he thereby tried to pass off the Compromise Agreement as genuine and valid
despite his authority under the special power of attorney having terminated for all
legal purposes.

350

SPOUSES CHUA V. UNITED COCONUT PLANTERS BANK

G.R. No. 215999; August 16, 2017

BERSAMIN, J.

CASE DOCTRINE: The bid far exceeded the indebtedness. The bank could not
properly assign to Asset Pool A any right or interest in the balance because the
proper application of the proceeds of the foreclosure sale would have necessarily
resulted in the full extinguishment of petitioners’ entire obligation. Otherwise,
unjust enrichment would ensue at the expense of petitioners. The bank’s own Vice
President expressly mentioned in writing that the bank would secure from the
defendant the titles necessary for the execution of the mortgages. As such, the
bank’s actual knowledge of the deeds of trust became undeniable.

FACTS:

Petitioners Felix and Carmen Chua and LGCTI as well as respondents Jose Go, had
existing loan obligations with UCPB prior to the March 1997 JVA. As result of the
JVA, two deeds of trust were executed by the parties involving petitioners’ 44-
hectare property covered by 32 titles. The deeds of trust were neither expressly
cancelled nor rescinded despite the project under the JVA never came to fruition. On
March 21, 2000, UCPB and petitioners entered into the MOA consolidating the
outstanding obligations of the Spouses Chua and LGCTI.

Petitioners exchanged their 30 parcels of land to effectively reduce their total
unpaid obligations to only P68,000,000.00. To settle the balance, they agreed to
convert it into equity in LGCTI in case they would default in their payment. To
implement the MOA, they signed the Real Estate Mortgage drafted by UCPB, which
included the properties listed in the MOA as security for the credit accommodation
of P404,597,177.04. Jose Go, unknown to them, acting in behalf of Revere, likewise
executed another Real Estate Mortgage covering the properties that Revere was
holding in trust for them. When UCPB foreclosed the mortgages, it applied about
P75.09 million out of the P227,700,000.00 proceeds of the foreclosure sale to the
obligations of Revere and Jose Go. Moreover, UCPB pursued petitioners for their
supposed deficiency amounting to P68,000,000.00, which was meanwhile assigned
to respondent Asset Pool A by UCPB. The RTC rendered a partial judgment against
Jose Go and Revere, declaring the Deeds of Trust and holding the properties held in
trust for plaintiff by defendants legal and binding and likewise declaring the latter
as not the owners of such properties nor did they have the right to constitute a
mortgage over them to secure their personal and corporate obligations, the also
nullified the deed of Real Estate Mortgage that were executed by the defendants.
The CA reversed and set aside the RTC’s judgement.

ISSUES:
351

1.) Was the deed of assignment covering the deficiency in petitioner’s obligations to
UPCB valid?
2.) Are the deeds of trust binding?

HELD:

Based on the foregoing, therefore, we conclude that the deed of assignment of
liabilities covering the deficiency in its obligation to UCPB in the amount of
P68,000,000.00 was null and void. According to the apportionment of bid price
executed by UCPB ‘s account officer, the bid amounting to P227,700,000.00 far
exceeded the indebtedness of the Spouses Chua and LGCTI in the amount of
P204,597,177.04, which was inclusive of the P68,000,000.00 subject of the deed of
assignment of liabilities as well as the P32,703,893,450.00 corresponding to the
interests and penalties that UCPB waived in favor of petitioners. It can be further
concluded that UCPB could not have validly assigned to Asset Pool A any right or
interest in the P68,000,000.00 balance because the proper application of the
proceeds of the foreclosure sale would have necessarily resulted in the full
extinguishment of petitioners’ entire obligation. Otherwise, unjust enrichment
would ensue at the expense of petitioners. There is unjust enrichment when a
person unjustly retains a benefit to the loss of another, or when a person retains
money or property of another against the fundamental principles of justice, equity
and good conscience. The principle of unjust enrichment requires the concurrence
of two conditions, namely: (1) that a person is benefited without a valid basis or
justification; and (2) that such benefit is derived at the expense of another. The main
objective of the principle against unjust enrichment is to prevent a person from
enriching himself at the expense of another without just cause or consideration. This
principle against unjust enrichment would be infringed if we were to uphold the
decision of the CA despite its having no basis in law and in equity.

The deeds of trust expressly provided that: "The TRUSTEE hereby acknowledges
and obliges itself not to dispose of, sell, transfer, convey, lease or mortgage the said
twelve (12) parcels of land without the written consent of the TRUSTORS first
obtained." By entering into the Revere REM, therefore, Revere openly breached its
undertakings under the deeds of trust in contravention of the express prohibition
therein against the disposition or mortgage of the properties. It is also worth
mentioning that the records are bereft of any allegation that Revere had obtained
the approval of petitioners or that the latter had acquiesced to the mortgage of the
properties in favor of UCPB. Absent proof showing that petitioners had transferred
the ownership of some or all of the properties covered by the deeds of trust in favor
or Revere or Jose Go, the deeds of trust remained as the controlling documents as to
the parcels of land therein covered.

Additionally, UCPB could not now feign ignorance of the deeds of trust. As the RTC
aptly pointed out, UCPB's own Vice President expressly mentioned in writing that
UCPB would secure from Jose Go the titles necessary for the execution of the
mortgages. As such, UCPB's actual knowledge of the deeds of trust became
352

undeniable. In addition, UCPB, being a banking institution whose business was

imbued with public interest, was expected to exercise much greater care and due
diligence in its dealings with the public. Any failure on its part to exercise such
degree of caution and diligence would invariably stigmatize its dealings with bad
faith. It should be customary and prudent for UCPB, therefore, to adopt certain
standard operating procedures to ascertain and verify the genuineness of the titles
to determine the real ownership of real properties involved in its dealings,
particularly in scrutinizing and approving loan applications. By approving the loan
application of Revere obviously without making prior verification of the mortgaged
properties' real owners, UCPB became a mortgagee in bad faith.

The CA pronounced that the parties had intended to extend the benefits of the two
REMs under the first MOA to Jose Go and/or his group of companies. It premised its
pronouncement on the express stipulation in petitioners' REM to the effect that it
was "the intention of the parties to secure as well the payment of all loans,
overdrafts xxxx by the MORTGAGORS and/or by LGCTI, Spouses Chua, and Jose Go."
In addition, it cited the Spouses Chua's conformity to UCPB's letter dated November
10, 1999 to the effect that should there be any excess or residual value after the
settlement of the Spouses Chua and LGCTI's obligations, said excess would be
applied to any outstanding obligations that Jose Go might have with UCPB. We must
point out, however, that the statements adverted to by the CA had been supplied by
UCPB itself - the first being contained in the REM drafted by UCPB, and the second
being written by UCPB in its letter to the Spouses Chua. Assuming that petitioners
were not just misled into signing or agreeing to the stipulations in said documents, it
was still error for the CA to hold that Revere's or Jose Go's obligations enjoyed a
primacy or precedence over the P68,000,000.00 obligation of petitioners.

353

LUIS JUAN L. VIRATA v. ALEJANDRO NG WEE

GR No. 220926, July 05, 2017

VELASCO JR., J.

CASE DOCTRINE: Through the 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.

FACTS:

Ng Wee was a valued client of Westmont Bank. Sometime in 1998, he was enticed by
the bank manager to make money placements with Westmont Investment
Corporation (Wincorp). His initial investments were matched with Hottick Holdings
Corporation (Hottick), one of Wincorp's accredited borrowers, the majority shares
of which was owned by a Malaysian national by the name of Tan Sri Halim Saad
(Halim Saad). However, it defaulted. As a result, Wincorp filed a collection suit
against Hottick, Halim Saad, and NSC. To induce the parties to settle, petitioner
Virata offered to guarantee the full payment of the loan. In the Settlement
Agreement, Halim Saad agreed to pay USD1,000,000.00 to Wincorp in satisfaction of
any and all claims the latter may have against it. Thereafter, Wincorp executed a
Waiver and Quitclaim in favor of Virata. Ng Wee confronted Wincorp and inquired
about the status of his investments. Wincorp assured him that the losses from the
Hottick account will be absorbed by the company and that his investments would be
transferred instead to a new borrower account. In view of these representations, Ng
Wee continued making money placements, rolling over his previous investments in
Hottick and even increased his stakes in the new borrower account Power Merge
Corporation (Power Merge). Despite repeated demands, Ng Wee was not able to
collect Power Merge's outstanding obligation, this prompted Ng Wee, on October 19,
2000, to institute a Complaint for Sum of Money with Damages. Wincorp alleges that
it was clear to Ng Wee that what was involved was a loan agreement, and that
Wincorp was merely brokering the transaction. As a mere broker of the transaction,
not the beneficiary thereof, Wincorp asserts that it cannot be held liable for the
amount borrowed by Power Merge. Wincorp relies on the text of the Confirmation
Advices issued to Ng Wee to advance this point.

ISSUE:
Whether or not there was an agency contract, loan contract and/or fraud in its
execution?

HELD:

354

Only Wincorp is liable to Ng Wee for fraud; Power Merge is liable based on contract.
Ng Wee would not have placed funds or invested [in] the "sans recourse"
transactions under the Power Merge borrower account had he not been deceived
into believing that Power Merge is financially capable of paying the returns of his
investments/money placements. The intent to defraud and deceive [Ng Wee] of his
investments/money placements was manifest from the very start.

Jurisprudence defines "fraud" as the voluntary execution of a wrongful act, or a
willful omission, knowing and intending the effects which naturally and necessarily
arise from such act or omission. In its general sense, fraud is deemed to comprise
anything calculated to deceive, including all acts and omissions and concealment
involving a breach of legal or equitable duty, trust, or confidence justly reposed,
resulting in damage to another, or by which an undue and unconscientious
advantage is taken of another. Fraud is also described as embracing all multifarious
means which human ingenuity can device, and which are resorted to by one
individual to secure an advantage over another by false suggestions or by
suppression of truth and includes all surprise, trick, cunning, dissembling, and any
unfair way by which another is cheated. Under Article 1170 of the New Civil Code,
those who in the performance of their obligations are guilty of fraud are liable for
damages.

