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OBLIGATIONS

GONZALES vs. PCIB G.R. No. 180257 February 23, 2011 FACTS: Eusebio Gonzales was a client of PCIB to which it granted a credit line to Gonzales. Gonzales drew from said credit line through the issuance of check. At the institution of the instant case, Gonzales had a Foreign Currency Deposit (FCD) with PCIB. Gonzales and his wife obtained a loan for P500,000 and subsequently spouses Panlilo and Gonzales obtained two additional loans in the amounts of P1,000,000 and P300,000, respectively. These three loans amounting to P1,800,000 were covered by three promissory notes. An REM over a parcel of land was executed by Gonzales and the spouses Panlilio to secure the loans. Notably, the promissory notes specified, among others, the solidary liability of Gonzales and the spouses Panlilio for the payment of the loans. However, it was the spouses Panlilio who received the loan proceeds. PCIB allegedly called the attention of Gonzales but to no avail when spouses Panlilio defaulted in paying the monthly interest dues of the loans. thus In the meantime, Gonzales issued a check for P250,000 drawn against the credit line but said check was dishonored by PCIB due to the termination by PCIB of the credit line for the unpaid periodic interest dues from the loans of Gonzales and Panlilio. PCIB likewise froze the FCD account of Gonzales. Thereafter, several demand letters were sent to Gonzales with the threat of legal action. With his FCD account that PCIB froze, Gonzales was forced to source out and pay the P250,000 he owed to Unson in cash. Gonzales thru his counsel, wrote PCIB reminding that it knew well that the actual borrowers were the spouses Panlilio and he never benefited from the proceeds of the loans, which were serviced by the PCIB account of the spouses Panlilio. The RTC found Gonzales solidarily liable with the spouses Panlilio on the three promissory notes relative to the outstanding REM loan. The CA affirmed the RTCs decision. ISSUE: WoN Gonzales is solidarily liable for the three promissory notes he made with spouses Panlilio even though the proceeds was received solely by spouses Panlilio? HELD: Clearly, Gonzales is liable for the loans covered by the above promissory notes. Gonzales admitted that he is an accommodation party which PCIB did not dispute. In his testimony, Gonzales admitted that he merely accommodated the spouses Panlilio at the suggestion of Ocampo, who was then handling his accounts, in order to facilitate the fast release of the loan. The solidary liability of Gonzales is clearly stipulated in the promissory notes which uniformly begin, "For value received, the undersigned (the "BORROWER") jointly and severally promise to pay x x x." Solidary liability cannot be presumed but must be established by law or contract. Article 1207 of the Civil Code pertinently states that "there is solidary liability only when the obligation expressly so states, or when the obligation requires solidarity." This is true in the instant case where Gonzales, as accommodation party, is immediately, equally, and absolutely bound with the spouses Panlilio on the

promissory notes which indubitably stipulated solidary liability for all the borrowers. x x x

HERNANDEZ-NIEVERA ET AL vs. HERNANDEZ ET AL G.R. No. 171165 February 14, 2011 FACTS: PMRDC entered into various agreements with co-respondents HIGC and LBP in 1995 in connection with the construction of the Isabel Homes housing project in Batangas and of the Monumento Plaza commercial and recreation complex in Caloocan City. PMRDC conveyed to HIGC the constituent assets of the two projects in its Asset Pool Formation Agreement, whereas LBP agreed to act as trustee of the resulting Asset Pool for a consideration. In 1997, PMRDC entered into MOA whereby it was given the option to buy pieces of land owned by petitioners under authority of SPA to sell or mortgage, signed the MOA also in behalf of his co-owners. It stated that PMRDC shall have the option to purchase the parcels of land within 12 months from the date of the instrument and that PMRDC shall pay the vendor option money. Additionally, should the PMRDC fail to exercise its option to purchase the parcels of land within the stipulated period, the option money shall be forfeited in favor of the vendor and that the vendee shall return to the vendor all TCTs covering the described parcels of land within a period of 30 days from the stipulated period, free from all liens and encumbrances. PMRDC entered with LBP and Demetrio into a Deed of Assignment and Conveyance (DAC) in 1998 whereby the lands were transferred and assigned to the Asset Pool in exchange for a number of shares of stock which supposedly had already been issued in the name and in favor of Demetrio. PMRDC did not avail of its option to purchase the lands within 12 months. The checks representing the option money that were delivered by PMRDC, allegedly bounced which prompted petitioners to demand the corresponding TCTs. PMRDC refused to deliver the TCTs and stated that the covered properties had already been conveyed and assigned to the Asset Pool pursuant to the DAC. Petitioners, on the other hand, alleged that the signature of Demetrio in the DAC was a mere forgery because its power of attorney was limited only to selling or mortgaging the properties not conveying the same to Asset Pool, thus the DAC must be nullify. Thereafter, in view of petitioners complaint, the trial court declared the MOA to be an option contract and ordered its rescission and the DAC declared null and void. The CA reversed and set aside the trial courts decision. ISSUE: WoN novation is present by declaring the Deed of Assignment and Conveyance valid which therefore extinguished the PMRDCs obligation in the Memorandum of Agreement? HELD: It becomes clear that Demetrios special power of attorney to sell is sufficient to enable him to make a binding commitment under the DAC in behalf of Carolina and Margarita. In particular, it does include the authority to extinguish PMRDCs obligation under the MOA to deliver option money and agree to a more flexible term by agreeing instead to receive shares of stock in lieu thereof and in consideration of the assignment and conveyance of the properties to the Asset Pool. Indeed, the terms of his special power of attorney allow much leeway to accommodate not only the terms of the MOA but also those of the subsequent agreement in the DAC which, in this case, necessarily and consequently has resulted in a novation of PMRDCs integral obligations. On this score, we quote with approval the decision of the Court of 3

Appeals, aptly citing the case of California Bus Lines, Inc. v. State Investment House, Inc.: There are two ways which could indicate, in fine, the presence of novation and thereby produce the effect of extinguishing an obligation by another which substitutes the same. The first is when novation has been explicitly stated and declared in unequivocal terms. The second is when the old and the new obligations are incompatible on every point. The test of incompatibility is whether the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible, and the latter obligation novates the first. Corollarily, changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must take place in any of the essential elements of the obligation such as its object, cause or principal conditions thereof; otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original obligation. The Petition is DENIED. The October 19, 2005 Decision and January 11, 2006 Resolution of the Court of Appeals, in CA- G.R. CV No. 83852, are hereby AFFIRMED.

DALTON vs. FGR REALTY and DEVELOPMENT CORPORATION ET AL G.R. No. 172577 January 19, 2011 FACTS: A 1,811-square meter parcel of land located at the corner of Rama Avenue and Velez Street in Cebu City is owned by Flora R. Dayrit. Petitioners Dalton and Sasam et al leased portions of the property. In June 1985, Dayrit sold the property to respondent FGR. In August 1985, Dayrit and FGR stopped accepting rental payments because they wanted to terminate the lease agreements with Dalton and Sasam, et al. In a complaint dated September 11, 1985, Dalton and Sasam, et al. consigned the rental payments with the RTC. They failed to notify Dayrit and FGR about the consignation. Dayrit and FGR withdrew the rental payments and reserved the right to question the validity of the consignation. Dayrit, FGR and Sasam, et al. entered into compromise agreements and they agreed to abandon all claims against each other. Dalton did not enter into a compromise agreement with Dayrit and FGR. The RTC dismissed the complaint and ordered Dalton to vacate the property. It is found that there is no valid consignation. The Court of Appeals affirmed the RTC. ISSUE: WoN the consignation is valid in case there is only substantial compliance as to the requisites? HELD: The consignation is void. The Court was not impressed. First, in withdrawing the amounts consigned, Dayrit and FGR expressly reserved the right to question the validity of the consignation. In Riesenbeck v. Court of Appeals, the Court held that: A sensu contrario, when the creditors acceptance of the money consigned is conditional and with reservations, he is not deemed to have waived the claims he reserved against his debtor. Thus, when the amount consigned does not cover the entire obligation, the creditor may accept it, reserving his right to the balance. The same factual milieu obtains here because the respondent creditor accepted with reservation the amount consigned in court by the petitioner-debtor. Therefore, the creditor is not barred from raising his other claims. Second, compliance with the requisites of a valid consignation is mandatory. Failure to comply strictly with any of the requisites will render the consignation void. Substantial compliance is not enough. In Insular Life Assurance Company, Ltd. v. Toyota Bel-Air, Inc., the Court enumerated the requisites of a valid consignation: (1) a debt due; (2) the creditor to whom tender of payment was made refused without just cause to accept the payment, or the creditor was absent, unknown or incapacitated, or several persons claimed the same right to collect, or the title of the obligation was lost; (3) the person interested in the performance of the obligation was given notice before consignation was made; (4) the amount was placed at the disposal of the court; and (5) the person interested in the performance of the obligation was given notice after the consignation was made. Articles 1257 and 1258 of the Civil Code state, respectively: Art. 1257. In order that the consignation of the thing due may release the obligor, it must first be announced to the persons interested in the 5

fulfilment of the obligation. The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment. Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom the tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases. The consignation having been made, the interested parties shall also be notified thereof. The giving of notice to the persons interested in the performance of the obligation is mandatory. Failure to notify the persons interested in the performance of the obligation will render the consignation void. The court denies the petition.

LEE ET AL vs. BANGKOK BANK PUBLIC COMPANY, LIMITED G.R. No. 173349 February 9, 2011 FACTS: Midas Diversified Export Corporation (MDEC) and Manila Home Textile, Inc. (MHI) entered into two separate Credit Line Agreements (CLAs) with Respondent Bangkok Bank Public Company, Limited (Bangkok Bank) on November 29, 1995 and April 17, 1996, respectively. MDEC and MHI are owned and controlled by the Lee family. Eventually, MDEC had defaulted in the payment of its loan with Asiatrust thus the latter executed a REM over the properties of Samuel in Cupang, Antipolo. A new deed of mortgage was signed by spouses Samuel and Pauline Lee, and, thus, it was only on that date that the said mortgage was actually notarized, registered, and annotated at the back of the titles which were delivered to Asiatrust. SBC, as one of the creditors of Lee corporations, filed a case against the Lee family for a sum of money for non-payment of obligation. Bangkok Bank instituted an action to recover the loans extended to MDEC and MHI under the guarantees. Bangkok Bank discovered that the spouses Lee had executed a REM over the subject Antipolo properties in favor of Asiatrust; and that the REM had previously been annotated on the titles. Asiatrust, thereafter foreclosed the subject mortgaged Antipolo properties and won as the highest bidder at the auction sale, purchasing the said properties. Believing the REM and the foreclosure sale to be fraudulent, Bangkok Bank did not redeem the subject properties, consequently the TCTs covering the subject properties were consolidated in the name of Asiatrust without the annotation of the writs of preliminary attachment, which were deemed canceled. Subsequently, Bangkok Bank filed a case before the RTC for the rescission of the REM over the subject properties among others. ISSUE: WoN the REM executed over the subject Antipolo properties and the foreclosure sale were committed in fraud of petitioners other creditors, and, as a consequence of such fraud, the questioned mortgage could, therefore, be rescinded? HELD: The presumption of fraud under Art. 1387 of the Civil Code does not apply in the present case The presumption of fraud established under Art. 1387 does not apply to registered lands IF the judgment or attachment made is not also registered. In this case, prior to the annotation of the REM on February 23, 1998, SBC was able to successfully acquire a writ of preliminary attachment in its favor against the spouses Lee on January 30, 1998 in a case for a sum of money for nonpayment of its obligation. x x x x But while a judgment was made against the spouses Lee in favor of SBC on January 30, 1998, this, however, was not annotated on the titles of the subject properties. x x x x the presumption of fraud under Art. 1387 of the Code clearly cannot apply. Even assuming that Art. 1387 of the Code applies, the execution of a mortgage is not contemplated within the meaning of alienation by onerous title under the said provision.

Under Art. 1387 of the Code, fraud is presumed only in alienations by onerous title of a person against whom a judgment or attachment has been issued. x x x x It is, therefore, certainly not the alienation by onerous title that is contemplated in Art. 1387 where fraud is to be presumed. A careful reading of Art. 1387 of the Code vis--vis its Art. 1385 would plainly show that the presumption of fraud in case of alienations by onerous title only applies to the person who made such alienation, and against whom some judgment has been rendered in any instance or some writ of attachment has been issued. A third person is not and should not be automatically presumed to be in fraud or in collusion with the judgment debtor. In allowing rescission in case of an alienation by onerous title, the third person who received the property conveyed should likewise be a party to the fraud. As clarified by Art. 1385(2) of the Code, so long as the person who is in legal possession of the property did not act in bad faith, rescission cannot take place. Thus, in all instances, as to the third person in legal possession of the questioned property, good faith is presumed. Asiatrust, being a third person in good faith, should not be automatically presumed to have acted fraudulently by the mere execution of the REM over the subject Antipolo properties, there being no evidence of fraud or bad faith. The alleged fraud on the part of the spouses Lee was not proved and substantiated Even pushing further to say that the REM was executed by the spouses Lee to defraud creditors, the REM cannot be rescinded and shall, therefore, stand, as Asiatrustthe third party, in favor of which the REM was executed, and which subsequently foreclosed the subject propertiesacted in good faith and without any badge of fraud. As a general rule, whether the person, against whom a judgment was made or some writ of attachment was issued, acted with or without fraud, so long as the third person who is in legal possession of the property in question did not act with fraud and in bad faith, an action for rescission cannot prosper. Art. 1385 of the Civil Code explicitly states this. Contracts in fraud of creditors are those executed with the intention to prejudice the rights of creditors. They should not be confused with those entered into without such mal-intent, even if, as a direct consequence, a creditor may suffer some damage. More so it is, when the allegation involves not only fraud on the part of the debtor, but also that of another creditor. 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. x x x x Considering that the totality of circumstances clearly manifests the want of fraud and bad faith on the part of the parties to the REM in question, consequently, the REM cannot be rescinded. The petition is hereby GRANTED. Accordingly, the CAs March 15, 2006 Decision and June 29, 2006 Resolution in CA-G.R. CV No. 79362 are REVERSED and SET ASIDE. The RTCs April 21, 2003 Decision in Civil Case No. 99-5388 is hereby REINSTATED.

COMMISSIONER OF CUSTOMS vs. AGFHA INC. G.R. No. 187425 March 28, 2011 FACTS: A shipment containing bales of textile grey cloth arrived at the MICP on December 12, 1993. The Commissioner, however, held the subject shipment because its owner/consignee was allegedly fictitious. AGFHA intervened and alleged that it was the owner and actual consignee of the subject shipment. MICP ordered the forfeiture of the subject shipment in favor of the government after the seizure and forfeiture proceeding. The Commissioner dismissed the appeal filed by AGFHA. The CTA-Second Division reversed the Commissioners decision and ordered the immediate release of the subject shipment to AGFHA. The CTA-Second Division issued an entry of judgment declaring the above-mentioned decision final and executory. AGFHA filed a motion for execution. The CTA-Second Division held in abeyance its action on AGFHAs motion for execution in view of the Commissioners appeal with the Court of Appeals . The CA denied due course to the Commissioners appeal for lack of merit. Thereafter, the Commissioner filed a petition for review on certiorari and its MR was dismissed. The CTA-Second Division issued the writ of execution directing the Commissioner and his authorized representative to effect the immediate release of the subject shipment. However, it was returned unsatisfied. As such, the Commissioner was adjudged liable to AGFHA. ISSUE: WoN AGFHA is entitled to recover the value of its lost shipment based on the acquisition cost at the time of payment? HELD: The Court agrees with the ruling of the CTA that AGFHA is entitled to recover the value of its lost shipment based on the acquisition cost at the time of payment. In the case of C.F. Sharp and Co., Inc. v. Northwest Airlines, Inc. the Court ruled that the rate of exchange for the conversion in the peso equivalent should be the prevailing rate at the time of payment: In ruling that the applicable conversion rate of petitioner's liability is the rate at the time of payment, the Court of Appeals cited the case of Zagala v. Jimenez, interpreting the provisions of Republic Act No. 529, as amended by R.A. No. 4100. Under this law, stipulations on the satisfaction of obligations in foreign currency are void. Payments of monetary obligations, subject to certain exceptions, shall be discharged in the currency which is the legal tender in the Philippines. But since R.A. No. 529 does not provide for the rate of exchange for the payment of foreign currency obligations incurred after its enactment, the Court held in a number of cases that the rate of exchange for the conversion in the peso equivalent should be the prevailing rate at the time of payment. Likewise, in the case of Republic of the Philippines represented by the Commissioner of Customs v. UNIMEX Micro-Electronics GmBH, which involved the seizure and detention of a shipment of computer game items which disappeared while in the custody of the Bureau of Customs, the Court upheld the decision of the CA holding that petitioners liability may be paid in

Philippine currency, computed at the exchange rate prevailing at the time of actual payment. Accordingly, we agree with the lower courts' directive that, upon payment of the necessary customs duties by AGFHA, petitioner's "payment shall be taken from the sale or sales of goods or properties seized or forfeited by the Bureau of Customs." The February 25, 2009 Decision of the Court of Tax Appeals En Banc, in CTA EB Case No. 136, is AFFIRMED. The Commissioner of Customs is hereby ordered to pay, in accordance with law, the value of the subject lost shipment in the amount of US$160,348.08, computed at the exchange rate prevailing at the time of actual payment after payment of the necessary customs duties.

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MARQUES and MAXILITE TECHNOLOGIES INC. vs. FEBTC G.R. No. 171379 / G.R. No. 171419 January 10, 2011 FACTS: A trust receipt transaction is entered into by Maxilite and Marques with FEBTC for shipment of various high-technology equipments from the United States, with the merchandise serving as collateral. The foregoing importation was covered by a trust receipt document signed by Marques on behalf of Maxilite. FEBIBI, upon the advice of FEBTC, facilitated the procurement and processing from Makati Insurance Company of 4 separate and independent fire insurance policies over the trust receipted merchandise. The premiums for these policies were paid by Maxilite through debit arrangement. FEBTC would debit Maxilites account for the premium payments, as reflected in statements of accounts sent by FEBTC to Maxilite. Insurance Policy covering the period June 24, 1994 to June 24 1995 was released to cover the trust receipted merchandise. When Maxilite failed to pay the insurance premium, FEBIBI sent written reminders to FEBTC to debit Maxilites account. Maxilite fully settled its trust receipt account. March 9, 1995, a fire gutted the Aboitiz Sea Transport Building where Maxilites office and warehouse were located. As a result, Maxilite suffered losses, which Maxilite claimed against the fire insurance policy with Makati Insurance Company. Makati Insurance Company denied the fire loss claim on the ground of non-payment of premium. FEBTC and FEBIBI disclaimed any responsibility for the denial of the claim. Maxilite and Marques sued FEBTC, FEBIBI, and Makati Insurance Company for damages. FEBTC, FEBIBI, and Makati Insurance Company countered that Maxilite and Marques have no cause of action against them and essentially denied the allegations in the complaint. RTC ruled in favor of Maxilite and Marques ordering the defendants to pay jointly and severally to Maxilite the sum representing the full coverage of Insurance Policy as actual damages, plus interest of 12% per annum from filing of Complaint until fully paid, to the plaintiff moral damages, to both plaintiffs exemplary damages, attorneys fees, filing fees, as litigation expenses, and to pay the costs. The Court of Appeals affirmed the trial courts decision, with modifications that the interest shall be at the rate of 6% per annum to run from the time of demand. Moral and exemplary damages were reduced. ISSUE: WoN FEBIBI and Makati Insurance Company are jointly and severally liable to pay respondents the full coverage of the subject insurance policy despite (a) their separate juridical personalities; (b) the absence of any fault or negligence on their part; and (c) respondents failure to prove the extent of the alleged loss? HELD: Both trial and appellate courts basically agree that FEBTC is estopped from claiming that the insurance premium has been unpaid.

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Prior the full settlement of the trust receipt account on 24 and 26 October 1994, FEBTC had insurable interest over the merchandise, and thus had greater reason to debit Maxilites account. Further, as found by the trial court, Maxilite had sufficient funds at the time the first reminder, dated 19 October 1994, was sent by FEBIBI to FEBTC to debit Maxilites account for the payment of the insurance premium. Since (1) FEBTC committed to debit Maxilites account corresponding to the insurance premium; (2) FEBTC had insurable interest over the property prior to the settlement of the trust receipt account; and (3) Maxilites bank account had sufficient funds to pay the insurance premium prior to the settlement of the trust receipt account, FEBTC should have debited Maxilites account as what it had repeatedly done, as an established practice, with respect to the previous insurance policies. However, FEBTC failed to debit and instead disregarded the written reminder from FEBIBI to debit Maxilites account. FEBTCs conduct clearly constitutes negligence in handling Maxilites and Marques accounts. As a consequence of its negligence, FEBTC must be held liable for damages pursuant to Article 2176 of the Civil Code which states "whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done." Indisputably, had the insurance premium been paid, through the automatic debit arrangement with FEBTC, Maxilites fire loss claim would have been approved. Hence, Maxilite suffered damage to the extent of the face value of the insurance policy or the sum of P2.1 million. Contrary to Maxilites and Marques view, FEBTC is solely liable for the payment of the face value of the insurance policy and the monetary awards stated in the Court of Appeals decision. Suffice it to state that FEBTC, FEBIBI, and Makati Insurance Company are independent and separate juridical entities, even if FEBIBI and Makati Insurance Company are subsidiaries of FEBTC. Absent any showing of its illegitimate or illegal functions, a subsidiarys separate existence shall be respected, and the liability of the parent corporation as well as the subsidiary shall be confined to those arising in their respective business. Besides, the records are bereft of any evidence warranting the piercing of corporate veil in order to treat FEBTC, FEBIBI, and Makati Insurance Company as a single entity. Likewise, there is no evidence showing FEBIBIs and Makati Insurance Companys negligence as regards the non-payment of the insurance premium. WHEREFORE, we AFFIRM with MODIFICATION the 31 May 2005 Decision and the 26 January 2006 Resolution of the Court of Appeals-Cebu City in CA-G.R. CV No. 62105. Only Far East Bank and Trust Company, and not Far East Bank Insurance Brokers, Inc. or Makati Insurance Company, is ORDERED to PAY the face value of the subject insurance policy and the monetary awards stated in the Court of Appeals decision.

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LOTTO RESTAURANT CORPORATION, REPRESENTED BY SUAT KIM GO vs. BPI FAMILY SAVINGS BANK, INC. G.R. No. 177260, March 30, 2011 FACTS: On December 23, 1999 petitioner Lotto Restaurant Corporation (Lotto) got a loan of P3,000,000.00 from the DBS Bank (DBS) at an interest rate of 11.5% per annum. The promissory note it executed provided that Lotto would pay DBS a monthly amortization of P35,045.69 for 180 months. To secure payment of the loan, Lotto, represented by Suat Kim Go (Go), its General Manager, mortgaged to DBS a condominium unit that belonged to it. Lotto paid its monthly amortizations for 12 months from December 24, 1999 to December 24, 2000. But in January 2001, after DBS increased the interest to 19% per annum, Lotto contested the increase and stopped paying the loan. After respondent BPI Family Savings Bank, Inc. (BPI) acquired DBS, Lotto tried to negotiate with BPI for reduction of interest but the latter agreed to reduce it to only 14.7% per annum, which was still unacceptable to Lotto. On October 21, 2002, BPI foreclosed the mortgage on Lottos condominium unit to satisfy its unpaid claim of P5,283,470.26, which included interest, penalties, fire insurance premium, attorney's fees, and estimated foreclosure expenses. BPI's computation applied an interest rate of 19% per annum for the period December 24, 2000 to November 24, 2001; and 14.7% per annum for the period December 24, 2001 to October 10, 2002. To stop the foreclosure, Lotto filed against BPI with the RTC of Manila in Civil Case 02-105415an action for reformation or annulment of real estate mortgage with prayer for TRO and preliminary injunction. On January 11, 2005 the RTC rendered decision in Lottos favor, finding that DBS breached the stipulations in the promissory note when it unilaterally increased the interest rate on its loan from 11.5% to 19% per annum. Further, the RTC held that the mortgage on the condominium unit was void since the Lotto Board of Directors did not authorize Go to sign the document. The RTC directed the Register of Deeds to cancel the encumbrance on Lotto's title and ordered Lotto to pay BPI its loan of P2,990,832.00 at P35,045.69 a month, less the amortizations that it already paid. BPI appealed to the CA, which reversed the RTC decision. The CA held that Lotto was estopped from questioning the validity of the promissory note and the real estate mortgage since, having authorized Go take out the loan from the bank, it followed that it also authorize her to provide the security that the loan required.

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ISSUE: Whether or not BPI, validly adjust the rate of interest on Lottos loan from 11.5% to 19% per annum beginning on December 24, 2000 and whether BPI has the right to foreclose the mortgage.

HELD: It is plainly clear from paragraph 7 above that the 11.5% per annum interest was to apply to the period December 24, 1999 to December 24, 2000 ("12.24.99-12.24.00"). They form but one statement of the stipulated interest rate and the period to which such interest rate applied. Additionally, the statement of applicable interest rate bears an asterisk sign, which footnoted the information that "[t]hereafter interest to be based on prevailing market rate." This means that the rate of interest would be adjusted to the prevailing market rate after December 24, 2000. Besides such interpretation would directly contravene the clear provision of paragraph 7 that the 11.5% per annum interest was to apply only to the period December 24, 1999 to December 24, 2000 ("12.24.9912.24.00"). As held in Manila International Airport Authority v. Judge Gingoyon, various stipulations in a contract must be read together and given effect as their meanings warrant. Taken together, paragraphs 7 and 8 intended the 11.5% interest rate to apply only to the first year of the loan. The Court has previously upheld as valid the proviso in loans that the interest rate would be made to depend on the prevailing market rate. Such provision does not signify an automatic increase in the interest. It simply means that the bank may adjust the interest according to the prevailing market rate. This may result to either an increase or a decrease in the interest. Lotto claims that the real estate mortgage that Go executed was void since it did not authorize her to execute the same and since DBS did not sign it. But Lotto admitted in its complaint below that Go had obtained a loan from DBS on its behalf, with the condominium unit as collateral. With this admission, Lotto should be deemed estopped from assailing the validity and due execution of that mortgage deed. As to BPIs right to foreclose, the records show that Lotto defaulted in its obligation when unjustifiably stopped paying aits amortizations after the first year. Consequently, there is no question that BPI had a clear right to foreclose on Lottos collateral. Petition is denied.

