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PERLAS BERNABE

OBLIGATIONS AND CONTRACTS


LIVING @ SENSE, INC v. MALAYAN INSURANCE COMPANY, INC. (Resolution)
G.R. No. 193753 September 26, 2012

DOCTRINE:
The nature of the solidary obligation under the surety does not make one an indispensable party. An
indispensable party is a party-in-interest without whom no final determination can be had of an action,
and who shall be joined mandatorily either as plaintiffs or defendants.

In this case, DMI in not an indispensable party because petitioner can claim indemnity directly from
respondent, having made itself jointly and severally liable with DMI for the obligation under the bonds.
Therefore, the failure to implead DMI is not a ground to dismiss the case, even if the same was without
prejudice.

FACTS:
The case is for a petition for review on certiorari on pure questions of law of the RTC of Paranaque
dismissing without prejudice the complaint for specific performance and breach of contract. The
petitioner was the main contractor of the FOC Network Project of Globe Telecom in Mindanao. In
connection with the project, petitioner entered into a Sub-Contract Agreement3 (Agreement) with DMI,
under which the latter was tasked to undertake an underground open-trench work. Petitioner required
DMI to give a bond, in the event that DMI fails to perform its obligations under the Agreement. Thus,
DMI secured surety and performance bonds, both in the amount of ₱ 5,171,488.00, from respondent
Malayan Insurance Company, Inc. (respondent) to answer:

(1) for the unliquidated portion of the downpayment, and (2) for the loss and damage that petitioner may
suffer, respectively, should DMI fail to perform its obligations under the Agreement. Under the bonds,
respondent bound itself jointly and severally liable with DMI.

During the course of excavation and restoration works, DPWH issued a work-stoppage order against DMI
after finding the latter’s work unsatisfactory. Notwithstanding the said order, however, DMI still failed to
adopt corrective measures, prompting petitioner to terminate the Agreement and seek
indemnification from respondent in the total amount of ₱ 1,040,895.34.

However, respondent effectively denied petitioner’s claim on the ground that the liability of its principal,
DMI, should first be ascertained before its own liability as a surety attaches. Hence, the instant complaint,
premised on respondent’s liability under the surety and performance bonds secured by DMI.

Seeking the dismissal of the complaint, respondent claimed that DMI is an indispensable party that should
be impleaded and whose liability should first be determined before respondent can be held liable.

On the other hand, petitioner asserted that respondent is a surety who is directly and primarily liable to
indemnify petitioner, and that the bond is "callable on demand" in the event DMI fails to perform its
obligations under the Agreement.

RTC dismissed the complaint without prejudice for failure to implead DMI as a party defendant.

The petitioner maintains that the rule on solidary obligation permits it to proceed against any of the solidary
debtor as provided for by Article 1216 of the Civil Code.

ISSUE:
Whether or not DMI is an indispensable party in this case?

HELD:
No. The records of the case show that when DMI secured the surety and the performance bonds from
respondent in compliance with petitioner’s requirement, respondent bound itself “jointly and severally”
with DMI for the damages and actual loss that the petitioner may suffer should DMI fail to perform its
obligation under the Agreement. The term “jointly and severally” expresses a solidary obligation granting
petitioner, as creditor, the right to proceed against its debtors.
PERLAS BERNABE
The nature of the solidary obligation under the surety does not make one an indispensable party. An
indispensable party is a party-in-interest without whom no final determination can be had of an action,
and who shall be joined mandatorily either as plaintiffs or defendants.

In this case, DMI in not an indispensable party because petitioner can claim indemnity directly from
respondent, having made itself jointly and severally liable with DMI for the obligation under the bonds.
Therefore, the failure to implead DMI is not a ground to dismiss the case, even if the same was without
prejudice.

PEOPLE v. LAYAG
G.R. No. 214875 October 17, 2016

FACTS:
Layag was the accused in a criminal case of Qualified Rape. In a resolution dated August 3, 2015 the
Supreme Court adopted the Decision of the Court of Appeals finding Layag guilty beyond reasonable doubt
for said crime. Subsequently, it was found that Layag died on July 30, 2015, or prior to the promulgation
of the August 3, 2015 resolution.

ISSUE:
W/N the civil liability of Layag was extinguished by his death.

HELD:
The civil liability of the accused is extinguished. Jurisprudence provides that the death of the accused
pending appeal of his conviction terminates his criminal liability and only the civil liability directly arising
from and based solely on the offense committed, i.e., civil liability ex delicto. Since Layag died pending
appeal of his conviction, the civil action instituted in the criminal case for the recovery of civil liability ex
delicto is ipso facto extinguished, grounded as it is on the criminal action.

However, jurisprudence also provides that where the civil liability may also be predicated on a source of
obligation other than delict such as Law, Contracts, Quasi-contracts, or Quasi-delicts, the claim for said
civil liability survives. Thus, if Layag’s civil liability in connection with his acts against the victim may
be based on sources other than delicts, then a separate civil action against the estate of Layag may be
filed by said victim.

ENRIQUE Y. SAGUN v. ANZ GLOBAL SERVICES AND OPERATIONS (MANILA), INC.


G.R. No. 220399 August 22, 2016 (Resolution)

DOCTRINE:
Perfection of employment contracts. – An employment contract, like any other contract, is perfected at the
moment the parties come to agree upon the terms and conditions, and thereafter, concur in the essential
elements thereof. In this relation, 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.

A contract may be perfected, but its effectivity may be subject to a suspensive condition and therefore, the
petitioner’s employment will depend on the fulfillment of the conditions. – In this case, the Court agrees
with the finding of the CA that there was already a perfected contract of employment when petitioner signed
ANZ’s employment offer and agreed to the terms and conditions that were embodied therein. Nonetheless,
the offer of employment extended to petitioner contained several conditions before he may be deemed an
employee of ANZ. Among those conditions for employment was the satisfactory completion of any checks
that may be required by ANZ. Accordingly, petitioner’s employment with ANZ depended on the outcome
of his background check, which partakes of the nature of a suspensive condition and hence, renders the
obligation of the would-be employer in this case, conditional.

FACTS:
Enrique Sagun applied for the position of Payments and Cash Processing Lead at ANZ Global Services
and Operations (Manila), Inc., a domestic corporation whose businesses involve a full range of banking
products and services. After passing the interview and online examination, ANZ, through its Senior Vice
President for Operations, offered Sagun the position of Customer Service Officer, Payments and Cash
Resolution, which the latter accepted.
PERLAS BERNABE
The terms and conditions of his employment required, among others, a satisfactory result of his pre-
employment screening. The pertinent portions of which are:

“In accordance with its legal and regulatory obligations, and in accordance with ANZ policy, you
may be required to undergo a police record check prior to commencing work with ANZ, or at other
times during your employment.

You may also be required to undergo other checks (e.g. bankruptcy checks, sanctions screening,
reference checks, etc.). ANZ may engage the services of an external provider to conduct these
checks.

Your initial and ongoing employment is conditional on ANZ being satisfied tftat tfte
results of:

• a police record check are compatible with the inherent requirements of your position;
and
• any otfter required background or otfter cftecks are to tfte satisfaction of
ANZ (keeping in mind your position and ANZ's role as a financial institution).

ANZ may use any information you provide to conduct reference checks and any other
background checks.

Your employment is also conditional upon you holding all necessary visas and meeting all
immigration requirements necessary for you to work in Philippines in this position.

If, in tfte opinion of ANZ, any of your background cftecks, reference cftecks or visas are
not satisfactory, ANZ may cftoose not to commence your employment, or wftere you
ftave already started, to end your employment immediately, witft no liability to pay
compensation to you.”

Subsequently, ANZ handed a letter of retraction signed by ANZ’s Human Resources, informing Sagun that
the job offer had been withdrawn on the ground that the company found material inconsistencies in his
declared information and documents provided after conducting a background check with his previous
employer.

Sagun asserted that his employment contract had already been perfected upon his acceptance of the offer
and he could only be dismissed for cause. He filed a complaint for illegal dismissal against ANZ.

ISSUE:
Whether or not an employer-employee relationship existed between Sagun and ANZ immediately upon
the perfection of the contract.

RULING:
NO. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the
other, to give something or to render some service. There is no contract unless the following essential
requisites concur: a) consent of the contracting parties; b) object certain which is the subject matter of the
contract; and c) cause of the obligation which is established.

An employment contract, like any other contract, is perfected at the moment the parties come to agree
upon its terms and conditions, and thereafter, concur in the essential elements thereof. In this relation,
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.
A condition is defined as every future and uncertain event upon which an obligation is made to depend.
Jurisprudence states that when a contract is subject to a suspensive condition, its effectivity shall take
place only if and when the event which constitutes the condition happens or is fulfilled. Furthermore,
Article 1181 of the Civil Code provides that in conditional obligations, the acquisition of rights, as well
as the extinguishment or loss of those already acquired, shall depend upon the happening of the event
which constitutes the condition.

In this case, there was already a perfected contract of employment when Sagun signed ANZ’s employment
offer and agreed to the terms and conditions that were embodied therein. Nonetheless, the offer of
employment extended to Sagun contained several conditions before he may be deemed and
PERLAS BERNABE
employee of ANZ. Among those conditions for employment was the satisfactory completion of any checks
that may be required by ANZ. Accordingly, Sagun’s employment with ANZ depended on the outcome of
his background check, which partakes of the nature of a suspensive condition, and hence, renders the
obligation ANZ conditional.

Consequently, no employer-employee relationship was said to have been created between Sagun and ANZ
under the circumstances and therefore, the complaint for illegal dismissal should be dismissed.

BANK OF THE PHILIPPINE ISLANDS v. AMADO M. MENDOZA and MARIA MARCOS VDA.
DE MENDOZA
G.R. No. 198799 March 20, 2017

DOCTRINE: While the Best Evidence Rule under Section 3, Rule 130 of the Rules of Court states that
generally, the original copy of the document must be presented whenever the content of the document
is under inquiry, the rule admits of certain exceptions, such as "[w]hen the original has been lost or
destroyed, or cannot be produced in court, without bad faith on the part of the offeror." In order to fall
under the aforesaid exception, it is crucial that the offeror proves: (a) the existence or due execution of
the original; (b) the loss and destruction of the original, or the reason for its non-production in court; and
(c) the absence of bad faith on the part of the offeror to which the unavailability of the original can be
attributed.

FACTS: BPI filed a Complaint for Sum of Money against respondents before the RTC. BPI alleged that
on April 8, 1997, respondents: (a) opened a foreign currency savings account at BPI-Gapan Branch and
deposited therein the total amount of US$l6,264.00; broken down as follows: US$100.00 in cash and
US$16,164.00 in US Treasury Check with No. 3149-09693369 payable to "Ma. Marcos Vda. de Mendoza"
(subject check; and (b) placed the amount of US$2,000.00 in a time deposit account.

After the lapse of the thirty (30) day clearing period, respondents withdrew the amount of US$16,244.00
from the US savings account, leaving only US$20.00 for bank charges. However, on June 26, 1997, BPI
received a notice from its correspondent bank, Bankers Trust Company New York (Bankers Trust), that the
subject check was dishonored due to "amount altered", as evidenced by (1) an electronic mail (e-mail)
advice from Bankers Trust, and (2) a photocopy of the subject check with a notation "endorsement
cancelled" by Bankers Trust as the original copy of the subject check was allegedly confiscated by the
government of the United States of America (US government).

BPI informed respondents of such dishonor and to demanded reimbursement. BPI then claimed that on
July 18, 1997, respondents allowed BPI to apply the proceeds of their time deposit account in the amount
ofUS$2,015.00 to their outstanding obligation. And when respondents failed to fulfill their obligation
despite repeated demands, BPI was constrained to give a final demand letter to respondents.

Respondents then maintained that Amado only affixed his signature in the letter dated July 18, 1997 in
order to acknowledge its receipt, but not to give his consent to the application of the proceeds of their
time deposit account to their purported obligations to BPI. According to Amado, since the bank failed to
present proper and authenticated proof of the dishonor of the subject check, BPI had no cause of action
against him and his mother, Maria.

RTC ruled in BPI's favor. CA reversed and set aside the RTC's ruling, and consequently, dismissed BPI's
complaint for lack of merit. It held that BPI failed to prove the dishonor of the subject check, since: (a) the
presentation of a mere photocopy of the subject check is in violation of the Best Evidence Rule; and
(b) the e-mail advice from Bankers.

ISSUE:
Whether or not the CA correctly dismissed BPI's complaint for sum of money against respondents.

HELD:
It is settled that in civil cases, the party having the burden of proof must produce a preponderance of
evidence thereon, with plaintiff having to rely on the strength of his own evidence and not upon the
weakness of the defendant's. Preponderance of evidence is the weight, credit, and value of the aggregate
evidence on either side and is usually considered to be synonymous with the term 'greater weight of
evidence' or 'greater weight of credible evidence. Succinctly put, it only requires that evidence be greater
or more convincing than the opposing evidence.
PERLAS BERNABE
Records evince that BPI was able to satisfactorily prove by preponderance of evidence the existence of
respondents' obligation in its favor. Verily, Amado acknowledged its existence and expressed his
conformity thereto when he voluntarily: (a) affixed his signature in the letters dated June 27, 1997 and July
18, 1997, where he acknowledged the dishonor of the subject check, and subsequently, allowed BPI to
apply the proceeds of their US time deposit account to partially offset their obligation to the bank; and
(b) executed a Promissory Note dated September 8, 1997 wherein he undertook to pay BPI in installments
of ₱l,000.00 per month until the remaining balance of his obligation is fully paid.

Aside from his bare testimony, Amado did not present any corroborative evidence to support his claim
that his performance of the aforesaid voluntary acts was subject to BPI's presentment of the proper and
authenticated proof of the dishonored subject check. Amado's unsubstantiated testimony is self-serving
at the most, and hence, cannot be relied upon.

Anent the subject check, while the Best Evidence Rule under Section 3, Rule 130 of the Rules of Court
states that generally, the original copy of the document must be presented whenever the content of the
document is under inquiry, the rule admits of certain exceptions, such as "[w]hen the original has been
lost or destroyed, or cannot be produced in court, without bad faith on the part of the offeror." In order
to fall under the aforesaid exception, it is crucial that the offeror proves: (a) the existence or due execution
of the original; (b) the loss and destruction of the original, or the reason for its non-production in court;
and (c) the absence of bad faith on the part of the offeror to which the unavailability of the original can
be attributed.

In this case, BPI sufficiently complied with the foregoing requisities. First, the existence or due execution
of the subject check was admitted by both parties. Second, the reason for the non-presentation of the
original copy of the subject check was justifiable as it was confiscated by the US government for being
an altered check. The subject check, being a US Treasury Warrant, is not an ordinary check, and
practically speaking, the same could not be easily obtained. Lastly, absent any proof to the contrary and
for the reasons already stated, no bad faith can be attributed to BPI for its failure to present the original
of the subject check. Thus, applying the exception to the Best Evidence Rule, the presentation of the
photocopy of the subject check as secondary evidence was permissible.

In sum, considering that BPI had proven its cause of action by preponderance of evidence, the Court finds
the CA to have erred in dismissing BPI's complaint against respondents. Accordingly, the RTC ruling
must be reinstated, subject to modification in the award of interest imposed on the adjudged amount.

LORALEI P. HALILI, PETITIONER, v. JUSTICE FOR CHILDREN INTERNATIONAL, ROB


MORRIS, AND GUNDELINA A. VELAZCO, RESPONDENTS.
G.R. No. 194906 September 9, 2015

DOCTRINE: Applicable laws form part of, and are read into, contracts without need for any express
reference thereto; more so, when it pertains to a labor contract which is imbued with public interest. Each
contract thus contains not only what was explicitly stipulated therein, but also the statutory provisions
that have any bearing on the matter.

FACTS:
Respondents Gundelina A. Velazco (Velazco) and Rob Morris (Morris), in their respective capacities as
Director and President, executed an employment contract with Halili for a term of one (1) year, with the
condition that either party may terminate the same "at any time by giving four [(4)] weeks written notice"
(termination clause).

On July 13, 2006, JFCI enforced the termination clause by informing Halili that they are terminating her
services as Consultant Program Coordinator, effective August 16, 2006. Claiming that she was illegally
dismissed, Halili filed a complaint against JFCI, Velazco and Morris (respondents) before the NLRC.

ISSUE:
Whether or not petitioner was illegally dismissed despite the termination clause expressly stipulated in
the contract.

HELD:
YES. In this case, it is undisputed that the contract entered into by JFCI and Halili is a fixed-term
employment contract, covering a period of one (1) year. The peculiar feature, however, of this contract
PERLAS BERNABE
lies in its termination clause which reads that either party may terminate the same "at any time by
giving four (4) weeks written notice"

While said clause is silent on the requirement of a legal cause for the same to be operative, the fundamental
principle — as above-stated — is that the law is read into every contract. Hence, the contract's termination
clause should not be interpreted as a form of blanket-license by which each of the parties may just abdicate
the contract at will. Rather, it is a clause which allows any of the parties to pre- terminate the employment
contract within the stipulated fixed-term period of one year, provided that the party invoking the same
has: (a) a legal cause for terminating it; and (b) notifies the other party in writing four (4) weeks prior to
the intended date of termination.

That the parties had intended to dispense with the need for a legal cause for the termination clause to be
operative does not sufficiently appear in this case. Had they so intended, then the contract should have
so indicated, as in Price v. Innodata Phils., Inc., which contractual provision explicitly allowing the
employer to pre-terminate the same "with or without cause" was, however, struck down as invalid.

It is clear that the first requisite of legal cause was not complied with by JFCI. No just or authorized cause
was proven by substantial evidence in support of its invocation of the termination clause stated in its
contract with Halili. As such, the pre-termination of the contract was infirm. Thus, considering further
that respondents' argument on its purported loss of trust and confidence in Halili cannot be taken into
account at this stage since it was belatedly raised for the first time on appeal, the NLRC did not gravely
abuse its discretion in ruling that Halili's dismissal was illegal. The CA's issuance of a writ of
certiorari was perforce improper.

PHILIPPINE TRANSMARINE CARRIERS, INC. (PTCI), CARLOS C. SALINAS, AND


NORWEGIAN CREW MANAGEMENT A/S, Petitioners, v. CESAR C. PELAGIO, Respondent.
G.R. No. 211302 August 12, 2015

DOCTRINE:
Compromise agreement, conditional in nature, prevents a case from being moot and academic.

FACTS:
PTCI hired Pelagio as a Motorman on board the vessel MN Drive Mahone under a POEA-approved
employment contract. After being declared fit for employment, Pelagio boarded M/V Drive Mahone.
Sometime in February 2010 Pelagio was referred to a port doctor in Said, Egypt, where he was diagnosed
with "Myositis" and declared unfit to work. He was repatriated back to the Philippines and promptly
sought the medical attention of the company¬-designated physician, Dr. Robert D. Lim (Dr. Lim). He was
diagnosed and was assessed of disability rating of Grade 11. He sought a second opinion from a Dr.
Manuel Fidel M. Magtira (Dr. Magtira), who assessed him with a Grade 8 disability. He then filed a
complaint for disability benefits, among others, against petitioners before the (NLRC), contending that
his inability to work for more than 120 days from repatriation entitles him to permanent total disability
benefits. Petitioners countered that Pelagio is not entitled to permanent total disability benefits,
considering that the independent physician, Dr. Magtira, assessed him with a Grade 8 impediment.

The LA found that Pelagio was suffering from a permanent partial disability. Dissatisfied, Pelagio
appealed to the NLRC which reversed and set aside the LA ruling, and accordingly, awarded Pelagio the
amount of US$77,000.00 at its peso equivalent at the time of actual payment representing permanent total
disability benefits and attorney's fees. Upon denial of their motion for reconsideration, petitioners filed a
petition for certiorari before the CA. During the pendency of the certiorari proceedings, the parties
executed a Satisfaction of Judgment stating that petitioners had already given Pelagio the amount of
P3,313,772.00 as complete satisfaction of the NLRC ruling. However, it is likewise stated therein that such
satisfaction of judgment "is without prejudice to petitioners' petition for certiorari pending with the CA
x x x,”

The CA dismissed the certiorari petition, ruling that the Satisfaction of Judgment executed by the parties
is in the nature of a compromise agreement and held that the issues raised in the petition had already
been rendered moot and academic, and as such, the petition must be dismissed without going into the
merits of the case. Petitioners moved for reconsideration but was denied; hence, this petition for review
on certiorari.
PERLAS BERNABE
ISSUE:
Whether or not the execution of the Satisfaction of Judgment between the parties rendered the certiorari
before the CA moot and academic.

HELD:
No. A compromise agreement is a contract whereby the parties, by making reciprocal concessions, avoid
a litigation or put an end to one already commenced. To be considered valid and binding between the
contracting parties, a compromise agreement must be: (a) not contrary to law, morals, good customs,
public order, and public policy; (b) freely and intelligently executed by and between the parties; and (c)
compliant with the requisites and principles of contracts. Once entered into, it has the effect and the
authority of res judicata upon the parties. In other words, a valid compromise agreement may render a
pending case moot and academic. However, the parties may opt to put therein clauses, conditions, and
the like that would prevent a pending case from becoming moot and academic - such as when the
execution of such agreement is without prejudice to the final disposition of the said case.

In the instant case, it is undisputed that the parties had entered into a Satisfaction of Judgment signifying
that petitioners had already given Pelagio the amount of P3,313,772.00 as full and complete satisfaction
of the NLRC ruling. While this document may be properly deemed as a compromise agreement, it is
conditional in nature, considering that it is without prejudice to the certiorariproceedings pending before
the CA, i.e., it obliges Pelagio to return the aforesaid proceeds to petitioners should the CA ultimately
rule in the latter's favor.

REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE PRESIDENTIAL COMMISSION


ON GOOD GOVERNMENT v. LEGAL HEIRS OF JOSE L. AFRICA
G.R. No. 205722 August 19, 2015

DOCTRINE:
For a stipulation pour autrui to be appreciated, it is indispensable that there be a stipulation deliberately
conferring a benefit or favor to a third person.

FACTS:
On July 31, 1987, the PCGG filed a complaint for reconveyance, reversion, accounting, restitution, and
damages before the Sandiganbayan against several defendants including Africa, the herein respondents. In
accordance with a Compromise Agreement executed between Benedicto (one of the initial defendants) and
the PCGG, several of the defendants were dropped from the case by the Sandiganbayan.

The PCGG moved for reconsideration, questioning the removal of Africa from the case. Accordingly, the
SB set aside its resolution and the case against Africa was reinstated. The SB ruled that there was no
stipulation in the Compromise Agreement that clearly and deliberately conferred benefits to Africa,
unlike the other defendants who were specifically named therein.

Undaunted, respondents filed a motion for reconsideration. The SB then issued the assailed resolution
which granted the motion and dropped Africa as defendants in the case; hence, this petition.

ISSUE:
Did the Compromise Agreement contain a stipulation pour autrui in favor of Africa resulting in the later’s
name to be dropped from the case?

HELD:
No. For a stipulation pour autrui to be appreciated, it is indispensable that there be a stipulation deliberately
conferring a benefit or favor to a third person.

Article 1311 of the Civil Code states:


Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where
the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation,
or by provision of law. The heir is not liable beyond the value of the property he received from the
decedent.

The Court has laid down the requisites of a stipulation pour autrui, namely: (1) there is a stipulation in
favor of a third person; (2) the stipulation is a part, not the whole, of the contract; (3) the contracting
parties clearly and deliberately conferred a favor to the third person — the favor is not an incidental
benefit; (4) the favor is unconditional and uncompensated; (5) the third person communicated his or her
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acceptance of the favor before its revocation; and (6) the contracting parties do not represent, or are not
authorized by, the third party.

The Court has carefully and thoroughly perused the Compromise Agreement and found no stipulation at
all that would even resemble a provision in favor of Africa or the respondents. What is obvious and
glaring is the absence of any provision clearly and deliberately extending the benefits of the Compromise
Agreement to them. In fact, the second whereas clause named only certain defendants as additional
beneficiaries of the Compromise Agreement, not including the respondents Africa.

RENEE B. TANCHULING, AND THE HEIRS OF VICENTE N. Y. TANCHULING v. SOTERO C.


CANTELA
G.R. No. 209284, November 10, 2015

DOCTRINE:
An absolutely simulated or fictitious contract is not really desired or intended to produce legal effect thus,
void and the parties may recover from each other what they may have given under the contract. A sale
is null and void where it appears that the same is without cause or consideration, or the purchase price,
which appears thereon as paid, but which in fact has never been paid. Persisting failure to secure a title
in his name likewise indicates simulation. And failure to take possession of the properties is also a clear
indication of simulation, pursuant to Article 1409 of the Civil Code.

FACTS:
Sps. Tanchuling and Cantela executed the subject deed for 2 parcels of land to which the latter
purportedly paid the sum of P400,000. Vicente delivered the owner’s copies of TCTs to Cantela, although
none of the parties are in actual physical possession of the properties. When Cantela refused to return
the TCTs to Sps. Tanchuling, the latter filed a Complaint for Annulment of Deed of Sale and Delivery of
Owner’s Duplicate Copy of TCTs alleging that the subject deed was simulated, since there was no actual
consideration paid by Cantela; that the subject deed was executed merely to show to their neighbors that
they are the true owners of the properties; and that Cantela simultaneously executed an undated Deed of
Absolute Sale reconveying the properties in their favour. Cantela, in his defense contended that the sale
was valid as he purchased the same for a consideration; that the undated deed was surreptitiously inserted
by Sps. Tanchuling in the copies of the subject deed presented to him for signing and that when he
attempted to secure a tax declaration, the same were posted as a property bond. The RTC granted the
complaint thus nullified the subject deed for being absolutely simulated. On appeal however, the CA
reversed the RTC ruling. Hence, this petition.

ISSUE:
Whether or not the subject deed is simulated, hence, null and void.

HELD:
The petition is meritorious. Simulation or vices of declaration may be either absolute or relative. Article
1345 of the Civil Code distinguishes an absolute simulation from a relative one; while Article 1346
discusses their effects. The main characteristic of an absolute simulation is that the apparent contract is
not really desired or intended to produce legal effect or in any way alter the juridical situation of the
parties. As a result, an absolutely simulated or fictitious contract is void, and the parties may recover
from each other what they may have given under the contract. In this case, the subject deed was
absolutely simulated. The parties never intended to be bound by any sale agreement. Instead, the subject
deed was executed merely as a front to show the public that Sps. Tanchuling were the owners of the
properties. Also, a contract of purchase and sale is null and void and produces no effect whatsoever where
it appears that the same is without cause or consideration, or the purchase price which appears thereon
as paid but which in fact has never been paid by the purchaser to the vendor. Although the subject deed
stipulated a consideration of P400,000.00, there was actually no exchange of money between them.
Moreover, Cantela's persisting failure to secure a title in his name likewise indicates simulation. A true
vendee would not brook any delay in registering the sale in his favor. While Cantela attributes the delay
in the registration of titles under his name to the fact that the properties were posted as a bond in another
case, no steps were taken by him to release the properties from this impediment, which altogether negates
the interest exhibited by a conscientious buyer of real estate. In fact, Cantela failed to take possession of
the properties which is a clear indication of simulation, pursuant to Article 1409 of the Civil Code. And
finally, the undated deed, which serves as a counter-agreement to, and which was simultaneously
executed with, the subject deed, unmistakably evinces absolute simulation. The Court thus concludes that
Sps. Tanchuling never intended to transfer the properties to Cantela; hence, the subject deed was
absolutely simulated and in consequence, null and void.
PERLAS BERNABE
WT CONSTRUCTION, INC. v. THE PROVINCE OF CEBU
G.R. No. 208984 September 16, 2015

DOCTRINE:
Liabilities arising from construction contracts do not partake of loans or forbearance of money but are in
the nature of contracts of service.

FACTS:
Sometime in 2005, the Province of Cebu was chosen by former President Gloria Macapagal-Arroyo to host
the 12th Association of Southeast Asian Nations (ASEAN) Summit. To cater to the event, it decided to
construct the Cebu International Convention Center (CICC or the project).

Accordingly, the Province of Cebu conducted a public bidding for the project and WTCI emerged as the
winning bidder. As Phase II neared completion, the Province of Cebu caused WTCI to perform additional
works on the project which included site development, and additional structural, architectural, electric,
and plumbing works (additional works). WTCI agreed to perform the additional works notwithstanding
the lack of public bidding.

Weeks before the scheduled ASEAN Summit, WTCI completed the project, including the additional works
and, accordingly, demanded payment therefor twice. The Province of Cebu, however, refused to pay. Thus,
WTCI filed a complaint for collection of sum of money before the RTC.

For its defense, the Province of Cebu admitted the existence of the additional works but maintained that
there was no contract between it and WTCI therefor. It also claimed that the additional works did not
undergo public bidding as required by Republic Act No. (RA) 9184, otherwise known as the "Government
Procurement Reform Act.

ISSUE:
Whether or not the liability of the Province of Cebu is in the nature of a loan or forbearance of money

Ruling:
In Estores v. Supangan, the Court explained that forbearance of money, goods, or credit refers to
arrangements other than loan agreements where a person acquiesces to the temporary use of his money,
goods or credits pending the happening of certain events or fulfilment of certain conditions such that if
these conditions are breached, the said person is entitled not only to the return of the principal amount
given, but also to compensation for the use of his money equivalent to the legal interest since the use or
deprivation of funds is akin to a loan.

Applying the foregoing standards to the case at hand, the Court finds that the liability of the Province of
Cebu to WTCI is not in the nature of a forbearance of money as it does not involve an acquiescence to
the temporary use of WTCI's money, goods or credits. Rather, this case involves WTCI's performance of
a particular service, i.e., the performance of additional works on CICC, consisting of site development,
additional structural, architectural, plumbing, and electrical works thereon.

Verily, the Court has repeatedly recognized that liabilities arising from construction contracts do not partake
of loans or forbearance of money but are in the nature of contracts of service. In Federal Builders, Inc. v.
Foundation Specialists, Inc., the Court ruled that the liability arising from the non-payment for the
construction works, specifically the construction of a diaphragm wall, capping beam, and guide walls of
the Trafalgar Plaza in Makati City, do not partake of a loan or forbearance of money but is more in the
nature of a contract of service.

PRISCILO B. PAZ v. NEW INTERNATIONAL ENVIRONMENTAL UNIVERSALITY, INC.


G.R. No. 203993 April 20, 2015

FACTS:
On March 1, 2000, petitioner, as the officer-in-charge of the Aircraft Hangar at the Davao International
Airport, Davao City, entered into a Memorandum of Agreement5 (MOA) with Captain Allan J. Clarke
(Capt. Clarke), President of International Environmental University, whereby for a period of four (4) years,
unless pre-terminated by both parties with six (6) months advance notice, the former shall allow the latter
to use the aircraft hangar space at the said Airport "exclusively for company aircraft/helicopter."6 Said
hangar space was previously leased to Liberty Aviation Corporation, which assigned the same to petitioner.
On August 19, 2000, petitioner complained in a letter8 addressed to "MR.
PERLAS BERNABE
ALLAN J. CLARKE, International Environmental Universality, Inc. x x x" that the hangar space was being
used "for trucks and equipment, vehicles maintenance and fabrication," instead of for "company
helicopter/aircraft" only, and thereby threatened to cancel the MOA if the "welding, grinding, and
fabrication jobs" were not stopped immediately.

On January 16, 2001, petitioner sent another letter 10 to "MR. ALLAN J. CLARKE, International
Environmental Universality, Inc. x x x," reiterating that the hangar space "must be for aircraft use only,"
and that he will terminate the MOA due to the safety of the aircrafts parked nearby. He further offered a
vacant space along the airport road that was available and suitable for Capt. Clarke's operations.

On September 4, 2002, respondent New International Environmental Universality, Inc.16 (respondent)


filed a complaint17 against petitioner for breach of contract before the RTC, docketed as Civil Case No.
29, 292-2002,18 claiming that: (a) petitioner had disconnected its electric and telephone lines; (b) upon
petitioner's instruction, security guards prevented its employees from entering the leased premises by
blocking the hangar space with barbed wire; and (c) petitioner violated the terms of the MOA when he
took over the hangar space without giving respondent the requisite six (6)-month advance notice of
termination.

ISSUE:
Whether or not there is a breach of contract.

