I.

OBLIGATIONS

G.R. No. 169975 March 18, 2010 PAN PACIFIC SERVICE CONTRACTORS, INC. and RICARDO F. DEL ROSARIO, Petitioners, vs. EQUITABLE PCI BANK (formerly THE PHILIPPINE COMMERCIAL INTERNATIONAL BANK), Respondent. Facts: Pan Pacific Service Contractors, Inc. (Pan Pacific) is engaged in contracting mechanical works on airconditioning system. On 24 November 1989, Pan Pacific, through its President, Ricardo F. Del Rosario (Del Rosario), entered into a contract of mechanical works (Contract) with respondent for P20,688,800. Pan Pacific and respondent also agreed on nine change orders for P2,622,610.30. Thus, the total consideration for the whole project was P23,311,410.30. The Contract stipulated, among others, that Pan Pacific shall be entitled to a price adjustment in case of increase in labor costs and prices of materials under paragraphs 70.1 and 70.2 of the "General Conditions for the Construction of PCIB Tower II Extension" (the escalation clause). Pursuant to the contract, Pan Pacific commenced the mechanical works in the project site, the PCIB Tower II extension building in Makati City. The project was completed in June 1992. Respondent accepted the project on 9 July 1992. In 1990, labor costs and prices of materials escalated. On 5 April 1991, in accordance with the escalation clause, Pan Pacific claimed a price adjustment of P5,165,945.52. Respondents appointed project engineer, TCGI Engineers, asked for a reduction in the price adjustment. To show goodwill, Pan Pacific reduced the price adjustment toP4,858,548.67. On 28 April 1992, TCGI Engineers recommended to respondent that the price adjustment should be pegged atP3,730,957.07. TCGI Engineers based their evaluation of the price adjustment on the following factors: 1. Labor Indices of the Department of Labor and Employment. 2. Price Index of the National Statistics Office. PD 1594 and its Implementing Rules and Regulations as amended, 15 March 1991. Shipping Documents submitted by PPSCI. Sub-clause 70.1 of the General Conditions of the Contract Documents. Pan Pacific contended that with this recommendation, respondent was already estopped from disclaiming liability of at least P3,730,957.07 in accordance with the escalation clause. Due to the extraordinary increases in the costs of labor and materials, Pan Pacifics operational capital was becoming inadequate for the project. However, respondent withheld the payment of the price adjustment under the escalation clause despite Pan Pacifics repeated demands. Instead, respondent offered Pan Pacific a loan of P1.8 million. Against its will and on the strength of respondents promise that the price adjustment would be released soon, Pan Pacific, through Del Rosario, was constrained to execute a promissory note in the amount of P1.8 million as a requirement for the loan. Pan Pacific also posted a surety bond. The P1.8 1

million was released directly to laborers and suppliers and not a single centavo was given to Pan Pacific. Pan Pacific made several demands for payment on the price adjustment but respondent merely kept on promising to release the same. Meanwhile, the P1.8 million loan matured and respondent demanded payment plus interest and penalty. Pan Pacific refused to pay the loan. Pan Pacific insisted that it would not have incurred the loan if respondent released the price adjustment on time. Pan Pacific alleged that the promissory note did not express the true agreement of the parties. Pan Pacific maintained that the P1.8 million was to be considered as an advance payment on the price adjustment. Therefore, there was really no consideration for the promissory note; hence, it is null and void from the beginning. Respondent stood firm that it would not release any amount of the price adjustment to Pan Pacific but it would offset the price adjustment with Pan Pacifics outstanding balance of P3,226,186.01, representing the loan, interests, penalties and collection charges. Pan Pacific refused the offsetting but agreed to receive the reduced amount of P3,730,957.07 as recommended by the TCGI Engineers for the purpose of extrajudicial settlement, less P1.8 million and P414,942 as advance payments. On 6 May 1994, petitioners filed a complaint for declaration of nullity/annulment of the promissory note, sum of money, and damages against the respondent with the RTC. Issue: Whether the CA, in awarding the unpaid balance of the price adjustment, erred in fixing the interest rate at 12% instead of the 18% bank lending rate. Held: Under Article 2209 of the Civil Code, the appropriate measure for damages in case of delay in discharging an obligation consisting of the payment of a sum of money is the payment of penalty interest at the rate agreed upon in the contract of the parties. In the absence of a stipulation of a particular rate of penalty interest, payment of additional interest at a rate equal to the regular monetary interest becomes due and payable. Finally, if no regular interest had been agreed upon by the contracting parties, then the damages payable will consist of payment of legal interest which is 6%, or in the case of loans or forbearances of money, 12% per annum. It is only when the parties to a contract have failed to fix the rate of interest or when such amount is unwarranted that the Court will apply the 12% interest per annum on a loan or forbearance of money. The written agreement entered into between petitioners and respondent provides for an interest at the current bank lending rate in case of delay in payment and the promissory note charged an interest of 18%. To prove petitioners entitlement to the 18% bank lending rate of interest, petitioners presented the promissory note prepared by respondent bank itself. This promissory note, although declared void by the lower courts because it did not express the real intention of the parties, is substantial proof that the bank lending rate at the time of default was 18% per annum. Absent any evidence of fraud, undue influence or any vice of consent exercised by petitioners against the respondent, the interest rate agreed upon is binding on them.

G.R. No. 172292 July 23, 2010 ALIDA MORES Petitioner, vs. SHIRLEY M. YU-GO, MA. VICTORIA M. YU-LIM, and MA. ESTRELLA M. YU, Respondents. Facts: On January 21, 1998, plaintiffs-appellants Shirley M. Yu-Go, Ma. Victoria M. Yu-Lim and Ma. Estrella M. Yu ("appellants") filed a Complaint for Injunction and Damages with Prayer for Issuance of a Temporary Restraining Order and Preliminary Injunction before the Regional Trial Court in Naga City against defendants-appellees, spouses Antonio and Alida Mores ("appellees"). Appellants alleged that they co-owned a parcel of land located in Sto. Tomas, Magarao, Camarines Sur on which a building of strong materials ("subject property") was built. In March 1983, appellees pleaded to appellants that they be allowed to stay in the subject property in the meantime that they did not own a house yet. Since appellee Antonio Mores used to be an errand boy of appellants family, they readily agreed without asking for any rental but subject only to the condition that the said stay would last until anyone of appellants would need the subject property. Forthwith, appellees and their children occupied the same as agreed upon. In November 1997, appellants made known to appellees that they were already in need of the subject property. They explained that appellant Shirley Yu-Go needed the same and, besides, appellees already have their own house in Villa Grande Homes, Naga City. Yet, appellees begged that they be given a 6-month extension to stay thereat or until May 1998. However, even after May 1998, appellees failed to make good their promise and even further asked that they be allowed to stay therein until October 1998, which was again extended until the end of the same year. Thus, sometime in the first week of January 1999, appellants gave their final demand for appellees to vacate the subject property. However, instead of heeding such demand, appellees hired some laborers and started demolishing the improvements on the subject property on January 20, 1999. Appellants protest fell on deaf ears because appellees continued their demolition and even took away and appropriated for themselves the materials derived from such unlawful demolition. Consequently, appellants instituted the said action for injunction where they also prayed for the reimbursement of the value of the residential building illegally demolished as well as for the payment of moral damages, attorneys fees, litigation expenses and costs of suit. On February 5, 1999, appellees filed their Answer where they denied the material averments of the complaint. They claimed that appellee Antonio Mores, who was appellants uncle, used to be the assistant manager and cashier of appellants father at their Caltex Service Station until the laters death sometime in 1980. Appellants Caltex Filling Station had stopped operation and was just rented out to Herce Trucking Service. Upon the expiration of such lease contract, appellees were allowed to occupy the subject property as their dwelling places. They were the ones who caused its renovation consisting of a 3-bedroom annex, a covered veranda and a concrete hollow block fence, at their own expense, and with appellants consent, which renovation was made without altering the form and substance of the subject property. They denied that appellants made a demand for them to vacate the subject property, insisting that it was merely a sort of reminder that sooner or later appellees should yield possession thereof since, after all, they had already bought a second-hand house which was undergoing repair. Appellees argued that what they removed was merely the improvements made on the subject property, which removal had not caused any substantial damage thereto as, in fact, it remained intact. By way of counterclaims, they demanded payment of actual damages, attorneys fees and litigation expenses. Issue: 3

Whether or not the Yus are entitled to moral damages Held: Alida Mores argues that in case of breach of contract between a lessor and a lessee, moral damages are not awarded to the lessor if the lessee is not shown to have acted in bad faith. She proves her and her husbands alleged good faith by quoting the appellate courts decision which stated that: [The Spouses Mores] good faith is underscored by the fact that no one from appellants had objected or prevented appellees from effecting said improvements which, obviously, were undertaken in quite a span of time. Even if we believe appellant Victoria Yu-Lims testimony that they would only learn of the introduction of such improvements after each of such improvements had already been built, [the Yu siblings] never made known their objections thereto nor did they pose a warning against future introduction of any improvement. After all, the said improvements were not introduced simultaneously. The good faith referred to by Alida Mores was about the building of the improvements on the leased subject property. However, tenants like the spouses Mores cannot be said to be builders in good faith as they have no pretension to be owners of the property. Indeed, full reimbursement of useful improvements and retention of the premises until reimbursement is made applies only to a possessor in good faith, i.e., one who builds on land with the belief that he is the owner thereof. It does not apply where ones only interest is that of a lessee under a rental contract; otherwise, it would always be in the power of the tenant to "improve" his landlord out of his property. The appellate court is correct in ruling that Article 1678 of the Civil Code should apply in the present case. Article 1678 reads: If the lessee makes, in good faith, useful improvements which are suitable to the use for which the lease is intended, without altering the form or substance of the property leased, the lessor upon the termination of the lease shall pay the lessee one-half of the value of the improvements at that time. Should the lessor refuse to reimburse said amount, the lessee may remove the improvements, even though the principal thing may suffer damage thereby. He shall not, however, cause any more impairment upon the property leased than is necessary. With regard to the ornamental expenses, the lessee shall not be entitled to any reimbursement, but he may remove the ornamental objects, provided no damage is caused to the principal thing, and the lessor does not choose to retain them by paying their value at the time the lease is extinguished.

G.R. No. 174096 July 20, 2010 SPOUSES DIVINIA C. PUBLICO AND JOSE T. PUBLICO, Petitioners, vs. TERESA BAUTISTA, Respondent. Facts: Petitioners, spouses Divinia Publico (Divinia) and Jose Publico (Jose) obtained on April 12, 1996 a P200,000 loan from Teresa Bautista (respondent) which was secured by a real estate mortgage (REM) over a real property covered by Transfer Certificate of Title (TCT) No. T-244828. The REM, "Kasulatan ng Pagkakautang na may Panagot " (Kasulatan), provides, inter alia, that the loan would bear interest and penalties to would be paid within one-and-a-half years, failing which the mortgaged property would be sold pursuant to Act 3135. Petitioners surrendered the owners copy of TCT No. T244828 to respondent. In September 1996, petitioners borrowed from respondent the owners copy of the title in order to re-mortgage the property covered thereby to secure another loan the proceeds of which would be used to pay respondent. Divina executed a Pagpapatunay reading: xxxx Na, ang aking pagkakautang ay aking babayaran kung ang titulong ito ay mainsanla ko sa banko at kami ay nagkasundo din na sa P200,00.00 thousand [ sic] na aking pagkakautang ay magbibigay muna ako ng P100,000.00 [ sic]. At magiiwan ako ng rehistro ng aking sasakyan sa Taxi na may numero na MVMR 40693326 MVMT 36169691 para naman sa natitirang balanse na P100,000.00 thousand [sic] bilang prenda. xxxx Petitioners thereupon obtained a P200,000 loan from Hiyas Savings and Loan Bank, Inc. (Hiyas Bank). They, however, failed to settle their obligation to respondent. Respondent, fearing that Hiyas Bank might foreclose the mortgage, offered Hiyas Bank to pay petitioners loan. The bank agreed to the proposal, with the condition that respondent also pay the other obligations of petitioners that were secured by REMs on two other properties covered by TCT Nos. T-265662 (M) and T265663. In the presence of petitioner Jose, respondent settled petitioners obligations to the bank amounting to P697,714.58. The receipts of payment were in the name of Jose, however, albeit it contained annotations on the dorsal portions thereof that respondent advanced the payment of petitioners obligations. Both Jose and respondent affixed their signatures on the annotations. Despite demands, petitioners failed to pay their obligations totaling P897,714.58, hence, respondent filed on February 1, 1999 a Complaint for foreclosure of mortgage, sum of money and damages before the Regional Trial Court (RTC) of Bulacan.

Issue: WHETHERTHERE WAS A VALID SUBROGATION UNDER ARTICLE 1294 [OF THE] CIVIL CODE

Held: 5

The Pagpapatunay was not a new obligation which could have extinguished the Kasulatan since the condition of payment that was set out in the Pagpapatunay was never fulfilled. The trial court found that no competent evidence was introduced, except the bare assertion of Divinia, to prove petitioners payment of the obligation or that they complied with the conditions set out in the Pagpapatunay. As did the appellate court, the Court sustains the trial courts finding. Petitioners invocation of Article 1236 of the Civil Code does not help them. They cannot deny their indebtedness to respondent on the basis of said Article since the payment advanced by respondent on petitioners behalf redounded to their benefit and Divinia never objected to it when she came to learn of it. It is thus immaterial that Divinia was unaware of respondents action for the law ultimately allows recovery to the extent that the debtors-petitioners were benefited.

G.R. No. 179441 August 9, 2010 ST. JAMES COLLEGE OF PARAAQUE; JAIME T. TORRES, represented by his legal representative, JAMES KENLEY M. TORRES; and MYRNA M. TORRES, Petitioners, vs. EQUITABLE PCI BANK, Respondent. Facts: Petitioners-spouses Jaime (now deceased) and Myrna Torres owned and operated St. James College of Paraaque (St. James College), a sole proprietorship educational institution. Sometime in 1995, the Philippine Commercial and International Bank (PCIB) granted the Torres spouses and/or St. James College a credit line facility of up to PhP 25,000,000. This accommodation or any of its extension or renewal was secured by a real estate mortgage (REM) over a parcel of land situated in Paraaque covered by Transfer Certificate of Title (TCT) No. 74598 in the name of St. James College, particularly described as: A parcel of Land (lot 2 of the cons. and subd. plan Pcs.-13-0008777, being a portion of the cons. of Lots 4654-B and 5654-C Psd.-13-002266. L.R.C. Rec. No. N-21332), situated in the Bo. of San Dionisio, Mun. of Paraaque, Metro Manila. x x x containing an area of NINETEEN THOUSAND TWO HUNDRED TWENTY FIVE (19,225) SQ. METERS. St. James College used to occupy the above lot. PCIB eventually merged with Equitable Bank with the surviving bank known as Equitable PCI Bank (EPCIB) (now Banco de Oro). The credit line underwent several annual renewals, the last being effected in 2001. As petitioners had defaulted in the payment of the loan obtained from the secured credit accommodation, their total unpaid loan obligation, as of September 2001, stood at PhP 18,300,000. In a bid to settle its loan availment, petitioners first proposed to EPCIB that they be allowed to pay their account in equal quarterly installments for five years. This payment scheme was apparently not acceptable to EPCIB, as another written letter later followed, this time petitioners proposing that their outstanding credit be converted into a long term loan payable in 10 equal annual installments. EPCIB responded via a letter of January 9, 2003. In it, EPCIB informed petitioners that it is denying their request for the reinstatement of their credit line, but proposed a restructuring package with a soft payment scheme for the outstanding loan balance of PhP 18,300,000. Under the counter-proposal, the bank would book the accumulated past due loans to current status and charge interest at a fixed rate of 13.375% per annum, payable in either of the ensuing modes and level, at petitioners options: payment of the PhP 18,300,000 principal either at a monthly rate of PhP 508,333.33; or equal annual amortizations of PhP 6,100,000 payable every May. Petitioner Jaime Torres chose and agreed to the second option, i.e., the equal annual amortizations of PhP 6,100,000 payable every May, by affixing his conforme signature at the bottom portion of EPCIBs letter, writing the words "on annual amortization." May 2003 came, but petitioners failed to pay the stipulated annual amortization of PhP 6,100,000 agreed upon. Whereupon, EPCIB addressed to petitioners a demand letter dated June 6, 2003 requiring them to settle their obligation. On June 23, 2003, petitioners tendered, and EPCIB accepted, a partial payment of PhP 2,521,609.62, broken down to cover the following items: PhP 1,000,000 principal, PhP 1,360,881.62 interest due on June 15, 2003, and PhP 160,728.00 insurance premium for the mortgaged property. In the covering June 23, 2003 letter, which came with the tender, petitioners promised to make another payment in October 2003 and that the account would be made current in June 2004. They manifested, however, that St. James College is not subject to the 10% value-added tax (VAT) which EPCIB assessed against the school in its June 15, 2003 7

statement of account. Petitioners accordingly requested the deletion of the VAT portion. Vis--vis the PhP 2,521,609.62 payment to which it issued an official receipt (OR) dated June 30, 2003, EPCIB made it abundantly clear on the OR that: "THE RECEIPT OF PAYMENT IS WITHOUT PREJUDICE TO THE BANKS RIGHT AND CLAIMS ARISING FROM THE FACT THE ACCOUNT IS OVERDUE. NOR SHALL IT RENDER THE BANK LIABLE FOR ANY DAMAGE BY ITS ACCEPTANCE OF PAYMENT." And in answer to petitioners cover letter of June 23, 2003, EPCIB, through counsel, reminded and made it clear to petitioners that their first partial payment did not detract from the past due character of their outstanding loan for which reason it is demanding the remaining PhP 5,100,000 to complete the first PhP 6,100,000 principal payment. On August 27, 2003, EPCIB again sent another demand letter to petitioners, but to no avail. On September 15, 2003, petitioners requested that the bank allow a partial payment of the May 2003 amortization balance of PhP 5,100,000. Two days later, EPCIB responded denying petitioners request, but nonetheless proposed a new repayment scheme to which petitioners were not amenable. Petitioners made a second check remittance, this time in the amount of PhP 921,535.42, the PhP 500,000 portion of which represented payment of the principal and PhP 421,535.42 for interest due on October 15, 2003. By letter dated November 5, 2003, EPCIB again reminded petitioners that its receipt of the check payment for the amount of the PhP 921,535.42 is without prejudice to the banks rights considering the overdue nature of petitioners loan. On November 6, 2003, petitioners issued a Stop Payment Order for their PhP 921,535.42 check. And in a November 8, 2003 letter, petitioner Jaime, adverting to EPCIBs November 5, 2003 letter, told the bank, "You cannot just unilaterally decide/announce that you did not approve our proposal/request for restructuring of our loan after receiving our payment, which was based on said proposal/request." On November 10, 2003, EPCIB, through counsel, demanded full settlement of petitioners loan obligation in the total amount of PhP 24,719,461.48. Appended to the demand letter which went unheeded was a statement of account showing detailed principal obligation, interest, and penalties as well as payments petitioners made and how they were applied. On November 27, 2003, EPCIB filed before the Office of the Clerk of Court and Ex-Officio Sheriff of the RTC in Paraaque City its Petition for Sale to extrajudicially foreclose the mortgaged property covered by TCT No. 74598. After due publication, the foreclosure sale of the mortgaged property was set for January 9 and 16, 2004. On December 8, 2003, in the RTC, Branch 266 in Pasig City, petitioners instituted against EPCIB a complaint for Declaratory Relief, Injunction and Damages, with application for a temporary restraining order (TRO) and/or writ of preliminary injunction, docketed as SCA No. 2569. On the very day of the scheduled foreclosure sale, January 9, 2004, the Pasig City RTC issued a TRO, enjoining EPCIB from proceeding with the scheduled foreclosure sale, and set a date for the hearing on the application for a writ of preliminary injunction. Issue: Whether or not there is a novation of the contract Held: 8

Petitioners admit the existence of their unsettled loan obligation to EPCIB. They would insist, however, that the full amount is still not due owing to the implied novation of the terms of payment previously agreed upon. As petitioners assert in this regard that the acceptance by EPCIB, particularly of the June 23, 2003 PhP 2,521,609.62 payment, without any objection on the new terms set forth in their June 23, 2003 complementing covering letter, novated the terms of payment of the PhP 18,300,000 secured loan. To petitioners, EPCIB veritably acquiesced to the new terms of payment being incompatible with the terms of the January 9, 2003 counter-proposal of EPCIB affecting petitioners obligation of PhP 18,300,000. We are not persuaded. As a civil law concept, novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which terminates it, either by changing its objects or principal conditions, or by substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor. Novation may be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new one that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent that it remains compatible with the amendatory agreement. Novation may either be express, when the new obligation declares in unequivocal terms that the old obligation is extinguished, or implied, when the new obligation is on every point incompatible with the old one. The test of incompatibility lies on whether the two obligations can stand together, each one with its own independent existence. For novation, as a mode of extinguishing or modifying an obligation, to apply, 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. 4) There must be a valid new contract. As correctly determined by the appellate court, certain circumstances or their interplay militates against the application of novation. First. The parties did not unequivocally declare, let alone agree, that the obligation had been modified as to the terms of payment by the partial payments of the obligation. Petitioners indeed made known their inability to pay in full the PhP 6,100,000 principal obligation due in May 2003 and tendered only partial payments of PhP 1,000,000 on June 23, 2003 and PhP 500,000 on November 5, 2003. It should be stressed, however, that EPCIB lost no time in demanding payment for the full PhP 6,100,000 principal obligation due in May 2003. The following acts of EPCIB readily argue against the idea of its having agreed to a modification in the stipulated terms of payment: (a) its letter-reply to petitioners June 23, 2003 letter; (b) the August 27, 2003 demand-letter of EPCIB for the full principal balance of PhP 5,100,000 from petitioners; (c) the September 17, 2003 letter of EPCIB denying petitioners request for a partial payment; (d) the OR dated June 30, 2003 EPCIB issued where the following entries were written: "THE RECEIPT OF PAYMENT IS WITHOUT PREJUDICE TO THE BANKS RIGHTS AND CLAIMS ARISING FROM THE FACT THE ACCOUNT IS OVERDUE. NOR SHALL IT RENDER THE BANK LIABLE FOR ANY DAMAGE BY ITS ACCEPTANCE OF PAYMENT"; and (e) the letter of November 5, 2003 EPCIB sent reiterating that the receipt of the second partial payment is without prejudice to the banks rights on the overdue loan. The underlying arrangement between petitioners and EPCIB, respecting the terms of payment of the loan drawn against the credit facility, was that set forth in the January 9, 2003 agreement, which, for reference, required petitioners to remit 9

to the lending bank an annual amortization of PhP 6,100,000 payable every May until the entire loan obligation shall have been covered. Any suggestion that EPCIB is precluded from asserting its legal rights after petitioners reneged on their part of the bargain etched in said January 9, 2003 agreement owing alone to its acceptance of an amount less than PhP 6,100,000, is too presumptuous for acceptance. Viewed otherwise, the notion of novation foisted by petitioners on the Court cannot be plausibly deduced from EPCIBs acceptance of such lesser amount. Contrary to what petitioners would want the Court to believe, there is clearly no incompatibility between EPCIBs receipt of the partial payments of the principal amounts and what was due in May 2003, i.e., the PhP 1,000,000 and PhP 500,000 payments vis--vis the PhP 6,100,000 due. As it were, EPCIB accepted the partial payments remitted, but demanded, at the same time, the full payment of what was otherwise due in May 2003, as the parties agreed upon. As the CA observed correctly, precisely EPCIB was demanding the full payment of the PhP 5,100,000 principal due in May 2003 which had not yet been settled. Second. Novatio non praesumitur, or novation is never presumed, is a wellsettled principle. Consequently, that which arises from a purported modification in the terms and conditions of the obligation must be clear and express. On petitioners thus rests the onus of showing clearly and unequivocally that novation has indeed taken place. To us, petitioners have not discharged the burden. Moreover, we fail to see the presence of the concurring requisites for a novation of contract, as enumerated above. Indeed, petitioners have not shown an express modification of the terms of payment of the obligation. It has often been said that the minds that agree to contract can agree to novate. And the agreement or consent to novate may well be inferred from the acts of a creditor, since volition may as well be expressed by deeds as by words. In the instant case, however, the acts of EPCIB before, simultaneously to, and after its acceptance of payments from petitioners argue against the idea of its having acceded or acquiesced to petitioners request for a change of the terms of payments of the secured loan. Far from it. Thus, a novation through an alleged implied consent by EPCIB, as proffered and argued by petitioners, cannot be given imprimatur by the Court.