Aside from its liability arising from its fraudulent transactions, Wincorp is also liable
to Ng Wee for breach of warranty. It cannot be emphasized enough that Wincorp is
not the mere agent that it claims to be; its operations ought not be reduced to the
mere matching of investors with corporate borrowers. Instead, it must be borne in
mind that it not only performed the functions of a financial intermediary duly
registered and licensed to perform the powers of an investment house, it is also
engaged in the selling of securities, albeit in violation of various commercial laws.
And just as in any other contracts of sale, the vendor of securities is likewise bound
by certain warranties, including those contained in Article 1628 of the New Civil
Code on assignment of credits, to wit:

Article 1628. The vendor in good faith shall be responsible for the existence and
legality of the credit at the time of the sale, unless it should have been sold as
doubtful; but not for the solvency of the debtor, unless it has been so expressly
stipulated or unless the insolvency was prior to the sale and of common knowledge.

and for damages. That the securities sold toNg Wee turned out to be "with recourse,"
not "sans recourse" as advertised, does not remove it from the coverage of the above
article. In fact, such circumstance would even classify Wincorp as a vendor in bad
faith, within the contemplation of the last paragraph of the provision.

Even as an agent, Wincorp can still be held liable. The argument that Wincorp is a
mere agent that could not be held liable for Power Merge's unpaid loan is equally
unavailing. For even if the Court were to accede to the argument and undercut the
355

significance of Wincorp's participation from vendor of securities to purely attorney-

in-fact, the investment house would still not be immune. Agency, in Wincorp's case,
is not a veritable defense.

Through the 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.

356

BELINA CANCIO AND JEREMY PAMPOLINA, Petitioners, v. PERFORMANCE

FOREIGN EXCHANGE CORPORATION, Respondent.
G.R. No. 182307, June 06, 2018

LEONEN, J.

CASE DOCTRINE: A principal who gives broad and unbridled authorization to his
or her agent cannot later hold persons who relied on that authorization liable for
damages that may rise from the agent’s fraudulent acts. Art. 1900 provides that so
far as third persons are concerned, an act is deemed to have been performed
within the scope of the agent's authority, if such act is within the terms of the
power of attorney, as written, even if the agent has in fact exceeded the limits of
his authority according to an understanding between the principal and the agent.

FACTS:

Performance Forex is a corporation operating as a financial/broker/agent
between market participants in foreign exchange transactions. Sometime in 2000,
Cancio Pampolina accepted Hipol’s invitation to open a joint account with
Performance Forex. Cancio an Pampolina deposited the required margin account
deposit of US$10,000.00 for trading. The parties executed an application for the
opening of a joint account, with a trust/trading facilities agreement between
Performance Forex, and Cancio and Pampolina. They likewise entered into an
agreement for appointment of an agent between HIpol, Cancio and Pampolina.
They agreed that Cancio and Pampolina would make use of Performance Forex’s
credit line to trade in forex market while Hipol would at as their commission agent
and would deal on their behalf in the forex market. The agreement provided that
Performance Forex is authorized to act upon any instructions, wheter in writing,
by cable, telecs, facsimile or telephone given or purported to be given by
Petitioner or their agent and the former shall not be responsible for any losses
incurred as a result of acting upon such instructions should there in fact be any
error commission ambiguities or other irregularities therein or therewith.

From March 9, 2000 to April 4, 2000 Cancio and Pampolina earned US$ 7,223.98.
They stopped trading currency orders. When she called to her position Hipol told
her that he would talk to her personally. Cancio later found out that Hipol never
executed her orders. Hipol confessed to her that he made unauthorized
transactions that left a balance of US$35.72. Performance Forex offered
US$5,000.00 to settle the matter but Cancio and Pampolina rejected this offer.
Hence the case.

ISSUE:
357

Whether or not respondent Forex Exchange Corporation should be held solidarily

liable with the broker Hipol?

HELD:

No. A principal who gives broad and unbridled authorization to his or her agent
cannot later hold third persons who relied on that authorization liable for
damages that may rise from the agent’s fraudulent acts. Petitioners opened a joint
account with respondent through their broker, Hipol, to engage in foreign
currency exchange trading. The contract between petitioners and respondents
provided that respondent was irrevocable authorized to follow bonafide
instructions from petitioners of their broker. Hipol, petitioners’agent, was not
employed with respondent. He was categorized as an independent broker for
commission. Respondent cancelled his accreditation when petitioners informed
them of his unauthorized transactions. It would be different if Hipol committed a
series of infractions and respondent continued to accredit him. In that instance,
respondent would have been complicit to Hipol’s wrongdoings. Respondent, not
being Hipol’s employer, had no power of discipline over him. Petitiners conferred
trading authority to Hipol. Respondent was not obligated to question whther Hipol
exceeded that authority whenever he made purchase orders.

Art. 1900. So far as third persons are concerned, an act is deemed to have been
performed within the scope of the agent's authority, if such act is within the terms
of the power of attorney, as written, even if the agent has in fact exceeded the
limits of his authority according to an understanding between the principal and
the agent.

358

SPOUSES CHUA V. UNITED COCONUT PLANTERS BANK

G.R. NO. 215999 AUGUST 16, 2017
BERSAMIN, C.J

DOCTRINE:

FACTS:
On March 3, 1997, petitioner Spouses Felix and Carmen Chua, for themselves and
representing their co-petitioners, entered into a Joint Venture Agreement (JVA) with
Gotesco Properties, Inc. (Gotesco) for the development of their 44-hectare property
situated in Ilayang Dupay, Lucena City into a mixed use, residential and commercial
subdivision. Gotesco was then represented by respondent Jose Go.Pursuant to the
JVA, several deeds of absolute sale were executed over petitioners’ 12 parcels of
land situated in Lucena City in favor of Revere, a corporation controlled and
represented by Jose Go. The deeds of absolute sale were complemented by a deed of
trust dated April 30, 1998. Also on the same date, Gotesco, also represented by Jose
Go, and petitioners, represented by Felix Chua, executed another deed of trust
covering 20 parcels of land distinct from the 12 parcels of land already covered by
the first deed of trust.
Prior to the execution of the JVA, petitioners and Jose Go had separate outstanding
loan obligations with UCPB. On June 2, 1997, the Spouses Chua executed a real
estate mortgage (REM) in favor of UCPB involving several parcels of land registered
in the names of petitioners to secure the loans. On March 21, 2000, the parties enter
into MOA and thereby agreed to deduct the sum of ₱103,893,450.00 from said total
in exchange for 30 parcels of land including the improvements thereon; and that the
remaining balance of ₱68,000,000.00 would be converted by UCPB into equity
interest in LGCTI.

To implement the March 21, 2000 MOA, UCPB drafted a REM covering the
properties listed in the MOA, which petitioners signed to secure a credit
accommodation for ₱404,597,177.04. Under its terms, this REM covered the
payment of all loans, overdrafts, credit lines and other credit facilities or
accommodations obtained or hereinafter obtained by the mortgagors, LGCTI,
Spouses Chua and Jose Go. On even date, Jose Go, acting in behalf of Revere, and
359

UCPB executed another REM (Revere REM) involving the properties held in trust by
Revere for petitioners.

Enforcing petitioners' REM as well as the Revere REM, UCPB foreclosed the
mortgages, and the properties were sold for a total bid price of ₱227,700,000.00. On
November 11, 2003, Spouses Chua wrote UCPB to request an accounting of Jose Go's
liabilities that had been mistakenly secured by the mortgage of petitioners'
properties, as well as to obtain a list of all the properties subject of their REM as well
as of the Revere REM for reappraisal by an independent appraiser. The Spouses
Chua further requested that the proceeds of the foreclosure sale of the properties be
applied only to petitioners' obligation of ₱204,597, l 77.04; and that the rest of the
properties or any excess of their obligations should be returned to them.13
However, UCPB did not heed petitioners' requests.

Thus, on February 3, 2004, petitioners filed their complaint against UCPB, Revere,
Jose Go, and the Register of Deeds of Lucena City in the RTC in Lucena City.14 The
RTC issued a writ of preliminary injunction at the instance of petitioners.

RTC rule in favor with the petitioner declaring that Deeds of Trust dated April 30,
1998 as legal and binding and holding the properties held in trust for plaintiff by
defendants REVERE and GO. And also rule that REVERE and GO are not the owners
of the properties covered by the deeds of trust and did not have any authority to
constitute a mortgage over them to secure their personal and corporate obligations,
for which they should be liable.

Meanwhile, Asset Pool A moved to be substituted for UCPB as a party-defendant on
February 15, 2006 on the basis that UCPB had assigned to it the rights over
petitioners’ ₱68,000,000.00 obligation.

On appeal, the CA reversed RTC decision. It opined that the first REM remained
outstanding and was not extinguished as claimed by petitioners; that the Revere
REM was valid based on the application of the complementary contracts construed
together doctrine whereby the accessory contract must be read in its entirety and
together with the principal contract between the parties; that it was the intention of
the parties to extend the benefits of the two REMs under the first MOA in favor of
Jose Go and/or his group of companies; and that petitioners' obligations with UCPB
under the first MOA had not been fully settled.

Hence this petition.

ISSUES:
1. WON REVERE and GO have the authority to constitute a mortgage over properties
covered by the deeds of trust to secure their personal and corporate obligations?
2. WON the parties had intended to extend the benefits of the two REMs under the
first MOA to Jose Go and/or his group of companies? “It cited the Spouses Chua's
conformity to UCPB's letter dated November 10, 1999 to the effect that should there
360

be any excess or residual value after the settlement of the Spouses Chua and LGCTI's
obligations, said excess would be applied to any outstanding obligations that Jose Go
might have with UCPB.”
3. WON the deed of assignment over 680, 000 equity shares of LGCTI by UCPB to
Asset Pool A is valid?