HELD:
On the issue of the violation of the terms of the MOA, the RTC found respondent to have been effectively
evicted from the leased premises between July and August of 2002, or long before the expiration of the
term thereof in 2004, when petitioner: (a) placed a gate/fence that prevented ingress to and egress from the
leased premises; (b) parked a plane inside and outside the leased premises; (c) disconnected the electrical
and telephone connections of respondent; and (d) locked respondent's employees out.33 Despite the service
of the injunctive writ upon petitioner, respondent was not allowed to possess and occupy the leased
premises, as in fact, the trial court even had to order on March 8, 2004 the inventory of the items locked
inside the bodega of said premises that was kept off-limits to respondent. Hence, petitioner was declared
guilty of indirect contempt.

The lower courts, therefore, did not err in finding petitioner liable for breach of contract for effectively
evicting respondent from the leased premises even before the expiration of the term of the lease. The
Court reiterates with approval the ratiocination of the RTC that, if it were true that respondent was
violating the terms and conditions of the lease, "[petitioner] should have gone to court to m ake the
[former] refrain from its 'illegal' activities or seek rescission of the [MOA], rather than taking the law
into his own hands."

Go Tong Electrical Supply Co. vs. BPI Family Savings Bank


G.R. No. 187487, June 29, 2015

DOCTRINE:
The surety undertakes to be bound solidarily with the principal obligor. That undertaking makes a surety
agreement an ancillary contract as it presupposes the existence of a principal contract.

FACTS:
Petitioner Go Tong Electrical, represented by its President George Go, applied for and was granted
financial assistance by the then Bank of South East Asia (BSA) and subsequently by DBS Bank of the
Philippines, Inc (DBS). A promissory note for the amount of P40,491,051.65 was executed by petitioner.
As additional security, Go executed a Comprehensive Security Agreement (CSA) covering any and all
obligations undertaken by Go Tong Electrical, including the aforesaid loan. Upon default of petitioners,
DBS and later, its successor-in-interest, herein respondent BPI Family Savings Bank, demanded payment
from petitioners, but to no avail. This prompted the respondent to file a complaint for sum of money
based on the promissory note and the Comprehensive Security Agreement (CSA). One of petitioner’s
affirmative defenses is that Go cannot be held liable under the CSA since there was supposedly no
solidarity of debtors.

ISSUE:
Whether or not Go is solidarily liable.
PERLAS BERNABE
HELD:
YES. As established through the Comprehensive Security Agreement (CSA), Go had clearly bound himself
as a surety to Go Tong Electrical’s loan obligation. Thus, there is no question that Go’s liability thereto
is solidary with the former. As provided in Article 2047 of the New Civil Code, “the surety undertakes to
be bound solidarily with the principal obligor”. That undertaking makes a surety agreement an ancillary
contract as it presupposes the existence of a principal contract. Although the contract of a surety is in
essence secondary only to a valid principal obligation, the surety becomes liable for the debt or duty of
another although it possesses no direct or personal interest over the obligations nor does it receive any
benefit therefrom. Let it be stressed that notwithstanding the fact that the surety contract is secondary to
the principal obligation, the surety assumes liability as a regular party to the undertaking, as Go in this
case. Therefore, petitioner Go is solidarily liable with the other debtors.

S.V. MORE PHARMA CORPORATION and ALBERTO A. SANTILLANA v. DRUGMAKERS


LABO RA TORIES, INC. and ELIEZER DEL MUNDO
G.R. No. 200408 & G.R. No. 200416 November 12, 2014

DOCTRINE: Contracts entered into by the parties should be complied with in good faith.

FACTS:
On even date, respondents entered into a Deed of Sale/Assignment with petitioners, whereby respondents
agreed to convey, transfer, and assign all its rights over 28 pharmaceutical products in favor of petitioners
which shall then have the right to have them sold, distributed, and marketed in the latter’s name, subject to
the condition that such pharmaceutical products will be exclusively manufactured by Drugmakers based on
their existing Contract Manufacturing Agreement (CMA) set to expire in October 1993.

Petitioners, despite the existence of said agreement entered into a Contract Manufacturing Pharmaceutical
Products (CMPP) with Hizon Laboratories, Inc. which includes production of pharmaceutical products
covered in CMA with petitioners. Respondents filed a Complaint for Breach of Contract against petitioners,
and Hizon Laboratories before the RTC. According to respondents, petitioners Contract to Manufacture
Pharmaceutical Products (CMPP) with Hizon Laboratories, Inc. (Hizon Laboratories) is a direct violation
of Contract Manufacturing Agreement.

Petitioners primarily contended that they are not liable for breach of contract because CMA did not reflect
true intentions of the parties as a result of an alleged surreptitious insertion of certain provisions not
agreed upon in CMA. Petitioner likewise argue that CMA did not grant Drugmakers exclusive right to
manufacture the pharmaceutical products contained in the CMA. RTC and CA found that petitioner is
liable for breach of contract.

ISSUE:
1. Whether CMA reflected the true intentions of the party.
2. Whether respondents are guilty of violating CMA.

HELD:
1. YES. Despite the assertions of respondents that petitioners surreptitiously entered provisions not
agreed upon, RTC correctly ruled that the assertion was unmeritorious. As gleaned from the
records of RTC, it clearly shows the testimony of Alberto, one of the defendants, who openly
admitted that he prepared the draft of CMA and read the same before signing it.

2. YES. Records disclose that petitioner, through the CMPP and absent the prior written consent of
respondent contracted the services of Hizon Laboratories to manufacture some of the
pharmaceutical products covered by the said contracts. Thus, since the CMPP with Hizon
Laboratories was executed on October 23, 1993, or seven (7) days prior to the expiration of the
CMA on October 30, 1993, it is clear that petitioners who authorized the foregoing, breached the
obligation to recognize Drugmakers as exclusive manufacturer, thereby causing prejudice to the
latter.

LAND BANK OF THE PHILIPPINES v. ATLANTA INDUSTRIES, INC.


G.R. No. 193796 July 2, 2014

DOCTRINE:
PERLAS BERNABE
If the petition relates to an act or an omission of a municipal trial court or of a corporation, a board, an
officer or a person, it shall be filed with the Regional Trial Court exercising jurisdiction over the territorial
area as defined by the Supreme Court. H may also be filed with the Court of Appeals or with the
Sandiganbayan, whether or not the same is .in aid of the court's appellate jurisdiction. If the petition involves
an act or an omission of a quasi-judicial agency, unless otherwise provided by law or these rules, the petition
shall be filed with and be cognizable only by the Court of Appeals. (RULE 65 of the RULES OF COURT)

FACTS:
Land Bank of the Philippines and the International Bank for Reconstruction and Development (IBRD)
entered into a Loan Agreement No. 4833- PH for the implementation of the IBRD’s “Support for Strategic
Local Development and Investment Project (S2LDIP)”. The loan facility was guaranteed by the
Government of the Philippines. It was conditioned upon the participation of at least two (2) local
government units by way of a Subsidiary Loan Agreement (SLA) with Land Bank.

Land Bank enterd into an SLA with the City of Iligan. A public bidding was held, of which Atlanta
Industries, Inc participated in. It came up with the second to the lowest bid in the amount of
₱193,959,354.34.

However, the BAC declared the bidding a failure and disqualified Atlanta Industries due to lack of
documentary requirements.

In a letter, Atlanta Industries sought to correct the BAC’s erroneous assumption that it failed to submit the
required documents. BAC deemed it futile to reconsider Atlanta’s qualifications as a bidder as the bidding
has already been deemed a failure.

Atlanta, in a letter dated November 16, 2009, called the BAC's attention to its use of Bidding Documents
which, as it purported, not only failed to conform with the Third Edition of the Philippine Bidding
Documents for the Procurement of Goods (PBDs) prescribed by the Government Procurement Policy Board
(GPPB)but also contained numerous provisions that were not in accordance with RA 9184 and its
Implementing Rules and Regulations(IRR).

Atlanta filed on December 10, 2009 a Petition for Prohibition and Mandamus with an urgent prayer for
the issuance of a temporary restraining order (TRO) and/or writ of preliminary injunction to enjoin the
re-bidding of the project against the City Government of Iligan, the BAC and Land Bank before the Manila
RTC.

The Urgent Ex-parte TRO and/or writ of preliminary injunction was denied. The re-bidding was held,
which was won by Moldex Products, Inc.

In a Decision dated September 3, 2010, the Manila RTC declared the subject bidding null and void on the
ground that it was done contrary to the rules and procedure prescribed in RA 9184 and its IRR.
Consequently, it enjoined the City Government of Iligan and. its BAC from entering into and/or
implementing the contract for the supply of water pipes with Moldex Products, Inc.
Land Bank elevated the matter directly to the Court, vigorously asserting, among others, that:
a. venue was improperly laid; and
b. the public bidding for the supply of water pipes to the City of Iligan's Water Supply System
Development and Expansion Project is exempt from the application of RA 9184 and its IRR by
virtue of the SLA being a related and subordinate covenant to Loan Agreement No. 4833-PH.

ISSUE:
Whether or not the Manila RTC has jurisdiction over the instant prohibition case and eventually issue
the writ prayed for.

HELD:

NO. Petition for prohibition is a special civil action that seeks for a judgment ordering the respondent to
desist from continuing with the commission of an act perceived to be illegal. Such is governed by Rule 65
of the Rules of Court.

If the petition relates to an act or an omission of a municipal trial court or of a corporation, a board, an
officer or a person, it shall be filed with the Regional Trial Court exercising jurisdiction over the territorial
PERLAS BERNABE
area as defined by the Supreme Court. It may also be filed with the Court of Appeals or with the
Sandiganbayan, whether or not the same is .in aid of the court's appellate jurisdiction. If the petition involves
an act or an omission of a quasi-judicial agency, unless otherwise provided by law or these rules, the petition
shall be filed with and be cognizable only by the Court of Appeals.

The Court has already ruled in numerous cases, beginning with the very early case of Castaño v.
Lobingier, that the power to administer justice conferred upon judges of the Regional Trial Courts,
formerly Courts of First Instance(CFI), can only be exercised within the limits of their respective districts,
outside of which they have no jurisdiction whatsoever. Applying previous legislation similar to the
present Section 21 of BP 129 and its complementary provision, i.e., Section 4, Rule 65 of the Rules, the
Court held in said case that the CFI of Leyte had no power to issue writs of injunction and certiorari
against the Justice of the Peace of Manila, as the same was outside the territorial boundaries of the issuing
court.

Applying the aforementioned precepts and pronouncements to the instant case, the writ of prohibition
issued by the Manila RTC in order to restrain acts beyond the bounds of the territorial limits of its
jurisdiction (i.e., in Iligan City) is null and void.

REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE DEPARTMENT OF PUBLIC


WORKS AND HIGHWAYS (DPWH) v. LEONOR MACABAGDAL, REPRESENTED BY
EULOGIA MACABAGDAL PASCUAL (FORMERLY JOHN DOE "DDD")
G.R. No. 227215 January 10, 2018

DOCTRINE:
The twelve percent (12%) p.a. rate of legal interest is only applicable until June 30, 2013. Thereafter, legal
interest shall be at six percent (6%) p.a. in line with BSP-MB Circular No. 799, Series of 2013. Prevailing
jurisprudence32 has upheld the applicability of BSP-MB Circular No. 799, Series of 2013 to forbearances
of money in expropriation cases, contrary to respondent's contention.33 The cases of Sy v. Local
Government of Quezon City34 and Land Bank of the Philippines v. Wycoco,35 cited by respondent are both
inapplicable because they were all decided prior to the effectivity of BSP-MB Circular No. 799, Series of
2013 on July 1, 2013.

FACTS:
On January 23, 2008, petitioner the Republic of the Philippines (petitioner), represented by the Department
of Public Works and Highways, filed4 before the RTC a complaint5 against an unknown owner for the
expropriation of a 200-square meter (sq. m.) lot located in Barangay Ugong, Valenzuela City, identified as
Lot 1343-A-2-A-2-G, (LRC)Psd-315943 (subject lot), for the construction of the C-5 Northern Link Road
Project, otherwise known as North Luzon Expressway (NLEX) Segment 8.1, traversing from Mindanao
Avenue in Quezon City to the NLEX in Valenzuela City.

Petitioner thereafter applied for, and was granted8 a writ of possession over the subject lot on May 5, 2008,
and was required9 to deposit with the court the amount of P550,000.00 (i.e., at P2,750.00/sq. m.)
representing the zonal value thereof (provisional deposit).

On August 28, 2012, respondent Leonor Macabagdal (respondent), represented by Eulogia Macabagdal
Pascual, was substituted as party-defendant upon sufficient showing that the subject lot is registered in
her name under Transfer Certificate Title No. (TCT) V-103067. Respondent did not oppose the
expropriation, and received the provisional deposit.

The RTC appointed a board of commissioners to determine the just compensation for the subject lot, which
thereafter submitted its Commissioners' Report (Re: Just Compensation) dated May 23, 2014,
recommending a fair market value of P9,000.00/sq. m. as the just compensation for the subject lot, taking
into consideration its location, neighborhood and land classification, utilities, amenities, physical
characteristics, occupancy and usage, highest and best usage, current market value offerings, as well as
previously decided expropriation cases of the same RTC involving properties similarly situated in the same
barangay.

ISSUE:
Whether or not the CA committed reversible error in affirming the RTC's imposition of interest at the
rate of twelve percent (12%) p.a. on the unpaid balance, computed from the time of the taking of the
subject lot until full payment.
PERLAS BERNABE

HELD:
The petition is partly meritorious. The purpose of just compensation is not to reward the owner for the
property taken, but to compensate him for the loss thereof. As such, the true measure of the property, as
upheld in a plethora of cases, is the market value at the time of the taking, when the loss resulted. Indeed,
the State is not obliged to pay premium to the property owner for appropriating the latter's property; it
is only bound to make good the loss sustained by the landowner, with due consideration to the
circumstances availing at the time the property was taken.

In addition, the Court also recognizes that the owner's loss is not only his property, but also its income-
generating potential. Thus, when property is taken, full compensation of its value must be immediately
paid to achieve a fair exchange for the property and the potential income lost. The value of the
landholdings should be equivalent to the principal sum of the just compensation due, and interest is due
and sftould be paid to compensate for tfte unpaid balance of tftis principal sum after taking ftas
been completed. This shall comprise the real, substantial, full, and ample value of the expropriated
property, and constitutes due compliance with the constitutional mandate of just compensation in
eminent domain.

In this case, from the date of the taking of the subject lot on May 5, 2008 when the RTC issued a writ of
possession in favor of petitioner, until the just compensation therefor was finally fixed at P9,000.00/sq. m.,
petitioner had only paid a provisional deposit in the amount of P550,000.00 (i.e., at P2,750.00/sq. m.). Thus,
this left an unpaid balance of the "principal sum of the just compensation," warranting the imposition of
interest. It is settled that the delay in the payment of just compensation amounts to an effective forbearance
of money, entitling the landowner to interest on the difference in the amount between the final amount as
adjudged by the court and the initial payment made by the government.

However, as aptly pointed out by petitioner, the twelve percent (12%) p.a. rate of legal interest is only
applicable until June 30, 2013. Thereafter, legal interest shall be at six percent (6%) p.a. in line with BSP-
MB Circular No. 799, Series of 2013. Prevailing jurisprudence has upheld the applicability of BSP-MB
Circular No. 799, Series of 2013 to forbearances of money in expropriation cases, contrary to
respondent's contention. The cases of Sy v. Local Government of Quezon City and Land Bank of the
Philippines v. Wycoco, cited by respondent are both inapplicable because they were all decided prior to the
effectivity of BSP-MB Circular No. 799, Series of 2013 on July 1, 2013.

Nonetheless, it bears to clarify that legal interest shall run not from the date of the filing of the complaint
but from the date of the issuance of the Writ of Possession on May 5, 2008, since it is from this date that
the fact of the deprivation of property can be established. As such, it is only proper that accrual of legal
interest should begin from this date. Accordingly, the Court deems it proper to correct the award of legal
interest to be imposed on the unpaid balance of the just compensation for the subject lot, which shall be
computed at the rate of twelve percent (12%) p.a. from the date of the taking on May 5, 2008 until June
30, 2013. Thereafter, or beginning July 1, 2013, until fully paid, the just compensation due respondent
shall earn legal interest at the rate of six percent (6%) p.a.

METRO CONCAST STEEL CORPORATION v. ALLIED BANK CORPORATION


G.R. No. 177921, December 4, 2013

DOCTRINE:
A breach in one obligation which prevented the performance of another obligation is not a force
majeure/fortuitous event.

FACTS:
Metro Concast, a Filipino corporation engaged in the business of manufacturing steel, obtained several
loans from Allied Bank through its officers. When it failed to settle its obligations, Allied Bank was
prompted to file a complaint for collection of sum of money. In order to settle its debts with Allied Bank,
its officer offered the sale of Metro Concast’s remaining assets, consisting of machineries and equipment,
to Allied Bank, which the latter, however, refused. Instead, Allied Bank advised them to sell the equipment
and apply the proceeds of the sale to their outstanding obligations.
In 2002, Peakstar Oil Corporation (Peakstar) expressed interest in buying the scrap metal. During the
negotiations with Peakstar, petitioner claimed that Atty. Peter Saw (Atty. Saw), a member of Allied Bank’s
legal department, acted as the latter’s agent. Eventually, with the alleged conformity of Allied Bank,
PERLAS BERNABE
through Atty. Saw, a Memorandum of Agreement (MoA) was drawn between Metro Concast and
Peakstar, under which Peakstar obligated itself to purchase the scrap metal.

Unfortunately, Peakstar reneged on all its obligations under the MoA. The petitioners now essentially
argue that their loan obligations to Allied Bank had already been extinguished due to Peakstar’s failure
to perform its own obligations to Metro Concast. Petitioners classify Peakstar’s default as a form of force
majeure in the sense that they have, beyond their control, lost the funds they expected to have received
from the Peakstar which they would, in turn, use to pay their own loan obligations to Allied Bank.

ISSUE:
Whether or not the default in payment was a force majeure which would extinguish the obligation of
Metro Concast?

HELD:
No. Article 1231 of the Civil Code states that obligations are extinguished either by payment or
performance, the loss of the thing due, the condonation or remission of the debt, the confusion or merger
of the rights of creditor and debtor, compensation or novation.

The petitioners’ reliance on force majeure is misplaced. Peakstar’s breach of its obligations to Metro
Concast arising from the MoA cannot be classified as a fortuitous event under jurisprudential
formulation. As discussed in Sicam v. Jorge:

Fortuitous events by definition are extraordinary events not foreseeable or avoidable.1âwphi1 It is


therefore, not enough that the event should not have been foreseen or anticipated, as is commonly
believed but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the
happening is not impossibility to foresee the same. To constitute a fortuitous event, the following
elements must concur: (a) the cause of the unforeseen and unexpected occurrence or of the failure
of the debtor to comply with obligations must be independent of ftuman will;
(b) it must be impossible to foresee the event that constitutes the caso fortuito or, if it can be
foreseen, it must be impossible to avoid; (c) tfte occurrence must be sucft as to render it
impossible for tfte debtor to fulfill obligations in a normal manner; and (d) the obligor
must be free from any participation in the aggravation of the injury or loss. (Emphases supplied)

While it may be argued that Peakstar’s breach of the MoA was unforseen by petitioners, the same us
clearly not "impossible" to foresee or even an event which is independent of human will." Neither has it
been shown that said occurrence rendered it impossible for petitioners to pay their loan obligations to
Allied Bank and thus, negates the former’s force majeure theory altogether.

In any case, as earlier stated, the performance or breach of the MoA bears no relation to the performance
or breach of the subject loan transactions, they being separate and distinct sources of obligations. The
fact of the matter is that petitioners’ loan obligations to Allied Bank remain subsisting for the basic reason
that the former has not been able to prove that the same had already been paid or, in any way,
extinguished.

President of Cfturcft of Jesus Cftrist of Latter Day Saints v. BTL Construction Corp.
G.R. No. 176439 January 15, 2014

DOCTRINE:
Article 1724 of the Civil Code governs the recovery of additional costs in contracts for a stipulated price
(such as fixed lump-sum contracts), as well as the increase in price for any additional work due to a
subsequent change in the original plans and specifications. Based on the same provision, such added costs
can only be allowed upon the: (a) written authority from the developer or project owner ordering or allowing
the written changes in work; and (b) written agreement of parties with regard to the increase in price or cost
due to the change in work or design modification.

FACTS:
COJCOLDS and BTL entered into a Construction Contract (Contract) for the latter's construction of the
former's meetinghouse facility at Barangay Cabug, Medina, Misamis Oriental (Medina Project. However,
due to bad weather conditions, power failures, and revisions in the construction plans (as per Change
Order Nos. 1 to 12 agreed upon by the parties), among others, the completion date of the Medina Project
was extended. BTL ceased its operations in the Medina Project because of its lack of funds to advance
the cost of labor necessary to complete the said project, as well as the supervening increase in the prices
PERLAS BERNABE
of materials and other items for construction. Consequently, COJCOLDS terminated its Contract with BTL.
Thereafter, COJCOLDS engaged the services of another contractor, Vigor Construction (Vigor), to
complete the Medina Project.
BTL filed a complaint seeking damages due to a) cost of labor, materials and equipment, overhead
expenses, lost profits and interests. b)10% retention money stipulated in the contract

COJCOLDS filed a counterclaim for liquidated damagesin BTL’s delay in completing the project.

ISSUE:
1. Whether or not the 10% retention money that COJCOLDS was ordered to release in favor of BTL
is separate and distinct from the unpaid balance of the contract price?
2. Whether or not COJCOLDS is liable for the "additional works" performed by BTL, specifically the
concrete retaining wall?
3. Whether or not BTL incurred delay in its obligation to complete the Medina Project and thus,
must pay COJCOLDS liquidated damages?

HELD:
1. No. The Court agrees with COJCOLDS that the 10% retention fee is not separate and distinct from
the amount of the contract price and unduly increase its liability to BTL. Based on the Contract,
the retention amount is part of the initial agreement. The Court merely relies on the Contractual
agreement.

2. No. Article 1724 of the Civil Code governs the recovery of additional costs in contracts for a
stipulated price (such as fixed lump-sum contracts), as well as the increase in price for any
additional work due to a subsequent change in the original plans and specifications. Based on the
same provision, such added costs can only be allowed upon the: (a) written authority from the
developer or project owner ordering or allowing the written changes in work; and (b) written
agreement of parties with regard to the increase in price or cost due to the change in work or design
modification. Case law instructs that compliance with these two (2) requisites is a condition
precedent for recovery. The absence of one or the other condition thus bars the claim of additional
costs. Notably, neither the authority for the changes made nor the additional price to be paid
therefor may be proved by any evidence other than the written authority and agreement as above-
mentioned.

3. Yes. BTL's liability to COJCOLDS for liquidated damages is a result of its delay in the performance
of its obligations under the Contract. While the fact of BTL's delay has not been seriously disputed
in these cases.

CENTURY PROPERTIES, INC v. EDWIN J. BABIANO & EMMA B. CONCEPCION


G.R. No. 220978 July 05, 2016

DOCTRINE:
Obligations arising from contracts, including employment contracts, have the force of law between the
contracting parties and should be complied with in good faith. Corollary thereto, parties are bound by
the stipulations, clauses, terms, and conditions they have agreed to, provided that these stipulations,
clauses, terms, and conditions are not contrary to law, morals, public order or public policy, as in this
case.

FACTS:
Babiano was hired by CPI as Director for Sales who eventually was promoted for VP for Sales. He is
receiving a salary, allowance and sales commission. His employment contract contains a clause which
bars him from disclosing confidential information to business competing with CPI while he is employed
and after 1 year from termination or resignation, otherwise his compensation will be forfeited.

Concepcion was hired as a Sales Agent who was promoted to Project Director. She signed a Contract of
Agency for Project Director and receives a monthly subsidy, commission and incentive. She signed two
contracts and both stipulated that no employee employer relationship exist.

After receiving reports that Babiano provided a competitor with information and being AWOL for 5 days,
CPI sent a notice to explain why he should not be charged with disloyalty, conflict of interest and breach
of trust. He tendered his resignation but later he was terminated 8 days later. He revealed he was accepted
as VP in a competitor company. 2 days before Babiano tendered, Concepcion also tendered.
PERLAS BERNABE
Babiano and Concepcion filed before the NLRC for non-payment of commissions and damages against
CPI. CPI maintained that the they are just agents tasked with selling projects, there was due process and
termination was based on just cause.

The Labor Arbiter ruled in favor of CPI. On Appeal, the NLRC concurred with the Labor Arbtiter, that
Babiano’s acts constituted just cause for termination however forfeiture is confiscatory and unreasonable.
CPI went to CA, while the affirmed the NLRC ruling, it ruled that there is a proper money claim from
employee-employer relationship. Hence this appeal.

ISSUE:
Whether or not the Confidentiality of Documents and Non-Compete Clause applies only to post-
employment relationship of the parties

HELD:
No. Under the last paragraph of the "Confidentiality of Documents and Non-Compete Clause" found in
Babiano's employment contract primarily invoked by CPI to justify the forfeiture of his commissions, it
reads in verbatim that:

Finally, if undersigned breacftes any terms of tftis contract, forms of compensation


including commissions and incentives will be forfeited (emphasis supplied)

Verily, the foregoing clause is not only clear and unambiguous in stating that Babiano is barred to "work
for whatsoever capacity x x x with any person whose business is in direct competition with [CPI] while [he
is] employed and for a period of one year from date of [his] resignation or termination from the company,"
it also expressly provided in no uncertain terms that should Babiano "[breach] any term of [the employment
contract], forms of compensation including commissions and incentives will be forfeited." Here, the
contracting parties - namely Babiano on one side, and CPI on the other -indisputably wanted the said clause
to be effective even during the existence of the employer-employee relationship between Babiano and CPI,
thereby indicating their intention to be bound by such clause by affixing their respective signatures to the
employment contract. Indubitably, obligations arising from contracts, including employment contracts,
have the force of law between the contracting parties and should be complied with in good faith. Corollary
thereto, parties are bound by the stipulations, clauses, terms, and conditions they have agreed to, provided
that these stipulations, clauses, terms, and conditions are not contrary to law, morals, public order or public
policy, as in this case.

The Confidentiality and Non-Compete Clause is not limited to acts done after the cessation of employer-
employee relationship. To allow Babiano to freely move to direct competitors during and soon after his
employment with CPI would make the latter's trade secrets vulnerable to exposure, especially in a highly
competitive marketing environment. As such, it is only reasonable that CPI and Babiano agree on such
stipulation in the latter's employment contract in order to afford a fair and reasonable protection to CPI.

Union Bank of tfte Pftilippines v. Development Bank of tfte Pftilippines


G.R. No. 191555 January 20, 2014

DOCTRINE:
Legal compensation takes effect by operation of law when all the requisites under Art. 1270 are present.

FACTS:
Foodmasters, Inc. (FI) had outstanding loan obligations to both Bancom Development Corporation
(Bancom), and to DBP. FI and DBP entered into a Deed of Cession of Property in Payment of Debt
whereby the former ceded in favor of the latter certain properties in consideration of the full and complete
satisfaction of FI’s loan obligations to DBP; and the direct assumption by DBP of FI’s obligations to
Bancom. DBP, as the new owner of the processing plant, leased back the said property to FI (Lease
Agreement) which was, in turn, obliged to pay monthly rentals to be shared by DBP and Bancom. DBP
also entered into a separate agreement with Bancom (Assumption Agreement) whereby the former
confirmed its assumption of FI’s obligations to Bancom; and undertook to remit up to 30% of any and all
rentals due from FI to Bancom (subject rentals) which would serve as payment of the assumed obligations,
to be paid in monthly installments. FI assigned its leasehold rights under the Lease Agreement to
Foodmasters Worldwide, Inc. (FW); while Bancom conveyed all its receivables including DBP’s assumed
obligations, to Union Bank. Claiming that the subject rentals have not been duly remitted despite its
repeated demands, Union Bank filed a collection case against DBP. In opposition, DBP countered, that
PERLAS BERNABE
the obligations it assumed were payable only out of the rental payments made by FI. Thus, since FI had
yet to pay the same, DBP’s obligation to Union Bank had not arisen. Union Bank filed Motion to Affirm
Legal Compensation, praying that the RTC apply legal compensation between itself and DBP in order to
offset the return of the funds it previously received from DBP.

ISSUE:
Whether or not legal compensation is proper.

HELD:
No, legal compensation is not proper. The requisites for compensation are as follows: 1.That each one of
the obligors be bound principally, and that he be at the same time a principal creditor of the other; 2. That
both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and
also of the same quality if the latter has been stated; 3.That the two debts be due; 4.That they be liquidated
and demandable; 5.That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor. The rule on legal compensation provides that when
all the requisites mentioned in Article 1279 are present, compensation takes effect by operation of law, and
extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of
the compensation. In this case, Union Bank seeks for legal compensation in order to effectively offset its
own obligation to return the funds it previously received from with DBP’s assumed obligations under the
Assumption Agreement. However, legal compensation could not have taken place between these debts
because requisites 3 and 4 under Article 1279 are not present. Since DBP’s assumed obligations to Union
Bank for remittance of the lease payments are contingent on the prior payment thereof by FW to DBP, it
cannot be said that both debts are due. Also, the Court observed that any deficiency that DBP had to make
up for the full satisfaction of the assumed obligations cannot be determined until after the satisfaction of
Foodmasters’ obligation to DBP. Hence, it cannot be concluded that the same debt had already been
liquidated, and thereby became demandable. DBP’s obligation to Union Bank for remittance of the lease
payments is contingent on the prior payment thereof by Foodmasters to DBP. Since requisites 3 and 4 of
Article 1279 of the Civil Code are not present, no legal compensation can take place.

Trade and Investments Development Corporation of tfte Pftilippines v. Asia Paces


Corporation, Paces Industrial Corporation, Siddcor Insurance Corporation, Pftilippine
Pftoenix Surety Corporation, Paramount Insurance Corporation, and Fortune Life and
General Insurance Company.
G.R. No. 187403 February 12, 2014

DOCTRINE:
The granting of extension of time by creditor to the guarantor does not extinguish surety companies
obligation under surety ship agreement.

FACTS:
Herein respondents Asia Paces Corp.(ASPAC) and Paces industrial Corp. entered into a sub-contracting
agreement with Electrical Projects company of Libya. In order to be financially capable in complying with
its obligations as such, ASPAC obtained loans from foreign banks, and such loans were secured through
guarantees issued by herein petitioner Trade and Investment Development Corporation of the Philippines
(TIDCORP), a government owned and controlled corporation. Through that guarantees, TIDCORP
guaranteed that to pay ASPAC’s loan obligation to the foreign banks (Banque Indosuez and PCI Capital)
in case it defaulted in its payment. Furthermore, ASPAC, as principal debtor, entered into surety
agreements (Surety Bonds) with Paramount, Phoenix, Mega Pacific and Fortune (bonding companies), as
sureties, also holding themselves solidarily liable to TIDCORP, as creditor, for whatever damages or
liabilities the latter may incur under the Letters of Guarantee.

Because ASPAC failed to make good its loan obligations with foreign banks, the latter demanded payment
from TIDCORP as guarantor. In turn TIDCORP demanded payment from surety companies pursuant to
surety bonds. However, TIDCORP and the creditor foreign banks forged a Restructuring Agreementon
April 16, 1986, extending the maturity dates of the Letters of Guarantee. Thereafter, TIDCORP complied
fully with all its obligations under the contract of guarantee. Hence it demanded payment from the
bonding companies under surety agreement, and when unheeded, it filed a collection suit.

ISSUE:
Whether or not the bonding companies’ liabilities to TIDCORP under surety bonds were extinguished by
the payment extensions granted by the creditors to TIDCORP under the Restructuring Agreement.
PERLAS BERNABE
HELD:
Although the contract of a surety is in essence secondary only to a valid principal obligation, his liability
to the creditor is direct, primary and absolute; he becomes liable for the debt and duty of another although
he possesses no direct or personal interest over the obligations nor does he receive any benefit therefrom.
The fundamental reason therefor is that a contract of suretyship effectively binds the surety as a solidary
debtor, this is provided for in article 2047 of the Civil Code.