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G.R. No. 164538 August 9, 2010 METROPOLITAN BANK and TRUST COMPANY, Petitioner, vs. ROGELIO REYNADO and JOSE C. ADRANDEA, Respondents. Facts: On January 31, 1997, petitioner Metropolitan Bank and Trust Company charged respondents before the Office of the City Prosecutor of Manila with the crime of estafa under Article 315, paragraph 1(b) of the Revised Penal Code. In the affidavit of petitioners audit officer, Antonio Ivan S. Aguirre, it was alleged that the special audit conducted on the cash and lending operations of its Port Area branch uncovered anomalous/fraudulent transactions perpetrated by respondents in connivance with client Universal Converter Philippines, Inc. (Universal); that respondents were the only voting members of the branchs credit committee authorized to extend credit accommodation to clients up toP200,000.00; that through the so-called Bills Purchase Transaction, Universal, which has a paid-up capital of onlyP125,000.00 and actual maintaining balance of P5,000.00, was able to make withdrawals totaling P81,652,000.00 against uncleared regional checks deposited in its account at petitioners Port Area branch; that, consequently, Universal was able to utilize petitioners funds even before the seven-day clearing period for regional checks expired; that Universals withdrawals against uncleared regional check deposits were without prior approval of petitioners head office; that the uncleared checks were later dishonored by the drawee bank for the reason "Account Closed"; and, that respondents acted with fraud, deceit, and abuse of confidence. In their defense, respondents denied responsibility in the anomalous transactions with Universal and claimed that they only intended to help the Port Area branch solicit and increase its deposit accounts and daily transactions. Meanwhile, on February 26, 1997, petitioner and Universal entered into a Debt Settlement Agreement whereby the latter acknowledged its indebtedness to the former in the total amount of P50,990,976.27 as of February 4, 1997 and undertook to pay the same in bi-monthly amortizations in the sum of P300,000.00 starting January 15, 1997, covered by postdated checks, "plus balloon payment of the remaining principal balance and interest and other charges, if any, on December 31, 2001." Issue: Whether or not Novation and undertaking to pay the amount embezzled do not extinguish criminal liability Held: Novation not a mode of extinguishing criminal liability for estafa; Criminal liability for estafa not affected by compromise or novation of contract . Initially, it is best to emphasize that "novation is not one of the grounds prescribed by the Revised Penal Code for the extinguishment of criminal liability. In a catena of cases, it was ruled that criminal liability for estafa is not affected by a compromise or novation of contract. In Firaza v. People and Recuerdo v. People, this Court ruled that in a crime of estafa, reimbursement or belated payment to the offended party of the money swindled by the accused does not extinguish the criminal liability of the latter. We also held in People v. Moreno and in People v. Ladera that "criminal liability for estafa is not affected by compromise or novation of contract, for it is a public offense which must be prosecuted and punished by the Government on its own motion even though complete reparation should have been made of the damage suffered by the offended party." Similarly in the case of Metropolitan Bank and Trust Company v. Tonda cited by petitioner, we held that in a crime of estafa, reimbursement of or compromise as to the amount 11

misappropriated, after the commission of the crime, affects only the civil liability of the offender, and not his criminal liability. Thus, the doctrine that evolved from the aforecited cases is that a compromise or settlement entered into after the commission of the crime does not extinguish accuseds liability for estafa. Neither will the same bar the prosecution of said crime. Accordingly, in such a situation, as in this case, the complaint for estafa against respondents should not be dismissed just because petitioner entered into a Debt Settlement Agreement with Universal. Even the OSG arrived at the same conclusion: Contrary to the conclusion of public respondent, the Debt Settlement Agreement entered into between petitioner and Universal Converter Philippines extinguishes merely the civil aspect of the latters liability as a corporate entity but not the criminal liability of the persons who actually committed the crime of estafa against petitioner Metrobank. x x x Unfortunately for petitioner, the above observation of the OSG was wittingly glossed over in the body of the assailed Decision of the CA. Execution of the Debt Settlement Agreement did not prevent the incipience of criminal liability. Even if the instant case is viewed from the standpoint of the law on contracts, the disposition absolving the respondents from criminal liability because of novation is still erroneous. Under Article 1311 of the Civil Code, "contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law." The civil law principle of relativity of contracts provides that "contracts can only bind the parties who entered into it, and it cannot favor or prejudice a third person, even if he is aware of such contract and has acted with knowledge thereof." In the case at bar, it is beyond cavil that respondents are not parties to the agreement. The intention of the parties thereto not to include them is evident either in the onerous or in the beneficent provisions of said agreement. They are not assigns or heirs of either of the parties. Not being parties to the agreement, respondents cannot take refuge therefrom to bar their anticipated trial for the crime they committed. It may do well for respondents to remember that the criminal action commenced by petitioner had its genesis from the alleged fraud, unfaithfulness, and abuse of confidence perpetrated by them in relation to their positions as responsible bank officers. It did not arise from a contractual dispute or matters strictly between petitioner and Universal. This being so, respondents cannot rely on subject settlement agreement to preclude prosecution of the offense already committed to the end of extinguishing their criminal liability or prevent the incipience of any liability that may arise from the criminal offense. This only demonstrates that the execution of the agreement between petitioner and Universal has no bearing on the innocence or guilt of the respondents.

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G.R. Nos. 173219-20 August 11, 2010 ALC INDUSTRIES, INC., Petitioner, vs. DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS, Respondent. Facts: On May 29, 1996 respondent Department of Public Works and Highways (DPWH) awarded to petitioner ALC Industries, Inc. (ALC) the construction of a 105kilometer section of the Davao-Bukidnon Road from Calinan to Maramag. The parties signed the covering contract, Contract Package 09B, on January 28, 1997. ALC began work after receipt on March 3, 1997 of the notice to proceed. Subsequently, however, the parties discovered that the original design plans and drawings failed to reflect actual ground levels. Thus, they undertook a full-scale redesign of the project. Because ALC had fallen behind schedule, it agreed with DPWH to reduce the scope of works by executing about a year later on July 17, 1998 a Reduction in Scope Agreement (RISA), shrinking the project from 105 kilometers to 46.2 kilometers and from a contract price of P396,336,381.48 to P194,802,386.89. But, despite the reduction in scope of work, ALC continued to fall behind schedule. On August 7, 1998 the DPWH warned ALC about it, followed on August 13, 1998 by another warning from the project consultant, and a third warning from the DPWH on September 3, 1998. But with the delay unabated, in March 1999 the DPWH proposed to ALC a Supplemental Agreement which required ALC, among other things, to pay the DPWH about P30 million to enable it to recoup its advances to ALC based on the original scope of the project. But ALC rejected the proposed supplemental agreement. This prompted the DPWH to send it another letter dated April 19, 1999, rescinding its the contract with ALC on the ground that it had incurred a negative slippage in excess of 15%, the threshold set under Presidential Decree (P.D.) 1870. ALC sought reconsideration, claiming that what essentially delayed the project were actually the errors in the original design plans and drawings. It took the DPWH resident engineer eight months to approve the first sheet of the redesigned plans and drawings that covered a five-kilometer stretch of the project. Then it still had to be approved by the DPWH Bureau of Construction. ALC alleged that it in fact got no approved construction plan even after the rescission of the project. The delay of 14 months in the issuance of the notice to proceed and the inclement weather at the project site compounded the causes of the delay. Since the DPWH did not act on its request for reconsideration, ALC submitted the matter for arbitration by the Construction Industry Arbitration Commission (CIAC). Appallingly, the DPWH did not adequately respond to the action. It did not file an answer, seek modification of the Terms of Reference, file its memorandum, or submit the required draft decision, despite several extensions and postponements. It also neither presented a witness nor cross-examined ALCs witnesses. At any rate, ALC claimed that the target accomplishment of the project for December 1998 was 39.52% and it finished 30.80%. ALC pointed out that its negative slippage was, therefore, only 8.72%, which was still below the negative slippage threshold of 15%. But the CIAC had a different computation of the slippage. It reached 22.06% because ALC accomplished only 77.94% of the project as scheduled (30.80 divided by 39.52). Surprisingly, despite this finding in the rate of ALCs negative slippage, the CIAC voided DPWHs order of rescission on the ground that, factoring in the delays attributable to bad weather, the slippage should be adjusted to 12.85% only. Further, the CIAC found that, while ALC was guilty of breach of contract, the DPWH was not without fault. It failed to give ALC the opportunity to refute its finding of negative slippage. It had moreover been shown that other contractors had incurred 13

negative slippages of more than 15%, yet the DPWH did not resort to rescission. Thus, the CIAC modified the rescission to a mutual termination. Out of the P655,647,869.82 that ALC originally claimed, the CIAC ruled that ALC was entitled only to P136,105,236.25. On ALCs urgent motion for partial correction, the CIAC modified its decision and increased the award toP190,355,820.84. From this amount, however, the CIAC offset P64,732,536.75 representing payments that the DPWH already made or advanced, resulting in a net award of P125,623,284.09 to ALC. Both ALC and the DPWH appealed the decision of the CIAC to the Court of Appeals (CA). In a decision, the CA agreed with the CIAC that ALCs negative slippage did not exceed the 15% threshold. The CA, however, upheld the DPWH rescission order based on the ALCs other contractual breaches. Regarding the monetary awards, the CA affirmed nearly all that the CIAC provided but eliminated its award for stand by costs for equipment and manpower that ALC allegedly incurred on account of the DPWHs late issuance of the notice to proceed. The CA also denied ALCs additional claims for stand by costs due to the redesign works and bad weather conditions. Ultimately, the CA reduced the award to ALC from P190,355,820.84 to P45,687,595.25. But, offsetting prior payments that the DPWH already made, the CA ordered ALC to instead return P19,044,941.50 to the DPWH. With the denial of its motion for reconsideration, ALC filed the present petition for review on certiorari. Issue: Whether or not the CA erred in upholding the DPWHs rescission of its contract with ALC Held: ALC insists that the DPWH premised its rescission of the contract solely on the basis of ALCs negative slippage. Since both the CIAC and the CA found ALCs negative slippage to be below the 15% threshold provided by P.D. 1870, the CA had no basis for affirming the DPWHs rescission order. ALC points out that the CA erred when it considered other factors supposedly constituting breach of the agreement other than the negative slippage. But the DPWH rescission order did not cite only the negative slippage as ground for its action. The pertinent portion of its order of April 19, 1999 reads: In view of your failure to comply with Clause 10 of the Reduction of Scope Agreement x x x and your continuing commission of acts amounting to breach of contract resulting to a negative slippage of twenty six point sixty nine (26.69%) percent to protect the interest of the Government we hereby forfeit/rescind your contract for the above-mentioned project pursuant to Clause 63.1 of the conditions of Contract (International) for Works of Civil Engineering Construction and Presidential Decree 1870. Clearly, the DPWH gave two reasons for the rescission: 1) ALCs failure to comply with Clause 10 of the RISA; and 2) its continuing commission of acts amounting to breaches of contract, resulting in negative slippage in its performance. The negative slippage, an evidence of the breach, is not itself the cause of the delay in the project but an evidence of it. And what were the acts that amounted to breaches of the contract? The CA found, based on a DPWH memorandum dated February 15, 1999, that ALC failed to perform several obligations that the RISA required of it. Specifically, ALC failed to: 1) submit a program of work; 2) submit its month-by-month cash flow summary; 3) complete the verification survey; 4) complete and maintain facilities for the resident engineer; 5) provide data for the resident engineer to process orders for power generators; 6) 14

provide a service vehicle; and 7) delegate the necessary technical, financial and administrative authority to the Project Manager. ALC argues that, in considering these breaches, the CA violated its right to due process since the DPWH did not specify them in its rescission order and since the same were not raised as issues on appeal. But these breaches of the contract were mentioned as the cause of the negative slippage. Since the parties raised this negative slippage as an issue between them, the breaches that caused the slippage are necessarily a part of that issue. In any case, aside from those breaches of the contract, the DPWH based its rescission of the same on ALCs failure to comply with Clause 10 of the RISA, which provides: 10. The Contractor agrees that should he fail to achieve 90% of the progress shown on the bar chart programme given on Attachment 4 for the period up to end December 1998, then the Employer has the right to enter upon the site and expel the Contractor therefrom in accordance with Conditions of Contract Clause 63. ALC undertook in the agreement to accomplish 43.91% of the reduced project by the end of December 1998. The RISAs threshold was, therefore, 39.52%. But ALC was only able to accomplish 30.80% which was only 70.14% of the schedule, well below the 90% progress required by Clause 10. And even if delay due to bad weather could be factored in, ALC would still fall below the 90% target. On this score alone rescission was still justified. The 90% progress is a requirement imposed by the parties to the RISA. As a contractual obligation, this supersedes the threshold imposed by law. Since the parties entered into the RISA primarily due to initial delays in the project, the timetable instituted in it became an integral part of the agreement, an assurance that the project would be completed on time. ALCs failure to keep up with the rate of progress as contractually mandated is a substantial and fundamental breach which would defeat the very purpose of the RISA. Thus, the DPWH was entitled to terminate the project and expel ALC from it.

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G.R. No. 176479 October 6, 2010 RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, vs. PEDRO P. BUENAVENTURA, Respondent Facts: Respondent Pedro P. Buenaventura and his first wife (now deceased) owned a townhouse unit in Casa Nueva Manila Townhouse, Quezon City. On December 27, 1994, they obtained a loan from petitioner. As security for the loan, they mortgaged the townhouse to petitioner. Under the loan agreement, respondent was to pay RCBC a fixed monthly payment with adjustable interest for five years. For this purpose, respondent opened an account with RCBCs Binondo branch from which the bank was to deduct the monthly amortizations. On April 19, 1999, respondent received a Notice of Public Auction of the mortgaged townhouse unit. He wrote Atty. Saturnino Basconcillo, the notary public conducting the auction sale, demanding the cancellation of the auction sale. However, the notary public proceeded with the public sale on May 25, 1999, where RCBC emerged as the highest bidder. The Notary Publics Certificate of Sale was registered with the Register of Deeds on September 28, 2000. On September 18, 2001, respondent filed with the Regional Trial Court (RTC) of Quezon City a complaint for Annulment of Sale and Damages against RCBC Issue: Whether or not there was payment Held: Art. 1176. The receipt of the principal by the creditor, without reservation with respect to the interest, shall give rise to the presumption that the said interest has been paid. The receipt of a later installment of a debt without reservation as to prior installments, shall likewise raise the presumption that such installments have been paid. Respondents passbooks indicate that RCBC continued to receive his payments even after it made demands for him to pay his past due accounts, and even after the auction sale. RCBC cannot deny receipt of the payments, even when it claims that the deposits were "not withdrawn." It is not respondents fault that RCBC did not withdraw the money he deposited. His obligation under the mortgage agreement was to deposit his payment in the savings account he had opened for that purpose, in order that RCBC may debit the amount of his monthly liabilities therefrom. He complied with his part of the agreement. This bolsters the conclusion of the CA that respondent had no unpaid installments and was not in default as would warrant the application of the acceleration clause and the subsequent foreclosure and auction sale of the property.

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G.R. No. 190755 November 24, 2010 LAND BANK OF THE PHILIPPINES, Petitioner, vs. ALFREDO ONG, Respondent. Facts: On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan from Land Bank Legazpi City in the amount of PhP 16 million. The loan was secured by three (3) residential lots, five (5) cargo trucks, and a warehouse. Under the loan agreement, PhP 6 million of the loan would be short-term and would mature on February 28, 1997, while the balance of PhP 10 million would be payable in seven (7) years. The Notice of Loan Approval dated February 22, 1996 contained an acceleration clause wherein any default in payment of amortizations or other charges would accelerate the maturity of the loan. Subsequently, however, the Spouses Sy found they could no longer pay their loan. On December 9, 1996, they sold three (3) of their mortgaged parcels of land for PhP 150,000 to Angelina Gloria Ong, Evangelines mother, under a Deed of Sale with Assumption of Mortgage. Evangelines father, petitioner Alfredo Ong, later went to Land Bank to inform it about the sale and assumption of mortgage. Atty. Edna Hingco, the Legazpi City Land Bank Branch Head, told Alfredo and his counsel Atty. Ireneo de Lumen that there was nothing wrong with the agreement with the Spouses Sy but provided them with requirements for the assumption of mortgage. They were also told that Alfredo should pay part of the principal which was computed at PhP 750,000 and to update due or accrued interests on the promissory notes so that Atty. Hingco could easily approve the assumption of mortgage. Two weeks later, Alfredo issued a check for PhP 750,000 and personally gave it to Atty. Hingco. A receipt was issued for his payment. He also submitted the other documents required by Land Bank, such as financial statements for 1994 and 1995. Atty. Hingco then informed Alfredo that the certificate of title of the Spouses Sy would be transferred in his name but this never materialized. No notice of transfer was sent to him. Alfredo later found out that his application for assumption of mortgage was not approved by Land Bank. The bank learned from its credit investigation report that the Ongs had a real estate mortgage in the amount of PhP 18,300,000 with another bank that was past due. Alfredo claimed that this was fully paid later on. Nonetheless, Land Bank foreclosed the mortgage of the Spouses Sy after several months. Alfredo only learned of the foreclosure when he saw the subject mortgage properties included in a Notice of Foreclosure of Mortgage and Auction Sale at the RTC in Tabaco, Albay. Alfredos other counsel, Atty. Madrilejos, subsequently talked to Land Banks lawyer and was told that the PhP 750,000 he paid would be returned to him. On December 12, 1997, Alfredo initiated an action for recovery of sum of money with damages against Land Bank in Civil Case No. T-1941, as Alfredos payment was not returned by Land Bank. Alfredo maintained that Land Banks foreclosure without informing him of the denial of his assumption of the mortgage was done in bad faith. He argued that he was lured into believing that his payment of PhP 750,000 would cause Land Bank to approve his assumption of the loan of the Spouses Sy and the transfer of the mortgaged properties in his and his wifes name. He also claimed incurring expenses for attorneys fees of PhP 150,000, filing fee of PhP 15,000, and PhP 250,000 in moral damages. Testifying for Land Bank, Atty. Hingco claimed during trial that as branch manager she had no authority to approve loans and could not assure anybody that their assumption of mortgage would be approved.