HELD:
1. No. The deeds of trust expressly provided that: "The TRUSTEE hereby
acknowledges and obliges itself not to dispose of, sell, transfer, convey, lease or
mortgage the said twelve (12) parcels of land without the written consent of the
TRUSTORS first obtained." By entering into the Revere REM, therefore, Revere
openly breached its undertakings under the deeds of trust in contravention of the
express prohibition therein against the disposition or mortgage of the properties. It
is also worth mentioning that the records are bereft of any allegation that Revere
had obtained the approval of petitioners or that the latter had acquiesced to the
mortgage of the properties in favor of UCPB. Absent proof showing that petitioners
had transferred the ownership of some or all of the properties covered by the deeds
of trust in favor or Revere or Jose Go, the deeds of trust remained as the controlling
documents as to the parcels of land therein covered.
Additionally, UCPB could not now feign ignorance of the deeds of trust. As the RTC
aptly pointed out, UCPB's own Vice President expressly mentioned in writing that
UCPB would secure from Jose Go the titles necessary for the execution of the
undeniable. In addition, UCPB, being a banking institution whose business was

2. No. A review of the MOA dated March 21, 2000 would reveal that petitioners'
outstanding obligation referred to, after deducting the amount of the thirty
properties, was reduced to only ₱68,000,000.00. To settle this balance, petitioners
agreed to convert this into equity in LGCTI in case they defaulted in their payment.In
this case, what prompted the foreclosure sale of the mortgaged properties was
petitioners' failure to pay their obligations. When the proceeds of the foreclosure
sale were applied to their outstanding obligations, the payment of the balance of the
₱68,000,000.00 was deliberately left out, and the proceeds were conveniently
applied to settle ₱75,000,000.00 of Revere and/or Jose Go's unpaid obligations with
UCPB. This application was in blatant contravention of the agreement that Revere's
361

or Jose Go's obligations would be paid only if there were excess in the application of
the foreclosure proceeds.

3. No. According to the apportionment of bid price executed by UCPB's account
officer, the bid amounting to ₱227,700,000.00 far exceeded the indebtedness of the
Spouses Chua and LGCTI in the amount of ₱204,597,177.04, which was inclusive of
the ₱68,000,000.00 subject of the deed of assignment of liabilities as well as the
₱32,703,893,450.00 corresponding to the interests and penalties that UCPB waived
in favor of petitioners.
It can be further concluded that UCPB could not have validly assigned to Asset Pool
A any right or interest in the ₱68,000,000.00 balance because the proper application
of the proceeds of the foreclosure sale would have necessarily resulted in the full
extinguishment of petitioners' entire obligation. Otherwise, unjust enrichment
justification; and (2) that such benefit is derived at the expense of another.The main
enriching himself at the expense of another without just cause or consideration.

362

Philippine International Trading Corporation Vs. Threshold Pacific

Corporation and Edgar Rey A. Cuales
G.R. No. 209119. October 3, 2018

LEONARDO-DE CASTRO, CJ

CASE DOCTRINE:

In general, an agency may be express or implied. However, an agent must
possess a special power of attorney if he intends to borrow money in his principal's
behalf, to bind him as a guarantor or surety, or to create or convey real rights over
immovable property, including real estate mortgages. While the special power of
attorney may be either oral or written, the authority given must be express.

FACTS:
The parties, PITC, represented by its President, Jose Luis U. Yulo, Jr. (Yulo ),
and TPC, represented by its Managing Director, respondent Cuales, executed an
IMPORT FINANCING AGREEMENT (IFA) whereby PITC agreed to assist TPC
financially in the amount of P50,000,000.00 for the latter's importation of urea
fertilizers.

Due to exigent circumstances, i.e., as a result of ASPAI members' urgent
fertilizer requirements vis-a-vis the delay in the importation of fertilizers, PITC and
TPC amended the IF A through a document denominated as the "1st Addendum.”
Thus, on July 9, 1993, PITC opened a Land Bank of the Philippines (LandBank)
Letter of Credit in favor of La Filipina Uy Gongco Corp., a local fertilizer supplier. The
letter of credit amounted to P.5,273,325.00, net of the following: (1) LandBank bank
charges amounting P31,640.03 and (2) storage and delivery charges incurred by
PITC amounting to P.571,533.60. As a result, TPC was able to purchase the required
fertilizers and sell these to ASP AI on credit.

As a result of further delay in the shipment of the imported fertilizers, the
parties further amended the IF A in order to meet ASP AI' s urgent request for
additional fertilizer. On this occasion, instead of opening another letter of credit,
PITC issued a check in the amount of P5,000,000.00 directly payable to TPC for the
aforementioned amount. Upon receipt of the proceeds, TPC issued a promissory
note undertaking "to pay solidarily to the order of [PITC]" the principal amount on
April 15, 1994.

On July 7, 1994, claiming that TPC failed to pay the outstanding loan
obligation, PITC filed a Complaint for Sum of Money before the RTC. In its Answer
with Counterclaim, TPC and Cuales denied liability in the subject transactions and
raised, among others, the following defenses:

4. The real intent and agreement of the parties (Plaintiff, defendants
363

and ASPAI) is that the urea fertilizer is to be purchased by plaintiff for

distribution and sale to ASPAI. Defendant's participation is merely to ensure
that the urea fertilizer be delivered to ASPAI

5. Thus, defendants are in effect merely an agent of plaintiff, with regards to
the sale of urea fertilizers to ASP AI

ISSUE: WHETHER OR NOT THE TRANSACTION WAS INDEED BETWEEN PITC AND
TPC.

RULING

NO. It is undispμted that TPC and Cuales entered into and executed the IFA
and its addendums with PITC. What is at issue then is the true nature of TPC's
liability under the loan agreement, as embodied in the IFA and its addendums. From
the loan provisions it is clear that there is no express stipulation constituting TPC as
ASP AI' s agent.

In ruling that the loan was simulated and not reflective of the parties' actual
intention, the appellate court considered respondent Cuales' testimony as sufficient
evidence of contemporaneous and subsequent acts showing that TPC was merely
ASPAl's agent. We disagree. In general, an agency may be express or implied.
However, an agent must possess a special power of attorney if he intends to borrow
money in his principal's behalf, to bind him as a guarantor or surety, or to create or
convey real rights over immovable property, including real estate mortgages. While
the special power of attorney may be either oral or written, the authority given must
be express. In other words, there must be "a clear mandate from the principal
specifically authorizing the performance of the act," not merely overt acts from
which an agency may be inferred. Consequently, the agent's "authority must be duly
established by competent and convincing evidence other than the self serving
assertion of the party claiming that such authority was verbally given."

364

Donabelle V. Gonzales-Saldana, Petitioner, vs. Sps. Gordon R. Niamatali and

Amy V. Niamatali, Respondents.
G.R. No. 226587, November 21, 2018
Reyes, J. JR., J.

DOCTRINE:

Agency may be express or implied from the acts of the principal, from his silence or
lack of action, or his failure to repudiate the agency, knowing that another person is
acting on his behalf without authority. Acceptance by agent of the contract of agency
may also be express or implied from his acts which carry out the agency, or from his
silence or inaction according to the circumstances.

The kinds of interest that may be imposed in a judgment are monetary interest,
which is the interest fixed by the parties for the use or forbearance of money, and
compensatory interest, which is a form of damages due only if the obligor is proven
to have failed to comply with his obligation.

FACTS:

In January 2002, respondent-spouses Niamatali who were both residing in the
United States asked petitioner Gonzales-Saldana to participate in the public auction
conducted by the DOLE Sheriff’s Office to acquire a parcel of land located in Las
Piñas City on their behalf. The respondent-spouses remitted to petitioner’s bank
account the amount of Php3M pesos for said purchase. Petitioner sent the
respondent-spouses a letter acknowledging the receipt of Php3M pesos and
promised to return said amount on or before September 14, 2002.

However, the auction sale did not push through because of a third-party claim but,
the judgment-creditor agreed to sell to the petitioner her Parañaque and Manila
properties which were also levied on execution. Petitioner then asked the
respondent-spouses if they will be interested to buy said properties but, the
respondent-spouses did not respond. In good faith, and thinking it would be
beneficial for the respondent-spouses, petitioner asked her friend, Austria, to
participate in the bidding of said properties which bidding Austria was declared the
winning bidder.

In July 2002, respondent-spouses told petitioner they were no longer interested in
the property and asked her the return of the Php3M pesos. They also asked
petitioner to dispose the Parañaque and Manila properties.

Despite several demands, petitioner failed to return the Php3M pesos. On March 6,
2006, respondent-spouses filed a case for collection of sum of money, moral
damages, and attorney’s fees against petitioner.
365


Petitioner argues that the obligation to return money is demandable only upon sale
of the Parañaque and Manila properties, thus, the principle of unjust enrichment
was not applicable in their case; and that no interest was due because petitioner did
not enter into a contract of loan with the respondent-spouses and there were no
agreement for payment of interest. Also, payment of monetary interest is allowed
only if there were express stipulation for the payment of interest and if it be reduced
in writing.

Respondent-spouses counter that recovery of money is proper even if the contract
between parties is not a contract of loan; and that legal interest must be imposed on
the amount due from petitioner because she already incurred delay.

REGIONAL TRIAL COURT:

It ruled in favor of petitioner for respondent-spouses’ failure to present
preponderance of evidence to support their allegations in the Complaint. It said that
the acknowledgment receipt or promissory note allegedly executed by petitioner
was inadmissible because it was a private document executed without the
intervention of a notary public and no witness was presented to prove that
petitioner signed the document.