Under Article 2079, "an extension granted to the debtor by the creditor without the consent of the guarantor
extinguishes the guaranty. However, the Court finds that the payment extensions granted by Banque
Indosuez and PCI Capital(creditor) to TIDCORP under the Restructuring Agreement did not have
the effect of extinguishing the bonding companies’ obligations to TIDCORP under the Surety Bonds,
notwithstanding the fact that said extensions were made without their consent. This is because Article
2079 of the Civil Code refers only to a payment extension granted by the creditor to the principal debtor
without the consent of the guarantor or surety.

It is quite clear that there are two sets of transactions that should be treated separately and distinctly
from one another following the civil law principle of relativity of contracts. Verily, as the Surety Bonds
concern ASPAC’s debt to TIDCORP and not TIDCORP’s debt to the banks, the payments extensions
(which conversely concern TIDCORP’s debt to the banks and not ASPAC’s debt to TIDCORP) would not
deprive the bonding companies of their right to pay their creditor (TIDCORP) and to be immediately
subrogated to the latter’s remedies against the principal debtor (ASPAC) upon the maturity date.

Golden Valley Exploration, Inc. v. Pinkian Mining Company and Copper Valley, Inc.
G.R. No. 190080 June 11, 2014

DOCTRINE:
As an exception, an injured party need not resort to court action in order to rescind a contract when
cancellation or revocation is expressly provided in the contract itself.

FACTS:
PMC is the owner of mining claims located in Nueva Vizcaya. In 1987, PMC entered into an Operating
Agreement (OA) with GVEI, granting the latter "full, exclusive and irrevocable possession, use, occupancy,
and control over the [mining claims], and every matter pertaining to the examination, exploration,
development and mining of the [mining claims] and the processing and marketing of the products x x x,"
for a period of 25 years. PMC extra-judicially rescinded the OA upon GVEI's violation of Section 5.01,
Article V thereof. Cited as further justification for its action were reasons such as: (a) violation of Section
2.03, Article II of the OA, or the failure of GVEI to advance the actual cost for the perfection of the mining
claims or for the acquisition of mining rights, cost of lease applications, lease surveys and legal expenses
incidental thereto; (b) GVEI's non-reimbursement of the expenses c) its non- remittance of the
US$300,000.00 received from Excelsior Resources, Ltd.; (d) its non- disclosure of contracts entered into
with other mining companies with respect to the mining claims; (e) its being a mere "promoter/broker" of
PMC's mining claims instead of being the operator thereof; and (f) its non- performance of the necessary
works on the mining claims.

GVEI contested the extra-judicial rescission of the OA, averring that its obligation to pay royalties to PMC
arises only are placed in commercial production which condition has not yet taken place. It also reminded
PMC of its prior payment of the amount of P185,000.00 as future royalties in exchange for PMC's express
waiver of any breach or default on the part of GVEI. Thereafter, PMC entered into a MOA with CVI. GVI
filed a complaint for specific performance, annulment of contract and damages against PMC and CVI.

ISSUE:
Whether or not there was a valid rescission of the OA on the part of PMC.

HELD:
YES. The Court upholds the correctness of the act of PMC's unilateral rescission of the OA due to GVEI's
non-payment of royalties considering the parties' express stipulation in the OA (found in Section 8.01,
Article VIII in relation to Section 5.01, Article V) that said agreement may be cancelled on such ground.
In reciprocal obligations, either party may rescind the contract upon the other's substantial breach of the
obligation/s he had assumed thereunder. The basis therefor is Article 1191 of the Civil Code. As a general
rule, the power to rescind an obligation must be invoked judicially and cannot be exercised solely on a
PERLAS BERNABE
party's own judgment that the other has committed a breach of the obligation. This is so because
rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial
and fundamental violations as would defeat the very object of the parties in making the agreement. As a
well-establisfted exception, ftowever, an injured party need not resort to court action in order to
rescind a contract wften tfte contract itself provides tftat it may be revoked or cancelled upon
violation of its terms and conditions. As elucidated in Froilan v. Pan Oriental Shipping Co., "there is x
x x nothing in the law that prohibits the parties from entering into agreement that violation of the terms
of the contract would cause cancellation thereof, even without court intervention."

Where parties agree to a stipulation allowing extra-judicial rescission, no judicial decree is necessary for
rescission to take place; the extra-judicial rescission immediately releases the party from its obligation
under the contract, subject only to court reversal if found improper. On the other hand, without a
stipulation allowing extra-judicial rescission, it is the judicial decree that rescinds, and not the will of the
rescinding party. [J]udicial intervention is necessary not for purposes of obtaining a judicial declaration
rescinding a contract already deemed rescinded by virtue of an agreement providing for rescission even
without judicial intervention, but in order to determine whether or not the rescission was proper. This
notwithstanding, jurisprudence still indicates that an extra-judicial rescission based on grounds not
specified in the contract would not preclude a party to treat the same as rescinded. The rescinding party,
however, by such course of action, subjects himself to the risk of being held liable for damages when the
extra-judicial rescission is questioned by the opposing party in court.

FREDERICK VENTURA, MARITES VENTURA-ROXAS, and PHILIP VENTURA (HEIRS OF


DECEASED DOLORES C. VENTURA) v. HEIRS OF SPOUSES EUSTACIO T. ENDAYA and
TRINIDAD L. ENDAYA, namely, TITUS L. ENDAYA, ENRICO L. ENDAYA, and JOSEPHINE
ENDAYA-BANTUG
G.R. No. 190016 October 2, 2013

FACTS:
On June 29, 1981, Dolores Ventura (Dolores) entered into a Contract to Sell5 (contract to sell) with spouses
Eustacio and Trinidad Endaya (Sps. Endaya) for the purchase of two parcels of land covered by Transfer
Certificates of Title (TCT) Nos. 392225 and (343392) S-67975 (subject properties), denominated as Lots 8
and 9, Block 3, situated in Marian Road II, Marian Park8 (now Barangay San Martin de Porres), Parañaque
City, Metro Manila.

The contract to sell provides that the purchase price of ₱347,760.00shall be paid by Dolores in the
following manner: (a) down payment of ₱103,284.00 upon execution of the contract; and (b) the balance
of ₱244,476.00 within a 15-year period (payment period), plus 12% interest per annum (p.a.) on the
outstanding balance and 12% interest p.a. on arrearages. It further provides that all payments made shall
be applied in the following order: first, to the reimbursement of real estate taxes and other charges;
second, to the interest accrued to the date of payment; third, to the amortization of the principal
obligation; and fourth, to the payment of any other accessory obligation subsequently incurred by the
owner in favor of the buyer. It likewise imposed upon Dolores the obligation to pay the real property
taxes over the subject properties, or to reimburse Sps. Endaya for any tax payments made by them, plus
1% interest per month. Upon full payment of the stipulated consideration, Sps. Endaya undertook to
execute a final deed of sale and transfer ownership over the same in favor of Dolores.

Meanwhile, Dolores was placed in possession of the subject properties and allowed to erect a building
thereon. However, on April 10, 1992, before the payment period expired, Dolores passed away.

On November 28, 1996, Dolores’ children, Frederick Ventura, Marites Ventura-Roxas, and Philip Ventura
(petitioners), filed before the RTC a Complaint and, thereafter, an Amended Complaint14 for specific
performance, seeking to compel Sps. Endaya to execute a deed of sale over the subject properties. In this
regard, they averred that due to the close friendship between their parents and Sps. Endaya, the latter did
not require the then widowed Dolores to pay the down payment stated in the contract to sell and, instead,
allowed her to pay amounts as her means would permit. The payments were made in cash as well as in
kind,15 and the same were recorded by respondent

For their part, Sps. Endaya filed their Answer, admitting the execution and genuineness of the contract
to sell and the passbook. However, they countered that Dolores did not pay the stipulated down payment
and remitted only a total of 22 installments. Sps. Endaya pointed out that the automatic cancellation
clause under the foregoing contract rendered the same cancelled as early as 1981 with Dolores’ failure to
make a down payment and to faithfully pay the installments; hence, petitioners’ complaint for specific
PERLAS BERNABE
performance must fail. In addition, Sps. Endaya interposed a counterclaim for the alleged unpaid balance
of ₱2,620,000.00, plus damages, attorney's fees and costs of suit.

The RTC found that petitioners were able to prove by a preponderance of evidence the fact of full
payment of the purchase price for the subject properties. As such, it ordered Sps. Endaya to execute a
deed of absolute sale covering the sale of the subject properties in petitioners’ favor and to pay them
attorney's fees and costs of suit. Dissatisfied, Sps. Endaya elevated the matter to the CA.

CA reversed and set aside the RTC ruling. It found that petitioners were not able to show that they fully
complied with their obligations under the contract to sell. It observed that aside from the payment of the
purchase price and 12% interest p.a. on the outstanding balance, the contract to sell imposed upon
petitioners the obligations to pay 12% interest p.a. on the arrears and to reimburse Sps. Endaya the amount
of the pertinent real estate taxes due on the subject properties, which the former, however, totally
disregarded as shown in their summary of payments.

ISSUE:
Whether or not respondents should execute a deed of sale over the subject properties in favor of
petitioners.

HELD:
A thorough review of the records reveals no sufficient reason to warrant the reversal of the CA’s August
18, 2006 Decision dismissing petitioners' complaint for specific performance which sought to enforce the
contract to sell and to compel respondents to execute a deed of sale over the subject properties.

A contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly
reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds
himself to sell the said property exclusively to the latter upon his fulfillment of the conditions agreed
upon, i.e., the full payment of the purchase price and/or compliance with the other obligations stated in
the contract to sell. Given its contingent nature, the failure of the prospective buyer to make full
payment51 and/or abide by his commitments stated in the contract to sell prevents the obligation of the
prospective seller to execute the corresponding deed of sale to effect the transfer of ownership to the
buyer from arising. As discussed in Sps. Serrano and Herrera v. Caguiat:

A contract to sell, the fulfillment of the suspensive condition will not automatically transfer
ownership to the buyer although the property may have been previously delivered to him. The
prospective seller still has to convey title to the prospective buyer by entering into a contract of
absolute sale. On the other hand, in a conditional contract of sale, the fulfillment of the suspensive
condition renders the sale absolute and the previous delivery of the property has the effect of
automatically transferring the seller’s ownership or title to the property to the buyer.

The Court finds that respondents had no obligation to petitioners to execute a deed of sale over the subject
properties. As aptly pointed out by the CA, aside from the payment of the purchase price and 12% interest
p.a. on the outstanding balance, the contract to sell likewise imposed upon petitioners the obligation to
pay the real property taxes over the subject properties as well as 12% interest p.a. on the arrears. However,
the summary of payments as well as the statement of account submitted by petitioners clearly show that
only the payments corresponding to the principal obligation and the 12% interest p.a. on the outstanding
balance were considered in arriving at the amount of ₱952,152.00. Hence, the reasonable conclusion would
therefore be that petitioners indeed failed to comply with all their obligations under the contract to sell
and, as such, have no right to enforce the same. Consequently, there lies no error on the part of the CA
in reversing the RTC Decision and dismissing petitioners’ complaint for specific performance seeking to
compel respondents to execute a deed of sale over the subject properties.

BUENVIAJE v. SPOUSES SALONGA, et al.


G.R. No. 216023 October 05, 2016

DOCTRINE:
Specific performance and rescission are alternative remedies available to a party who is aggrieved by a
counter-party's breach of a reciprocal obligation.

It is a basic principle in civil law on relativity of contracts, that contracts can only bind the parties who
had entered into it and it cannot favor or prejudice third persons. Contracts take effect only between the
parties, their successors in interest, heirs and assigns.
PERLAS BERNABE
To creditors seeking contract rescission on the ground of fraudulent conveyance rest the onus of proving
by competent evidence the existence of such fraudulent intent on the part of the debtor.

FACTS:
Jebson, a real-estate corporation, through its Executive Vice-President Bañez, entered into a Joint Venture
Agreement (JVA) with Sps. Salonga. Under the JVA, Jebson was to construct residential units on the parcels
of land owned by Sps. Salonga. Out of the ten (10) units, seven (7) units will belong to Jebson while the
remaining three (3) units will correspond to Sps. Salonga's share. Jebson was allowed to sell its allocated
units under such terms as it may deem fit, subject to the condition that the price agreed upon was with the
conformity of Sps. Salonga. Later on, Jebson entered into a Contract to Sell with Buenviaje over a
residential unit for a total consideration of P10.5M, without the conformity of Sps. Salonga. A portion of
the purchase price was paid through a "swapping arrangement," whereby Buenviaje conveyed to Jebson a
house and lot and a share in Tagaytay Highlands Golf, while the balance was paid periodically. Despite full
payment of the contract price, Jebson was unable to complete the unit concerned within the period agreed
upon.

Buenviaje formally demanded the immediate completion and delivery of the unit. Jebson failed to do so,
prompting Buenviaje to file with the HLURB a Complaint for Specific Performance with Damages against
respondents herein. In the alternative, Buenviaje prayed for the rescission of the Contract to Sell. HLURB
consolidated the complaint with those filed by other parties, who similarly entered into contracts to sell with
Jebson. In their defense, Jebson and Bañez claimed that they were not able to secure the necessary
government permits because Sps. Salonga stubbornly refused to cause the partition of the parcels of land
concerned. Sps. Salonga, on the other hand, averred that they were not liable to complainants since there
was no privity of contract between them, adding that the contracts to sell were unenforceable against them
as they were entered into by Jebson without their conformity, in violation of the JVA. Sps. Salonga also
filed a cross-claim against Jebson.

The HLURB-Regional Office rescinded the respective contracts to sell and “swapping arrangements”
entered into by Jebson with the complainants. Furthermore, it found Sps. Salonga solidarily liable with
Jebson and Bañez as joint venture partners liable to the general buying public. Aggrieved, Sps. Salonga
appealed to the HLURB-Board of Commissioners (BOC). BOC set aside the Regional Office’s ruling,
holding that: a) rescission was not the proper remedy considering that there was only a slight or casual
breach of the contracts to sell; and, b) there was no basis to hold Sps. Salonga in solidary liability with
Jebson and Bañez. Nonetheless, BOC invalidated the "swapping arrangements". Buenviaje and
complainants moved for reconsideration but the same were denied. Dissatisfied, Buenviaje elevated the
matter to the Office of the President (OP), which great office only affirmed the BOC’s ruling. After denial
of their separate motions for reconsideration, complainants filed a petition for review before the CA. CA
affirmed the OP ruling. Buenviaje, Jebson, and Bañez, respectively filed their motions for reconsideration,
but the same were denied. Hence, the instant petition.

ISSUES:
1. Whether or not (W/N) rescission of the Contract to Sell was proper in this case;
2. W/N Sps. Salonga should be solidarily liable with Jebson and Banez to Buenviaje for the
completion of the construction and delivery of the unit; and,
3. W/N the “swapping arrangement” was valid

HELD:
1. NO. Buenviaje primarily prayed for the remedy of specific performance, and only prayed for
rescission as an alternative remedy. Buenviaje had in fact chosen the remedy of specific
performance and ought to be bound by such choice. Specific performance and rescission (more
accurately referred to as “resolution”) are alternative remedies available to a party who is
aggrieved by a counter-party's breach of a reciprocal obligation. Article 1191 of the Civil Code
provides:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
PERLAS BERNABE
As the HLURB-BOC pointed out, "there is no finding that specific performance has become
impossible or that there are insuperable legal obstacles to the completion of the constructed units
so as to justify [resolution]." CA also remarked, Buenviaje's "main prayer (for specific
performance) x x x appears to be the more plausible course of action since the units covered by the
disputed Contracts To Sell are almost finished, and have most likely been completed. Wherefore,
CA correctly upheld the directive for Jebson to comply with its obligations under the contract to
sell with Buenviaje as prayed for by the latter.

2. NO. Sps. Salonga were not parties to the contract to sell. Under Article 1311 of the Civil Code, it
is a basic principle in civil law on relativity of contracts, that contracts can only bind the parties
who had entered into it and it cannot favor or prejudice third persons. Contracts take effect only
between the parties, their successors in interest, heirs and assigns. Thus, absent any privity of
contract as to them, there is no basis to hold Sps. Salonga liable for any of the obligations stated
under the said contract to sell. Neither has Buenviaje persuasively argued that Sps. Salonga may
be held solidarily liable with Jebson and Banez pursuant to, among others, Articles 1822 and 1824
of the Civil Code (both are provisions on partnership). Buenviaje never dealt with any partnership
constituted by and between Jebson and Sps. Salonga.

While Jebson, as developer, and Sps. Salonga, as land owner, entered into a joint venture, which
- based on case law may be considered as a form of partnership, the fact remains that their joint
venture was never privy to any obligation with Buenviaje; hence, liability cannot be imputed
against the joint venture based on the same principle of relativity as above mentioned.

3. YES. The “swapping arrangement” was admittedly entered into by Jebson with Buenviaje without
the conformity of Sps. Salonga. However, there was no showing that such arrangement was
entered into in order to defraud Jebson's creditor under the JVA, i.e., Sps. Salonga, and hence,
should not be rescinded. In Union Bank Philippines v. Sps. Ong, the Court explained the
requirement of fraud relative to rescissible contracts under Article 1381 of the Civil Code:

Contracts in fraud of creditors are those executed with the intention to prejudice the rights of
creditors. x x x In determining whether or not a certain conveying contract is fraudulent, what comes
to mind first is the question of whether the conveyance was a bona fide transaction or a trick and
contrivance to defeat creditors. To creditors seeking contract rescission on the ground of fraudulent
conveyance rest the onus of proving by competent evidence the existence of such fraudulent intent on
the part of the debtor, albeit they may fall back on the disputable presumptions, if proper,
established under Art. 1387 of the Civil Code.

Here, the onus of proving that the "swapping arrangement" was a fraudulent conveyance, or a
trick and contrivance to defeat creditor rights, was not sufficiently discharged by Sps. Salonga.
Thus, absent such proof of fraud, the Court concludes that the "swapping arrangement" was a
bona fide transaction freely entered into between Jebson and Buenviaje, and therefore, valid
and binding.

ENCARNACION CONSTRUCTION & INDUSTRIAL CORPORATION v. PHOENIX READY


MIX CONCRETE DEVELOPMENT & CONSTRUCTION, INC.
G.R. No. 225402 September 04, 2017

DOCTRINE:
While the Court has occasionally struck down contracts of adhesion as void, it did so when the weaker
party has been imposed upon in dealing with the dominant bargaining party and reduced to the
alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal footing.

FACTS:
Phoenix entered into two (2) separate Contract Proposals and Agreements (Agreement) with ECIC for the
delivery of various quantities of ready-mix concrete. The Agreement was made in connection with the
construction of the Valenzuela National High School (VNHS) Marulas Building. ECIC received the ready-
mix concrete delivery in due course. However, despite written demands from Phoenix, ECIC refused to
pay. Hence, Phoenix filed before the RTC the Complaint for Sum of Money against ECIC for the payment
of P982,240.35, plus interest and attorney's fees.

ECIC, however, claimed that it opted to suspend payment since Phoenix delivered substandard ready-
mix concrete, such that the City Engineer's Office of Valenzuela (City Engineer's Office) required the
PERLAS BERNABE
demolition and reconstruction of the VNHS building's 3rd floor. It contended that it incurred additional
expenses amounting to P3,858,587.84 for the dismantling and reconstruction of such.

RTC ruled in favor of ECIC. It pointed out that the alleged sub-standard quality of the delivered ready-
mix concrete did not excuse ECIC from refusing payment, noting that under Paragraph 15 of the
Agreement, any claim it has on the quality and strength of the transit mixed concrete should have been
made at the time of delivery. Since ECIC raised the alleged defects in the delivered concrete only on June
16, 2009, or 48 days after the last delivery date on April 29, 2009, it considered ECIC to have waived its
right to question the quality of the delivered concrete under the principle of estoppel in pais.

CA affirmed the RTC.

ISSUE:
Whether ECIC is entitled to damages since the contract with Phoenix is a contract of adhesion and is thus
void.

HELD:
No. A contract of adhesion is one wherein one party imposes a ready-made form of contract on the other.
It is a contract whereby almost all of its provisions are drafted by one party, with the participation of the
other party being limited to affixing his or her signature or "adhesion" to the contract. However, contracts
of adhesion are not invalid per se as they are binding as ordinary contracts. While the Court has occasionally
struck down contracts of adhesion as void, it did so when the weaker party has been imposed upon in dealing
with the dominant bargaining party and reduced to the alternative of taking it or leaving it, completely
deprived of the opportunity to bargain on equal footing. Thus, the validity or enforceability of the impugned
contracts will have to be determined by the peculiar circumstances obtained in each case and the situation
of the parties concerned.

In this case, there is no proof that ECIC was disadvantaged or utterly inexperienced in dealing with
Phoenix. There were likewise no allegations and proof that its representative (and owner/proprietor)
Ramon Encarnacion (Encarnacion) was uneducated, or under duress or force when he signed the
Agreement on its behalf. In fact, Encarnacion is presumably an astute businessman who signed the
Agreement with full knowledge of its import. Case law states that the natural presumption is that one
does not sign a document without first informing himself of its contents and consequences. This
presumption has not been debunked.

It is also apparent from the terms in the contract that as regards the quality or strength of the delivered
ready-mix concrete should have been made at the time of delivery. However, it failed to make a claim on
the quality of the delivered concrete at the stipulated time, and thus, said claim is deemed to have been
waived.

ROGELIO S. NOLASCO, ET AL. v. CELERINO S. CUERPO, ET AL.


G.R. No. 210215 December 09, 2015

DOCTRINE:
To reiterate, for a contracting party to be entitled to rescission (or resolution) in accordance with Article
1191 of the Civil Code, the other contracting party must be in substantial breach of the terms and
conditions of their contract. A substantial breach of a contract, unlike slight and casual breaches thereof,
is a fundamental breach that defeats the object of the parties in entering into an agreement.

FACTS:
Petitioners and respondents entered into a Contract to Sell (subject contract) over a 165,775-square meter
parcel of land located in Barangay San Isidro, Rodriguez, Rizal covered by Original Certificate of Title No.
152 (subject land). The subject contract provides, inter alia, that: (a) the consideration for the sale is
P33,155,000.00 payable as follows: down payment in the amount of P11,604,250.00 inclusive of the amount
of P2,000,000.00 previously paid by respondents as earnest money/reservation fee, and the remaining
balance of P21,550,750.00 payable in 36 monthly installments, each in the amount of P598,632.00 through
post-dated checks; (b) in case any of the checks is dishonored, the amounts already paid shall be forfeited
in petitioners' favor, and the latter shall be entitled to cancel the subject contract without judicial recourse
in addition to other appropriate legal action; (c) respondents are not entitled to possess the subject land
until full payment of the purchase price; (d) petitioners shall transfer the title over the subject land from
a certain Edilberta N. Santos to petitioners' names, and, should they fail to do so, respondents may cause
the said transfer and charge the costs incurred against the monthly amortizations; and (e) upon full
PERLAS BERNABE
payment of the purchase price, petitioners shall transfer title over the subject land to respondents.
However, respondents sent petitioners a letter seeking to rescind the subject contract on the ground of
financial difficulties in complying with the same. They also sought the return of the amount of
P12,202,882.00 they had paid to petitioners. As their letter went unheeded, respondents filed the instant
complaint for rescission before the RTC. In their defense, petitioners countered that respondents' act is a
unilateral cancellation of the subject contract as the former did not consent to it. Moreover, the ground
of financial difficulties is not among the grounds provided by law to effect a valid rescission.

The RTC ruled in favor of respondents and, accordingly, ordered: (a) the rescission of the subject contract;
and (b) the return of the amounts already paid by respondents to petitioners, as well as the remaining
post-dated checks issued by respondent Celerino S. Cuerpo representing the remaining monthly
amortizations.

In a Decision, the CA affirmed the RTC ruling. It agreed with the RTC that petitioners substantially
breached paragraph 7 of the subject contract when they did not effect the transfer of the subject land from
Edilberta N. Santos to petitioners' names within ninety (90) days from the execution of said contract, thus,
entitling respondents to rescind the same. In this relation, the CA held that under the present circumstances,
the forfeiture of the payments already made by respondents to petitioners is clearly improper and
unwarranted.

ISSUE:
Whether or not the CA correctly affirmed the rescission of the subject contract and the return of the
amounts already paid by respondents to petitioners, as well as the remaining post-dated checks issued by
respondent Celerino S. Cuerpo representing the remaining monthly amortizations.

HELD:
The petition is partially meritorious. In reciprocal obligations, either party may rescind - or more
appropriately, resolve - the contract upon the other party's substantial breach of the obligation/s he had
assumed thereunder. This is expressly provided for in Article 1191 of the Civil Code. "More accurately
referred to as resolution, the right of rescission under Article 1191 is predicated on a breach of faith that
violates the reciprocity between the parties to the contract. This retaliatory remedy is given to the
contracting party who suffers the injurious breach on the premise that it is 'unjust that a party be held
bound to fulfill his promises when the other violates his.'" Note that the rescission (or resolution) of a
contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental
violations as would defeat the very object of the parties in making the agreement. Ultimately, the question
of whether a breach of contract is substantial depends upon the attending circumstances. In
the instant case, both the RTC and the CA held that petitioners were in substantial breach of paragraph 7
of the subject contract as they did not cause the transfer of the property to their names from one
Edilberta N. Santos within 90 days from the execution of said contract.

A plain reading of paragraph 7 of the subject contract reveals that while the RTC and the CA were indeed
correct in finding that petitioners failed to perform their obligation to effect the transfer of the title to the
subject land from one Edilberta N. Santos to their names within the prescribed period, said courts erred
in concluding that such failure constituted a substantial breach that would entitle respondents to rescind
(or resolve) the subject contract. To reiterate, for a contracting party to be entitled to rescission (or
resolution) in accordance with Article 1191 of the Civil Code, the other contracting party must be in
substantial breach of the terms and conditions of their contract.

A substantial breach of a contract, unlike slight and casual breaches thereof, is a fundamental breach that
defeats the object of the parties in entering into an agreement. Here, it cannot be said that petitioners'
failure to undertake their obligation under paragraph 7 defeats the object of the parties in entering into
the subject contract, considering that the same paragraph provides respondents contractual recourse in
the event of petitioners' non-performance of the aforesaid obligation, that is, to cause such transfer
themselves in behalf and at the expense of petitioners. Indubitably, there is no substantial breach of
paragraph 7 on the part of petitioners that would necessitate a rescission (or resolution) of the subject
contract. As such, a reversal of the rulings of the RTC and the CA is in order.

The foregoing notwithstanding, the Court cannot grant petitioners' prayer in the instant petition to order
the cancellation of the subject contract and the forfeiture of the amounts already paid by respondents on
account of the latter's failure to pay its monthly amortizations, simply because in their Answer with
Compulsory Counterclaim and Motion for Summary Judgment filed before the RTC, petitioners neither
prayed for this specific relief nor argued that they were entitled to the same. Worse, petitioners were
PERLAS BERNABE
declared "as in default" for failure to file the required pre-trial brief and, thus, failed to present any
evidence in support of their defense.

NYMPHA S. ODIAMAR v. LINDA ODIAMAR VALENCIA


G.R. No. 213582 June 28, 2016

DOCTRINE:
To constitute novation by substitution of 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 relations.
Novation is never presumed, and the animus novandi whether totally or partially, must appear by express
agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken.

FACTS:
Respondent filed a complaint for sum of money and damages against petitioner, alleging that the latter
owed her P2,100,000.00. Petitioner purportedly issued a China Bank Check for the said amount to
guarantee the payment of the debt, but upon presentment, the same was dishonored. Respondent averred
that petitioner refused to pay despite repeated demands, and that had she invested the money loaned to
petitioner or deposited the same in a bank, it would have earned interest at the rate of 36% per annum or
three percent (3%) per month. Petitioner sought the dismissal of the complaint on the ground that it was
her deceased parents who owed respondent money. She averred that respondent had, in fact, participated
in the settlement proceedings and had issued a certification stating that it was petitioner deceased parents
who were indebted to respondent for P2,000,000.00. Respondent countered that petitioner personally
borrowed almost half of the P2,100,000.00 from her as evidenced by the check which she issued after
agreeing to settle the same in installments. While respondent conceded that petitioner made several
installment payments, she pointed out that the latter failed to make any succeeding payments. She also
denied participating in settlement proceedings.

The RTC and the CA ruled that petitioner was liable in view of her admission that she borrowed money
from the respondent several times. RTC even ruled that a novation took place in view of her assuming
the liability of her deceased parents and agreeing to pay their debt in installments which she in fact paid
from December 29, 2000 to May 31, 2003. The CA concurred with the RTC that novation took place in so
far as petitioner was substituted in place of petitioner’s late parents, considering that petitioner
undertook to pay her deceased parents’ debt. However, the CA opined that there was no novation with
respect to the object of the contract, following the rule that an obligation is not novated by an instrument
which expressly recognizes the old obligation and changes only the terms of paying the same, as in this
case where the parties merely modified the terms of payment of the P2,100,000.00.

ISSUE:
Whether or not respondent should be held liable for the whole debt because novation took place.

HELD:
Novation did not take place. At the outset, it must be emphasized that the fact of petitioner’s liability to
respondent is well-established. As correctly pointed out by the RTC and the CA, while respondent
acknowledged that petitioner’s deceased parents owed her money, petitioner also admitted obtaining loans
from respondent. However, based on the records of this case, respondent, for her part, admitted that
petitioner’s deceased parents owed her P700,000.00 of the P2,100,000.00 debt and that petitioner owed her
P1,400,000.00 only. Thus she is liable for her part only.

At this juncture, the Court finds it apt to correct the mistaken notions that a novation by substitution of
the debtor took place so as to release the estates of the petitioner’s deceased parents from their obligation,
which, thus, rendered petitioner solely liable for the entire P2,100,000.00 debt.

The Court held that to constitute novation by substitution of 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 relations. Moreover, the Court ruled that the fact that the creditor accepts payments from a
third person, who has assumed the obligation, will result merely in the addition of debtors and not
novation.

At its core, novation is never presumed, and the animus novandi whether totally or partially, must appear
by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken. Here,
the intent to novate was not satisfactorily proven by respondent. At best, petitioner only manifested her
desire to shoulder the debt of her parents, which, as above-discussed, does not amount to novation.
Per

Thus, the courts a quo erred in holding petitioner liable for the debts obtained by her deceased parents
on account of novation by substitution of the debtor.

AGENCY, TRUST, AND PARTNERSHIP


WILSON GO AND PETER GO v. THE ESTATE OF THE LATE FELISA TAMIO DE BUENA
VENTURA
G.R. No. 211972 July 22, 2015

DOCTRINE:
A trust may have a constructive or implied nature in the beginning, but the registered owner’s subsequent
express acknowledgement in a public document of a previous sale to another effectively converted the
same into an express trust.

FACTS:
In 1960, Felisa Tamio de Buenaventura (Felisa), as owner of the 538 square meter property, transferred the
same to her daughter Bella, married to Delfin Sr., and Felimon, Sr. to assist them in procuring a loan from
the GSIS. In view thereof, her title over the property, TCT No. 45951/T-233, was cancelled and a new one,
TCT No. 49869, was issued in the names of Bella, married to Delfin Sr. and Felimon Sr. Upon Felisa’s
death in 1994, the Bihis Family, Felisa’s other heirs who have long been occupying the subject property,
caused the annotation of their adverse claim over the same on TCT No. RT 74910. Subsequently, the said
annotation was cancelled and the next day, the heirs of Felimon Sr., executed an Extrajudicial Settlement
of his estate and caused its annotation on the said title. A new title was issued in the names of Bella, et al.
By virtue of a Deed of Sale dated January 23, 1997, the subject property was sold to Wilson and Peter Go
for the amount of Php 4, 500,000 and a new title was issued. On October 17, 1997, the complaint for
reconveyance and damages was instituted.

ISSUES:
1. Whether or not there was an implied trust created between Felisa and Bella, Delfin Sr., and
Felimon, Sr.
2. Whether or not the action for reconveyance had not yet prescribed.
3. Whether or not Wilson and Peter Go are purchasers in good faith.

HELD:

1. Tftere was an EXPRESS TRUST. Trust is the right to the beneficial enjoyment of property, to
which is vested in another. Trust relations between parties may either be express or implied.
Express trusts are created by direct and positive acts of the parties by some writing or deed, or will,
or by words either expressly or impliedly evidencing an intention to create a trust. Article 1444 of
the NCC provides that no particular words are required for the creation of an express trust, it being
sufficient that a trust is clearly intended.