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According to Atty. Hingco, the bank processes an assumption of mortgage as a new loan, since the new borrower is considered a new client. They used character, capacity, capital, collateral, and conditions in determining who can qualify to assume a loan. Alfredos proposal to assume the loan, she explained, was referred to a separate office, the Lending Center. During cross-examination, Atty. Hingco testified that several months after Alfredo made the tender of payment, she received word that the Lending Center rejected Alfredos loan application. She stated that it was the Lending Center and not her that should have informed Alfredo about the denial of his and his wifes assumption of mortgage. She added that although she told Alfredo that the agreement between the spouses Sy and Alfredo was valid between them and that the bank would accept payments from him, Alfredo did not pay any further amount so the foreclosure of the loan collaterals ensued. She admitted that Alfredo demanded the return of the PhP 750,000 but said that there was no written demand before the case against the bank was filed in court. She said that Alfredo had made the payment of PhP 750,000 even before he applied for the assumption of mortgage and that the bank received the said amount because the subject account was past due and demandable; and the Deed of Assumption of Mortgage was not used as the basis for the payment. Issue: Whether the Court of Appeals erred in holding that Art. 1236 of the Civil Code does not apply and in finding that there is no novation. RULING: We affirm with modification the appealed decision. Recourse is against Land Bank Land Bank contends that Art. 1236 of the Civil Code backs their claim that Alfredo should have sought recourse against the Spouses Sy instead of Land Bank. Art. 1236 provides: The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. We agree with Land Bank on this point as to the first part of paragraph 1 of Art. 1236. Land Bank was not bound to accept Alfredos payment, since as far as the former was concerned, he did not have an interest in the payment of the loan of the Spouses Sy. However, in the context of the second part of said paragraph, Alfredo was not making payment to fulfill the obligation of the Spouses Sy. Alfredo made a conditional payment so that the properties subject of the Deed of Sale with Assumption of Mortgage would be titled in his name. It is clear from the records that Land Bank required Alfredo to make payment before his assumption of mortgage would be approved. He was informed that the certificate of title would be transferred accordingly. He, thus, made payment not as a debtor but as a prospective mortgagor. But the trial court stated: [T]he contract was not perfected or consummated because of the adverse finding in the credit investigation which led to the disapproval of the proposed assumption. There was no evidence presented that plaintiff was informed of the disapproval. What he received was a letter dated May 22, 1997 informing him that 18

the account of spouses Sy had matured but there [were] no payments. This was sent even before the conduct of the credit investigation on June 20, 1997 which led to the disapproval of the proposed assumption of the loans of spouses Sy. Alfredo, as a third person, did not, therefore, have an interest in the fulfillment of the obligation of the Spouses Sy, since his interest hinged on Land Banks approval of his application, which was denied. The circumstances of the instant case show that the second paragraph of Art. 1236 does not apply. As Alfredo made the payment for his own interest and not on behalf of the Spouses Sy, recourse is not against the latter. And as Alfredo was not paying for another, he cannot demand from the debtors, the Spouses Sy, what he has paid. Novation of the loan agreement Land Bank also faults the CA for finding that novation applies to the instant case. It reasons that a substitution of debtors was made without its consent; thus, it was not bound to recognize the substitution under the rules on novation. On the matter of novation, Spouses Benjamin and Agrifina Lim v. M.B. Finance Corporation provides the following discussion: Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement. An extinctive novation results either by changing the object or principal conditions (objective or real), or by substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal). Under this mode, novation would have dual functions one to extinguish an existing obligation, the other to substitute a new one in its place requiring a conflux of four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation. x x x In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. The test of incompatibility is whether or not the two obligations can stand together, each one having its independent existence. x x x (Emphasis supplied.) Furthermore, Art. 1293 of the Civil Code states: Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him rights mentioned in articles 1236 and 1237. We do not agree, then, with the CA in holding that there was a novation in the contract between the parties. Not all the elements of novation were present. Novation must be expressly consented to. Moreover, the conflicting intention and acts of the parties underscore the absence of any express disclosure or circumstances with which to deduce a clear and unequivocal intent by the parties to novate the old agreement. Land Bank is thus correct when it argues that there was no novation in the following: [W]hether or not Alfredo Ong has an interest in the obligation and payment was made with the knowledge or consent of Spouses Sy, he may still pay the obligation for the reason that even before he paid the amount of P750,000.00 on January 31, 1997, the substitution of debtors was already perfected by and between Spouses Sy and Spouses Ong as evidenced by a Deed of Sale with Assumption of 19

Mortgage executed by them on December 9, 1996. And since the substitution of debtors was made without the consent of Land Bank a requirement which is indispensable in order to effect a novation of the obligation, it is therefore not bound to recognize the substitution of debtors. Land Bank did not intervene in the contract between Spouses Sy and Spouses Ong and did not expressly give its consent to this substitution.

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II.

CONTRACTS

G.R. No. 169438 : January 21, ROMEO D. MARIANO, Petitioner, vs. PETRON CORPORATION, Respondent. Facts: On 5 November 1968, Pacita V. Aure, Nicomedes Aure Bundac, and Zeny Abundo (Aure Group), owners of a 2,064 square meter parcel of land in Tagaytay City (Property), leased the Property to ESSO Standard Eastern, Inc., (ESSO Eastern), a foreign corporation doing business in the country through its subsidiary ESSO Standard Philippines, Inc. (ESSO Philippines). The lease period is 90 years and the rent is payable monthly for the first 10 years, and annually for the remaining period. The lease contract (Contract) contained an assignment veto clause barring the parties from assigning the lease without prior consent of the other. Excluded from the prohibition were certain corporations to whom ESSO Eastern may unilaterally assign its leasehold right. On 23 December 1977, ESSO Eastern sold ESSO Philippines to the Philippine National Oil Corporation (PNOC). Apparently, the Aure Group was not informed of the sale. ESSO Philippines, whose corporate name was successively changed to Petrophil Corporation then to Petron Corporation (Petron), took possession of the Property. On 18 November 1993, petitioner Romeo D. Mariano (petitioner) bought the Property from the Aure Group and obtained title to the Property issued in his name bearing an annotation of ESSO Easterns lease. On 17 December 1998, petitioner sent to Petron a notice to vacate the Property. Petitioner informed Petron that Presidential Decree No. 471 (PD 471), dated 24 May 1974, reduced the Contracts duration from 90 to 25 years, ending on 13 November 1993. Despite receiving the notice to vacate on 21 December 1998, Petron remained on the Property. On 18 March 1999, petitioner sued Petron in the Regional Trial Court of Tagaytay City, Branch 18, (trial court) to rescind the Contract and recover possession of the Property. Aside from invoking PD 471, petitioner alternatively theorized that the Contract was terminated on 23 December 1977 when ESSO Eastern sold ESSO Philippines to PNOC, thus assigning to PNOC its lease on the Property, without seeking the Aure Groups prior consent. Issue: Whether the Contract subsists between petitioner and Petron Held: PNOCs buy-out of ESSO Philippines was total and unconditional, leaving no residual rights to ESSO Eastern. Logically, this change of ownership carried with it the transfer to PNOC of any proprietary interest ESSO Eastern may hold through ESSO Philippines, including ESSO Easterns lease over the Property. This is the import of Petrons admission in the Joint Motion that by PNOCs buy-out of ESSO Philippines "[PNOC], x x x acquired ownership of ESSO Standard Philippines, Inc., including its leasehold right over the land in question, through the acquisition of its shares of stocks." As the Aure Group gave no prior consent to the transaction between ESSO Eastern and PNOC, ESSO Eastern violated the Contracts assignment veto clause. Petrons objection to this conclusion, sustained by the Court of Appeals, is rooted on its reliance on its separate corporate personality and on the unstated assumption that ESSO Philippines (not ESSO Eastern) initially held the leasehold right over the Property. Petron is wrong on both counts. 21

Courts are loathe to pierce the fictive veil of corporate personality, cognizant of the core doctrine in corporation law vesting on corporations legal personality distinct from their shareholders (individual or corporate) thus facilitating the conduct of corporate business. However, fiction gives way to reality when the corporate personality is foisted to justify wrong, protect fraud, or defend crime, thwarting the ends of justice. The fiction even holds lesser sway for subsidiary corporations whose shares are wholly if not almost wholly owned by its parent company. The structural and systems overlap inherent in parent and subsidiary relations often render the subsidiary as mere local branch, agency or adjunct of the foreign parent corporation. Here, the facts compel the conclusion that ESSO Philippines was a mere branch of ESSO Eastern in the execution and breach of the Contract. First, by ESSO Easterns admission in the Contract, it is "a foreign corporation organized under the laws of the State of Delaware, U.S.A., duly licensed to transact business in the Philippines, and doing business therein under the business name and style of Esso Standard Philippines x x x". In effect, ESSO Eastern was ESSO Philippines for all of ESSO Easterns Philippine business. Second, the Contract was executed by ESSO Eastern, not ESSO Philippines, as lessee, with the Aure Group as lessor. ESSO Eastern leased the Property for the use of ESSO Philippines, acting as ESSO Easterns Philippine branch. Consistent with such status, ESSO Philippines took possession of the Property after the execution of the Contract. Thus, for purposes of the Contract, ESSO Philippines was a mere alter ego of ESSO Eastern.

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G.R. No. 180374 January 22, BIENVENIDO T. BUADA, ISAIAS B. QUINTO, NEMESIO BAUTISTA, ORLANDO R. BAUTISTA, FREDDIE R. BAUTISTA, CARLITO O. BUADA, GERARDO O. BUADA, ARMANDO M. OLIVA, ROGELIO F. RAPAJON, EUGENIO F. FLORES, Petitioners, vs. CEMENT CENTER, INC., Respondent. Facts: Petitioners Bienvenido T. Buada, Isaias B. Quinto, Nemesio Bautista, Orlando T. Bautista, Freddie R. Bautista, Carlito O. Buada, Gerardo O. Buada, Armando M. Oliva, Rogelio F. Rapajon, and Eugenio F. Flores were tenant-farmers cultivating three parcels of agricultural land owned by respondent Cement Center, Inc. On March 13, 1998, respondent filed a Complaint for Confirmation of Voluntary Surrender and Damages against petitioners with the Department of Agrarian Reform Adjudication Board, Region 1 in Urdaneta City, Pangasinan. It claimed that on June 28, 1995, petitioners entered into a Compromise Agreement with respondent whereby the former, for and in consideration of the sum of P3,000.00 each, voluntarily surrendered their respective landholdings. However, despite respondents repeated demands, petitioners refused to vacate subject landholdings. In their Answer, petitioners alleged that their consent to the Compromise Agreement was obtained through fraud, deceit, and misrepresentation. They claimed that sometime in 1995, respondent induced them to sign a Compromise Agreement by representing that the subject landholdings are no longer viable for agricultural purposes. Petitioners alleged that respondent assured them that they would only apply for the conversion of the land and that they would have to surrender the land only upon the approval of said application and that thereafter, they will be paid a disturbance compensation of P3,000.00 each. Petitioners also claimed that respondent promised to hire them to work on the project that was planned for the converted land. But, should the application for conversion be denied, petitioners will continue to be tenants and could later become beneficiaries under the Comprehensive Agrarian Reform Law. Issue: Whether or not THE DEFICIENCY OF CONSIDERATION (which is not in accordance with ADMINISTRATIVE ORDER NO. 12) DOES NOT NULLIFY THE CONTRACT. Held: A perusal of the subject Compromise Agreement reveals that the parties considered the amount of P3,000.00 together with the income from a single cropping as comprising the disturbance compensation package, viz: 4. The aforeindicated income derived from the properties and the financial assistance of P3,000.00 shall be considered as the disturbance compensation package in favor of the SECOND PARTY by reason or as a result of their vacating the premises in accordance with Administrative Order No. 1, Series of 1990 of the Department of Agrarian Reform. (Emphasis supplied) Petitioners, however, assail the disturbance compensation package provided in the Compromise Agreement as insufficient and contrary to Administrative Order No. 12, Series of 2004. They claim that they would not have acceded to such a measly amount were it not for the agreement that respondent will hire them as workers on the planned project on the subject land. Despite the above contentions of petitioners, respondent failed to present evidence to show that the disturbance compensation package corresponds with the 23

compensation required by the said Administrative Order. Neither was there any showing that said disturbance compensation is not less than five times the average annual gross value of the harvest on petitioners actual landholdings during the preceding five calendar years. Moreover, it was not shown why petitioners as tenant-farmers would voluntarily give up their sole source of livelihood. There was likewise no showing that the money was indeed advantageous to petitioners families as to allow them to pursue other sources of livelihood. To stress, tenancy relations cannot be bargained away except for the strong reasons provided by law which must be convincingly shown by evidence in line with the State's policy of achieving a dignified existence for the small farmers free from pernicious institutional restraints and practices.

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G.R. No. 161074 March 22, 2010 MANUEL T. DE GUIA, for himself and as Attorney-in-Fact of FE DAVIS MARAMBA, RENATO DAVIS, FLORDELIZA D. YEH, JOCELYN D. QUEBLATIN and BETTY DAVIS, Petitioners, vs. HON. PRESIDING JUDGE, REGIONAL TRIAL COURT, BRANCH 12, MALOLOS, BULACAN; SPOUSES TEOFILO R. MORTE, ANGELINA C. VILLARICO; SPOUSES RUPERTO and MILAGROS VILLARICO; AND DEPUTY SHERIFF BENJAMIN C. HAO, Respondents. Facts: On August 8, 1973, Primitiva executed a document denominated as Kasulatan ng Sanglaan (Exhibit "J"), a deed of mortgage, in favor of respondents spouses Teofilo R. Morte and Angelina C. Villarico (respondents Spouses Morte) over the subject property in consideration of Primitiva's loan in the amount of P20,000.00. On February 15, 1974, Primitiva executed another document, Kasunduan ng Bilihang Tuluyan (Exhibit "F"), a deed of sale, over the same subject property in favor of spouses Ruperto C. Villarico and Milagros D. Barretto (respondents Spouses Villarico) for and in consideration of the amount of P33,000.00. On February 14, 1977, respondents Spouses Villarico executed a document denominated as Kasunduan ng Bilihang Tuluyan (Exhibit "G"), a deed of sale, wherein they sold back the subject property to Primitiva for the same amount ofP33,000.00. On March 26, 1977, Primitiva executed another document, Kasunduan ng Bilihang Tuluyan (Exhibit"H"), a deed of sale, wherein she again sold the subject property to respondents Spouses Villarico for the amount of P180,000.00. On March 28, 1977, Primitiva executed a Kasulatan ng Sanglaan (Exhibit "I"), a deed of mortgage, over the subject property in favor of respondents Spouses Morte in consideration of a loan in the amount of P180,000.00. Except for Exhibit "H," all documents were duly notarized and petitioner Renato was one of the instrumental witnesses in all these documents. On November 10, 1979, Primitiva, respondents Spouses Villarico and Spouses Morte executed before Notary Public Mamerto A. Abao the following five (5) documents, each of which was signed by petitioner Renato as an instrumental witness, to wit: 1. Kasulatan ng Sanglaan (Exhibit "A") - executed by Primitiva mortgaging the subject property to respondent Spouses Morte in consideration of a loan in the amount of P500,000.00 payable in one (1) year from date of contract at 12% interest; 2. General Power of Attorney (Exhibit "B") - executed by Primitiva appointing respondent Spouses Villarico as her attorney-in-fact in the exercise of general control and supervision over the subject property with full authority to act as her representative and agent, to lease, mortgage or sell said share, among other things, for and in her behalf; 3. Kasulatan ng Pagpapabuwis ng Palaisdaan (Exhibit "C") - executed between Primitiva, as lessor, and respondent Spouses Villarico, as lessees, over the same subject property at P10,000.00 per year as rental. Primitiva also acknowledged in the same document the receipt of P150,000.00 as advance payment of the yearly rentals for a period of fifteen (15) years ; 4. Pagpapawalang Saysay ng Kasulatan ng Sanglaan (Exhibit "D") - executed by respondent spouses Morte canceling and rendering without any valid force and 25

effect the "Kasulatan ng Sanglaan" (Exhibit "I") dated March 28, 1977 for a loan of P180,000.00; 5. Kasulatan ng Pagpapawalang Saysay at Pagpapawalang Bisa ng mga Kasulatan (Exhibit "E") - executed by Primitiva and respondent Spouses Villarico canceling the following documents: a) Kasunduan ng Bilihang Tuluyan (Exhibit "F") dated February 15, 1974; b) Kasunduan ng Bilihang Tuluyan (Exhibit "G") dated February 14, 1977; and c) Kasunduan ng Bilihang Tuluyan (Exhibit "H") dated March 26, 1977; because the amounts stated in those deeds had already been returned by Primitiva to respondent Spouses Villarico. Primitiva failed to pay her loan in the amount of P500,000.00 to respondents Spouses Morte as secured by a real estate mortgage on the subject property (Exhibit "A") executed on November 10, 1979. Thus, the latter filed with the Office of the Provincial Sheriff of Bulacan, a petition for extrajudicial foreclosure of real estate mortgage. On January 16, 1986, a Notice of Sheriffs Sale of the property was published. Issue: Whether or not the court of Appeals erred on declaring that the Transactions executed in same date, November 10, 1979, are not void and simulated. Held: As correctly ruled by the lower courts, the last paragraph of Article 1335 of the New Civil Code was applicable in this case, which provides that a threat to enforce one's claim through competent authority, if the claim is just or legal, does not vitiate consent. It has been held that foreclosure of mortgaged properties in case of default in payment of a debtor is a legal remedy afforded by law to a creditor. Hence, a threat to foreclose the mortgage would not per se vitiate consent.

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G.R. No. 164703 May 4, 2010 ALLAN C. GO, doing business under the name and style "ACG Express Liner," Petitioner, vs. MORTIMER F. CORDERO, Respondent. Facts: Sometime in 1996, Mortimer F. Cordero, Vice-President of Pamana Marketing Corporation (Pamana), ventured into the business of marketing inter-island passenger vessels. After contacting various overseas fast ferry manufacturers from all over the world, he came to meet Tony Robinson, an Australian national based in Brisbane, Australia, who is the Managing Director of Aluminium Fast Ferries Australia (AFFA). Between June and August 1997, Robinson signed documents appointing Cordero as the exclusive distributor of AFFA catamaran and other fast ferry vessels in the Philippines. As such exclusive distributor, Cordero offered for sale to prospective buyers the 25-meter Aluminium Passenger catamaran known as the SEACAT 25. After negotiations with Felipe Landicho and Vincent Tecson, lawyers of Allan C. Go who is the owner/operator of ACG Express Liner of Cebu City, a single proprietorship, Cordero was able to close a deal for the purchase of two (2) SEACAT 25 as evidenced by the Memorandum of Agreement dated August 7, 1997. Accordingly, the parties executed Shipbuilding Contract No. 7825 for one (1) high-speed catamaran (SEACAT 25) for the price of US$1,465,512.00. Per agreement between Robinson and Cordero, the latter shall receive commissions totalling US$328,742.00, or 22.43% of the purchase price, from the sale of each vessel. Cordero made two (2) trips to the AFFA Shipyard in Brisbane, Australia, and on one (1) occasion even accompanied Go and his family and Landicho, to monitor the progress of the building of the vessel. He shouldered all the expenses for airfare, food, hotel accommodations, transportation and entertainment during these trips. He also spent for long distance telephone calls to communicate regularly with Robinson, Go, Tecson and Landicho. However, Cordero later discovered that Go was dealing directly with Robinson when he was informed by Dennis Padua of Wartsila Philippines that Go was canvassing for a second catamaran engine from their company which provided the ship engine for the first SEACAT 25. Padua told Cordero that Go instructed him to fax the requested quotation of the second engine to the Park Royal Hotel in Brisbane where Go was then staying. Cordero tried to contact Go and Landicho to confirm the matter but they were nowhere to be found, while Robinson refused to answer his calls. Cordero immediately flew to Brisbane to clarify matters with Robinson, only to find out that Go and Landicho were already there in Brisbane negotiating for the sale of the second SEACAT 25. Despite repeated follow-up calls, no explanation was given by Robinson, Go, Landicho and Tecson who even made Cordero believe there would be no further sale between AFFA and ACG Express Liner. In a handwritten letter dated June 24, 1998, Cordero informed Go that such act of dealing directly with Robinson violated his exclusive distributorship and demanded that they respect the same, without prejudice to legal action against him and Robinson should they fail to heed the same. Corderos lawyer, Atty. Ernesto A. Tabujara, Jr. of ACCRA law firm, also wrote ACG Express Liner assailing the fraudulent actuations and misrepresentations committed by Go in connivance with his lawyers (Landicho and Tecson) in breach of Corderos exclusive distributorship appointment. Having been apprised of Corderos demand letter, Thyne & Macartney, the lawyer of AFFA and Robinson, faxed a letter to ACCRA law firm asserting that the 27

appointment of Cordero as AFFAs distributor was for the purpose of one (1) transaction only, that is, the purchase of a high-speed catamaran vessel by ACG Express Liner in August 1997. The letter further stated that Cordero was offered the exclusive distributorship, the terms of which were contained in a draft agreement which Cordero allegedly failed to return to AFFA within a reasonable time, and which offer is already being revoked by AFFA. As to the response of Go, Landicho and Tecson to his demand letter, Cordero testified before the trial court that on the same day, Landicho, acting on behalf of Go, talked to him over the telephone and offered to amicably settle their dispute. Tecson and Landicho offered to convince Go to honor his exclusive distributorship with AFFA and to purchase all vessels for ACG Express Liner through him for the next three (3) years. In an effort to amicably settle the matter, Landicho, acting in behalf of Go, set up a meeting with Cordero on June 29, 1998 between 9:30 p.m. to 10:30 p.m. at the Mactan Island Resort Hotel lobby. On said date, however, only Landicho and Tecson came and no reason was given for Gos absence. Tecson and Landicho proposed that they will convince Go to pay him US$1,500,000.00 on the condition that they will get a cut of 20%. And so it was agreed between him, Landicho and Tecson that the latter would give him a weekly status report and that the matter will be settled in three (3) to four (4) weeks and neither party will file an action against each other until a final report on the proposed settlement. No such report was made by either Tecson or Landicho who, it turned out, had no intention to do so and were just buying time as the catamaran vessel was due to arrive from Australia. Cordero then filed a complaint with the Bureau of Customs (BOC) to prohibit the entry of SEACAT 25 from Australia based on misdeclaration and undervaluation. Consequently, an Alert Order was issued by Acting BOC Commissioner Nelson Tan for the vessel which in fact arrived on July 17, 1998. Cordero claimed that Go and Robinson had conspired to undervalue the vessel by around US$500,000.00. On August 21, 1998, Cordero instituted Civil Case No. 98-35332 seeking to hold Robinson, Go, Tecson and Landicho liable jointly and solidarily for conniving and conspiring together in violating his exclusive distributorship in bad faith and wanton disregard of his rights, thus depriving him of his due commissions (balance of unpaid commission from the sale of the first vessel in the amount of US$31,522.01 and unpaid commission for the sale of the second vessel in the amount of US$328,742.00) and causing him actual, moral and exemplary damages, including P800,000.00 representing expenses for airplane travel to Australia, telecommunications bills and entertainment, on account of AFFAs untimely cancellation of the exclusive distributorship agreement. Cordero also prayed for the award of moral and exemplary damages, as well as attorneys fees and litigation expenses. Issue: Whether or not there was an interference by a third person Held: Art. 1314. Any third person who induces another to violate his contract shall be liable for damages to the other contracting party. The elements of tort interference are: (1) existence of a valid contract; (2) knowledge on the part of the third person of the existence of a contract; and (3) interference of the third person is without legal justification. The presence of the first and second elements is not disputed. Through the letters issued by Robinson attesting that Cordero is the exclusive distributor of AFFA in the Philippines, respondents were clearly aware of the contract between Cordero and AFFA represented by Robinson. In fact, evidence on record showed that respondents initially dealt with and recognized Cordero as such exclusive dealer of AFFA high-speed catamaran vessels in the Philippines. In that capacity as exclusive 28