COURT OF APPEALS:

It ruled in favor of the respondent-spouses. It stated that petitioner’s admission that
Php3M pesos was transmitted to her bank account could be treated as judicial
admission sufficient to prove that she received money from respondent-spouses
even without the documents presented by the latter. It added that petitioner is
legally bound to return the money she received considering that the purchase of the
Las Piñas property did not materialize.

ISSUES:

1. Whether or not the principle of unjust enrichment is applicable.
2. Whether or not there should be liability for payment of interest in the case at
bar.

RULING:

1. The principle of unjust enrichment is applicable. More so, there is an implied
agency between parties. By the 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. Agency may be express or implied from the acts of
the principal, from his silence or lack of action, or his failure to repudiate the agency,
knowing that another person is acting on his behalf without authority. Acceptance
by agent of the contract of agency may also be express or implied from his acts
366

which carry out the agency, or from his silence or inaction according to the
circumstances.

In the case at bar, it can be inferred that a contract of agency exists between parties.
Petitioner, however, acted beyond the scope of her authority since the parties never
agreed on a substitute property to be purchased in case the bidding of the Las Piñas
property failed to materialize. It was also only after sale that petitioner informed the
respondent-spouses that she settled for the Parañaque and Manila properties.
Hence, petitioner’s failure to fulfill her obligation entitles respondent-spouses the
return of the money they remitted to petitioner.

2. Petitioner is liable for interest incurred by the Php3M at the rate of 6% per
annum from date of filing of the Complaint until the Decision becomes final and
executory. Also, an interest of 6% per annum shall be further imposed on the
amount from the finality of the Decision until its satisfaction.

The Court held that there are instances in which an interest may be imposed even in
the absence of express stipulation, verbal or written. Art. 2209 of the Civil Code
states that if the obligation consists in the payment of a sum of money, and the
debtor incurs delay, a legal interest may be imposed as indemnity for damages if no
stipulation of payment of interest was agreed upon. Likewise, Art 2212 of the Civil
Code provides that interest due shall earn legal interest from the time it is judicially
demanded although the obligation may be silent. The interest under these two
instances may be imposed only as penalty or damages for breach of contractual
obligations. It cannot be charged as a compensation for the use of forbearance of
money. As a form of damages, compensatory interest is due only if the obligor is
proven to have failed to comply with his obligation such as in the case at bar.

367

Spouses Chua v. United Coconut Planters Bank

BERSAMIN, J

DOCTRINE:
Art. 1441. Trusts are either express or implied. Express trusts are created by the
intention of the trustor or of the parties. When deeds of absolute sales are
complemented with a deed of trust and the deeds of trust expressly provided that
the TRUSTEE hereby acknowledges and obliges itself not to dispose of, sell, transfer,
convey, lease or mortgage the said parcels of land without the written consent of the
TRUSTORS first obtained, no ownership passes to the TRUSTEE. With the two deeds
of trust executed in favor of Revere not having been expressly cancelled or
rescinded, the properties mortgaged by Revere to UCPB were still owned by
petitioners for all intents and purposes.
The Complementary contracts construed together Doctrine cannot be applied if one
of the complementary contracts is void ab initio.

FACTS: Spouses Chua and co-petitioners entered into a Joint Venture Agreement
(JVA) with Gotesco Properties (Jose Go) for the development of a 44-hectare
property in Lucena City. The JVA did not materialize. However pursuant to the JVA,
several deeds of absolute sale were executed over the Chua’s properties in favor of
Revere (controlled by Jose Go and Gotesco). The deeds of absolute sale were
complemented by a deed of trust under which confirmed that Revere did not part
with any amount in its supposed acquisition of the 12 parcels of land. The deed of
trust further confirmed the Chuas’ absolute ownership of the properties. Gotesco,
also represented by Jose Go, and petitioners, represented by Felix Chua, executed
another deed of trust covering 20 parcels of land distinct from the 12 parcels of land
already covered by the first deed of trust.
Spouses Chua executed a real estate mortgage (REM) in favor of UCPB involving
several parcels of land registered in the names of petitioners to secure the loans
obtained in their personal capacities and in their capacities as corporate officers and
stockholders of the Lucena Grand Central Terminal, Inc. They entered into a
Memorandum of Agreement (MOA) with UCPB to consolidate the obligations of the
Spouses Chua and LGCTI, which was determined at ₱204,597,177.04
UCPB drafted a REM covering the properties listed in the MOA, which petitioners
signed to secure a credit accommodation for ₱404,597,177.04. Under its terms, this
REM covered the payment of all loans, overdrafts, credit lines and other credit
facilities or accommodations obtained or hereinafter obtained by the mortgagors,
LGCTI, Spouses Chua and Jose Go.
On even date, Jose Go, acting in behalf of Revere, and UCPB executed another REM
(Revere REM) involving the properties held in trust by Revere for petitioners. The
execution of the Revere REM was unknown to petitioners.
UCPB foreclosed the mortgages, and the properties were sold for a total bid price of
₱227,700,000.00. UCPB and LGCTI executed a deed of assignment of liabilities
whereby LGCTI would issue 680,000 preferred shares of its stocks to UCPB to offset
its remaining obligations totaling ₱68,000,000.00.
368

UCPB wrote a letter to the Spouses Chua and LGCTI regarding the transfer of LGCTI
shares of stock to its favor pursuant to the deed of assignment of liabilities.
Spouses Chua wrote UCPB to request an accounting of Jose Go's liabilities that had
been mistakenly secured by the mortgage of petitioners' properties, as well as to
obtain a list of all the properties subject of their REM as well as of the Revere REM
for reappraisal by an independent appraiser. The Spouses Chua further requested
that the proceeds of the foreclosure sale of the properties be applied only to
petitioners' obligation of ₱204,597, 1 77.04; and that the rest of the properties or
any excess of their obligations should be returned to them.
UCPB did not heed petitioners' requests.
Petitioners filed their complaint against UCPB, Revere, Jose Go, and the Register of
Deeds of Lucena City in the RTC in Lucena City. The RTC declared Jose Go and
Revere in default. On February 22, 2005, the RTC denied the motion for
reconsideration of Jose Go and Revere.

RTC: Decided in favor of petitioners and declared as legal and binding the Deeds of
Trust and holding the properties held in trust for plaintiff by defendants REVERE
and GO. The RTC also nullified the Deed of Real Estate Mortgage executed by
defendants REVERE and GO in favor of co-defendant UNITED COCONUT PLANTERS
BANK, without the knowledge by the petitioners. The RTC later declared that the
loan obligations of plaintiffs to defendant UNITED COCONUT PLANTERS BANK
under the Memorandum of Agreement have been fully paid. It also ordered UNITED
COCONUT PLANTERS BANK to return so much of the plaintiff’s titles, of their choice,
equivalent to Php200,000,000.00 after applying so much of the mortgaged
properties, including those presently or formerly in the name of REVERE, to the
payment of plaintiffs' consolidated obligation to the bank in the amount of
Php204,597,177.04.

CA: Reversed and set aside the decision of the RTC. The CA declared the REM of Jose
Go and Rivere in favor of UCPB valid. It also applied the proceeds of the foreclosure
partly to the obligation of Rivere and Jose Go and partly to the obligations of the
petitioners. The CA decided that the first REM remained outstanding and was not
extinguished as claimed by petitioners; that the Revere REM was valid based on the
application of the complementary contracts construed together doctrine whereby
the accessory contract must be read in its entirety and together with the principal
contract between the parties; that it was the intention of the parties to extend the
benefits of the two REMs under the first MOA in favor of Jose Go and/or his group of
companies; and that petitioners' obligations with UCPB under the first MOA had not
been fully settled.

ISSUES:
I. Whether or not the MOA constitutes novation of the prior obligations of the
Petitioners -YES
II. Whether or not the Rivere REM is void by reason of the Deed of Trust -YES
369

III. Whether or not the proceeds of the foreclosure should have been applied to Jose
Go and Rivere’s obligations instead of applying them to the petitioners’ obligations
and delivering the excess to them -NO

RULING:
I. We cannot subscribe to the CA's declaration that the 1997 REM still subsisted
separately from the consolidated obligations of petitioners as stated in the March
21, 2000 MOA. As early as the latter part of 1999, correspondence and negotiation
on the matter were already occurring between UCPB, on one hand, and the Spouses
Chua and LGCTI, on the other. Specifically, in its November 10, 1999 letter to
petitioners, UCPB wrote: "This will formalize our earlier discussions on the manner
of settlement of your personal and that of LGCTI's outstanding obligations. " The
outstanding obligations adverted to referred to the Spouses Chua's unsettled,
unpaid and remaining debt with UCPB. In discussing how the Spouses Chua could
settle their obligations, there was no distinction whatsoever between the loans
obtained in 1997 and those made in subsequent years. To be readily inferred from
the tenor of the correspondence was that the Spouses Chua's obligations were
already consolidated.
The MOA referred to the outstanding obligations of LGCTI and the Spouses Chua as
being in the amount of ₱204,597,177.04 as of November 30, 1999. This meant that
all of the Spouses Chua's obligations with UCPB on or prior to November 30, 1999
had already been combined. It was plain enough to see that the MOA constituted the
entire, complete and exclusive agreement between the parties. Its Section 5 .4 of the
MOA expressly stipulated that: "xxxx No statement or agreement, oral or written,
made prior to the signing hereof and no prior conduct or practice by either party
shall vary or modify the written terms embodied hereof, and neither party shall
claim any modification of any provision set forth herein unless such modification is
in writing and signed by both parties. " Furthermore, the REM executed by
petitioners in support of the MOA indicated that the mortgage would secure the
payment of all loans, overdrafts, credit lines and other credit facilities or
accommodations obtained or hereinafter to be obtained by the mortgagors. In light
of the pertinent provisions of the MOA, the only rational interpretation was that the
parties agreed to consolidate the Spouses Chua's past and future obligations, which
would be secured by the REM executed between the parties.