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COUNTRY BANKERS INSURANCE CORPORATION vs. ANTONIO LAGMAN G.R. No. 165487 July 13, 2011 FACTS: Nelson Santos (Santos) applied for a license with the National Food Authority (NFA) to engage in the business of storing not more than 30,000 sacks of palay in his warehouse at Barangay Malacampa, Camiling, Tarlac. Under Act No. 3893 or the General Bonded Warehouse Act, as amended, the approval for said license was conditioned upon posting of a cash bond, a bond secured by real estate, or a bond signed by a duly authorized bonding company, the amount of which shall be fixed by the NFA Administrator at not less than thirty-three and one third percent (33 1/3%) of the market value of the maximum quantity of rice to be received. Accordingly, Country Bankers Insurance Corporation (Country Bankers) issued Warehouse Bond No. 03304forP1,749,825.00 on 5 November 1989 and Warehouse Bond No. 02355 for P749,925.00 on 13 December 1989 (1989 Bonds) through its agent, Antonio Lagman (Lagman). Santos then secured a loan using his warehouse receipts as collateral.When the loan matured, Santos defaulted in his payment. The sacks of palay covered by the warehouse receipts were no longer found in the bonded warehouse. By virtue of the surety bonds, Country Bankers was compelled to pay P1,166,750.37. Consequently, Country Bankers filed a complaint for a sum of money docketed as Civil Case No. 95-73048 before the Regional Trial Court (RTC) of Manila. In his Answer, Lagman alleged that the 1989 Bonds were valid only for 1 year from the date of their issuance, as evidenced by receipts; that the bonds were never renewed and revived by payment of premiums; that on 5 November 1990, Country Bankers issued Warehouse Bond No. 03515 (1990 Bond) which was also valid for one year and that no Indemnity Agreement was executed for the purpose; and that the 1990 Bond supersedes, cancels, and renders no force and effect the 1989 Bonds.

ISSUE: Whether or not the 1990 Bond supersedes, cancels, and renders no force and effect the 1989 bonds thus constituting novation

HELD: Having discounted the existence and/or validity of the 1990 Bond, there can be no novation to speak of. Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, or by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor. For novation to take place, the following requisites must concur: 1) There must be a previous valid obligation; 2) The parties concerned must agree to a new contract; 3) The old contract must be extinguished; and 4) There must be a valid new contract. 16

In this case, only the first element of novation exists. Indeed, there is a previous valid obligation, i.e., the 1989 Bonds. There is however neither a valid new contract nor a clear agreement between the parties to a new contract since the very existence of the 1990 Bond has been rendered dubious. Without the new contract, the old contract is not extinguished. Implied novation necessitates a new obligation with which the old is in total incompatibility such that the old obligation is completely superseded by the new one.Quite obviously, neither can there be implied novation. In this case, there is no new obligation.

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JESUS M. MONTEMAYOR vs. VICENTE D. MILLORA G.R. No. 168251 July 27, 2011 FACTS: On July 24, 1990, respondent Atty. Vicente D. Millora (Vicente) obtained a loan of P400,000.00 from petitioner Dr. Jesus M. Montemayor (Jesus) as evidenced by a promissory note executed by Vicente. On August 10, 1990, the parties executed a loan contract wherein it was provided that the loan has a stipulated monthly interest of 2% and that Vicente had already paid the amount of P100,000.00 as well as the P8,000.00 representing the interest for the period July 24 to August 23, 1990. Subsequently and with Vicentes consent, the interest rate was increased to 3.5% or P10,500.00 a month. From March 24, 1991 to July 23, 1991, or for a period of four months, Vicente was supposed to pay P42,000.00 as interest but was able to pay only P24,000.00. This was the last payment Vicente made. Jesus made several demands for Vicente to settle his obligation but to no avail. Thus, on August 17, 1993, Jesus filed before the RTC of Quezon City a Complaint for Sum of Money against Vicente which was docketed as Civil Case No. Q-93-17255. On October 19, 1993, Vicente filed his Answer interposing a counterclaim for attorneys fees of not less than P500,000.00. Vicente claimed that he handled several cases for Jesus but he was summarily dismissed from handling them when the instant complaint for sum of money was filed.

ISSUE: Whether compensation can properly be applied despite the absence of a specific amount in the decision representing respondents counterclaim against the specific amount of award mentioned in the decision in favor of the petitioner.

HELD: Yes. For legal compensation to take place, the requirements set forth in Articles 1278 and 1279 of the Civil Code, quoted below, must be present. ARTICLE 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. ARTICLE 1279. In order that compensation may be proper, it is necessary: (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; 18

(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. "A debt is liquidated when its existence and amount are determined. It is not necessary that it be admitted by the debtor. Nor is it necessary that the credit appear in a final judgment in order that it can be considered as liquidated; it is enough that its exact amount is known. And a debt is considered liquidated, not only when it is expressed already in definite figures which do not require verification, but also when the determination of the exact amount depends only on a simple arithmetical operation x xx." When the defendant, who has an unliquidated claim, sets it up by way of counterclaim, and a judgment is rendered liquidating such claim, it can be compensated against the plaintiffs claim from the moment it is liquidated by judgment. We have restated this in Solinap v. Hon. Del Rosario where we held that compensation takes place only if both obligations are liquidated. In the instant case, both obligations are liquidated. Vicente has the obligation to pay his debt due to Jesus in the amount of P300,000.00 with interest at the rate of 12% per annum counted from the filing of the instant complaint on August 17, 1993 until fully paid. Jesus, on the other hand, has the obligation to pay attorneys fees which the RTC had already determined to be equivalent to whatever amount recoverable from Vicente. The said attorneys fees were awarded by the RTC on the counterclaim of Vicente on the basis of "quantum meruit" for the legal services he previously rendered to Jesus.

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PILIPINO TELEPHONE CORPORATION vs. RADIOMARINE NETWORK (SMARTNET) PHILIPPINES, INC. G.R. No. 160322 August 24, 2011 FACTS: Piltel agreed to sell to Smartnet a 3,500-square meter lot,known as the Valgoson Property, in Makati City for P560 million. Smartnet agreed to pay Piltel P180 million as down payment with the balance of P380 million to be partly set off against the obligations that Piltel was to incur from its projected purchase of cellular phones and accessories from Smartnet. Smartnet agreed to settle any unpaid portion of the purchase price of the land after the set off on or about April 30, 1997.The parties also agreed on a rescission and forfeiture clause which provided that, if Smartnet fails to pay the full price of the land within the stipulated period and within five days after receipt of a notice of delinquency, it would automatically forfeit to Piltel 10% of the P180 million down payment or P18 million and the contract shall be without force and effect. Smartnet failed to pay the P380 million balance of the purchase price on or about the date it fell due. On December 19, 1997 Piltel returned P50 million to Smartnet, a portion of the P180 million down payment that it received. Smartnet later requested Piltel for the return of the remaining P130 million but the latter failed to do so. Smartnet filed a complaint against Piltel for rescission of their contract to sell involving the Valgoson Property or its partial specific performance before the Regional Trial Court (RTC) of Makati. Smartnet alleged, among other things, that it withheld payment of the balance of the purchase price of the subject property because Piltel reneged on its commitment to purchase from Smartnet 300,000 units of cellular phones and accessories. Piltel claimed that the agreement to purchase cellular phones and accessories was not part of its contract with Smartnet for the sale of the Valgoson Property and that Piltel committed to buy equipment from Smartnet only on a best effort basis. For this reason, Piltel pointed out, Smartnet did not have the power to rescind the contract to sell the Valgoson Property and, hence, cannot invoke that contracts rescission and forfeiture clause.

ISSUE: Whether Smartnet can rescind the contract to sell

HELD: Smartnets allegations respecting fraud and breach of contract referred to what appears to be Piltels non-binding promise to buy cellular phones and accessories from Smartnet. These are matters independent of the parties agreement concerning Piltels sale of the Valgoson Property to Smartnet. All that matters is that since Smartnet failed to pay the balance of the purchase price, automatic rescission set in and this placed Piltel under an obligation to return the down payment it received, less the portion that it forfeited due to Smartnets default. Consequently, it is but proper for Piltel to fully abide by such obligation. Piltel cannot avoid rescission since it in fact partially abided 20

by rescissions consequences when it returned to Smartnet on December 19, 1997 a P50 million portion of the down payment it received. By returning part of the down payment, it is clear that Piltel recognized that the contract to sell the Valgoson Property had reached the point of automatic rescission. Piltel argues that Smartnet cannot, as a defaulting buyer, rescind the contract to sell between them by the simple act of refusing to pay. But, Smartnets nonpayment of the full price of the property was not an act of rescission. It was but an event that rendered the contract to sell without force and effect. In a contract to sell, the prospective seller binds himself to part with his property only upon fulfillment of the condition agreed, in this case, the payment in full of the purchase price. If this condition is not fulfilled, the seller is then released from his obligation to sell.

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CONTRACTS
HEIRS OF RAMON C. GAITE, ET AL vs. THE PLAZA, INC. ET AL G.R. No. 177685 January 26, 2011 FACTS: The Plaza, Inc. (The Plaza) is a corporation engaged in the restaurant business. The Plaza entered into a contract with Rhogen Builders represented by Ramon C. Gaite, for the construction of a restaurant building located in Greenbelt, Makati on July 16, 1980. Gaite and FGU Insurance Coroparation (FGU) executed a surety bond in the amount of P1,155,000 in favor of The Plaza to secure Rhogens compliance with its obligation under the contract. The Plaza paid the surety bond less withholding taxes as a downpayment to Gaite. The construction of the restaurant building is thereafter commenced by Rhoegen. Gaite received a letter on September 10, 1980 from the acting building official of Makati ordering the former to cease and desist from continuing with the construction for violation of the provisions of National Building Code. The Plazas Project Manager, in his Construction memo stated that the actual jobsite assessment showed that the finished works fall short of Rhogens claimed percentage of accomplishment and Rhogen was entitled to only P32,684.16 and not P260,649.91 as demanded by Rhogen. Further the said amount payable to Rhogen be withheld due to stoppage of work by the Municipal Engineers Office of Makati among others. Gaite wrote to The Plaza on October 7, 1980 regarding his actions/observations on the stoppage order issued. On the same day, Gaite notified The Plaza that he is suspending all construction works until The Plaza and the Project Manager cooperate to resolve the issue he had raised to address the problem. The Plaza asserted that the corporation is not the one to initiate a solution to the situation, especially after The Plaza already paid the agreed down payment of P1,155,000.00, which compensation so far exceeds the work completed by Rhogen before the municipal authorities stopped the construction for several violations. The Plaza made it clear that the corporation has no obligation to help Rhogen get out of the situation arising from non-performance of its own contractual undertakings, and that The Plaza has its rights and remedies to protect its interest. Gaite informed The Plaza on January 9, 1981 that he is terminating their contract based on the Contractors Right to Stop Work or Terminate Contracts as provided for in the General Conditions of the Contract. Gaite accused The Plaza of not cooperating with Rhogen in solving the problem concerning the revocation of the building permits, which he described as a minor problem. Additionally, Gaite demanded the payment of P63,058.50 from The Plaza representing the work that has already been completed by Rhogen On January 13, 1981, The Plaza countered that it will hold Gaite and Rhogen fully responsible for failure to comply with the terms of the contract and to 22

deliver the finished structure on the stipulated date. The Plaza also argued that the down payment made was more than enough to cover Rhogens expenses. The Plaza filed a complaint for breach of contract, sum of money and damages against Gaite, Rhogen and FGU and for nullification of the project development contract against Gaite and Rhogen. The trial court granted the claims of The Plaza on withholding payment on the progress billing submitted by Rhogen based on the evaluation of Tayzon and the non-lifting of the stoppage order among the other valid grounds. Instead of readily rectifying the violations, Rhogen continued with the construction works thereby causing more damage. Having failed to complete the project within the stipulated period and comply with its obligations, Rhogen was thus declared guilty of breaching the Construction Contract and is liable for damages under Articles 1170 and 1167 of the Civil Code. The CA affirmed the trial courts decision. ISSUE: WoN the contract between Rhogen and The Plaza provides for reciprocal obligation which gives Rhogen valid legal grounds to terminate the contract pursuant to Art. 1191 of the Civil Code? HELD: Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other. The Plaza predicated its action on Article 1191of the Civil Code, which provides for the remedy of rescission or more properly resolution, a principal action based on breach of faith by the other party who violates the reciprocity between them. The breach contemplated in the provision is the obligors failure to comply with an existing obligation. Thus, the power to rescind is given only to the injured party. The injured party is the party who has faithfully fulfilled his obligation or is ready and willing to perform his obligation. The construction contract between Rhogen and The Plaza provides for reciprocal obligations whereby the latters obligation to pay the contract price or progress billing is conditioned on the formers performance of its undertaking to complete the works within the stipulated period and in accordance with approved plans and other specifications by the owner. Pursuant to its contractual obligation, The Plaza furnished materials and paid the agreed down payment. It also exercised the option of furnishing and delivering construction materials at the jobsite pursuant to Article III of the Construction Contract. However, just two months after commencement of the project, construction works were ordered stopped by the local building official and the building permit subsequently revoked on account of several violations of the National Building Code and other regulations of the municipal authorities. Non-observance of laws and regulations of the local authorities affecting the construction project constitutes a substantial violation of the Construction Contract which entitles The Plaza to terminate the same, without obligation to make further payment to Rhogen until the work is finished or subject to refund of payment exceeding the expenses of completing the works. Upon the facts duly established, the CA therefore did not err in holding that Rhogen committed a serious breach of its contract with The Plaza, which justified the latter in terminating the contract. Petitioners are thus liable for 23

damages for having breached their contract with respondent The Plaza. Article 1170 of the Civil Code provides that those who in the performance of their obligations are guilty of fraud, negligence or delay and those who in any manner contravene the tenor thereof are liable for damages. Rhogen failed to finish even a substantial portion of the works due to the stoppage order issued just two months from the start of construction. Despite the down payment received from The Plaza, Rhogen, upon evaluation of the Project Manager, was able to complete a meager percentage much lower than that claimed by it under the first progress billing between July and September 1980. Moreover, after it relinquished the project in January 1981, the site inspection appraisal jointly conducted x x x x Rhogen was found to have executed the works not in accordance with the approved plans or failed to seek prior approval of the Municipal Engineer. Article 1167 of the Civil Code is explicit on this point that if a person obliged to do something fails to do it, the same shall be executed at his cost. The petition is DENIED. The Decision dated June 27, 2006 and the Resolution dated April 20, 2007 of the Court of Appeals in CA-G.R. CV No. 58790 are AFFIRMED.

PHILIPPINE REALTY AND HOLDINGS CORPORATION vs. LEY CONSTRUCTION AND DEVELOPMENT CORPORATION G. R. No. 165548, June 13, 2011 FACTS: Ley Construction and Development Corporation (LCDC) was the project contractor for the construction of several buildings for Philippine Realty & Holdings Corporation (PRHC), the project owner. Engineer Dennis Abcede (Abcede) was the project construction manager of PRHC, while Joselito Santos (Santos) was its general manager and vice-president for operations. Sometime between April 1988 and October 1989, the two corporations entered into four major construction projects, as evidenced by four duly notarized construction agreements. LCDC committed itself to the construction of the buildings needed by PRHC, which in turn committed itself to pay the contract price agreed upon. These were the four construction projects the parties entered into involving a Project 1, Project 2, Project 3 (all of which involve the Alexandra buildings) and a Tektite Building. The agreement covering the construction of the Tektite Building was signed by a Mr. Campos under the words Phil. Realty & Holdings Corp. and by Santos as a witness. Manuel Ley, the president of LCDC, signed under the words Ley Const. & Dev. Corp. The terms embodied in the afore-listed construction agreements were almost identical. Each agreement provided for a fixed price to be paid by PRHC for every project. In the course of the construction of the Tektite Building, it became evident to both parties that LCDC would not be able to finish the project within the agreed period. Thus, through its president, LCDC met with Abcede to discuss the cause of the delay. LCDC explained that the unanticipated delay in construction was due mainly to the sudden, unexpected hike in the prices of cement and other construction materials. It claimed that, without a corresponding increase in the fixed prices found in the agreements, it would 24

be impossible for it to finish the construction of the Tektite Building. In their analysis of the project plans for the building and of all the external factors affecting the completion of the project, the parties discovered that even if LCDC were able to collect the entire balance from the contract, the collected amount would still be insufficient to purchase all the materials needed to complete the construction of the building. Both parties agreed that their foremost objective should be to ensure that the Tektite Building project would be completed. To achieve this goal, they entered into another agreement. Abcede asked LCDC to advance the amount necessary to complete construction. Its president acceded, on the absolute condition that it be allowed to escalate the contract price. It wanted PRHC to allow the escalation and to disregard the prohibition contained in Article VII of the agreements. On 9 August 1991 Abcede sent a formal letter to LCDC, asking for its conformity, to the effect that should it infuse P36 million into the project, a contract price escalation for the same amount would be granted in its favor by PRHC. In a letter dated 8 September 1992, when 96.43% of Tektite Building had been completed, LCDC requested the release of the P 36 million escalation price. PRHC did not reply, but after the construction of the building was completed, it conveyed its decision in a letter on 7 December 1992. That decision was to set off, in the form of liquidated damages, its claim to the supposed liability of LCDC, In a letter dated 18 January 1993, LCDC, through counsel, demanded payment of the agreed escalation price of P 36 million. In its reply on 16 February 1993, PRHC suddenly denied any liability for the escalation price. In the same letter, it claimed that LCDC had incurred 111 days of delay in the construction of the Tektite Building and demanded that the latter pay P 39,326,817.15 as liquidated damages. This claim was set forth in PRHCs earlier 7 December 1992 letter. LCDC countered that there were many times when its requests for time extension although due to reasonable causes sanctioned by the construction agreement such as power failures, water supply interruption, and scarcity of construction materials were unreasonably reduced to shorter periods by PRHC. Thereafter, in a letter dated 18 January 1993, LCDC demanded payment of the agreed total balance for Projects 1, 2, and 3. Through a reply letter dated 16 February 1993, PRHC denied any liability. During the course of the proceedings, both parties conducted another reconciliation of their respective records. The reconciliation showed the following balances in favor of LCDC ISSUE: Whether or not a valid escalation agreement was entered into by the parties and, if so, to what amount. HELD: We rule that Santos and Abcede held themselves out as possessing the authority to act, negotiate and sign documents on behalf of PRHC; and that PRHC sanctioned these acts. It would be the height of incongruity to now allow PRHC to deny the extent of the authority with which it had clothed both individuals. We find that Abcedes role as construction manager, with regard to the construction projects, was akin to that of a general manager with regard to the general operations of the corporation he or she is representing. Consequently, the escalation agreement entered into by LCDC and Abcede is a valid agreement that PRHC is obligated to comply with. This 25

escalation agreement whether written or verbal has lifted, through novation, the prohibition contained in the Tektite Building Agreement.

MILA A. REYES vs. VICTORIA T. TUPARAN G.R. No. 188064. June 1, 2011. Mendoza, J.: Subject: Contracts (Rescission) FACTS: On September 10, 1992, Mila A. Reyes (petitioner) filed a complaint for Rescission of Contract with Damages against Victoria T. Tuparan (respondent) before the RTC. In her Complaint, petitioner alleged that she was the registered owner of a 1,274 square meter residential and commercial lot located in Karuhatan, Valenzuela City and on that property, she put up a three-storey commercial building known as RBJ Building and a residential apartment building. In December 1989, respondent leased from petitioner a space on the ground floor of the RBJ Building for her pawnshop business for a monthly rental of P4,000.00. A close friendship developed between the two which led to the respondent investing thousands of pesos in petitioners financing/lending business from February 7, 1990 to May 27, 1990, with interest at the rate of 6% a month. On June 20, 1988, petitioner mortgaged the subject real properties to the Farmers Savings Bank and Loan Bank, Inc. (FSL Bank) to secure a loan of P2,000,000.00 payable in installments. On November 15, 1990, petitioners outstanding account on the mortgage reached P2,278,078.13. Petitioner then decided to sell her real properties for at least P6,500,000.00 so she could liquidate her bank loan and finance her businesses. Respondent verbally 26

offered to conditionally buy petitioners real properties for P4,200,000.00 payable on installment basis without interest and to assume the bank loan. After petitioners verbal acceptance of all the conditions/concessions, both parties worked together to obtain FSL Banks approval for respondent to assume her (petitioners) outstanding bank account. The assumption would be part of respondents purchase price for petitioners mortgaged real properties. FSL Bank approved their proposal on the condition that petitioner would sign or remain as co-maker for the mortgage obligation assumed by respondent. On November 26, 1990, the parties and FSL Bank executed the corresponding Deed of Conditional Sale of Real Properties with Assumption of Mortgage. Due to their close personal friendship and business relationship, both parties chose not to reduce into writing the other terms of their agreement. Under the Deed of Conditional Sale of Real Properties with Assumption of Mortgage, respondent was bound to pay the petitioner a lump sum of P1.2 million pesos without interest as part of the purchase price in three (3) fixed instalments. Respondent, however, defaulted in the payment of her obligations on their due dates. Instead of paying the amounts due in lump sum on their respective maturity dates, respondent paid petitioner in small amounts from time to time. To compensate for her delayed payments, respondent agreed to pay petitioner an interest of 6% a month. As of August 31, 1992, respondent had only paid P395,000.00, leaving a balance of P805,000.00 as principal on the unpaid installments and P466,893.25 as unpaid accumulated interest. Petitioner further averred that despite her success in finding a prospective buyer for the subject real properties within the 3-month period agreed upon, respondent reneged on her promise to allow the cancellation of their deed of conditional sale. Nonetheless, she consented because respondent repeatedly professed friendship and assured her that all their verbal side agreement would be honored as shown by the fact that since December 1990, she (respondent) had not collected any rentals from the petitioner for the space occupied by her drugstore and cosmetics store. On March 19, 1992, the residential building was gutted by fire which caused the petitioner to lose rental income in the amount of P8,000.00 a month since April 1992. Respondent neglected to renew the fire insurance policy on the subject buildings. Since December 1990, respondent had taken possession of the subject real properties and had been continuously collecting and receiving monthly rental income from the tenants of the buildings and vendors of the sidewalk fronting the RBJ building without sharing it with petitioner. On September 2, 1992, respondent offered the amount of P751,000.00 only payable on September 7, 1992, as full payment of the purchase price of the subject real properties and demanded the simultaneous execution of the corresponding deed of absolute sale. RTC ruled in favor of the respondent. Court of Appeals affirmed with modifications the decision of the trial court. ISSUE: Whether or not the respondents default in the payment of her obligation would give the petitioner the right to rescind the contract. HELD:

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The subject Deed of Conditional Sale with Assumption of Mortgage entered into by and among the two parties and FSL Bank on November 26, 1990 is a contract to sell and not a contract of sale. Based on the provisions of the contract, the title and ownership of the subject properties remains with the petitioner until the respondent fully pays the balance of the purchase price and the assumed mortgage obligation. Thereafter, FSL Bank shall then issue the corresponding deed of cancellation of mortgage and the petitioner shall execute the corresponding deed of absolute sale in favor of the respondent. Accordingly, the petitioners obligation to sell the subject properties becomes demandable only upon the happening of the positive suspensive condition, which is the respondents full payment of the purchase price. Without respondents full payment, there can be no breach of contract to speak of because petitioner has no obligation yet to turn over the title. Respondents failure to pay in full the purchase price is not the breach of contract contemplated under Article 1191 of the New Civil Code but rather just an event that prevents the petitioner from being bound to convey title to the respondent. Thus, the Court fully agrees with the CA when it resolved: Considering, however, that the Deed of Conditional Sale was not cancelled by Vendor Reyes (petitioner) and that out of the total purchase price of the subject property in the amount of P4,200,000.00, the remaining unpaid balance of Tuparan (respondent) is only P805,000.00, a substantial amount of the purchase price has already been paid. It is only right and just to allow Tuparan to pay the said unpaid balance of the purchase price to Reyes. Granting that a rescission can be permitted under Article 1191, the Court still cannot allow it for the reason that, considering the circumstances, there was only a slight or casual breach in the fulfillment of the obligation. Unless the parties stipulated it, rescission is allowed only when the breach of the contract is substantial and fundamental to the fulfillment of the obligation. Considering that out of the total purchase price of P4,200,000.00, respondent has already paid the substantial amount of P3,400,000.00, more or less, leaving an unpaid balance of only P805,000.00, it is right and just to allow her to settle, within a reasonable period of time, the balance of the unpaid purchase price.

GREGORIO R. VIGILAR, SECRETARY OF THE DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS (DPWH), et al vs. ARNULFO D. AQUINO G.R. No. 180388 January 18, 2011 FACTS: On 19 June 1992, petitioner Angelito M. Twao, then OIC-District Engineer of the DPWH 2nd Engineering District of Pampanga sent an Invitation to Bid to 28

respondent Arnulfo D. Aquino, the owner of A.D. Aquino Construction and Supplies. The bidding was for the construction of a dike by bulldozing a part of the Porac River at Barangay Ascomo-Pulungmasle, Guagua, Pampanga. Subsequently, the project was awarded to respondent, and a "Contract of Agreement" was thereafter executed between him and concerned petitioners for the amount of PhP1,873,790.69, to cover the project cost. By 9 July 1992, the project was duly completed by respondent, who was then issued a Certificate of Project Completion dated 16 July 1992. The certificate was signed by Romeo M. Yumul, the Project Engineer; as well as petitioner Romeo N. Supan, Chief of the Construction Section, and by petitioner Twao. Respondent Aquino, however, claimed that PhP1,262,696.20 was still due him, but petitioners refused to pay the amount. He thus filed a Complaint for the collection of sum of money with damages before the RTC. Petitioners, for their part, set up the defense that the Complaint was a suit against the state; that respondent failed to exhaust administrative remedies; and that the "Contract of Agreement" covering the project was void for violating Presidential Decree No. 1445, absent the proper appropriation and the Certificate of Availability of Funds. Lower Court ruled in favor of respondent. In line with the pronouncement the Commission on Audit (COA) is hereby ordered to determine and ascertain with dispatch, on a quantum meruit basis, the total obligation due to the plaintiff-appellee for his undertaking in implementing the subject contract of public works, and to allow payment thereof, subject to COA Rules and Regulations, upon the completion of the said determination. On appeal, the Court of Appeals reversed and set aside the Decision of the lower court. Hence, this appeal. ISSUE: Whether or not the CA erred in ordering the COA to allow payment to respondent an o quantum meruit basis despite the latters failure to comply with the requirements of PD 1445. HELD: Petition is without merit. Firstly, petitioners claim that the Complaint filed by respondent before the RTC was done without exhausting administrative remedies. Petitioners aver that respondent should have first filed a claim before the COA before going to the courts. However, it has been established that the doctrine of exhaustion of administrative remedies and the doctrine of primary jurisdiction are not ironclad rules. The government project contracted out to respondent was completed almost two decades ago. To delay the proceedings by remanding the case to the relevant government office or agency will definitely prejudice respondent. More importantly, the issues in the present case involve the validity and the enforceability of the "Contract of Agreement" entered into by the parties. These are questions purely of law and clearly beyond the expertise of the COA or the DPWH. Secondly, in ordering the payment of the obligation due respondent on a quantum meruit basis, the CA correctly relied on Royal Trust Corporation v. COA, Eslao v. COA, Melchor v. COA, EPG Construction Company v. Vigilar, and Department of Health v. C.V. Canchela & Associates, Architects. All these cases involved government projects undertaken in violation of the relevant laws, rules and regulations covering public bidding, budget appropriations, and release of funds for the projects. Consistently in these cases, this Court has held that the contracts were void for failing to meet the requirements mandated by

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law; public interest and equity, however, dictate that the contractor should be compensated for services rendered and work done.