distributor, petitioner Go entered into the Memorandum of Agreement and Shipbuilding Contract No. 7825 with Cordero in behalf of AFFA. As to the third element, our ruling in the case of So Ping Bun v. Court of Appeals is instructive, to wit: A duty which the law of torts is concerned with is respect for the property of others, and a cause of action ex delicto may be predicated upon an unlawful interference by one person of the enjoyment by the other of his private property. This may pertain to a situation where a third person induces a party to renege on or violate his undertaking under a contract. In the case before us, petitioners Trendsetter Marketing asked DCCSI to execute lease contracts in its favor, and as a result petitioner deprived respondent corporation of the latters property right. Clearly, and as correctly viewed by the appellate court, the three elements of tort interference above-mentioned are present in the instant case. Authorities debate on whether interference may be justified where the defendant acts for the sole purpose of furthering his own financial or economic interest. One view is that, as a general rule, justification for interfering with the business relations of another exists where the actors motive is to benefit himself. Such justification does not exist where his sole motive is to cause harm to the other. Added to this, some authorities believe that it is not necessary that the interferers interest outweigh that of the party whose rights are invaded, and that an individual acts under an economic interest that is substantial, not merely de minimis, such that wrongful and malicious motives are negatived, for he acts in self-protection. Moreover, justification for protecting ones financial position should not be made to depend on a comparison of his economic interest in the subject matter with that of others. It is sufficient if the impetus of his conduct lies in a proper business interest rather than in wrongful motives. As early as Gilchrist vs. Cuddy, we held that where there was no malice in the interference of a contract, and the impulse behind ones conduct lies in a proper business interest rather than in wrongful motives, a party cannot be a malicious interferer. Where the alleged interferer is financially interested, and such interest motivates his conduct, it cannot be said that he is an officious or malicious intermeddler. In the instant case, it is clear that petitioner So Ping Bun prevailed upon DCCSI to lease the warehouse to his enterprise at the expense of respondent corporation. Though petitioner took interest in the property of respondent corporation and benefited from it, nothing on record imputes deliberate wrongful motives or malice in him.

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G.R. NO. 170530 July 5, 2010 SARGASSO CONSTRUCTION & DEVELOPMENT CORPORATION/PICK & SHOVEL, INC.,/ATLANTIC ERECTORS, INC. (JOINT VENTURE), Petitioner, vs. PHILIPPINE PORTS AUTHORITY, Respondent. Facts: Plaintiff Sargasso Construction and Development Corporation, Pick and Shovel, Inc. and Atlantic Erectors, Inc., a joint venture, was awarded the construction of Pier 2 and the rock causeway (R.C. Pier 2) for the port of San Fernando, La Union, after a public bidding conducted by the defendant PPA. Implementation of the project commenced on August 14, 1990. The port construction was in pursuance of the development of the Northwest Luzon Growth Quadrangle. Adjacent to Pier 2 is an area of P4,280 square meters intended for the reclamation project as part of the overall port development plan. In a letter dated October 1, 1992 of Mr. Melecio J. Go, Executive Director of the consortium, plaintiff offered to undertake the reclamation between the Timber Pier and Pier 2 of the Port of San Fernando, La Union, as an extra work to its existing construction of R.C. Pier 2 and Rock Causeway for a price of P36,294,857.03. Defendant replied thru its Assistant General Manager Teofilo H. Landicho who sent the following letter dated December 18, 1992: "This is to acknowledge receipt of your letter dated 01 October 1992 offering to undertake the reclamation between the Timber Pier and Pier 2, at the Port of San Fernando, La Union as an extra work to your existing contract. "Your proposal to undertake the project at a total cost of THIRTY SIX MILLION TWO HUNDRED NINETY FOUR THOUSAND EIGHT HUNDRED FIFTY SEVEN AND 03/100 PESOS (P36,294,857.03) is not acceptable to PPA. If you can reduce your offer to THIRTY MILLION SEVEN HUNDRED NINETY FOUR THOUSAND TWO HUNDRED THIRTY AND 89/100 (P30,794,230.89) we may consider favorably award of the project in your favor, subject to the approval of higher authority. Please signify your agreement to the reduced amount of P30,794,230.89 by signing in the space provided below. (emphasis in the original) On August 26, 1993, a Notice of Award signed by PPA General Manager Rogelio Dayan was sent to plaintiff for the phase I Reclamation Contract in the amount of P30,794,230.89 and instructing it to "enter into and execute the contract agreement with this Office" and to furnish the documents representing performance security and credit line. Defendant likewise stated [and] made it a condition that "fendering of Pier No. 2 Port of San Fernando, and the Port of Tabaco is completed before the approval of the contract for the reclamation project." Installation of the rubber dock fenders in the said ports was accomplished in the year 1994. PPA Management further set a condition [that] "the acceptance by the contractor that mobilization/demobilization cost shall not be included in the contract and that escalation shall be reckoned upon approval of the Supplemental Agreement." The award of the negotiated contract as additional or supplemental project in favor of plaintiff was intended "to save on the mobilization/demobilization costs and some items as provided for in the original contract." Hence, then General Manager Carlos L. Agustin presented for consideration by the PPA Board of Directors the contract proposal for the reclamation project. At its meeting held on September 9, 1994, the Board decided not to approve the contract proposal, as reflected in the following excerpt of the minutes taken during said board meeting: 30

"After due deliberation, the Board advised Management to bid the project since there is no strong legal basis for Management to award the supplemental contract through negotiation. The Board noted that the Pier 2 Project was basically for the construction of a pier while the supplemental agreement refers to reclamation. Thus there is no basis to compare the terms and conditions of the reclamation project with the original contract (Pier 2 Project) of Sargasso." It appears that PPA did not formally advise the plaintiff of the Boards action on their contract proposal. As plaintiff learned that the Board was not inclined to favor its Supplemental Agreement, Mr. Go wrote General Manager Agustin requesting that the same be presented again to the Board meeting for approval. However, no reply was received by plaintiff from the defendant. On June 30, 1997, plaintiff filed a complaint for specific performance and damages before the Regional Trial Court of Manila alleging that defendant PPAs unjustified refusal to comply with its undertaking, unnecessarily leading to the delay in the implementation of the award under the August 26, 1993 Notice of Award, has put on hold plaintiffs men and resources earmarked for the project, aside from effectively tying its hands in undertaking other projects for fear that plaintiffs incapacity to undertake work might be spread thinly and it might not be able to function efficiently if the PPA project and other projects should require simultaneous attention. Plaintiff averred that it sought reconsideration of the August 9, 1996 letter of PPA informing it that it did not qualify to bid for the proposed extension of RC Pier No. 2, Port of San Fernando, La Union for not having IAC Registration and Classification and not complying with equipment requirement. In its letter dated September 19, 1996, plaintiff pointed out that the disqualification was clearly unjust and totally without basis considering that individual contractors of the joint venture have undertaken separately bigger projects, and have been such individual contractors for almost 16 years. It thus prayed that judgment be rendered by the court directing the defendant (a) to comply with its undertaking under the Notice of Award dated August 26, 1993; and (b) to pay plaintiff actual damages (P1,000,000.00), exemplary damages (P1,000,000.00), attorneys fees (P300,000.00) and expenses of litigation and costs (P50,000.00). Defendant PPA thru the Office of the Government Corporate Counsel (OGCC) filed its Answer with Compulsory Counterclaim contending that the alleged Notice of Award has already been properly revoked when the Supplemental Agreement which should have implemented the award was denied approval by defendants Board of Directors. As to plaintiffs pre-disqualification from participating in the bidding for the extension of R.C. Pier No. 2 Project at the Port of San Fernando, La Union, the same is based on factual determination by the defendant that plaintiff lacked IAC Registration and Classification and equipment for the said project as communicated in the August 9, 1996 letter. Defendant disclaimed any liability for whatever damages suffered by the plaintiff when it "jumped the gun" by committing its alleged resources for the reclamation project despite the fact that no Notice to Proceed was issued to plaintiff by the defendant. The cause of action insofar as the Extension of R.C. Pier No. 2 of the Port of San Fernando, La Union, is barred by the statute of limitation since plaintiff filed its request for reconsideration way beyond the seven (7) day-period allowed under IB 6-5 of the Implementing Rules and Regulations of P.D. 1594. Defendant clarified that the proposed Reclamation Project and Extension of R.C. Pier No. 2 San Fernando, La Union, are separate projects of PPA. The Board of Directors denied approval of the Supplemental Agreement on September 9, 1994 for lack of legal basis to award the supplemental contract through negotiation which was properly communicated to the plaintiff as shown by its letter dated September 19, 1994 seeking reconsideration thereof. As advised by the Board, PPA Management began to make preparations for the public bidding for the proposed reclamation project. In the meantime, defendant decided to pursue the extension of R.C. Pier 2, San Fernando, La Union. xxx It [prayed that the complaint be dismissed]. (Emphasis supplied)

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After trial, the lower court rendered a decision in favor of the plaintiff, the dispositive portion of which reads: "WHEREFORE, and in view of the foregoing considerations, judgment is hereby rendered ordering the defendant to execute a contract in favor of the plaintiff for the reclamation of the area between the Timber Pier and Pier 2 located at San Fernando, La Union for the price of P30,794,230.89 and to pay the costs. The counterclaim is dismissed for lack of merit. SO ORDERED. In addressing affirmatively the basic issue of whether there was a perfected contract between the parties for the reclamation project, the trial court ruled that the "higher authority x x adverted to does not necessarily mean the Board of Directors (Board). Under IRR, P.D. 1594 (1)B10.6, approval of award and contracts is vested on the head of the infrastructure department or its duly authorized representative. Under Sec. 9 (iii) of P.D. 857 which has amended P.D. 505 that created the PPA, one of the particular powers and duties of the General Manager and Assistant General Manager is to sign contracts." It went on to say that "in the case of the PPA, the power to enter into contracts is not only vested on the Board of Directors, but also to the manager" citing Section 9 (III) of P.D. No. 857. The trial court added that the tenor of the Notice of Award implied that respondents general manager had been empowered by its Board of Directors to bind respondent by contract. It noted that whereas the letter-reply contained the phrase "approval of the higher authority," the conspicuous absence of the same in the Notice of Award supported the finding that the general manager had been vested with authority to enter into the contract for and in behalf of respondent. To the trial court, the disapproval by the PPA Board of the supplementary contract for the reclamation on a ground other than the general managers lack of authority was an explicit recognition that the latter was so authorized to enter into the purported contract. Respondent moved for a reconsideration of the RTC decision but it was denied for lack of merit. Respondent then filed its Notice of Appeal. Subsequently, petitioner moved to dismiss the appeal on the ground that respondent failed to perfect its appeal seasonably. On June 27, 2000, the Court of Appeals issued a Resolution dismissing respondents appeal for having been filed out time. Respondents motion for reconsideration of said resolution was also denied. Undaunted, respondent elevated its problem to this Court via a petition for review on certiorari under Rule 45 assailing the denial of its appeal. On July 30, 2004, the Court rendered an en banc decision granting respondents petition on a liberal interpretation of the rules of procedure, and ordering the CA to conduct further proceedings. On August 22, 2005, the CA rendered the assailed decision reversing the trial courts decision and dismissing petitioners complaint for specific performance and damages. Thus, the dispositive portion thereof reads: WHEREFORE, premises considered, the present appeal is hereby GRANTED. The appealed Decision dated June 8, 1998 of the trial court in Civil Case No. 9783916 is hereby REVERSED and SET ASIDE. A new judgment is hereby entered DISMISSING the complaint for specific performance and damages filed by Plaintiff Sargasso Construction and Development Corporation/Pick & Shovel, Inc./Atlantic Erectors, Inc., (Joint Venture) against the Philippine Ports Authority for lack of merit. In setting aside the trial courts decision, the CA ruled that the law itself should serve as the basis of the general managers authority to bind respondent 32

corporation and, thus, the trial court erred in merely relying on the wordings of the Notice of Award and the Minutes of the Board meeting in determining the limits of his authority; that the power of the general manager "to sign contracts" is different from the Boards power "to make or enter (into) contracts"; and that, in the execution of contracts, the general manager only exercised a delegated power, in reference to which, evidence was wanting that the PPA Board delegated to its general manager the authority to enter into a supplementary contract for the reclamation project. The CA also found the disapproval of the contract on a ground other than the general managers lack of authority rather inconsequential because Executive Order 380 expressly authorized the governing boards of government-owned or controlled corporations "to enter into negotiated infrastructure contracts involving not more than fifty million (P50 million)." The CA further noted that the Notice of Award was only one of those documents that comprised the entire contract and, therefore, did not in itself evidence the perfection of a contract. Issue: Whether or not a contract has been perfected between the parties which, in turn, depends on whether or not the general manager of PPA is vested with authority to enter into a contract for and on behalf of PPA. Held: Every contract has the following essential elements: (i) consent, (ii) object certain and (iii) cause. Consent has been defined as the concurrence of the wills of the contracting parties with respect to the object and cause which shall constitute the contract. In general, contracts undergo three distinct stages, to wit: negotiation, perfection or birth, and consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of their agreement. Perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract, i.e., consent, object and price. Consummation occurs when the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof. The birth or the perfection of the contract, which is the crux of the present controversy, refers to that moment in the life of a contract when there is finally a concurrence of the wills of the contracting parties with respect to the object and the cause of the contract.

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G.R. No. 186738 September 27, 2010 PRUDENTIAL BANK AND TRUST COMPANY (now BANK OF THE PHILIPPINE ISLANDS,) Petitioner, vs. LIWAYWAY ABASOLO, Respondent. Facts: Leonor Valenzuela-Rosales inherited two parcels of land situated in Palanan, Sta. Cruz, Laguna (the properties), registered as Original Certificates of Title Nos. RO-527 and RO-528. After she passed away, her heirs executed on June 14, 1993 a Special Power of Attorney (SPA) in favor of Liwayway Abasolo (respondent) empowering her to sell the properties. Sometime in 1995, Corazon Marasigan (Corazon) wanted to buy the properties which were being sold for P2,448,960, but as she had no available cash, she broached the idea of first mortgaging the properties to petitioner Prudential Bank and Trust Company (PBTC), the proceeds of which would be paid directly to respondent. Respondent agreed to the proposal. On Corazon and respondents consultation with PBTCs Head Office, its employee, Norberto Mendiola (Mendiola), allegedly advised respondent to issue an authorization for Corazon to mortgage the properties, and for her (respondent) to act as one of the co-makers so that the proceeds could be released to both of them. To guarantee the payment of the property, Corazon executed on August 25, 1995 a Promissory Note for P2,448,960 in favor of respondent. By respondents claim, in October 1995, Mendiola advised her to transfer the properties first to Corazon for the immediate processing of Corazons loan application with assurance that the proceeds thereof would be paid directly to her (respondent), and the obligation would be reflected in a bank guarantee. Heeding Mendiolas advice, respondent executed a Deed of Absolute Sale over the properties in favor of Corazon following which or on December 4, 1995, Transfer Certificates of Title Nos. 164159 and 164160 were issued in the name of Corazon. Corazons application for a loan with PBTCs Tondo Branch was approved on December 1995. She thereupon executed a real estate mortgage covering the properties to secure the payment of the loan. In the absence of a written request for a bank guarantee, the PBTC released the proceeds of the loan to Corazon. Respondent later got wind of the approval of Corazons loan application and the release of its proceeds to Corazon who, despite repeated demands, failed to pay the purchase price of the properties. Respondent eventually accepted from Corazon partial payment in kind consisting of one owner type jeepney and four passenger jeepneys, plus installment payments, which, by the trial courts computation, totaled P665,000. In view of Corazons failure to fully pay the purchase price, respondent filed a complaint for collection of sum of money and annulment of sale and mortgage with damages, against Corazon and PBTC (hereafter petitioner), before the Regional Trial Court (RTC) of Sta. Cruz, Laguna. Issue: Whether it is subsidiarily liable Held: The principle of relativity of contracts in Article 1311 of the Civil Code supports petitioners cause: 34

Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent. If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. (underscoring supplied) For Liwayway to prove her claim against petitioner, a clear and deliberate act of conferring a favor upon her must be present. A written request would have sufficed to prove this, given the nature of a banking business, not to mention the amount involved. Since it has not been established that petitioner had an obligation to Liwayway, there is no breach to speak of. Liwayways claim should only be directed against Corazon. Petitioner cannot thus be held subisidiarily liable. To the Court, Liwayway did not rely on Mendiolas representations, even if he indeed made them. The contract for Liwayway to sell to Corazon was perfected from the moment there was a meeting of minds upon the properties-object of the contract and upon the price. Only the source of the funds to pay the purchase price was yet to be resolved at the time the two inquired from Mendiola. Consider Liwayways testimony: Q: We are referring to the promissory note which you aforementioned a while ago, why did this promissory note come about? A: Because the negotiation was already completed, sir, and the deed of sale will have to be executed, I asked the defendant (Corazon) to execute the promissory note first before I could execute a deed of absolute sale, for assurance that she really pay me, sir. (emphasis and underscoring supplied) That it was on Corazons execution of a promissory note that prompted Liwayway to finally execute the Deed of Sale is thus clear. The trial Courts reliance on the doctrine of apparent authority that the principal, in this case petitioner, is liable for the obligations contracted by its agent, in this case Mendiola, does not lie. Prudential Bank v. Court of Appeals instructs: [A] banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetuate fraud upon his principal or some person, for his own ultimate benefit.

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G.R. No. 172727 September 8, 2010 QUEENSLAND-TOKYO COMMODITIES, INC., ROMEO Y. LAU, and CHARLIE COLLADO, Petitioners, vs. THOMAS GEORGE, Respondent. Facts: QTCI is a duly licensed broker engaged in the trading of commodity futures. In 1995, Guillermo Mendoza, Jr. (Mendoza) and Oniler Lontoc (Lontoc) of QTCI met with respondent Thomas George (respondent), encouraging the latter to invest with QTCI. On July 7, 1995, upon Mendozas prodding, respondent finally invested with QTCI. On the same day, Collado, in behalf of QTCI, and respondent signed the Customers Agreement. Forming part of the agreement was the Special Power of Attorney executed by respondent, appointing Mendoza as his attorney-in-fact with full authority to trade and manage his account. On June 20, 1996, the Securities and Exchange Commission (SEC) issued a Cease-and-Desist Order (CDO) against QTCI. Alarmed by the issuance of the CDO, respondent demanded from QTCI the return of his investment, but it was not heeded. He then sought legal assistance, and discovered that Mendoza and Lontoc were not licensed commodity futures salesmen. On February 4, 1998, respondent filed a complaint for Recovery of Investment with Damages with the SEC against QTCI, Lau, and Collado (petitioners), and against the unlicensed salesmen, Mendoza and Lontoc. The case was docketed as SEC Case No. 02-98-5886, and was raffled to SEC Hearing Officer Julieto F. Fabrero. Only petitioners answered the complaint, as Mendoza and Lontoc had since vanished into thin air. Traversing the complaint, petitioners denied the material allegations in the complaint and alleged lack of cause of action, as a defense. Petitioners averred that QTCI only assigned duly qualified persons to handle the accounts of its clients; and denied allowing unlicensed brokers or agents to handle respondents account. They claimed that they were not aware of, nor were they privy to, any arrangement which resulted in the account of respondent being handled by unlicensed brokers. They added that even assuming that the subject account was handled by an unlicensed broker, respondent is now estopped from raising it as a ground for the return of his investment. They pointed out that respondent transacted business with QTCI for almost a year, without questioning the license or the authority of the traders handling his account. It was only after it became apparent that QTCI could no longer resume its business transactions by reason of the CDO that respondent raised the alleged lack of authority of the brokers or traders handling his account. The losses suffered by respondent were due to circumstances beyond petitioners control and could not be attributed to them. Respondents remedy, they added, should be against the unlicensed brokers who handled the account. Thus, petitioners prayed for the dismissal of the complaint. Issue: Whether or not the contract is void Held: It is settled that a void contract is equivalent to nothing; it produces no civil effect. It does not create, modify, or extinguish a juridical relation. Parties to a void agreement cannot expect the aid of the law; the courts leave them as they are, because they are deemed in pari delicto or in equal fault. This rule, however, is not absolute. Article 1412 of the Civil Code provides an exception, and permits the return of that which may have been given under a void contract. Thus:

36

Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: (1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other's undertaking; (2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise. The evidence on record established that petitioners indeed permitted an unlicensed trader and salesman, like Mendoza, to handle respondents account. On the other hand, the record is bereft of proof that respondent had knowledge that the person handling his account was not a licensed trader. Respondent can, therefore, recover the amount he had given under the contract. The SEC Hearing Officer and the CA, therefore, committed no reversible error in holding that respondent is entitled to a full recovery of his investments.