The letter of Felisa to Delfin, the validity and due execution of which was never put in issue, hence,
established, absolutely declared her intention of transferring the title over the subject property to
Bella, Delfin, Sr. and Felimon, Sr in order to merely accommodate them in securing a loan from GSIS.
The letter likewise stated that she was retaining her ownership over the property and articulated her
wish to have her heirs share equally therein.

Hence, while in the beginning, an implied trust between then was created, the execution of the
letter settled the nature of trust as an express one.

2. The action for reconveyance has not yet prescribed. Express trusts prescribe in ten years from
the time the trust is repudiated.

In the case, there was repudiation of express trust when Bella as the remaining trustee sold the
property to Wilson and Peter Go on January 23, 1997. The complaint for reconveyance was filed
on October 17, 1997 or only a few months after the sale of the property to Wilson and Peter.

3. Wilson and Peter Go are not purchasers in good faith. A purchaser in good faith is one who buys
a property of another without notice that some other person has a right to, interest in such
property and pays a full and fair price for the same at the time of such purchase, or before he has
notice of some other person’s claim or interest. Wilson admitted that two months had lapsed
before the sale to him could be consummated because his lawyer advised him to request Bella to
cancel the encumbrance annotated on the title of the subject property.

Such knowledge of the existence of an annotation on the title covering the property and of
occupation by individuals other than the seller negates presumption of good faith.

CREDIT TRANSACTIONS
NORLINDA S. MARILAG v. MARCELINO B. MARTINEZ
G.R. No. 201892 July 22, 2015

DOCTRINE:
The rule is that the creditor-mortgagee has a single cause of action against the debtor-mortgagor, i.e., to
recover the debt, through the filing of a personal action for collection of sum of money or the institution
of a real action to foreclose on the mortgage security. In loan contracts secured by a real estate mortgage,
the rule is that the creditor-mortgagee has a single cause of action against the debtor-mortgagor, i.e., to
recover the debt, through the filing of a personal action for collection of sum of money or the institution
of a real action to foreclose on the mortgage security. The two remedies are alternative, not cumulative
or successive, and each remedy is complete by itself.

FACTS:
Rafael Martinez, respondent's father, obtained from petitioner a loan in the amount of P160,000.00, with
a stipulated monthly interest of five percent (5%), payable within a period of six (6) months. The loan was
secured by a real estate mortgage over a parcel of land covered by TCT No. T-208400. Rafael failed to
settle his obligation upon maturity and despite repeated demands, prompting petitioner to file a
Complaint for Judicial Foreclosure of Real Estate Mortgage. Court a quo declared that the causes of action
in the collection and foreclosure cases are distinct, and respondent's failure to comply with his obligation
under the subject PN justifies petitioner to seek judicial relief. It further opined that the stipulated 5%
monthly interest is no longer usurious and is binding on respondent considering the suspension of the
Usury Law pursuant to Central Bank Circular 905, series of 1982. CA, on the other hand,ruled that the
doctrine of res judicata finds application in the instant case, considering that both the judicial foreclosure
and collection cases were filed as a consequence of the non-payment ofRafael's loan, which was the
principal obligation secured by the real estate mortgage and the primary consideration for the execution
of the subject PN. Since res judicata only requires substantial, not actual, identity of causes of action
and/or identity of issue, it ruled that the judgment in the judicial foreclosure case relating to Rafael's
obligation to petitioner is final and conclusive on the collection case.

ISSUE:
Whether or not the CA committed reversible error in upholding the dismissal of the collection case.

HELD:
In loan contracts secured by a real estate mortgage (REM), the rule is that the creditor-mortgagee has a
single cause of action against the debtor-mortgagor, i.e., to recover the debt, through the filing of a
personal action for collection of sum of money or the institution of a real action to foreclose on the
mortgage security. In loan contracts secured by a real estate mortgage, the rule is that the creditor-
mortgagee has a single cause of action against the debtor-mortgagor, i.e., to recover the debt, through the
filing of a personal action for collection of sum of money or the institution of a real action to foreclose
on the mortgage security. The two remedies are alternative, not cumulative or successive, and each
remedy is complete by itself. Thus, if the creditor-mortgagee opts to foreclose the real estate mortgage,
he waives the action for the collection of the unpaid debt, except only for the recovery of whatever
deficiency may remain in the outstanding obligation of the debtor-mortgagor after deducting the bid
price in the public auction sale of the mortgaged properties. Accordingly, a deficiency judgment shall
only issue after it is established that the mortgaged property was sold at public auction for an amount
less than the outstanding obligation.

While the ensuing collection case was anchored on the promissory note (PN) executed by respondent
who was not the original debtor, the same does not constitute a separate and distinct contract of loan
which would have given rise to a separate cause of action upon breach. While the ensuing collection case
was anchored on the promissory note executed by respondent who was not the original debtor, the same
does not constitute a separate and distinct contract of loan which would have given rise to a separate
cause of action upon breach. Notably, records are bereft of any indication that respondent’s agreement to
pay Rafael’s loan obligation and the execution of the subject PN extinguished by novation the contract of
loan between Rafael and petitioner, in the absence of express agreement or any act of equal import. Well-
settled is the rule that novation is never presumed, but must be clearly and unequivocally shown. Thus, in
order for a new agreement to supersede the old one, the parties to a contract must expressly agree that they
are abrogating their old contract in favor of a new one, which was not shown here.

Foreclosure of Mortgage; As petitioner had already instituted judicial foreclosure proceedings over the
mortgaged property, she is now barred from availing herself of an ordinary action for collection,
regardless of whether or not the decision in the foreclosure case had attained finality. As petitioner had
already instituted judicial foreclosure proceedings over the mortgaged property, she is now barred from
availing herself of an ordinary action for collection, regardless of whether or not the decision in the
foreclosure case had attained finality. In fine, the dismissal of the collection case is in order. Considering,
however, that respondent’s claim for return of excess payment partakes of the nature of a compulsory
counterclaim and, thus, survives the dismissal of petitioner’s collection suit, the same should be resolved
based on its own merits and evidentiary support.

RURAL BANK OF CABADBARAN, INC., vs. JORGITA A. MELECIO-YAP, LILIA MELECIO


PACIFICO (deceased, substituted by fter only cftild ERILL* ISAAC M. PACIFICO, JR.),
REYNALDO A. MELECIO DELOSO, and SARAH MELECIO PALMA-GIL
G.R. No. 178451 July 30, 2014

DOCTRINE:
A mortgage is merely an accessory agreement and does not affect the principal contract of loan. The
mortgages, while void, however, can still be considered as instruments evidencing the indebtedness.

The doctrine of mortgagee in good faith applies only to lands registered under the Torrens system and
not to unregistered lands, as the properties in suit; and the principle is inapplicable to banking institutions
which are behooved to exercise greater care and prudence before entering into a mortgage contract.
Hence, the ascertainment of the status or condition of properties offered as security for loans must be a
standard and an indispensable part of its operations.

FACTS:
Erna Melecio-Mantala (Erna) and respondents Jorgita A. Melecio-Yap (Jorgita), Lilia Melecio Pacifico
(Lilia), Reynaldo A. Melecio, Rosie Melecio-Deloso (Rosie), and Sarah Melecio Palma-Gil (Sarah) are the
children of the late spouses Isaac and Trinidad Melecio (Melecio Heirs). They inherited a 3,044 square
meter-residential lot located in Tolosa, Cabadbaran, Agusan del Norte, togetherwith the ancestral house
and two (2) other structures erected thereon (subject properties). The administration and management of
the said properties were left to the care of Erna who was then residing in their ancestral home.

On August 24, 1990, the Melecio Heirs purportedly executed a notarized Special Power of Attorney (SPA)
authorizing Erna to apply for a loan with petitioner Rural Bank of Cabadbaran, Inc. (RBCI) and mortgage
the subject properties. Armed with the said SPA, Erna applied for and was granted a commercial loan by
RBCI in the amount of 200,000.00 with 27% interest rate per annum, payable within a period of 180 days.
The loan was secured by a Real Estate Mortgage over the subject properties which was registered with the
Registry of Deeds of Agusan del Norte and annotated on Tax Declaration (TD) No. 425-R covering the
mortgaged lot.

Erna, however, defaulted in the payment of her loan obligation when it fell due, causing RBCI to extra-
judicially foreclose the mortgaged properties in accordance with Act No. 3135, as amended. In the process,
RBCI emerged as the highest bidder in the public auction sale held on August 26, 1992 for a total bid price
of 405,045.65. Since Erna failed to redeem the subject properties within the redemption period despite
notice, the latest tax declarations in the names of the Melecio Heirs covering the subject properties were
cancelled and new tax declarations in the name of RBCI were issued. Thereafter, RBCI informed Erna of
its intent to take physical possession of the subject properties, while the actual occupant thereof, a certain
Jimmyrando C. Morales, was directed to pay rentals to RBCI beginning September 1995.

In a letter dated October 11, 1995, respondents, through counsel, informed RBCI that they were unaware
of the loan obtained by Erna and did not authorize the mortgage transaction over the subject properties
which they co-owned. They claimed that the SPA submitted by Erna in support of her loan application
was spurious, and that their signatures appearing thereon were falsified. As such, they demanded RBCI
to release the subject properties from the coverage of Erna's loan obligation to the extent of their shares.
In reply, RBCI maintained the validity of the SPA and its right to rely on it being a notarized document.
It likewise claimed that it was impossible for respondents not to have known about the mortgage
transaction considering that the publication and notice requirements in foreclosure proceedings were
followed and that constant reminders were sent to redeem the subject properties which they failed to
heed.

In view of respondents’ refusal to vacate the premises, RBCI applied for and was issued a writ of possession
dated March 22, 1996 by the RTC of Butuan City, Branch 1 in Special Proceeding No. 899. The writ of
Possession was, thereafter, served and returned duly satisfied and complied with by the Sheriff who turned
over the subject properties to RBCI on April 11, 1996.

Consequently, or on April 17, 1996, respondents filed a complaint for declaration of nullity of documents,
recovery of possession and ownership, and damages with prayer for the issuance of a writ of preliminary
injunction against Spouses Erna and Bonifacio Mantala (Sps. Mantala), RBCI, the Office of the Provincial
Sheriff, and Spouses Jimmyrando and Teresita Morales (Sps. Morales) before the RTC of Butuan City,
Branch 2, docketed as Civil Case No. 4406. In the said complaint, respondents averred that they learned of
the foreclosure of the subject properties only sometime in October 1995 and, upon investigation, discovered
that the said properties were mortgaged by their sister, Erna, bearing ostensible authority under the subject
SPA. They alleged that they did not participate in the execution of the said SPA and prayed that the same,
as well as the mortgage contract, the writ of possession, the sheriff’s turn-over receipt, and all derivative
titles, documents, issuances, and registrations arising therefrom be declared null and void and that the
subject properties be reconveyed back to them.

Extraterritorial service of summons was effected upon Sps. Mantala who, at the time of the filing of the
aforementioned complaint, were found to be already living in Dubai, United Arab Emirates. Despite
receipt of the summons and a copy of the complaint, however, they did not file an answer and, thus, were
declared in default.

For their part, the other defendants, i.e., RBCI, Sps. Morales, and the Office of the Provincial Sheriff,
maintained the validity of the notarized SPA and the foreclosure proceedings which carry the
presumption of regularity that respondents failed to overcome. Having relied on the SPA, RBCI invoked
the defense of a mortgagee in good faith whose subsequent ownership and possession of the subject
properties must be respected. Said defendants thereby prayed for the dismissal of the complaint and the
payment of damages, attorney’s fees, and litigation expenses for having been compelled to litigate against
the baseless suit. RBCI likewise filed a crossclaim against Sps. Mantala, praying for reimbursement of the
expenses incurred in relation to the foreclosure proceedings and the present litigation in the event of a
favorable judgment.

During the trial, RBCI presented the notarized Extra-Judicial Adjudication of a Parcel of Land and the
Addendum to the Extra-Judicial Adjudication of the Estate of Isaac Melecio and Trinidad Melecio Both
Deceased (Extra-Judicial Adjudication Documents) allegedly executed by respondents as further
documentary bases for its grant of Erna’s loan application.

On rebuttal, respondents denied having executed the Extra-Judicial Adjudication Documents, contending
that their signatures therein were likewise falsified, and that they never met in Cabadbaran to execute
the same before a notary public. Nonetheless,they admitted to have discovered that the ownership of the
subject properties had already been transferred to RBCI in 1993, contrary to their earlier claim that they
learned about it only in 1995.

Before the RTC’s resolution of the case, respondent Lilia died and was substituted by her only child, Erll
Isaac M. Pacifico. The RTC rendered a Decision in favor of RBCI, declaring the real estate mortgage and
the consequential foreclosure proceedings to be valid and binding against respondents, notwithstanding
the allegation of forgery in the questioned documents. It noted that despite constructive knowledge of
the falsification as early as 1993, respondents questioned the foreclosure proceedings only in 1996. It,
thus, concluded that they would not have raised the issue on forgeries or falsification had Sps. Mantala
paid the loan obligation or redeemed the properties and, consequently, held them guilty of acquiescence
and estoppel. Accordingly, the RTC declared Sps. Mantala liable to both respondents and RBCI, and
adjudged them jointly and solidarily liable to pay: (a) respondents compensatory damages in the amount
of ₱1,000,000.00 with 12% interest rate for the loss of the family ancestral house and lot foreclosed by
RBCI, as well as moral and exemplary damages in the amounts of ₱250,000.00 and ₱100,000.00,
respectively, and attorney's fees and litigation expenses in the sum of ₱70,000.00; (b) RBCI attorney's fees
and litigation expenses in the total amount of ₱70,000.00; and (c) the costs of suit.
Dissatisfied, respondents appealed to the CA which reversed the RTC Decision, finding that Erna had no
authority to mortgage the subject properties to RBCI since the SPA was actually a forgery, and, hence,
null and void. It held that while a notarized document generally carries the evidentiary weight conferred
upon it with respect to its due execution, respondents, nonetheless, were able to rebut by clear, positive
and convincing evidence that their signatures on the contested SPA were forged. The CA reached the
same conclusion with respect to the Extra-Judicial Adjudication Documents, and likewise declared the
same invalid. Moreover, contrary to the findings of the RTC, the CA held that there was no constructive
knowledge of the falsification, noting that the respondents were not furnished by RBCI with any notice
relative to the loan obligation nor impleaded in the foreclosure proceedings and the ex-parte petition for
writ of possession. In this relation, the CA pointed out that acquiescence cannot validate or ratify an
inexistent or void document nor can estoppel lie against respondents who had no deliberate intent to
mislead.

In view of the foregoing, the CA declared the real estate mortgage executed on the strength of the falsified
SPA as an invalid encumbrance of respondents’ individual shares over the subject properties which cannot
be bound by the subsequent foreclosure proceedings conducted. Nevertheless, it held that a valid transaction
was executed between RBCI and Erna to the extent of the latter’s 1/6 share in the subject properties which
portion respondents, as co-owners, may redeem.

Further, the CA ordered a remand of the case (a) to determine the exact extent of the respective rights,
interests, shares, and participation of respondents and RBCI over the subject properties, (b) thereafter, to
effect a final division, adjudication, and partition in accordance with law, and (c) to re-compute the loan
obligation, inclusive of interests, penalties, and other charges due against Sps. Mantala. Finally, the CA
deleted the awards of moral and exemplary damages, attorney's fees, and litigation expenses for lack of
factual and legal bases and ordered Sps. Mantala to pay the costs. RBCI’s motion for reconsideration was
denied by the CA in a Resolution dated June 12, 2007, hence, this petition.

ISSUE:
Whether or not respondents are guilty of laches and, thus, estopped from questioning the validity of the real
estate mortgage and subsequent foreclosure proceedings; and whether or not RBCI can be considered as a
mortgagee in good faith.

RULING:
A mortgage is merely an accessory agreement and does not affect the principal contract of loan. The
mortgages, while void, however, can still be considered as instruments evidencing the indebtedness.

Similarly, in Flores v. Lindo, Jr., the Court pronounced that:


The liability of x x x on the principal contract of the loan however subsists notwithstanding the illegality
of the mortgage. Indeed, where a mortgage is not valid, the principal obligation which it guarantees is
not thereby rendered null and void. That obligation matures and becomes demandable in accordance with
the stipulation pertaining to it. Under the foregoing circumstances, what is lost is merely the right to
foreclose the mortgage as a special remedy for satisfying or settling the indebtedness which is the
principal obligation. In case of nullity, the mortgage deed remains as evidence or proof of a personal
obligation of the debtor and the amount due to the creditor may be enforced in an ordinary action.

Based on the foregoing, the partial invalidity of the subject real estate mortgage brought about by the
forged status of the subject SPA would not, therefore, result into the partial invalidation of the loan
obligation principally entered into by RBCI and Sps. Mantala; thus, absent any cogent reason to hold
otherwise, the need for the recomputation of said loan obligation should be dispensed with.

As for RBCI’s claim that it should be deemed a mortgagee in good faith for having conducted exhaustive
investigations on the history of the mortgagor’s title, the Court finds the same untenable. Two reasons
impel this conclusion: first, the doctrine of mortgagee in good faith applies only to lands registered under
the Torrens system and not to unregistered lands, as the properties in suit; and second, the principle is
inapplicable to banking institutions which are behooved to exercise greater care and prudence before
entering into a mortgage contract. Hence, the ascertainment of the status or condition of properties
offered as security for loans must be a standard and an indispensable part of its operations.

In this case, RBCI failed to observe the required level of caution in ascertaining the genuineness of the SPA
considering that Erna owns only an aliquot part of the properties offered as security for the loan. It should
not have simply relied on the face of the documents submitted since its undertaking to lend a considerable
amount of money as a banking institution requires a greater degree of diligence. Hence, its
rights as mortgagee and, now, as co-owner, should only be limited to Erna’s share to the subject
properties and not, absent the other co-owners’ consent, to its entirety.

Finally, the Court cannot subscribe to RBCI's contention that respondents are barred by laches from
laying claim over the subject properties in view of their inexplicable inaction from the time they learned
of the falsification. Laches is principally a doctrine of equity. It is negligence or omission to assert a right
within a reasonable time, warranting a presumption that the party entitled to assert it either has
abandoned or declined to assert it. In this case, the complaint for nullification of the SPA was filed before
the RTC on April 17,1996, or barely three years from respondents' discovery of the averred forgery in
1993, which is within the four-year prescriptive period provided under Article 1146 of the Civil Code to
institute an action upon the injury to their rights over the subject properties. A delay within the
prescriptive period is sanctioned by law and is not considered to be a delay that would bar relief. Laches
applies only in the absence of a statutory prescriptive period. Furthermore, the doctrine of laches cannot
be used to defeat justice or perpetrate fraud and injustice. It is the more prudent rule that courts, under
the principle of equity, will not be guided or bound strictly by the statute of limitations or the doctrine of
laches when by doing so, manifest wrong or injustice would result, as in this case.

Neither is there estoppel. Under Article 1431 of the Civil Code, an essential element of estoppel is that
the person invoking it has been influenced and has relied on the representations or conduct of the person
sought to be estopped. Said element is, however, wanting in this case.

WHEREFORE, the petition is PARTLY GRANTED. The Decision dated February 28, 2006 and the
Resolution. dated June 12, 2007 of the Court of Appeals in CA-G.R. CV No. 70933 are hereby AFFIRMED
with MODIFICATIONS deleting (a) the declaration of nullity of the Extra-Judicial Adjudication of a Parcel
of Land and the Addendum to the Extra-Judicial Adjudication of the Estate of Isaac Melecio and Trinidad
Melecio Both Deceased, as well as (b) the order to remand the case for the purpose of re-computing the
loan obligation of Spouses Erna Melecio-Mantala and Bonifacio Mantala to Rural Bank of Cabadbaran,
Inc. (RBCI).

The Writ of Possession issued in favor of RBCI, and all proceedings relative thereto, are further SET
ASIDE considering that the latter's specific possessory rights to the said properties remain undetermined.

Sps. Rodolfo and Marcelina Guevarra v. THE COMMONER LENDING CORPORATION


(TCLC), INC.
G.R. No. 204672 February 18, 2015

DOCTRINE:
An action to foreclose must be limited to the amount mentioned in the mortgage.

FACTS:
On December 16, 1996, the Guevarras obtained a P320,000.00 loan from TCLC, which was secured by a
real estate mortgage over a 5,532- square meter parcel of land situated in Guimbal, Iloilo, covered by an
Original Certificate of Title (OCT).

Sps. Guevarra, however, defaulted in the payment of their loan, prompting TCLC to extra-judicially
foreclose the mortgage on the subject property under Act no. 3135. .In the process, TCLC emerged as the
highest bidder at the public auction sale for the bid amount of P150,000.00. The certificate of sale was
registered with the Registry of Deeds of Iloilo.

The spouses failed to exercise their right of repurchase within the reglamentary 1 year period. Hence
their title was cancelled, and they were ordered to vacate the premises. TCLC tried to obtain a writ of
possession over the property in a cadastral case, however the spouses opposed the petition.

The Gueverras argued that the land is public land, and thus subject to the public land act. They aver that
they were thus deprived of the right to REPURCHASE (not to redeem) the same since under the Public
Land Act, the period for repurchase is 5 years.

The RTC ruled in favor of the spouses, and the CA affirmed the lower court’s ruling, with modification
that the same be conditioned upon the payment of the purchase price fixed by TCLC. It ruled that after
the expiration of the redemption period, the present owner, i.e., TCLC, has the discretion to set a higher
price Thus this petition filed by TCLC.
ISSUE:
Whether or not the CA committed a reversible error in ruling that the repurchase price for the subject
property should be fixed by TCLC

HELD:
TCLC is partly correct.

Sps. Guevarra insist that the repurchase price should be the purchase price at the auction sale plus interest
of one percent (1%) per month and other assessment fees citing the rulings in the cases of Belisario v.
Intermediate Appellate Court and Salenillas v. CA On the other hand, TCLC maintains that it is entitled
to its total claims under the promissory note and the mortgage contract in accordance with Section 4751
of the General Banking Law of 2000.

On this account, TCLC is right. Redemptions from lending or credit institutions, like TCLC, are governed
by Section 7857 of the General Banking Act as to the redemption price.

Nonetheless, the Court cannot subscribe to TCLC’s contention that it is entitled to its total claims under the
promissory note and the mortgage contract in view of the settled rule that an action to foreclose must be
limited to the amount mentioned in the mortgage.

Hence, amounts not stated therein must be excluded, like the penalty charges of three percent (3%) per
month included in TCLC’s claim. A penalty charge is likened to a compensation for damages in case of
breach of the obligation. Being penal in nature, it must be specific and fixed by the contracting parties.

As such, the stipulated three percent (3%) monthly interest should be equitably reduced to one percent
(1%) per month or twelve percent (12%) per annum reckoned from the execution of the real estate
mortgage on December 12, 1996.

Moreover, the Court notes that the stipulated three percent (3%) monthly interest is excessive and
unconscionable. In a plethora of cases, the Court has affirmed that stipulated interest rates of three percent
(3%) per month and higher are excessive, iniquitous, unconscionable, and exorbitant, hence, illegal and
void for being contrary to morals.

Wherefore, the petition is denied with modification.

PHILIPPINE ASSET GROWTH TWO, INC. v. FASTECH SYNERGY PHILIPPINES, INC.


G.R. No. 206528 June 28, 2016

DOCTRINE:
A distressed corporation should not be rehabilitated when the results of the financial examination and
analysis clearly indicate that there lies no reasonable probability that it may be revived, to the detriment
of its numerous stakeholders which include not only the corporation's creditors but also the public at
large.

FACTS:
On April 8, 2011, respondents filed a verified Joint Petition for corporate rehabilitation before the RTC-
Makati Branch 149. They claimed that: (a) their business operations and daily affairs are being managed
by the same individuals; (b) they share a majority of their common assets; and (c) they have common
creditors and common liabilities. Among the common creditors listed in the rehabilitation petition was
Philippine Development Bank (PDB), which had earlier filed a petition for extrajudicial foreclosure of
mortgage over the two (2) parcels of land registered in the name of Fastech Properties (subject properties),
listed as common assets of respondents in the rehabilitation petition. The foreclosure sale was held on
April 13, 2011, with PDB emerging as the highest bidder. Respondents claimed that this situation has
impacted on their chance to recover from the losses they have suffered over the years, since the said
properties are being used in their business operations, and a source of significant revenue.

After the initial hearing on May 18, 2011, and the filing of the comments/oppositions on the rehabilitation
petition, the RTC-Makati gave due course to the said petition, and, thereafter, referred the same to the
court-appointed Rehabilitation Receiver, who submitted her preliminary report, opining that respondents
may be rehabilitated, considering that their assets appear to be sufficient to cover their liabilities. The
RTC-Makati dismissed the rehabilitation petition despite the favorable recommendation of its appointed
Rehabilitation Receiver. It found the facts and figures submitted by respondents to be unreliable. The CA
ruled that the RTC-Makati grievously erred in disregarding the report/opinion of the Rehabilitation
Receiver that respondents may be successfully rehabilitated, despite being highly qualified to make an
opinion on accounting in relation to rehabilitation matters.

On April 3, 2013, DivinaLaw, on behalf of petitioner Philippine Asset Growth Two, Inc. (PAGTI), filed a
Motion for Substitution of Parties (motion for substitution), averring that PAGTI had acquired PDB's claims
and interests in the instant case, hence, should be substituted as a party therein.

ISSUE:
Whether or not the rehabilitation plan is feasible.

HELD:
No. Rehabilitation is statutorily defined under Republic Act No. 10142, otherwise known as the "Financial
Rehabilitation and Insolvency Act of 2010" (FRIA), as follows:

”Rehabilitation shall refer to the restoration of the debtor to a condition of successful operation and
solvency, if it is shown that its continuance of operation is economically feasible and its creditors can
recover by way of the present value of payments projected in the plan, more if the debtor continues as a
going concern than if it is immediately liquidated.”

Case law explains that corporate rehabilitation contemplates a continuance of corporate life and activities
in an effort to restore and reinstate the corporation to its former position of successful operation and
solvency. Thus, the basic issues in rehabilitation proceedings concern the viability and desirability of
continuing the business operations of the distressed corporation, all with a view of effectively restoring
it to a state of solvency or to its former healthy financial condition through the adoption of a rehabilitation
plan.

In the present case, however, the Rehabilitation Plan failed to comply with the minimum requirements, i.e.:
(a) material financial commitments to support the rehabilitation plan; and (b) a proper liquidation analysis,
under Section 18, Rule 3 of the 2008 Rules of Procedure on Corporate Rehabilitation.

The failure of the Rehabilitation Plan to state any material financial commitment to support
rehabilitation, as well as to include a liquidation analysis, renders the CA's considerations for approving
the same, as actually unsubstantiated, and hence, insufficient to decree the feasibility of respondents'
rehabilitation. It is well to emphasize that the remedy of rehabilitation should be denied to corporations
that do not qualify under the Rules. Neither should it be allowed to corporations whose sole purpose is
to delay the enforcement of any of the rights of the creditors.

A perusal of the 2009 audited financial statements shows that respondents' cash operating position was
not even enough to meet their maturing obligations. Notably, their current assets were materially lower
than their current liabilities. On the other hand, respondents' unaudited financial statements for the year
2010, and the months of February and March 2011 were unaccompanied by any notes or explanation on
how the figures were arrived at. Besides, respondents' cash operating position remained insufficient to
meet their maturing obligations as their current assets are still substantially lower than their current
liabilities.

A distressed corporation should not be rehabilitated when the results of the financial examination and
analysis clearly indicate that there lies no reasonable probability that it may be revived, to the detriment
of its numerous stakeholders which include not only the corporation's creditors but also the public at
large.

HENRY L. SY v. LOCAL GOVERNMENT OF QUEZON CITY


G.R. No. 202690 June 3, 2013

DOCTRINE:
The party invoking excusable negligence should be able to show that the procedural oversight or lapse
is attended by a genuine miscalculation or unforeseen fortuitousness which ordinary prudence could not
have guarded against so as to justify the relief sought.

The debt incurred by the government on account of the taking of the property subject of an expropriation
constitutes an effective forbearance which therefore, warrants the application of the 12% legal interest
rate.
FACTS:
The Local Government of Quezon City, through then Mayor Mathay, Jr., filed a complaint for
expropriation with the RTC in order to acquire a 1,000 sq. m. parcel of land, owned and registered under
the name of Sy which was intended to be used as a site for a multi-purpose barangay hall, day-care center,
playground and community activity center for the benefit of the residents of Barangay Balingasa,
Balintawak, Quezon City.

Pursuant to the Local Government Code of 1991, the City deposited the amount of P241,090.00 with the
Office of the Clerk of Court, representing 15% of the fair market value of the subject property based on
its tax declaration.

During the preliminary conference, Sy did not question the City's right to expropriate the subject
property. Thus, only the amount of just compensation remained at issue.

The RTC appointed Commissioners Ostaco, Salinas and Alcantara to determine the proper amount of just
compensation to be paid by the City for the subject property. Subsequently, in a Report, Commissioners
Ostaco and Alcantara recommended the payment of P5,500.00 per sq. m., to be computed from the date of
the filing of the expropriation complaint. On the other hand, Commissioner Salinas filed a separate Report
dated March 7, 2008, recommending the higher amount of P13,500.00 per sq. m. as just compensation.

The RTC adopted the findings of Commissioners Ostaco and Alcantara. Further, it found no basis for the
award of damages and back rentals in favor of Sy. It also awarded six percent (6%) legal interest, computed
from November 7, 1996 until full payment of just compensation.

The CA affirmed the RTC's ruling but modified the same, ordering the City to pay Sy the amount of
P200,000.00 as exemplary damages and attorney's fees equivalent to one percent (1%) of the total amount
due. The CA also denied Sy's assertion that he should be entitled to damages on account of the purported
shelving of his housing project, finding no sufficient evidence to support the same.

Aggrieved, Sy moved for reconsideration which was denied for being filed out of time it being filed a day
late. The City also filed a motion for reconsideration which was equally denied for lack of merit. Hence,
this petition.

Sy's counsel, Atty. Meris, claims that his secretary's inadvertent placing of the date January 27, 2012,
instead of January 26, 2012, on the Notice of Decision constitutes excusable negligence which should
therefore, justify a relaxation of the rules.

ISSUES:
1. WON claims of inadvertence constitutes excusable negligence which justifies a relaxation of the
rules; and
2. WON the grant of six percent (6%) legal interest is proper

HELD:
1. NO. A claim of excusable negligence does not loosely warrant a relaxation of the rules. Verily,
the party invoking such should be able to show that the procedural oversight or lapse is attended
by a genuine miscalculation or unforeseen fortuitousness which ordinary prudence could not
have guarded against so as to justify the relief sought. The standard of care required is that which
an ordinarily prudent man bestows upon his important business. In this accord, the duty rests on
every counsel to see to adopt and strictly maintain a system that will efficiently take into account
all court notices sent to him.

Applying these principles, the Court cannot excuse Atty. Meris' misstep based on his proffered
reasons. Evidently, the erroneous stamping of the Notice of Decision could have been averted if
only he had instituted a credible filing system in his office to account for oversights such as that
committed by his secretary. Indeed, ordinary prudence could have prevented such mistake.

Be tftat as it may, procedural rules may, nonetfteless, be relaxed for tfte most persuasive
of reasons in order to relieve a litigant of an injustice not commensurate witft tfte degree
of ftis tftougfttlessness in not complying witft tfte procedure prescribed. Corollarily, the
rule, which states that the mistakes of counsel bind the client, may not be strictly followed where
observance of it would result in the outright deprivation of the client's liberty or property, or
where the interest of justice so requires.

As applied in this case, the Court finds that the procedural consequence of the above-discussed one-
day delay in the filing of the subject motion which, as a matter of course, should render the CA's
January 20, 2012 Decision already final and executory and hence, bar the instant petition is
incommensurate to tfte injustice wfticft Sy may suffer. This is in line with the Court's
observation that the amount of just compensation, the rate of legal interest, as well as the time of
its accrual, were incorrectly adjudged by both the RTC and the CA, contrary to existing
jurisprudence. In tftis respect, tfte Court deems it proper to relax tfte rules of procedure and
tftus, proceed to resolve tfte substantive issues.

2. NO. The Court holds that the correct rate of legal interest to be applied is twelve percent (12%) and
not six percent (6%) per annum, owing to the nature of the City's obligation as an effective
forbearance.