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ASIAN TERMINALS, INC. vs. MALAYAN INSURANCE CO., INC. G.R. No. 171406 April 4, 2011 FACTS: On November 14, 1995, Shandong Weifang Soda Ash Plant shipped on board the vessel MV "Jinlian I" 60,000 plastic bags of soda ash dense (each bag weighing 50 kilograms) from China to Manila. The shipment, with an invoice value of US$456,000.00, was insured with respondent Malayan Insurance Company, Inc. under Marine Risk Note No. RN-0001-21430, and covered by a Bill of Lading issued by Tianjin Navigation Company with Philippine Banking Corporation as the consignee and Chemphil Albright and Wilson Corporation as the notify party. On November 21, 1995, upon arrival of the vessel at Pier 9, South Harbor, Manila, the stevedores of petitioner Asian Terminals, Inc., a duly registered domestic corporation engaged in providing arrastre and stevedoring services, unloaded the 60,000 bags of soda ash dense from the vessel and brought them to the open storage area of petitioner for temporary storage and safekeeping, pending clearance from the Bureau of Customs and delivery to the consignee. When the unloading of the bags was completed on November 28, 1995, 2,702 bags were found to be in bad order condition. On November 29, 1995, the stevedores of petitioner began loading the bags in the trucks of MEC Customs Brokerage for transport and delivery to the consignee. On December 28, 1995, after all the bags were unloaded in the warehouses of the consignee, a total of 2,881 bags were in bad order condition due to spillage, caking, and hardening of the contents. On April 19, 1996, respondent, as insurer, paid the value of the lost/ damaged cargoes to the consignee in the amount of P643,600.25. Hence, on November 20, 1996, respondent, as subrogee of the consignee, filed before the Regional Trial Court (RTC) of Manila, Branch 35, a Complaint for damages against petitioner, the shipper Inchcape Shipping Services, and the cargo broker MEC Customs Brokerage. However, petitioner contends that respondent has no cause of action because it failed to present the insurance contract or policy covering the subject shipment. Petitioner argues that the Subrogation Receipt presented by respondent is not sufficient to prove that the subject shipment was insured and that respondent was validly subrogated to the rights of the consignee. Thus, petitioner submits that without proof of a valid subrogation, respondent is not entitled to any reimbursement.

ISSUE:

Whether or not Malayan Insurance Co., Inc. has a right of sobrogation nothwithstanding its failure to present the insurance contract or policy?

HELD:

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Non-presentation of the insurance contract or policy is not fatal. In Delsan Transport Lines, Inc. v. Court of Appeals, we ruled that: The presentation in evidence of the marine insurance policy is not indispensable in this case before the insurer may recover from the common carrier the insured value of the lost cargo in the exercise of its subrogatory right. The subrogation receipt, by itself, is sufficient to establish not only the relationship of herein private respondent as insurer and Caltex, as the assured shipper of the lost cargo of industrial fuel oil, but also the amount paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the insurance claim.

As in Delsan, there is no doubt that the loss of the cargo in the present case occurred while in petitioners custody. Moreover, there is no issue as regards the provisions of Marine Open Policy No. MOP-12763, such that the presentation of the contract itself is necessary for perusal, not to mention that its existence was already admitted by petitioner in open court. And even though it was not offered in evidence, it still can be considered by the court as long as they have been properly identified by testimony duly recorded and they have themselves been incorporated in the records of the case.

Similarly, in this case, the presentation of the insurance contract or policy was not necessary. Since there was no issue regarding the validity of the insurance contract or policy, or any provision thereof, respondent had no reason to present the insurance contract or policy as evidence during the trial.

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PHILIPPINE NATIONAL RAILWAYS vs. KANLAON CONSTRUCTION ENTERPRISES CO., INC. G.R. No. 182967 April 6, 2011 FACTS: In July 1990, PNR and Kanlaon entered into contracts for the repair of three PNR station buildings and passenger shelters, namely: 1) College Station for P2,316,568.41; 2) Bian Station for P2,547,978.63; and 3) Buendia Station for P1,820,534.40. The total cost of the three projects was P6,685,081.44. By November 1990, Kanlaon alleged that it had already completed the three projects. On 30 June 1994, Kanlaon sent a demand letter to PNR requesting for the release of the retention money in the amount of P333,894.07. In a letter dated 12 July 1994, PNR denied Kanlaons demand because of the 24 January 1994 Notices of Suspension issued by the Commission on Audit (COA). On 8 November 1994, Kanlaon filed a complaint for collection of sum of money plus damages against PNR. Kanlaon sought to recover from PNR a total of P865,906.79 consisting of the remaining balance of the three projects in the amount of P531,652.72 and the retention money in the amount of P334,254.07. In its amended complaint dated 17 August 1995, Kanlaon impleaded the COA. In its answer, PNR admitted the existence of the three contracts but alleged that Kanlaon did not comply with the conditions of the contract. PNR also alleged that Kanlaon did not complete the projects and that PNR did not have any unpaid balance. PNR added that it had a valid ground to refuse the release of the retention money because of the COA orders suspending the release of payment to Kanlaon.

ISSUE: Whether or not the contracts entered into by PNR and Kanlaon are valid?

HELD: The Court notes that one of the reasons the COA issued the Notices of Suspension was because the contracts did not contain a Certificate of Availability of Funds as required under Sections 85 and 86 of Presidential Decree No. 1445. Kanlaon does not dispute the absence of a Certificate of Availability of Funds. The Administrative Code of 1987, a more recent law, also contains the same provisions. Sections 46, 47, and 48, Chapter 8, Subtitle B, Title I, Book V of the Administrative Code of 1987 provide: SECTION 46. Appropriation Before Entering into Contract. No contract involving the expenditure of public funds shall be entered into unless there is an appropriation therefor, 33

the unexpended balance of which, free of other obligations, is sufficient to cover the proposed expenditure. SECTION 47. Certificate Showing Appropriation to Meet Contract. xxx no contract involving the expenditure of public funds by any government agency shall be entered into or authorized unless the proper accounting official of the agency concerned shall have certified to the officer entering into the obligation that funds have been duly appropriated for the purpose and that the amount necessary to cover the proposed contract for the current calendar year is available for expenditure on account thereof xxx. SECTION 48. Void Contract and Liability of Officer. Any contract entered into contrary to the requirements of the two (2) immediately preceding sections shall be void xxx.

Thus, the Administrative Code of 1987 expressly prohibits the entering into contracts involving the expenditure of public funds unless two prior requirements are satisfied. First, there must be an appropriation law authorizing the expenditure required in the contract. Second, there must be attached to the contract a certification by the proper accounting official and auditor that funds have been appropriated by law and such funds are available. Failure to comply with any of these two requirements renders the contract void.

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PHILIPPINE SAVINGS BANK vs. SPOUSES ALFREDO M. CASTILLO AND ELIZABETH C. CASTILLO, and SPOUSES ROMEO B. CAPATI and AQUILINA M. LOBO G.R. No. 193178 May 30, 2011 FACTS: Respondent spouses Alfredo M. Castillo and Elizabeth Capati-Castillo were the registered owners of a lot located in Tondo, Manila. Respondent spouses Romeo B. Capati and Aquilina M. Lobo were the registered owners of another lot, located also in Tondo, Manila. Respondents obtained a loan, with real estate mortgage over the said properties, from petitioner Philippine Savings Bank, as evidenced by a Promissory Note with a face value of P2,500,000.00. Respondents were notified in writing of these changes in the interest rate. They neither gave their confirmation thereto nor did they formally question the changes. However, respondent Alfredo Castillo sent several letters to petitioner requesting for the reduction of the interest rates. Respondents regularly paid their amortizations until December 1999, when they defaulted due to financial constraints. Per petitioners table of application of payment, respondents outstanding balance was P2,231,798.11. Petitioner sent them demand letters. Respondents failed to pay. Thus, petitioner initiated an extrajudicial foreclosure sale of the mortgaged properties. The properties were sold to petitioner as the only bidder. Being the mortgagee, petitioner no longer paid the said amount but rather credited it to the loan amortizations and arrears, past due interest, penalty charges, attorneys fees, all legal fees and expenses incidental to the foreclosure and sale, and partial payment of the mortgaged debt. Respondents failed to redeem the property within the one-year redemption period. However, Alfredo Castillo sent a letter to petitioner requesting for an extension of 60 days before consolidation of its title so that they could redeem the properties, offering P3,000,000.00 as redemption price. Petitioner conceded to Alfredo Castillos request, but respondents still failed to redeem the properties. Respondents filed a case for Reformation of Instruments, Declaration of Nullity of Notarial Foreclosure Proceedings and Certificate of Sale, Cancellation of Annotations on TCT Nos. 233242 and 227858, and Damages, with a plea for the issuance of a temporary restraining order (TRO) and/or writ of preliminary prohibitory injunction, with the RTC. The RTC issued the TRO and eventually issued the writ of preliminary injunction. The RTC granted the petition of the respondents. Petitioner filed a motion for reconsideration. The RTC partially granted the motion modifying the interest rate from 17% to 24% per annum. Petitioner appealed to the CA. The CA modified the decision of the RTC. ISSUES:

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Whether or not the CA erred in declaring that the modifications in the interest rates are unreasonable; and Whether or not the CA erred in sustaining the award of damages and attorneys fees. HELD: The SC partially grants the petition. The unilateral determination and imposition of the increased rates is violative of the principle of mutuality of contracts under Article 1308 of the Civil Code, which provides that [t]he contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. A perusal of the Promissory Note will readily show that the increase or decrease of interest rates hinges solely on the discretion of petitioner. It does not require the conformity of the maker before a new interest rate could be enforced. Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result, thus partaking of the nature of a contract of adhesion, is void. Any stipulation regarding the validity or compliance of the contract left solely to the will of one of the parties is likewise invalid. Basic is the rule that there can be no contract in its true sense without the mutual assent of the parties. If this consent is absent on the part of one who contracts, the act has no more efficacy than if it had been done under duress or by a person of unsound mind. Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the parties must meet as to the proposed modification, especially when it affects an important aspect of the agreement. In the case of loan contracts, the interest rate is undeniably always a vital component, for it can make or break a capital venture. Thus, any change must be mutually agreed upon, otherwise, it produces no binding effect. Escalation clauses are generally valid and do not contravene public policy. They are common in credit agreements as means of maintaining fiscal stability and retaining the value of money on long-term contracts. To prevent any one-sidedness that these clauses may cause, we have held in Banco Filipino Savings and Mortgage Bank v. Judge Navarro that there should be a corresponding de-escalation clause that would authorize a reduction in the interest rates corresponding to downward changes made by law or by the Monetary Board. As can be gleaned from the parties loan agreement, a deescalation clause is provided, by virtue of which, petitioner had lowered its interest rates. Nevertheless, the validity of the escalation clause did not give petitioner the unbridled right to unilaterally adjust interest rates. The adjustment should have still been subjected to the mutual agreement of the contracting parties. In light of the absence of consent on the part of respondents to the modifications in the interest rates, the adjusted rates cannot bind them notwithstanding the inclusion of a de-escalation clause in the loan agreement.

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SALES
BEATINGO VS. GASIS G.R. No. 179641 February 9, 2011 FACTS: Petitioner bought a piece of land from respondent, which was registered in the name of Floras predecessor-in-interest. In order to register the DOS at the Register of Deeds, she filed a petition for the issuance of the owners duplicate TCT but was opposed by respondent, claiming that she was in possession of the OCT, and that she purchased the subject property from Flora without knowledge of the prior sale of the same property to the petitioner, which makes her an innocent purchaser for value. Furthermore, respondent declared that, upon payment of the purchase price, she immediately occupied the subject property and enjoyed its produce. ISSUE: Whether or not there was double sale, which would give a better right to possessor of the property. HELD: Yes. (T)his is a clear case of double sale, where the seller sold one property to different buyers, first to petitioner and later to respondent. Admittedly, the two sales were not registered with the Registry of Property. Since there was no inscription, the next question is who, between petitioner and respondent, first took possession of the subject property in good faith. As aptly held by the trial court, it was respondent who took possession of the subject property and, therefore, has a better right. Indeed, the execution of a public instrument shall be equivalent to the delivery of the thing that is the object of the contract. However, the Court has held that the execution of a public instrument gives rise only to a prima facie presumption of delivery. It is deemed negated by the failure of the vendee to take actual possession of the land sold. In this case, though the sale was evidenced by a notarized deed of sale, petitioner admitted that she refused to make full payment on the subject property and take actual possession thereof because of the presence of tenants on the subject property. Clearly, petitioner had not taken possession 37

of the subject property or exercised acts of dominion over it despite her assertion that she was the lawful owner thereof. Respondent, on the other hand, showed that she purchased the subject property without knowledge that it had been earlier sold by Flora to petitioner. She had reason to believe that there was no defect in her title since the owners duplicate copy of the OCT was delivered to her by the seller upon full payment of the purchase price. She then took possession of the subject property and exercised acts of ownership by collecting rentals from the tenants who were occupying it.

CARABEO VS. SPS NORBERTO AND DINGCO G.R. No. 190823, April 4, 2011 FACTS: On July 10, 1990, petitioner entered into a contract denominated as "Kasunduan sa Bilihan ng Karapatan sa Lupa" (kasunduan) with respondents whereby petitioner agreed to sell his rights over a 648 square meter parcel of unregistered land situated at Orani, Bataan for P38,000. Respondents tendered their initial payment of P10,000 upon signing of the contract, the remaining balance to be paid on September 1990. Respondents were later to claim that when they were about to hand in the balance of the purchase price, petitioner requested them to keep it first as he was yet to settle an ongoing "squabble" over the land. Nevertheless, respondents gave petitioner small sums of money from time to time which totaled P9,100. Despite the alleged problem over the land, they insisted on petitioners acceptance of the remaining balance of P18,900 but petitioner continued to refuse and said he would register the land first. In 1994, respondents learned that the alleged problem over the land had been settled and that petitioner had caused its registration in his name. They thereupon offered to pay the balance but petitioner declined, drawing them to file a complaint before RTC. Petitioner countered in his Answer to the Complaint that the sale was void for lack of object certain, the kasunduan not having specified the metes and bounds of the land. In any event, petitioner alleged that if the validity of the kasunduan is upheld, respondents failure to comply with their reciprocal obligation to pay the balance of the purchase price would render the action premature. For, contrary to respondents claim, petitioner maintained that they failed to pay the balance of P28,000 on September 1990 to thus constrain him to accept installment payments totaling P9,100.After the case was submitted for decision, petitioner died. ISSUE: Whether or not the sale was void for lack of object certain, the kasunduan not having specified the metes and bounds of the land

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HELD: In the present case, respondents are pursuing a property right arising from the kasunduan, whereas petitioner is invoking nullity of the kasunduan to protect his proprietary interest. Assuming arguendo, however, that the kasunduan is deemed void, there is a corollary obligation of petitioner to return the money paid by respondents, and since the action involves property rights.

CATINDIG VS. VDA. DE MENESES G.R. No. 165851 February 2, 2011 ROXAS, SR., VS. VDA. DE MENESES G.R. No. 168875 February 2, 2011 FACTS: The property subject of this controversy pertains to a parcel of land situated in Malolos, Bulacan, with an area of 49,139 square meters, titled in the name of the late Rosendo Meneses, Sr., hereinafter referred to as the Masusuwi Fishpond. She was issued Letters of Administration over the estate of her late husband's estate in Special Proceedings case pending before the CFI. Respondent, in her capacity as administratrix, filed a Complaint for Recovery of Possession, Sum of Money and Damages against petitioners before the RTC.

Respondent alleged that in September 1975, petitioner who is the first cousin of her husband, deprived her of the possession over the Masusuwi Fishpond, through fraud, undue influence and intimidation. Since then Catindig unlawfully leased the property to Roxas. Respondent verbally demanded that petitioners vacate but all were futile, thus, forcing respondent to send demand letters to petitioners Roxas and Catindig. However, petitioners still ignored said demands. Hence, respondent filed a suit against the petitioners to recover the property and demanded payment of unearned income, damages, attorney's fees and costs of suit.

Catindig claimed that he bought from respondent and her children in January 1978, as evidenced by a Deed of Absolute Sale. Catindig further 39

argued that even assuming that respondent was indeed divested of her possession by fraud, her cause of action had already prescribed considering the lapse of about 20 years from 1975. Petitioner Roxas, on the other hand, asserted that respondent has no cause of action against him, because Catindig is the lawful owner of the Masusuwi Fishpond, to whom he had paid his rentals in advance until the year 2001.

ISSUES: Whether or not Catindig owner has a better right to possess on the strength of the alleged Deed of Sale.

HELD: No. Even if the Court will sustain petitioner Catindig's arguments and rule that the Deed of Sale is valid, this would still not help petitioners' case as the subject property is covered by TCT No. T-1749, registered in the name of respondent's husband. On the other hand, petitioner Catindig's claim of ownership is based on a Deed of Sale. In Pascual v. Coronel, the Court held that as against the registered owners and the holder of an unregistered deed of sale, it is the former who has a better right to possess. Furthermore, the subject Deed of Sale is not only unregistered, it is undated and unnotarized. It is a fundamental principle in land registration that the certificate of title serves as evidence of an indefeasible and incontrovertible title to the property in favor of the person whose name appears therein.

REYES VS. TUPARAN G.R. No. 188064 June 1, 2011 FACTS: Mila A. Reyes was the registered owner of a 1,274 sq.m. residential and commercial lot in Karuhatan, Valenzuela City where she put up a threestorey commercial building (RBJ Building) and a residential apartment building. Victoria T. Tuparan leased a space on the ground floor for her pawnshop business. A close friendship developed between the two which led to the respondent investing thousands of pesos in petitioner's financing/lending business. Petitioner mortgaged the subject real properties to the FSL Bank to secure a loan of 2,000,000.00 payable in installments. Petitioner's outstanding account on the mortgage reached 2,278,078.13. Petitioner then decided to sell her real properties for at least 6,500,000.00. Respondent verbally offered to conditionally buy petitioner's real properties for 4,200,000.00 payable on instalments basis without interest and to assume the bank loan. After petitioner's verbal acceptance of all the conditions/concessions, both parties worked together to obtain Bank's approval. Bank approved their proposal on the condition that petitioner would sign or remain as co-maker for the mortgage obligation assumed by respondent. The parties and FSL Bank executed the corresponding Deed of Conditional Sale of Real Properties with Assumption of Mortgage. Both parties chose not to reduce into writing the other terms of their agreement. Besides, Bank did not want to incorporate in the Deed of Conditional Sale any other side agreement between petitioner and respondent. 40

Under the Deed of Conditional Sale, respondent was bound to pay the petitioner a lump sum of 1.2 million pesos without interest as part of the purchase price in three (3) fixed installments. Respondent, however, defaulted in the payment of her obligations. To compensate for her delayed payments, respondent agreed to pay petitioner an interest of 6% a month. Respondent had only paid 395,000.00, leaving a balance of 805,000.00 as principal on the unpaid installments and 466,893.25 as unpaid accumulated interest. The residential building was gutted by fire which caused the petitioner to lose rental income. Respondent neglected to renew the fire insurance policy on the subject buildings. Respondent had taken possession of the subject real properties and had been continuously collecting and receiving monthly rental income from the tenants without sharing it with petitioner. Respondent offered the amount of 751,000.00 only, as full payment of the purchase price of the subject real properties and demanded the simultaneous execution of the corresponding deed of absolute sale. Petitioner filed a complaint asking for the rescission of the contract. RTC render its decision finding that respondent failed to pay in full the 4.2 million total purchase price of the subject real properties. The RTC also considered the Deed of Conditional Sale of Real Property with Assumption of Mortgage executed by and among the two parties and FSL Bank a contract to sell, and not a contract of sale. On appeal, the CA agreed with the RTC. ISSUE: Whether or not the Contract entered is a contract to sell. HELD: The Court agrees with the ruling of the courts below that the subject Deed of Conditional Sale with Assumption of Mortgage entered into by and among the two parties and FSL Bank is a contract to sell and not a contract of sale. x x x (T)he title and ownership of the subject properties remains with the petitioner until the respondent fully pays the balance of the purchase price and the assumed mortgage obligation. Thereafter, FSL Bank shall then issue the corresponding deed of cancellation of mortgage and the petitioner shall execute the corresponding deed of absolute sale in favor of the respondent. Accordingly, the petitioners obligation to sell the subject properties becomes demandable only upon the happening of the positive suspensive condition, which is the respondents full payment of the purchase price. Without respondents full payment, there can be no breach of contract to speak of because petitioner has no obligation yet to turn over the title. Respondents failure to pay in full the purchase price is not the breach of contract contemplated under Article 1191 of the New Civil Code but rather just an event that prevents the petitioner from being bound to convey title to the respondent. In a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event, which for present purposes we shall take as the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words, the full payment of the purchase price partakes of a suspensive condition, the non-fulfilment of which prevents the obligation to sell from arising and, thus, ownership is retained by the prospective seller without further remedies by the prospective buyer. xxx xxx xxx 41

Stated positively, upon the fulfilment of the suspensive condition which is the full payment of the purchase price, the prospective sellers obligation to sell the subject property by entering into a contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of the Civil Code. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. A contract to sell may thus be 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 prospective buyer upon fulfilment of the condition agreed upon, that is, full payment of the purchase price. A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfilment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated. However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller. In a contract to sell, upon the fulfilment of the suspensive condition which is the full payment of the purchase price, ownership will not automatically transfer 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.

SPOUSES FERNANDO and EDRALIN vs.PHILIPPINE VETERANS BANK G.R. No. 168523 March 9, 2011 FACTS: On February 5, 1976, Veterans Bank granted petitioner spouses Fernando and Angelina Edralin (Edralins) a loan in the amount of P270,000.00. As security thereof, petitioners executed a Real Estate Mortgage in favor of Veterans Bank over a real property situated in the Municipality of Paraaque and registered in the name of petitioner Fernando Edralin. The Edralins failed to pay their obligation to Veterans Bank. Thus, Veterans Bank filed a Petition for Extrajudicial Foreclosure of the REM and in due course, the foreclosure sale was held. Veterans Bank emerged as the

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highest bidder at the said foreclosure sale and was issued the corresponding certificate of sale.

Upon the Edralins failure to redeem the property during the one-year period, Veterans Bank acquired absolute ownership of the subject property. Consequently, Veterans Bank caused the consolidation of ownership of the subject property in its name. The Register of Deeds of Paraaque, cancelled TCT under the name of Fernando Edralin and replaced it with a new TCT, in the name of Veterans Bank.

Despite the foregoing, the Edralins failed to vacate and surrender possession of the subject property to Veterans Bank. Thus, Veterans Bank filed an ExParte Petition for the Issuance of a Writ of Possession. It was dismissed for Veterans Banks failure to prosecute. Veterans Bank again re-filed this time docketed as Land Registration Case. Veterans Bank divulged in its Certification against Forum-Shopping that the earlier case, involving the same subject matter and parties, was dismissed.

The Edralins moved to dismiss the petition on the ground that the dismissal constituted res judicata and further argue that Veterans Bank is not entitled to a writ of possession because it failed to properly consolidate its title over the subject property. They maintain that the Deed of Sale executed by the Veterans Bank in the banks own favor during the consolidation of title constitutes a pactum commissorium, which is prohibited under Article 2088 of the Civil Code.

ISSUE: Whether the consolidation of ownership of the extrajudicially foreclosed property through a Deed of Sale is in accordance with law

HELD: Pactum commissorium is "a stipulation empowering the creditor to appropriate the thing given as guaranty for the fulfillment of the obligation in the event the obligor fails to live up to his undertakings, without further formality, such as foreclosure proceedings, and a public sale. "The elements of pactum commissorium, which enable the mortgagee to acquire ownership of the mortgaged property without the need of any foreclosure proceedings, are: (1) there should be a property mortgaged by way of security for the payment of the principal obligation, and (2) there should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within the stipulated period."

The second element is missing to characterize the Deed of Sale as a form of pactum commissorium. Veterans Bank did not, upon the petitioners default, automatically acquire or appropriate the mortgaged property for itself. On the contrary, the Veterans Bank resorted to extrajudicial foreclosure and was issued a Certificate of Sale by the sheriff as proof of its purchase of the 43

subject property during the foreclosure sale. That Veterans Bank went through all the stages of extrajudicial foreclosure indicates that there was no pactum commissorium.

HERNANDEZ-NIEVERA ET AL VS. HERNANDEZ ET AL G.R. No. 171165, February 14, 2011 FACTS: In 1995, PMRDC entered into various agreements with corespondents HIGC and LBP, in connection with the construction of the Isabel Homes housing project in Batangas and of the Monumento Plaza commercial 44

and recreation complex in Caloocan City. In its Asset Pool Formation Agreement, PMRDC conveyed to HIGC the constituent assets of the two projects, whereas LBP agreed to act as trustee of the resulting Asset Pool for a consideration.

In 1997, PMRDC entered into a MOA whereby it was given the option to buy pieces of land owned by petitioners under authority of a SPA to Sell or Mortgage, signed the MOA also in behalf of his co-owners. It stated that PMRDC shall have the option to purchase the parcels of land within twelve months from the date of the instrument and that PMRDC shall pay the vendor option money. In addition, should the PMRDC fail to exercise its option to purchase the parcels of land within the stipulated period, the option money shall be forfeited in favor of the vendor and that the vendee shall return to the vendor all TCTs covering the described parcels of land within a period of thirty days from the stipulated period, free from all liens and encumbrances.

In 1998, PMRDC entered with LBP and Demetrio into a Deed of Assignment and Conveyance (DAC) whereby the lands were transferred and assigned to the Asset Pool in exchange for a number of shares of stock which supposedly had already been issued in the name and in favor of Demetrio. PMRDC did not avail of its option to purchase the lands within twelve months, the checks representing the option money that were delivered by PMRDC, allegedly bounced which prompted petitioners to demand the corresponding TCTs.