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G.R. No. 183852 October 20, 2010 CARMELA BROBIO MANGAHAS, Petitioner, vs. EUFROCINA A. BROBIO, Respondent. Facts: On January 10, 2002, Pacifico S. Brobio (Pacifico) died intestate, leaving three parcels of land. He was survived by his wife, respondent Eufrocina A. Brobio, and four legitimate and three illegitimate children; petitioner Carmela Brobio Mangahas is one of the illegitimate children. On May 12, 2002, the heirs of the deceased executed a Deed of Extrajudicial Settlement of Estate of the Late Pacifico Brobio with Waiver. In the Deed, petitioner and Pacificos other children, in consideration of their love and affection for respondent and the sum of P150,000.00, waived and ceded their respective shares over the three parcels of land in favor of respondent. According to petitioner, respondent promised to give her an additional amount for her share in her fathers estate. Thus, after the signing of the Deed, petitioner demanded from respondent the promised additional amount, but respondent refused to pay, claiming that she had no more money. A year later, while processing her tax obligations with the Bureau of Internal Revenue (BIR), respondent was required to submit an original copy of the Deed. Left with no more original copy of the Deed, respondent summoned petitioner to her office on May 31, 2003 and asked her to countersign a copy of the Deed. Petitioner refused to countersign the document, demanding that respondent first give her the additional amount that she promised. Considering the value of the three parcels of land (which she claimed to be worth P20M), petitioner asked for P1M, but respondent begged her to lower the amount. Petitioner agreed to lower it to P600,000.00. Because respondent did not have the money at that time and petitioner refused to countersign the Deed without any assurance that the amount would be paid, respondent executed a promissory note. Petitioner agreed to sign the Deed when respondent signed the promissory note which read 31 May 2003 This is to promise that I will give a Financial Assistance to CARMELA B. MANGAHAS the amount of P600,000.00 Six Hundred Thousand only on June 15, 2003. (SGD) EUFROCINA A. BROBIO When the promissory note fell due, respondent failed and refused to pay despite demand. Petitioner made several more demands upon respondent but the latter kept on insisting that she had no money. On January 28, 2004, petitioner filed a Complaint for Specific Performance with Damages against respondent, alleging in part 2. That plaintiff and defendant are legal heirs of the deceased, Pacifico S. Brobio[,] who died intestate and leaving without a will, on January 10, 2002, but leaving several real and personal properties (bank deposits), and some of which were the subject of the extra-judicial settlement among them, compulsory heirs of the deceased, Pacifico Brobio. x x x. 3. That in consideration of the said waiver of the plaintiff over the listed properties in the extra-judicial settlement, plaintiff received the sum of P150,000.00, and the defendant executed a "Promissory Note" on June 15, 2003, further committing herself to give plaintiff a financial assistance in the amount of P600,000.00. x x x. 38

4. That on its due date, June 15, 2003, defendant failed to make good of her promise of delivering to the plaintiff the sum of P600,000.00 pursuant to her "Promissory Note" dated May 31, 2003, and despite repeated demands, defendant had maliciously and capriciously refused to deliver to the plaintiff the amount [of] P600,000.00, and the last of which demands was on October 29, 2003. x x x. In her Answer with Compulsory Counterclaim, respondent admitted that she signed the promissory note but claimed that she was forced to do so. She also claimed that the undertaking was not supported by any consideration. More specifically, she contended that 10. Defendant was practically held "hostage" by the demand of the plaintiff. At that time, defendant was so much pressured and was in [a] hurry to submit the documents to the Bureau of Internal Revenue because of the deadline set and for fear of possible penalty if not complied with. Defendant pleaded understanding but plaintiff was adamant. Her hand could only move in exchange for 1 million pesos. 11. Defendant, out of pressure and confused disposition, was constrained to make a promissory note in a reduced amount in favor of the plaintiff. The circumstances in the execution of the promissory note were obviously attended by involuntariness and the same was issued without consideration at all or for illegal consideration. Issue: Whether or not the contract is voidable Held: Contracts are voidable where consent thereto is given through mistake, violence, intimidation, undue influence, or fraud. In determining whether consent is vitiated by any of these circumstances, courts are given a wide latitude in weighing the facts or circumstances in a given case and in deciding in favor of what they believe actually occurred, considering the age, physical infirmity, intelligence, relationship, and conduct of the parties at the time of the execution of the contract and subsequent thereto, irrespective of whether the contract is in a public or private writing. Nowhere is it alleged that mistake, violence, fraud, or intimidation attended the execution of the promissory note. Still, respondent insists that she was "forced" into signing the promissory note because petitioner would not sign the document required by the BIR. In one case, the Court in characterizing a similar argument by respondents therein held that such allegation is tantamount to saying that the other party exerted undue influence upon them. However, the Court said that the fact that respondents were "forced" to sign the documents does not amount to vitiated consent. There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice. For undue influence to be present, the influence exerted must have so overpowered or subjugated the mind of a contracting party as to destroy his free agency, making him express the will of another rather than his own. Respondent may have desperately needed petitioners signature on the Deed, but there is no showing that she was deprived of free agency when she signed the promissory note. Being forced into a situation does not amount to vitiated consent where it is not shown that the party is deprived of free will and choice. Respondent still had a choice: she could have refused to execute the promissory note and resorted to judicial means to obtain petitioners signature. Instead, respondent chose to execute the promissory note to obtain petitioners signature, thereby agreeing to pay the amount demanded by petitioner. Contrary to the CAs findings, the situation did not amount to intimidation that vitiated consent. There is intimidation when one of the contracting parties is 39

compelled to give his consent by a reasonable and well-grounded fear of an imminent and grave evil upon his person or property, or upon the person or property of his spouse, descendants, or ascendants. Certainly, the payment of penalties for delayed payment of taxes would not qualify as a "reasonable and wellgrounded fear of an imminent and grave evil." We join the RTC in holding that courts will not set aside contracts merely because solicitation, importunity, argument, persuasion, or appeal to affection was used to obtain the consent of the other party. Influence obtained by persuasion or argument or by appeal to affection is not prohibited either in law or morals and is not obnoxious even in courts of equity.

40

III.

SALES

G.R. No. 167874 : January 15, 2010 SPOUSES CARMEN S. TONGSON and JOSE C. TONGSON substituted by his children namely: JOSE TONGSON, JR., RAUL TONGSON, TITA TONGSON, GLORIA TONGSON ALMA TONGSON, Petitioners, vs. EMERGENCY PAWNSHOP BULA, INC. and DANILO R. NAPALA,Respondents. Facts: In May 1992, Napala offered to purchase from the Spouses Tongson their 364-square meter parcel of land, situated in Davao City and covered by Transfer Certificate of Title (TCT) No. 143020, for P3,000,000. Finding the offer acceptable, the Spouses Tongson executed with Napala a Memorandum of Agreement dated 8 May 1992. On 2 December 1992, respondents lawyer Atty. Petronilo A. Raganas, Jr. prepared a Deed of Absolute Sale indicating the consideration as onlyP400,000. When Carmen Tongson "noticed that the consideration was very low, she [complained] and called the attention of Napala but the latter told her not to worry as he would be the one to pay for the taxes and she would receive the net amount of P3,000,000." To conform with the consideration stated in the Deed of Absolute Sale, the parties executed another Memorandum of Agreement, which allegedly replaced the first Memorandum of Agreement, showing that the selling price of the land was only P400,000. Upon signing the Deed of Absolute Sale, Napala paid P200,000 in cash to the Spouses Tongson and issued a postdated Philippine National Bank (PNB) check in the amount of P2,800,000, representing the remaining balance of the purchase price of the subject property. Thereafter, TCT No. 143020 was cancelled and TCT No. T-186128 was issued in the name of EPBI. When presented for payment, the PNB check was dishonored for the reason "Drawn Against Insufficient Funds." Despite the Spouses Tongson's repeated demands to either pay the full value of the check or to return the subject parcel of land, Napala failed to do either. Left with no other recourse, the Spouses Tongson filed with the Regional Trial Court, Branch 16, Davao City a Complaint for Annulment of Contract and Damages with a Prayer for the Issuance of a Temporary Restraining Order and a Writ of Preliminary Injunction. Issue: WHETHER THE CONTRACT OF SALE CAN BE ANNULLED BASED ON THE FRAUD EMPLOYED BY NAPALA Held: A contract is a meeting of the minds between two persons, whereby one is bound to give something or to render some service to the other. A valid contract requires the concurrence of the following essential elements: (1) consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; (2) determinate subject matter; and (3) price certain in money or its equivalent. In the present case, there is no question that the subject matter of the sale is the 364-square meter Davao lot owned by the Spouses Tongson and the selling price agreed upon by the parties is P3,000,000. Thus, there is no dispute as regards the presence of the two requisites for a valid sales contract, namely, (1) a determinate subject matter and (2) a price certain in money. 41

The problem lies with the existence of the remaining element, which is consent of the contracting parties, specifically, the consent of the Spouses Tongson to sell the property to Napala. Claiming that their consent was vitiated, the Spouses Tongson point out that Napalas fraudulent representations of sufficient funds to pay for the property induced them into signing the contract of sale. Such fraud, according to the Spouses Tongson, renders the contract of sale void. On the contrary, Napala insists that the Spouses Tongson willingly consented to the sale of the subject property making the contract of sale valid. Napala maintains that no fraud attended the execution of the sales contract. The trial and appellate courts had conflicting findings on the question of whether the consent of the Spouses Tongson was vitiated by fraud. While the Court of Appeals agreed with the trial courts finding that Napala employed fraud when he assured the Spouses Tongson that the postdated PNB check was fully funded when it fact it was not, the Court of Appeals disagreed with the trial courts ruling that such fraud could be the basis for the annulment of the contract of sale between the parties. Under Article 1338 of the Civil Code, there is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. In order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract. Additionally, the fraud must be serious. We find no causal fraud in this case to justify the annulment of the contract of sale between the parties. It is clear from the records that the Spouses Tongson agreed to sell their 364-square meter Davao property to Napala who offered to pay P3,000,000 as purchase price therefor. Contrary to the Spouses Tongsons belief that the fraud employed by Napala was "already operational at the time of the perfection of the contract of sale," the misrepresentation by Napala that the postdated PNB check would not bounce on its maturity hardly equates to dolo causante. Napalas assurance that the check he issued was fully funded was not the principal inducement for the Spouses Tongson to sign the Deed of Absolute Sale. Even before Napala issued the check, the parties had already consented and agreed to the sale transaction. The Spouses Tongson were never tricked into selling their property to Napala. On the contrary, they willingly accepted Napalas offer to purchase the property at P3,000,000. In short, there was a meeting of the minds as to the object of the sale as well as the consideration therefor. Some of the instances where this Court found the existence of causal fraud include: (1) when the seller, who had no intention to part with her property, was "tricked into believing" that what she signed were papers pertinent to her application for the reconstitution of her burned certificate of title, not a deed of sale; (2) when the signature of the authorized corporate officer was forged; or (3) when the seller was seriously ill, and died a week after signing the deed of sale raising doubts on whether the seller could have read, or fully understood, the contents of the documents he signed or of the consequences of his act. Suffice it to state that nothing analogous to these badges of causal fraud exists in this case. However, while no causal fraud attended the execution of the sales contract, there is fraud in its general sense, which involves a false representation of a fact, when Napala inveigled the Spouses Tongson to accept the postdated PNB check on the representation that the check would be sufficiently funded at its maturity. In other words, the fraud surfaced when Napala issued the worthless check to the Spouses Tongson, which is definitely not during the negotiation and perfection stages of the sale. Rather, the fraud existed in the consummation stage of the sale when the parties are in the process of performing their respective obligations under the perfected contract of sale.

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G.R. NO. 172279 February 11, 2010 Valentin Movido substituted by Marginito Movido, Petitioner, vs. Luis Reyes Pastor, Respondent. Facts: Respondent Luis Reyes Pastor filed a complaint for specific performance in the Regional Trial Court (RTC) of Imus, Cavite, praying that petitioner Valentin Movido be compelled to cause the survey of a parcel of land subject of their contract to sell. In his complaint, respondent alleged that he and petitioner executed a kasunduan sa bilihan ng lupa where the latter agreed to sell a parcel of land located in Paliparan, Dasmarias, Cavite with an area of some 21,000 sq. m. out of the 22,731 sq. m. covered by Transfer Certificate of Title (TCT) No. 362995 at P400/sq. m. Respondent further alleged that another kasunduan was later executed supplementing the kasunduan sa bilihan ng lupa. It provided that, if a Napocor power line traversed the subject lot, the purchase price would be lowered to P200/sq. m. beyond the distance of 15 meters on both sides from the center of the power line while the portion within a distance of 15 meters on both sides from the center of the power line would not be paid. Lastly, respondent alleged that he already paid petitioner P5 million out of the original purchase price of P8.4 million stated in the kasunduan sa bilihan ng lupa. He was willing and ready to pay the balance of the purchase price but due to petitioners refusal to have the property surveyed despite incessant demands, his unpaid balance could not be determined with certainty. In his answer, petitioner alleged that the original negotiation for the sale of his property involved the entire area of 22,731 sq. m. However, as respondent was not sure whether a Napocor power line traversed the property, they then executed the kasunduan. After respondent personally inspected the property, a final agreementthe kasunduan sa bilihan ng lupawas executed where the area to be sold was 21,000 sq. m. for P400/sq. m. for a total sum of P8.4 million. The final agreement also listed a schedule of payments of the purchase price and included a penalty clause in case of default. Petitioner also charged respondent with delay in paying several installments due and did not pay the 7th installment in the amount of P1 million. This was allegedly a material breach because they agreed that the survey of the property would only be done after respondent would have paid the 7 th installment. Due to respondents failure to fulfill his obligations, petitioner claimed that he had no choice except to rescind the kasunduan sa bilihan ng lupa. He, however, was willing to reimburse 50% of whatever respondent had paid him so far. After hearing, the RTC ruled in favor of petitioner and held that the kasunduan preceded the kasunduan sa bilihan ng lupa. Thus, the RTC dismissed the complaint of respondent for lack of merit and/or cause of action. It also ordered the rescission of the kasunduan sa bilihan ng lupa as well as the forfeiture of 50% of the amount already paid by respondent (but ordered petitioner to return to respondent 50% of the amount already paid). The RTC also directed respondent to pay petitioner P50,000 attorneys fees and costs of suit. On appeal, the Court of Appeals (CA) reversed the RTC and held that the kasunduan sa bilihan ng lupa was the first document executed by the parties, not the kasunduan. Thus, the CA ordered respondent to pay the heirs of petitioner the balance of the purchase price in the amount of P2,796,400. The CA also ordered that, upon complete payment by respondent, Marginito Movido (the substitute of petitioner) should execute the necessary deed of absolute sale in favor of 43

respondent and comply with petitioners other obligations under the kasunduan sa bilihan ng lupa. Marginito Movidos motion for reconsideration did not have its desired result. Hence, this petition for review on certiorari, where he insists that it was the kasunduan, not the kasunduan sa bilihan ng lupa, which was first executed by the parties. He likewise claims that the failure of respondent to pay the 7 th and 8th installments of the purchase price gave petitioner the right to rescind the contract. Issue: Whether or not the failure of respondent to pay the 7 th and 8th installments of the purchase price gave petitioner the right to rescind the contract. Held: The issue of which of the two contracts was first executed by the parties is immaterial to the resolution of this case. In the first place, both contracts were executed and notarized on the same day, December 6, 1993. More importantly, both contracts, even independent of the time of their execution but, taken together, clearly spell out in full the respective rights and obligations of the parties. Indeed, a reading of the kasunduan sa bilihan ng lupa and the kasunduan would readily reveal that payment of the purchase price does not depend on the survey of the property. In other words, the purchase price should be paid whether or not the property is surveyed. The survey of the property is important only insofar as the right of respondent to the reduction of the purchase price is concerned. On the other hand, the survey of the property to determine the metes and bounds of the 1,731 sq. m. portion that is excluded from the contract as well as the portions covered by the kasunduan which will be subject to reduction of the purchase price, is also not conditioned on the payment of any installment. Petitioner simply has to do it. In fact, under the kasunduan sa bilihan ng lupa, the survey should be done before the date of the last installment. Hence, the survey could have been done anytime after the execution of the agreement. If respondent pays a higher amount without the property being surveyed first (compared to what he is liable to pay after the survey of the property) it will not be a problem because the excess of the amount paid can easily be refunded to him. Such would be the plain application of the provisions of the kasunduan. On the other hand, petitioner cannot successfully reject respondents demand for petitioner to perform his obligation to have the property surveyed. Under the kasunduan sa bilihan ng lupa, petitioner is obligated to conduct the survey on or before the due date of the last installment. Corollary to this, the CA erred when it proceeded to determine the remaining balance of respondent by applying a reduced rate on certain portions of the property. In effect, the CA disregarded the agreement of the parties that petitioner should first cause the survey of the subject property in order to determine the area excluded from the sale and the portion traversed by the Napocor power line. Petitioner himself admitted that he had this obligation. Thus, the CAs application of a reduced price in the absence of a survey was without factual or legal basis. It unduly infringed on the parties liberty to contract. There are two options to resolve this impasse. First, respondent may be ordered to pay his remaining balance in the kasunduan sa bilihan ng lupa representing the 7th and 8th installments or the amount of P3.4 million in which case Marginito will be ordered to immediately conduct the survey of the property and thereafter to refund to respondent the excess of the amount paid. Second, Marginito may be ordered to have the property surveyed first within a reasonable period and thereafter respondent will have to pay his corresponding balance (which, naturally, will be less than P3.4 million). 44

Prudence dictates that the second option is better as it will prevent further conflict between the parties. Thus, we adopt the second option. IMPROPRIETY OF RESCISSION Rescission is only allowed when the breach is so substantial and fundamental as to defeat the object of the parties in entering into the contract. We find no such substantial or material breach. It is true that respondent failed to pay the 7 th and 8th installments of the purchase price. However, considering the circumstances of the instant case, particularly the provisions of the kasunduan, respondent cannot be deemed to have committed a serious breach. In the first place, respondent was not in default as petitioner never made a demand for payment. Moreover, the kasunduan sa bilihan ng lupa and the kasunduan should both be given effect rather than be declared conflicting, if there is a way of reconciling them. Petitioner and respondent would not have entered into either of the agreements if they did not intend to be bound or governed by them. Indeed, taken together, the two agreements actually constitute a single contract pertaining to the sale of a land to respondent by petitioner. Their stipulations must therefore be interpreted together, attributing to the doubtful ones that sense that may result from all of them taken jointly. Their proper construction must be one that gives effect to all. In this connection, the kasunduan sa bilihan ng lupa contains the general terms and conditions of the agreement of the parties. On the other hand, the kasunduan refers to a particular or specific matter, i.e., that portion of the land that is traversed by a Napocor power line. As the kasunduan pertains to a special area of the agreement, it constitutes an exception to the general provisions of the kasunduan sa bilihan ng lupa, particularly on the purchase price for that portion. Specialibus derogat generalibus. Under both the kasunduan sa bilihan ng lupa and the kasunduan, petitioner undertook to cause the survey of the property in order to determine the portion excluded from the sale, as well as the portion traversed by the Napocor power line. Despite repeated demands by respondent, however, petitioner failed to perform his obligation. Thus, considering that there was a breach on the part of petitioner (and no material breach on the part of respondent), he cannot properly invoke his right to rescind the contract.