In the case of Republic v. CA, the Court ruled that the debt incurred by the government on
account of the taking of the property subject of an expropriation constitutes an effective
forbearance which therefore, warrants the application of the 12% legal interest rate, viz:

The constitutional limitation of "just compensation" is considered to be the sum equivalent to the
market value of the property, broadly described to be the price fixed by the seller in open market
in the usual and ordinary course of legal action and competition or the fair value of the property
as between one who receives, and one who desires to sell, it fixed at the time of the actual taking
by the government. Tftus, if property is taken for public use before compensation is
deposited witft tfte court ftaving jurisdiction over tfte case, tfte final compensation must
include interests on its just value to be computed from tfte time tfte property is taken to
tfte time wften compensation is actually paid or deposited witft tfte court. In fine,
between tfte taking of tfte property and tfte actual payment, legal interests accrue in
order to place tfte owner in a position as good as (but not better tftan) tfte position fte
was in before tfte taking occurred.

As to the reckoning point on which the legal interest should accrue, the same should be computed
from tfte time of tfte taking of tfte subject property in 1986 and not from tfte filing of tfte
complaint for expropriation on November 7, 1996.

Records show that the City itself admitted in its Appellee's Brief filed before the CA that as early
as 1986, a burden was already imposed upon the owner of the property, considering that the
expropriated property was already being used as Barangay day care and office. Thus, the
property was actually taken during that time and from thereon, legal interest should have already
accrued. In tftis ligftt, tfte Court ftas fteld tftat final compensation must include interests
on its just value to be computed from tfte time tfte property is taken to tfte time wften
compensation is actually paid or deposited witft tfte court.

This is based on the principle that interest "runs as a matter of law and follows from tfte
rigftt of tfte landowner to be placed in as good position as money can accomplisft, as of
tfte date of tfte taking.”

Notably, the lack of proper authorization, i.e., resolution to effect expropriation, did not affect the
character of the City's taking of the subject property in 1986. Case law dictates that tftere is
"taking" wften tfte owner is actually deprived or dispossessed of ftis property; wften
tftere is a practical destruction or a material impairment of tfte value of ftis property or
wften fte is deprived of tfte ordinary use tftereof. Therefore, notwithstanding the lack of
proper authorization, the legal character of the City's action as one of "taking" did not change. As
it previously admitted, it already commenced with the taking of the subject property as early as
1986. Accordingly, interest must run from sucft time.
SPOUSES CHARITO M. REYES and ROBERTO REYES, and SPOUSES VILMA M. MARAVILLO
and DOMINGO MARAVILLO, JR. v. HEIRS OF BENJAMIN MALANCE,* namely: ROSALINA
M. MALANCE, BERNABE M. MALANCE, BIENVENIDO M. MALANCE, and DOMINGA** M.
MALANCE, represented by BIENVENIDO M. MALANCE
G.R. No. 219071 August 24, 2016

DOCTRINE:
Antichresis involves an express agreement between parties whereby : (a) the creditor will have possession
of the debtor's real property given as security; (b)such creditor will apply the fruits of the said property to
the interest owed by the debtor, if any, then to the principal amount;53(c) the creditor retains enjoyment of
such property until the debtor has totally paid what he owes;54and (d) should the obligation be duly paid,
then the contract is automatically extinguished proceeding from the accessory character of the agreement.

FACTS:
Benjamin Malance (Benjamin) was the owner of parcel of agricultural land Dulong Malabon, Pulilan,
Bulacan (subject land). During his lifetime, Benjamin obtained from the Magtalas sisters, who are distant
relatives, a loan in the amount of ₱600,000.00, as evidenced by a Kasulatan Ng Ukol sa Utang (Kasulatan).
Under the Kasulatan, the Magtalas sisters shall have the right to the fruits of the subject land for six (6)
years or until the loan is fully paid.

After Benjamin passed away, his siblings, the Malance heirs, inspected the subject land and discovered that
the Magtalas sisters, their respective husbands, Roberto Reyes and Domingo Maravillo, Jr. (petitioners),
and their father, Fidel G. Magtalas (Fidel), were cultivating the same on the basis of the Kasulatan.

Doubting the authenticity of the said Kasulatan, the Malance heirs filed a Complaint for Recovery of
Possession, Declaration of Nullity of the Kasulatan and Damages with Prayer for Writ of Preliminary
Injunction and Temporary Restraining Order against petitioners, before the Regional Trial Court of
Malolos City, Bulacan (RTC), which the Malance heirs subsequently amended. They claimed that: (a)
during his lifetime, Benjamin accumulated enough wealth to sustain himself, was unmarried and had no
children to support; (b) the Kasulatan was executed during the time when Benjamin was seriously ill and
mentally incapacitated due to his illness and advanced age; and (c) the Kasulatan was simulated as the
signature of Benjamin appearing thereon was not his signature.

Petitioners denied that Benjamin had accumulated enough wealth to sustain himself as his only source
of income was his farm, and averred, inter alia, that: (a) when Benjamin became sickly in 2000, he leased
the subject land to different people who cultivated the same with their (petitioners') help; (b) the
Kasulatan was executed before a notary public at the time when Benjamin was of sound mind, though
sickly; (c) they were cultivating the subject land in accordance with the said Kasulatan; (d) the case
involved an agrarian conflict within the jurisdiction of the Department of Agrarian Reform Adjudication
Board; and (e) the Malance heirs must pay Benjamin's indebtedness prior to recovery of possession.

RTC dismissed the complaint for failure of the Malance heirs to substantiate their claim that Benjamin's
signature was forged, and upheld the validity of the Kasulatan on the ground that it is a notarized
document which enjoys the presumption of regularity in its execution. It declared the Kasulatan as a
contract of antichresis binding upon Benjamin's heirs - the Malance heirs - and conferring on the
Magtalas sisters the right to retain the subject land until the debt is paid.

ISSUE:
Whether or not the KASULATAN can be considered as a contract of antichresis

HELD:
Yes, the Court, however, concurs with the RTC's finding, as affirmed by the CA, that the Kasulatan is a
contract of antichresis.1âwphi1 Article 2132 of the Civil Code provides:

Art. 2132. By the contract of antichresis the creditor acquires the right to receive the fruits of an
immovable of his debtor, with the obligation to apply them to the payment of the interest, if
owing, and thereafter to the principal of his credit.

Thus, antichresis involves an express agreement between parties whereby : (a) the creditor will have
possession of the debtor's real property given as security; (b)such creditor will apply the fruits of the said
property to the interest owed by the debtor, if any, then to the principal amount; (c) the creditor retains
enjoyment of such property until the debtor has totally paid what he owes;and (d) should the obligation
be duly paid, then the contract is automatically extinguished proceeding from the accessory character of
the agreement.

Bearing these elements in mind, the evidence on record shows that the parties intended to enter
into a contract of antichresis. In the Kasulatan, Benjamin declared:

Na, aka ay tumanggap ng halagang ANIMNARAANG LIBONG PISO (₱600,000.00) salaping Pilipino
buhat kina CHARITO M. REYES kasal kay Roberto Reyes at VILMA MARAVILLO kasal kay Domingo
Maravilla, Jr., pawang mga sapat na gulang, Pilipino at nagsisipanirahan sa Dulong Malahan,
Pulilan, Bulacan, bilang UTANG;

Na, ako ay nangangakong babayaran ang halagang aking inutang sa nasabing sina CHARITO M.
REYES at VILMA MARAVILLO, sa kanilang tagapagmana, makakahalili at paglilipatan sa loob ng
anim (6) na taon;

Na, upang mapanagutan ang matapat na pagbabayad sa aking pagkakautang ay aking


IPINANAGOT ang aking ani ng lupa na matatagpuan sa Dulong Malabon, Pulilan, Bulacan, may
sukat na 1 ektarya at kalahati (1½) humigi’t kumulang;

Na, kung sa loob ng taning na panahon na nabanggit ay mabayaran na ang halaga ng aking inutang
sa nasabing sina CHARITO M. REYES at VILMA MARAVILLO at sa kanilang mga tagapagmana,
makakahalili at paglilipatan, ang kasulatang ito ay kusang mawawalan ng bisa, tibay at lakas,
ngunit kung hindi mabayaran ang halaga ng aking inutang ang kasulatang ito ay mananatiling
mabisa, matihay at maaaring ipatupad ayon sa umiiral na batas.

The language of the Kasulatan leaves no doubt that the [₱]600,00.00 was a loan secured by the fruits or ani
of the landholding beneficially owned by Benjamin.The document specifically authorizes [the Magtalas
sisters] to receive the fruits of the subject landholding with the obligation to apply them as payment to his
[₱]600,000.00 principal loan for a period of six (6) years. The instrument provides no accessory stipulation
as to interest due or owing the creditors, x x x. No mention of interest was ever made by the creditors when
they testified in court. This could only be interpreted that the [Magtalas sisters] have no intention
whatsoever to charge Benjamin of interest for his loan.

We note also that the Kasulatan is silent as to the transfer of possession of the subject property. However,
[the Magtalas sisters] admitted taking possession of Benjamin's landholding after his death on September
29, 2006 and that they have been cultivating it since then. They rationalize that their action is in accord
with their agreement with Benjamin when the latter was still alive. They assure the return of the subject
property upon full payment of Benjamin's loan by [the Malance heirs], the successors-in-interest of
Benjamin.

While the Kasulatan did not provide for the transfer of possession of the subject land, the
contemporaneous and subsequent acts of the parties show that such possession was intended to be
transferred. Atty. Navarro testified that while the Kasulatan only shows that the harvest and the fruits
shall answer for Benjamin's indebtedness, the parties agreed among themselves that the lenders would
be the one to take possession of the subject land in order for them to get the harvest.58 Indeed, such
arrangement would be the most reasonable under the premises since at that time, Benjamin's medical
condition necessitated hospitalization, hence, his physical inability to cultivate and harvest the fruits
thereon.

As antichretic creditors, the Magtalas sisters are entitled to retain enjoyment of the subject land until the
debt has been totally paid. Article 2136 of the Civil Code reads:
Art. 2136. The debtor cannot reacquire the enjoyment of the immovable without first having totally paid
what he owes the creditor.

The debt not having been totally paid, petitioners are entitled to retain enjoyment of the subject land.
Consequently, the Malance heirs' complaint for recovery of possession, declaration of nullity of the
Kasulatan, and damages against petitioners must be dismissed.
ERLINDA DINGLASAN DELOS SANTOS and fter daugftters, namely, VIRGINIA, AUREA, and
BINGBING, all surnamed DELOS SANTOS vs. ALBERTO ABEJON and tfte estate of TERESITA
DINGLASAN ABEJON
G.R. No. 215820, March 20, 2017

DOCTRINE:
Alternative to the collection of the said sum of money, respondents may also choose to foreclose the
mortgage on the subject land as the same was duly constituted to secure the ₱l00,000.00 loan obligation.
In other words, respondents have the option to either file a personal action for collection of sum of money
or institute a real action to foreclose on the mortgage security. The aforesaid remedies are alternative,
meaning the choice of one will operate to preclude the other.

FACTS:
The instant case arose from a Complaint for Cancellation of Title with collection of sum of money filed by
respondents against petitioners before the RTC of Makati City. The complaint alleged that Erlinda and her
late husband Pedro Delos Santos borrowed the amount of ₱100,000.00 from the former's sister, Teresita, as
evidenced by a Promissory Note dated April 8, 1998. As security for the loan, Erlinda and Pedro mortgaged
their property consisting of 43.50 square meters situated at Gen. Del Pilar Street, Bangkal, Makati City
covered by TCT No. 131753 (subject land) which mortgage was annotated on the title. After Pedro died,
Erlinda ended up being unable to pay the loan, and as such, agreed to sell the subject land to Teresita for
₱150,000.00, or for the amount of the loan plus an additional ₱50,000.00. On July 8, 1992, they executed
a Deed of Sale and a Release of Mortgage, and eventually, TCT No. 131753 was cancelled and TCT No.
180286 was issued in the name of "Teresita, Abejon, married to Alberto S. Abejon."

Thereafter, respondents constructed a three (3)-storey building worth ₱2,000,000.00 on the subject land.
However, the petitioners refused to acknowledge the sale, pointing out that since Pedro died in 1989, his
signature in the Deed of Sale executed in 1992 was definitely forged. As such, respondents demanded
from petitioners the amounts of ₱150,000.00 representing the consideration for the sale of the subject land
and ₱2,000,000.00 representing the construction cost of the building, but to no avail. Thus, respondents
filed the instant case.

In defense, petitioners denied any participation relative to the spurious Deed of Sale, and instead,
maintained that it was Teresita who fabricated the same and caused its registration before the Register
of Deeds of Makati City. They likewise asserted that Erlinda and Pedro never sold the subject land to
Teresita for ₱150,000.00 and that they did not receive any demand for the payment of ₱100,000.00
representing the loan, as well as the ₱2,000,000.00 representing the construction cost of the building.
Finally, they claimed that the improvements introduced by Teresita on the subject land were all voluntary
on her part.

The RTC ruled: (a) declared the Deed of Sale null and void; (b) ordered the cancellation of TCT No. 180286
and the reinstatement of TCT No. 131753; and (c) ordered petitioners to pay respondents the following
amounts: (1) ₱100,000.00 plus twelve percent (12%) per annum computed from July 8, 1992 until fully paid
representing the loan obligation plus legal interest; (2) ₱2,000,000.00 representing the construction cost
of the three (3)-storey building; and (3) another ₱l00,000.00 as attorney's fees and litigation expenses.

The CA affirmed the RTC ruling with modifications: (a) cancelling the Release of Mortgage; (b) adjusting
the twelve percent (12%) per annum interest imposed on the loan obligation, in that it should be computed
from November 25, 1997, or from the filing of the instant complaint; and (c) imposing a six percent (6%)
interest per annum on the construction cost of the three (3)-storey building from the finality of the decision
until its full satisfaction.

Undaunted, petitioners moved for reconsideration, which was, however, denied. Hence, this petition.

ISSUE:
Whether or not the CA correctly held that petitioners should be held liable to respondents.

HELD:
The petition is partly meritorious.

In the case at bar, it must be reiterated that during the pre-trial proceedings, the parties agreed/stipulated
that: (a) the subject land was previously covered by TCT No. 131753 in the name of Erlinda and Pedro,
but such title was cancelled and replaced by TCT No. 180286 in the name of Teresita; (b) the Deed of Sale
and Release of Mortgage both executed on July 8, 1992 were forged, and thus, should be cancelled; (c) in
view of said cancellations, TCT No. 180286 should likewise be cancelled and TCT No. 131753 should be
reinstated; (d) from the time when the spurious deed of sale was executed until the present, petitioners have
been the actual occupants of the subject land as well as all improvements therein, including the three (3)-
storey building constructed by respondents; and (e) the ₱100,000.00 loan still subsists and that respondents
paid for the improvements being currently occupied by petitioners, i.e., the three (3) storey building. As
such, the parties in this case are bound to honor the admissions and/or stipulations they made during the
pre-trial.

Thus, in view of the foregoing admissions and/or stipulations, there is now a need to properly determine
to whom the following liabilities should devolve: (a) the ₱l00,000.00 loan obligation; (b) the ₱50,000.00
extra consideration Teresita paid for the sale of the subject land, which was already declared void - a
matter which the RTC and the CA completely failed to resolve; and (c) the ₱2,000,000.00 construction cost
of the three (3)-storey building that was built on the subject land.

I.
While petitioners admitted the existence of the ₱l00,000.00 loan obligation as well as respondents' right
to collect on the same, it does not necessarily follow that respondents should collect the loan amount
from petitioners, as concluded by both the RTC and the CA. It must be pointed out that such loan was
contracted by Erlinda, who is only one (1) out of the four (4) herein petitioners, and her deceased husband,
Pedro, during the latter's lifetime and while their marriage was still subsisting. As they were married
before the effectivity of the Family Code of the Philippines and absent any showing of any pre-nuptial
agreement between Erlinda and Pedro, it is safe to conclude that their property relations were governed
by the system of conjugal partnership of gains. Hence, pursuant to Article 121 of the Family Code, the
₱100,000.00 loan obligation, including interest, if any, is chargeable to Erlinda and Pedro's conjugal
partnership as it was a debt contracted by the both of them during their marriage; and should the conjugal
partnership be insufficient to cover the same, then Erlinda and the estate of Pedro shall be solidarily liable
for the unpaid balance with their separate properties. While the portion attributable to Pedro was not
considered extinguished by his death, it is merely passed on to his estate; and thus, his heirs, i.e., herein
petitioners, could not be held directly answerable for the same. In sum, both the RTC and the CA erred
in holding petitioners liable to respondents for the loan obligation in the amount of ₱100,000.00.

Alternative to the collection of the said sum, respondents may also choose to foreclose the mortgage on
the subject land as the same was duly constituted to secure the ₱l00,000.00 loan obligation. In other words,
respondents have the option to either file a personal action for collection of sum of money or institute a
real action to foreclose on the mortgage security. The aforesaid remedies are alternative, meaning the
choice of one will operate to preclude the other.

II.
It is settled that "the declaration of nullity of a contract which is void ab initio operates to restore things to
the state and condition in which they were found before the execution thereof." Pursuant to this rule, since
the Deed of Sale involving the subject land stands to be nullified in view of the parties' stipulation to this
effect, it is incumbent upon the parties to return what they have received from said sale. Accordingly,
Erlinda and the rest of petitioners (as Pedro's heirs) are entitled to the return of the subject land as stipulated
during the pre-trial. On the other hand, respondents, as Teresita's successors-in- interest, are entitled to the
refund of the additional P50,000.00 consideration she paid for such sale. However, it should be clarified
that the liability for the said amount will not fall on all petitioners, but only on Erlinda, as she was the only
one among the petitioners who was involved in the said sale. Pursuant to Nacar v. Gallery Frames, the
amount of P50,000.00 shall be subjected to legal interest of six percent (6%) per annum from the finality
of this Decision until fully paid.

III.
The terms builder, planter, or sower in good faith as used in reference to Article 448 of the Civil Code,
refers to one who, not being the owner of the land, builds, plants, or sows on that land believing himself to
be its owner and unaware of the defect in his title or mode of acquisition.

In this case, it bears stressing that the execution of the Deed of Sale involving the subject land was done
in 1992. However, and as keenly pointed out during the deliberations of this case, Teresita was apprised
of Pedro's death as early as 1990 when she went on a vacation in the Philippines. As such, she knew all
along that the aforesaid Deed of Sale - which contained a signature purportedly belonging to Pedro, who
died in 1989, or three (3) years prior to its execution - was void and would not have operated to transfer
any rights over the subject land to her name. Despite such awareness of the defect in their title to the
subject land, respondents still proceeded in constructing a three (3)-storey building thereon. Indubitably,
they should be deemed as builders in bad faith. On the other hand, petitioners knew of the defect in the
execution of the Deed of Sale from the start, but nonetheless, still acquiesced to the construction of the
three (3)-storey building thereon. Hence, they should likewise be considered as landowners in bad faith.

In this relation, Article 453 of the Civil Code provides that where both the landowner and the builder,
planter, or sower acted in bad faith, they shall be treated as if both of them were in good faith.

Whenever both the landowner and the builder/planter/sower are in good faith, the landowner is given
two (2) options under Article 448 of the Civil Code. Under the first option, petitioner may appropriate for
themselves the three (3)-storey building on the subject land after payment of the indemnity. Under this
option, respondents would have a right of retention over the three (3)-storey building as well as the
subject land until petitioners complete the reimbursement. Under the second option, petitioners may sell
the subject land to respondents at a price equivalent to the current market value thereof. However, if the
value of the subject land is considerably more than the value of the three (3)-storey building, respondents
cannot be compelled to purchase the subject land. Rather, they can only be obliged to pay petitioners
reasonable rent.

Thus, following prevailing jurisprudence, the instant case is remanded to the court a quo for the purpose
of determining matters necessary for the proper application of Articles 448 and 453, in relation to Articles
546 and 548 of the Civil Code, as applied in existing jurisprudence.

MAYBANK PHILIPPINES, INC. (FORMERLY PNB-REPUBLIC BANK1), Petitioner, v.


SPOUSES OSCAR AND NENITA TARROSA, Respondents
G.R. No. 213014 October 14, 2015

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.

FACTS:
Spouses Oscar and Nenita Tarrosa (Sps. Tarrosa) obtained from then PNB-Republic Bank, now petitioner
Maybank Philippines, Inc. (Maybank), a loan in the amount of P91,000.00. The loan was secured by a Real
Estate Mortgage dated January 5, 1981 (real estate mortgage) over a 500-square meter parcel of land
situated in San Carlos City, Negros Occidental (subject property), covered by TCT No. T-5649 and the
improvements thereon. After paying the said loan, or sometime in March 1983, Sps. Tarrosa obtained
another loan from Maybank in the amount of P60,000.00 (second loan), payable on March 11,1984.
However, Sps. Tarrosa failed to settle the second loan upon maturity. Maybank commenced extrajudicial
foreclosure proceedings. Respondents averred that the second loan was unsecured and Maybank’s right
to foreclose is barred by laches. Maybank countered the second loan was secured by the same real estate
mortgage under a continuing security provision therein when the loan became past due, Sps. Tarrosa
promised to pay and negotiated for a restructuring of their loan, but failed to pay despite demands; and
Sps.Tarrosa's positive acknowledgment and admission of their indebtedness controverts the defense of
prescription.

ISSUE:
Whether Maybank right to foreclose the real estate mortgage has not yet elapsed

HELD:
Yes. 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.
In the absence of showing that demand is unnecessary for the loan obligation to become due and
demandable, Maybank's right to foreclose the real estate mortgage accrued only after the lapse of the period
indicated in its final demand letter for Sps. Tarrosa to pay, i.e., after the lapse of five (5) days from receipt
of the final demand letter dated March 4, 1998.42 Consequently, both the CA and the RTC committed
reversible error in declaring that Maybank's right to foreclose the real estate mortgage had already
prescribed.

Thus, considering that the existence of the loan had been admitted, the default on the part of the debtors-
mortgagors had been duly established, and the foreclosure proceedings had been initiated within the
prescriptive period as afore-discussed, the Court finds no reason to nullify the extrajudicial foreclosure sale
of the subject property.

A Writ of Possession of mortgaged property can be issued ‘ex parte’ to the mortgagee after the 1 year
redemption period, unless there is a third a third party in possession of the subject property and such
third party holds the property by a right independent and adverse to the mortgagor.

HEIRS OF PEŇAFLOR v. HEIRS OF DELA CRUZ


G.R. No. 197797 August 9, 2017

FACTS:
Assailed in this Petition for Review on Certiorari is the decision of the CA annulling the Writ of Possession
issued by RTC Olongapo in favor of the mortgagee Peňaflor.

Nicolasa Dela Cruz (Mother) is the original owner of a house and lot situated in Olongapo. She authorized
her daughter Carmelita Dela Cruz (Sister) to mortgage the same to the petitioner Jose Peňaflor. The
mortgage was foreclosed by Peňaflor extra-judicially, 1-year redemption period lapsed and title was
consolidated in his favor. Peňaflor then filed for a writ of possession and order to vacate with the RTC of
Olongapo. The respondent Artemio Dela Cruz (brother of Carmelita) filed a motion to quash the writ of
possession arguing that they are in possession of the subject property independently and adversely from the
judgment mortgagor Carmelita. Artemio also presents a “Waiver and Transfer of Possesory Rights”
executed by her mother in his favor, and argued that this document was executed prior to the mortgage by
Carmelita, and as such he was already the owner prior to the mortgage. The RTC denied the motion to
quash.

The denial of the motion to quash was appealed to the CA, arguing that since there was a possessor
independent and adverse of the judgment debtor, the purchase or redemptioner should institute
ejectment proceedings or a reinvindicatory action. Petition for Review with SC.

When the case reached the Supreme Court, the Court clarified that “a writ of possession is ministerial
and ‘ex parte’, unless a third party holds the property independently and adversely of the judgment
debtor-mortgagor. In such case, a hearing shall be held to determine the defense of the third party
possessor”.

ISSUE:
Did Artemio hold the subject property independently and adversely of the mortgagor Nicolasa (her
mother)?

HELD:
No, the “Deed of Waiver and transfer of possessory rights” executed by Artemio’s mother Nicolasa does
not operate as an effective mode of transferring ownership to Artemio, which could have given Artemio an
independent right over the subject property prior to its mortgage to Peňaflor. Waiver can only grant rights
if the parties are co-owners or co-heirs. The evidence presented in the CA showing adverse possession (e.g.
Sales application, Tax Declaration, REM) is inadmissible since it was presented in a separate case of
unlawful detainer between the brother Artemio and the sister Carmelita. It is conclusive only as to
possession and not to ownership. Also, it was not presented with the RTC where the issuance of the Writ
of possession was filed. It is the burden of the adverse possessor to prove his right over the property.

Hence, for all these reasons, Artemio cannot be considered as a “third party who is actually holding the
property adversely to the judgment obligor” i.e. Nicolasa, so as to defeat Peňaflor’s right to possess the
subject property, which is but an incident to the consolidation of ownership over the same.
REPUBLIC OF THE PHILIPPINES v. RODOLFO O. DE GRACIA
G.R. No. 171557 February 12, 2014

DOCTRINE:
Emotional immaturity and irresponsibility could not be equated with psychological incapacity as it was
not shown that these acts are manifestations of a disordered personality which make her completely
unable to discharge the essential marital obligations of the marital state, not merely due to her youth,
immaturity or sexual promiscuity.

FACTS:
Rodolfo and Natividad were married on February 15, 1969 at the Parish of St. Vincent Ferrer in Salug,
Zamboanga del Norte. They lived in Dapaon, Sindangan, Zamboanga del Norte and have two children,
namely, Ma. Reynilda R. De Gracia and Ma. Rizza R. De Gracia.

Rodolfo filed a verified complaint for declaration of nullity of marriage before the RTC, alleging that
Natividad was psychologically incapacitated to comply with her essential marital obligations.

Rodolfo testified that he first met Natividad when they were students at the Barangay High School of
Sindangan, and he was forced to marry her barely three months into their courtship in light of her accidental
pregnancy. When he decided to join and train with the army, Natividad left their conjugal home and sold
their house without his consent. Thereafter, Natividad moved to Dipolog City where she lived with a certain
Engineer Terez (Terez), and bore him a child named Julie Ann Terez. After cohabiting with Terez, Natividad
contracted a second marriage with another man named Antonio Mondarez and has lived since then with the
latter in Cagayan de Oro City. Rodolfo was left to take care of Ma. Reynilda and Ma. Rizza and he exerted
earnest efforts to save their marriage.

Natividad informed the court that she submitted herself for psychiatric examination to Dr. Cheryl T.
Zalsos (Dr. Zalsos) in response to Rodolfo’s claims. Rodolfo also underwent the same examination.

Dr. Zalsos stated that both Rodolfo and Natividad were psychologically incapacitated to comply with the
essential marital obligations, finding that both parties suffered from “utter emotional immaturity [which]
is unusual and unacceptable behavior considered [as] deviant from persons who abide by established
norms of conduct.”

On February 10, 1999, the Office of the Solicitor General (OSG), representing petitioner Republic of the
Philippines (Republic), filed an opposition to the complaint, contending that the acts committed by
Natividad did not demonstrate psychological incapacity as contemplated by law, but are mere grounds for
legal separation under the Family Code.

ISSUE:
Whether or not the complaint for declaration of nullity of marriage must be dismissed?

HELD:
YES. Psychological incapacity,” as a ground to nullify a marriage under Article 36 of the Family Code,
should refer to no less than a mental – not merely physical – incapacity that causes a party to be truly
incognitive of the basic marital covenants that concomitantly must be assumed and discharged by the
parties to the marriage. Emotional immaturity and irresponsibility could not be equated with
psychological incapacity as it was not shown that these acts are manifestations of a disordered personality
which make her completely unable to discharge the essential marital obligations of the marital state, not
merely due to her youth, immaturity or sexual promiscuity. The decision heavily relied on the psychiatric
evaluation report of Dr. Zalsos which does not, however, explain in reasonable detail how Natividad’s
condition could be characterized as grave, deeply–rooted, and incurable within the parameters of
psychological incapacity jurisprudence. Dr. Zalsos’s testimony during trial, which is essentially a
reiteration of her report, also fails to convince the Court of her conclusion that Natividad was
psychologically incapacitated. Verily, although expert opinions furnished by psychologists regarding the
psychological temperament of parties are usually given considerable weight by the courts, the existence
of psychological incapacity must still be proven by independent evidence. Natividad’s refusal to live with
Rodolfo and to assume her duties as wife and mother as well as her emotional immaturity, irresponsibility
and infidelity do not rise to the level of psychological incapacity that would justify the nullification of
the parties’ marriage. The complaint for declaration of nullity of marriage is dismissed.
SALES AND LEASE
Elizabetft Sy-Vargas v. Tfte Estate of Rolando Ogsos, Sr. And Rolando Ogsos, Jr.
G.R. No. 221062 October 05, 2016

DOCTRINE:
Respondents' failure to pay the required docket fees, per se, should not necessarily lead to the dismissal
of their counterclaim. It has long been settled that while the court acquires jurisdiction over any case
only upon the payment of the prescribed docket fees. Its non-payment at the time of filing of the initiatory
pleading does not automatically cause its dismissal provided that: (a) the fees are paid within a reasonable
period; and (b) there was no intention on the part of the claimant to defraud the government.

Instances where a litigant's non-payment of docket fees was made in good faith and without any intention
of defrauding the government, the clerk of court of the court a quo should be ordered to assess the amount
of deficient docket fees due from such litigant, which will constitute a judgment lien on the amount
awarded to him, and enforce such lien.

FACTS:
Ogsos, Sr. and the Heirs of Fermina Pepico (Fermina) entered into a Contract of Lease covering five (5)
parcels of agricultural land owned by the latter, with an aggregate area of 23 hectares in Negros Oriental.
Based on the contract, Ogsos, Sr. agreed to pay the Heirs of Fermina 230 piculs of centrifugal sugar every
crop year, starting from crop year 1994-1995 to crop year 2000-2001, as lease rental.

Petitioner and Kathryn, who are among the heirs of Fermina, claimed that the lease rentals from crop
year 1994-1995 to crop year 1998-1999 were not paid. Thus, they filed a Complaint for Specific
Performance and Damages against respondents, before the RTC to recover the unpaid lease rentals.
Pertinently, they did not include in their claim the lease rental for crop year 1999-2000 because
respondents had allegedly already abandoned the leased premises since the said crop year.

Summons was served in May 2000, but respondent Ogsos, Jr. only filed a motion to admit answer and
answer to the complaint after more than two (2) years, or on December 2002. Thus, petitioner and Kathryn
filed on January 28, 2003, an opposition thereto, and moved to declare respondents in default, which the
RTC granted.

Their motion for reconsideration having been denied by the RTC, respondents, then, elevated the matter
via a petition for certiorari to the CA, where the CA granted respondents petition and remanded the case
to the RTC. The CA ordered the RTC to admit respondents' answer so as to give them the opportunity to
be heard and to present their side on the merits of the case.

In their answer, respondents alleged that they had faithfully complied with their obligations as embodied
in the lease contract. They denied abandoning the leased premises and claimed that sometime in
December 1998, petitioner and Kathryn unlawfully took possession of the leased premises and
appropriated for themselves the sugarcane ready for harvest under the pretext that they would apply the
proceeds thereof to the unpaid rent.

Respondents also averred that when petitioner and Kathryn took possession of the leased premises,
respondents lost their profits starting from crop year 1999-2000 until the termination of the lease contract
on crop year 2003-2004. Accordingly, respondents filed a counterclaim for these lost profits plus damages.

Respondents then moved for the dismissal of the complaint in view of the absence of the required Certificate
of Non-Forum Shopping. The RTC dismissed the case without prejudice.

Respondents moved for the hearing of their counterclaim, to which the RTC required petitioner and Kathryn
to submit a comment, but none was filed. Hence, the RTC set the case for reception of evidence on
respondents' counterclaim. The respondents also set the case for pre-trial, and again the petitioner and
Kathryn failed to appear therein and file their pre-trial briefs. Petitioner and Kathryn was thus declared in
default, and respondents were allowed to present their evidence on the counterclaim ex-parte.