PMRDC, refused to deliver the TCTs and stated that the covered properties had already been conveyed and assigned to the Asset Pool pursuant to the DAC. Petitioners, on the other hand, alleged that the signature of Demetrio in the DAC was a mere forgery because its power of attorney was limited only to selling or mortgaging the properties not conveying the same to Asset Pool, thus the DAC must be nullify. Thereafter, in view of petitioners complaint, the trial court declared the MOA to be an option contract and ordered its rescission and the DAC declared null and void. The CA reversed and set aside the trial courts decision.

ISSUE: Whether or not the powers conferred were exclusive only to selling and mortgaging the properties.

HELD: Yes. The powers conferred on Demetrio were exclusive only to selling and mortgaging the properties. Between these two specific powers, the power to sell is quite controversial because it is the sale transaction which bears close resemblance to the deal contemplated in the DAC. In fact, part of the testimony of Atty. Danilo Javier, counsel for respondent HIGC x x x is that in the execution of the DAC, respondents had relied on Demetrios special power of attorney and also on his supposed agreement to be paid in kind, i.e., in shares of stock, as consideration for the assignment and conveyance of the subject properties to the Asset Pool. What petitioners miss, however, is that the power conferred on Demetrio to sell for such price 45

or amount is broad enough to cover the exchange contemplated in the DAC between the properties and the corresponding corporate shares in PMRDC, with the latter replacing the cash equivalent of the option money initially agreed to be paid by PMRDC under the MOA. x x x

Thus, it becomes clear that Demetrios special power of attorney to sell is sufficient to enable him to make a binding commitment under the DAC in behalf of Carolina and Margarita. In particular, it does include the authority to extinguish PMRDCs obligation under the MOA to deliver option money and agree to a more flexible term by agreeing instead to receive shares of stock in lieu thereof and in consideration of the assignment and conveyance of the properties to the Asset Pool.

LUZON DEVELOPMENT BANK VS. ENRIQUEZ 46

G.R. No. 168646 January 12, 2011 FACTS: Petitioner DELTA, a domestic corporation engaged in the business of developing and selling real estate properties, is owned by Ricardo De Leon, owner of a parcel of land which corresponds to Lot 4 of Delta Homes I. De Leon and his spouse obtained a P4 million loan from the LDB for the purpose of developing Delta Homes I. The spouses executed a REM on several of their properties, including Lot 4. Subsequently, this REM was amended by increasing the amount of the secured loan fromP4 million to P8 million. Petitioner executed a Contract to Sell with respondent Angeles Catherine Enriquez (Enriquez) over the house and lot in Lot 4 for the purchase price of P614,950.00. nriquez made a downpayment of P114,950.00.

When petitioner defaulted on its loan obligation, the LDB instead of foreclosing the REM, agreed to a dacion en pago. The Deed of Assignment in Payment of Debt was executed and stated that petitioner assigns, transfers, and conveys and sets over [to] the assignee that real estate with the building and improvements existing thereon x x x in payment of the total obligation owing to [the Bank] x x x. Unknown to Enriquez, among the properties assigned was the house and lot of Lot 4. The records do not bear out and the parties are silent on whether the BANK was able to transfer title to its name. It appears, however, that the dacion en pago was not annotated. Enriquez filed a complaint against petitioner and the LDB before HLURB alleging that petitioner violated the terms of its License to Sell. Enriquez sought a full refund of what she had already paid, award of damages, and the imposition of administrative fines on petitioner and the LDB. HLURB upheld the validity of the purchase price, but ordered petitioner to accept payment of the balance from Enriquez, and (upon such payment) to deliver to Enriquez the title to the house and lot free from liens and encumbrances. Petitioner appealed and the Board upheld the validity of the contract to sell between the petitioner and Enriquez despite the alleged violation of the price ceilings in BP 220. Both Enriquez and the BANK appealed to the Office of the President, which it affirmed in toto. Only the BANK appealed the OPs Decision to the CA. The CA ruled against the validity of the dacion en pago executed in favor of the LDB. Both petitioner and LDB moved for a reconsideration of the CAs Decision, but both were denied. Hence, this petition. ISSUE: Whether the Contract to Sell conveys ownership HELD: No. Contract to sell does not transfer ownership. Both parties are correct in arguing that the Contract to Sell executed by DELTA in favor of Enriquez did not transfer ownership over Lot 4 to Enriquez. A contract to sell is one where the prospective seller reserves the transfer of title to the prospective buyer until the happening of an event, such as full payment of the purchase price. What the seller obliges himself to do is to sell the subject property only when the entire amount of the purchase price has already been delivered to him. In other words, the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the

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prospective seller without further remedies by the prospective buyer. does not, by itself, transfer ownership to the buyer.

It

In the instant case, there is nothing in the provisions of the contract entered into by DELTA and Enriquez that would exempt it from the general definition of a contract to sell. The terms thereof provide for the reservation of DELTAs ownership until full payment of the purchase price; such that DELTA even reserved the right to unilaterally void the contract should Enriquez fail to pay three successive monthly amortizations.

Since the Contract to Sell did not transfer ownership of Lot 4 to Enriquez, said ownership remained with DELTA. DELTA could then validly transfer such ownership (as it did) to another person (the BANK). However, the transferee BANK is bound by the Contract to Sell and has to respect Enriquezs rights thereunder. This is because the Contract to Sell, involving a subdivision lot, is covered and protected by PD 957. One of the protections afforded by PD 957 to buyers such as Enriquez is the right to have her contract to sell registered with the Register of Deeds in order to make it binding on third parties.

The purpose of registration is to protect the buyers from any future unscrupulous transactions involving the object of the sale or contract to sell, whether the purchase price therefor has been fully paid or not. Registration of the sale or contract to sell makes it binding on third parties; it serves as a notice to the whole world that the property is subject to the prior right of the buyer of the property (under a contract to sell or an absolute sale), and anyone who wishes to deal with the said property will be held bound by such prior right.

While DELTA, in the instant case, failed to register Enriquezs Contract to Sell with the Register of Deeds, this failure will not prejudice Enriquez or relieve the BANK from its obligation to respect Enriquezs Contract to Sell. Despite the non-registration, the BANK cannot be considered, under the circumstances, an innocent purchaser for value of Lot 4 when it accepted the latter (together with other assigned properties) as payment for DELTAs obligation. The BANK was well aware that the assigned properties, including Lot 4, were subdivision lots and therefore within the purview of PD 957. It knew that the loaned amounts were to be used for the development of DELTAs subdivision project, for this was indicated in the corresponding promissory notes. The technical description of Lot 4 indicates its location, which can easily be determined as included within the subdivision development. Under these circumstances, the BANK knew or should have known of the possibility and risk that the assigned properties were already covered by existing contracts to sell in favor of subdivision lot buyers. xxx Further, as an entity engaged in the banking business, the BANK is required to observe more care and prudence when dealing with registered properties. 48

The Court cannot accept that the BANK was unaware of the Contract to Sell existing in favor of Enriquez. xxx Bound by the terms of the Contract to Sell, the BANK is obliged to respect the same and honor the payments already made by Enriquez for the purchase price of Lot 4. Thus, the BANK can only collect the balance of the purchase price from Enriquez and has the obligation, upon full payment, to deliver to Enriquez a clean title over the subject property.

VICTORIA CLARAVALL, ASSISTED BY HER HUSBAND, LORETO CLARAVALL, PETITIONER, VS. RICARDO LIM, ROBERTO LIM, AND ROGELIO LIM, RESPONDENTS. G.R. No. 152659, July 25, 2011 FACTS: The instant petition arose from a Complaint for Consolidation of Ownership of Real Properties filed by herein respondents against herein petitioner, alleging as follows: That sometime on December 3, 1976, the defendant, with the marital consent of her husband, executed a DEED OF SALE WITH THE RIGHT OF REPURCHASE SELLING AND CONVEYING unto the plaintiffs the following described properties, to wit: A COMMERCIAL LOT located in the Centro of Ilagan, Isabela x x x. A DWELLING HOUSE with a ground area of 108 square meters, more or less, constructed with wooden materials and with G.I. roofing, erected on the above-described commercial lot x x x. 4. That the consideration of the sale is TWO HUNDRED FIFTY THOUSAND PESOS (P250,000.00), Philippine Currency paid by the plaintiffs to the defendant; 5. That the condition of said sale is that the defendant reserved the right to repurchase, within two (2) years from said date, said commercial lot and dwelling house by paying and returning unto the plaintiffs the purchase [price] of P250,000.00 stipulated in the Deed, a copy of which is hereto attached and made part hereof marked Annex "A"; that within [six] (6) months before the expiration of the date of repurchase, the defendant is under obligation to give plaintiffs written notice that she is in a position to repurchase said properties before the expiration of said period; and for failure to give such notice, the plaintiffs who are vendees-a-retro shall automatically become the absolute owners thereof upon the expiration of said period; 6. That defendant never gave written notice to plaintiffs that she was in a position to repurchase said commercial lot and dwelling house as described above; neither did defendant offer to repurchase the same upon the expiration of said period; and that after notifying the defendant that she may still repurchase said properties three months after the expiration of said period, she failed to repurchase the same; 7. That considering that the dwelling house is already an old house and has depreciated a lot, the purchase price of the building and house indicated in the deed justly represents the fair market value of said properties; 49

8. That considering that the defendant failed to repurchase the dwelling house and commercial lot described in paragraph 3 hereof on or before December 3, 1976, the plaintiffs are now entitled to the consolidation of their ownership of the same. xxx On August 5, 1991, the RTC rendered a Decision, the dispositive portion of which reads: WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of plaintiffs and against the defendant: 1. Declaring the plaintiffs to be the absolute owners of the commercial lot and dwelling house described in par. 3 of the Complaint; 2. Declaring the defendant to have waived her right to repurchase said properties; 3. Ordering the defendant to pay attorney's fees of P2,000.00; and 4. Ordering the defendant to pay costs of this suit.

ISSUE: Whether or not a vendor a retro be allowed to repurchase the property sold within 30 days from rendition of final judgment declaring the contract to be a true sale with right to repurchase. HELD: Article 1606 is intended to cover suits where the seller claims that the real intention was a loan with equitable mortgage but decides otherwise. The seller, however, must entertain a good faith belief that the contract is an equitable mortgage. In Felicen, Sr., et al. v. Orias, et al., cited by petitioner, the Court explained: The application of the third paragraph of Article 1606 is predicated upon the bona fides of the vendor a retro. It must appear that there was a belief on his part, founded on facts attendant upon the execution of the sale with pacto de retro, honestly and sincerely entertained, that the agreement was in reality a mortgage, one not intended to affect the title to the property ostensibly sold, but merely to give it as security for a loan or obligation. In that event, if the matter of the real nature of the contract is submitted for judicial resolution, the application of the rule is meet and proper: that the vendor a retro be allowed to repurchase the property sold within 30 days from rendition of final judgment declaring the contract to be a true sale with right to repurchase. Conversely, if it should appear that the parties' agreement was really one of sale transferring ownership to the vendee, but accompanied by a reservation to the vendor of the right to repurchase the property and there are no circumstances that may reasonably be accepted as generating some honest doubt as to the parties' intention, the proviso is inapplicable. The reason is quite obvious. If the rule were otherwise, it would be within the power of every vendor a retro to set at naught a pacto de retro, or resurrect an expired right of repurchase, by simply instituting an action to 50

reform the contract known to him to be in truth a sale with pacto de retro into an equitable mortgage. As postulated by the petitioner, "to allow herein private respondent to repurchase the property by applying said paragraph x x x to the case at bar despite the fact that the stipulated redemption period had already long expired when they instituted the present action, would in effect alter or modify the stipulation in the contract as to the definite and specific limitation of the period for repurchase (2 years from the date of sale or only until June 25, 1958) thereby not simply increasing but in reality resuscitating the expired right to repurchase x x x and likewise the already terminated and extinguished obligation to resell by herein petitioner." The rule would thus be made a tool to spawn, protect and even reward fraud and bad faith, a situation surely never contemplated or intended by the law. This court has already had occasion to rule on the proper interpretation of the provision in question. In Adorable v. Inacala, where the proofs established that there could be no honest doubt as to the parties' intention, that the transaction was clearly and definitely a sale with pacto de retro, the Court adjudged the vendor a retro not to be entitled to the benefit of the third paragraph of Article 1606.

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CASIMIRO DEVELOPMENT CORPORATION, PETITIONER, VS. RENATO L. MATEO, RESPONDENT. G.R. No. 175485, July 27, 2011 FACTS: The subject of this case is a registered parcel of land (property) with an area of 6,693 square meters, more or less, located in Barrio Pulang Lupa, Las Pias City, that was originally owned by Isaias Lara, the respondent's maternal grandfather. Upon the death of Isaias Lara in 1930, the property passed on to his children, namely: Miguela, Perfecta and Felicidad, and a grandson, Rosauro (son of Perfecta who had predeceased Isaias in 1920). In 1962, the co-heirs effected the transfer of the full and exclusive ownership to Felicidad (whose married surname was Lara-Mateo) under an agreement denominated as Pagaayos Na Gawa Sa Labas Ng Hukuman. In due course, the property now covered by OCT No. 6386 was used as collateral to secure a succession of loans. The first loan was obtained from Bacoor Rural Bank (Bacoor Bank). To repay the loan to Bacoor Bank and secure the release of the mortgage, Laura borrowed funds from Parmenas Perez (Perez), who, however, required that the title be meanwhile transferred to his name. Thus, OCT No. 6386 was cancelled and Transfer Certificate of Title (TCT) No. 438959 was issued in the name of Perez. Subsequently, Laura recovered the property by repaying the obligation with the proceeds of another loan obtained from Rodolfo Pe (Pe), resulting in the cancellation of TCT No. 438595, and in the issuance of TCT No. S-91595 in Laura's name. She later executed a deed of sale in favor of Pe, leading to the issuance of TCT No. S-91738 in the name of Pe, who in turn constituted a mortgage on the property in favor of China Banking Corporation (China Bank) as security for a loan. In the end, China Bank foreclosed the mortgage, and consolidated its ownership of the property in 1985 after Pe failed to redeem. Thus, TCT No. (99527) T-11749-A was issued in the name of China Bank. In 1988, CDC and China Bank negotiated and eventually came to terms on the purchase of the property, with China Bank executing a deed of conditional sale for the purpose. On March 4, 1993, CDC and China Bank executed a deed of absolute sale over the property. Resultantly, on March 29, 1993, CDC was issued TCT No. T-34640 in its own name. On June 6, 1991, CDC brought an action for unlawful detainer in the Metropolitan Trial Court (MeTC) in Las Pias City against the respondent's siblings, namely: Cesar, Candido, Jr., and Leonardo, and the other occupants of the property. Therein, the defendants maintained that the MeTC did not have jurisdiction over the action because the land was classified as agricultural; that the jurisdiction belonged to the Department of Agrarian Reform Adjudication Board (DARAB); that they had been in continuous and open possession of the land even before World War II and had presumed themselves entitled to a government grant of the land; and that CDC's title was invalid, considering that the land had been registered before its being declared alienable. ISSUE: Whether or not a buyer be considered in bad faith if he did not go beyond the certificate of title and instead just relied on the same. 52

HELD: The court held that one who deals with property registered under the Torrens system need not go beyond the certificate of title, but only has to rely on the certificate of title. He is charged with notice only of such burdens and claims as are annotated on the title. The pertinent law on the matter of burdens and claims is Section 44 of the Property Registration Decree, which provides: Section 44.Statutory liens affecting title . -- Every registered owner receiving a certificate of title in pursuance of a decree of registration, and every subsequent purchaser of registered land taking a certificate of title for value and in good faith, shall hold the same free from all encumbrances except those noted on said certificate and any of the following encumbrances which may be subsisting, namely: First. Liens, claims or rights arising or existing under the laws and Constitution of the Philippines which are not by law required to appear of record in the Registry of Deeds in order to be valid against subsequent purchasers or encumbrances of record. Second. Unpaid real estate taxes levied and assessed within two years immediately preceding the acquisition of any right over the land by an innocent purchaser for value, without prejudice to the right of the government to collect taxes payable before that period from the delinquent taxpayer alone. Third. Any public highway or private way established or recognized by law, or any government irrigation canal or lateral thereof, if the certificate of title does not state that the boundaries of such highway or irrigation canal or lateral thereof have been determined. Fourth.Any disposition of the property or limitation on the use thereof by virtue of, or pursuant to, Presidential Decree No. 27 or any other law or regulations on agrarian reform.

In short, considering that China Bank's TCT No. 99527 was a clean title, that is, it was free from any lien or encumbrance , CDC had the right to rely, when it purchased the property, solely upon the face of the certificate of title in the name of China Bank.

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ARMANDO BARCELLANO vs. DOLORES BAAS, represented by her son and Attorney-in-fact CRISPINO BERMILLO G.R. No. 165287 September 14, 2011 FACTS: Respondent Baas is an heir of Bartolome Baas who owns in fee simple Lot 4485, PLS-722-D situated in Hindi, Bacacay, Albay. Adjoining the said lot is the property of Vicente Medina (Medina), covered by Original Certificate of Title No. VH-9094, with an area of 1,877 square meters. On 17 March 1997, Medina offered his lot for sale to the adjoining owners of the property, the heirs of Bartolome Baas, including herein respondent Dolores Baas, Crispino Bermillo (Bermillo) and Isabela Bermillo-Beruela (Beruela) Crispino Bermillo, as the representative of his family, agreed to the offer of Medina. On 3 April 1997, Medina sold the property to herein petitioner Armando Barcellano for P60,000.00. The following day, the heirs of Baas learned about the sale and went to the house of Medina to inquire about it. Medina confirmed that the lot was sold to Barcellano. The heirs conveyed their intention to redeem the property but Medina replied that there was already a deed of sale executed between the parties. Also, the Baas heirs failed to tender the P60,000.00 redemption amount to Medina. On 11 March 1998, Dolores Baas, as represented by Bermillo, filed action for Legal Redemption. It was opposed by Barcellano insisting that he complied with the provisions of Art. 1623 of the New Civil Code but Baas failed to exercise her right within the period provided by law. Trial ensued. On 15 March 2000, the trial court dismissed the complaint of the Baas heirs for their failure to comply with the condition precedent of making a formal offer to redeem and for failure to file an action in court together with the consignation of the redemption price within the reglementary period of 30 days.

ISSUE: Whether or not notice was properly made for the exercise of the right of legal pre-emption.

HELD: The requirement of notice under Art. 1623 of the New Civil Code, which provides that: The right of legal pre-emption or redemption shall not be exercised except within thirty days from the notice in writing by the prospective vendor, or by 54

the vendor, as the case may be. The deed of sale shall not be recorded in the Registry of Property, unless accompanied by an affidavit of the vendor that he has given written notice thereof to all possible redemptioners. Nothing in the records and pleadings submitted by the parties shows that there was a written notice sent to the respondents. Without a written notice, the period of thirty days within which the right of legal pre-emption may be exercised, does not start.

55

LEASE
INTERNATIONAL FREEPORT TRADERS VS. DANZAS INTERCONTINENTAL INC. G.R. No. 181833 , January 26, 2011

FACTS: Petitioner IFTI ordered a shipment of Toblerone chocolates and assorted confectioneries from Jacobs Suchard Tobler Ltd. of Switzerland (Jacobs) through its Philippine agent, Colombo Merchants Phils., Inc., under the delivery term F.O.B. Ex-Works. To ship the goods, Jacobs dealt with Danmar which issued to Jacobs negotiable house bills of lading signed by its agent, respondent Danzas. The shipment was to be delivered at the Clark Special Economic Zone with Manila as the port of discharge. Danmar contracted Orient Overseas Container Line (OOCL) to ship the goods from Switzerland. OOCL issued a non-negotiable master bill of lading, stating that the freight was prepaid with Danmar as the shipper and Danzas as the consignee and party to be notified.

Upon learning from Danmar that the goods had been arrived at the port of Manila, Danzas immediately informed IFTI of its arrival and the latter prepared the necessary documents for the release of the goods. IFTI advised Danzas to pick up the documents. Danzas got the import permit and asked IFTI to 1) surrender the original bills of lading to secure the release of the goods, and 2) submit a bank guarantee inasmuch as the shipment was consigned to China Banking Corporation to assure Danzas that it will be compensated for freight and other charges.

IFTI did not provide Danzas with the original bills of lading and the bank guarantee, thus the latter withheld the processing of the release of the goods. Danzas reiterated to IFTI that it could secure the release of the goods only if IFTI submitted a bank guarantee. Ultimately, IFTI yielded to the request and applied for a bank guarantee. IFTI faxed a letter to Danzas, stating that OOCL confirmed that it had been paid an arbitrary fee. In its another letter faxed to Danzas, IFTI reiterating its request that the goods be released pending payment of whatever charges Danzas had incurred for the release and delivery of the goods to Clark and promised to pay Danzas any charges within five days upon delivery of the goods. Danzas secured the release of the goods and delivered the same to IFTI at Clark. In turn, IFTI agreed to give Danzas another opportunity to service its account. In its demand letter to IFTI, Danzas claimed that IFTI engaged its services to process the release of the goods from the port and deliver it to IFTI at Clark but the latter ignored the demand compelling Danzas to file a complaint for the sum of money against IFTI. IFTI countered that it had no liability to Danzas since IFTI was not privy to the hiring of Danzas.

56

MeTC favored Danzas, on appeal however, the RTC dismissed the complaint. The CA reversed the RTC ruling . Hence, this petition. ISSUE: Whether or not a contract of lease of service exists between IFTI and Danzas. HELD: The facts show the existence of several contracts. x x x x In all these transactions, Danzas acted as an agent of Danmar who signed the house bills of lading in favor of Jacobs. x x x x Since the last leg of the delivery of the goods to IFTI at Clark devolved on Danzas, the latter insisted that it was entitled to collect a separate fee following the terms of the sale (F.O.B. Ex-Works) and the house bills of lading (F.O.B. and freight payable at destination). What is clear to the Court is that, by acceding to all the documentary requirements that Danzas imposed on it, IFTI voluntarily accepted its services. The bank guarantee IFTI gave Danzas assured the latter that it would eventually be paid all freight and other charges arising from the release and delivery of the goods to it. Another indication that IFTI recognized its contract with Danzas is when IFTI requested Danzas to have the goods released pending payment of whatever expenses the latter would incur in obtaining the release and delivery of the goods at Clark. x x x Every contract has the elements of (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation which is established. A contract is perfected by mere consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.

Generally, contracts undergo three distinct stages: (1) preparation or negotiation; (2) perfection; and (3) consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. The perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract. The last stage is the consummation of the contract where the parties fulfill or perform the terms they agreed on, culminating in its extinguishment. Here, there is no other conclusion than that the parties entered into a contract of lease of service for the clearing and delivery of the imported goods.

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SANTOS VS. NATIONAL STATISTICS OFFICE G.R. No. 171129 April 6, 2011 FACTS: Petitioner Enrico Santos entered into a Contract of Lease with respondent NSO for the lease of 945 sq m of the first floor of the structure on said property for a monthly rental. Subsequently, the parties agreed to renew the lease for a period of one year, covering a bigger area of the same floor for an increased monthly rental. As the area leased by respondent was not sufficient for its use, petitioner and respondent again entered into another contract which covered an additional space for a monthly rental. For failing to pay despite demand the rentals for two months, and for its refusal to vacate the property even after the termination of the lease contracts, petitioner sent respondent a formal demand to pay and vacate the property. Notwithstanding receipt, respondent still refused to pay and to vacate the property. The petitioner sues for unlawful detainer.

Respondent alleged that petitioner misrepresented himself as still the absolute owner of the subject property and entered into the second and third contracts of lease with respondent. The property has been used as a security for the contract of loan contracted by the petitioner. Due to failure of the petitioner to pay his obligation, the property became a subject of a foreclosure sale to which the bank emerged as the highest bidder. The petitioner failed to redeem the property. Subsequently, the bank advised respondent that as the new and absolute owner of the subject property, it is entitled to the rental payments for the use and occupancy of the leased premises from the date of consolidation.

ISSUE: Whether or not the lessee can resist ejectment by the lessor on the ground that the leased property has already been foreclosed and is now owned by a third person.

HELD: 58

A tenant in proper cases such as this, may show that the landlords title has been conveyed to another. In order to do this, the tenant must essentially assert that title to the leased premises already belongs to a third person who need not be a party to the ejectment case. xxx From the above discussion, it is not difficult to see that the question of possession is so intertwined with the question of ownership to the effect that the question of possession cannot be resolved without resolving the question of ownership.

"It bears emphasizing that in ejectment suits, the only issue for resolution is the physical or material possession of the property involved, independent of any claim of ownership by any of the party litigants." However, "[i]n cases where defendant raises the question of ownership in the pleadings and the question of possession cannot be resolved without deciding the issue of ownership, the court may proceed and resolve the issue of ownership but only for the purpose of determining the issue of possession. [Nevertheless], the disposition of the issue of ownership is not final, as it may be the subject of separate proceeding[s] specifically brought to settle the issue."

However, we note that petitioner, as plaintiff in the complaint for unlawful detainer, failed to discharge his burden of showing that he indeed owned the property. xxx On the other hand, respondent has satisfactorily shown that title to the property has already been conveyed to China Bank. xxx Not being the registered titleholder, we hold that petitioner does not have a better right of possession over the property as against respondent who is in actual possession thereof and who claims to derive its right of possession from the titleholder, China Bank, to whom it pays rents for its use. Hence, petitioners action for unlawful detainer must fail.

59

SIME DARBY PILIPINAS, INC., VS. GOODYEAR PHILIPPINES, INC. and MACGRAPHICS CARRANZ INTERNATIONAL CORPORATION G.R. No. 183210 June 8, 2011 FACTS: Macgraphics owned several billboards across Metro Manila and other surrounding municipalities, one of which was a 35 x 70 neon billboard located at the Magallanes Interchange in Makati City. The Magallanes billboard was leased by Macgraphics to Sime Darby for a term of four years with a ten-month deposit to be applied to the last ten months of the lease.

Sime Darby executed a Memorandum of Agreement with Goodyear, whereby it agreed to sell its tire manufacturing plants and other assets to the latter including the assignment by Sime Darby of the receivables in connection with its billboard advertising in Makati City and Pulilan, Bulacan and its leasehold rights and deposits made to Macgraphics pursuant to its lease contract over the Magallanes billboard.

Sime Darby then notified Macgraphics of the assignment. Macgraphics informed Goodyear that the monthly rental of the billboard increased in consideration of the provisions and technical aspects of the submitted design. Goodyear, due to budget constraints, it could not accept the offer. Macgraphics then informed Sime Darby that it could not give its consent to the assignment of lease to Goodyear explaining that the transfer would necessitate drastic changes to the design and the structure of the neon display of the billboard and would entail manpower and resources that it did not foresee at the inception of the lease. As such, any advertising service it intended to get from them would have to wait until after the expiration or valid pre-termination of the lease then existing with Sime Darby.