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G.R NO 165377 February 16, 2010 Lolita Reyes Petitioner, vs. Century Canning Corporation, Respondent. Facts: In the subject case, Plaintiff Century Canning Corporation tried to establish the fact that defendant Lolita Reyes had applied for and was granted credit line from the former thereby allowing the latter to allegedly obtain and secure Century tuna canned goods. And when the defendant's obligation to pay became due and demandable, the same failed to pay as she refused to pay her unsettled accounts in the total amount of P787,191.27. However, due to the constant and diligent efforts exerted by the representatives of the plaintiff to collect the alleged unpaid obligations of the defendant, the later returned some unsold Century tuna canned goods, the value of which at P323,697.64 was deducted from the principal obligation thereby leaving the amount of P463,493.63 as the unsettled account of defendant Reyes. That because of the refusal of the defendant to satisfactorily and completely settle her unpaid account, the plaintiff was constrained to refer the matter to its legal counsel, who consequently sent a demand letter, and accordingly filed the instant case in Court after the defendant failed to comply and satisfy the demand letter to pay. In her Answer with Compulsory Counterclaim, defendant averred that she has no transaction with the plaintiff for the purchase of the alleged canned goods in question, inasmuch as she is not engaged in the canned goods business but in auto airconditioning, parts and car accessories in Banaue, Quezon City. Trial thereafter ensued. On April 28, 2000, the RTC rendered its decision, the dispositive portion of which reads: WHEREFORE, premises considered, the instant complaint is hereby ordered DISMISSED. The prayer for counterclaim of defendant in the form of moral damages, exemplary damages, and attorney's fees is hereby granted. Accordingly, let judgment be rendered in favor of defendant's counterclaim, and plaintiff Century Canning Corporation is directed to pay defendant Lolita Reyes moral damages in the amount of P50,000.00, exemplary damages in the amount of P25, 000.00 and attorney's fees in the amount of P20,000.00 as well as to pay the costs of the suit. SO ORDERED. In so ruling, the RTC found that respondent failed to substantiate its allegations that petitioner is liable to pay a certain sum of money. Respondent filed its appeal with the CA. Petitioner filed her appellee's brief, and respondent filed a Reply thereto. The CA concluded that the positive declarations of respondent's witnesses could not be overturned by petitioner's general denial that she never transacted business with respondent. Hence, this petition. Issue: WHETHER THE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION IN GRANTING RESPONDENT'S APPEAL AND HOLDING PETITIONER LIABLE TO PAY RESPONDENT'S CLAIM. Held: The issue presented before Us is whether the CA correctly found that petitioner was liable to pay respondent's claim. This is a factual issue. 46

The Court is not a trier of facts, its jurisdiction being limited to reviewing only errors of law that may have been committed by the lower courts. As a general rule, petitions for review under Rule 45 of the Rules of Civil Procedure filed before this Court may only raise questions of law. However, jurisprudence has recognized several exceptions to this rule. In this case, the factual findings of the Court of Appeals are contrary to those of the RTC; thus, we find it proper to review the evidence. It is a basic rule in evidence that each party to a case must prove his own affirmative allegations by the degree of evidence required by law. In civil cases, the party having the burden of proof must establish his case by preponderance of evidence, or that evidence that is of greater weight or is more convincing than that which is in opposition to it. It does not mean absolute truth; rather, it means that the testimony of one side is more believable than that of the other side, and that the probability of truth is on one side than on the other. We find no merit in the petition. The RTC dismissed respondent's complaint, as it found that the signature appearing in the credit application form, alleged to be that of petitioner, was significantly different from the signature in the CTC and voter's ID that petitioner claimed to show her usual and genuine signature. However, the CA found that such conclusion was contrary to the RTC's observation made during the trial, when the latter said that there seems to be a similarity in strokes because a signature sometimes differs on the size. While the CA's finding on this matter was erroneous, since a reading of the transcript of stenographic notes of the September 9, 1999 hearing, when the alleged observation regarding the similarity in strokes was made by the RTC, shows that the RTC was comparing petitioner's signatures in her voter's ID and her CTC with her signature in the Verification in her Answer. We still affirm the CA's reversal of the RTC decision. While petitioner denies having any transaction with respondent regarding the sale and delivery to her of respondent's canned goods, a review of the evidence shows otherwise. Records show that respondent submitted a certificate of registration of business name under petitioner's name and with her photo, which was marked as respondent's Exhibit L. Notably, respondent's formal offer of evidence stated that the purpose of Exhibit L was to show that petitioner had submitted such certificate as one of her supporting documents in applying as a distributor of respondent's products, and also for the purpose of contradicting petitioner's allegation that she had no transaction with respondent. In petitioner's Objections/Comment to respondent's offer of evidence, she offered no objection to this exhibit. In fact, in the same Comment, petitioner prayed that the other exhibits be denied admission for the purpose for which they were offered, except Exhibit L. In effect, petitioner admitted the purpose for which Exhibit L was offered, i.e., one of the documents she submitted to respondent to be a distributor of the latters products. Thus, such admission belies her allegation in her Answer with compulsory counterclaim that she had no transaction with respondent for the purchase of the canned goods, as well as her testimony on direct examination that she did not know respondent. Although petitioner denies her signature in the credit application form, the entries therein show informations whose veracity even admitted by petitioner. Such entries include the residential address at 132 Zamora Street, Caloocan, which was petitioner's previous residence prior to her transfer to Banaue, Quezon City; and shows Eliseo Dy as authorized signatory of two bank accounts, whom petitioner admitted on cross-examination to be her live-in partner for 23 years. Notable also is the fact that the tax account number appearing in the credit application form was the same tax account number stated in petitioner's CTC, which she presented to reflect her true and usual signature. It was also in the credit application form where the name of Oscar Delumen, with his signature affixed thereto, appears as petitioner's operations manager. 47

Petitioner claims that there was no evidence showing that she received the canned goods delivered by respondent, as the sales invoices evidencing such delivery were not signed by her. The sales invoices were signed by Delumen, her operations manager. While petitioner denies having received the canned goods and knowing Delumen, respondent presented two witnesses who categorically declared and positively identified petitioner as the person whom they met several times in her store and residence for the purpose of collecting her unpaid obligations with respondent. George Navarez, respondent's former Credit and Collection Supervisor, testified that petitioner was their former customer who failed to pay the purchases and deliveries covered by five sales invoices; that he knew petitioner since he had met her several times when he was collecting her unpaid obligations; that in one of his visits to petitioner, the latter offered to pay P50,000.00 a month as partial settlement of her total indebtedness with respondent; and that to reduce her debt, petitioner even returned some of the canned goods delivered to her. Navarez, on cross examination, testified that he was the one who personally received the canned goods that petitioner returned, as he was there in the store when the goods were pulled out; that the transaction regarding the returned goods was contained in three credit memos, which served as the bases for the amount deducted from petitioner's debt. On re-direct, he clarified that the amount of P323,697.64 was the amount of the returned canned goods which was reflected as deductions in the statement of account, and that the statement of account was prepared by a clerk and approved by him. Manuel Conti Uy, respondent's Regional Sales Manager, testified that he met petitioner several times when he presented to her the five unpaid sales invoices that, in one instance, petitioner, who was with Eliseo Dy who could not speak because of a throat infection, asked him to just pull out the remaining unsold goods for application to her total indebtedness; that he told her that he would still have to ask the approval of their credit and collection department. Uy then came back with Navarez and, in the presence of petitioner, initiated the pull-out of the goods; that after deducting the amount of the returned canned goods, the remaining balance was P463,493.63; and when he made another visit, i.e., a few days after Eliseo's death, he presented to petitioner the statement of account where the amount of the returned goods was deducted, but petitioner still refused to pay. Notably, petitioner did not even rebut, either in her direct testimony or in rebuttal, the testimonies of Navarez and Uy that they met with her several times, and talked with her regarding the collection of her indebtedness and the pull-out of the canned goods. In fact, in Uy's testimony, he also mentioned Eliseo's death, and that Uy even allowed few days to pass before going to petitioner's place to collect so as to give petitioner time to comfort herself. Eliseo's death sometime in October 1997 was confirmed by petitioner. We agree with the CA when it said that if indeed petitioner did not transact with respondent, she should not have entertained respondent's collecting officers and should not have offered settlement or returned some of the canned goods. The testimonies of respondent's witnesses were further bolstered by the absence of any motive on their part to falsely testify against petitioner; thus, their testimonies are hereby accorded full faith and credit. Petitioner's defense consists of denial. We have held that denial, if unsubstantiated by clear and convincing evidence, is a negative and self-serving evidence that has no weight in law and cannot be given greater evidentiary value over the testimony of credible witnesses who testified on affirmative matters. We find that respondent has sufficiently established petitioner's liability in the amount of P463,493.63. Such amount must be paid with legal interest from the filing of the complaint on June 25, 1998, until fully paid. As held in the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals , to wit: 48

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal `interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. xxxx

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

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G.R. NO. 162218 February 25, 2010 METROBANK , Petitioner, vs. Edgardo D. Viray, Respondent Facts: On 7 July 1979, Rico Shipping, Inc., represented by its President, Erlinda Viray-Jarque, together with respondent Edgardo D. Viray (Viray), in their own personal capacity and as solidary obligors (the three parties collectively known as the debtors), obtained two separate loans from petitioner Metropolitan Bank and Trust Company (MBTC) in the total amount of P250,000. The debtors executed a promissory note promising to pay in four semi-annual installments of P62,500 starting on 23 January 1980, with 15% interest and 2% credit evaluation and supervision fee per annum. The two loans were subsequently renewed and secured by one promissory note. Under the note, the debtors made a total payment of P134,054 leaving a balance of P115,946 which remained unpaid despite demands by MBTC. On 5 June 1981, the debtors executed another promissory note and obtained a loan from MBTC in the amount of P50,000, payable on 2 November 1981, with 16% interest and 2% credit evaluation and supervision fee per annum. On the due date, the debtors again failed to pay the loan despite demands to pay by MBTC. On 3 September 1981, the debtors obtained a third loan from MBTC in the amount of P50,000 payable on 14 November 1981, with 16% interest and 2% credit evaluation and supervision fee per annum. Again, the debtors failed and refused to pay on due date. MBTC filed a complaint for sum of money against the debtors with the RTC of Manila, Branch 4. On 28 April 1983, the RTC of Manila rendered a judgment in favor of MBTC. Meanwhile, on 29 December 1982, the government issued Free Patents in favor of Viray over three parcels of land (lots) designated as (1) Lot No. 26275, Cad-237 with an area of 500 square meters; (2) Lot No. 26276, Cad-237, with an area of 888 square meters; and (3) Lot No. 26277, Cad-237 with an area of 886 square meters, all situated in Barangay Bulua, Cagayan de Oro City, Misamis Oriental. Original Certificate of Title (OCT) Nos. P-2324, P-2325 and P-2326 were issued covering Free Patent Nos. [X-1] 10525, [X-1] 10526 and [X-1] 10527, respectively. The OCTs containing the free patents were registered with the Registry of Deeds of Cagayan de Oro City on 18 January 1983. On 6 March 1984, the RTC of Manila issued a writ of execution over the lots owned by Viray. On 12 October 1984, pursuant to the writ of execution, the City Sheriff of Cagayan de Oro sold the lots at public auction in favor of MBTC as the winning bidder. The next day, the sheriff issued a Certificate of Sale to MBTC. On 23 August 1990, the sheriff executed a Deed of Final Conveyance to MBTC. The Register of Deeds of Cagayan de Oro City cancelled OCT Nos. P-2324, P2325 and P-2326 and issued in MBTCs name Transfer Certificate of Title (TCT) Nos. T-59171, T-59172 and T-59173, respectively. On 30 July 1991, Viray filed an action for annulment of sale against the sheriff and MBTC with the RTC of Cagayan de Oro City, Misamis Oriental, Branch 23. Viray sought the declaration of nullity of the execution sale, the sheriffs certificate of sale, the sheriffs deed of final conveyance and the TCT's issued by the Register of Deeds. 50

On 21 September 1993, the RTC of Cagayan de Oro City rendered its decision in favor of MBTC. Viray filed an appeal with the CA alleging that the RTC of Cagayan de Oro City committed reversible error in ruling solely on the issue of redemption instead of the issue of validity of the auction sale, being the lis mota of the action. MBTC filed a Motion for Reconsideration which was denied in a Resolution dated 13 February 2004. Hence, the instant petition. Issue: Whether or not the five-year prohibition period against the alienation or sale of the property provided in Section 118 of CA 141 does not apply to an obligation contracted before the grant or issuance of the free patent or homestead. Held: The law clearly provides that lands which have been acquired under free patent or homestead shall not be encumbered or alienated within five years from the date of issuance of the patent or be liable for the satisfaction of any debt contracted prior to the expiration of the period. In the present case, the three loans were obtained on separate dates 7 July 1979, 5 June 1981 and 3 September 1981, or several years before the free patents on the lots were issued by the government to respondent on 29 December 1982. The RTC of Manila, in a Decision dated 28 April 1983, ruled in favor of petitioner ordering the debtors, including respondent, to pay jointly and severally certain amounts of money. The public auction conducted by the sheriff on the lots owned by respondent occurred on 12 October 1984. For a period of five years or from 29 December 1982 up to 28 December 1987, Section 118 of CA 141 provides that the lots comprising the free patents shall not be made liable for the payment of any debt until the period of five years expires. In this case, the execution sale of the lots occurred less than two years after the date of the issuance of the patents. This clearly falls within the five-year prohibition period provided in the law, regardless of the dates when the loans were incurred. In Artates v. Urbi, we held that a civil obligation cannot be enforced against, or satisfied out of, the sale of the homestead lot acquired by the patentee less than five years before the obligation accrued even if the sale is involuntary. For purposes of complying with the law, it is immaterial that the satisfaction of the debt by the encumbrance or alienation of the land grant was made voluntarily, as in the case of an ordinary sale, or involuntarily, such as that effected through levy on the property and consequent sale at public auction. In both instances, the law would have been violated. Likewise, in Beach v. Pacific Commercial Company and Sheriff of Nueva Ecija, we held that to subject the land to the satisfaction of debts would violate Section 116 of Act No. 2874 (now Section 118 of CA 141). As correctly observed by the CA in the present case: It is argued by defendant-appellee, however, that the debt referred to in the law must have been contracted within the five-year prohibitory period; any debt contracted before or after the five-year prohibitory period is definitely not covered by the law. This argument is weakest on two points. Firstly, because the provision of law does not say that the debt referred to therein should be contracted before the five-year prohibitory period but before the expiration of the five-year prohibitory period. (Defendant-appellee deliberately omitted the word expiration to suit its defense.) This simply means that it is not material whether the debt is contracted before the five-year prohibitory period; what is material is that the debt 51

must be contracted before or prior to the expiration of the five-year prohibitory period from the date of the issuance and approval of the patent or grant. x x x And secondly, while it is true that the debt in this case was contracted prior to the five-year prohibitory period, the same is of no consequence, for as held in Artates vs. Urbi, supra, such indebtedness has to be reckoned from the date said obligation was adjudicated and decreed by the court. x x x Section 118 of CA 141, therefore, is predicated on public policy. Its violation gives rise to the cancellation of the grant and the reversion of the land and its improvements to the government at the instance of the latter. The provision that nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of the five-year period is mandatory and any sale made in violation of such provision is void and produces no effect whatsoever, just like what transpired in this case. Clearly, it is not within the competence of any citizen to barter away what public policy by law seeks to preserve.

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G.R. No. 169548 March 15, 2010 TITAN CONSTRUCTION CORPORATION, Petitioner, vs. MANUEL A. DAVID, SR. and MARTHA S. DAVID, Respondents. Facts: Manuel A. David, Sr. (Manuel) and Martha S. David (Martha) were married on March 25, 1957. In 1970, the spouses acquired a 602 square meter lot located at White Plains, Quezon City, which was registered in the name of "MARTHA S. DAVID, of legal age, Filipino, married to Manuel A. David" and covered by Transfer Certificate of Title (TCT) No. 156043 issued by the Register of Deeds of Quezon City. In 1976, the spouses separated de facto, and no longer communicated with each other. Sometime in March 1995, Manuel discovered that Martha had previously sold the property to Titan Construction Corporation (Titan) for P1,500,000.00 through a Deed of Sale dated April 24, 1995, and that TCT No. 156043 had been cancelled and replaced by TCT No. 130129 in the name of Titan. Thus, on March 13, 1996, Manuel filed a Complaint for Annulment of Contract and Recovenyance against Titan before the RTC of Quezon City. Manuel alleged that the sale executed by Martha in favor of Titan was without his knowledge and consent, and therefore void. He prayed that the Deed of Sale and TCT No. 130129 be invalidated, that the property be reconveyed to the spouses, and that a new title be issued in their names. Issue: Whether or not SUBJECT DEED OF SALE NULL AND VOID Held: In the absence of Manuels consent, the Deed of Sale is void. Since the property was undoubtedly part of the conjugal partnership, the sale to Titan required the consent of both spouses. Article 165 of the Civil Code expressly provides that "the husband is the administrator of the conjugal partnership". Likewise, Article 172 of the Civil Code ordains that "(t)he wife cannot bind the conjugal partnership without the husbands consent, except in cases provided by law". Similarly, Article 124 of the Family Code requires that any disposition or encumbrance of conjugal property must have the written consent of the other spouse, otherwise, such disposition is void. Thus: Art. 124. The administration and enjoyment of the conjugal partnership shall belong to both spouses jointly. In case of disagreement, the husband's decision shall prevail, subject to recourse to the court by the wife for proper remedy, which must be availed of within five years from the date of the contract implementing such decision. In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal properties, the other spouse may assume sole powers of administration. These powers do not include disposition or encumbrance without authority of the court or the written consent of the other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void. However, the transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors. The Special Power of Attorney purportedly signed by Manuel is spurious and void. 53

The RTC found that the signature of Manuel appearing on the SPA was not his genuine signature. As to the issue of the validity or invalidity of the subject Special Power of Attorney x x x the Court rules that the same is invalid. As aptly demonstrated by plaintiffs evidence particularly the testimony of expert witness Atty. Desiderio Pagui, which the defense failed to rebut and impeach, the subject Special Power of Attorney does not bear the genuine signature of plaintiff Manuel David thus rendering the same as without legal effect. Moreover, the genuineness and the due execution of the Special Power of Attorney was placed in more serious doubt as the same does not contain the Residence Certificate of the plaintiff and most importantly, was not presented for registration with the Quezon City Register of Deeds which is a clear violation of Sec. 64 of P.D. No. 1529.

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G.R. No. 160972 March 9, 2010 LEIGHTON CONTRACTORS PHILIPPINES, INC., Petitioner, vs. CNP INDUSTRIES, INC., Respondent. Facts: In 1997, Hardie Jardin, Inc. (HJI) awarded the contract for site preparation, building foundation and structural steel works of its fibre cement plant project in Barangay Tatalon in San Isidro, Cabuyao, Laguna to petitioner Leighton Contractors Philippines, Inc. On July 5, 1997, respondent CNP Industries, Inc. submitted to petitioner a proposal to undertake, as subcontractor, the construction of the structural steelworks of HJIs fibre cement plant project. It estimated the project to require 885,009 kgs. of steel costing P44,223,909. On July 15, 1997, petitioner accepted respondents proposal specifying that the project cost was for the fixed lump sum price of P44,223,909. Respondent agreed and petitioner instructed it to commence work. Meanwhile, petitioner revised the fabrication drawings of several of the structures columns necessitating adjustments in the designs of roof ridge ventilation and crane beams. Petitioner communicated the said revisions to respondent on July 16, 1997. Respondent estimated that the said revisions required an additional 8,132 kgs. of steel costingP13,442,882. However, it did not renegotiate the fixed lump-sum price with petitioner. On July 28, 1997, petitioner and respondent signed a sub-contract providing: (B) Subcontract works. To carry out complete structural steelworks outlined in the Sub-contract Lump Sum Price [of P44,223,909] in accordance with the Main Drawing and Technical Specifications and in accordance with the Main Contract, all of which are available on Site. (c) Special Conditions of the Sub-Contract. xxx xxx xxx

2. Notwithstanding the provisions of Clause 11(4) of the General Conditions of the Sub-contract, this Sub-contract is on a Fixed Lump Sum basis and is not subject to re-measurement. It is the responsibility of [respondent] to derive his own quantities for the purpose of the Lump Sum Sub-contract price. No additional payments will be made to [respondent] for any errors in quantities that may be revealed during the Sub-contract period . (emphasis supplied) xxx xxx xxx

Moreover, the contract required respondent to finish the project within 20 weeks from the time petitioner was allowed access to the site on June 20, 1997, that is, on or before November 6, 1997. On July 29, 1997, petitioner paid respondent 10% of the project cost amounting to P4,422,390.90. Thereafter, in a letter dated July 31, 1997, respondent informed petitioner that, due to the revisions in the designs of the roof ridge ventilation and crane beams, it incurred "additional costs" amounting to P13,442,882. Respondent submitted its weekly progress report including the progress billing. Petitioner, on the other hand, paid the billings. 55

In its August 12, 1997 progress report, respondent reiterated that the roof ridge ventilation and crane beams were not included in the scope of work and consequently were not part of the sub-contract price. It likewise presented the cost estimates in the progress report. Because respondent was unable to meet the project schedule, petitioner took over the project on April 27, 1998. At the time of the takeover, respondent had already accomplished 86% of the project for which petitioner paidP42,008,343.69. Thereafter, respondent again asked petitioner to settle the "outstanding balance" of P12,364,993.94, asserting that the roof ridge ventilation and crane beams were excluded from the project cost. Petitioner refused to pay as the July 28, 1997 subcontract clearly stated that the sub-contract price was a fixed lump sum. The parties submitted the matter to the Construction Industry Arbitration Commission (CIAC) for arbitration. The principal issue submitted thereto was whether the cost of the additional steel used for the roof ridge ventilation and crane beams was included in the fixed lump-sum price. Respondent argued that the proposal it submitted (accepted by petitioner on July 15, 1997) excluded the roof ridge ventilation and crane beams as the fabrications drawings were "clouded" or had not been finalized when the subcontract was executed on July 28, 1997. Furthermore, respondent claimed that petitioner approved the cost estimates when Simon Bennett, petitioners quantity surveyor, signed the August 12, 1997 progress report. This proved that the said portions were "additional works" excluded from the fixed lump-sum price. Petitioner, on the other hand, asserted that the subcontract explicitly included the aforementioned works in the scope of work. Furthermore, it was not liable for the "additional costs" incurred by respondent as the subcontract clearly provided that the project was for the fixed lump-sum price of P44,223,909. It likewise denied approving respondents additional cost estimates as Bennett signed the August 12, 1997 progress report only to acknowledge its receipt. The CIAC found that the subcontract was perfected when petitioner accepted respondents proposal on July 15, 2009. Thus, because the fabrication drawings for the roof ridge ventilation and crane beams had not yet been finalized then, the same were deemed "additional works" not included in the lump-sum price. In a decision dated March 19, 1999, the CIAC rendered judgment in favor of respondent and ordered petitioner to pay the balance of the contract price plus additional works, the cost of arbitration and attorneys fees. Aggrieved, petitioner assailed the CIAC decision via a petition for review in the CA. Aside from disputing the CIACs interpretation of the sub-contract, petitioner likewise argued that the arbitral body disregarded Article 1724 of the Civil Code. In a decision dated May 31, 2000, the CA dismissed the petition and affirmed the CIAC decision in toto. Petitioner moved for reconsideration but it was denied in resolution dated November 20, 2003. Issue: Whether or not liable to pay for the increase in cost due to the adjustments in the design of the roof ridge ventilation and crane beams. Held: The parties entered into a contract for a piece of work whereby petitioner engaged respondent as contractor to build and provide the necessary materials for the construction of the structural steel works of HJIs fiber cement plant for a fixed lump-sum price of P44,223,909. The parol evidence rule, embodied in Section 9, Rule 130 of the Rules of Court holds that when the terms of an agreement have been reduced into writing, it 56

is considered as containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement. It, however, admits of exceptions such as when the parties subsequently modify the terms of their original agreement. The scope of work was defined in the subcontract as the completion of the structural steel works according to the main drawing, technical specifications and the main contract. Thus, to determine whether the roof ridge ventilation and crane beams were included in the scope of work, reference to the main drawing, technical specifications and main contract is necessary. The main contract stated that the structural steel works included Drawing Nos. P302-6200-S-405 and P302-6200-S402. This, according to petitioner and respondent, referred to the roof ridge ventilation and crane beams. Hence, the said works were clearly included in the sub-contract works. Nevertheless, respondent contends that when Bennett signed the August 12, 1997 progress report, petitioner approved the additional cost estimates, in effect modifying the original agreement in the subcontract. Respondent therefore claims an exception to the parole evidence rule. In contracts for a stipulated price like fixed lump-sum contracts, the recovery of additional costs is governed by Article 1724 of the Civil Code. Settled is the rule that a claim for the cost of additional work arising from changes in the scope of work can only be allowed upon the: (1) written authority from the developer or project owner ordering or allowing the written changes in work and (2) written agreement of parties with regard to the increase in price or cost due to the change in work or design modification. Furthermore, compliance with the two requisites of Article 1724, a specific provision governing additional works, is a condition precedent for the recovery. The absence of one or the other condition bars the recovery of additional costs. Neither the authority for the changes made nor the additional price to be paid therefor may be proved by any other evidence.