Petitioner and Kathryn filed a motion to dismiss respondents' counterclaim arguing that the same were
permissive and that respondents had not paid the appropriate docket fees.30 However, the RTC denied
the said motion, declaring respondents' counterclaim as compulsory; thus, holding that the payment of
the required docket fees was no longer necessary.

The RTC granted respondents' counterclaim, and consequently, ordered petitioner and Kathryn to pay
respondents P10,391,981.76 as profits, moral damages, exemplary damages, attorney's fees and costs of
suit. The RTC found that Ogsos, Sr. faithfully paid the lease rentals during the crop years 1994 to 199735
but eventually stopped their payments when petitioner and Kathryn took possession and harvested the
sugarcane in the leased premises sometime in December 1998, despite respondents' objection. Accordingly,
petitioner and Kathryn reneged on their obligation to maintain respondents' peaceful and adequate
enjoyment of the leased premises when the former forcibly and unlawfully deprived the latter of possession
thereof in December 1998, despite payment of the lease rentals. Due to this, petitioner and Kathryn were
held liable for breach of the lease contract.

On appeal, the CA affirmed the ruling of the RTC but deleted the awards for moral and exemplary
damages, as well as the attorney's fees and costs of suit due to the absence of proof that petitioner and
Kathryn acted fraudulently or in bad faith.

The CA also ruled that the RTC was correct in ruling that respondents' counterclaim is not permissive but
compulsory; hence, payment of docket fees was not necessary. Further, the CA ruled that even though the
counterclaim was compulsory, the same would not be automatically dismissed upon the dismissal of the
action if the dismissal was caused by the fault of the plaintiff, as in this case.

ISSUE:
Whether or not respondents' counterclaim for damages is compulsory and thus, no payment of docket
fees is required

HELD:
NO. Essentially, the nature of a counterclaim is determinative of whether or not the counterclaimant is
required to pay docket fees. The rule in permissive counterclaims is that for the trial court to acquire
jurisdiction, the counterclaimant is bound to pay the prescribed docket fees. On the other hand, the
prevailing rule with respect to compulsory counterclaims is that no filing fees are required for the trial
court to acquire jurisdiction over the subject matter.

The four tests to determine whether a counterclaim is compulsory or not are the following, to wit: (a)
Are tfte issues of fact or law raised by tfte claim and tfte counterclaim largely tfte same? (b)
Would res judicata bar a subsequent suit on defendant's claims, absent tfte compulsory
counterclaim rule? (c) Will substantially tfte same evidence support or refute plaintiff's claim as
well as tfte defendant's counterclaim? and (d) Is tftere any logical relation between tfte claim and
tfte counterclaim, sucf t tftat tfte conduct of separate trials of tfte respective claims of tfte parties
would entail a substantial duplication of effort and time by tfte parties and tfte court? Of the four,
the one compelling test of compulsoriness is the logical relation between the claim alleged in the
complaint and that in the counterclaim. Such relationship exists when conducting separate trials of the
respective claims of the parties would entail substantial duplication of time and effort by the parties and
the court; when the multiple claims involve the same factual and legal issues; or when the claims are
offshoots of the same basic controversy between the parties. If tftese tests result in affirmative
answers, tfte counterclaim is compulsory.

The Court finds that the counterclaim of respondents is permissive in nature. This is because: (a) the issue
in the main case, i.e., whether or not respondents are liable to pay lease rentals, is entirely different from
the issue in the counterclaim, i.e., whether or not petitioner and Kathryn are liable for damages for taking
over the possession of the leased premises and harvesting and appropriating respondents' crops planted
therein; (b) since petitioner and respondents' respective causes of action arose from completely different
occurrences, the latter would not be barred by res judicata had they opted to litigate its counterclaim in a
separate proceeding; (c) the evidence required to prove petitioner's claim that respondents failed to pay
lease rentals is likewise different from the evidence required to prove respondents' counterclaim that
petitioner and Kathryn are liable for damages for performing acts in bad faith; and (d) the recovery of
petitioner's claim is not contingent or dependent upon proof of respondents' counterclaim, such that
conducting separate trials will not result in the substantial duplication of the time and effort of the court and
the parties.

In view of the finding that the counterclaim is permissive, and not compulsory as held by the courts a
quo, respondents are required to pay docket fees. However, it must be clarified that respondents' failure
to pay the required docket fees, per se, should not necessarily lead to the dismissal of their counterclaim. It
has long been settled that while the court acquires jurisdiction over any case only upon the payment of
the prescribed docket fees, its non-payment at the time of filing of the initiatory pleading does not
automatically cause its dismissal provided that: (a) the fees are paid within a reasonable period; and (b)
there was no intention on the part of the claimant to defraud the government.
Here, respondents cannot be faulted for non-payment of docket fees in connection with their counterclaim,
primarily because as early as November 16, 2006, the RTC had already found such counterclaim to be
compulsory in nature. Such finding was then upheld in the July 2, 2007 RTC Decision and affirmed on
appeal by the CA in its assailed Decision. As such, the lower courts did not require respondents to pay
docket fees and even proceeded to rule on their entitlement thereto.

Verily, respondents' reliance on the findings of the courts a quo, albeit erroneous, exhibits their good faith
in not paying the docket fees, much more their intention not to defraud the government. Thus, the
counterclaim should not be dismissed for non•payment of docket fees. Instead, the docket fees required
shall constitute a judgment lien on the monetary awards in respondents' favor. In Intercontinental
Broadcasting Corporation v. Legasto, citing, Section 2, Rule 141 of the Rules of Court, the Court held that
in instances where a litigant's non-payment of docket fees was made in good faith and without any intention
of defrauding the government, the clerk of court of the court a quo should be ordered to assess the amount
of deficient docket fees due from such litigant, which will constitute a judgment lien on the amount awarded
to him, and enforce such lien, as in this case.

AURELIA AND SONIA GUA-AN v. GERTUDRES QUIRINO, REPRESENTED BY ELMER


QUIRINO
G.R. No. 198770 November 12, 2012

DOCTRINE:
The sale is an equitable mortgage when the real intention of the parties is not to enter into a contract of
sale but merely to secure the payment of the P40,000.00 loan of Prisco who was given the right to
repurchase the subject property even beyond the 12-year (original and extended) period, allowing in the
meantime the continued possession of Ernesto pending payment of the consideration. Also, the right of
redemption is not absolute and is regulated by law; here, the redemption of the farm beneficiary (vendor
in pacto de retro) is void because he has abandoned the cultivation of such land in violation of Presidential
Decree No. 27.

FACTS:
Here is an agricultural land situated in Batangan, Valencia, Bukidnon covered by a Certificate of Land
Transfer in the name of Prisco Quirino, Sr. issued by the Ministry (now Department) of Agrarian Reform
on October 16, 1979 pursuant to Presidential Decree No. 27. On February 27, 1985, Prisco Quirino executed
a Deed of Conditional Sale (deed) covering the subject landholding to Ernesto Bayagna (Ernesto) under the
condition that “he and his heirs reserve their right to redeem or repurchase such parcel of land by returning
to Ernesto Bayagna or his heirs the P40,000.00 after the lapse of 8 years from the date of execution of such
sale and if the subject land is not redeemed or repurchased after the said eight years, there shall be an
automatic extension of 4 years from the date the eighth year expires, and if after the 4 term expires, and
Prisco Quirino or his heirs still fail to redeem or repurchase, Ernesto Bayagna or his heirs shall continue to
possess and enjoy the subject land until it is finally redeemed or repurchased. After the P40,000.00 is
returned to Ernesto Bayagna or his heirs, the latter shall be obligated to return peacefully the subject land
without any tenant or lessee.” Ernesto then possessed and cultivated the land for more than 10 years before
Prisco offered to redeem it in 1996, which was refused. Instead, Ernesto allowed the former owner of the
land, petitioner Aurelia Gua-An, through her daughter, petitioner Sonia Gua-An Mamon (Sonia), to redeem
the lot. Subsequently, Prisco passed away. On January 30, 1998, respondent Gertrudes Quirino,

Prisco's widow, represented by their son, Elmer, filed before the Office of the Agrarian Reform Regional
Adjudicator (RARAD) a Complaint for Specific Performance, Redemption, Reinstatement and Damages
with Application for Writ of Preliminary Injunction and TRO against Ernesto and petitioners. In their
Answer, Gua-An argued that Prisco's right over the subject land was merely inchoate for failure to
establish payment of just compensation to the landowner; the deed was null and void for being violative
of the law and public policy; and that the failure to consign the redemption money effectively bars the
redemption prayed for. For his part, Ernesto replied that he allowed Gua-an to redeem the lot because
Prisco failed to appear on the agreed date for redemption and on the information that the subject land
was erroneously awarded to the latter. But RARAD dismissed the complaint for lack of merit. On appeal,
DARAB denied respondent's appeal and declared Prisco to have violated agrarian laws and of having
abandoned the land by his failure to cultivate the same continuously for a period of more than 2 years; thus
canceled the CLT in Prisco's name and ordered the Municipal Agrarian Reform Officer (MARO) to
reallocate the subject landholding to a qualified beneficiary. But the CA reverse such decision because the
pacto de retro sale between Prisco and Ernesto was a mere equitable mortgage, hence, not a prohibited
transaction under P.D. 27, which is limited to “transfers or conveyances of title to a landholding acquired
under the Land Reform Program of the Government.”; that having acquired the subject land as a “qualified
beneficiary,” Prisco and his heirs possess security of tenure on it and could not be dispossessed of it except
for cause and only through a final and executory judgment. Thus, the CA afforded the heirs of Prisco the
preferential right of redemption over the subject landholding.

ISSUES:
1. Was the sale an equitable mortgage?
2. Was the redemption valid and effective?

HELD:
1. The sale is an equitable mortgage. The real intention of the parties is not to enter into a contract
of sale but merely to secure the payment of the P40,000.00 loan of Prisco.Prisco was given the
right to repurchase the subject property even beyond the 12-year (original and extended) period,
allowing in the meantime the continued possession of Ernesto pending payment of the
consideration. Under these conditions and in accordance with Article 16021 of the Civil Code, the
pacto de retro sale is actually an equitable mortgage.

2. The redemption is not valid and effective. The redemption made by Aurelia was ineffective and
void since reversion of the landholding to the former owner is prohibited under P.D. No. 27 in
accordance with its policy of holding such lands under trust for the succeeding generations of
farmers. And while the CLT remains in Prisco's name, the Court cannot turn a blind eye to the
fact that Prisco surrendered possession and cultivation of the subject land to Ernesto, not for a
mere temporary period, but for a period of 11 years without any justifiable reason. Such act
constituted abandonment despite his avowed intent to resume possession of the land upon
payment of the loan. As defined in DAR Administrative Order No. 2, abandonment is a willful
failure of the agrarian reform beneficiary, together with his farm household, “to cultivate, till, or
develop his land to produce any crop, or to use the land for any specific economic purpose
continuously for a period of two calendar years.” It is a ground for cancellation by the DARAB
of an award to the agrarian reform beneficiary. Consequently, respondent and/or Prisco's heirs
had lost any right to redeem the subject landholding.

ACE FOODS, INC. v. MICRO PACIFIC TECHNOLOGIES, CO., LTD.


G.R. No. 200602 December 11, 2013

DOCTRINE:
A contract of sale is classified as a consensual contract, which means that the sale is perfected by mere
consent. No particular form is required for its validity. Upon perfection of the contract, the parties may
reciprocally demand performance, i.e., the vendee may compel transfer of ownership of the object of the
sale, and the vendor may require the vendee to pay the thing sold.

FACTS:
Respondent MTCL is a domestic corporation engaged in the supply of computer hardware and equipment.
MTCL sent a letter-proposal for the delivery and sale of the subject products to be installed at various
offices of ACE Foods. ACE Foods accepted MTCL’s proposal and accordingly issued a purchase order for
the subject products amounting to P646,464.00. Thereafter, MTCL delivered the said products to ACE
Foods as reflected in an invoice receipt. The fine print in the invoice states, inter alia, that “title to sold
property is reserved in MICROPACIFIC TECHNOLOGIES, CO., LTD. until full compliance of the terms
and conditions of above and payment of the price” (title reservation stipulation). After delivery, the subject
products were then installed and configured in ACE Foods’ premises.

MTCL’s demands against ACE Foods to pay the purchase price, however, remained unheeded. Instead of
paying the purchase price, ACE Foods sent a letter to MTCL, stating that it “has been returning the subject
products to MTCL thru its sales representative Mr. Mark Anteola who has agreed to pull out the said
products but failed to do so up to now.”
ACE Foods then lodged a complaint against MTCL before the RTC, praying that the latter pull out from its
premises the subject products since MTCL breached its “after delivery services” obligations to it. ACE
Food likewise claimed that the subject products MTCL delivered are defective and not working.

MTCL filed their Answer with Counterclaim. They maintained that they had duly complied with its
obligations to ACE Foods and that the subject products are in good working condition. They further alleged
that ACE Foods refused and failed to pay the purchase price for the subject products despite the latter’s use
of the same for the period of 9 months. As such, MTCL prayed that ACE Foods be compelled to pay the
purchase price, as well as damages related to the transaction.’

The RTC rendered a decision directing MTCL to remove the subject products from ACE Food’s premises
and pay actual damages and attorney’s fees. The trial court observed that the agreement between ACE
Foods and MTCL is in the nature of a contract to sell. Its conclusion is based on the title reservation fine
print in the invoice. MTCL then elevated the matter on appeal.

The CA reversed and set aside the RTC’s ruling and ordered ACE Food to pay MTCL the purchase price
of the subject products plus legal interest and attorney’s fees. ACE Foods moved to Reconsider but was
denied, hence, the present case.

ISSUE:
Whether ACE Foods should pay the MTCL the purchase price for the subject products

HELD:
YES. A contract is what the law defines it to be, taking into consideration its essential elements, and not
what the contracting parties call it. The real nature of a contract may be determined from the express
terms of the written agreement and from the contemporaneous and subsequent acts of the contracting
parties. However, in the construction or interpretation of an instrument, the intention of the parties is
primordial and is to be pursued. The denomination or title given by the parties in their contract is not
conclusive of the nature of its contents.

The very essence of a contract of sale is the transfer of ownership in exchange for a price paid or
promised.

A contract of sale is classified as a consensual contract, which means that the sale is perfected by mere
consent. No particular form is required for its validity. Upon perfection of the contract, the parties may
reciprocally demand performance, i.e., the vendee may compel transfer of ownership of the object of the
sale, and the vendor may require the vendee to pay the thing sold.

Here, the Court concurs with the CA that the parties have agreed to a contract of sale and not to a contract
to sell as adjudged by the RTC. Bearing in mind its consensual nature, a contract of sale had been perfected
at the precise moment ACEFoods, as evinced by its act of sending MTCL the Purchase Order, accepted
the latter’s proposal to sell the subject products in consideration of the purchase price of P646,464.00.
From that point in time, the reciprocal obligations of the parties – i.e., on the one hand, of MTCL to
deliver the said products to ACE Foods, and, on the other hand, of ACEFoods to pay the purchase price
therefor within 30 days from delivery – already arose and consequently may be demanded.

Further, the Court must dispel the notion that the stipulation anent MTCL’s reservation of ownership of
the subject products as reflected in the Invoice Receipt, i.e., the title reservation stipulation, changed the
complexion of the transaction from a contract of sale into a contract to sell. Records are bereft of any
showing that the said stipulation novated the contract of sale between the parties which, to repeat,
already existed at the precise moment ACE Foods accepted MTCL’s proposal.
EUFROCINA NIEVES v. ERNESTO DULDULAO
G.R. No. 190276 April 02, 2014

DOCTRINE:
To eject the agricultural lessee for failure to pay the leasehold rentals under item 6 of Section 36 of RA
3844, jurisprudence instructs that the same must be willful and deliberate in order to warrant the
agricultural lessee's dispossession of the land that he tills.

FACTS:
Ernesto and Felipe (respondents) are tenants and cultivators of the subject land who are obligated to each
pay petitioner leasehold rentals of 45 cavans of palay for each cropping season. Claiming that Ernesto and
Felipe failed to pay their leasehold rentals since 1985, petitioner filed a petition seeking the ejectment of
respondents from the subject land for non-payment of rentals.

In the mediation proceedings, respondents admitted being in default in the payment of leasehold
rentals. Subsequently, however, Ernesto claimed that he merely inherited a portion of the back leasehold
rentals from his deceased father. On the other hand, Felipe denied incurring any back leasehold rentals.
Respondents manifested their lack of intention to renege on their obligations to pay the leasehold rentals
due, explaining that the supervening calamities, such as the flashfloods and typhoons that affected the
area prevented them from complying.

PARAD declared that the tenancy relations between the parties had been severed by respondents' failure
to pay their back leasehold rentals, thereby ordering them to vacate the subject land and fulfill their rent
obligations. DARAB affirmed the findings of PARAD. CA reversed the ruling of DARAB.

ISSUE:
Whether or not the CA correctly reversed the DARAB's ruling ejecting respondents from the subject
land.

HELD:
No. To eject the agricultural lessee for failure to pay the leasehold rentals under item 6 of Section 36 of
RA 3844, jurisprudence instructs that the same must be willful and deliberate in order to warrant the
agricultural lessee's dispossession of the land that he tills.

While respondents indeed admit tftat tftey failed to pay tfte full amount of tfteir respective
leaseftold rentals as tftey become due, they claim that their default was on account of the debilitating
effects of calamities like flashfloods and typhoons. This latter assertion is a defense provided under the
same provision which, if successfully established, allows the agricultural lessee to retain possession of
his landholding. Keeping in mind that bare allegations, unsubstantiated by evidence, are not
equivalent to proof, the Court cannot therefore lend any credence to respondents' fortuitous event
defense.

Respondents' failure to pay leasehold rentals to the landowner also appears to have been willful and
deliberate. They, in fact, do not deny and therefore admit the landowner's assertion that their rental
arrearages have accumulated over a considerable length of time, i.e.,from 1985 to 2005 but rely on the
fortuitous event defense, which as above-mentioned, cannot herein be sustained.

At this juncture, the Court finds it apt to clarify that respondents' purported substantial compliance as
erroneously considered by the CA to justify its ruling against their dispossession is applicable only under
the parameters of item 2, Section 36 of RA 3844, which is a separate and distinct provision from item 6
thereof. Item 2, Section 36 of RA 3844 applies to cases where the agricultural lessee failed to substantially
comply witft any of tfte terms and conditions of tfte contract or any of tfte provisions of tfte
Agricultural Land Reform Code, unless his failure is caused by fortuitous event or force majeure;
whereas item 6 refers to cases where tfte agricultural lessee does not pay tfte leaseftold rental wften it
falls due, provided tftat tfte failure to pay is not due to crop failure to tfte extent of seventy-five per
centum as a result of a fortuitous event.

As tfte present dispute involves tfte non-payment of leaseftold rentals, it is item 6 and not item
2 of tfte same provision wfticft sftould apply.
EQUITABLE SAVINGS BANK v. ROSALINDA PALCES
G.R. No. 214752 March 09, 2016

DOCTRINE:
The provisions of paragraph 3 of Article 1484 of the Civil Code which precludes further action against
the purchaser to recover any unpaid balance of the price once the chattel mortgage has been foreclosed
do not apply to a loan contract with the accessory chattel mortgage contract.

FACTS:
Respondent Rosalinda Palces purchased Hyundai Starex GRX Jumbo (subject vehicle) through a loan
granted by petitioner in the amount of P1,196,100.00. In connection therewith, respondent executed a
Promissory' Note with Chattel Mortgage in favor of petitioner, stating, inter alia, that: (a) respondent
shall pay petitioner the aforesaid amount in 36-monthly installments of P33,225.00 per month, beginning
September 18, 2005 and every 18th of the month thereafter until full payment of the loan; (b) respondent's
default in paying any installment renders the remaining balance due and payable; and (c) respondent's
failure to pay any installments shall give petitioner the right to declare the entire obligation due and
payable and may likewise, at its option, x x x foreclose this mortgage; or file an ordinary civil action for
collection and/or such other action or proceedings as may be allowed under the law.

From September 18, 2005 to December 21, 2006, respondent paid the monthly installment of P33,225.00
per month. However, she failed to pay the monthly installments in January and February 2007, thereby
triggering the acceleration clause contained in the Promissory Note with Chattel Mortgage and prompting
petitioner to send a demand letter to compel respondent to pay the remaining balance of the loan in the
amount of P664,500.00. As the demand went unheeded, petitioner filed the instant Complaint for Recovery
of Possession with Replevin with Alternative Prayer for Sum of Money and Damages against respondent
before the RTC.

In respondent’s defense, while admitting that she indeed defaulted on her installments for January and
February 2007, respondent nevertheless insisted that she called petitioner regarding such delay in
payment and spoke to a bank officer, a certain Rodrigo Dumagpi, who gave his consent thereto.
Respondent then maintained that in order to update her installment payments, she paid petitioner the
amounts of P70,000.00 on March 8, 2007 and P33,000.00 on March 20, 2007, or a total of P103,000.00.
Despite the aforesaid payments, respondent was surprised when petitioner filed the instant complaint,
resulting in the sheriff taking possession of the subject vehicle.

The RTC ruled in petitioner's favor. It observed that although respondent made actual payments of the
installments due, such payments were all late and irregular, and the same were not enough to fully pay
her outstanding obligation, considering that petitioner had already declared the entire balance of the loan
due and demandable. However, since the writ of replevin over the subject vehicle had already been
implemented, the RTC merely confirmed petitioner's right to possess the same and ruled that it is no
longer entitled to its alternative prayer, i.e., the payment of the remaining balance of the loan, including
penalties, charges, and other costs appurtenant thereto.

The CA affirmed the RTC ruling with modification: (a) ordering petitioner to return the amount of
P103,000.00 to respondent; and (b) deleting the award of attorney's fees in favor of petitioner for lack of
sufficient basis. It held that while respondent was indeed liable to petitioner under the Promissory Note
with Chattel Mortgage, petitioner should not have accepted respondent's late partial payments in the
aggregate amount of P103,000.00. In this regard, the CA opined that by choosing to recover the subject
vehicle via a writ of replevin, petitioner already waived its right to recover any unpaid installments,
pursuant to Article 1484 of the Civil Code. As such, the CA concluded that respondent is entitled to the
recovery of the aforesaid amount.

ISSUE:
Whether or not respondent is entitled to a return of the amount of P103,000.00 representing the latter's
late installment payments

HELD:
NO. Article 1484 of the Civil Code, which governs the sale of personal properties in installments, states in
full:

Article 1484. In a contract of sale of personal property, tfte price of wfticf t is payable in
installments, the vendor may exercise any of the following remedies:
1. Exact fulfillment of the obligation, should the vendee fail to pay;
2. Cancel the sale, should the vendee’s failure to pay cover two or more installments;
3. Foreclose the chattel mortgage on the thing sold, if one has been constituted, should
the vendee's failure to pay cover two or more installments. In this case, he shall have
no further action against the purchaser to recover any unpaid balance of the price.
Any agreement to the contrary shall be void. (Emphases and underscoring supplied)

In this case, there was no vendor-vendee relationship between respondent and petitioner. A judicious
perusal of the records would reveal that respondent never bought the subject vehicle from petitioner but
from a third party, and merely sought financing from petitioner for its full purchase price. In order to
document the loan transaction between petitioner and respondent, a Promissory Note with Chattel
Mortgage29 dated August 18, 2005 was executed wherein, inter alia, respondent acknowledged her
indebtedness to petitioner in the amount of P1,196,100.00 and placed the subject vehicle as a security for
the loan.30 Indubitably, a loan contract with the accessory chattel mortgage contract - and not a contract
of sale of personal property in installments - was entered into by the parties with respondent standing as
the debtor-mortgagor and petitioner as the creditor-mortgagee. Therefore, the conclusion of the CA that
Article 1484 finds application in this case is misplaced, and thus, must be set aside.

The Promissory Note with Chattel Mortgage subject of this case expressly stipulated, among others, that:
(a) monthly installments shall be paid on due date without prior notice or demand; (b) in case of default,
the total unpaid principal sum plus the agreed charges shall become immediately due and payable; and
(c) the mortgagor's default will allow the mortgagee to exercise the remedies available to it under the law.
In light of the foregoing provisions, petitioner is justified in filing his Complaint before the RTC seeking
for either the recovery of possession of the subject vehicle so that it can exercise its rights as a mortgagee,
i.e., to conduct foreclosure proceedings over said vehicle; or in the event that the subject vehicle cannot be
recovered, to compel respondent to pay the outstanding balance of her loan. Since it is undisputed that
petitioner had regained possession of the subject vehicle, it is only appropriate that foreclosure proceedings,
if none yet has been conducted/concluded, be commenced in accordance with the provisions of Act No.
1508, otherwise known as "The Chattel Mortgage Law," as intended. Otherwise, respondent will be placed
in an unjust position where she is deprived of possession of the subject vehicle while her outstanding debt
remains unpaid, either in full or in part, all to the undue advantage of petitioner - a situation which law and
equity will never permit.

Further, there is nothing in the Promissory Note with Chattel Mortgage that bars petitioner from
receiving any late partial payments from respondent. If at all, petitioner's acceptance of respondent's late
partial payments in the aggregate amount of P103,000.00 will only operate to reduce her outstanding
obligation to petitioner from P664,500.00 to P561,500.00. Such a reduction in respondent's outstanding
obligation should be accounted for when petitioner conducts the impending foreclosure sale of the subject
vehicle. Once such foreclosure sale has been made, the proceeds thereof should be applied to the reduced
amount of respondent's outstanding obligation, and the excess of said proceeds, if any, should be returned
to her.

FORT BONIFACIO DEVELOPMENT CORPORATION v. VALENTIN L. FONG


G.R. No. 209370 March 25, 2015

DOCTRINE:
“An assignment of credit for a consideration and covering a demandable sum of money is considered as
a sale of personal property."

"Case law states that when a person assigns his credit to another person, the latter is deemed subrogated
to the rights as well as to the obligations of the former. By virtue of the Deed of Assignment, the assignee
is deemed subrogated to the rights and obligations of the assignor and is bound by exactly the same
conditions as those which bound the assignor. Accordingly, an assignee cannot acquire greater rights
than those pertaining to the assignor. The general rule is that an assignee of a non- negotiable chose in
action acquires no greater right than what was possessed by his assignor and simply stands into the shoes
of the latter."

FACTS:
On June 5, 2000, FBDC, a domestic corporation engaged in the real estate development business,5 entered
into a Trade Contract6 with MS Maxco Company, Inc. (MS Maxco), then operating under the name "L&M
Maxco, Specialist Engineering Construction," for the execution of the structural and partial architectural
works of one of its condominium projects in Taguig City, the Bonifacio Ridge Condominium (Project).7
Records show that FBDC had the right to withhold five percent (5%) of the contract price as retention
money.

Under the Trade Contract, FBDC had the option to hire other contractors to rectify any errors committed
by MS Maxco by reason of its negligence, act, omission, or default, as well as to deduct or set-off any
amount from the contract price in such cases. Hence, when MS Maxco incurred delays and failed to
comply with the terms of the Trade Contract, FBDC took over and hired other contractors to complete
the unfinished construction.Unfortunately, corrective work had to likewise be done on the numerous
defects and irregularities caused by MS Maxco, which cost 11,567,779.12.11 Pursuant to the Trade
Contract, FBDC deducted the said amount from MS Maxco’s retention money.

The Trade Contract likewise provided that MS Maxco is prohibited from assigning or transferring any of
its rights, obligations, or liabilities under the said Contract without the written consent of FBDC.

Sometime in April 2005, FBDC received a letter14 dated April 18, 2005 (April 18, 2005 letter) from the
counsel of Fong informing it that MS Maxco had already assigned its receivables from FBDC to him (Fong)
by virtue of a notarized Deed of Assignment15 dated February 28, 2005.16 Under the Deed of Assignment,
MS Maxco assigned the amount of 1,577,115.90 to Fong as payment of the former’s obligation to the latter,
which amount was to be taken from the retention money with FBDC.17 In its letter-reply18 dated October
11, 2005, FBDC acknowledged the five percent (5%) retention money of MS Maxco, but asserted that the
same was not yet due and demandable and that it was already the subject of garnishment19 by MS Maxco’s
other creditors.

Despite Fong’s repeated requests,20 FBDC refused to deliver to Fong the amount assigned by MS Maxco.
Finally, in a letter21 dated January 31, 2006, FBDC informed Fong that after the rectification of the defects
in the Project, as well as the garnishment made by MS Maxco’s creditors, nothing was left of its retention
money with FBDC from which Fong’s claims may be satisfied. This prompted Fong, doing business under
the name "VF Industrial Sales" to file the instant civil case,22 before the RTC, against MS Maxco or FBDC
for the payment of the sum of 1,577,115.90, with legal interest due, costs of suit, and litigation expenses.

RTC held that the instant case was one of assignment of credit under Article 162433 of the Civil Code,
hence, did not require FBDC’s consent as debtor for its validity and enforceability.34 What the law requires
is not the consent of the debtor, but merely notice to him, as the assignment takes effect only from the time
of his knowledge thereof.

With respect to the garnishment of the retention money, the RTC held that it could not adversely affect
Fong’s rights as assignee of MS Maxco, considering that the amount indicated in the Deed of Assignment
was no longer MS Maxco’s property, but Fong’s. Effectively, when MS Maxco assigned the sum of
1,577,115.90 to Fong, the said amount can no longer be considered MS Maxco’s property that could be
garnished or attached by its creditors.

In a Decision43 dated May 17, 2013, the CA denied FBDC’s appeal and affirmed the RTC ruling,44
concurring with the latter’s finding that when FBDC was notified of the assignment through the April 18,
2005 letter, the assignment produced legal effects and operated as a transfer of a portion of the receivables
of MS Maxco to Fong.

ISSUE:
Whether or not the CA erred in ruling that FBDC was bound by the Deed of Assignment between MS
Maxco and Fong

HELD:
Case law states that when a person assigns his credit to another person, the latter is deemed subrogated
to the rights as well as to the obligations of the former. By virtue of the Deed of Assignment, the assignee
is deemed subrogated to the rights and obligations of the assignor and is bound by exactly the same
conditions as those which bound the assignor. Accordingly, an assignee cannot acquire greater rights
than those pertaining to the assignor. The general rule is that an assignee of a non- negotiable chose in
action acquires no greater right than what was possessed by his assignor and simply stands into the shoes
of the latter.

Applying the foregoing, the Court finds that MS Maxco, as the Trade Contractor, cannot assign or transfer
any of its rights, obligations, or liabilities under the Trade Contract without the written consent of FBDC,
the Client, in view of Clause 19.0 on "Assignment and Sub-letting" of the Trade Contract between FBDC
and MS Maxco which explicitly provides that:

19.0 ASSIGNMENT AND SUB-LETTING

19.1 The Trade Contractor [Ms Maxco] shall not, without written consent of the Client [FBDC],
assign or transfer any of his rights, obligations or liabilities under this Contract. The Trade
Contractor shall not, without the written consent of the Client, sub- let any portion of the Works
and such consent, if given, shall not relieve the Trade Contractor from any liability or obligation
under this Contract.56 (Emphases supplied)

Fong, as mere assignee of MS Maxco’s rights under the Trade Contract it had previously entered with
FBDC, i.e., the right to recover any credit owing to any unutilized retention money, is equally bound by the
foregoing provision and hence, cannot validly enforce the same without FBDC’s consent.

Without any proof showing that FBDC had consented to the assignment, Fong cannot validly demand
from FBDC the delivery of the sum of 1,577,115.90 that was supposedly assigned to him by MS Maxco as
a portion of its retention money with FBDC. The practical efficacy of the assignment, although valid
between Fong and MS Maxco, remains contingent on FBDC's consent. Without the happening of said
condition, only MS Maxco, and not Fong, can collect on the credit. Note, however, that this finding does
not preclude any recourse that Fong may take against MS Maxco. After all, an assignment of credit for a
consideration and covering a demandable sum of money is considered as a sale of personal property. To
this, Article 1628 of the Civil Code provides:

Art. 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.

Even in these cases he shall only be liable for the price received for and the expenses specified in No. 1 of
Article 1616.

The vendor in bad faith shall always be answerable for the payment of all expenses for and damages.

ASSOCIATED MARINE OFFICERS AND SEAMEN'S UNION OF THE PHILIPPINES PTGWO-


ITF v. NORIEL DECENA
G.R. No. 178584 October 8, 2004

DOCTRINE:
It is basic that a contract is what the law defines it to be, and not what it is called by the contracting
parties.