60

Due to Macgraphics refusal to honor the Deed of Assignment, Goodyear demanding partial rescission of the Deed of Assignment and the refund of the pro-rata value of Sime Darbys leasehold rights over the billboard. Sime Darby refused to accede to the demand for partial rescission.

ISSUE: Whether or not Sime Darby should have secured the consent of Macgraphics to the assignment of the lease before it could be effective.

HELD: Whether Macgraphics gave its consent to the assignment of leasehold rights of Sime Darby is a question of fact. It is not reviewable. On this score alone, the petition of Sime Darby fails.Even if the Court should sidestep this otherwise fatal miscue, the petition of Sime Darby remains bereft of any merit. Article 1649 of the New Civil Code provides xxx Art. 1649. The lessee cannot assign the lease without the consent of the lessor, unless there is a stipulation to the contrary. (n)

In an assignment of a lease, there is a novation by the substitution of the person of one of the parties the lessee. The personality of the lessee, who dissociates from the lease, disappears. Thereafter, a new juridical relation arises between the two persons who remain the lessor and the assignee who is converted into the new lessee. The objective of the law in prohibiting the assignment of the lease without the lessors consent is to protect the owner or lessor of the leased property.

A review of the lease contract between Sime Darby and Macgraphics discloses no stipulation that Sime Darby could assign the lease without the consent of Macgraphics. xxx The consent of the lessor to an assignment of lease may indeed be given expressly or impliedly. It need not be given simultaneously with that of the lessee and of the assignee. Neither is it required to be in any specific or particular form. It must, however, be clearly given. In this case, it cannot be said that Macgraphics gave its implied consent to the assignment of lease.

In sum, it is clear that by its failure to secure the consent of Macgraphics to the assignment of lease, Sime Darby failed to perform what was incumbent upon it under the Deed of Assignment. The rescission of the Deed of Assignment pursuant to Article 1191 of the New Civil Code is, thus, justified.

61

EMILIANA G. PEA, AMELIA C. MAR vs. SPOUSES ARMANDO TOLENTINO AND LETICIA TOLENTINO G.R. No. 155227-28 February 9, 2011 FACTS: The petitioners are lessees of three distinct and separate parcels of land owned by the respondents. Based on the parties oral lease agreements, the petitioners agreed to pay monthly rents, pegged as of October 9, 1995 at the following rates, namely: for Carmen Reyes, P570.00; for Amelia Mar, P840.00; and for Emiliana Pea,P480.00.

On August 15, 1995, the respondents wrote a demand letter to each of the petitioners, informing that they were terminating the respective monthto-month lease contracts effective September 15, 1995 and demanding that the petitioners vacate and remove their houses from their respective premises, with warning that should they not heed the demand, the respondents would charge them P3,000.00/month each as reasonable compensation for the use and occupancy of the premises from October 1, 1995 until they would actually vacate.

After the petitioners refused to vacate within the period allowed, the respondents filed on October 9, 1995 three distinct complaints for ejectment against the petitioners in the Metropolitan Trial Court (MeTC) of Manila. The MeTC ruled in favor of the respondents. The Regional Trial Court (RTC) modified the MeTCs decision. Both parties appealed by petition for review. 62

The CA rendered judgment setting aside the decision of the RTC with modification.

ISSUE: Whether or not the contracts of lease were for an indefinite period.

HELD: The petitioners contend that their lease contracts were covered by P.D. No. 20, which suspended paragraph 1 of Article 1673, Civil Code that as a result, the expiration of the period of their leases was no longer a valid ground to eject them and that their leases should be deemed to be for an indefinite period. In refutation, the respondents argue that P.D. 20 suspended only Article 1673, not Article 1687, Civil Code that under Article 1687, a lease on a month-to-month basis was a lease with a definite period and that the petitioners could be ejected from the leased premises upon the expiration of the definite period, particularly as a demand to that effect was made. The petitioners contention is erroneous. It is clear, therefore, that B.P. Blg. 877 was the controlling rental law when the complaints against the petitioners were filed on October 9, 1995. We note that on January 1, 2002, R.A. No. 9161 took effect. Its Section 7(e) provided that the expiration of the period of the lease contract was still one of the grounds for judicial ejectment. Also, its Section 10 provided for the suspension of paragraph 1 of Article 1673 of the Civil Code. In several rulings, the Court held that Section 6 of B.P. Blg. 877 did not suspend the effects of Article 1687 of the Civil Code and that the only effect of the suspension of paragraph 1, Article 1673 of the Civil Code was that, independently of the grounds for ejectment enumerated in B.P. Blg. 877, the owner/lessor could not eject the tenant by reason of the expiration of the period of lease as fixed or determined under Article 1687 of the Civil Code. Consequently, the determination of the period of the lease could still be made in accordance with Article 1687.

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ESTATE OF PASTOR M. SAMSON, represented by his heir ROLANDO B. SAMSON vs.MERCEDES R. SUSANO and NORBERTO R. SUSANO G.R. No. 179024 May 30, 2011

FACTS: Pastor M. Samson (Pastor) owned a 1.0138-hectare parcel of land in Caloocan City. Pastor was approached by his friend Macario Susano (Macario) who asked for permission to occupy a portion of Lot 1108 to build a house for his family. Macario and his family occupied 620 square meters of Lot 1108 and devoted the rest of the land to palay cultivation. Herein respondents, Macarios wife Mercedes R. Susano and their son Norberto R. Susano, insist that while no agricultural leasehold contract was executed by Pastor and Macario, Macario religiously paid 15 cavans of palay per agricultural year to Pastor, which rent was reduced by Pastor in 1986 to 8 cavans of palay per agricultural year. In 1973, Pastor subdivided Lot 1108 into three portions Lot 1108-A; Lot 1108B; Lot 1108-C. The first and last parcels remained registered in Pastors name while the other lot was sold to Jimena Novera in 1973 without Macarios knowledge. In 1979, Pastor sold Lot 1108-A to spouses Felix Pacheco and Juanita Clamor, allegedly also without Macarios knowledge and consent. As a result of the sale, Lot 1108-A was further subdivided into three portions: (1) Lot 1108-A-1 in Pastors name; (2) Lot 1108-A-2; and (3) Lot 1108-A-3. The last two parcels are registered in the name of spouses Felix Pacheco and Juanita Clamor. Lots 1108-A-1 and 1108-C remained occupied and cultivated by Macario and his family. Pastor sold Lot 1108-C to petitioner Julian Chan. Macario received a letter from Pastors lawyer demanding that he vacate the property within twenty (20) days. Aggrieved, Macario filed a complaint against Pastor before the Municipal Agrarian Reform Office (MARO) of Valenzuela. Meanwhile, it appears that Chan and Macario tried to settle amicably the dispute as between them. Macario and his wife Mercedes executed a notarized document entitled, Kusang-Loob na Pagtatalaga (Deed of Undertaking) wherein Macario, recognizing that Chan is a buyer in good faith, acknowledged the latters ownership over the said landholding. Chan and Macario, assisted by their respective counsels, executed a Joint Motion and Manifestation wherein Macario promised to surrender possession of the property to Chan on or before November 30, 1992. On February 9, 1993, Macario died and was succeeded by respondents in the possession and cultivation of the subject landholding. Respondents filed an action for maintenance of peaceful possession with prayer for the issuance of a restraining order/preliminary injunction and for the redemption of the subject landholding against Pastor and Chan before the Department of Agrarian Reform Adjudication Board (DARAB), the complaint prayed for the inclusion of the 7,316-square meter portion of said landholding, or Lots 1108-A-1 and

64

1108-C, within the Coverage of the Operation Land Transfer (OLT) Program under Presidential Decree (P.D.) No. 27 or The Tenant Emancipation Decree.

ISSUE: Whether or not Macario is a de jure tenant in the subject landholding entitled to security of tenure.

HELD: The Agricultural Tenancy Act of the Philippines, defines a tenant as a person who, himself and with the aid available from within his immediate farm household, cultivates the land belonging to, or possessed by, another, with the latters consent for purposes of production, sharing the produce with the landholder under the share tenancy system, or paying the landholder a price certain or ascertainable in produce or in money or both, under a leasehold tenancy system. For a tenancy relationship to exist between the parties, the following essential elements must be shown: (1) the parties are the landowner and the tenant; (2) the subject matter is agricultural land; (3) there is consent between the parties; (4) the purpose is agricultural production; (5) there is personal cultivation by the tenant; and (6) there is sharing of the harvests between the parties. The presence of all of these elements must be proved by substantial evidence.

In the case at bar, while the RARAD, DARAB and the CA are unanimous in their conclusion that an implied tenancy relationship existed between Pastor Samson and Macario Susano, no specific evidence was cited to support such conclusion other than their observation that Pastor failed to protest Macarios possession and cultivation over the subject land for more than 30 years. Contrary to what is required by law, however, no independent and concrete evidence were adduced by respondents to prove that there was indeed consent and sharing of harvests between Pastor and Macario.

It has been repeatedly held that occupancy and cultivation of an agricultural land will not ipso facto make one a de jure tenant. Independent and concrete evidence is necessary to prove personal cultivation, sharing of harvest, or consent of the landowner. Substantial evidence necessary to establish the fact of sharing cannot be satisfied by a mere scintilla of evidence; there must be concrete evidence on record adequate to prove the element of sharing. To prove sharing of harvests, a receipt or any other credible evidence must be presented, because self-serving statements are inadequate. Tenancy relationship cannot be presumed; the elements for its existence are explicit in law and cannot be done away with by conjectures. Leasehold relationship is not brought about by the mere congruence of facts but, being a legal relationship, the mutual will of the parties to that relationship should be primordial. For implied tenancy to arise it is necessary that all the essential requisites of tenancy must be present.

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LOAN
EYPHILIPPINE REALTY AND HOLDINGS CORPORATION VS. L CONSTRUCTION AND DEVELOPMENT CORPORATION G.R. No. 165548, June 13, 2011 FACTS: The two corporations entered into four major construction projects, as evidenced by four duly notarized "construction agreements." LCDC committed itself to the construction of the buildings needed by PRHC, which in turn committed itself to pay the contract price agreed upon. Each agreement provided for a fixed price to be paid by PRHC for every project. LCDC wrote a letter addressed to Santos stating that it had already complied with its commitment and was requesting the release of P 2,248,463.92. PRHC never replied to this letter. There was a reconciliation of accounts between the two corporations with respect to the balances due which resulted in PRHC owing LCDC the sum of P 20,862,546.41. When 96.43% of Tektite Building had been completed, LCDC requested the release of the P36M escalation price. PRHC did not reply, but after the construction of the building was completed, it conveyed its decision in a letter. That decision was to set off, in the form of liquidated damages, its claim to the supposed liability of LCDC. LCDC demanded payment of the agreed escalation price and PRHC suddenly denied any liability for the escalation price. It claimed that LCDC had incurred 111 days of delay in the construction of the Tektite Building and demanded that the latter pay P 39,326,817.15 as liquidated damages. LCDC countered that there were many times when its requests for time extension although due to reasonable causes. LCDC claimed that in a period of over two years, out of the 618 days of extension it requested, only 256 days or not even half the number of days originally requested were considered. ISSUE: Whether or not PRHC treated the P 36 million as a loan deductible from the liquidated damages for which LCDC is supposedly liable. HELD: No. Parenthetically, we note that the CA had ruled xxx that when PRHC informed LCDC that it would apply the P 36 million to the liquidated damages, PRHC, in effect, acknowledged that it was in debt to LCDC in the amount of P 36 million, and that forms the basis for PRHCs liability to LCDC for the said amount. We disagree with this analysis. In a contract of loan, ownership of the money is transferred from the lender to the borrower. In this case, ownership of the P 36 million was never transferred to PRHC. As previously mentioned, such amount was paid directly 66

to the suppliers. We find that arrangement between PRHC and LCDC cannot be construed as a loan agreement but rather, it was an agreement to advance the costs of construction.

DEPOSIT
DURBAN APARTMENTS CORPORATION VS. PIONEER INSURANCE AND SURETY CORPORATION G.R. No. 179419, January 12, 2011 FACTS: Respondent Pioneer Insurance and Surety Corporation, by right of subrogation, filed with the RTC of Makati City a Complaint for Recovery of Damages against petitioner Durban Apartments Corporation, doing business under the name and style of City Garden Hotel, and defendant Vicente Justimbaste. Respondent is the insurer for loss and damage of Jeffrey S. Sees 2001 Suzuki Grand Vitara in the amount of P1,175,000.00.

See arrived and checked in at the City Garden Hotel in Makati before midnight, and its parking attendant, defendant Justimbaste got the key to said Vitara from See to park it. On May 1, 2002, at about 1:00 am, See was awakened in his room by a telephone call from the Hotel Chief Security Officer who informed him that his Vitara was carnapped while it was parked unattended at the parking area of Equitable PCI Bank along Makati Avenue between the hours of 12:00 1:00 am. See thereafter reported the incident to the Operations Division of the Makati City Police Anti-Carnapping Unit, and a flash alarm was issued.

The Makati City Police Anti-Carnapping Unit investigated Hotel Security Officer Horlador, Jr. and defendant Justimbaste. The Vitara has not yet been recovered. It paid the money claim of See and mortgagee ABN AMRO Savings Bank, Inc. as indemnity for the loss of the Vitara. The Vitara was lost due to the negligence of petitioner Durban and defendant Justimbaste because it was discovered during the investigation that this was the second time that a similar incident of carnapping happened in the valet parking service of petitioner and no necessary precautions were taken to prevent its repetition. The RTC held Durban solely liable to petitioner for the loss of the property. The CA affirmed the decision of the trial court.

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ISSUEE: Whether or not petitioner is liable to respondent for the loss of Sees vehicle.

HELD: No. While the petitioner was in default for failure to appear at the pre-trial conference and to file a pre-trial brief, and thus, allowed respondent to present evidence ex-parte, the lower courts did not err in holding petitioner liable for the loss of Sees vehicle. In this case, respondent substantiated the allegations in its complaint, i.e., a contract of necessary deposit existed between the insured See and petitioner. On this score, we find no error in the following disquisition of the appellate court:

[The] records also reveal that upon arrival at the City Garden Hotel, See gave notice to the doorman and parking attendant of the said hotel, x x x Justimbaste, about his Vitara when he entrusted its ignition key to the latter. x x x Justimbaste issued a valet parking customer claim stub to See, parked the Vitara at the Equitable PCI Bank parking area, and placed the ignition key inside a safety key box while See proceeded to the hotel lobby to check in. The Equitable PCI Bank parking area became an annex of City Garden Hotel when the management of the said bank allowed the parking of the vehicles of hotel guests thereat in the evening after banking hours.

Article 1962, in relation to Article 1998, of the Civil Code defines a contract of deposit and a necessary deposit made by persons in hotels or inns:

Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract.

Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be regarded as necessary. The keepers of hotels or inns shall be responsible for them as depositaries, provided that notice was given to them, or to their employees, of the effects brought by the guests and that, on the part of the latter, they take the precautions which said hotel-keepers or their substitutes advised relative to the care and vigilance of their effects.

Plainly, from the facts found by the lower courts, the insured See deposited his vehicle for safekeeping with petitioner, through the latters employee, Justimbaste. In turn, Justimbaste issued a claim stub to See. Thus, the 68

contract of deposit was perfected from Sees delivery, when he handed over to Justimbaste the keys to his vehicle, which Justimbaste received with the obligation of safely keeping and returning it. Ultimately, petitioner is liable for the loss of Sees vehicle.

GUARANTY
STAR TWO (SPV AMC), INC. vs. HOWARD KO, MIN MIN SEE KO, JIMMY ONG and GRACE NG ONG G.R. No. 185454, March 23, 2011 FACTS: Jianshe Motorcycle Industries Philippines Corporation (Jianshe) obtained various credit facilities or loan accommodations from Rizal Commercial Banking Corporation (RCBC) from 2003-2004 to finance its importation of motorcycles, motorcycle parts, motorcycle accessories, and other related goods. To secure the goods imported by Jianshe, RCBC required it to execute trust receipts over these goods. Moreover, to secure payment of all existing and future obligations of Jianshe to RCBC, respondents Howard Ko, Jimmy Ong, Min Min See Ko, and Grace Ng Ong executed a Comprehensive Surety Agreement dated September 3, 2002, with a limited liability of P50 M. Despite demand, Jianshe failed to pay its obligations. RCBC thus filed a Complaint for Specific Perfomance with Prayer for a Writ of Preliminary Attachment against Jianshe as principal and respondents as sureties, before the Regional Trial Court (RTC) of Makati City on December 27, 2005. The case was raffled to Branch 132 and docketed as Civil Case No. 05-1146. On February 6, 2006, Howard Ko and Min Min See Ko filed a Motion to Discharge Preliminary Attachment for having been improperly or irregularly issued. RCBC, however, opposed the motion. On March 17, 2006, Howard Ko filed a Motion to Dismiss on the ground that RCBC's claim had already been paid, waived, abandoned, or otherwise extinguished. Min Min See Ko adopted Howard Ko's motion. RTC ordered the immediate discharge of the attachment issued against Ko and See Ko but denied the motion to dismiss. The RTC granted the 69

Kos motion and dismissed the case against the respondents, leaving Jianshe as the only defendant. In dismissing the case, the trial court stated that there was sufficient evidence to prove that Ko paid the amount mote than the limit provided under the Comprehensive Surety Agreement. RCBC move for Substitution of parties, considering that it had sold, transferred, and assigned all its rights and interests in the present case to Star Two, Inc. the case was elevated to the CA but the same was denied. Hence this petition. ISSUE: Whether or not the suretys liability could be greater than that of the principal. HELD: Respondents acted as sureties under the Comprehensive Surety Agreement to secure the obligations of Jianshe to RCBC. A contract of suretyship is an agreement whereby a party, called the surety, guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in favor of another party, called the obligee. The surety agreement is an accessory contract; and the surety becomes directly, primarily, and equally bound with the principal as the original promissor although the former possesses no direct or personal interest over the latter's obligations and does not receive any benefit therefrom. Pursuant to Article 2054 of the Civil Code that "a guarantor [or surety] may bind himself for less, but not for more than the principal debtor, both as regards the amount and the onerous nature of the conditions," respondents limited their liability to P50 M, which is less than Jianshe's liability to RCBC. Howard Ko complied with his obligations and made payments to RCBC. The Court notes that the pieces of evidence presented by respondents were documents, such as official receipts, trust debit advices, and passbooks, issued by no less than petitioner itself. Payments were made by respondents through the active participation of RCBC, primarily by debiting the subject amounts from respondents' accounts with the bank. Admittedly, it was Jianshe, as the principal, which owed RCBC. Nowhere in petitioner's pleadings was it claimed that respondents also owed the bank aside from their obligation as surety to secure the principal obligation of Jianshe. Undoubtedly, the debited amounts from Howard Ko's accounts were made to satisfy his obligation as surety. Petitioner cannot now claim that the payments were made by Jianshe as principal and not by respondents as sureties simply because the receipts were issued in the name of Jianshe. As aptly observed by the CA, the issuance of the receipts in the name of Jianshe was done only to indicate that it was the principal obligor. The issuance of the receipts does not erase the fact that various amounts were debited from the accounts of Howard Ko, and certificates of time deposit in the name of Howard Ko were applied as payment for Jianshe's obligations.

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PLEDGE
THE ESTATE OF LUIS RAMOS vs. PNB, G.R. NO. 178218, DEC. 14, 2011 FACTS: In 1973, Luis Ramos obtained a credit line under an agricultural loan account from the Philippine National Bank (PNB) for P83,000.00. To secure the loan, the parties executed a Real Estate Mortgage on October 23, 1973, the relevant provisions of which stated: That for and in consideration of certain loans, overdrafts and other credit accommodations obtained from the Mortgagee, which is hereby fixed at P83,000.00 Philippine Currency and to secure the payment of the same and those others that the Mortgagee may extend to the Mortgagor, x x x. Luis Ramos would renew the loan every year after paying the amounts falling due therein. On March 31, 1989, Luis Ramos and PNB entered into a Credit Line Agreement in the amount of P50,000,000.00 under the banks sugar quedan financing program. The agreement pertinently provided thus: 71

For and in consideration of the Bank agreeing to extend to the Borrower a Revolving Credit Line (the Line) in an amount not to exceed PESOS: FIFTY MILLION ONLY (P50,000,000.00), under the Banks Sugar Quedan Financing Program for Crop Year 88/89. Meanwhile, on August 7, 1989, the spouses Luis Ramos and Ramona Ramos (spouses Ramos) also obtained an agricultural loan of P160,000.00 from PNB. Said loan was evidenced by a promissory note issued by the spouses on even date. The said loan was secured by the real estate mortgage previously executed by the parties on October 23, 1973. On November 2, 1990, the spouses Ramos fully settled the agricultural loan of P160,000.00. They then demanded from PNB the release of the real estate mortgage. PNB, however, refused to heed the spouses demand. On February 28, 1996, the spouses Ramos filed a complaint for Specific Performance against the PNB. The spouses claimed that the actions of PNB impaired their rights in the properties included in the real estate mortgage. They alleged that they lost business opportunities since they could not raise enough capital, which they could have acquired by mortgaging or disposing of the said properties. The spouses Ramos prayed for the trial court to order PNB to release the real estate mortgage on their properties and to return to the spouses the TCTs of the properties subject of the mortgage. In its Answer, PNB countered that the spouses Ramos had no cause of action against it since the latter knew that the real estate mortgage secured not only their P160,000.00 agricultural loan but also the other loans the spouses obtained from the bank. Specifically, PNB alleged that the spouses sugar quedan financing loan of P15,600,000.00 remained unpaid as the quedans were dishonored by the warehouseman Noahs Ark. PNB averred that it filed a civil action for specific performance against Noahs Ark involving the quedans and the case was still pending at that time. As PNB was still unable to collect on the quedans, it claimed that the spouses Ramos loan obligations were yet to be fully satisfied. Thus, PNB argued that it could not release the real estate mortgage in favor of the spouses.

ISSUE: Should the general terms of the real estate mortgage executed by borrower Luis T. Ramos in favor of lender PNB be understood to include in its coverage the borrowers sugar quedan financing loan that is different from his agricultural crop loan undisputedly agreed upon by the parties to be covered by the collateral?

HELD: There is no reason to overturn the assailed ruling of the Court of Appeals that the contract of pledge between petitioners and PNB was not terminated by the Authorization letter issued by Luis Ramos in favor of PNB. The status of PNB as a pledgee of the sugar quedans involved in this case had long been confirmed by the Court in its Decision dated July 9, 1998 in Philippine National Bank v. Sayo, Jr. and the same is neither disputed in the instant case. We reiterate our ruling in Sayo that: 72

The creditor, in a contract of real security, like pledge, cannot appropriate without foreclosure the things given by way of pledge. Any stipulation to the contrary, termed pactum commissorio, is null and void. The law requires foreclosure in order to allow a transfer of title of the good given by way of security from its pledgor, and before any such foreclosure, the pledgor, not the pledgee, is the owner of the goods. x x x. A close reading of the Authorization executed by Luis Ramos reveals that it was nothing more than a letter that gave PNB the authority to dispose of and sell the sugar quedans after the maturity date thereof. As held by the Court of Appeals, the said grant of authority on the part of PNB is a standard condition in a contract of pledge, in accordance with the provisions of Article 2087 of the Civil Code that it is also of the essence of these contracts that when the principal obligation becomes due, the things in which the pledge or mortgage consists may be alienated for the payment to the creditor. More importantly, Article 2115 of the Civil Code expressly provides that the sale of the thing pledged shall extinguish the principal obligation, whether or not the proceeds of the sale are equal to the amount of the principal obligation, interest and expenses in a proper case. As we adverted to in Sayo, it is the foreclosure of the thing pledged that results in the satisfaction of the loan liabilities to the pledgee of the pledgors. Thus, prior to the actual foreclosure of the thing pleged, the sugar quedan financing loan in this case is yet to be settled. As matters stand, with more reason that PNB cannot be compelled to release the real estate mortgage and the titles involved therein since the issue of whether the sugar quedan financing loan will be fully paid through the pledged sugar receipts remains the subject of pending litigation.

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UNION BANK OF THE PHILIPPINES vs. ALAIN JUNIAT G.R. No. 171569, August 1, 2011 FACTS: Petitioner filed with the Regional Trial Court (RTC) of Makati, Branch 57, a Complaint with prayer for the issuance of ex-parte writs of preliminary attachment and replevin against Juniat, Winwood, Wingyan, and the person in possession of the mortgaged motorized sewing machines and equipment.Petitioner alleged that Juniat, acting for and in behalf of Winwood and Wingyan, executed a promissory note and a Chattel Mortgage dated over several motorized sewing machines and other allied equipment to secure their obligation arising from export bills transactions to petitioner that as additional security for the obligation, Juniat executed a Continuing Surety Agreement in favor of petitioner that the loan remains unpaid and that the mortgaged motorized sewing machines are insufficient to answer for the obligation. The RTC issued writs of preliminary attachment and replevin in favor of petitioner.The writs were served by the Sheriff upon Nonwoven as it was in possession of the motorized sewing machines and equipment.Nonwoven filed an Answer,contending that the unnotarized Chattel Mortgage executed in favor of petitioner has no binding effect on Nonwoven and that it has a better title over the motorized sewing machines and equipment because these were assigned to it by Juniat pursuant to their Agreement dated May 9, 1992.

ISSUE: Whether the unnotarized mortgage executed in favor of petitioner may also indicate that the sewing machines, snap machines and boilers were pledged to Nonwoven.

HELD: A perusal of the Agreement dated May 9, 1992 clearly shows that the sewing machines, snap machines and boilers were pledged to Nonwoven by Juniat to guarantee his obligation. However, under Article 2096 of the Civil Code, "[a] pledge shall not take effect against third persons if a description of the thing pledged and the date of the pledge do not appear in a public instrument." Hence, just like the chattel mortgage executed in favor of petitioner, the pledge executed by Juniat in favor of Nonwoven cannot bind petitioner.

Also, there is nothing in the Agreement dated May 9, 1992 to indicate that the motorized sewing machines, snap machines and boilers were ceded to Nonwoven as payment for the Wingyans and Winwoods obligation. It bears stressing that there can be no transfer of ownership if the delivery of the property to the creditor is by way of security. In fact, in case of doubt as to whether a transaction is one of pledge or dacion en pago, the presumption is that it is a pledge as this involves a lesser transmission of rights and interests.