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G.R. No. 148225 March 3, 2010 CARMEN DEL PRADO, Petitioner, vs. SPOUSES ANTONIO L. CABALLERO and LEONARDA CABALLERO, Respondents. Facts: On June 11, 1990, respondents sold to petitioner, Carmen del Prado, Lot No. 11909 on the basis of the tax declaration covering the property. The pertinent portion of the deed of sale reads as follows: That we, Spouses ANTONIO L. CABALLERO and LEONARDA B. CABALLERO, Filipinos, both of legal age and residents of Talamban, Cebu City, Philippines, for and in consideration of the sum of FORTY THOUSAND PESOS (P40,000.00), Philippine Currency, paid by CARMEN DEL PRADO, Filipino, of legal age, single and a resident of Sikatuna St., Cebu City, Philippines, the receipt of which is full is hereby acknowledged, do by these presents SELL, CEDE, TRANSFER, ASSIGN & CONVEY unto the said CARMEN DEL PRADO, her heirs, assigns and/or successors-in-interest, one (1) unregistered parcel of land, situated at Guba, Cebu City, Philippines, and more particularly described and bounded, as follows: "A parcel of land known as Cad. Lot No. 11909, bounded as follows: North : Lot 11903 East : Lot 11908 West : Lot 11910 South : Lot 11858 & 11912 containing an area of 4,000 square meters, more or less, covered by Tax Dec. No. 00787 of the Cebu City Assessors Office, Cebu City." of which parcel of land we are the absolute and lawful owners. Original Certificate of Title (OCT) No. 1305, covering Lot No. 11909, was issued only on November 15, 1990, and entered in the "Registration Book" of the City of Cebu on December 19, 1990. Therein, the technical description of Lot No. 11909 states that said lot measures about 14,457 square meters, more or less. On March 20, 1991, petitioner filed in the same cadastral proceedings a "Petition for Registration of Document Under Presidential Decree (P.D.) 1529" in order that a certificate of title be issued in her name, covering the whole Lot No. 11909. In the petition, petitioner alleged that the tenor of the instrument of sale indicated that the sale was for a lump sum or cuerpo cierto, in which case, the vendor was bound to deliver all that was included within said boundaries even when it exceeded the area specified in the contract. Respondents opposed, on the main ground that only 4,000 sq m of Lot No. 11909 was sold to petitioner. They claimed that the sale was not for a cuerpo cierto. They moved for the outright dismissal of the petition on grounds of prescription and lack of jurisdiction. Issue: WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE ERROR IN FAILING TO RULE THAT THE SALE OF THE LOT IS FOR A LUMP SUM OR CUERPO CIERTO Held: In sales involving real estate, the parties may choose between two types of pricing agreement: a unit price contract wherein the purchase price is determined by way of reference to a stated rate per unit area (e.g., P1,000 per square meter), or a lump sum contract which states a full purchase price for an immovable the area of which may be declared based on the estimate or where both the area and 58

boundaries are stated (e.g., P1 million for 1,000 square meters, etc.). In Rudolf Lietz, Inc. v. Court of Appeals (478 SCRA 451), the Court discussed the distinction: "In a unit price contract, the statement of area of immovable is not conclusive and the price may be reduced or increased depending on the area actually delivered. If the vendor delivers less than the area agreed upon, the vendee may oblige the vendor to deliver all that may be stated in the contract or demand for the proportionate reduction of the purchase price if delivery is not possible. If the vendor delivers more than the area stated in the contract, the vendee has the option to accept only the amount agreed upon or to accept the whole area, provided he pays for the additional area at the contract rate. xxxx In the case where the area of an immovable is stated in the contract based on an estimate, the actual area delivered may not measure up exactly with the area stated in the contract. According to Article 1542 of the Civil Code, in the sale of real estate, made for a lump sum and not at the rate of a certain sum for a unit of measure or number, there shall be no increase or decrease of the price, although there be a greater or less areas or number than that stated in the contract. . . . xxxx Where both the area and the boundaries of the immovable are declared, the area covered within the boundaries of the immovable prevails over the stated area. In cases of conflict between areas and boundaries, it is the latter which should prevail. What really defines a piece of ground is not the area, calculated with more or less certainty, mentioned in its description, but the boundaries therein laid down, as enclosing the land and indicating its limits. In a contract of sale of land in a mass, it is well established that the specific boundaries stated in the contract must control over any statement with respect to the area contained within its boundaries. It is not of vital consequence that a deed or contract of sale of land should disclose the area with mathematical accuracy. It is sufficient if its extent is objectively indicated with sufficient precision to enable one to identify it. An error as to the superficial area is immaterial. Thus, the obligation of the vendor is to deliver everything within the boundaries, inasmuch as it is the entirety thereof that distinguishes the determinate object. The Court, however, clarified that the rule laid down in Article 1542 is not hard and fast and admits of an exception. It held: A caveat is in order, however. The use of "more or less" or similar words in designating quantity covers only a reasonable excess or deficiency. A vendee of land sold in gross or with the description "more or less" with reference to its area does not thereby ipso facto take all risk of quantity in the land.. Numerical data are not of course the sole gauge of unreasonableness of the excess or deficiency in area. Courts must consider a host of other factors. In one case (see Roble v. Arbasa, 414 Phil. 343 [2001]), the Court found substantial discrepancy in area due to contemporaneous circumstances. Citing change in the physical nature of the property, it was therein established that the excess area at the southern portion was a product of reclamation, which explained why the lands technical description in the deed of sale indicated the seashore as its southern boundary, hence, the inclusion of the reclaimed area was declared unreasonable. In the instant case, the deed of sale is not one of a unit price contract. The parties agreed on the purchase price ofP40,000.00 for a predetermined area of 4,000 sq m, more or less, bounded on the North by Lot No. 11903, on the East by Lot No. 11908, on the South by Lot Nos. 11858 & 11912, and on the West by Lot No. 11910. In a contract of sale of land in a mass, the specific boundaries stated in the contract must control over any other statement, with respect to the area contained within its boundaries. 59

Blacks Law Dictionary defines the phrase "more or less" to mean: About; substantially; or approximately; implying that both parties assume the risk of any ordinary discrepancy. The words are intended to cover slight or unimportant inaccuracies in quantity, Carter v. Finch, 186 Ark. 954, 57 S.W.2d 408; and are ordinarily to be interpreted as taking care of unsubstantial differences or differences of small importance compared to the whole number of items transferred. Clearly, the discrepancy of 10,475 sq m cannot be considered a slight difference in quantity. The difference in the area is obviously sizeable and too substantial to be overlooked. It is not a reasonable excess or deficiency that should be deemed included in the deed of sale.

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G.R. No. 178902 April 21, 2010 MANUEL O. FUENTES and LETICIA L. FUENTES, Petitioners, vs. CONRADO G. ROCA, ANNABELLE R. JOSON, ROSE MARIE R. CRISTOBAL and PILAR MALCAMPO,Respondents. Facts: Sabina Tarroza owned a titled 358-square meter lot in Canelar, Zamboanga City. On October 11, 1982 she sold it to her son, Tarciano T. Roca (Tarciano) under a deed of absolute sale. But Tarciano did not for the meantime have the registered title transferred to his name. Six years later in 1988, Tarciano offered to sell the lot to petitioners Manuel and Leticia Fuentes (the Fuentes spouses). They arranged to meet at the office of Atty. Romulo D. Plagata whom they asked to prepare the documents of sale. They later signed an agreement to sell that Atty. Plagata prepared dated April 29, 1988, which agreement expressly stated that it was to take effect in six months. The agreement required the Fuentes spouses to pay Tarciano a down payment of P60,000.00 for the transfer of the lots title to him. And, within six months, Tarciano was to clear the lot of structures and occupants and secure the consent of his estranged wife, Rosario Gabriel Roca (Rosario), to the sale. Upon Tarcianos compliance with these conditions, the Fuentes spouses were to take possession of the lot and pay him an additional P140,000.00 orP160,000.00, depending on whether or not he succeeded in demolishing the house standing on it. If Tarciano was unable to comply with these conditions, the Fuentes spouses would become owners of the lot without any further formality and payment. The parties left their signed agreement with Atty. Plagata who then worked on the other requirements of the sale. According to the lawyer, he went to see Rosario in one of his trips to Manila and had her sign an affidavit of consent. As soon as Tarciano met the other conditions, Atty. Plagata notarized Rosarios affidavit in Zamboanga City. On January 11, 1989 Tarciano executed a deed of absolute sale in favor of the Fuentes spouses. They then paid him the additional P140,000.00 mentioned in their agreement. A new title was issued in the name of the spouses who immediately constructed a building on the lot. On January 28, 1990 Tarciano passed away, followed by his wife Rosario who died nine months afterwards. Eight years later in 1997, the children of Tarciano and Rosario, namely, respondents Conrado G. Roca, Annabelle R. Joson, and Rose Marie R. Cristobal, together with Tarcianos sister, Pilar R. Malcampo, represented by her son, John Paul M. Trinidad (collectively, the Rocas), filed an action for annulment of sale and reconveyance of the land against the Fuentes spouses before the Regional Trial Court (RTC) of Zamboanga City in Civil Case 4707. The Rocas claimed that the sale to the spouses was void since Tarcianos wife, Rosario, did not give her consent to it. Her signature on the affidavit of consent had been forged. They thus prayed that the property be reconveyed to them upon reimbursement of the price that the Fuentes spouses paid Tarciano. Issue: Whether or not Rosarios signature on the document of consent to her husband Tarcianos sale of their conjugal land to the Fuentes spouses was forged Held: First. The key issue in this case is whether or not Rosarios signature on the document of consent had been forged. For, if the signature were genuine, the fact that she gave her consent to her husbands sale of the conjugal land would render the other issues merely academic. 61

The CA found that Rosarios signature had been forged. The CA observed a marked difference between her signature on the affidavit of consent and her specimen signatures. The CA gave no weight to Atty. Plagatas testimony that he saw Rosario sign the document in Manila on September 15, 1988 since this clashed with his declaration in the jurat that Rosario signed the affidavit in Zamboanga City on January 11, 1989. The Court agrees with the CAs observation that Rosarios signature strokes on the affidavit appears heavy, deliberate, and forced. Her specimen signatures, on the other hand, are consistently of a lighter stroke and more fluid. The way the letters "R" and "s" were written is also remarkably different. The variance is obvious even to the untrained eye. Significantly, Rosarios specimen signatures were made at about the time that she signed the supposed affidavit of consent. They were, therefore, reliable standards for comparison. The Fuentes spouses presented no evidence that Rosario suffered from any illness or disease that accounted for the variance in her signature when she signed the affidavit of consent. Notably, Rosario had been living separately from Tarciano for 30 years since 1958. And she resided so far away in Manila. It would have been quite tempting for Tarciano to just forge her signature and avoid the risk that she would not give her consent to the sale or demand a stiff price for it. What is more, Atty. Plagata admittedly falsified the jurat of the affidavit of consent. That jurat declared that Rosario swore to the document and signed it in Zamboanga City on January 11, 1989 when, as Atty. Plagata testified, she supposedly signed it about four months earlier at her residence in Paco, Manila on September 15, 1988. While a defective notarization will merely strip the document of its public character and reduce it to a private instrument, that falsified jurat, taken together with the marks of forgery in the signature, dooms such document as proof of Rosarios consent to the sale of the land. That the Fuentes spouses honestly relied on the notarized affidavit as proof of Rosarios consent does not matter. The sale is still void without an authentic consent. Second. Contrary to the ruling of the Court of Appeals, the law that applies to this case is the Family Code, not the Civil Code. Although Tarciano and Rosario got married in 1950, Tarciano sold the conjugal property to the Fuentes spouses on January 11, 1989, a few months after the Family Code took effect on August 3, 1988. When Tarciano married Rosario, the Civil Code put in place the system of conjugal partnership of gains on their property relations. While its Article 165 made Tarciano the sole administrator of the conjugal partnership, Article 166 prohibited him from selling commonly owned real property without his wifes consent. Still, if he sold the same without his wifes consent, the sale is not void but merely voidable. Article 173 gave Rosario the right to have the sale annulled during the marriage within ten years from the date of the sale. Failing in that, she or her heirs may demand, after dissolution of the marriage, only the value of the property that Tarciano fraudulently sold. Thus: Art. 173. 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 property fraudulently alienated by the husband. But, as already stated, the Family Code took effect on August 3, 1988. Its Chapter 4 on Conjugal Partnership of Gains expressly superseded Title VI, Book I of the Civil Code on Property Relations Between Husband and Wife. Further, the Family 62

Code provisions were also made to apply to already existing conjugal partnerships without prejudice to vested rights.Thus: Art. 105. x x x The provisions of this Chapter shall also apply to conjugal partnerships of gains already established between spouses before the effectivity of this Code, without prejudice to vested rights already acquired in accordance with the Civil Code or other laws, as provided in Article 256. (n) Consequently, when Tarciano sold the conjugal lot to the Fuentes spouses on January 11, 1989, the law that governed the disposal of that lot was already the Family Code. In contrast to Article 173 of the Civil Code, Article 124 of the Family Code does not provide a period within which the wife who gave no consent may assail her husbands sale of the real property. It simply provides that without the other spouses written consent or a court order allowing the sale, the same would be void. Article 124 thus provides: Art. 124. x x x In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal properties, the other spouse may assume sole powers of administration. These powers do not include the powers of disposition or encumbrance which must have the authority of the court or the written consent of the other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void. x x x Under the provisions of the Civil Code governing contracts, a void or inexistent contract has no force and effect from the very beginning. And this rule applies to contracts that are declared void by positive provision of law, as in the case of a sale of conjugal property without the other spouses written consent. A void contract is equivalent to nothing and is absolutely wanting in civil effects. It cannot be validated either by ratification or prescription. But, although a void contract has no legal effects even if no action is taken to set it aside, when any of its terms have been performed, an action to declare its inexistence is necessary to allow restitution of what has been given under it. This action, according to Article 1410 of the Civil Code does not prescribe. Thus: Art. 1410. The action or defense for the declaration of the inexistence of a contract does not prescribe. Here, the Rocas filed an action against the Fuentes spouses in 1997 for annulment of sale and reconveyance of the real property that Tarciano sold without their mothers (his wifes) written consent. The passage of time did not erode the right to bring such an action. Besides, even assuming that it is the Civil Code that applies to the transaction as the CA held, Article 173 provides that the wife may bring an action for annulment of sale on the ground of lack of spousal consent during the marriage within 10 years from the transaction. Consequently, the action that the Rocas, her heirs, brought in 1997 fell within 10 years of the January 11, 1989 sale. It did not yet prescribe. The Fuentes spouses of course argue that the RTC nullified the sale to them based on fraud and that, therefore, the applicable prescriptive period should be that which applies to fraudulent transactions, namely, four years from its discovery. Since notice of the sale may be deemed given to the Rocas when it was registered with the Registry of Deeds in 1989, their right of action already prescribed in 1993. But, if there had been a victim of fraud in this case, it would be the Fuentes spouses in that they appeared to have agreed to buy the property upon an honest belief that Rosarios written consent to the sale was genuine. They had four years then from the time they learned that her signature had been forged within which to 63

file an action to annul the sale and get back their money plus damages. They never exercised the right. If, on the other hand, Rosario had agreed to sign the document of consent upon a false representation that the property would go to their children, not to strangers, and it turned out that this was not the case, then she would have four years from the time she discovered the fraud within which to file an action to declare the sale void. But that is not the case here. Rosario was not a victim of fraud or misrepresentation. Her consent was simply not obtained at all. She lost nothing since the sale without her written consent was void. Ultimately, the Rocas ground for annulment is not forgery but the lack of written consent of their mother to the sale. The forgery is merely evidence of lack of consent.

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G.R. No. 172036 April 23, 2010 SPOUSES FAUSTINO AND JOSEFINA GARCIA, SPOUSES MELITON GALVEZ AND HELEN GALVEZ, and CONSTANCIA ARCAIRA represented by their Attorney-in-Fact JULIANA O. MOTAS, Petitioners, vs. COURT OF APPEALS, EMERLITA DE LA CRUZ, and DIOGENES G. BARTOLOME, Respondents. Facts: On May 28, 1993, plaintiffs spouses Faustino and Josefina Garcia and spouses Meliton and Helen Galvez (herein appellees) and defendant Emerlita dela Cruz (herein appellant) entered into a Contract to Sell wherein the latter agreed to sell to the former, for Three Million One Hundred Seventy Thousand Two Hundred Twenty (P3,170,220.00) Pesos, five (5) parcels of land situated at Tanza, Cavite particularly known as Lot Nos. 47, 2768, 2776, 2767, 2769 and covered by Transfer Certificate of Title Nos. T-340674, T-340673, T-29028, T-29026, T-29027, respectively. At the time of the execution of the said contract, three of the subject lots, namely, Lot Nos. 2776, 2767, and 2769 were registered in the name of one Angel Abelida from whom defendant allegedly acquired said properties by virtue of a Deed of Absolute Sale dated March 31, 1989. As agreed upon, plaintiffs shall make a down payment of Five Hundred Thousand (P500,000.00) Pesos upon signing of the contract. The balance of Two Million Six Hundred Seventy Thousand Two Hundred Twenty (P2,670,220.00) Pesos shall be paid in three installments, viz: Five Hundred Thousand (P500,000.00) Pesos on June 30, 1993; Five Hundred Thousand (P500,000.00) Pesos on August 30, 1993; One Million Six Hundred Seventy Thousand Two Hundred Twenty (P1,670,220.00) Pesos on December 31, 1993. On its due date, December 31, 1993, plaintiffs failed to pay the last installment in the amount of One Million Six Hundred Seventy Thousand Two Hundred Twenty (P1,670,220.00) Pesos. Sometime in July 1995, plaintiffs offered to pay the unpaid balance, which had already been delayed by one and [a] half year, which defendant refused to accept. On September 23, 1995, defendant sold the same parcels of land to intervenor Diogenes G. Bartolome for Seven Million Seven Hundred Ninety Three Thousand (P7,793,000.00) Pesos. In order to compel defendant to accept plaintiffs payment in full satisfaction of the purchase price and, thereafter, execute the necessary document of transfer in their favor, plaintiffs filed before the RTC a complaint for specific performance. In their complaint, plaintiffs alleged that they discovered the infirmity of the Deed of Absolute Sale covering Lot Nos. 2776, 2767 and 2769, between their former owner Angel Abelida and defendant, the same being spurious because the signature of Angel Abelida and his wife were falsified; that at the time of the execution of the said deed, said spouses were in the United States; that due to their apprehension regarding the authenticity of the document, they withheld payment of the last installment which was supposedly due on December 31, 1993; that they tendered payment of the unpaid balance sometime in July 1995, after Angel Abelida ratified the sale made in favor [of] defendant, but defendant refused to accept their payment for no jusitifiable reason. In her answer, defendant denied the allegation that the Deed of Absolute Sale was spurious and argued that plaintiffs failed to pay in full the agreed purchase price on its due date despite repeated demands; that the Contract to Sell contains a proviso that failure of plaintiffs to pay the purchase price in full shall cause the rescission of the contract and forfeiture of one-half (1/2%) percent of the total amount paid to defendant; that a notarized letter stating the indended rescission of the contract to sell and forfeiture of payments was sent to plaintiffs at their last known address but it was returned with a notation "insufficient address."

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Intervenor Diogenes G. Bartolome filed a complaint in intervention alleging that the Contract to Sell dated May 31, 1993 between plaintiffs and defendant was rescinded and became ineffective due to unwarranted failure of the plaintiffs to pay the unpaid balance of the purchase price on or before the stipulated date; that he became interested in the subject parcels of land because of their clean titles; that he purchased the same from defendant by virtue of an Absolute Deed of Sale executed on September 23, 1995 in consideration of the sum of Seven Million Seven Hundred Ninety Three Thousand (P7,793,000.00) Pesos. Issue: Whether or not the Maceda Law should have been applied Held: The Maceda Law applies to contracts of sale of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants. The subject lands, comprising five (5) parcels and aggregating 69,028 square meters, do not comprise residential real estate within the contemplation of the Maceda Law. Moreover, even if we apply the Maceda Law to the present case, petitioners offer of payment to Dela Cruz was made a year and a half after the stipulated date. This is beyond the sixty-day grace period under Section 4 of the Maceda Law. Petitioners still cannot use the second sentence of Section 4 of the Maceda Law against Dela Cruz for Dela Cruzs alleged failure to give an effective notice of cancellation or demand for rescission because Dela Cruz merely sent the notice to the address supplied by petitioners in the Contract to Sell. It is undeniable that petitioners failed to pay the balance of the purchase price on the stipulated date of the Contract to Sell. Thus, Dela Cruz is within her rights to sell the subject lands to Bartolome. Neither Dela Cruz nor Bartolome can be said to be in bad faith.