II. There is no question about the validity of the March 21, 2000 MOA as well as the
REM executed by petitioners in support of this MOA. However, much controversy
attended the Revere REM.
The Court affirms the nullity of the Revere REM. We have to note that the REM was
executed by Revere through Jose Go purportedly in connection with the March 21,
2000 MOA on the very same day that petitioners' REM were executed. Yet,
petitioners disclaimed any knowledge or conformity to the Revere REM. With the
two deeds of trust executed in favor of Revere not having been expressly cancelled
or rescinded, the properties mortgaged by Revere to UCPB were still owned by
petitioners for all intents and purposes.
370


III. Additionally, UCPB could not now feign ignorance of the deeds of trust. As the
RTC aptly pointed out, UCPB's own Vice President expressly mentioned in writing
that UCPB would secure from Jose Go the titles necessary for the execution of the
undeniable. In addition, UCPB, being a banking institution, whose business was
A review of the MOA dated March 21, 2000 would reveal that petitioners'
outstanding obligation referred to, after deducting the amount of the thirty
properties, was reduced to only ₱68,000,000.00. To settle this balance, petitioners
agreed to convert this into equity in LGCTI in case they defaulted in their payment.
In this case, what prompted the foreclosure sale of the mortgaged properties was
petitioners' failure to pay their obligations. When the proceeds of the foreclosure
sale were applied to their outstanding obligations, the payment of the balance of the
₱68,000,000.00 was deliberately left out, and the proceeds were conveniently
applied to settle ₱75,000,000.00 of Revere and/or Jose Go's unpaid obligations with
UCPB. This application was in blatant contravention of the agreement that Revere's
or Jose Go's obligations would be paid only if there were excess in the application of
the foreclosure proceeds. Accordingly, the CA should have applied the proceeds to
the entire outstanding obligations of petitioners, and only the excess, if any, should
have been applied to pay off Revere and/or Jose Go's obligations.
Based on the foregoing, therefore, we conclude that the deed of assignment of
liabilities covering the deficiency in its obligation to UCPB in the amount of
₱68,000,000.00 was null and void. According to the apportionment of bid price
executed by UCPB's account officer, the bid amounting to ₱227,700,000.00 far
exceeded the indebtedness of the Spouses Chua and LGCTI in the amount of
371

₱204,597,177.04, which was inclusive of the ₱68,000,000.00 subject of the deed of

assignment of liabilities as well as the ₱32,703,893,450.00 corresponding to the
interests and penalties that UCPB waived in favor of petitioners.
It can be further concluded that UCPB could not have validly assigned to Asset Pool
A any right or interest in the ₱68,000,000.00 balance because the proper application
of the proceeds of the foreclosure sale would have necessarily resulted in the full
extinguishment of petitioners' entire obligation. Otherwise, unjust enrichment
justification; and (2) that such benefit is derived at the expense of another. The main
enriching himself at the expense of another without just cause or consideration. This
principle against unjust enrichment would be infringed if we were to uphold the
decision of the CA despite it having no basis in law and in equity.

372

TORTS AND DAMAGES

Malayan Insurance company, Inc vs. St. Francis square reality.
G.R. No. 198916 -17, July 23, 2018

Peralta, J:
Case Doctrine: The general rule is that attorney's fees cannot be recovered
as part of damages because of the policy that no premium should be placed
on the right to litigate. They are not to be awarded every time a party wins
a suit. The power of the court to award attorney's fees under Article 2208
demands factual, legal, and equitable justification. Even when a claimant is
compelled to litigate with third persons or to incur expenses to protect his
rights, still attorney's fees may not be awarded where no sufficient showing
of bad faith could be reflected in a party's persistence in a case other than
an erroneous conviction of the righteousness of his cause.

FACTS

Malayan Insurance Company, Inc. (Malayan) is a duly-organized domestic
corporation engaged in insurance business. Formerly known as ASB Realty
Corporation (ASB), St. Francis Square Realty Corporation (St. Francis) is a duly-
organized domestic corporation engaged in real estate development. The ASB Group
of Companies, which include the ASB Realty Corporation (now St. Francis Square
Realty Corp.), is under rehabilitation with the Securities and Exchange Commission
(SEC) pursuant to a petition dated May 2, 2000;[Malayan], as Owner, and [St.
Francis], as Developer, executed a Joint Project Development Agreement (JPDA) on
09 November 1995 for the construction, development and completion of what was
then known as "ASB Malayan Tower" ("the Project"), originally a 50-storey
office/residential condominium located at the ADB Avenue cor. Opal St., Ortigas
Center, Pasig City. [Malayan] is the absolute and registered owner of the parcel of
land (the Lot) in Pasig City where the Project is located, as evidenced by Transfer
Certificate of Title No. PT-78585. The Certificate of Registration No. 96-04-2701
issued by the Housing Land Use and Regulatory Board (HLURB) on 12 April 1996
shows that [Malayan] is the Owner and [St. Francis] is the developer. The License to
Sell No. 96-05-2844 issued by the HLURB also refers to [Malayan] as the Owner and
[St. Francis] as Developer. ASB Realty Corporation [now, St. Francis] was not able to
complete the Project; CAIHTE
373

The parties executed a Memorandum of Agreement (MOA) on 30 April 2002,

under which [Malayan] undertook to complete the condominium project
then known as "ASB Malayan Project" that later became "Malayan Plaza
Tower". The MOA was approved by the SEC; The Lot was the subject of a
Contract to Sell between [Malayan] as seller and [St. Francis] as buyer, but
[St. Francis] was unable to completely perform its obligation under the
Contract to Sell;
Under Sec. 2 of the MOA, [Malayan] "shall invest the amount necessary to
complete the Project", among other obligations;
The basis for the distribution and disposition of the condominium units is the
parties' respective capital investments in the Project as provided in Sec. 4 of
the MOA;
[St. Francis] represented and warranted to Malayan that Malayan can
complete the Project at a cost not exceeding Php452,424,849.00 (the
Remaining Construction Cost [RCC]) [Sec. 9 of MOA].
The net saleable area included in Schedule 4 of the 30 April 2002 MOA
("Reserved Units") originally covered fifty-three (53) units with thirty-eight
(38) parking spaces. The aforesaid 53 Reserved Units became only thirty-
nine (39) units after a reconfiguration was done;
The aggregate monetary value of the Reserved Units as fixed by [St. Francis],
is One Hundred Seventy-Five Million Eight Hundred Fifty-Six Thousand
Three Hundred Twenty-Three Pesos and 05/100 (P175,856,323.05);
Under the MOA, [Malayan] assumed vast powers and revoked all authorities
previously granted to [St. Francis] (Section 8 of the MOA, . . .), with the
exception of including [St. Francis] in the bidding committee for bidding of
material and services requirements of the Project (Section 9, paragraph v of
the MOA, . . .). The general supervision, management and control of the day-
to-day operations were undertaken by [Malayan] (Section 5, paragraph b of
the MOA, . . .) but under Sec. 9 of the MOA, "Malayan shall allow one (1)
representative of [St. Francis] to observe the development and completion of
the Project".
On 24 August 2006, [St. Francis] sent a letter to [Malayan] seeking to
reconcile several items amounting to P133.64 million.
Despite the completion of the Project and the turnover of the units to [St.
Francis], [Malayan], and other buyers of units, the issue of actual cost of
construction has not been resolved to the mutual satisfaction of the parties.

374

ISSUES: Whether or not Attorneys fees can be recovered as part of Damages?

HELD
The CIAC denied for lack of factual or legal basis the parties' respective
claims and counterclaims for the award of attorney's fees. It noted that the
parties failed to point out the contractual stipulation on attorney's fees and
expenses of litigation in support of their respective claims therefor. According to
the CIAC, based on its extensive discussions made in disposing the claims and
counterclaims of the parties, it is clear that the two exceptions under Article
2208 of the New Civil Code cited by St. Francis and Malayan do not obtain in this
case. The CIAC explained that Malayan's denial of St. Francis' claims cannot be
characterized as made in gross and evident bad faith, and that the disallowances
of the ARCC in favor of St. Francis disprove that the filing of the arbitration case
was "clearly unfounded." The CA affirmed the CIAC.
Finding that none of the exceptions under Article 2208 of the New Civil
Code is present in this case, the Court agrees with the CA and the CIAC that the
parties' claims for attorney's fees must be denied. As held in ABS-CBN
Broadcasting Corporation v. Court of Appeals:
The general rule is that attorney's fees cannot be recovered
as part of damages because of the policy that no premium should
be placed on the right to litigate. They are not to be awarded every
time a party wins a suit. The power of the court to award
attorney's fees under Article 2208 demands factual, legal, and
equitable justification. Even when a claimant is compelled to
litigate with third persons or to incur expenses to protect his
rights, still attorney's fees may not be awarded where no sufficient
showing of bad faith could be reflected in a party's persistence in a
case other than an erroneous conviction of the righteousness of
his cause.

375

SPOUSES JESUS FERNANDO and ELIZABETH S. FERNANDO, vs. NORTHWEST

AIRLINES, INC.,

Peralta, J:

Case Doctrine: Contracts

FACTS: Spouses Fernando, herein petitioners, filed a complaint for damages against
Northwest Airlines, who is the respondent in this case. The Spouses Fernandos
initiated the filling of the instant complaint which arose when they were treated by
the respondent’s employees wrongly when they were arrived at the Los Angeles
Airport and when they were about to depart from the same airport. In their petition,
the petitioner spouses contented that it was the personal conduct, gross negligence
and the rude and abusive manner of the respondent’s employees which subjected to
indignities, humiliation and embarrassment when the employees of the respondent
refused to to check the validity of the ticket of the petitioners spouses properly and
when the employees refused to board them by reason of lack of printed tickets.