The cancellation by the seller must be in accordance with Sec. 3(b) of R.A. no. 6552, which requires a
notarial act of rescission and the refund to the buyer of the full payment of the cash surrender value of the
payments on the property.

FACTS:
Petitioner is a duly registered labor organization engaged in an on-going Shelter Program, which offers
residential lots and fully-furnished houses to its members-seafarers under a reimbursement scheme
requiring no down payment and no principal sum advanced for the acquisition and development of the
land and construction of the house.

On April 17, 1995, petitioner entered into a contract with respondent allowing the latter to take possession
of the subject house and lot. It was stipulated in said contract that, in case respondent fails to remit 3
monthly reimbursement payments, he shall be given a 3-month grace period within which to remit his
arrears, otherwise, the contract shall be automatically revoked or cancelled and respondent shall
voluntarily vacate the premises without need of demand or judicial action.

Respondent subsequently failed to pay 25 monthly reimbursements covering the period Aug 1999 to
August 2001. Eventually a case for unlawful detainer was filed against respondent before the MTC of
Dasmarinas, Cavite. MTC ruled in favor of petitioner which was affirmed by the RTC. On appeal to the
CA, however, the decision was reversed stating that the contract between the parties was not a contract
of lease but a contract to sell and that petitioner failed to comply with the twin requirement for valid and
effective cancellation of a contract to sell under RA 6553: 1) Send a notarized notice of cancellation, and
2) refund the cash surrender value of the payments on the property. The CA held that the contract to sell
still subsists.

ISSUE:
1. Whether or not the contract was a contract of lease or a contract to sell.
2. Whether or not there was a valid and effective cancellation of the contract to sell (assuming it
was a contract to sell).

HELD:
1. CONTRACT TO SELL. It is basic that a contract is what the law defines it to be, and not what it
is called by the contracting parties. A contract to sell is defined as a bilateral contract whereby
the prospective seller, while expressly reserving the ownership of the subject property despite
delivery thereof to the prospective buyer, binds itself to sell the said property exclusively to the
prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the
purchase price.

While respondent occupied the subject premises, title nonetheless remained with petitioner.
Considering, therefore, that the basis for such occupation is a contract to sell the premises on
installment, the contractual relations between the parties are more than that of a lessor-lessee.
The appellate court thus correctly ruled that the Shelter Contract Award has not been converted
into one of lease.

2. No. There was no valid and effective cancellation of the contract to sell. As we emphasized in
Pagtalunan, “R.A. No. 6552, otherwise known as the Realty Installment Buyer Protection Act,
recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the
right of the seller to cancel the contract upon non-payment of an installment by the buyer, which is
simply an event that prevents the obligation of the vendor to convey title from acquiring binding
force.” While we agreed that the cancellation of a contract to sell may be done outside of court,
however, “the cancellation by the seller must be in accordance with Sec. 3(b) of R.A. no. 6552,
which requires a notarial act of rescission and the refund to the buyer of the full payment of the
cash surrender value of the payments on the property.” In the present case, as aptly pointed out by
the appellate court, petitioner failed to prove that the Shelter Contract Award had been cancelled in
accordance with R.A. No. 6552, which would have been the basis for the Illegality of respondent's
possession of the subject premises. Hence, the action for ejectment must necessarily fail.

SPOUSES JOSE C. ROQUE AND BEATRIZ DELA CRUZ ROQUE, witft deceased Jose C. Roque
represented by ftis substitute fteir JOVETTE ROQUE-LIBREA v. MA. PAMELA P. AGUADO,
FRUCTUOSO C. SABUG, JR., NATIONAL COUNCIL OF CHURCHES IN THE PHILIPPINES
(NCCP), represented by its Secretary General SHARON ROSE JOY RUIZ-DUREMDES, LAND
BANK OF THE PHILIPPINES (LBP), represented by Brancft Manager EVELYN M. MONTERO,
ATTY. MARIO S.P. DIAZ, in ftis Official Capacity as Register of Deeds for Rizal, Morong
Brancft, and CECILIO U. PULAN, in ftis Official Capacity as Sfteriff, Office of tfte Clerk of
Court, Regional Trial Court, Binangonan, Rizal
G.R. No. 193787 April 7, 2014

DOCTRINE:
In contracts to sell the obligation of the seller to sell becomes demandable only upon the happening of the
suspensive condition, that is, the full payment of the purchase price by the buyer. It is only upon the
existence of the contract of sale that the seller becomes obligated to transfer the ownership of the thing sold
to the buyer. Prior to the existence of the contract of sale, the seller is not obligated to transfer the ownership
to the buyer, even if there is a contract to sell between them.

FACTS:
On July 21, 1977, petitioners-spouses Jose C. Roque and Beatriz dela Cruz Roque (Sps. Roque) and the
original owners of the then unregistered Lot 18089 – namely, Velia R. Rivero (Rivero), Magdalena Aguilar,
Angela Gonzales, Herminia R. Bernardo, Antonio Rivero, Araceli R. Victa, Leonor R. Topacio, and
Augusto Rivero (Rivero, et al.) – executed a Deed of Conditional Sale of Real Property (1977 Deed of
Conditional Sale) over a 1,231-sq. m. portion of Lot 18089 (subject portion) for a consideration of
₱30,775.00. The parties agreed that Sps. Roque shall make an initial payment of ₱15,387.50 upon signing,
while the remaining balance of the purchase price shall be payable upon the registration of Lot 18089, as
well as the segregation and the concomitant issuance of a separate title over the subject portion in their
names. After the deed’s execution, Sps. Roque took possession and introduced improvements on the
subject portion which they utilized as a balut factory.

On August 12, 1991, Fructuoso Sabug, Jr. (Sabug, Jr.), former Treasurer of the National Council of
Churches in the Philippines (NCCP), applied for a free patent over the entire Lot 18089 and was eventually
issued Original Certificate of Title (OCT) No. M-5955 in his name on October 21, 1991. On June 24, 1993,
Sabug, Jr. and Rivero, in her personal capacity and in representation of Rivero, et al., executed a Joint
Affidavit (1993 Joint Affidavit), acknowledging that the subject portion belongs to Sps. Roque and
expressed their willingness to segregate the same from the entire area of Lot 18089.

On December 8, 1999, however, Sabug, Jr., through a Deed of Absolute Sale (1999 Deed of Absolute Sale),
sold Lot 18089 to one Ma. Pamela P. Aguado (Aguado) for ₱2,500,000.00, who, in turn, caused the
cancellation of OCT No. M-5955 and the issuance of Transfer Certificate of Title (TCT) No. M-96692 dated
December 17, 1999 in her name.

Thereafter, Aguado obtained an ₱8,000,000.00 loan from the Land Bank of the Philippines (Land Bank)
secured by a mortgage over Lot 18089. When she failed to pay her loan obligation, Land Bank commenced
extra-judicial foreclosure proceedings and eventually tendered the highest bid in the auction sale. Upon
Aguado’s failure to redeem the subject property, Land Bank consolidated its ownership, and TCT No. M-
115895 was issued in its name on July 21, 2003.

On June 16, 2003, Sps. Roque filed a complaint for reconveyance, annulment of sale, deed of real estate
mortgage, foreclosure, and certificate of sale, and damages before the RTC, docketed as Civil Case No. 03-
022, against Aguado, Sabug, Jr., NCCP, Land Bank, the Register of Deeds of Morong, Rizal, and Sheriff
Cecilio U. Pulan, seeking to be declared as the true owners of the subject portion which had been
erroneously included in the sale between Aguado and Sabug, Jr., and, subsequently, the mortgage to Land
Bank, both covering Lot 18089 in its entirety.

ISSUE:
The central issue in this case is whether or not the CA erred in not ordering the reconveyance of the
subject portion in Sps. Roque’s favor.

HELD:
The essence of an action for reconveyance is to seek the transfer of the property which was wrongfully
or erroneously registered in another person’s name to its rightful owner or to one with a better right.
Thus, it is incumbent upon the aggrieved party to show that he has a legal claim on the property superior
to that of the registered owner and that the property has not yet passed to the hands of an innocent
purchaser for value.

Sps. Roque claim that the subject portion covered by the 1977 Deed of Conditional Sale between them and
Rivero, et al. was wrongfully included in the certificates of title covering Lot 18089, and, hence, must be
segregated therefrom and their ownership thereof be confirmed. The salient portions of the said deed state:
DEED OF CONDITIONAL SALE OF REAL PROPERTY
KNOW ALL MEN BY THESE PRESENTS:
xxxx
That for and in consideration of the sum of THIRTY THOUSAND SEVEN HUNDRED SEVENTY
FIVE PESOS (₱30,775.00), Philippine Currency, payable in the manner hereinbelow specified, the
VENDORS do hereby sell, transfer and convey unto the VENDEE, or their heirs, executors,
administrators, or assignors, that unsegregated portion of the above lot, x x x.
That the aforesaid amount shall be paid in two installments, the first installment which is in the
amount of (₱15,387.50) and the balance in the amount of (₱15,387.50),
shall be paid as soon as the described portion of the property shall have been registered under
the Land Registration Act and a Certificate of Title issued accordingly;
That as soon as the total amount of the property has been paid and the Certificate of Title has been
issued, an absolute deed of sale shall be executed accordingly;
xxxx

Examining its provisions, the Court finds that the stipulation above-highlighted shows that the 1977 Deed
of Conditional Sale is actually in the nature of a contract to sell and not one of sale contrary to Sps.
Roque’s belief. In this relation, it has been consistently ruled that where the seller promises to execute a
deed of absolute sale upon the completion by the buyer of the payment of the purchase price, the contract
is only a contract to sell even if their agreement is denominated as a Deed of Conditional Sale, as in this
case. This treatment stems from the legal characterization of a contract to sell, that is, a bilateral contract
whereby the prospective seller, while expressly reserving the ownership of the subject property despite
delivery thereof to the prospective buyer, binds himself to sell the subject property exclusively to the
prospective buyer upon fulfillment of the condition agreed upon, such as, the full payment of the purchase
price. Elsewise stated, in a contract to sell, ownership is retained by the vendor and is not to pass to the
vendee until full payment of the purchase price. Explaining the subject matter further, the Court, in Ursal
v. CA, held that:

In contracts to sell the obligation of the seller to sell becomes demandable only upon the happening of the
suspensive condition, that is, the full payment of the purchase price by the buyer. It is only upon the
existence of the contract of sale that the seller becomes obligated to transfer the ownership of the thing sold
to the buyer. Prior to the existence of the contract of sale, the seller is not obligated to transfer the ownership
to the buyer, even if there is a contract to sell between them.

Here, it is undisputed that Sps. Roque have not paid the final installment of the purchase price. As such, the
condition which would have triggered the parties’ obligation to enter into and thereby perfect a contract of
sale in order to effectively transfer the ownership of the subject portion from the sellers (i.e., Rivero et al.)
to the buyers (Sps. Roque) cannot be deemed to have been fulfilled. Consequently, the latter cannot validly
claim ownership over the subject portion even if they had made an initial payment and even took possession
of the same.

It is essential to distinguish between a contract to sell and a conditional contract of sale specially in cases
where the subject property is sold by the owner not to the party the seller contracted with, but to a third
person, as in the case at bench. In a contract to sell, there being no previous sale of the property, a third
person buying such property despite the fulfilment of the suspensive condition such as the full payment
of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer
cannot seek the relief of reconveyance of the property.

There is no double sale in such case. Title to the property will transfer to the buyer after registration because
there is no defect in the owner-seller’s title per se, but the latter, of course, may be sued for damages by the
intending buyer.

FILINVEST ALABANG, INC. v. CENTURY IRON WORKS, INC.


G. R. No. 213229, December 9, 2015

DOCTRINE:
In a fixed lump sum contract, the project owner agrees to pay the contractor a specified amount for
completing a scope of work involving a variety of unspecified items of work without requiring a cost
breakdown. However, it must be clarified that Article 1724 of the Civil Code does not preclude the parties
from stipulating on additional works to the project covered by said fixed lump sum contract which would
entail added liabilities on the part of the project owner.

FACTS:
Sometime in 1997 and 1998, FILINVEST awarded various contracts to CENTURY, including a contract for
the completion of the metal works requirement of Filinvest Festival Supermall amounting to
P29,000,000.00. After the completion of said project, CENTURY tried to fully settle its credit with
FILINVEST, but the latter, despite demands, allegedly withheld without any reasonable ground the
payment of the aggregate amount of P1,392,088.68, broken down as follows: (a) balance of the retention
fee amounting to P40,880.00; (b) additional deduction of P227,500.00 from the latter's total payments; and
(c) the cost of an additional scenic elevator enclosure amounting to P1,123,708.68. This prompted
CENTURY to file the instant case for sum of money with damages against FILINVEST before the RTC.

In defense, FILINVEST maintained, among others, that the subject contract is lump sum in nature, hence,
it cannot be liable for the amount representing the additional scenic elevator enclosure absent any
instruction authorizing the construction of the same.

ISSUE:
Whether FILINVEST is liable to CENTURY in the amount of P1,123,708.68 representing the cost of an
additional scenic elevator enclosure.
HELD:
YES. Fixed lump sum contracts are governed by Article 1724 of the Civil Code.

In a fixed lump sum contract, the project owner agrees to pay the contractor a specified amount for
completing a scope of work involving a variety of unspecified items of work without requiring a cost
breakdown. The contractor estimates the project cost based on the scope of work and schedule and
considers probable errors in measurement and changes in the price of materials. Otherwise stated, in
fixed lump sum contracts, the project owner's liability to the contractor is generally limited to what is
stipulated therein.

However, it must be clarified that Article 1724 of the Civil Code does not preclude the parties from
stipulating on additional works to the project covered by said fixed lump sum contract which would entail
added liabilities on the part of the project owner. In fact, the said provision allows contractors to recover
from project owners additional costs in fixed lump sum contracts, as well as the increase in price for any
additional work due to a subsequent change in the original plans and specifications, provided that there
exists: (a) a written authority from the developer or project owner ordering or allowing the written changes
in work; and (b) written agreement of the parties with regard to the increase in price or cost due to the
change in work or design modification. Jurisprudence instructs that compliance with these two (2) requisites
is a condition precedent for recovery and hence, the absence of one or the other condition bars the claim for
additional costs. Notably, neither the authority for the changes made nor the additional price to be paid
therefor may be proved by any evidence other than the written authority and agreement as above-
mentioned.

Pursuant to the rule laid down by Article 1724 of the Civil Code, the General Conditions allowed the
parties to stipulate on extra works through the issuance of Site Instructions, as what happened in this
case when petitioner issued two (2) Site Instructions, dated August 1, 1997 and January 23, 1998,
pertaining to the construction of an additional scenic elevator enclosure in the project. In this regard, and
as correctly pointed out by the CA, the valuation of this additional work was lifted from the Bill of
Quantities previously agreed upon by the parties and was put into writing as evidenced by the Cost
Breakdown for Claim of Change Orders and the Material Quantity Breakdown for Scenic Elevator
Enclosure submitted by respondent to petitioner. The foregoing shows that: (a) there was a written
authority from petitioner for respondent to proceed with the construction of the additional scenic
elevator enclosure; and (b) the parties have a written agreement as to the proper valuation of such
additional works to be made on the project. As the construction of an additional scenic elevator enclosure
was covered by a valid extra work order to the subject contract, respondent is entitled to recover from
petitioner the cost of the same amounting to P1,123,708.68.

OPTIMUM DEVELOPMENT BANK v. SPOUSES BENIGNO V. JOVELLANOS and LOURDES R.


JOVELLANOS
G.R. No. 189145 December 4, 2013

DOCTRINE:
Given the nature of the contract of the parties, the respondent court correctly applied Republic Act No.
6552. Known as the Maceda Law, R.A. No. 6552 recognizes in conditional sales of all kinds of real estate
(industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an
installment by the buyer, which is simply an event that prevents the obligation of the vendor to convey title
from acquiring binding force.

FACTS:
On April 26, 2005, Sps. Jovellanos entered into a Contract to Sell with Palmera Homes, Inc. (Palmera
Homes) for the purchase of a residential house and lot.

On August 22, 2006, Palmera Homes assigned all its rights, title and interest in the Contract to Sell in favor
of petitioner Optimum Development Bank (Optimum).
On April 10, 2006, Optimum issued a Notice of Delinquency and Cancellation of Contract to Sell for Sps.
Jovellanos’s failure to pay their monthly installments despite several written and verbal notices.

In a final Demand Letter dated May 25, 2006,11 Optimum required Sps. Jovellanos to vacate and deliver
possession of the subject property within seven (7) days which, however, remained unheeded. Hence,
Optimum filed, on November 3, 2006, a complaint for unlawful detainer12 before the MeTC.
ISSUE:
Whether or not the nonpayment of the installment due had rendered the Contract to Sell without force
and effect.

HELD:
Yes.

In the case at bar, the unlawful detainer suit filed by Optimum against Sps. Jovellanos for illegally
withholding possession of the subject property is similarly premised upon the cancellation or termination
of the Contract to Sell between them.

Indeed, it was well within the jurisdiction of the MeTC to consider the terms of the parties’ agreement in
order to ultimately determine the factual bases of Optimum’s possessory claims over the subject property.
Proceeding accordingly, the MeTC held that Sps. Jovellanos’s non-payment of the installments due had
rendered the Contract to Sell without force and effect, thus depriving the latter of their right to possess
the property subject of said contract. The foregoing disposition aptly squares with existing jurisprudence.
As the Court similarly held in the Union Bank case, the seller’s cancellation of the contract to sell
necessarily extinguished the buyer’s right of possession over the property that was the subject of the
terminated agreement.

Verily, in a contract to sell, the prospective seller binds himself to sell the property subject of the
agreement exclusively to the prospective buyer upon fulfillment of the condition agreed upon which is
the full payment of the purchase price but reserving to himself the ownership of the subject property
despite delivery thereof to the prospective buyer.

The full payment of the purchase price in a contract to sell is a suspensive condition, the non-fulfillment of
which prevents the prospective seller’s obligation to convey title from becoming effective, as in this case.
Further, it is significant to note that given that the Contract to Sell in this case is one which has for its object
real property to be sold on an installment basis, the said contract is especially governed by – and thus, must
be examined under the provisions of – RA 6552, or the "Realty Installment Buyer Protection Act", which
provides for the rights of the buyer in case of his default in the payment of succeeding installments. Breaking
down the provisions of the law, the Court, in the case of Rillo v. CA, explained the mechanics of
cancellation under RA 6552 which are based mainly on the amount of installments already paid by the
buyer under the subject contract, to wit:

Given the nature of the contract of the parties, the respondent court correctly applied Republic Act No.
6552. Known as the Maceda Law, R.A. No. 6552 recognizes in conditional sales of all kinds of real estate
(industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an
installment by the buyer, which is simply an event that prevents the obligation of the vendor to convey
title from acquiring binding force. It also provides the right of the buyer on installments in case he defaults
in the payment of succeeding installments, viz.:

(1) Where he has paid at least two years of installments, (a) To pay, without additional interest, the unpaid
installments due within the total grace period earned by him, which is hereby fixed at the rate of one-
month grace period for every one year of installment payments made: Provided, That this right shall be
exercised by the buyer only once in every five years of the life of the contract and its extensions, if any.
(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the
payments on the property equivalent to fifty per cent of the total payments made and, after five years of
installments, an additional five per cent every year but not to exceed ninety per cent of the total payments
made: Provided, That the actual cancellation of the contract shall take place after cancellation or the
demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value
to the buyer.

Down payments, deposits or options on the contract shall be included in the computation of the total
number of installments made.

(2) Where he has paid less than two years in installments, Sec. 4. x x x the seller shall give the buyer a
grace period of not less than sixty days from the date the installment became due. If the buyer fails to pay
the installments due at the expiration of the grace period, the seller may cancel the contract after thirty
days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract
by a notarial act. (Emphasis and underscoring supplied)
Pertinently, since Sps. Jovellanos failed to pay their stipulated monthly installments as found by the
MeTC, the Court examines Optimum’s compliance with Section 4 of RA 6552, as above-quoted and
highlighted, which is the provision applicable to buyers who have paid less than two (2) years-worth of
installments. Essentially, the said provision provides for three (3) requisites before the seller may actually
cancel the subject contract: first, the seller shall give the buyer a 60-day grace period to be reckoned from
the date the installment became due; second, the seller must give the buyer a notice of
cancellation/demand for rescission by notarial act if the buyer fails to pay the installments due at the
expiration of the said grace period; and third, the seller may actually cancel the contract only after thirty
(30) days from the buyer’s receipt of the said notice of cancellation/demand for rescission by notarial act.
In the present case, the 60-day grace period automatically operated42 in favor of the buyers, Sps.
Jovellanos, and took effect from the time that the maturity dates of the installment payments lapsed. With
the said grace period having expired bereft of any installment payment on the part of Sps. Jovellanos,43
Optimum then issued a notarized Notice of Delinquency and Cancellation of Contract on April 10, 2006.
Finally, in proceeding with the actual cancellation of the contract to sell, Optimum gave Sps. Jovellanos
an additional thirty (30) days within which to settle their arrears and reinstate the contract, or sell or
assign their rights to another.

It was only after the expiration of the thirty day (30) period did Optimum treat the contract to sell as
effectively cancelled – making as it did a final demand upon Sps. Jovellanos to vacate the subject property
only on May 25, 2006.

Thus, based on the foregoing, the Court finds that there was a valid and effective cancellation of the Contract
to Sell in accordance with Section 4 of RA 6552 and since Sps. Jovellanos had already lost their right to
retain possession of the subject property as a consequence of such cancellation, their refusal to vacate and
turn over possession to Optimum makes out a valid case for unlawful detainer as properly adjudged by the
MeTC.

TORTS AND DAMAGES


PEOPLE v. OSCAR PARBA Y SOLON
G.R. No. 214506 October 19, 2015

DOCTRINE:
When death results from the commission of a crime, the heirs of the victim are entitled to the following
awards: (a) civil indemnity ex delicto for the death of the victim without need of evidence other than the
commission of the crime; (b) actual or compensatory damages to the extent proved, or temperate damages
when some pecuniary loss has been suffered but its amount cannot be provided with certainty; (c) moral
damages; and (d) exemplary damages when the crime was committed with one or more aggravating
circumstances.

FACTS:
Oscar Parba and a John Doe were charged for the crime of murder for the death of Mark Navaja in a
certain barangay in Cebu City. The prosecution alleged that security guard Jesus Catapan was buying
cigarettes when he saw Parba in the same store, suddenly stood up and pulled a gun from his belt and
shot the victim from behind while the latter was helping her daughter to disembark from a motorcycle.
Then, Parba and his companion exited towards the highway, chased by two fellow security guards of
Catapan. As they were running, accused pointed a gun towards them prompting the two to seek cover.
They still chased them, but the two guards lost sight of them. The following day, the policemen were able
to arrest Parba, where he was subjected to paraffin test, which resulted with positive presence of
gunpowder residue. Likewise, the doctor who examined the body of the victim testified that he indeed
died due to gunshot wound at the back of his head. The defense of Parba are focused only on alibi, denial,
and set-up.

The RTC convicted Parba, refusing to give credence to Parba’s alibi finding the same to be weak and
unsubstantiated, noting that Parba failed to present his wife or his brother to corroborate his testimony
and to show that it was physically impossible for him to be at the place of the incident. In fact, the short
distance of 100 meters between the crime scene and Parba’s house, where he said he was, did not foreclose
the possibility of his presence at the crime scene since it would only take around 20 minutes to get to the
place. On the contrary, the prosecution witness who saw the crime positively identified Parba as the one
who shot Navaja on the back of his head. On appeal, the CA affirm the conviction but with modification
on the award of damages.
ISSUE:
Whether or not CA correctly upheld Parba’s conviction for murder.

RULING:
Yes. It is well-settled that alibi as a defense is inherently weak and unreliable owing to the fact that it is
easy to fabricate and difficult to disprove. To establish alibi, the accused must prove that: (a) he was
present at another place at the time of the perpetration of the crime, and (b) it was physically impossible
for him to be at the scene of the crime. Here, Parba failed to satisfy the aforementioned requisites to
establish his alibi. Other than Parba’s bare assertions that he was at home sleeping in late and doing
household chores at the time of the incident, there was no proof and no other witness showing the
physical impossibility of his presence at SIT, which was only 100 meters away. On the contrary, the
positive, straightforward, and convincing testimonies of the prosecution witnesses as to the details of
that fateful morning incident heavily outweigh Parba’s alibi. As narrated, Catapan personally witnessed
Parba pull out a gun and shoot Navaja in the head, which led to his untimely demise, while Buenavista
and Cuizon immediately chased Parba after the shooting and further encountered him face-to-face when
he turned around and pointed a gun at them. Thus, there was no break in the chain of events that would
cause any doubt as to the truth and veracity of the facts which point to the guilt of Parba.

In line with prevailing jurisprudence, the Court is impelled to increase the amount of moral damages
from ₱50,000.00 to ₱75,000.00 and to sustain the amount of P75,000.00 as civil indemnity.50 The Court
also deems it proper to award the amount of P25,000.00 as temperate damages in lieu of actual damages
of a lesser amount, i.e., ₱17,000.00. Considering further that the crime was committed with treachery,
exemplary damages in the sum of ₱30,000.00 is also granted. Lastly, interest at the legal rate of six percent
(6%) per annum from date of finality of this Resolution until fully paid is imposed on all monetary awards.

PEOPLE OF THE PHILIPPINES v. DANIEL MATIBAG Y DE VILLA @ “DANI” OR “DANILO”


G.R. No. 206381 March 25, 2015

DOCTRINE:
Case law provides that for death resulting from the crime of Murder, the heirs of the victim are entitled to
the following awards: (a) civil indemnity ex delicto for the death of the victim without need of evidence
other than the commission of the crime; (b) actual or compensatory damages to the extent proved, or
temperate damages when some pecuniary loss has been suffered but its amount cannot be provided with
certainty; (c) moral damages; and (d) exemplary damages when the crime was committed with one or more
aggravating circumstances.

FACTS:
Matibag was charged with the crime of Murder defined and penalized under Article 248 of the Revised
Penal Code. The crime was committed on or about March 27, 2005 at around 8:40 o’clock in the evening
at Iron Street, Twin Villa Subdivision, Brgy. Kumintang Ibaba, Batangas City, Philippines. While armed
with a Beretta Caliber .9MM Pistol, with intent to kill and with the qualifying circumstance of treachery,
the accused, did then and there willfully, unlawfully and feloniously attack, assault and shoot with said
pistol one Enrico Clar de Jesus Duhan, while the latter was completely defenseless, thereby hitting him
and causing gunshot wounds at his head and chest, which directly resulted to the victim’s death. The
special aggravating circumstance of the use of unlicensed firearm was alleged in the information.

The prosecution argued that on the said night, Matibag confronted Duhan, and asked, “ano bang
pinagsasasabi mo?” Duhan replied “wala,” and without warning, Matibag delivered a fist blow hitting
Duhan on the left cheek and causing him to teeter backwards. Matibag then pulled out his gun and shot
Duhan, who fell face-first on the pavement. While Duhan remained in that position, Matibag shot him
several more times.

The RTC convicted Matibag as charged, sentencing him to suffer the penalty of reclusion perpetua, and
ordering him to pay the heirs of Duhan the amounts of P50,000.00 as civil indemnity, P50,000.00 as moral
damages, P59,000.00 as actual damages, and P25,000.00 as exemplary damages. The CA affirmed in toto
the decision.

ISSUE:
Whether or not the order for payment of moral damages, actual damages, and exemplary damages is
proper.
HELD:
Yes, the order is proper. Case law provides that for death resulting from the crime of Murder, the heirs of
the victim are entitled to the following awards: (a) civil indemnity ex delicto for the death of the victim
without need of evidence other than the commission of the crime; (b) actual or compensatory damages to
the extent proved, or temperate damages when some pecuniary loss has been suffered but its amount cannot
be provided with certainty; (c) moral damages; and (d) exemplary damages when the crime was committed
with one or more aggravating circumstances.

In order to warrant a conviction for Murder, the prosecution must establish by proof beyond reasonable
doubt that: (a) a person was killed; (b) the accused killed him or her; (c) the killing was attended by any
of the qualifying circumstances mentioned in Article 248 of the RPC; and (d) the killing is not Parricide
or Infanticide. In People v. Perez, it was explained that a frontal attack does not necessarily rule out
treachery, if the attack was so sudden and so unexpected that the deceased had no time to prepare for his
or her defense.
In this case, the prosecution was able to prove that Matibag, who was armed with a gun, confronted
Duhan, and without any provocation, punched and shot him on the chest. Although the attack was
frontal, the sudden and unexpected manner by which it was made rendered it impossible for Duhan to
defend himself, adding too that he was unarmed. Therefore, in line with recent jurisprudence, civil
indemnity in the amount of P100,000.00 and moral damages in the amount of P100,000.00 are awarded to
Duhan’s heirs without need of evidence other than the commission of the crime and Duhan’s death. Since
the crime was committed with treachery, exemplary damages in the sum of P100,000.00 is also granted.

The award of P59,000.00 as actual damages should, however, be deleted as there was no proof of the amount
actually expended. In lieu thereof, P25,000.00 as temperate damages is awarded to conform with prevailing
jurisprudence. In addition, interest at the legal rate of six percent (6%) per annum from date of finality of
the Decision until fully paid is imposed on all monetary awards. Hence, in addition to serving the
punishment of reclusion perpetua, appellant is ordered to pay the Heirs of Enrico Clar de Jesus Duhan the
amounts of P100,000.00 as civil indemnity, P100,000.00 as moral damages, P100,000.00 as exemplary
damages, and P25,000.00 as temperate damages, in lieu of actual damages, all with legal interest at the rate
of six percent (6%) per annum from the finality of judgment until full payment.

RUKS KONSULT AND CONSTRUCTION v. ADWORLD SIGN AND ADVERTISING


CORPORATION and TRANSWORLD MEDIA ADS, INC.
G.R. No. 204866 January 21, 2015

DOCTRINE:
Joint tortfeasors are those who command, instigate, promote, encourage, advise, countenance, cooperate
in, aid or abet the commission of a tort, or approve of it after it is done, if done for their benefit. They are
also referred to as those who act together in committing wrong or whose acts, if independent of each
other, unite in causing a single injury. Under Article 219429 of the Civil Code, joint tortfeasors are
solidarily liable for the resulting damage.

FACTS:
The instant case arose from a complaint for damages filed by Adworld against Transworld and Comark
International Corporation (Comark) before the RTC.In the complaint, Adworld alleged that it is the owner
of a 75 ft. x 60 ft. billboard structure located at EDSA Tulay, Guadalupe, Barangka Mandaluyong, which
was misaligned and its foundation impaired when, on August 11, 2003, the adjacent billboard structure
owned by Transworld and used by Comark collapsed and crashed against it. Resultantly, on August 19,
2003, Adworld sent Transworld and Comark a letter demanding payment for the repairs of its billboard as
well as loss of rental income. On August 29, 2003, Transworld sent its reply, admitting the damage caused
by its billboard structure on Adworld’s billboard, but nevertheless, refused and failed to pay the amounts
demanded by Adworld. As Adworld’s final demand letter also went unheeded, it was constrained to file the
instant complaint, praying for damages in the aggregate amount of ₱474,204.00, comprised of ₱281,204.00
for materials, ₱72,000.00 for labor, and ₱121,000.00 for indemnity for loss of income.

In its Answer with Counterclaim, Transworld averred that the collapse of its billboard structure was due
to extraordinarily strong winds that occurred instantly and unexpectedly, and maintained that the
damage caused to Adworld’s billboard structure was hardly noticeable. Transworld likewise filed a Third-
Party Complaint against Ruks, the company which built the collapsed billboard structure in the former’s
favor. It was alleged therein that the structure constructed by Ruks had a weak and poor foundation not
suited for billboards, thus, prone to collapse, and as such, Ruks should ultimately be held liable for the
damages caused to Adworld’s billboard structure.

For its part, Comark denied liability for the damages caused to Adworld’s billboard structure, maintaining
that it does not have any interest on Transworld’s collapsed billboard structure as it only contracted the
use of the same. In this relation, Comark prayed for exemplary damages from Transworld for
unreasonably including it as a party-defendant in the complaint.