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MORTGAGE
JOSEFA ABALOS AND DEVELOPMENT BANK OF THE PHILIPPINES vs. SPOUSES LOMANTONG DARAPA and SINAB DIMAKUTA G.R. No. 164693, March 23, 2011 FACTS: On June 25,1962, petitioner DBP, Ozamis Branch, granted a P31,000.00 loan to respondent spouses Lomantong Darapa and Sinab Dimakuta (spouses) who exceuted therefore a real and chattel mortgage contract which covered a warehouse to house the rice and corn mill, constructed on a 357 square meter lot situated at Poblacion, Linamon, Lanao Del Norte. The aforesaid equity rights, participation and interest of the mortgagors in the said parcel of land are not registered under the Spanish Mortgage Law nor under Act 496 and the parties hereby agree that this instrument shall be registered under Act 3344, as amended. The assignment of the spouses equity rights over the land covered by Tax Declaration No. A-148 in DBP's favor was embedded in the Deed of Assignment of Rights and Interests which the spouses executed simultaneous with the real and chattel mortgage contract. In 1970, the spouses applied for the renewal and increase of their loan using Sinab Dimakutas (Dimakuta) Transfer Certificate of title (TCT) No. 1,997 as additional collateral. The DBP disapproved the loan application without returning, however, Dimakutas TCT. When the spouses failed to pay their loan, DBP extrajudicially foreclosed the mortgages on September 16, 1971, which, unknown to the spouses, included the TCT No. T- 1,997. The spouses failed to redeem the land under TCT NO. T-1,997, which led to its cancellation, and the eventual issuance of TCT no. T- 7746 in DBPs name. In 1984, the spouses discovered all these and they immediately consulted a lawyer who forthwith sent a demand letter to the bank for the reconveyance of the land. The bank assured them of the return of the land. In 1994, however, a bank officer told them that such is no longer possible as the land has already been bought by Abalos, daughter of the then provincial governor. On May 12,1994, the DBP sold the land to its co- petitioner Josefa Abalos. The TCT No. T-7746 originally TCT No. T-1997 was cancelled and on July 6, 1994, T-16-280 was issued in Abalos name. On August 20, 1994, the spouses filed with the RTC of Iligan City a complaint for annulment of Title, Recovery of Possession and Damages against DBP and Abalos.

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The spouses averred that TCT no. T-1,997 was not one of the mortgaged properties, and, thus its foreclosure by DBP and its eventual sale to Abalos was null and void. The RTC annulled the DBPs foreclosure sale of the land under TCT No. T-1,997 and its sale to Abalos; further, it declared Dimakuta as the lands lawful owner. The Court of Appeals denied the petition of the petitioner . it ratiocinated that DBP had no right to foreclose the land under TCT No. T1,997, it not having been mortgaged.

ISSUE: Whether or not the action of the spouses had already prescribed.

HELD: Thus, we find no reversible error in the RTC and the CAs findings that DBPs foreclosure sale of the land under TCT no. T-1,997 was null and void. The court also finds unmeritorious the DBPs contention that spouses cause of action is barred by estoppels, laches and prescription. The Court also disagrees with DBPs contention that for failure to institute the action within ten years from the accrual of the right thereof, prescription has set in, barring the spouses from vindicating their transgressed rights. The DBP contends that the prescriptive period for the reconveyance of fraudulently registered real property is ten (10) years reckoned from the date of the issuance of the certificate of title. While the above disquisition of DBP is true, the 10- year prescriptive period applies only when the reconveyance is based on fraud which makes a contract voidable (and that the aggrieved party is not in possession of the land whose title is to be actually,reconveyed). It does not apply to an action to nullify a contract which is void ab initio, as in the present petition. Article 1410of the Civil Code categorically states that an action for the declaration of the inexistence of a contract does not prescribe. The spouses action is an action for "Annulment of Title, Recovery of Possession and Damages," grounded on the theory that the DBP foreclosed their land covered by TCT No. T-1,997 without any legal right to do so, rendering the sale and the subsequent issuance of TCT in DBP's name void ab initio and subject to attack at any time conformably to the rule in Article 1410 of the Civil Code. In finis, the Court notes that Abalos, DBP's co-defendant, was ordered by the RTC to return to the spouses the land she bought from DBP; the RTC also ordered the cancellation of Abalos' title. Abalos, however, abandoned her appeal then pending before the Court of Appeals, resulting in its dismissal. In this Court's Resolution dated 13 February 2006, she was subsequently dropped as party-petitioner. By abandoning her appeal, the RTC decision with respect to her, thus, became final.

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JOE ROS vs. PHILIPPINE NATIONAL BANK Laoag Branch G.R. No. 170166 April 6, 2011 FACTS: On January 13, 1983, spouses Jose A. Ros and Estrella Aguete filed a complaint for the annulment of the Real Estate Mortgage and all legal proceedings taken thereunder against PNB, Laoag Branch before the Court of First Instance, Ilocos Norte. The averments in the complaint disclosed that plaintiff-appellee Joe A. Ros obtained a loan of P115,000.00 from PNB Laoag Branch on October 14, 1974 and as security for the loan, plaintiff-appellee Ros executed a real estate mortgage involving a parcel of land Lot No. 9161 of the Cadastral Survey of Laoag, with all the improvements thereon described under Transfer Certificate of Title No. T-9646. Upon maturity, the loan remained outstanding. As a result, PNB instituted extrajudicial foreclosure proceedings on the mortgaged property. After the extrajudicial sale thereof, a Certificate of Sale was issued in favor of PNB, Laoag as the highest bidder. After the lapse of one (1) year without the property being redeemed, the property was consolidated and registered in the name of PNB, Laoag Branch on August 10, 1978. Claiming that she (plaintiff-appellee Estrella Aguete) has no knowledge of the loan obtained by her husband nor she consented to the mortgage instituted on the conjugal property a complaint was filed to annul the proceedings pertaining to the mortgage, sale and consolidation of the property interposing the defense that her signatures affixed on the documents were forged and that the loan did not redound to the benefit of the family.

ISSUE: Whether or not the real estate mortgage is valid.

HELD: 77

The Civil Code was the applicable law at the time of the mortgage. The subject property is thus considered part of the conjugal partnership of gains. Art. 166 provides: Unless the wife has been declared a non compos mentis or a spendthrift, or is under civil interdiction or is confined in a leprosarium, the husband cannot alienate or encumber any real property of the conjugal partnership without the wifes consent. If she refuses unreasonably to give her consent, the court may compel her to grant the same. Furthermore, Art. 173 provides: The wife may, during the marriage, and within ten years from the transaction questioned, ask the courts for the annulment of any contract of the husband entered into without her consent, when such consent is required, or any act or contract of the husband which tends to defraud her or impair her interest in the conjugal partnership property. Should the wife fail to exercise this right, she or her heirs after the dissolution of the marriage may demand the value of the property fraudulently alienated by the husband. There is no doubt that the subject property was acquired during Ros and Aguetes marriage. Ros and Aguete were married on 16 January 1954, while the subject property was acquired in 1968. There is also no doubt that Ros encumbered the subject property when he mortgaged it for P115,000.00 on 23 October 1974. PNB Laoag does not doubt that Aguete, as evidenced by her signature, consented to Ros mortgage to PNB of the subject property. On the other hand, Aguete denies ever having consented to the loan and also denies affixing her signature to the mortgage and loan documents. The husband cannot alienate or encumber any conjugal real property without the consent, express or implied, of the wife. Should the husband do so, then the contract is voidable. Article 173 of the Civil Code allows Aguete to question Ros encumbrance of the subject property. However, the same article does not guarantee that the courts will declare the annulment of the contract. Annulment will be declared only upon a finding that the wife did not give her consent. In the present case, we follow the conclusion of the appellate court and rule that Aguete gave her consent to Ros encumbrance of the subject property. The documents disavowed by Aguete are acknowledged before a notary public, hence they are public documents. Every instrument duly acknowledged and certified as provided by law may be presented in evidence without further proof, the certificate of acknowledgment being prima facie evidence of the execution of the instrument or document involved. The execution of a document that has been ratified before a notary public cannot be disproved by the mere denial of the alleged signer. PNB was correct when it stated that petitioners omission to present other positive evidence to substantiate their claim of forgery was fatal to petitioners cause. Petitioners did not present any corroborating witness, such as a handwriting expert, who could authoritatively declare that Aguetes signatures were really forged. A notarized document carries the evidentiary weight conferred upon it with respect to its due execution, and it has in its favor the presumption of regularity which may only be rebutted by evidence so clear, strong and convincing as to exclude all controversy as to the falsity of the certificate. Absent such, the presumption must be upheld. The burden of proof to overcome the presumption of due execution of a notarial document lies on the one contesting the same. Furthermore, an allegation of forgery must be proved by clear and convincing evidence, and whoever alleges it has the burden of proving the same. Ros himself cannot bring action against PNB, for 78

no one can come before the courts with unclean hands. 1avvphi1 In their memorandum before the trial court, petitioners themselves admitted that Ros forged Aguetes signatures.

RURAL BANK OF TOBOSCO, INC. (UCPB SAVINGS BANK), vs. JEAN VENIEGAS AGTOTO G.R. No. 175697, March 23, 2011 FACTS: On August 18, 1981 Jean Veniegas Agtoto executed a special power of attorney (SPA) authorizing her husband, Rodney, to secure a loan on her behalf and mortgage a registered land that she owned. Using the SPA, on August 20, 1981 Rodney got a loan of P130,500.00 from the Rural Bank of Toboso, Inc. (the Bank), with the P61,068.00 portion secured by a real estate mortgage on his wife's land. On the following day, he secured the remaining P69,432.00 of the loan with a chattel mortgage over two service boats and one Yanmar Marine engine. After paying only P14,500.00, Agtoto failed to pay her loan with the Bank. After several unheeded demands to pay, on August 6, 1990 the Bank extrajudicially foreclosed the mortgage on her land, pegging her debt at P130,500.00 as of December 31, 1989 plus the stipulated interest of 14% per annum from the date of default until full payment and liquidated damages. After notice and publication, the sheriff foreclosed the mortgage on the land on September 12, 1990 and sold it at public auction to the Bank, which made the highest bid of P305,000.00 "as of December 31, 1989" plus stipulated interest of 14% per annum. The sheriff subsequently issued a certificate of sale in the Bank's favor. 79

Agtoto filed a complaint with the RTC of Bacolod City against the Bank for the annulment of the sale of her land, damages, and injunction with prayer for the issuance of temporary restraining order. On July 15, 1996 the RTC rendered a decision, ordering the Bank to pay Agtoto P305,000.00, which was its bid for her land, less the P61,068.00 due from her loan. On November 26, 1997 the RTC issued an order, amending the dispositive portion of its decision to include an award of 6% interest per annum on the amount of the award, counted from the date of the auction sale on September 13, 1990 until Agtoto would have been fully paid; her previous payment of P14,500.00 could not be deducted from the principal loan, however, since this was charged against the interests, surcharges, and penalties due on her loan. Agtoto appealed to the Court of Appeals. The Court of Appeals affirmed the trial courts decision with the modification in that it awarded to Agtoto P189,497.10 plus 12% interest per annum from January 29, 1992 or the date of judicial demand until full payment. ISSUE: Whether or not the Bank validly foreclosed on Agtotos mortgaged land. HELD: Agtoto contends that the foreclosure sale was void since she did not authorize her husband, Rodney, to act as her attorney-in-fact for purposes of the foreclosure proceedings. As the appellate court correctly ruled, however, the powers she vested in Rodney as her attorney-in-fact in connection with the mortgage of her land included the power to constitute the mortgagee bank as Rodney's attorney-in-fact for foreclosure purposes for, otherwise, the grant to him of the power to enter into a mortgage contract would have been incomplete in the usual course. The SPA authorized Rodney to make, sign, execute, and deliver contracts, documents, agreements, and other writings of whatever nature or kind, with any person or persons, upon such terms and conditions as were acceptable to him as attorney-in-fact. The constitution of the Bank as attorney-in-fact for purposes of extrajudicial foreclosure was a condition that Rodney accepted and it bound Agtoto as principal, the same being a legitimate exercise of his powers under the SPA. What is more, even assuming that Rodney exceeded his powers under the SPA, Agtoto should be deemed to have ratified the same when she herself signed the mortgage document. The foreclosure sale was likewise valid, notwithstanding the chattel mortgage that covered the P69,432.00 portion of the loan of P130,500.00. The chattel mortgage was a contract distinct from the real estate mortgage, which latter mortgage covered the separate amount of P61,068.00. Thus, the Bank had no right to include in the foreclosure of the land the portion of the loan separately secured by the chattel mortgage. The Court finds no reason to deviate from the CAs ruling that the proceeds of the foreclosure sale should be applied to satisfy only the debt and related charges that the foreclosed land secured. Since the Bank collected the entire amount of the loan from the proceeds of the foreclosure 80

sale, including the portion that was not covered by the real estate mortgage, it must return such to Agtoto, which amounted to P189,497.10 (P305,000.00 less the P115,502.90 portion covered by the real estate mortgage.) The Court cannot simply ignore the importance of surplus foreclosure sale proceeds because they stand in the place of the land itself and are constructively, at least, real property that belongs to the mortgagor. Lastly, forbearance of money refers to the obligation of the creditor to desist for a fixed period from requiring the debtor to repay the debt then due and for which 12% per annum is imposed as interest rate. Since the excess amount that the Bank withheld may be regarded in equity as the equivalent of a forbearance of money, given that it charged the borrower interest for the same, the Bank should be made to pay 12% interest on it until fully paid. Such interest should, however, be computed only from the time the CA rendered its decision on October 27, 2005 when it determined with reasonable certainty the amount of the surplus proceeds from the Bank has to return to Agtoto.

SPOUSES WILFREDO PALADA vs. SOLIDBANK CORPORATION and SHERIFF MAYO DELA CRUZ G.R. No. 172227 June 29, 2011 FACTS: In February or March 1997, petitioners, spouses Wilfredo and Brigida Palada, applied for a P3 million loan broken down as follows: P1 million as additional working capital under the bills discounting line; P500,000.00 under the bills purchase line; and P1.5 million under the time loan from respondent Solidbank Corporation (bank). On March 17, 1997, petitioners received from the bank the amount of P1 million as additional working capital evidenced by a promissory note and secured by a real estate mortgage in favor of the bank covering several real properties situated in Santiago City. Due to the failure of petitioners to pay the obligation, the bank foreclosed the mortgage and sold the properties at public auction. 81

On August 19, 1999, petitioners filed a Complaint for nullity of real estate mortgage and sheriffs certificate of sale with prayer for damages, docketed as Civil Case No. 35-2779, against the bank and respondent Sheriff Mayo dela Cruz (sheriff) before the Regional Trial Court (RTC) of Santiago City. Petitioners alleged that the bank, without their knowledge and consent, included their properties covered by Transfer Certificate of Title (TCT) Nos. T-225131 and T-225132 among the list of properties mortgaged; that it was only when they received the notice of sale from the sheriff in August 1998 that they found out about the inclusion of the said properties; that despite their objection, the sheriff proceeded with the auction sale; and that the auction sale was done in Santiago City in violation of the stipulation on venue in the real estate mortgage. The bank, in its Answer, denied the material allegations of the Complaint and averred that since petitioners were collaterally deficient, they offered TCT Nos. T237695, T-237696, T-225131 and T-225132 as additional collateral; that although the said properties were at that time mortgaged to the Philippine National Bank (PNB), the bank accepted the offer and caused the annotation of the mortgage in the original copies with the Register of Deeds with the knowledge and consent of petitioners; and that when petitioners obligation to PNB was extinguished, they delivered the titles of the four properties to the bank.. The RTC rendered a Decision declaring the real estate mortgage void for lack of sufficient consideration. ISSUE: Whether or not the real estate mortgage and the auction sale are valid. HELD: Under Article 1934 of the Civil Code, a loan contract is perfected only upon the delivery of the object of the contract. In this case, although petitioners applied for a P3 million loan, only the amount of P1 million was approved by the bank because petitioners became collaterally deficient when they failed to purchase TCT No. T-227331 which had an appraised value of P1,944,000.00. Hence, on March 17, 1997, only the amount of P1 million was released by the bank to petitioners. Upon receipt of the approved loan on March 17, 1997, petitioners executed a promissory note for the amount of P1 million. As security for the P1 million loan, petitioners on the same day executed in favor of the bank a real estate mortgage over the properties covered by TCT Nos. T-237695, T-237696, T-237698, T-143683, T-143729, T-225131 and T-225132. Clearly, contrary to the findings of the RTC, the loan contract was perfected on March 17, 1997 when petitioners received the P1 million loan, which was the object of both the promissory note and the real estate mortgage executed by petitioners in favor of the bank. Petitioners claim that there was fraud and bad faith on the part of the bank in the execution and notarization of the real estate mortgage contract. There is nothing on the face of the real estate mortgage contract to arouse any suspicion of insertion or forgery. Except for the bare denials of petitioner, no other evidence was presented to show that the signatures appearing on the dorsal portion of the real estate mortgage contract are forgeries. Likewise flawed is petitioners reasoning that TCT Nos. T-225131 and T-225132 could not have been included in the list of properties mortgaged as these were still 82

mortgaged with the PNB at that time. Under our laws, a mortgagor is allowed to take a second or subsequent mortgage on a property already mortgaged, subject to the prior rights of the previous mortgages. As to the RTCs finding that the x x x bank acted in bad faith when it made it appear that the mortgage was executed by the [petitioners] on June 16, 1997, when the document was acknowledged before Atty. German, x x x when in truth and in fact, the [petitioners] executed said mortgage sometime in March, 1997 x x x, we find the same without basis. A careful perusal of the real estate mortgage contract would show that the bank did not make it appear that the real estate mortgage was executed on June 16, 1997, the same day that it was notarized, as the date of execution of the real estate mortgage contract was left blank. And the mere fact that the date of execution was left blank does not prove bad faith. Besides, any irregularity in the notarization or even the lack of notarization does not affect the validity of the document. Absent any clear and convincing proof to the contrary, a notarized document enjoys the presumption of regularity and is conclusive as to the truthfulness of its contents. All told, we find no error on the part of the CA in sustaining the validity of the real estate mortgage as well as the certificate of sale.

UNION BANK OF THE PHILIPPINES, vs. ALAIN* JUNIAT, WINWOOD APPAREL, INC., WINGYAN APPAREL, INC., NONWOVEN FABRIC PHILIPPINES,Respondents. G.R. No. 171569 August 1, 2011 FACTS: Petitioner filed with the Regional Trial Court (RTC) of Makati, Branch 57, a Complaint with prayer for the issuance of ex-parte writs of preliminary 83

attachment and replevin against Juniat, Winwood, Wingyan, and the person in possession of the mortgaged motorized sewing machines and equipment.Petitioner alleged that Juniat, acting for and in behalf of Winwood and Wingyan, executed a promissory note and a Chattel Mortgage dated over several motorized sewing machines and other allied equipment to secure their obligation arising from export bills transactions to petitioner that as additional security for the obligation, Juniat executed a Continuing Surety Agreement in favor of petitioner that the loan remains unpaid and that the mortgaged motorized sewing machines are insufficient to answer for the obligation. The RTC issued writs of preliminary attachment and replevin in favor of petitioner.The writs were served by the Sheriff upon Nonwoven as it was in possession of the motorized sewing machines and equipment.Nonwoven filed an Answer,contending that the unnotarized Chattel Mortgage executed in favor of petitioner has no binding effect on Nonwoven and that it has a better title over the motorized sewing machines and equipment because these were assigned to it by Juniat pursuant to their Agreement dated May 9, 1992. ISSUE: Whether the unnotarized mortgage executed in favor of petitioner has no binding effect. HELD: A perusal of the Agreement dated May 9, 1992 clearly shows that the sewing machines, snap machines and boilers were pledged to Nonwoven by Juniat to guarantee his obligation. However, under Article 2096 of the Civil Code, "[a] pledge shall not take effect against third persons if a description of the thing pledged and the date of the pledge do not appear in a public instrument." Hence, just like the chattel mortgage executed in favor of petitioner, the pledge executed by Juniat in favor of Nonwoven cannot bind petitioner. Also, there is nothing in the Agreement dated May 9, 1992 to indicate that the motorized sewing machines, snap machines and boilers were ceded to Nonwoven as payment for the Wingyans and Winwoods obligation. It bears stressing that there can be no transfer of ownership if the delivery of the property to the creditor is by way of security. In fact, in case of doubt as to whether a transaction is one of pledge or dacion en pago, the presumption is that it is a pledge as this involves a lesser transmission of rights and interests.

BPI FAMILY SAVINGS BANK, INC., vs. MA. ARLYN T. AVENIDO & PACIFICO A. AVENIDO, G.R. No. 175816, December 7, 2011

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FACTS: On September 20, 2000, BPI Family filed a Complaint for Collection of Deficiency of Mortgage Obligation with Damages against the spouses Avenido. BPI Family alleged in its Complaint that pursuant to a Mortgage Loan Agreement, the spouses Avenido obtained from the bank a loan in the amount of P2,000,000.00, secured by a real estate mortgage on a parcel of land (mortgaged/foreclosed property). The spouses Avenido failed to pay their loan obligation despite demand, prompting BPI Family to institute extrajudicial foreclosure proceedings over the mortgaged property. At the public auction sale, BPI Family was the highest bidder for the foreclosed property. The bid price of P2,142,616.00 of BPI Family was applied as partial payment of the mortgage obligation of the spouses Avenido, which had amounted to P2,917,381.43 on the date of the public auction sale, thus, still leaving an unpaid amount of P794,765.43. BPI Family prayed that the RTC order the spouses Avenido to pay the deficiency of their mortgage obligation amounting to P794,765.43, plus legal interest thereon from the date of the filing of the Complaint until full payment. The spouses Avenido averred therein that they had already paid a substantial amount to BPI Family, which could not be less than P1,000,000.00, but due to the imposition by BPI Family of unreasonable charges and penalties on their principal obligation, their payments seemed insignificant. Per the Notice of Extrajudicial Sale dated February 4, 1999, the spouses Avenidos indebtedness to BPI Family only amounted to less than P2,000,000.00, and such amount was already fully covered when the foreclosed property was sold at the public auction for P2,142,616.00. The spouses Avenido sought the dismissal of the Complaint for lack of merit.

ISSUE: Whether or not BPI Family is still entitled to collect the deficiency mortgage obligation from the spouses Avenido in the amount of P455,836.80, plus interest.

HELD: The Court answered in the affirmative. It is settled that if the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of mortgage, the mortgagee is entitled to claim the deficiency from the debtor. While Act No. 3135, as amended, does not discuss the mortgagees right to recover the deficiency, neither does it contain any provision expressly or impliedly prohibiting recovery. If the legislature had intended to deny the creditor the right to sue for any deficiency resulting from the foreclosure of a security given to guarantee an obligation, the law would expressly so provide. Absent such a provision in Act No. 3135, as amended, the creditor is not precluded from taking action to recover any unpaid balance on the principal obligation simply because he chose to extrajudicially foreclose the real estate mortgage.

85

We have consistently held in previous cases that unlike in an ordinary sale, inadequacy of the price at a forced sale is immaterial and does not nullify the sale. In fact, in a forced sale, a low price is more beneficial to the mortgage debtor for it makes redemption of the property easier. The fact that the mortgaged property is sold at an amount less than its actual market value should not militate against the right to such recovery. We fail to see any disadvantage going for the mortgagor. On the contrary, a mortgagor stands to gain with a reduced price because he possesses the right of redemption. When there is the right to redeem, inadequacy of price should not be material, because the judgment debtor may reacquire the property or also sell his right to redeem and thus recover the loss he claims to have suffered by the reason of the price obtained at the auction sale. Generally, in forced sales, low prices are usually offered and the mere inadequacy of the price obtained at the sheriffs sale unless shocking to the conscience will not be sufficient to set aside a sale if there is no showing that in the event of a regular sale, a better price can be obtained. The Couty refuse to consider the question of sufficiency of the winning bid price of BPI Family for the foreclosed property; and affirm the application of said winning bid in the amount of P2,142,616.00 against the total outstanding loan obligation of the spouses Avenido by March 8, 1999 in the sum of P2,598,452.80, thus, leaving a deficiency of P455,836.80. BPI Family may still collect the said deficiency without violating the principle of unjust enrichment.

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AGENCY
LOADMASTERS CUSTOMS SERVICES, INC. VS. GLODEL BROKERAGE CORP. G.R. No. 179446 , January 10, 2011 FACTS: On August 28, 2001, Columbia insured with R&B Insurance the shipment of 132 bundles of electric copper cathodes against All Risks and on the same day said shipment arrived in Manila from Leyte. Columbia engaged the services of Glodel for the release and withdrawal of the cargoes from the pier and the subsequent delivery to its warehouses/plants. Glodel, in turn, engaged the services of Loadmasters for the use of its delivery trucks to transport the cargoes to Columbias warehouses/plants in Bulacan and Valenzuela City.

The goods were loaded on board twelve trucks owned by Loadmasters. Six truckloads of copper cathodes were to be delivered to Balagtas, Bulacan while the other six truckloads were destined for Lawang Bato, Valenzuela City in Columbias warehouse. One truck loaded with 232 pieces of copper cathodes destined to Balagtas, Bulacan, failed to deliver its cargo. Said truck was later on recovered but without the copper cathodes. Thereafter, Columbia filed with R&B Insurance a claim for insurance indemnity. R&B Insurance paid Columbia after which, a complaint for damages against both Loadmasters and Glodel was filed by the insurance company.

On November 19, 2003, the RTC rendered a decision holding Glodel liable for damages for the loss of the subject cargo. The CA considered that Loadmaster is an agent of appellant Glodel, thus whatever liability the latter owes R&B Insurance Corporation as insurance indemnity must likewise be the amount it shall be paid by Loadmaster.

ISSUE: Whether or not petitioner Loadmaster can be legally considered as an Agent of respondent Glodel.

HELD: No. The Court clarifies that there exists no principal-agent relationship between Glodel and Loadmasters, as erroneously found by the CA. Article 1868 of the Civil Code provides: By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. The elements of a contract of agency are: (1) consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for himself; (4) the agent acts within the scope of his authority.

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Accordingly, there can be no contract of agency between the parties. Loadmasters never represented Glodel. Neither was it ever authorized to make such representation. It is a settled rule that the basis for agency is representation, that is, the agent acts for and on behalf of the principal on matters within the scope of his authority and said acts have the same legal effect as if they were personally executed by the principal. On the part of the principal, there must be an actual intention to appoint or an intention naturally inferable from his words or actions, while on the part of the agent, there must be an intention to accept the appointment and act on it. Such mutual intent is not obtaining in this case.