Northwest Airlines, on the other hand, argued that they tired out their best to help
the petitioners spouses and was only acting within the standard boarding
procedures of the Northwest Airlines. The RTC Decision ruled in favor of the
petitioner spouses, which was affirmed by the Court of Appeals. Hence, this petition.

ISSUE:
Whether or not there was breach of contract of carriage and whether it was done in
a wanton, malevolent or reckless manner amounting to bad faith?

HELD:
The Fernandos' cause of action against Northwest stemmed from a breach of
contract of carriage. A contract is a meeting of minds between two persons whereby
one agrees to give something or render some service to another for a consideration.
There is no contract unless the following requisites concur: (1) consent of the
contracting parties; (2) an object certain which is the subject of the contract; and (3)
the cause of the obligation which is established.

A contract of carriage is defined as one whereby a certain person or association of
persons obligate themselves to transport persons, things, or goods from one place to
another for a xed price. Under Article 1732 of the Civil Code, this "persons,
corporations, rms, or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or air, for compensation,
376

offering their services to the public" is called a common carrier. Undoubtedly, a

contract of carriage existed between Northwest and the Fernandos. They voluntarily
and freely gave their consent to an agreement whose object was the transportation
of the Fernandos from LA to Manila, and whose cause or consideration was the fare
paid by the Fernandos to Northwest.

In Alitalia Airways v. CA, et al., 33 We held that when an airline issues a ticket to a
passenger con rmed for a particular right on a certain date, a contract of carriage
arises. The passenger then has every right to expect that he would y on that right
and on that date. If he does not, then the carrier opens itself to a suit for breach of
contract of carriage.

When Northwest con rmed the reservations of the Fernandos, it bound itself to
transport the Fernandos on their right on 29 January 2002. We note that the
witness 35 of Northwest admitted on cross-examination that based on the
documents submitted by the Fernandos, they were confirmed passengers on the
January 29, 2002 flight.

In an action based on a breach of contract of carriage, the aggrieved party does not
have to prove that the common carrier was at fault or was negligent. All that he has
to prove is the existence of the contract and the fact of its non-performance by the
carrier. As the aggrieved party, the Fernandos only had to prove the existence of the
contract and the fact of its non-performance by Northwest, as carrier, in order to be
awarded compensatory and actual damages.

Therefore, having proven the existence of a contract of carriage between
Northwest and the Fernandos, and the fact of non-performance by Northwest of its
obligation as a common carrier, it is clear that Northwest breached its contract of
carriage with the Fernandos. Thus, Northwest opened itself to claims for
compensatory, actual, moral and exemplary damages, attorney's fees and costs of
suit.

Moreover, Article 1733 of the New Civil Code provides that common carriers, from
the nature of their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case.
Also, Article 1755 of the same Code states that a common carrier is bound to carry
the passengers safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with due regard for all the circumstances.
377


We, thus, sustain the findings of the CA and the RTC that Northwest committed a
breach of contract "in failing to provide the spouses with the proper assistance to
avoid any inconvenience" and that the actuations of Northwest in both subject
incidents "fall short of the utmost diligence of a very cautious person expected of it."
Both ruled that considering that the Fernandos are not just ordinary passengers but,
in fact, frequent flyers of Northwest, the latter should have been more courteous
and accommodating to their needs so that the delay and inconveniences they
suffered could have been avoided. Northwest was remiss in its duty to provide the
proper and adequate assistance to them.

Nonetheless, We are not in accord with the common nding of the CA and the RTC
when both ruled out bad faith on the part of Northwest. While We agree that the
discrepancy between the date of actual travel and the date appearing on the tickets
of the Fernandos called for some veri cation, however, the Northwest personnel
failed to exercise the utmost diligence in assisting the Fernandos. The actuations of
Northwest personnel in both subject incidents are constitutive of bad faith.

On the first incident, Jesus Fernando even gave the Northwest personnel the
number of his Elite Platinum World Perks Card for the latter to access the ticket
control record with the airline's computer for her to see that the ticket is still valid.
But Linda Puntawongdaycha refused to check the validity of the ticket in the
computer. As a result, the Immigration Of cer brought Jesus Fernando to the
interrogation room of the INS where he was interrogated for more than two (2)
hours. When he was finally cleared by the Immigration Of cer, he was granted only a
twelve (12)-day stay in the United States (US), instead of the usual six (6) months.

As in fact, the RTC awarded actual or compensatory damages because of the
testimony of Jesus Fernando that he had to go back to Manila and then return again
to LA, USA, two (2) days after requiring him to purchase another round trip ticket
from Northwest in the amount of $2,000.00 which was not disputed by
Northwest.41 In ignoring Jesus Fernando's pleas to check the validity of the tickets
in the computer, the Northwest personnel exhibited an indifferent attitude without
due regard for the inconvenience and anxiety Jesus Fernando might have
experienced.

Passengers do not contract merely for transportation. They have a right to be
treated by the carrier's employees with kindness, respect, courtesy and due
consideration. They are entitled to be protected against personal misconduct,
injurious language, indignities and abuses from such employees. So it is, that any
378

rule or discourteous conduct on the part of employees towards a passenger gives

the latter an action for damages against the carrier.

In requiring compliance with the standard of extraordinary diligence, a standard
which is, in fact, that of the highest possible degree of diligence, from common
carriers and in creating a presumption of negligence against them, the law seeks to
compel them to control their employees, to tame their reckless instincts and to force
them to take adequate care of human beings and their property.

Notably, after the incident, the Fernandos proceeded to a Northwest Ticket counter
to verify the status of the ticket and they were assured that the ticked remained
unused and perfectly valid. And, to avoid any future problems that may be
encountered on the validity of the ticket, a new ticket was issued to Jesus Fernando.
The failure to promptly verify the validity of the ticket connotes bad faith on the part
of Northwest.

Bad faith does not simply connote bad judgment or negligence. It imports a
dishonest purpose or some moral obliquity and conscious doing of a wrong. It
means breach of a known duty through some motive, interest or ill will that
partakes of the nature of fraud. A finding of bad faith entitles the offended party to
moral damages.

As to the second incident, there was likewise fraud or bad faith on the part of
Northwest when it did not allow the Fernandos to board their right for Manila on
January 29, 2002, in spite of con rmed tickets. We need to stress that they have con
rmed bookings on Northwest Airlines NW Flight No. 001 for Narita, Japan and NW
029 for Manila. They checked in with their luggage at LA Airport and were given
their respective boarding passes for business class seats and claim stubs for six (6)
pieces of luggage. With boarding passes and electronic tickets, apparently, they
were allowed entry to the departure area; and, they eventually joined the long
queue of business class passengers along with their business associates.

However, in the presence of the other passengers, Northwest personnel Linda Tang
pulled the Fernandos out of the queue and asked for paper tickets (coupon type).
Elizabeth Fernando explained to Linda Tang that the matter could be sorted out by
simply verifying their electronic tickets in her computer and all she had to do was
click and punch in their Elite Platinum World Perks Card number. Again, the
Northwest personnel refused to do so; she, instead, told them to pay for new tickets
so they could board the plane. Hence, the Fernandos rushed to the Northwest
Airline Ticket counter to clarify the matter. They were assisted by Northwest
379

personnel Jeanne Meyer who retrieved their control number from her computer and
was able to ascertain that the Fernandos' electronic tickets were valid, and they
were con rmed passengers on both NW Flight No. 001 for Narita Japan and NW 029
for Manila on that day.

In Ortigas, Jr. v. Lufthansa German Airlines, this Court declared that "(i)ncontracts of
common carriage, in attention and lack of care on the part of the carrier resulting in
the failure of the passenger to be accommodated in the class contracted for amounts
to bad faith or fraud which entitles the passengers to the award of moral damages in
accordance with Article 2220 of the Civil Code."

In Pan American World Airways, Inc. v. Intermediate Appellate Court, where a
would-be passenger had the necessary ticket, baggage claim and clearance from
immigration, all clearly and unmistakably showing that she was, in fact, included in
the passenger manifest of said right, and yet was denied accommodation in said
ight, this Court did not hesitate to af rm the lower court's finding awarding her
damages on the ground that the breach of contract of carriage amounted to bad
faith. For the indignity and inconvenience of being refused a con rmed seat on the
last minute, said passenger is entitled to an award of moral damages.

In this case, We need to stress that the personnel who assisted the Fernandos even
printed coupon tickets for them and advised them to rush back to the boarding
gates since the plane was about to depart. But when the Fernandos reached the
boarding gate, the plane had already departed. They were able to depart, instead,
the day after, or on January 30, 2002.

In Japan Airlines v. Jesus Simangan, this Court held that the acts committed by Japan
Airlines against Jesus Simangan amounted to bad faith, thus: x x x JAL did not allow
respondent to y. It informed respondent that there was a need to rst check the
authenticity of his travel documents with the U.S. Embassy. As admitted by JAL, "the
right could not wait for Mr. Simangan because it was ready to depart."Since JAL
definitely declared that the right could not wait for respondent, it gave respondent
no choice but to be left behind. The latter was unceremoniously bumped off despite
his protestations and valid travel documents and notwithstanding his contract of
carriage with JAL.Damage had already been done when respondent was offered to
fly the next day on July 30, 1992. Said offer did not cure JAL's default.

Similarly, in Korean Airlines Co., Ltd. v. Court of Appeals, where private respondent
was not allowed to board the plane because her seat had already been given to
another passenger even before the allowable period for passengers to check in had
380

lapsed despite the fact that she had a con rmed ticket and she had arrived on time,
this Court held that petitioner airline acted in bad faith in violating private
respondent's rights under their contract of carriage and is, therefore, liable for the
injuries she has sustained as a result. Under Article 2220 53 of the Civil Code of the
Philippines, an award of moral damages, in breaches of contract, is in order upon a
showing that the defendant acted fraudulently or in bad faith. Clearly, in this case,
the Fernandos are entitled to an award of moral damages. The purpose of awarding
moral damages is to enable the injured party to obtain means, diversion or
amusement that will serve to alleviate the moral suffering he has undergone by
reason of defendant's culpable action.