Lastly, Ruks admitted that it entered into a contract with Transworld for the construction of the latter’s
billboard structure, but denied liability for the damages caused by its collapse. It contended that when
Transworld hired its services, there was already an existing foundation for the billboard and that it merely
finished the structure according to the terms and conditions of its contract with the latter.

The RTC ruled in favor of Adworld ad held Trandworld and Ruks as jointly and severally liable in the
amount of ₱474,204.00 as actual damages, with legal interest from the date of the filing of the complaint
until full payment thereof, plus attorney’s fees in the amount of ₱50,000.00. Both Transworld and Rusks
appealed but the Court of Appeals dismissed their appeal.

ISSUE:
Are Ruks and Transworld jointly and severally liable for damages?

HELD:
Yes. Both Transworld and Ruks committed acts resulting in the collapse of the former’s billboard, which
in turn, caused damage to the adjacent billboard of Adworld.

Jurisprudence defines negligence as the omission to do something which a reasonable man, guided by
those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man would not do. It is the failure to observe for the
protection of the interest of another person that degree of care, precaution, and vigilance which the
circumstances justly demand, whereby such other person suffers injury.

In this case, the CA correctly affirmed the RTC’s finding that Transworld’s initial construction of its
billboard’s lower structure without the proper foundation, and that of Ruks’s finishing its upper structure
and just merely assuming that Transworld would reinforce the weak foundation are the two (2) successive
acts which were the direct and proximate cause of the damages sustained by Adworld. Worse, both
Transworld and Ruks were fully aware that the foundation for the former’s billboard was weak; yet, neither
of them took any positive step to reinforce the same. They merely relied on each other’s word that repairs
would be done to such foundation, but none was done at all. Clearly, the foregoing circumstances show that
both Transworld and Ruks are guilty of negligence in the construction of the former’s billboard, and
perforce, should be held liable for its collapse and the resulting damage to Adworld’s billboard structure.
As joint tortfeasors, therefore, they are solidarily liable to Adworld. Verily, "[j]oint tortfeasors are those
who command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the
commission of a tort, or approve of it after it is done, if done for their benefit. They are also referred to as
those who act together in committing wrong or whose acts, if independent of each other, unite in causing
a single injury. Under Article 2194of the Civil Code, joint tortfeasors are solidarily liable for the resulting
damage. In other words, joint tortfeasors are each liable as principals, to the same extent and in the same
manner as if they had performed the wrongful act themselves." In such case it its impossible to determine
in what proportion each contributed to the injury and either of them is responsible for the whole injury.

PEOPLE OF THE PHILIPPINES v. ROMEO ANTIDO y LANTAYAN a.k.a. ROMEO ANTIGO y


LANTAYAN alias "JON-JON"
G.R. No. 208651 March 14, 2018

DOCTRINE:
Death of the accused pending appeal of his conviction extinguishes his criminal liability, as well as the
civil liability, based solely thereon. The death of the accused prior to final judgment terminates his
criminal liability and only the civil liability directly arising from and based solely on the offense
committed, i.e., civil liability ex delicto in senso strictiore. Corollarily, the claim for civil liability survives
notwithstanding the death of accused, if the same may also be predicated on a source of obligation other
than delict.
FACTS:
In a Resolution dated April 7, 2014, the Court affirmed the Decision dated December 7, 2012 of the Court
of Appeals (CA) finding accused-appellant Romeo Antido y Lantayan a.k.a. Romeo Antigo y Lantayan
alias "Jon-Jon" (accused-appellant) guilty beyond reasonable doubt of the crime of Rape, he was sentenced
to suffer the penalty of reclusion perpetua and was ordered to pay private complainant the following: the
following amounts: (a) ₱75,000.00 as civil indemnity; (b) ₱75,000.00 as moral damages; and (c) ₱30,000.00
as exemplary damages.

However, it appears that before the promulgation of the said Resolution, accused-appellant had already
died on December 28, 2013, as evidenced by his Certificate of Death.

ISSUE:
Whether or not the civil and criminal liability of the accused were extinguished due to his death, pending
the appeal of his case.

HELD:
Under prevailing law and jurisprudence, accused-appellant's death prior to his final conviction by the Court
renders dismissible the criminal cases against him. Article 89 (1) of the Revised Penal Code provides that
criminal liability is totally extinguisfted by the death of the accused, to wit:

Article 89. How criminal liability is totally extinguished. - Criminal liability is totally extinguished:
1. By the death of the convict, as to the personal penalties; and as to pecuniary penalties, liability therefor
is extinguished only when the death of the offender occurs before final judgment.

In People v. Culas, the Court thoroughly explained the effects of the death of an accused pending appeal
on his liabilities, as follows:
From this lengthy disquisition, we summarize our ruling herein:
1. Death of the accused pending appeal of his conviction extinguishes his criminal liability, as
well as the civil liability, based solely thereon. As opined by Justice Regalado, in this regard,
"the death of the accused prior to final judgment terminates his criminal liability and only
the civil liability directly arising from and based solely on the offense committed, i.e., civil
liability ex delicto in senso strictiore."
2. Corollarily, the claim for civil liability survives notwithstanding the death of accused, if the
same may also be predicated on a source of obligation other than delict. Article 1157 of the
Civil Code enumerates these other sources of obligation from which the civil liability may
arise as a result of the same act or omission:
a. Law
b. Contracts
c. Quasi-contracts
d. xxx
e. Quasi-delicts
3. Where the civil liability survives, as explained in Number 2 above, an action for recovery
therefor may be pursued but only by way of filing a separate civil action and subject to
Section 1, Rule 111 of the 1985 Rules on Criminal Procedure as amended. This separate civil
action may be enforced either against the executor/administrator or the estate of the accused,
depending on the source of obligation upon which the same is based as explained above.
4. Finally, the private offended party need not fear a forfeiture of his right to file this separate
civil action by prescription, in cases where during the prosecution of the criminal action and
prior to its extinction, the private-offended party instituted together therewith the civil action.
In such case, the statute of limitations on the civil liability is deemed interrupted during the
pendency of the criminal case, conformably with provisions of Article 1155 of the Civil Code,
that should thereby avoid any apprehension on a possible privation of right by prescription.

Thus, upon accused-appellant's death pending appeal of his conviction, the criminal action is extinguished
inasmuch as there is no longer a defendant to stand as the accused; the civil action instituted therein for the
recovery of the civil liability ex delicto is ipso facto extinguished, grounded as it is on the criminal action.
However, it is well to clarify that accused-appellant's civil liability in connection with his acts against the
victim, AAA, may be based on sources other than delicts; in which case, AAA may file a separate civil
action against the estate of accused-appellant, as may be warranted by law and procedural rules.
ST. MARTIN POLYCLINIC, INC. v. LWV CONSTRUCTION CORPORATION
G.R. No. 21742, December 04, 2017

DOCTRINE:
With respect to negligent acts or omissions, it should therefore be discerned that Article 20 of the Civil
Code concerns "violations of existing law as basis for an injury", whereas Article 2176 applies when the
negligent act causing damage to another does not constitute "a breach of an existing law or a pre-existing
contractual obligation.

FACTS:
Respondent is engaged in the business of recruiting Filipino workers for deployment to Saudi Arabia.
Petitioner is an accredited member of the Gulf Cooperative Council Approved Medical Centers
Association (GAMCA) and as such, authorized to conduct medical examinations of prospective applicants
for overseas employment.

Respondent referred prospective applicant Jonathan V. Raguindin (Raguindin) to petitioner for a pre-
deployment medical examination in accordance with the instructions from GAMCA. After undergoing the
required examinations, petitioner cleared Raguindin and found him "fit for employment.” Consequently,
respondent deployed Raguindin to Saudi Arabia. However, Raguindin underwent another medical
examination with General Care Dispensary of Saudi Arabia where he purportedly tested positive for HCV
or hepatitis C virus. The Ministry of Health of the Kingdom of Saudi Arabia required a re- examination of
Raguindin, which result remained the same. The foregoing led to Raguindin's repatriation to the Philippines.

Claiming that petitioner was reckless in issuing its Medical Report stating that Raguindin is "fit for
employment" when a subsequent finding in Saudi Arabia revealed that he was positive for HCV, respondent
filed a Complaint for sum of money and damages against petitioner before MeTC. Respondent essentially
averred that it relied on petitioner's declaration and incurred expenses as a consequence. Petitioner denied
liability.

MeTC ruled in favor of respondent. RTC and CA affirmed MeTC’s ruling.

ISSUE:
Whether or not petitioner was negligent in issuing the Medical Report declaring Raguindin "fit for
employment" and hence, should be held liable for damages.

HELD:
NO. An action for damages due to the negligence of another may be instituted on the basis of Article
2176 of the Civil Code. The elements of a quasi-delict are: (1) an act or omission; (2) tfte presence of
fault or negligence in tfte performance or non-performance of tfte act; (3) injury; (4) a causal
connection between tfte negligent act and tfte injury; and (5) no pre-existing contractual
relation.

As a general rule, any act or omission coming under the purview of Article 2176 gives rise to a cause of
action under quasi-delict. This, in turn, gives the basis for a claim of damages. Notably, quasi-delict is one
among several sources of obligation.

However, as explained by Associate Justice Marvic M.V.F. Leonen (Justice Leonen) in his opinion in Alano
v. Magud-Logmao46 (Alano), "Article 2176 is not an all-encompassing enumeration of all
actionable wrongs wfticft can give rise to tfte liability for damages. Under tfte Civil Code, acts
done in violation of Articles 19, 20, and 21 will also give rise to damages."These provisions were
cited as bases by the MTC, RTC and CA in their respective rulings in this case.

Thus, with respect to negligent acts or omissions, it should therefore be discerned that Article 20 of tfte
Civil Code concerns "violations of existing law as basis for an injury", wftereas Article 2176
applies wften tfte negligent act causing damage to anotfter does not constitute "a breacft of an
existing law or a pre-existing contractual obligation."

In this case, the courts a quo erroneously anchored their respective rulings on the provisions of Articles
19, 20, and 21 of the Civil Code. This is because respondent did not proffer (nor have these courts
mentioned) any law as basis for which damages may be recovered due to petitioner's alleged negligent
act. In its amended complaint, respondent mainly avers that had petitioner not issue a "fit for
employment" Medical Report to Raguindin, respondent would not have processed his documents,
deployed him to Saudi Arabia, and later on - in view of the subsequent findings that Raguindin was
positive for HCV and hence, unfit to work - suffered actual damages in the amount of P84,373.41.52 Thus,
as the claimed negligent act of petitioner was not premised on the breach of any law, and not to mention
the incontestable fact that no pre-existing contractual relation was averred to exist between the parties,
Article 2176 - instead of Articles 19, 20 and 21 - of the Civil Code should govern.

Negligence is defined as the failure to observe for the protection of the interests of another person, that
degree of care, precaution and vigilance which the circumstances justly demand, whereby such other
person suffers injury.

The records of this case show that the pieces of evidence mainly relied upon by respondent to establish
petitioner's negligence are: (a) the Certification61 dated April 28, 2008; and (b) the HCV Confirmatory Test
Report.62 However, these issuances only indicate the results of the General Care Dispensary and Ministry
of Health's own medical examination of Raguindin finding him to be positive for HCV. Notably, the
examination conducted by the General Care Dispensary, which was later affirmed by the Ministry of Health,
was conducted only on Marcf t 24, 2008, or at least two (2) montfts after petitioner issued its Medical
Report on January 11, 2008. Hence, even assuming that Raguindin's diagnosis for HCV was correct, the
fact that he later tested positive for the same does not convincingly prove that he was already under the
same medical state at the time petitioner issued the Medical Report on January 11, 2008. In this regard, it
was therefore incumbent upon respondent to show that tftere was already negligence at tfte time tfte
Medical Report was issued, may it be through evidence that show that standard medical procedures were
not carefully observed or that there were already palpable signs that exhibited Raguindin's unfitness for
deployment at that time. This is hardly the case when respondent only proffered evidence which
demonstrate that months after petitioner's Medical Report was issued, Raguindin, who had already been
deployed to Saudi Arabia, tested positive for HCV and as such, was no longer "fit for employment."

In fact, there is a reasonable possibility that Raguindin became exposed to the HCV only after his medical
examination with petitioner on January 11, 2008. Based on published reports from the World Health
Organization, HCV or the hepatitis C virus causes both acute and chronic infection. Acute HCV infection
is usually asymptomatic,63 and is only very rarely associated with life-threatening diseases. The
incubation period64 for HCV is two (2) weeks to six (6) montfts, and following initial infection,
approximately 80% of people do not exhibit any symptoms.65 Indisputably, Raguindin was not deployed
to Saudi Arabia immediately after petitioner's medical examination and hence, could have possibly
contracted the same only when he arrived thereat. In light of the foregoing, the CA therefore erred in
holding that "[h]ad petitioner more thoroughly and diligently examined Raguindin, it would likely have
discovered the existence of the HCV because it was contrary to human experience that a newly-deployed
overseas worker, such as Raguindin, would immediately have contracted the disease at the beginning of
his deployment"

While petitioner's Medical Report indicates an expiration of April 11, 2008, the Court finds it fitting to
clarify that the same could not be construed as a certified guarantee coming from petitioner that Raguindin's
medical status at the time the report was issued on January 11, 2008 (i.e., that he was fit for employment)
would remain the same up until that date (i.e., April 11, 2008). As earlier intimated, the intervening period
could very well account for a number of variables that could have led to a change in Raguindin's condition,
such as his deployment to a different environment in Saudi Arabia. If at all, the expiration date only means
that the Medical Report is valid - and as such, could be submitted - as a formal requirement for overseas
employment up until April 11, 2008; it does not, by any means, create legal basis to hold the issuer
accountable for any intervening change of condition from the time of issuance up until expiration. Truly,
petitioner could not be reasonably expected to predict, much less assure, that Raguindin's medical status of
being fit for employment would remain unchanged. Thus, the fact that the Medical Report's expiration date
of April 11, 2008 was only seventeen (17) days away from the issuance of the General Care Dispensary's
April 28, 2008 Certification finding Raguindin positive for HCV should not - as it does not - establish
petitioner's negligence.
SPOUSES FERNANDO and HERMINIA VERGARA v. ERLINDA TORRECAMPO SONKIN
G.R. No. 193659 June 15, 2015

DOCTRINE:
Contributory negligence is conduct on the part of the injured party, contributing as a legal cause to the
harm he has suffered, which falls below the standard to which he is required to conform for his own
protection.

FACTS:
When Sps. Sonkin bought the Sonkin Property sometime in 1999, they raised the height of the par tition
wall and caused the construction of their house thereon. The house itself was attached to the partition
wall such that a portion thereof became part of the wall of the master’s bedroom and bathroom. in 2001,
Sps. Vergara levelled the uneven portion of the Vergara Property by filling it with gravel, earth, and soil.
As a result, the level of the Vergara Property became even higher than that of the Sonkin Property by a
third of a meter. Eventually, Sps. Sonkin began to complain that water coming from the Vergara Property
was leaking into their bedroom through the partition wall, causing cracks, as well as damage, to the paint
and the wooden parquet floor. Sps. Sonkin repeatedly demanded that Sps. Vergara build a retaining wall
on their property in order to contain the landfill that they had dumped thereon, but the same went
unheeded. Hence, Sps. Sonkin filed the instant complaint for damages and injunction with prayer for
preliminary mandatory injunction and issuance of a temporary restraining order against Sps. Vergara.
Both the RTC and CA ruled for the Sonkins.
ISSUE:
Whether or not it should have ordered the demolition of the portion of the Sps. Sonkin’s house that adjoins
the partition wall.

HELD:
The petition is meritorious.

Art. 2179 provides that, when the plaintiff’s own negligence was the immediate and proximate cause of
his injury, he cannot recover damages. But if his negligence was only contributory, the immediate and
proximate cause of the injury being the defendant’s lack of due care, the plaintiff may recover damages,
but the courts shall mitigate the damages to be awarded.

Verily, contributory negligence is conduct on the part of the injured party, contributing as a legal cause
to the harm he has suffered, which falls below the standard to which he is required to conform for his
own protection. In the case at bar, it is undisputed that the Sonkin property is lower in elevation than the
Vergara property, and thus, it is legally obliged to receive the waters that flow from the latter, pursuant
to Article 637 of the Civil Code. This provision refers to the legal easement pertaining to the natural
drainage of lands, which obliges lower estates to receive from the higher estates water which naturally
and without the intervention of man descends from the latter. Hence, the CA correctly held that while
the proximate cause of the damage sustained by the house of Sps. Sonkin was the act of Sps. Vergara in
dumping gravel and soil onto their property, thus, pushing the perimeter wall back and causing cracks
thereon, as well as water seepage, the former is nevertheless guilty of contributory negligence for not
only failing to observe the two (2)-meter setback rule under the National Building Code, but also for
disregarding the legal easement constituted over their property. As such, Sps. Sonkin must necessarily
and equally bear their own loss.

ST. MARTIN POLYCLINIC, INC. v. LWV CONSTRUCTION CORPORATION


G.R. No. 217426; December 04, 2017

DOCTRINE:
Negligence is defined as the failure to observe for the protection of the interests of another person, that
degree of care, precaution and vigilance which the circumstances justly demand, whereby such other person
suffers injury. As a general rule, any act or omission coming under the purview of Article 2176 gives rise
to a cause of action under quasi-delict. This, in turn, gives the basis for a claim of damages.

FACTS:
LWV Construction Corporation is engaged in the business of recruiting Filipino workers for deployment
to Saudi Arabia. St. Martin Polyclinic, Inc. is a member of the Gulf Cooperative Council Approved Medical
Centers Association (GAMCA), and is thus authorized to conduct medical examinations of prospective
applicants for overseas employment.
LWV Construction referred applicant Jonathan Raguindin to St. Martin for a Pre-Deployment Medical
Examination in accordance with the GAMCA. Petitioner, St. Martin cleared Raguindin and found him fit
for employment. LWV deployed Raguindin to Saudi Arabia allegedly incurring expenses amounting to
P84, 373. 41. Raguindin underwent another medical examination with the General Care Dispensary of
Saudi Arabia and tested positive for HCV or the Hepatitis C virus. A re-examination was conducted by
General Care but the results turned out the same thus, leading to Raguindin’s repatriation to the
Philippines.

LWV claimed that St. Martin was reckless in issuing its Medical Report when a subsequent finding in Saudi
Aarabia revealed that he was positive for HCV. It later on filed a complaint for sum of money and damages
against St. Martin before the MeTC-Mandaluyong, Br. 60. According to LWV, it relied on the declaration
of St. Martin and incurred expenses as a consequence. St. Martin denied liability and claimed that LWV
was not the proper party in interest due to lack of privity of contract between them; MeTC had no
jurisdiction since it involved the interpretation of an employment contract; the action is premature; the
complaint failed to state a cause of action.

The MeTC rendered judgment in favor of respondent. It ordered Petitioner to pay the amount of P84, 373.
41 as actual damages, P20,000 as attorney’s fees and the costs of the suit. It further ruled that it had
jurisdiction over the case and that respondent was a real party in interest as it would not have incurred
expenses had St. Martin not issued the medical report. According to the MeTC, Respondent was entitled
to be informed accurately of the condition of Raguindin.
Petitioner appealed to the RTC but the latter dismissed its appeal and affirmed the MeTC’s decision in its
entirety. A Motion for Reconsideration was filed by St. Martin. The Court of Appeals affirmed the RTC
decision, but deleted the award of actual damages and instead awarded temperate damages in the amount
of P50,000.00.

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

ISSUE:
Whether or not Petitioner was negligent in issuing the Medical Report and hence, should be held liable
for damages.

HELD:
No. St. Martin is not negligent. The elements of a quasi-delict are: (1) an act or omission; (2) the presence
of fault or negligence in the performance or non-performance of the act; (3) injury; (4) a causal connection
between the negligent act and the injury; and (5) no pre-existing contractual relation.

As a general rule, any act or omission coming under the purview of Article 2176 gives rise to a cause of
action under quasi-delict. This, in turn, gives the basis for a claim of damages. However, Article 2176 is
not an all-encompassing enumeration of all actionable wrongs which can give rise to the liability for
damages.

Article 19 is the general rule which governs the conduct of human relations. Article 20 concerns violations
of existing law as basis for an injury. Article 21, on the other hand, concerns injuries that may be caused
by acts which are not necessarily proscribed by law. Article 20 of the Civil Code concerns "violations of
existing law as basis for an injury", whereas Article 2176 applies when the negligent act causing damage
to another does not constitute "a breach of an existing law or a pre-existing contractual obligation.

The courts a quo erroneously anchored their respective rulings on the provisions of Articles 19, 20, and
21 of the Civil Code. This is because LWV did not proffer any law as basis for which damages may be
recovered due to petitioner's alleged negligent act. St. Martin’s claimed negligent act was not premised
on the breach of any law, and not to mention the incontestable fact that no pre-existing contractual
relation was averred to exist between the parties, Article 2176 - instead of Articles 19, 20 and 21 - of the
Civil Code should govern.

The examination conducted by the General Care Dispensary, which was later affirmed by the Ministry of
Health, was conducted only on March 24, 2008, or at least two (2) months after petitioner issued its Medical
Report on January 11, 2008. Hence, even assuming that Raguindin's diagnosis for HCV was correct, the
fact that he later tested positive for the same does not convincingly prove that he was already under the
same medical state at the time petitioner issued the Medical Report on January 11, 2008. It was therefore
incumbent upon LWV Construction to show that there was already negligence at the time the Medical
Report was issued, may it be through evidence that show that standard medical procedures were
not carefully observed or that there were already palpable signs that exhibited Raguindin's unfitness for
deployment at that time. Respondent only proffered evidence which demonstrate that months after
petitioner's Medical Report was issued, Raguindin, who had already been deployed to Saudi Arabia, tested
positive for HCV and as such, was no longer "fit for employment". The incubation period for HCV is two
(2) weeks to six (6) months, and following initial infection, approximately 80% of people do not exhibit
any symptoms. Raguindin was not deployed to Saudi Arabia immediately after petitioner's medical
examination and hence, could have possibly contracted the same only when he arrived thereat.

Negligence is defined as the failure to observe for the protection of the interests of another person, that
degree of care, precaution and vigilance which the circumstances justly demand, whereby such other person
suffers injury. There was no negligence proven by Respondent LWV Construction through credible and
admissible evidence, thus, Petitioner cannot be held liable for damages under Article 2176 of the Civil
Code.

PEOPLE OF THE PHILIPPINES v. EUGENE SAMUYA


G.R. No. 213214, April 20, 2015

DOCTRINE:
On the matter of damages, case law provides that for death resulting from the crime of Murder, the heirs of
the victim are entitled to the following awards: (a) civil indemnity ex delicto for the death of the victim
without need of evidence other than the commission of the crime; (b) actual or compensatory damages to
the extent proved, or temperate damages when some pecuniary loss has been suffered but its amount cannot
be provided with certainty; (c) moral damages; and (d) exemplary damages when the crime was committed
with one (1) or more aggravating circumstances.

FACTS:
Both Eugene and Rudy, both surnamed Samuya, were charged with the crime of Murder before RTC –
Aklan. In both the Information and in trial, the prosecution alleged that in the evening of Nov. 19, 2006,
Florenio Castro, Anthony Dumalaog, Jonel Samuya, and the victim, Gabriel Samonte, were sited outside
Florenio’s house in Sta. Cruz, Aklan. Later, Rudy arrived, asking Anthony where “Nat-Nat” was, to which
Anthony responded that “Nat-Nat” was not there. Rudy then approached Anthony and cocked a gun at
him. It was then that Eugene arrived and, without any warning, shot Gabriel in the chest. Gabriel
managed to run away, and was even chased by Eugene. Moments later, Florenio heard another gunshot.
Eugene was last seen returming alone and left together with Rudy. Gabriel did not respond when Florenio
tried to contact him. Gabriel was eventually found dead in a kangkong swamp. In the postmortem
examination, it was found that Gabriel sustained a laceration on his right shoulder and a gunshot on his
chest. In his defense, Eugene admitted shooting Gabriel but averred that the same was done in self-
defense. He averred that on the date of the incident, he had just come home from a birthday party when
Rudy arrived and asked him to accompany him (Rudy) to buy whisky. On their way to the store, they
saw Florenio and Anthony, and Rudy greeted them. As they were talking, Eugene saw Gabriel rushing
towards them with a knife in his hand and about to attack him. To defend himself, he drew his gun and
shot Gabriel who immediately ran away.

The RTC convicted Eugene of the crime charged. This was later affirmed by the CA. Hence, this appeal.

ISSUE:
1. W/N Eugene Samuya is guilty of the crime of Murder
2. The extent of the damages to be recovered, if indeed found liable

HELD:
1. YES. In order to convict a person charged with the crime of Murder, the prosecution must
establish beyond reasonable doubt that: (a) a person was killed; (b) the accused killed him or her;
(c) the killing was attended by any of the qualifying circumstances mentioned in Article 248 of
the RPC; and (d) the killing does not constitute Parricide or Infanticide. In this case, the
prosecution was able to prove that Eugene's attack on Gabriel was so swift and sudden, and
without any warning. Eyewitnesses testified that immediately upon his arrival and without any
exchange of words, Eugene pulled out his gun and shot Gabriel. As the RTC and CA aptly pointed
out, although the attack was frontal, it was so sudden and unexpected which made it impossible
for Gabriel to defend himself. The gunshot wound on Gabriel's chest caused massive bleeding
which led to his death not long after. Thus, in view of the long-standing principle that factual
findings of the trial court, especially when affirmed by the CA, deserve great weight and respect,
the Court concludes that treachery was correctly appreciated.
2. In line with recent jurisprudence, the Court is impelled to increase the award of moral damages
from P50,000.00 to P75,000.00. However, the awards of P75,000.00 as civil indemnity and
P30,000.00 as exemplary damages stand. Further, while records do not show that the prosecution
was able to prove the amount actually expended for burial and funeral expenses, prevailing
jurisprudence nonetheless allows the Court to award temperate damages in the amount of
P25,000.00 to the victim's heirs as it cannot be denied that they suffered pecuniary loss due to the
crime committed. And lastly, interest at the legal rate of six percent (6%) per annum from date of
finality of this Resolution until fully paid is imposed on all monetary awards.

CRESENCIO BAO AND HEIRS OF THE DECEASED AMANCIO ASUMBRADO v. BACHELOR


EXPRESS, INC./ CERES LINER, INC. AND WENIFREDO SALVAA
G.R. No. 191703 March 12, 2012

DOCTRINE:
Gross negligence of a common carrier allows the court to render the award of exemplary damages.

Exemplary damages granted as deterrent against repetition of similar deleterious actions.

FACTS:
Respondent Wenifredo Salvaa drove the bus owned by respondent Bachelor Express, Inc./Ceres Liner, Inc.
bound for Davao City. At about 1:20PM, he overtook a Lawin PUJ jeepney while negotiating a blind curve
in a descending road, causing him to intrude into the opposite lane and bump the 10-wheeler dump truck of
petitioner Cresencio Bao running uphill from the opposite direction. The collision resulted to damage of
both vehicles, the subsequent death of the truck driver Amancio Asumbrado, and serious physical injuries
to bus driver Salvaa.

The petitioner heirs of Asumbrado filed a complaint for quasi-delict, damages and attorney’s fees against
respondents, accusing Salvaa of negligently driving the bus. Respondents denied liability, claiming that
prior to the collision, the bus was running out of control because of a problem in the steering wheel
system which could not have been avoided despite their maintenance efforts. Instead, they claimed that
Asumbrado had the last clear chance to avoid the collision had he not driven the truck at a very fast
speed.

The RTC ruled in favor of petitioner heirs after finding that the immediate and proximate cause of the
accident was the reckless negligence of the bus driver. Having established the negligence of its employee,
the presumption of fault or negligence on the part of the employer, respondent Bachelor Express,
Inc./Ceres Liner, Inc., arose, which it failed to rebut by evidence that it exercised due diligence in the
selection and supervision of its bus driver.

On appeal, the CA affirmed the RTC’s findings but deleted the separate award of exemplary damages in
favor of petitioners for their failure to prove that respondents acted with gross negligence. It likewise
deleted the award of moral damages to Bao for the damage to his property.

ISSUE:
Whether respondent bus company is liable for gross negligence in the selection and supervision of its
employees.

HELD:
YES. In GSIS vs. Pacific Airways Corporation, the Court has defined gross negligence as one that is
characterized by the want of even slight care, acting or omitting to act in a situation where there is a duty
to act, not inadvertently but willfully and intentionally with a conscious indifference to consequences
insofar as other persons may be affected.

In the case, records show that when bus driver Salvaa overtook the jeepney in front of him, he was
rounding a blind curve along a descending road. Considering the road condition, and that there was only
one lane on each side of the center line for the movement of traffic in opposite directions, it would have
been more prudent for him to confine his bus to its proper place. Having thus encroached on the opposite
lane in the process of overtaking the jeepney, without ascertaining that it was clear of oncoming traffic
that resulted in the collision with the approaching dump truck driven by deceased Asumbrado, Salvaa
was grossly negligent in driving his bus. He was remiss in his duty to determine that the road was clear
and not to proceed if he could not do so in safety.
Consequently, the CA erred in deleting the awards of exemplary damages, which the law grants to serve as
a warning to the public and as a deterrent against the repetition of similar deleterious actions. However,
the award should be tempered as it is not intended to enrich one party or to impoverish another. Thus, the
Court reinstates the separate awards of exemplary damages to petitioners in the amount of P50,000.00.

With respect to petitioner Bao, the award of moral damages for the loss of his dump truck was correctly
deleted since the damage to his vehicle was not shown to have been made willfully or deliberately.
However, the Court finds the grant of P100,000.00 as temperate damages for the damaged vehicle to be
insufficient considering its type as a 10-wheeler dump truck and its good running condition at the time of
the incident. Instead, the Court finds the amount of P400,000.00 as fair and reasonable under the
circumstances. With respect to the adjudged lost income from the dump truck, the Court sustains, for being
just and equitable, the award of temperate damages in the sum of P200,000.00.

Doctrine: Moral damages are not meant to be punitive but are designed to compensate and alleviate the
physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings,
moral shock, social humiliation, and similar harm unjustly caused to a person.

Exemplary damages are imposed "by way of example or correction for the public good, in addition to the
moral, temperate, liquidated or compensatory damages" and are awarded "only if the guilty party acted
in a wanton, fraudulent, reckless, oppressive or malevolent manner."

AYSON v. FIL-ESTATE PROPERTIES INC.


G.R. No. 223254 & 223269 December 1, 2016

FACTS:
Rosalie Ayson came to own a 1000 sq. m. parcel of land situated in Yapak, Malay, Aklan in Northwestern
Boracay by purchasing it from Divina Villanueva. Ayson later found out in June of 1997 that Fil-Estate
Properties had entered into the possession of the said property and included it as part of its golf course.
Ayson demanded that Fil-Estate Cease and Desist from developing her property, which the latter ignored,
prompting her to file action.

Fil-Estate in its defense, stated that it had a joint venture agreement with Villanueva for the development
of the Fairways and Bluewater Resort Golf and Country Club, and that Villanueva had said several parcels
of land that she owned (including the one sold to Ayson) on the condition that they would agree to a
land-swap scheme if development should push through.

The RTC ruled in favor of Ayson, awarding a multitude of damages including moral and exemplary
damages, as well as attorney’s fees. The RTC, however, no longer ordered the return the of the parcel of
land due to the losses to be incurred by Fil-Estate by reason of all the costs associated with the exclusion of
the said lot. Both parties, dissatisfied with the decision, appealed to the CA.

The CA maintained the decision of the RTC with a few changes to the amounts, and reducing
substantially the moral damages in favor of Ayson. Once again dissatisfied, both parties once more
appealed by means of Petition for Review on Certiorari. For its part, Fil-Estate did not believe that Ayson
should have been awarded moral damages.

ISSUE:
Whether or the award of moral damages was proper.

HELD:
YES. Moral damages are not meant to be punitive but are designed to compensate and alleviate the physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation, and similar harm unjustly caused to a person.

On the other hand, exemplary damages are imposed "by way of example or correction for the public good,
in addition to the moral, temperate, liquidated or compensatory damages" and are awarded "only if the
guilty party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner."

The Court found that these awards are proper given that, despite knowledge that Ayson was indeed that
registered owner of the parcel of land in question, Fil-Estate with deliberate bad faith chose to rely on the
representations of Villanueva to the injury and suffering of Ayson.

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