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TRUSTS
PNB VS. AZNAR G.R. No. 171805 May 30, 2011 FACTS: In 1958, RISCO ceased operation due to business reverses. In plaintiffs desire to rehabilitate RISCO, they contributed a total amount of P212,720.00 which was used in the purchase of the three (3) parcels of land. After the purchase of the lots, titles were issued in the name of RISCO. The amount contributed by plaintiffs constituted as liens and encumbrances on the properties as annotated in the titles of said lots. Such annotation was made pursuant to the Minutes of the Special Meeting of the Board of Directors of RISCO. Thereafter, various subsequent annotations were made on the same titles, including the Notice of Attachment and Writ of Execution in favor of defendant PNB. A Certificate of Sale was issued in favor of PNB, being the lone and highest bidder of the three (3) parcels of land. Thereafter, a Final Deed of Sale in favor of PNB was also issued and TCT was cancelled and a new certificate of title. TCT was issued in the name of PNB. This prompted plaintiffs-appellees to file the complaint seeking the quieting of their supposed title to the subject properties. Plaintiffs alleged that the subsequent annotations on the titles are subject to the prior annotation of their liens and encumbrances. Plaintiffs further contended that the subsequent writs and processes annotated on the titles are all null and void for want of valid service upon RISCO and on them, as stockholders. They argued that the Final Deed of Sale and TCT No. 119848 are null and void as these were issued only after 28 years and that any right which PNB may have over the properties had long become stale. PNB on the other hand countered that plaintiffs have no right of action for quieting of title since the order of the court directing the issuance of titles to PNB had already become final and executory and their validity cannot be attacked except in a direct proceeding for their annulment. Defendant further asserted that plaintiffs, as mere stockholders of RISCO do not have any legal or equitable right over the properties of the corporation. PNB posited that even if plaintiff's monetary lien had not expired, their only recourse was to require the reimbursement or refund of their contribution. The trial court rendered a Decision, which ruled against PNB on the basis that there was an express trust created over the subject properties whereby RISCO was the trustee and the stockholders, Aznar, et al., were the beneficiaries or the cestui que trust. PNB appealed to the Court of Appeals which, in its Decision, set aside the judgment of the trial court. The CA opined that the monetary contributions made by Aznar, et al., to RISCO can only be characterized as a loan secured by a lien on the subject lots, rather than an express trust. Thus, it directed PNB to pay Aznar, et al., the amount of their contributions plus legal interest from the time of acquisition of the property until finality of judgment. ISSUE: Whether or not the CA erred in concluding that the contributions made by the stockholders of RISCO were merely a loan secured by their lien over the properties, subject to reimbursement or refund, rather than an express trust. HELD: 89

The term lien as used in the Minutes is defined as "a discharge on property usually for the payment of some debt or obligation. A lien is a qualified right or a proprietary interest which may be exercised over the property of another. It is a right which the law gives to have a debt satisfied out of a particular thing. It signifies a legal claim or charge on property; whether real or personal, as a collateral or security for the payment of some debt or obligation." Hence, from the use of the word "lien" in the Minutes, We find that the money contributed by plaintiffs-appellees was in the nature of a loan, secured by their liens and interests duly annotated on the titles. The annotation of their lien serves only as collateral and does not in any way vest ownership of property to plaintiffs. (Emphases supplied.) We are not persuaded by the contention of Aznar, et al., that the language of the subject Minutes created an express trust. Trust is the right to the beneficial enjoyment of property, the legal title to which is vested in another. It is a fiduciary relationship that obliges the trustee to deal with the property for the benefit of the beneficiary. Trust relations between parties may either be express or implied. An express trust is created by the intention of the trustor or of the parties. An implied trust comes into being by operation of law. Express trusts, sometimes referred to as direct trusts, are intentionally created by the direct and positive acts of the settlor or the trustor - by some writing, deed, or will or oral declaration. It is created not necessarily by some written words, but by the direct and positive acts of the parties. This is in consonance with Article 1444 of the Civil Code, which states that "[n]o particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended." In other words, the creation of an express trust must be manifested with reasonable certainty and cannot be inferred from loose and vague declarations or from ambiguous circumstances susceptible of other interpretations. No such reasonable certitude in the creation of an express trust obtains in the case at bar. In fact, a careful scrutiny of the plain and ordinary meaning of the terms used in the Minutes does not offer any indication that the parties thereto intended that Aznar, et al., become beneficiaries under an express trust and that RISCO serve as trustor. Indeed, we find that Aznar, et al., have no right to ask for the quieting of title of the properties at issue because they have no legal and/or equitable rights over the properties that are derived from the previous registered owner which is RISCO, the pertinent provision of the law is Section 2 of the Corporation Code (Batas Pambansa Blg. 68), which states that "[a] corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence." Aznar, et al., who are stockholders of RISCO, cannot claim ownership over the properties at issue in this case on the strength of the Minutes which, at most, is merely evidence of a loan agreement between them and the company. There is no indication or even a suggestion that the ownership of said properties were transferred to them which would require no less that the said properties be registered under their names. For this reason, the complaint should be dismissed since Aznar, et al., have no cause to seek a quieting of title over the subject properties. At most, what Aznar, et al., had was merely a right to be repaid the amount loaned to RISCO. Unfortunately, the right to seek repayment or reimbursement of their contributions used to purchase the subject properties 90

is already barred by prescription.

JUAN VS. YAP, SR. G.R. No. 182177, March 30, 2011 FACTS: On July 31, 1995, the spouses Caneda mortgaged to petitioner Juan, nephew and employee of herein respondent Gabriel Yap, Sr., two parcels of land in Talisay, Cebu to secure a loan of P1.6M, payable within one year. On June 30, 1998, petitioner sought the extrajudicial foreclosure of the mortgage. In auction sale, both petitioner and respondent participated but the properties were sold to petitioner for tendering the highest bid. For failure to pay the sales commission, no certificate of sale was issued to petitioner. On February 15, 1999, respondent and the Caneda spouses executed a memorandum of agreement where (1) the Caeda spouses acknowledged respondent as their "real mortgagee-creditor x x x while Richard Juan [petitioner] is merely a trustee" of respondent; x x x The Caneda spouses and the respondent sued petitioner to declare among others, the respondent as trustor of petitioner vis a vis the Contract. In his Answer, petitioner insisted on his rights over the mortgaged properties. The trial court ruled in favor of the petitioner declaring that he is the true and real mortgagee. Respondent appealed to the Court of Appeals (CA), imputing error in the trial courts refusal to recognize a resulting trust between him and petitioner. The CA granted the petition. ISSUE: Whether an implied trust arose between petitioner and respondent, binding petitioner to hold the beneficial title over the mortgaged properties in trust for respondent. HELD: An implied trust arising from mortgage contracts is not among the trust relationships the Civil Code enumerates. The Code itself provides, however, that such listing "does not exclude others established by the general law on trust x x x." Under the general principles on trust, equity converts the holder of property right as trustee for the benefit of another if the circumstances of its acquisition makes the holder ineligible "in x x x good conscience [to] hold and enjoy [it]."As implied trusts are remedies against unjust enrichment, the "only problem of great importance in the field of constructive trusts is whether in the numerous and varying factual situations presented x x x there

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is a wrongful holding of property and hence, a threatened unjust enrichment of the defendant." The formal holders of title were deemed trustees obliged to transfer title to the beneficiaries in whose favor the trusts were deemed created. We see no reason to bar the recognition of the same obligation in a mortgage contract meeting the standards for the creation of an implied trust. It was respondent, not petitioner, who shouldered the payment of the foreclosure expenses. Petitioners failure to explain this oddity, coupled with the fact that no certificate of sale was issued to him (despite tendering the highest bid) for his non-payment of the commission, undercuts his posturing as the real mortgagor. Clearly then, petitioner holds title over the mortgaged properties only because respondent allowed him to do so. The demands of equity and justice mandate the creation of an implied trust between the two, barring petitioner from asserting proprietary claims antagonistic to his duties to hold the mortgaged properties in trust for respondent. To arrive at a contrary ruling is to tolerate unjust enrichment, the very evil the fiction of implied trust was devised to remedy.

QUASI-DELICTS
VALLACAR TRANSIT, INC. vs. JOCELYN CATUBIG G.R. No. 175512 May 30, 2011 FACTS: Petitioner is engaged in the business of transportation and the franchise owner of a Ceres Bulilit bus with Plate No. T-0604-1348. Quirino C. Cabanilla (Cabanilla) is employed as a regular bus driver of petitioner. Respondents husband, Quintin Catubig, Jr. (Catubig), was on his way home from Dumaguete City riding in tandem on a motorcycle with his employee, Teddy Emperado (Emperado). Catubig was the one driving the motorcycle. While approaching a curve at kilometers 59 and 60, Catubig tried to overtake a slow moving ten-wheeler cargo truck by crossing-over to the opposite lane, which was then being traversed by the Ceres Bulilit bus driven by Cabanilla, headed for the opposite direction. When the two vehicles collided, Catubig and Emperado were thrown from the motorcycle. Catubig died on the spot where he was thrown, while Emperado died while being rushed to the hospital. Cabanilla was charged with reckless imprudence resulting in double homicide. After preliminary investigation, the MCTC issued a Resolution dismissing the criminal charge against Cabanilla. It found that Cabanilla was not criminally liable for the deaths of Catubig and Emperado, because there was no negligence, not even contributory, on Cabanillas part. Thereafter, respondent filed before the RTC a Complaint for Damages against petitioner, seeking actual, moral, and exemplary damages, in the total amount of P484,000.00, for the death of her husband, Catubig, based on 92

Article 2180, in relation to Article 2176, of the Civil Code. Respondent alleged that petitioner is civilly liable because the latters employee driver, Cabanilla, was reckless and negligent in driving the bus which collided with Catubigs motorcycle. Petitioner, in its Answer with Counterclaim, contended that the proximate cause of the vehicular collision, which resulted in the deaths of Catubig and Emperado, was the sole negligence of Catubig when he imprudently overtook another vehicle at a curve and traversed the opposite lane of the road. As a special and affirmative defense, petitioner asked for the dismissal of respondents complaint for not being verified and/or for failure to state a cause of action, as there was no allegation that petitioner was negligent in the selection or supervision of its employee driver. The RTC promulgated its Decision favoring petitioner. The CA held that both Catubig and Cabanilla were negligent in driving their respective vehicles. Catubig, on one hand, failed to use reasonable care for his own safety and ignored the hazard when he tried to overtake a truck at a curve. Cabanilla, on the other hand, was running his vehicle at a high speed of 100 kilometers per hour. The Court of Appeals also brushed aside the defense of petitioner that it exercised the degree of diligence exacted by law in the conduct of its business.

ISSUE: Whether or not petitioner is liable to pay damages.

HELD: The petition is meritorious. The Court agreed with petitioner that respondent was unable to prove imputable negligence on the part of petitioner. Respondent based her claim for damages on Article 2180, in relation to Article 2176, of the Civil Code, which read:
Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter. Art. 2180. The obligation imposed by Article 2176 is demandable not only for ones own acts or omissions, but also for those persons for whom one is responsible. xxxx Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry. xxxx

The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage. There is merit in the argument of the petitioner that Article 2180 of the Civil Code imputing fault or negligence on the part of the employer for the fault or negligence of its employee does not apply to petitioner since the fault or negligence of its employee driver, Cabanilla, which would have made the latter liable for quasi-delict under Article 2176 of the Civil Code, has never been established by respondent. To 93

the contrary, the totality of the evidence presented during trial shows that the proximate cause of the collision of the bus and motorcycle is attributable solely to the negligence of the driver of the motorcycle, Catubig. Proximate cause is defined as that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred. And more comprehensively, the proximate legal cause is that acting first and producing the injury, either immediately or by setting other events in motion, all constituting a natural and continuous chain of events, each having a close causal connection with its immediate predecessor, the final event in the chain immediately effecting the injury as a natural and probable result of the cause which first acted, under such circumstances that the person responsible for the first event should, as an ordinary prudent and intelligent person, have reasonable ground to expect at the moment of his act or default that an injury to some person might probably result therefrom. The evidence shows that the driver of the bus, Cabanilla, was driving his vehicle along the proper lane, while the driver of the motorcycle, Catubig, had overtaken a vehicle ahead of him as he was approaching a curvature on the road, in disregard of the provision of the law on reckless driving, at the risk of his life and that of his employee, Emperado. The presumption that employers are negligent under Article 2180 of the Civil Code flows from the negligence of their employees. Having adjudged that the immediate and proximate cause of the collision resulting in Catubigs death was his own negligence, and there was no fault or negligence on Cabanillas part, then such presumption of fault or negligence on the part of petitioner, as Cabanillas employer, does not even arise. Thus, it is not even necessary to delve into the defense of petitioner that it exercised due diligence in the selection and supervision of Cabanilla as its employee driver.

PHILIPPINE NATIONAL BANK vs. F.F. CRUZ and CO., INC G.R. No. 173259 July 25, 2011 FACTS: Respondent F.F. Cruz & Co., Inc. (hereinafter FFCCI) opened savings/current or so-called combo account No. 0219-830-146 and dollar savings account No. 0219-0502-458-6 with [petitioner Philippine National Bank] (hereinafter PNB) at its Timog Avenue Branch. Its President Felipe Cruz (or Felipe) and Secretary-Treasurer Angelita A. Cruz (or Angelita) were the named signatories for the said accounts. The said signatories on separate but coeval dates left for and returned from the Unites States of America, Felipe on March 18, 1995 until June 10, 1995 while Angelita followed him on March 29, 1995 and returned ahead on May 9, 1995. While they were thus out of the country, applications for cashiers and managers checks bearing Felipes signature were presented to and both 94

approved by the PNB. The first was on March 27, 1995 for P9,950,000.00 payable to a certain Gene B. Sangalang and the other one was on April 24, 1995 for P3,260,500.31 payable to one Paul Bautista. The amounts of these checks were then debited by the PNB against the combo account of FFCCI. When Angelita returned to the country, she had occasion to examine the PNB statements of account of FFCCI for the months of February to August 1995 and she noticed the deductions of P9,950,000.00 and P3,260,500.31. Claiming that these were unauthorized and fraudulently made, FFCCI requested PNB to credit back and restore to its account the value of the checks. PNB refused, and thus constrained FFCCI filed the instant suit for damages against the PNB and its own accountant AureaCaparas.

ISSUE: Who bears the loss between a bank and its depositor, where the banks negligence is the proximate cause of the loss and the depositor is guilty of contributory negligence?

HELD: As we have often ruled, the banking business is impressed with public trust. A higher degree of diligence is imposed on banks relative to the handling of their affairs than that of an ordinary business enterprise.Thus, the degree of responsibility, care and trustworthiness expected of their officials and employees is far greater than those of ordinary officers and employees in other enterprises. In the case at bar, PNB failed to meet the high standard of diligence required by the circumstances to prevent the fraud. In Philippine Bank of Commerce v. Court of Appeals and The Consolidated Bank & Trust Corporation v. Court of Appeals, where the banks negligence is the proximate cause of the loss and the depositor is guilty of contributory negligence, we allocated the damages between the bank and the depositor on a 60-40 ratio. We apply the same ruling in this case considering that, as shown above, PNBs negligence is the proximate cause of the loss.

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RCJ BUS LINES, INCORPORATED vs. STANDARD INSURANCE COMPANY, INCORPORATED G.R. No. 193629 August 17, 2011 FACTS: In the evening of 19 June 1994, at around 7:00 oclock, a Toyota Corolla with Plate No. PHU-185 driven by Rodel Chua, cruised along the National Highway at Barangay Amlang, Rosario, La Union, heading towards the general direction of Bauan, La Union. The Toyota Corolla travelled at a speed of 50 kilometers per hour as it traversed the downward slope of the road, which curved towards the right. The Mitsubishi Lancer GLX with Plate No. TAJ-796, driven by Teodoro Goki, and owned by Rodelene Valentino, was then following the Toyota Corolla along the said highway. Behind the Mitsubishi Lancer GLX was the passenger bus with Plate No. NYG-363, driven by Flor Bola Mangoba and owned by RCJ Bus Lines, Inc. The bus followed the Mitsubishi Lancer GLX at a distance of ten (10) meters and traveled at the speed of 60 to 75 kilometers per hour.Upon seeing a pile of gravel and sand on the road, the Toyota Corolla stopped on its tracks. The Mitsubishi Lancer followed suit and also halted. At this point, the bus hit and bumped the rear portion of the Mitsubishi Lancer causing it to move forward and hit the Toyota Corolla in front of it. As a result of the incident, the Mitsubishi Lancer sustained damages amounting to P162,151.22, representing the costs of its repairs. Under the comprehensive insurance policy secured by Rodelene Valentino, owner of the Mitsubishi Lancer, STANDARD reimbursed to the former the amount she expended for the repairs of her vehicle. Rodelene then executed a Release of Claim and Subrogation Receipt, subrogating STANDARD to all rights, claims and actions she may have against RCJ Bus Lines, Inc. and its driver, Flor Bola Mangoba. ISSUE: Whether petitioner RCJ is vicariously liable for the claim of supposed actual damages incurred by respondent Standard Insurance. HELD: RCJ, by presenting witnesses to testify on its exercise of diligence of a good father of a family in the selection and supervision of its bus drivers, admitted that Mangoba is its employee. Article 2180 of the Civil Code, in relation to Article 2176,makes the employer vicariously liable for the acts of its employees. When the employee causes damage due to his own negligence while performing his own duties, there arises the juristantum presumption that the employer is negligent, rebuttable only by proof of observance of the diligence of a good father of a family. For failure to rebut such legal presumption of negligence in the selection and supervision of employees, the employer is likewise responsible for damages, the basis of the liability being the relationship of pater familias or on the employers own negligence. Mangoba, per testimony of his conductor, was ten meters away from the Mitsubishi Lancer before the collision and was driving 60 to 75 kilometers per hour when the speed limit was 50 kilometers per hour.The presumption under Article 2185 of the Civil Code was thus proven true: Mangoba, as driver of the 96

bus which collided with the Mitsubishi Lancer, was negligent since he violated a traffic regulation at the time of the mishap.To be sure, had not the passenger bus been speeding while traversing the downward sloping road, it would not have hit and bumped the Mitsubishi Lancer in front of it, causing the latter vehicle to move forward and hit and bump, in turn, the Toyota Corolla. Had the bus been moving at a reasonable speed, it could have avoided hitting and bumping the Mitsubishi Lancer upon spotting the same, taking into account that the distance between the two vehicles was ten (10) meters. ALBERT TISON and CLAUDIO L. JABON vs. SPS. GREGORIO POMASIN and CONSORCIA PONCE POMASIN, DIANNE POMASIN PAGUNSAN, CYNTHIA POMASIN, SONIA PEROL, ANTONIO SESISTA, GINA SESISTA, and REYNALDO SESISTA, Respondents. G.R. No. 173180 August 24, 2011 FACTS: Two vehicles, a tractor-trailer and a jitney, figured in a vehicular mishap along Maharlika Highway in Albay. Gregorio Pomasin (Gregorio), Laarnis father, was on board the jitney and seated on the passengers side. He testified that while the jitney was passing through a curve going downward, he saw a tractor-trailer coming from the opposite direction and encroaching on the jitneys lane. The jitney was hit by the tractor-trailer and it was dragged further causing death and injuries to its passengers. On the other hand, Jabon recounted that while he was driving the tractortrailer, he noticed a jitney on the opposite lane falling off the shoulder of the road. Thereafter, it began running in a zigzag manner and heading towards the direction of the truck. To avoid collision, Jabon immediately swerved the tractor-trailer to the right where it hit a tree and sacks of palay. Unfortunately, the jitney still hit the left fender of the tractor-trailer before it was thrown a few meters away. The tractor-trailer was likewise damaged. Multiple death and injuries to those in the jitney resulted. Respondents filed a complaint for damages against petitioners. In their Answer, petitioners countered that it was Laarnis negligence which proximately caused the accident. They further claimed that Cynthia was authorized by Spouses Pomasin to enter into an amicable settlement by executing an Affidavit of Desistance. Notwithstanding the affidavit, petitioners complained that respondents filed the instant complaint to harass them and profit from the recklessness of Laarni. Petitioners counterclaimed for damages. ISSUE: Who is the negligent party or the party at fault? HELD: While it is logical that a drivers attention to the road travelled is keener than that of a mere passenger, it should also be considered that the logic will hold only if the two are similarly circumstanced, and only as a general rule, so that, it does not necessarily follow that between the opposing testimonies of a driver and a passenger, the former is more credible. The factual setting of the event testified on must certainly be considered.

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The trial court did just that in the instant case. Contrary to the observation of the Court of Appeals, the relative positions of a driver and a passenger in a vehicle was not the only basis of analysis of the trial court. Notably, aside from Jabons alleged vantage point to clearly observe the incident, the trial court also took into consideration Gregorios admission that prior to the accident, the jitney was running on the "curving and downward" portion of the highway. The appellate court, however, took into account the other and opposite testimony of Gregorio that it was their jitney that was going uphill and when it was about to reach a curve, he saw the incoming truck running very fast and encroaching the jitneys lane. The rule on negligence per se must admit qualifications that may arise from the logical consequences of the facts leading to the mishap. The doctrine (and Article 2185, for that matter) is undeniably useful as a judicial guide in adjudging liability, for it seeks to impute culpability arising from the failure of the actor to perform up to a standard established by a legal fiat. But the doctrine should not be rendered inflexible so as to deny relief when in fact there is no causal relation between the statutory violation and the injury sustained. Presumptions in law, while convenient, are not intractable so as to forbid rebuttal rooted in fact. After all, tort law is remunerative in spirit, aiming to provide compensation for the harm suffered by those whose interests have been invaded owing to the conduct of other. In the instant case, no causal connection was established between the tractor-trailer drivers restrictions on his license to the vehicular collision. Furthermore, Jabon was able to sufficiently explain that the Land Transportation Office merely erred in not including restriction code 8 in his license. Neither can it be inferred that Jabon was negligent. In hindsight, it can be argued that Jabon should have swerved to the right upon seeing the jitney zigzagging before it collided with the tractor-trailer. Accidents, though, happen in an instant, and, understandably in this case, leaving the driver without sufficient time and space to maneuver a vehicle the size of a tractortrailer uphill and away from collision with the jitney oncoming downhill. Clearly, the negligence of Gregorios daughter, Laarni was the proximate cause of the accident.

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JOSE MARQUES and MAXILITE TECHNOLOGIES, INC. vs. FAR EAST BANK AND TRUST COMPANY, FAR EAST BANK INSURANCE BROKERS, INC., and MAKATI INSURANCE COMPANY G.R. No. 171379 January 10, 2011 FACTS: Maxilite Technologies, Inc. is a domestic corporation engaged in the importation and trading of equipment for energy-efficiency systems. Jose N. Marques (Marques) is the President and controlling stockholder of Maxilite. Far East Bank and Trust Co. (FEBTC) is a local bank which handled the financing and related requirements of Marques and Maxilite. Marques and Maxilite maintained accounts with FEBTC. Accordingly, FEBTC financed Maxilites capital and operational requirements through loans secured with properties of Marques under the latters name. Far East Bank Insurance Brokers, Inc. (FEBIBI) is a local insurance brokerage corporation while Makati Insurance Company is a local insurance company. Both companies are subsidiaries of FEBTC. On 17 June 1993, Maxilite and Marques entered into a trust receipt transaction with FEBTC, for the shipment of various hightechnology equipment from the United States, with the merchandise serving as collateral. The foregoing importation was covered by a trust receipt document signed by Marques on behalf of Maxilite. Sometime in August 1993, FEBIBI, upon the advice of FEBTC, facilitated the procurement and processing from Makati Insurance Company of four separate and independent fire insurance policies over the trust receipted merchandise. Maxilite paid the premiums for these policies through debit arrangement. FEBTC would debit Maxilites account for the premium payments, as reflected in statements of accounts sent by FEBTC to Maxilite. On 19 August 1994, Insurance Policy No. 1024439, covering the period 24 June 1994 to 24 June 1995, was released to cover the trust receipted merchandise. Any supplementary agreement seeking to amend this condition prepared by agent, broker or Company official, shall be deemed invalid and of no effect. Finding that Maxilite failed to pay the insurance premium in the sum of P8,265.60 for Insurance Policy No. 1024439 covering the period 24 June 1994 to 24 June 1995, FEBIBI sent written reminders to FEBTC, to debit Maxilites account. On 24 and 26 October 1994, Maxilite fully settled its trust receipt account. On 9 March 99

1995, a fire gutted the Aboitiz Sea Transport Building, where Maxilites office and warehouse were located. As a result, Maxilite suffered losses, which Maxilite claimed against the fire insurance policy with Makati Insurance Company. Makati Insurance Company denied the fire loss claim on the ground of non-payment of premium. FEBTC and FEBIBI disclaimed any responsibility for the denial of the claim. Maxilite and Marques sued FEBTC, FEBIBI, and Makati Insurance Company. On the other hand, Marques sought payment of actual, moral and exemplary damages, attorneys fees, and litigation expenses. Maxilite and Marques also sought the issuance of a preliminary injunction or a temporary restraining to enjoin FEBTC from (1) imposing penalties on their obligations; (2) foreclosing the real estate mortage securing their straight loan accounts; and (3) initiating actions to collect their obligations. Trial court ruled in favor of Maxilite and Marques. The Court of Appeals affirmed the trial courts decision, with modifications that the interest shall be at the rate of six percent (6%) per annum to run from the time of demand on April 11, 1995, in accordance with Article 1589 of the Civil Code, until the finality of this decision; the moral and exemplary damages is reduced; and the writ of preliminary injunction previously issued lifted and set aside. Hence, these petitions. ISSUE: Whether or not the CA erred in affirming the decision of the RTC. HELD: Prior to the full settlement of the trust receipt account on 24 and 26 October 1994, FEBTC had insurable interest over the merchandise, and thus had greater reason to debit Maxilites account. Further, as found by the trial court, and apparently undisputed by FEBTC, FEBIBI and Makati Insurance Company, Maxilite had sufficient funds at the time the first reminder, dated 19 October 1994, was sent by FEBIBI to FEBTC to debit Maxilites account for the payment of the insurance premium. Since (1) FEBTC committed to debit Maxilites account corresponding to the insurance premium; (2) FEBTC had insurable interest over the property prior to the settlement of the trust receipt account; and (3) Maxilites bank account had sufficient funds to pay the insurance premium prior to the settlement of the trust receipt account, FEBTC should have debited Maxilites account as what it had repeatedly done, as an established practice, with respect to the previous insurance policies. However, FEBTC failed to debit and instead disregarded the written reminder from FEBIBI to debit Maxilites account. FEBTCs conduct clearly constitutes negligence in handling Maxilites and Marques accounts. Negligence is defined as "the omission to do something which a reasonable man, guided upon those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent man and reasonable man could not do." As a consequence of its negligence, FEBTC must be held liable for damages pursuant to Article 2176 of the Civil Code which states "whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done." Indisputably, had the insurance premium been paid, through the automatic debit arrangement with FEBTC, Maxilites fire loss claim would have been approved. Hence, Maxilite suffered 100

damage to the extent of the face value of the insurance policy or the sum of P2.1 million. Contrary to Maxilites and Marques view, FEBTC is solely liable for the payment of the face value of the insurance policy and the monetary awards stated in the Court of Appeals decision. Suffice it to state that FEBTC, FEBIBI, and Makati Insurance Company are independent and separate juridical entities, even if FEBIBI and Makati Insurance Company are subsidiaries of FEBTC. Absent any showing of its illegitimate or illegal functions, a subsidiarys separate existence shall be respected, and the liability of the parent corporation as well as the subsidiary shall be confined to those arising in their respective business. Besides, the records are bereft of any evidence warranting the piercing of corporate veil in order to treat FEBTC, FEBIBI, and Makati Insurance Company as a single entity. Likewise, there is no evidence showing FEBIBIs and Makati Insurance Companys negligence as regards the non-payment of the insurance premium. The Court agrees with the Court of Appeals in reducing the interest rate from 12% to 6% as the obligation to pay does not arise from a loan or forbearance of money.