WHEREFORE, the Decision dated August 30, 2013 and the Resolution dated March
31, 2014 of the Court of Appeals, in CA-G.R. CV No. 93496 are hereby AFFIRMED
WITH MODIFICATION. The award of moral damages and attorney's fees are hereby
increased to P3,000,000.00 and ten percent (10%) of the damages awarded,
respectively. Exemplary damages in the amount of P2,000,000.00 is also awarded.
Costs against Northwest Airlines.

381

CITYSTATE SAVINGS BANK vs. TOBIAS

G.R. No. 227990

REYES, Jr., J.

CASE DOCTRINES:

The contract between the bank and its depositor is governed by the provisions of
the Civil Code on simple loan or mutuum, with the bank as the debtor and the
depositor as the creditor. The doctrine of apparent authority or what is sometimes
referred to as the "holding out" theory, or the doctrine of ostensible agency, imposes
liability, not "as the result of the reality of a contractual relationship, but rather
because of the actions of a principal or an employer in somehow misleading the
public into believing that the relationship or the authority exists."

FACTS:

Rolando Robles, has been employed with Citystate Savings Bank (herein petitioner)
as acting manager for petitioner's Baliuag, Bulacan branch, and eventually as
manager.

Sometime in 2002, respondent Teresita Tobias, a meat vendor at the Baliuag Public
Market, was introduced by her youngest son to Robles. Robies persuaded Tobias to
open an account with the petitioner, and thereafter to place her money in some high
interest rate mechanism, to which the latter yielded.

Thereafter, Robles would frequent Tobias' stall at the public market to deliver the
interest earned by her deposit accounts in the amount of Php 2,000.00. In turn,
Tobias would hand over her passbook to Robles for updating. The passbook would
be returned the following day with typewritten entries but without the
corresponding counter signatures. Tobias was later offered by Robies to sign-up in
petitioner's back-to-back scheme which is supposedly offered only to petitioner's
most valued clients. Under the scheme, the depositors authorize the bank to use
their bank deposits and invest the same in different business ventures that yield
high interest. Robles allegedly promised that the interest previously earned by
Tobias would be doubled and assured her that he will do all the paper work. Lured
by the attractive offer, Tobias signed the pertinent documents without reading its
contents and invested a total of Php 1,800,000.00 to petitioner through Robles.
Later, Tobias became sickly, thus she included her daughter and herein respondent
Shellidie Valdez as co-depositor in her accounts with the petitioner. In 2005, Robles
failed to remit to respondents the interest as scheduled. Respondents tried to reach
Robies but he can no longer be found; their calls were also left unanswered. In a
meeting with Robles' siblings, it was disclosed to the respondents that Robles
withdrew the money and appropriated it for personal use. Robles later talked to the
382

respondents, promised that he would return the money by installments and pleaded
that they do not report the incident to the petitioner. Robles however reneged on his
promise. Petitioner also refused to make arrangements for the return of
respondents' money despite several demands. On January 8, 2007, respondents filed
a Complaint for sum of money and damages. against Robles and the petitioner. In
their Complaint, respondents alleged that Robles committed fraud in the
performance of his duties as branch manager when he lured Tobias in signing
several pieces of blank documents, under the assurance as bank manager of
petitioner, everything was in order.

ISSUE:
Whether or not Citystate is jointly and solidarily liable with robles to pay for the
damage supposedly suffered by respondents?

HELD:

The business of banking is one imbued with public interest. As such, banking
institutions are obliged to exercise the highest degree of diligence as well as high
standards of integrity and performance in all its transactions. The law expressly
imposes upon the banks a fiduciary duty towards its clients and to treat in this
regard the accounts of its depositors with meticulous care.

The contract between the bank and its depositor is governed by the provisions of
the Civil Code on simple loan or mutuum, with the bank as the debtor and the
depositor as the creditor. In light of these, banking institutions may be held liable for
damages for failure to exercise the diligence required of it resulting to contractual
breach or where the act or omission complained of constitutes an actionable tort.

Nonetheless, while it is clear that the proximate cause of respondents' loss is the
misappropriation of Robles, petitioner is still liable under Article 1911 of the Civil
Code, to wit: Art. 1911. Even when the agent has exceeded his authority, the
principal is solidarity liable with the agent if the former allowed the latter to act as
though he had full powers.

Then, applying the doctrine of comparative negligence, this Court adjudged PCIB
and Citibank equally liable for the proceeds of Citibank Check Nos. SN 10597 and
16508.

It is without question that when the action against the bank is premised on breach
of contractual obligations, a bank's liability as debtor is not merely vicarious but
primary, in that the defense of exercise of due diligence in the selection and
supervision of its employees is not available. Liability of banks is also primary and
sole when the loss or damage to its depositors is directly attributable to its acts,
383

finding that the proximate cause of the loss was due to the bank's negligence or
breach.

The bank, in its capacity as principal, may also be adjudged liable under the doctrine
of apparent authority. The principal's liability in this case however, is solidary with
that of his employee.

384

ASIAN TERMINALS, INC. VS PADOSON STAINLESS STEEL CORPORATION

G.R. No. 211876, June 25, 2018

TIJAM, J.

CASE DOCTRINE: Exemplary damages may be awarded only in addition to moral,
temperate, liquidated, or compensatory damages.

FACTS:
Respondent Padoson Stainless Steel Corporation hired ATI to provide arrastre,
wharfage and storage services at the South Harbor, Port of Manila. ATI rendered
storage services in relation to a shipment, consisting of nine stainless steel coils and
72 hot-rolled steel coils which were imported on October 5, 2001 and October 30,
2001, respectively in favor of Padoson, as consignee. The shipments were stored
within ATI's premises until they were discharged on July 29, 2006.

Meanwhile, the shipments became the subject of a Hold-Order issued by the Bureau
of Customs on September 7, 2001. This was an offshoot of a Customs case filed by
the BOC against Padoson due to the latter's tax liability over its own shipments. The
Customs case, docketed as Civil Case No. 01-102440, was pending with the RTC of
Manila, Branch 173.

For the storage services it rendered, ATI made several demands from Padoson for
the payment of arrastre, wharfage and storage services (heretofore referred to as
storage fees), in the following amounts: P540,474.48 for the nine stainless steel coils
which were stored at ATI's premises from October 12, 2001 to July 29, 2006; and
P8,374,060.80 for the 72 hot-rolled steel coils stored at ATI's premises from
November 8, 2001 to July 29, 2006.

The demands, however, went unheeded. Thus, on August 4, 2006, ATI filed a
Complaint with the RTC of Manila, Branch 41 for a Sum of Money and Damages with
Prayer for the Issuance of Writ of Preliminary Attachment against Padoson,
docketed as Civil Case No. 06-115638. ATI ultimately prayed that Padoson be
ordered to pay the following amounts: P8,914,535.28 plus legal interest,
representing the unpaid storage fees; P100,000.00 as exemplary damages; and
P100,000.00 as attorney's fees.

In its Answer with Compulsory Counterclaim with Opposition to Application for
Writ of Preliminary Attachment, Padoson claimed among others, that: (1) during the
time when the shipments were in ATI's custody and possession, they suffered
material and substantial deterioration; (2) ATI failed to exercise the extraordinary
diligence required of an arrastre operator and thus it should be held responsible for
the damages; (3) the Hold-Order issued by the BOC was merely a leverage to claim
Padoson's alleged unpaid duties; (4) relative to the Customs case pending with RTC,
Branch 173, Padoson filed a Motion for Ocular Inspection and in the course of the
385

inspection, Sheriff Romeo V. Diaz discovered that the shipments were found in an
open area and were in a deteriorating state; (5) due to this, Padoson was compelled
to file a Manifestation and Motion dated January 27, 2004 praying for the release of
the shipments, which was in turn, granted by the RTC on June 25, 2004; (6) on April
17, 2006, the RTC issued a Resolution, granting Padoson's Motion for Issuance of
Writ of Execution and accordingly issued the Writ of Execution, allowing Padoson to
take possession of the shipment; (7) Sheriff Diaz in his Sheriffs Partial Return on
Execution dated August 8, 2006, stated that one of the nine steel coils which were
part of the shipments, were missing; and (8) That due to the deterioration of the 72
hot-rolled steel coils, their value depreciated and when Padoson sold the same, he
incurred a loss of P13.8 Million in lost profits. As to the stainless steel coils, he
incurred a total loss of P2,992,000.00 corresponding to the value of the one steel coil
lost (P882,000.00) and the lost profits for the sale of the remaining steel coils
(P2,110,000.00).

In its Answer to Compulsory Counterclaim, ATI countered that it exercise due
diligence in the storage of the shipments and that the same were withdrawn from its
custody in the same condition and quantity as when they were unloaded from the
vessel.

During the trial, Padoson presented a certain Mr. Gregory Ventura, who allegedly
took pictures of the shipments. The pictures, however, were not pre-marked during
the pre-trial. Consequently, the RTC issued an Order dated September 8, 2011,
disallowing the marking of the said pictures and Ventura's testimony thereon. To
assail the said order, Padoson filed a Petition for Certiorari before the CA but the
same was denied in the CA Decision dated July 1, 2013, which became final and
executory on July 24, 2013.

ATI called to the witness stand its Cash Billing Supervisor, Mr. Samuel Goutana to
explain how ATI computed the amount of storage fees prayed for in its Complaint
against Padoson.

On July 16, 2012, the RTC rendered its Decision, dismissing ATI's complaint and
Padoson's counterclaim. The RTC held that although the computation of storage fees
to be paid by Padoson as prayed for in ATI's complaint to the tune of P8,914,535.28
plus legal interest, were "clear and unmistakable" and which Padoson never denied,
the liability to pay the same should be borne by the BOC. RTC reasoned out that by
virtue of the Hold-Order over Padoson's shipments, the BOC has acquired
constructive possession over the same. Consequently, the BOC should be the one
liable to ATI's money claims. The RTC, however, pointed out that since ATI did not
implead the BOC in its complaint, the BOC cannot be held to answer for the payment
of the storage fees.

ATI appealed the RTC decision, but the same was denied by the CA in its Decision
dated July 23, 2013. The CA ruled that the RTC did not err in holding that Padoson's
shipments were under the BOC's constructive possession upon its issuance of the
386

Hold-Order. The CA, likewise, ruled that there is substantial evidence to prove that
the shipments suffered loss and deterioration or damage while they were stored in
ATI's premises. But since the BOC had acquired constructive possession over the
shipments, the CA ruled that neither ATI could be held liable for damages nor
Padoson be held liable for the storage fees. Lastly, the CA pronounced that the RTC
was correct in holding that no relief may be given to both ATI and Padoson since the
BOC was not impleaded in ATI's complaint.

ATI filed a Motion for Reconsideration, stating among others, that: (1) the
documents attached to Padoson's Answer are inadmissible and insufficient to prove
that the shipments were damaged while in ATI's premises; (2) those documents
were related to the Customs case in which ATI was not impleaded as a party, and
thus, was not given an opportunity to contest them; (3) with respect to the
photographs over the shipments allegedly taken on January 16, 2004, the same
should be inadmissible for lack of authentication; (4) that Padoson's witness, a
certain Mary Jane Lorenzo, was not competent to testify on the photographs since
she admitted that she was not the one who took the photographs and that the same
do not indicate that they pertain to Padoson's shipment; (5) Sheriff Dizon's
declaration in his Report on Ocular Inspection that the shipments, were "already in a
deteriorating condition," were merely conclusory; and (6) Sheriff Dizon who
prepared the Partial Return on Execution dated August 8, 2006, was not called to the
witness stand to testify on the contents of the said Return.

On March 26, 2014, the CA issued a Resolution denying ATI's motion for
reconsideration. Hence, this petition for review on certiorari.

ISSUE:
Whether or not ATI is entitled to an award of damages?

HELD:

ATI is not entitled to exemplary damages and attorney’s fees. Pursuant to Articles
2229 and 2234 of the Civil Code, exemplary damages may be awarded only in
addition to moral, temperate, liquidated, or compensatory damages. Since ATI is not
entitled to either moral, temperate, liquidated, or compensatory damages, then their
claim for exemplary damages is bereft of merit. It has been held that as a requisite
for the award of exemplary damages, the act must be accompanied by bad faith or
done in wanton, fraudulent or malevolent manner — circumstances which are
absent in this case.

Finally, considering the absence of any of the circumstances under Article 2208 of
the Civil Code where attorney's fees may be awarded, the same cannot be granted to
ATI.

387

NATIONAL POWER CORPORATION VS THE COURT OF APPEALS

GR NO. 206167 MARCH 19, 2018
TIJAM, J.:

DOCTRINE: Payment of attorney’s fees is the personal obligation of the client.

FACTS:
On July 26, 2007, the RTC rendered a decision in favor of Sps. Javellana against NPC
and Transco to fix lease rental and just compensation, collection of sum of money
and damages. NPC and Transco filed their respective appeals and Sps. Javellana filed
a Motion for Execution Pending Appeal which the RTC granted.

In the meantime, Transco negotiated with Spouses Javellana for the extra-judicial
settlement of the case. As a result, Transco agreed to buy the property of the
Spouses Javellana affected by the transmission lines.

Thereafter, Atty. Rex C. Muzones (Atty. Muzones), the counsel of the Spouses
Javellana filed a Notice of Attorney's lien. On June 27, 2008, the respondent judge
issued an Order ordering NPC and Transco to pay Atty. Muzones the amount of
P52,469,660.00 as his attorney's lien. On June 30, 2008, the respondent judge issued
a Clarificatory Order stating that the attorney's fees of P52,469,660.00 is separate
and distinct from the amount to be paid to the Spouses Javellana.

ISSUE:
Whether or not NPC and Transco are liable to pay the attorney’s fees?

RULING:

No. As to the validity of a compromise agreement cannot be prejudiced, so should
not be the payment of a lawyer's adequate and reasonable compensation for his
services should the suit end by reason of the settlement. The terms of the
compromise subscribed to by the client should not be such that will amount to an
entire deprivation of his lawyer's fees, especially when the contract is on a
contingent fee basis. In this sense, the compromise settlement cannot bind the
lawyer as a third party. A lawyer is as much entitled to judicial protection against
injustice or imposition of fraud on the part of his client as the client is against abuse
on the part of his counsel.

NPC cannot be held liable to pay the attorney's fees of Atty. Muzones since the same
is a personal obligation of the Spouses Javellana who benefited from the legal
services of Atty. Muzones.

388

SBCA SOL Batch 2018 2019 Civil Law Review 2 Cases

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CIVIL

Obligations and Contracts ……………………………………… 2

Sales and Lease …………………………………………………….. 192

Credit Transactions …………..………………………………….. 300

Agency, Partnership and Trusts ……………………………. 346

Torts and Damages …………………………………………….... 373

“That in all things,

Whether or not the doctrine of laches is applicable

Heirs of Mariano vs. City of Naga

· Void contracts may not be invoked as a valid action or defense in

The MTC denied the motion.

A deed of donation acknowledged before a notary public is a

DALE STRICKLAND vs. ERNST & YOUNG LLP

By June 6, 2002, EYLLP wrote PA of the termination of its membership in EYLLP.

Strickland exchanged letters containing proposed amendments to cover the new

Subsequently, conflict on Strickland's actual participation and concurrent

On June 2, 2005, counsel for PA responded, categorically denying any contractual

Subsequent to the complaint, EYLLP and/or EYAPFS filed a "Motion to

In Cargill Philippines, Inc. v. San Fernando Regala Trading, Inc, we discussed at

Arbitration, as an alternative mode of settling disputes, has long been recognized

A contract is required for arbitration to take place and to be binding. Submission to

The separability of the arbitration agreement is especially significant to the

We have consistently affirmed that commercial relationships covered by our

ALLIED BANKING CORPORATION V. SPOUSES VILLALUZ, SR.

SPOUSES LOQUELLANO VS. HONGKONG AND SHANGHAI BANKING

updated balances were automatically generated by the system; that petitioner

SPS. CELONES vs. METROPOLITAN BANK AND TRUST COMPANY

SPOUSES ONG VS BPI FAMILY SAVINGS

PHILIPPINE INTERNATIONAL TRADING CORPORATION vs. THRESHOLD

regularity, and observance of the ordinary course of business accorded to loan

MARIA C. OSORIO, PETITIONER, VS. PEOPLE OF THE PHILIPPINES,

VILLA CRISTA MONTE REALTY & DEVELOPMENT CORP. V. EQUITABLE PCI

YUJUICO VS. FAR EAST BANK & TRUST COMPANY

ALLIED BANKING CORP. V. EQUITABLE PCI BANK, INC.

LAND BANK OF THE PHILIPPINES VS. HEREDEROS DE CIRIACO CHUNACO

DESIDERIO DALISAY INVESTMENTS, INC., vs. SOCIAL SECURITY SYSTEM

YES. Among other modes, an obligation is extinguished by payment or performance.

SPOUSES LAHER vs SPOUSES LOPEZ

VIVE EAGLE LAND, INC. V. NATIONAL HOME MORTGAGE FINANCE CORP.,

NORTHERN MINDANAO INDUSTRIAL PORT AND SERVICES CORPORATION v.

VILLAMIL VS. SPOUSES ERGUIZA

MARIA C. OSORIO VS PEOPLE OF THE PHILIPPINES

SPOUSES ONG V. BPI FAMILY SAVINGS BANK, INC.,

THELMA MULLER VERSUS PHILIPPINE NATIONAL BANK

where petitioners were still obligated to pay rent to respondent as reasonable

ALEJAGA, SR. V. SPOUSES LIBARDO

FLORO MERCENE vs. GOVERNMENT SERVICE INSURANCE SYSTEM

SPOUSES MITRA VS PLANTERS DEVELOPMENT BANK

municipal building of the municipality in which the property or

Re: Contracts with Artes International, Inc.

Excellent Essentials International Corp. v. Extra Excel International

SWIRE REALTY DEVELOPMENT CORPORATION, Petitioner, v. SPECIALTY

Paradigm Development Corp. of the Philippines v. Bank of the Philippine

secured the amount of P8 Million. The other REM, acknowledged on December

PDCP alleged that FEBTC, [BPI's] predecessor-in-interest, fraudulently

In relation thereto, Article 2125 of the Civil Code reads:

Iloilo Jar Corporation v. COMGLASCO Corporation/Aguila Glass

SECURITY BANK CORPORATION, vs. SPOUSES RODRIGO and ERLINDA

any stipulation regarding the validity or compliance of the contract that is

Settlement Agreement . In the Settlement Agreement, Halim Saad agreed to pay

Verily, the same acts of misrepresentations that constituted fraud in Wincorp's

Industrial Personnel and Management Services, Inc. v. Country Bankers

include as preconditions for the payment of claims the submission of official

NOELL WHESSOE, INC. vs. INDEPENDENT TESTING CONSULTANTS, INC.,

Stephenson (Stephenson). However, it averred that it later received a letter from

to as a subcontractor to provide materials or services. There are also situations

WERR CORPORATION INTERNATIONAL, Petitioner, v. HIGHLANDS PRIME, INC.