DAMAGES
SPS. MOISES and CLEMENCIA ANDRADA vs. PILHINO SALES CORPORATION G.R. No. 156448 February 23, 2011 FACTS: On December 28, 1990, respondent Pilhino Sales Corporation (Pilhino) sued Jose Andrada, Jr. and his wife, Maxima, in the Regional Trial Court in Davao City (RTC) to recover the principal sum of P240,863.00, plus interest and incidental charges (Civil Case No. 20,489-90). Upon Pilhinos application, the RTC issued a writ of preliminary attachment, which came to be implemented against a Hino truck and a Fuso truck both owned by Jose Andrada, Jr. RTC rendered a decision against spouses. BA Finance sued Moises Andrada for his failure to pay the loan (Civil Case No. 5117). After a decision was rendered in the action in favor of BA Finance, a writ of execution issued, by which the sheriff levied upon and seized the Hino truck while it was in the possession of Pilhino and sold it at public auction, with BA Finance as the highest bidder. 101

Judgment is rendered dismissing this case insofar as the spouses Moises Andrada and Clemencia Andrada, Jose Andrada, Sr. and BA Finance Corporation, now accordingly BA Savings Bank, including the counterclaims. Spouses Moises and Clemencia Andrada appealed the decision. The Court of Appeals (CA) promulgated its decision by affirming the decision with the modification that the sale of the Hino truck by defendant Jose Andrada, Jr. in favor of defendant-appellant Moises Andrada is declared valid, subject to the rights of BA Finance as mortgagee and highest bidder.

ISSUE: Whether or not Pilhino should be held liable for the damages the petitioners sustained from Pilhinos levy on execution upon the Hino truck.

HELD: The petitioners further seek attorneys fees based on Article 2208 (4) of the Civil Code, which provides that "in the absence of stipulation, attorneys fees and expenses of litigation, other than judicial costs, cannot be recovered, except xxx (4) in cases of clearly unfounded civil action or proceeding against the plaintiff xxx." The petitioners are not entitled to attorneys fees. It is well accepted in this jurisdiction that no premium should be placed on the right to litigate and that not every winning party is entitled to an automatic grant of attorneys fees. Indeed, before the effectivity of the new Civil Code, such fees could not be recovered in the absence of a stipulation. It was only with the advent of the new Civil Code that the right to collect attorneys fees in the instances mentioned in Article 2208 was recognized and such fees are now included in the concept of actual damages. One such instance is where the defendant is guilty of gross and evident bad faith in refusing to satisfy the plaintiffs plainly valid, just and demandable claim. This is a corollary of the general principle expressed in Article 19 of the Civil Code that everyone must, in the performance of his duties, observe honesty and good faith and the rule embodied in Article 1170 that anyone guilty of fraud (bad faith) in the performance of his obligation shall be liable for damages. RODOLFO REGALA vs. FEDERICO CARIN G.R. No. 188715 April 6, 2011 FACTS: Petitioner and respondent are adjacent neighbors at Spirig Street, BF Resort Village, Las Pias City. When petitioner decided to renovate his one storey residence by constructing a second floor, he under the guise of merely building an extension to his residence, approached respondent sometime in May 1998 for permission to bore a hole through a perimeter wall shared by both their respective properties, to which respondent verbally consented on condition that petitioner would clean the area affected by the work. As earlier indicated, petitioners real intention was to build a second floor, in fact with a terrace atop the dividing wall. In the course of the construction of the second floor, respondent and his wife Marietta suffered from the dust and dirt which fell on their property. As petitioner failed to address the problem to 102

respondents satisfaction, respondent filed a letter-complaint with the Office of the City Engineer and Building Official of Las Pias City on June 9, 1998. In his letter-complaint, respondent related that, despite the lack of a building permit for the construction of a second floor, petitioner had demolished the dividing wall, failed to clean the debris falling therefrom, allowed his laborers to come in and out of his (respondents) property without permission by simply jumping over the wall, and trampled on his vegetable garden; and that despite his protestations, petitioner persisted in proceeding with the construction, he claiming to be the owner of the perimeter wall. Several "sumbongs" (complaints) were soon lodged by respondent before the Office of Barangay Talon Dos against petitioner for encroachment, rampant invasion of privacy and damages arising from the construction, and for illegal construction of scaffoldings inside his (respondents) property. As no satisfactory agreement was reached at the last barangay conciliation proceedings in December 1998, and petitioner having continued the construction work despite issuance of several stop-work notices from the City Engineers Office for lack of building permit, respondent filed on March 1999 a complaint for damages against petitioner before the RTC of Las Pias City.

ISSUE: Whether or not respondent is entitled to moral damages?

HELD: The trial courts award of moral and exemplary damages, as affirmed by the appellate court, was premised on the damage and suffering sustained by respondent arising from quasi-delict under Article 2176 of the Civil Code. Thus the trial court explained: Indeed, there was fault or negligence on the part of the defendant when he did not provide sufficient safety measures to prevent causing a lot of inconvenience and disturbance to the plaintiff and his family. The evidence presented by the plaintiff regarding the dirt or debris, as well as the absence of devices or safety measures to prevent the same from falling inside plaintiffs property, were duly established. It did not help the cause of the defendant that he made a lot of misrepresentations regarding the renovations on his house and he did not initially have a building permit for the same. In fact, it was only after the construction works were completed that the said permit was issued and upon payment of an administrative fine by the defendant. In prayers for moral damages, however, recovery is more an exception rather than the rule. 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. To be entitled to such an award, the claimant must satisfactorily prove that he has suffered damages and that the injury causing it has sprung from any of the cases listed in Articles 2219 and 2220 of the Civil Code. Moreover, the damages must be shown to be the proximate result of a wrongful act or omission. The claimant must thus establish the factual basis of the damages and its causal tie with the acts of the defendant. 103

In fine, an award of moral damages calls for the presentation of 1) evidence of besmirched reputation or physical, mental or psychological suffering sustained by the claimant; 2) a culpable act or omission factually established; 3) proof that the wrongful act or omission of the defendant is the proximate cause of the damages sustained by the claimant; and 4) the proof that the act is predicated on any of the instances expressed or envisioned by Article 2219 and Article 2220 of the Civil Code. In the present case, respondent failed to establish by clear and convincing evidence that the injuries he sustained were the proximate effect of petitioners act or omission. It thus becomes necessary to instead look into the manner by which petitioner carried out his renovations to determine whether this was directly responsible for any distress respondent may have suffered since the law requires that a wrongful or illegal act or omission must have preceded the damages sustained by the claimant.

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OCEAN BUILDERS CONSTRUCTION CORP. vs. SPOUSES ANTONIO AND ANICIA CUBACUB G.R. No. 150898 April 13, 2011 FACTS: On April 9, 1995, Bladimir Cubacub (Bladimir), employee of petitioner Ocean Builders Construction Corp. as maintenance, was afflifcted with chicken pox. He was thus advised by petitioner Dennis Hao (Hao), the companys general manager, to rest for three days which he did at the companys "barracks" where he lives free of charge. Three days later or on April 12, 1995, Bladimir went about his usual chores of manning the gate of the company premises and even cleaned the company vehicles. Later in the afternoon, however, he asked a co-worker, Ignacio Silangga (Silangga), to accompany him to his house in Capas, Tarlac so he could rest. Informed by Silangga of Bladimirs intention, Hao gave Bladimir P1,000.00 and ordered Silangga to instead bring Bladimir to the nearest hospital. Along with co-workers Narding and Tito Vergado, Silangga thus brought Bladimir to the Caybiga Community Hospital (Caybiga Hospital), a primary-care hospital around one kilometer away from the office of the company. The hospital did not allow Bladimir to leave the hospital. He was then confined, with Narding keeping watch over him. The next day, April 13, 1995, a doctor of the hospital informed Narding that they needed to talk to Bladimirs parents, hence, on Silanggas request, their coworkers June Matias and Joel Edrene fetched Bladimirs parents from Tarlac. At about 8 oclock in the evening of the same day, April 13, 1995, Bladimirs parents-respondent spouses Cubacub, with their friend Dr. Hermes Frias (Dr. Frias), arrived at the Caybiga Hospital and transferred Bladimir to the Quezon City General Hospital (QCGH) where he was placed in the intensive care unit and died the following day, April 14, 1995. The death certificate issued by the QCGH recorded Bladimirs immediate cause of death as cardio-respiratory arrest and the antecedent cause as pneumonia. On the other hand, the death certificate issued by Dr. Frias recorded the causes of death as cardiac arrest, multiple organ system failure, septicemia and chicken pox. Bladimirs parents-herein respondents later filed on August 17, 1995 before the Tarlac Regional Trial Court (RTC) at Capas a complaint for damages against petitioners, alleging that Hao was guilty of negligence which resulted in the deterioration of Bladimirs condition leading to his death.

ISSUE: Whether or not petitioner Ocean Builders Construction Corp. is liable to damages.

HELD: At the onset, the Court notes that the present case is one for damages based on torts, the employer-employee relationship being merely incidental. To successfully prosecute an action anchored on torts, three elements must be present, viz: (1) duty (2) breach (3) injury and proximate causation. The assailed decision of the appellate court held that it was the duty of 105

petitioners to provide adequate medical assistance to the employees under Art. 161 of the Labor Code, failing which a breach is committed.

As found by the trial court and borne by the records, petitioner Haos advice for Bladimir to, as he did, take a 3-day rest and to later have him brought to the nearest hospital constituted "adequate and immediate medical" attendance that he is mandated, under Art. 161, to provide to a sick employee in an emergency. Chicken pox is self-limiting. Hao does not appear to have a medical background. He may not be thus expected to have known that Bladimir needed to be brought to a hospital with better facilities than the Caybiga Hospital, contrary to appellate courts ruling. At all events, the alleged negligence of Hao cannot be considered as the proximate cause of the death of Bladimir. Proximate cause is that which, in natural and continuous sequence, unbroken by an efficient intervening cause, produces injury, and without which, the result would not have occurred. An injury or damage is proximately caused by an act or failure to act, whenever it appears from the evidence in the case that the act or omission played a substantial part in bringing about or actually causing the injury or damage, and that the injury or damage was either a direct result or a reasonably probable consequence of the act or omission. Verily, the issue in this case is essentially factual in nature. The dissent, apart from adopting the appellate courts findings, finds that Bladimir contracted chicken pox from a co-worker and Hao was negligent in not bringing that co-worker to the nearest physician, or isolating him as well. This finding is not, however, borne by the records. Nowhere in the appellate courts or even the trial courts decision is there any such definite finding that Bladimir contracted chicken pox from a co-worker. At best, the only allusion to another employee being afflicted with chicken pox was when Hao testified that he knew it to heal within three days as was the case of another worker, without reference, however, as to when it happened.

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ROSALIA N. ESPINO vs. SPOUSES SHARON SAMPANI BULUT and CELEBI BULUT, G.R. No. 183811 FACTS: Spouses Rosalia and Alfredo C. Espino (spouses Espino) are the registered owners of eleven adjacent lots. Espino lost the owners duplicate copies of the eleven TCTs. Espino reported the loss to the Register of Deeds and also filed a petition for issuance of new owners copies of the eleven TCTs before the trial court. The trial court granted the petition. New copies of the eleven TCTs were issued to Espino under Section 109 of the Land Registration Act. Respondent spouses Sharon Sampani Bulut and Celebi Bulut filed with the trial court a petition for relief from judgment. Respondents claimed that they had actual possession of the owners copies of the eleven TCTs which had been declared lost and cancelled by the trial court. Respondents explained that spouses Espino sold a parcel of land covered by TCT No. T-279982 to a certain Beauregard E. Lim. Thereafter, Lim allegedly subdivided the property into eleven lots but the title remained in the name of spouses Espino because Lim lacked the funds to transfer the titles in his name. Lim sold the eleven lots to respondents and gave them the eleven owners copies of the TCTs. When respondents tried to register the properties in their name, they discovered the trial courts Decision and this prompted them to file the petition for relief from judgment. The trial court granted respondents petition for relief from judgment and declared the writ of preliminary injunction permanent. May 30, 2011

ISSUES: Whether the trial court erred in recognizing and defending the alleged ownership rights of respondents as possessors of the eleven TCTs as against Espino, the registered owner of the properties; and Whether the trial court erred in awarding damages to respondents.

HELD: The petition is partly meritorious. Contrary to Espinos allegation, the trial courts decision and the writ of preliminary injunction did not declare respondents as the new owners of the properties. While the trial court did restrain the Register of Deeds from accepting or registering any document executed by Espino and any person authorized by her that will in any way encumber or cause the transfer of the properties, the trial court did not adjudge respondents as the owners of the properties. Moreover, the trial court does not have jurisdiction to declare respondents as the new owners of the properties because this is not an issue in a petition for relief from judgment. In this case, respondents possession of the eleven TCTs is not necessarily equivalent to ownership of the lands covered by the 107

TCTs. The certificate of title, by itself, does not vest ownership; it is merely an evidence of title over a particular property. Again, the issue of ownership of the eleven properties must be litigated in the appropriate proceedings.

The Court deleted the award of moral and exemplary damages and attorneys fees for lack of factual and legal basis. There is nothing in the records that supports an award of moral damages. In order that moral damages may be awarded, there must be pleading and proof of moral suffering, mental anguish, fright and the like. While respondents alleged sleepless nights and mental anguish in their petition for relief, they failed to prove them during the trial. Mere allegations do not suffice. They must be substantiated. Furthermore, the trial court made no reference to any testimony of the respondents on their alleged physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury as would entitle them to moral damages. Likewise, since respondents failed to satisfactorily establish their claim for moral damages, respondents are also not entitled to exemplary damages. Article 2234 of the Civil Code provides: ART. 2234. While the amount of the exemplary damages need not be proved, the plaintiff must show that he is entitled to moral, temperate or compensatory damages before the court may consider the question of whether or not exemplary damages should be awarded. As to the award of attorneys fees, Article 2208 of the Civil Code provides: ART. 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other than judicial costs, cannot be recovered, except: 1. When exemplary damages are awarded; 2. When the defendants act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest; 3. In criminal cases of malicious prosecution against the plaintiff; 4. In case of a clearly unfounded civil action or proceeding against the plaintiff; 5. Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs plainly valid, just and demandable claim; 6. In actions for legal support; 7. In actions for the recovery of wages of household helpers, laborers and skilled workers; 8. In actions for indemnity under workmens compensation and employers liability laws; 9. In a separate civil action to recover civil liability arising from a crime; 10. When at least double judicial costs are awarded; 11. In any other case where the court deems it just and equitable that attorneys fees and expenses of litigation should be recovered. In all cases, the attorneys fees and expenses of litigation must be reasonable. An award of attorneys fees is an exception and there must be some compelling legal reason to bring the case within the exception and justify the award. In this case, none of the exceptions applies. Moreover, we

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already deleted the trial courts award of exemplary damages which might have served as its basis for awarding attorneys fees.

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DELA TORRE v. THE HONORABLE COURT OF APPEALS, CRISOSTOMO G. CONCEPCION, RAMON "BOY" LARRAZABAL, PHILIPPINE TRIGON SHIPYARD CORPORATION, AND ROLAND G. DELA TORRE G.R. No. 160088 July 13, 2011 FACTS: Respondent, owned LCT-Josephine, a vessel registered with the Philippine Coast Guard. On February 1, 1984, Concepcion entered into a "Preliminary Agreement" with Roland de la Torre for the dry-docking and repairs of the said vessel as well as for its charter afterwards. Under this agreement, Concepcion agreed that after the dry-docking and repair of LCTJosephine, it "should" be chartered for P10,000.00 per month with the following conditions: The CHARTERER will be the one to pay the insurance premium of the vessel The vessel will be used once every three (3) months for a maximum period of two (2) weeks The SECOND PARTY (referring to Concepcion) agreed that LCT-Josephine should be used by the FIRST PARTY (referring to Roland) for the maximum period of two (2) years The FIRST PARTY (Roland) will take charge[x] of maintenance cost of the said vessel. [Underscoring Supplied] On June 20, 1984, Concepcion and the Philippine Trigon Shipyard Corporation (PTSC), represented by Roland, entered into a "Contract of Agreement," wherein the latter would charter LCT-Josephine retroactive to May 1, 1984, under the following conditions: a. Chartered amount of the vessel - P20,000.00 per month effective May 1, 1984; j. The owner (Concepcion) shall pay 50% downpayment for the dry-docking and repair of the vessel and the balance shall be paid every month in the amount of P10,000.00, to be deducted from the rental amount of the vessel; k. In the event that a THIRD PARTY is interested to purchase the said vessel, the SECOND PARTY (PTSC/ Roland) has the option for first priority to purchase the vessel. If the SECOND PARTY (PTSC/Roland) refuses the offer of the FIRST PARTY (Concepcion), shall give the SECOND PARTY (PTSC/Roland) enough time to turn over the vessel so as not to disrupt previous commitments; l. That the SECOND PARTY (PTSC/Roland) has the option to terminate the contract in the event of the SECOND PARTY (PTSC/Roland) decide to stop operating; m. The SECOND PARTY (PTSC/Roland) shall give 90 days noticeof such termination of contract; n. Next x x year of dry-docking and repair of vessel shall be shouldered by the SECOND PARTY (PTSC/Roland); (Underscoring Supplied] On August 1, 1984, PTSC/Roland sub-chartered LCT-Josephine to Trigon Shipping Lines (TSL), a single proprietorship owned by Roland's father, Agustin de la Torre (Agustin) The following are the terms and conditions of that "Contract of Agreement:" The SECOND PARTY (TSL/Agustin) undertakes to shoulder the maintenance cost for the duration of the usage;

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On November 22, 1984, TSL, this time represented by Roland per Agustin's Special Power of Attorney, sub-chartered LCT-Josephine to Ramon Larrazabal (Larrazabal) for the transport of cargo consisting of sand and gravel to Leyte. On November 23, 1984, the LCT-Josephine with its cargo of sand and gravel arrived at Philpos, Isabel, Leyte. The vessel was beached near the NDC Wharf. With the vessel's ramp already lowered, the unloading of the vessel's cargo began with the use of Larrazabal's payloader. While the payloader was on the deck of the LCT-Josephine scooping a load of the cargo, the vessel's ramp started to move downward, the vessel tilted and sea water rushed in. Shortly thereafter, LCT-Josephine sank. Concepcion demanded that PTSC/ Roland refloat LCT-Josephine. The latter assured Concepcion that negotiations were underway for the refloating of his vessel. Unfortunately, this did not materialize. Henceforth, Concepcion was constrained to institute a complaint for "Sum of Money and Damages" against PTSC and Roland before the RTC. PTSC and Roland filed their answer together with a third-party complaint against Agustin.

ISSUE: Whether or not the shipowner or ship agents liability is merely coextensive with his interest in the vessel such that a total loss thereof results in its extinction.

HELD: The Court held that the real and hypothecary doctrine in maritime law is applicable. Wherein, the shipowner or ship agent's liability is held as merely co-extensive with his interest in the vessel such that a total loss thereof results in its extinction. In this jurisdiction, this rule is provided in three articles of the Code of Commerce. These are: Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which may arise from the conduct of the captain in the care of the goods which he loaded on the vessel; but he may exempt himself therefrom by abandoning the vessel with all her equipment and the freight it may have earned during the voyage. xxx Art. 590. The co-owners of the vessel shall be civilly liable in the proportion of their interests in the common fund for the results of the acts of the captain referred to in Art. 587. Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the part of the vessel belonging to him. xxx Art. 837. The civil liability incurred by shipowners in the case prescribed in this section, shall be understood as limited to the value of the vessel with all its appurtenances and freightage served during the voyage.

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Article 837 specifically applies to cases involving collision which is a necessary consequence of the right to abandon the vessel given to the shipowner or ship agent under the first provision - Article 587. Similarly, Article 590 is a reiteration of Article 587, only this time the situation is that the vessel is co-owned by several persons. Obviously, the forerunner of the Limited Liability Rule under the Code of Commerce is Article 587. Now, the latter is quite clear on which indemnities may be confined or restricted to the value of the vessel pursuant to the said Rule, and these are the - "indemnities in favor of third persons which may arise from the conduct of the captain in the care of the goods which he loaded on the vessel." Thus, what is contemplated is the liability to third persons who may have dealt with the shipowner, the agent or even the charterer in case of demise or bareboat charter. The only person who could avail of this is the shipowner, Concepcion. He is the very person whom the Limited Liability Rule has been conceived to protect. The petitioners cannot invoke this as a defense.

THE HEIRS OF THE LATE RUBEN REINOSO, SR., vs.COURT OF APPEALS, PONCIANO TAPALES, JOSE GUBALLA, and FILWRITERS GUARANTY ASSURANCE CORPORATION G.R. No. 116121 July 18, 2011 FACTS: The complaint for damages arose from the collision of a passenger jeepney and a truck at around 7:00 oclock in the evening of June 14, 1979 along E. Rodriguez Avenue, Quezon City. As a result, a passenger of the jeepney, Ruben Reinoso, Sr. (Reinoso), was killed. The passenger jeepney was owned by PoncianoTapales (Tapales) and driven by Alejandro Santos (Santos), while the truck was owned by Jose Guballa (Guballa) and driven by Mariano Geronimo (Geronimo). The evidentiary records disclosed that the truck was speeding along E. Rodriguez, heading towards Santolan Street, while the passenger jeepney was coming from the opposite direction. When the truck reached a certain point near the Meralco Post No. J9-450, the front portion of the truck hit the left middle side portion of the passenger jeepney, causing damage to both vehicles and injuries to the driver and passengers of the jeepney. The truck driver should have been more careful, because, at that time, a portion of E. Rodriguez Avenue was under repair and a wooden barricade was placed in the middle thereof. On November 7, 1979, the heirs of Reinoso (petitioners) filed a complaint for damages against Tapales and Guballa. In turn, Guballa filed a third party complaint against Filwriters Guaranty Assurance Corporation (FGAC) under Policy Number OV-09527. On March 22, 1988, the RTC rendered a decision in favor of the petitioners and against Guballa.

ISSUE: 112

Whether or not the respondent is guilty of negligence.

HELD: The truck owner, Guballa, failed to rebut the presumption of negligence in the hiring and supervision of his employee. Article 2176, in relation to Article 2180 of the Civil Code, provides:
Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter. xxxx Art. 2180. The obligation imposed by Art. 2176 is demandable not only for ones own acts or omissions but also for those of persons for whom one is responsible. xxxx Employers shall be liable for the damage caused by their employees and household helpers acting within the scope of their assigned tasks even though the former are not engaged in any business or industry. xxxx

The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage. Whenever an employees negligence causes damage or injury to another, there instantly arises a presumption juristantum that the employer failed to exercise diligentissimipatris families in the selection or supervision of his employee. Thus, in the selection of prospective employees, employers are required to examine them as to their qualification, experience and service record. With respect to the supervision of employees, employers must formulate standard operating procedures, monitor their implementation, and impose disciplinary measures for breaches thereof. These facts must be shown by concrete proof, including documentary evidence.

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EMERITA M. DE GUZMAN vs. ANTONIO M. TUMOLVA G.R. No. 188072 October 19, 2011

FACTS: Petitioner Emerita De Guzman (De Guzman), represented by her attorneys-infact, Lourdes Rivera and Dhonna Chan, and respondent Antonio Tumolva, doing business under the name and style A.M. Tumolva Engineering Works (the Contractor), entered into a Construction Agreement (Agreement) for the construction of an orphanage located in Brgy. PulongBunga, Purok 4, Silang, Cavite, for a contract price of P 15,982,150.39. Incorporated in the Agreement was the plan and specifications of the perimeter fence. The Contractor, however, made deviations from the agreed plan with respect to the perimeter fence of the orphanage. After the completion of the project, De Guzman issued a Certificate of Acceptance. For his part, the Contractor issued a quitclaim acknowledging the termination of the contract and the full compliance therewith by De Guzman. During typhoon "Milenyo," a portion of the perimeter fence collapsed and other portions tilted. In her Letter dated, De Guzman, demanded the repair of the fence. In response, the Contractor claimed that the destruction of the fence was an act of God and expressed willingness to discuss the matter to avoid unnecessary litigation. De Guzman, however, reiterated her demand for the restoration of the wall without additional cost on her part, or in the alternative, for the Contractor to make an offer of a certain amount by way of compensation for the damages she sustained. Her demand was not heeded. De Guzman then filed a Request for Arbitration of the dispute before the Construction Industry Arbitration Commission (CIAC). The CIAC issued the Award in favor of De Guzman. On appeal to the Cour of Appeals, the CA modified the Award rendered by CIAC, deleting the award of actual, moral and exemplary damages, but awarding temperate damages in the amount of P 100,000.00 for reconstructing the collapsed and damaged perimeter fence. ISSUE: Whether not the Contractor is liable for the actual, temperate and moral damages that she suffered from the collapse of the perimeter fence because of a typhoon. HELD: 1. Actual damages:

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Article 2199 of the New Civil Code defines actual or compensatory damages as follows: Art. 2199. Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as actual or compensatory damages. Unfortunately, De Guzman failed to adduce evidence to satisfactorily prove the amount of actual damage incurred. Contrary to her assertion, the handwritten calculation of reconstruction costs made by Engineer Santos and attached to his affidavit cannot be given any probative value because he never took the witness stand to affirm the veracity of his allegations in his affidavit and be cross-examined on them. xxx 2. Temperate damages xxx De Guzman is indeed entitled to temperate damages as provided under Article 2224 of the Civil Code for the loss she suffered. When pecuniary loss has been suffered but the amount cannot, from the nature of the case, be proven with certainty, temperate damages may be recovered. Xxx Undoubtedly, De Guzman suffered pecuniary loss brought about by the collapse of the perimeter fence by reason of the Contractor's negligence and failure to comply with the specifications. As she failed to prove the exact amount of damage with certainty as required by law, the CA was correct in awarding temperate damages, in lieu of actual damages. Moral damages xxx This Court is one with the CA that De Guzman is not entitled to such an award. The record is bereft of any proof that she actually suffered moral damages as contemplated in Article 2217 of the Code.xxx

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