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G.R. No. 169135 june 18, 2010 JOSE DELOS REYES, Petitioner, vs. JOSEPHINE ANNE B. RAMNANI, Respondent. Facts: On October 11, 1977, the trial court rendered a Decision in Civil Case No. 24858 in favor of respondent Josephine Anne B. Ramnani. Thereafter, a writ of execution was issued by the trial court. On June 6, 1978, then Branch Sheriff Pedro T. Alarcon conducted a public bidding and auction sale over the property covered by Transfer Certificate of Title (TCT) No. 480537 (subject property) during which respondent was the highest bidder. Consequently, a certificate of sale was executed in her favor on even date. On November 17, 1978, a writ of possession was issued by the trial court. On March 8, 1990, the certificate of sale was annotated at the back of TCT No. 480537. Thereafter, the taxes due on the sale of the subject property were paid on September 26, 2001. On February 17, 2004, respondent filed a motion (subject motion) for the issuance of an order directing the sheriff to execute the final certificate of sale in her favor. Petitioner opposed on the twin grounds that the subject motion was not accompanied by a notice of hearing and that the trial court's October 11, 1977 Decision can no longer be executed as it is barred by prescription. Issue: Whether respondent is barred by prescription, laches or estoppel. Held: Petitioner, in essence, argues that the October 11, 1977 Decision was not timely executed because of respondent's failure to secure the final certificate of sale within 10 years from the entry of said judgment. This is erroneous. It is not disputed that shortly after the trial court rendered the aforesaid judgment, respondent moved for execution which was granted by the trial court. On June 6, 1978, the subject property was sold on execution sale. Respondent emerged as the highest bidder, thus, a certificate of sale was executed by the sheriff in her favor on the same day. As correctly held by the trial court, the October 11, 1977 Decision was already enforced when the subject property was levied and sold on June 6, 1978 which is within the five-year period for the execution of a judgment by motion under Section 6,9 Rule 39 of the Rules of Court. It is, likewise, not disputed that petitioner failed to redeem the subject property within one year from the annotation of the certificate of sale on TCT No. 480537. The expiration of the one-year redemption period foreclosed petitioner's right to redeem the subject property and the sale thereby became absolute. The issuance thereafter of a final certificate of sale is a mere formality and confirmation of the title that is already vested in respondent. Thus, the trial court properly granted the motion for issuance of the final certificate of sale. As to petitioner's claim that the subject motion is defective for lack of a notice of hearing, the CA correctly ruled that the subject motion is a non-litigious motion. While, as a general rule, all written motions should be set for hearing under Section 4, Rule 15 of the Rules of Court, excepted from this rule are non-litigious motions or motions which may be acted upon by the court without prejudicing the rights of the adverse party. As already discussed, respondent is entitled to the issuance of the final certificate of sale as a matter of right and petitioner is powerless to oppose the same. Hence, the subject motion falls under the class of non-litigious motions. At any rate, the trial court gave petitioner an opportunity to oppose the subject motion as in fact he filed a Comment/ Opposition on March 1, 2004 before the trial court. Petitioner cannot, therefore, validly claim that he was denied his day in court. 67

G.R. No. 176841 June 29, 2010 ANTHONY ORDUA, DENNIS ORDUA, and ANTONITA ORDUA, Petitioners, vs. EDUARDO J. FUENTEBELLA, MARCOS S. CID, BENJAMIN F. CID, BERNARD G. BANTA, and ARMANDO GABRIEL, JR., Respondents. Facts: Sometime in 1996 or thereabouts, Gabriel Sr. sold the subject lot to petitioner Antonita Ordua (Antonita), but no formal deed was executed to document the sale. The contract price was apparently payable in installments as Antonita remitted from time to time and Gabriel Sr. accepted partial payments. One of the Orduas would later testify that Gabriel Sr. agreed to execute a final deed of sale upon full payment of the purchase price. As early as 1979, however, Antonita and her sons, Dennis and Anthony Ordua, were already occupying the subject lot on the basis of some arrangement undisclosed in the records and even constructed their house thereon. They also paid real property taxes for the house and declared it for tax purposes, as evidenced by Tax Declaration No. (TD) 96-04012-111087 in which they place the assessed value of the structure at PhP 20,090. After the death of Gabriel Sr., his son and namesake, respondent Gabriel Jr., secured TCT No. T-71499 over the subject lot and continued accepting payments from the petitioners. On December 12, 1996, Gabriel Jr. wrote Antonita authorizing her to fence off the said lot and to construct a road in the adjacent lot. On December 13, 1996, Gabriel Jr. acknowledged receipt of a PhP 40,000 payment from petitioners. Through a letter dated May 1, 1997, Gabriel Jr. acknowledged that petitioner had so far made an aggregate payment of PhP 65,000, leaving an outstanding balance of PhP 60,000. A receipt Gabriel Jr. issued dated November 24, 1997 reflected a PhP 10,000 payment. Despite all those payments made for the subject lot, Gabriel Jr. would later sell it to Bernard Banta (Bernard) obviously without the knowledge of petitioners, as later developments would show. As narrated by the RTC, the lot conveyance from Gabriel Jr. to Bernard was effected against the following backdrop: Badly in need of money, Gabriel Jr. borrowed from Bernard the amount ofPhP 50,000, payable in two weeks at a fixed interest rate, with the further condition that the subject lot would answer for the loan in case of default. Gabriel Jr. failed to pay the loan and this led to the execution of a Deed of Sale dated June 30, 1999 and the issuance later of TCT No. T-72782 for subject lot in the name of Bernard upon cancellation of TCT No. 71499 in the name of Gabriel, Jr. As the RTC decision indicated, the reluctant Bernard agreed to acquire the lot, since he had by then ready buyers in respondents Marcos Cid and Benjamin F. Cid (Marcos and Benjamin or the Cids). Subsequently, Bernard sold to the Cids the subject lot for PhP 80,000. Armed with a Deed of Absolute Sale of a Registered Land dated January 19, 2000, the Cids were able to cancel TCT No. T-72782 and secure TCT No. 72783 covering the subject lot. Just like in the immediately preceding transaction, the deed of sale between Bernard and the Cids had respondent Eduardo J. Fuentebella (Eduardo) as one of the instrumental witnesses. Marcos and Benjamin, in turn, ceded the subject lot to Eduardo through a Deed of Absolute Sale dated May 11, 2000. Thus, the consequent cancellation of TCT No. T-72782 and issuance on May 16, 2000 of TCT No. T-3276 over subject lot in the name of Eduardo. As successive buyers of the subject lot, Bernard, then Marcos and Benjamin, and finally Eduardo, checked, so each claimed, the title of their respective predecessors-in-interest with the Baguio Registry and discovered said title to be free and unencumbered at the time each purchased the property. Furthermore, 68

respondent Eduardo, before buying the property, was said to have inspected the same and found it unoccupied by the Orduas. Sometime in May 2000, or shortly after his purchase of the subject lot, Eduardo, through his lawyer, sent a letter addressed to the residence of Gabriel Jr. demanding that all persons residing on or physically occupying the subject lot vacate the premises or face the prospect of being ejected. Learning of Eduardo's threat, petitioners went to the residence of Gabriel Jr. at No. 34 Dominican Hill, Baguio City. There, they met Gabriel Jr.'s estranged wife, Teresita, who informed them about her having filed an affidavit-complaint against her husband and the Cids for falsification of public documents on March 30, 2000. According to Teresita, her signature on the June 30, 1999 Gabriel Jr.Bernard deed of sale was a forgery. Teresita further informed the petitioners of her intent to honor the aforementioned 1996 verbal agreement between Gabriel Sr. and Antonita and the partial payments they gave her father-in-law and her husband for the subject lot. On July 3, 2001, petitioners, joined by Teresita, filed a Complaint for Annulment of Title, Reconveyance with Damagesagainst the respondents before the RTC, docketed as Civil Case No. 4984-R, specifically praying that TCT No. T-3276 dated May 16, 2000 in the name of Eduardo be annulled. Corollary to this prayer, petitioners pleaded that Gabriel Jr.'s title to the lot be reinstated and that petitioners be declared as entitled to acquire ownership of the same upon payment of the remaining balance of the purchase price therefor agreed upon by Gabriel Sr. andAntonita. While impleaded and served with summons, Gabriel Jr. opted not to submit an answer. Issues: Whether or not the sale of the subject lot by Gabriel Sr. to Antonita is unenforceable under the Statute of Frauds Whether or not such sale has adequate consideration Held: It is undisputed that Gabriel Sr., during his lifetime, sold the subject property to Antonita, the purchase price payable on installment basis. Gabriel Sr. appeared to have been a recipient of some partial payments. After his death, his son duly recognized the sale by accepting payments and issuing what may be considered as receipts therefor. Gabriel Jr., in a gesture virtually acknowledging the petitioners' dominion of the property, authorized them to construct a fence around it. And no less than his wife, Teresita, testified as to the fact of sale and of payments received. Pursuant to such sale, Antonita and her two sons established their residence on the lot, occupying the house they earlier constructed thereon. They later declared the property for tax purposes, as evidenced by the issuance of TD 9604012-111087 in their or Antonita's name, and paid the real estates due thereon, obviously as sign that they are occupying the lot in the concept of owners. Given the foregoing perspective, Eduardo's assertion in his Answer that "persons appeared in the property" only after "he initiated ejectment proceedings" is clearly baseless. If indeed petitioners entered and took possession of the property after he (Eduardo) instituted the ejectment suit, how could they explain the fact that he sent a demand letter to vacate sometime in May 2000? With the foregoing factual antecedents, the question to be resolved is whether or not the Statute of Frauds bars the enforcement of the verbal sale contract between Gabriel Sr. andAntonita.

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The CA, just as the RTC, ruled that the contract is unenforceable for noncompliance with the Statute of Frauds. We disagree for several reasons. Foremost of these is that the Statute of Frauds expressed in Article 1403, par. (2), of the Civil Code applies only to executory contracts, i.e., those where no performance has yet been made. Stated a bit differently, the legal consequence of non-compliance with the Statute does not come into play where the contract in question is completed, executed, or partially consummated. The Statute of Frauds, in context, provides that a contract for the sale of real property or of an interest therein shall be unenforceable unless the sale or some note or memorandum thereof is in writing and subscribed by the party or his agent. However, where the verbal contract of sale has been partially executed through the partial payments made by one party duly received by the vendor, as in the present case, the contract is taken out of the scope of the Statute. The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations depending for their evidence on the unassisted memory of witnesses, by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged. The Statute requires certain contracts to be evidenced by some note or memorandum in order to be enforceable. The term "Statute of Frauds" is descriptive of statutes that require certain classes of contracts to be in writing. The Statute does not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulates the formalities of the contract necessary to render it enforceable. Since contracts are generally obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present, the Statute simply provides the method by which the contracts enumerated in Art. 1403 (2) maybe proved but does not declare them invalid because they are not reduced to writing. In fine, the form required under the Statute is for convenience or evidentiary purposes only. There can be no serious argument about the partial execution of the sale in question. The records show that petitioners had, on separate occasions, given Gabriel Sr. and Gabriel Jr. sums of money as partial payments of the purchase price. These payments were duly receipted by Gabriel Jr. To recall, in his letter of May 1, 1997, Gabriel, Jr. acknowledged having received the aggregate payment of PhP 65,000 from petitioners with the balance of PhP 60,000 still remaining unpaid. But on top of the partial payments thus made, possession of the subject of the sale had been transferred to Antonita as buyer. Owing thus to its partial execution, the subject sale is no longer within the purview of the Statute of Frauds. Lest it be overlooked, a contract that infringes the Statute of Frauds is ratified by the acceptance of benefits under the contract. Evidently, Gabriel, Jr., as his father earlier, had benefited from the partial payments made by the petitioners. Thus, neither Gabriel Jr. nor the other respondentssuccessive purchasers of subject lotscould plausibly set up the Statute of Frauds to thwart petitioners' efforts towards establishing their lawful right over the subject lot and removing any cloud in their title. As it were, petitioners need only to pay the outstanding balance of the purchase price and that would complete the execution of the oral sale. Without directly saying so, the trial court held that the petitioners cannot sue upon the oral sale since in its own words: "x x x for more than a decade, [petitioners] have not paid in full Armando Gabriel, Sr. or his estate, so that the sale transaction between Armando Gabriel Sr. and [petitioners] [has] no adequate consideration." The trial court's posture, with which the CA effectively concurred, is patently flawed. For starters, they equated incomplete payment of the purchase price with inadequacy of price or what passes as lesion, when both are different civil law 70

concepts with differing legal consequences, the first being a ground to rescind an otherwise valid and enforceable contract. Perceived inadequacy of price, on the other hand, is not a sufficient ground for setting aside a sale freely entered into, save perhaps when the inadequacy is shocking to the conscience. The Court to be sure takes stock of the fact that the contracting parties to the 1995 or 1996 sale agreed to a purchase price of PhP 125,000 payable on installments. But the original lot owner, Gabriel Sr., died before full payment can be effected. Nevertheless, petitioners continued remitting payments to Gabriel, Jr., who sold the subject lot to Bernard on June 30, 1999. Gabriel, Jr., as may be noted, parted with the property only forPhP 50,000. On the other hand, Bernard sold it for PhP 80,000 to Marcos and Benjamin. From the foregoing price figures, what is abundantly clear is that what Antonita agreed to pay Gabriel, Sr., albeit in installment, was very much more than what his son, for the same lot, received from his buyer and the latter's buyer later. The Court, therefore, cannot see its way clear as to how the RTC arrived at its simplistic conclusion about the transaction between Gabriel Sr. and Antonita being without "adequate consideration."

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G.R. No. 176868 July 26, 2010 SOLAR HARVEST, INC., Petitioner, vs. DAVAO CORRUGATED CARTON CORPORATION, Respondent. Facts: In the first quarter of 1998, petitioner, Solar Harvest, Inc., entered into an agreement with respondent, Davao Corrugated Carton Corporation, for the purchase of corrugated carton boxes, specifically designed for petitioners business of exporting fresh bananas, at US$1.10 each. The agreement was not reduced into writing. To get the production underway, petitioner deposited, on March 31, 1998, US$40,150.00 in respondents US Dollar Savings Account with Westmont Bank, as full payment for the ordered boxes. Despite such payment, petitioner did not receive any boxes from respondent. On January 3, 2001, petitioner wrote a demand letter for reimbursement of the amount paid. On February 19, 2001, respondent replied that the boxes had been completed as early as April 3, 1998 and that petitioner failed to pick them up from the formers warehouse 30 days from completion, as agreed upon. Respondent mentioned that petitioner even placed an additional order of 24,000 boxes, out of which, 14,000 had been manufactured without any advanced payment from petitioner. Respondent then demanded petitioner to remove the boxes from the factory and to pay the balance of US$15,400.00 for the additional boxes and P132,000.00 as storage fee. On August 17, 2001, petitioner filed a Complaint for sum of money and damages against respondent. The Complaint averred that the parties agreed that the boxes will be delivered within 30 days from payment but respondent failed to manufacture and deliver the boxes within such time. Issue: Whether or not there is rescission under article 1191 of the Civil Code Held: Petitioners claim for reimbursement is actually one for rescission (or resolution) of contract under Article 1191 of the Civil Code, which reads: Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. The right to rescind a contract arises once the other party defaults in the performance of his obligation. In determining when default occurs, Art. 1191 should be taken in conjunction with Art. 1169 of the same law, which provides: Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: 72

(1) When the obligation or the law expressly so declares; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment of the parties respective obligations should be simultaneous. Hence, no demand is generally necessary because, once a party fulfills his obligation and the other party does not fulfill his, the latter automatically incurs in delay. But when different dates for performance of the obligations are fixed, the default for each obligation must be determined by the rules given in the first paragraph of the present article, that is, the other party would incur in delay only from the moment the other party demands fulfillment of the formers obligation. Thus, even in reciprocal obligations, if the period for the fulfillment of the obligation is fixed, demand upon the obligee is still necessary before the obligor can be considered in default and before a cause of action for rescission will accrue. Evident from the records and even from the allegations in the complaint was the lack of demand by petitioner upon respondent to fulfill its obligation to manufacture and deliver the boxes. The Complaint only alleged that petitioner made a "follow-up" upon respondent, which, however, would not qualify as a demand for the fulfillment of the obligation. Petitioners witness also testified that they made a follow-up of the boxes, but not a demand. Note is taken of the fact that, with respect to their claim for reimbursement, the Complaint alleged and the witness testified that a demand letter was sent to respondent. Without a previous demand for the fulfillment of the obligation, petitioner would not have a cause of action for rescission against respondent as the latter would not yet be considered in breach of its contractual obligation.

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G.R. No. 165168 July 9, 2010 SPS. NONILON (MANOY) and IRENE MONTECALVO, Petitioners, vs. HEIRS (Substitutes) OF EUGENIA T. PRIMERO, represented by their Attorney-in-Fact, ALFREDO T. PRIMERO, JR., Respondents. Facts: The property involved in this case is a portion of a parcel of land known as Lot No. 263 located at Sabayle Street, Iligan City. Lot No. 263 has an area of 860 square meters covered by Original Certificate of Title (OCT) No. 0-271 registered in the name of Eugenia Primero (Eugenia), married to Alfredo Primero, Sr. (Alfredo). In the early 1980s, Eugenia leased the lot to petitioner Irene Montecalvo (Irene) for a monthly rental of P500.00. On January 13, 1985, Eugenia entered into an un-notarized Agreement with Irene, where the former offered to sell the property to the latter for P1,000.00 per square meter. They agreed that Irene would deposit the amount of P40,000.00 which shall form part of the down payment equivalent to 50% of the purchase price. They also stipulated that during the term of negotiation of 30 to 45 days from receipt of said deposit, Irene would pay the balance of P410,000.00 on the down payment. In case Irene defaulted in the payment of the down payment, the deposit would be returned within 10 days from the lapse of said negotiation period and the Agreement deemed terminated. However, if the negotiations pushed through, the balance of the full value of P860,000.00 or the net amount of P410,000.00 would be paid in 10 equal monthly installments from receipt of the down payment, with interest at the prevailing rate. Irene failed to pay the full down payment within the stipulated 30-45-day negotiation period. Nonetheless, she continued to stay on the disputed property, and still made several payments with an aggregate amount of P293,000.00. On the other hand, Eugenia did not return the P40,000.00 deposit to Irene, and refused to accept further payments only in 1992. Thereafter, Irene caused a survey of Lot No. 263 and the segregation of a portion equivalent to 293 square meters in her favor. However, Eugenia opposed her claim and asked her to vacate the property. Then on May 13, 1996, Eugenia and the heirs of her deceased husband Alfredo filed a complaint for unlawful detainer against Irene and her husband, herein petitioner Nonilon Montecalvo (Nonilon) before the Municipal Trial Court (MTC) of Iligan City. During the preliminary conference, the parties stipulated that the issue to be resolved was whether their Agreement had been rescinded and novated. Hence, the MTC dismissed the case for lack of jurisdiction since the issue is not susceptible of pecuniary estimation. The MTC's Decision dismissing the ejectment case became final as Eugenia and her children did not appeal therefrom. On June 18, 1996, Irene and Nonilon retaliated by instituting Civil Case No. II3588 with the RTC of Lanao del Norte for specific performance, to compel Eugenia to convey the 293-square meter portion of Lot No. 263. Issue: WHETHER AN ORAL CONTRACT OF SALE OF A PORTION OF [A] LOT IS BINDING [UPON] THE SELLER. Held: 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 74

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 prospective seller without further remedies by the prospective buyer. A contract to sell is commonly entered into in order to protect the seller against a buyer who intends to buy the property in installment by withholding ownership over the property until the buyer effects full payment therefor. In this case, the Agreement expressly provided that it was "entered into for the purpose of negotiating the sale of the above referred property between the same parties herein x x x." The term of the negotiation shall be for a period of 30-45 days from receipt of the P40,000.00 deposit and the buyer has to pay the balance of the 50% down payment amounting to P410,000.00 within the said period of negotiation. Thereafter, an Agreement to Sell shall be executed by the parties and the remainder of the purchase price amounting to another P410,000.00 shall be paid in 10 equal monthly installments from receipt of the down payment. The assumption of both parties that the purpose of the Agreement was for negotiating the sale of Lot No. 263, in its entirety, for a definite price, with a specific period for payment of a specified down payment, and the execution of a subsequent contract for the sale of the same on installment payments leads to no other conclusion than that the predecessor-in-interest of the herein respondents and the herein petitioner Irene entered into a contract to sell. As stated in the Agreement, the payment of the purchase price, in installments within the period stipulated, constituted a positive suspensive condition, the failure of which is not really a breach but an event that prevents the obligation of the seller to convey title in accordance with Article 1184 of the Civil Code. Hence, for petitioners' failure to comply with the terms and conditions laid down in the Agreement, the obligation of the predecessor-in-interest of the respondents to deliver and execute the corresponding deed of sale never arose. The fact that the predecessor-in-interest of the respondents failed to return the P40,000.00 deposit subsequent to the expiration of the period of negotiation did not prevent the respondents from repudiating the Agreement. The obligation of the respondent to convey the property never came to pass as the petitioners did not comply with the positive suspensive condition of full payment of the purchase price within the period as stipulated. The alleged oral contract of sale for the 293-square meter portion of the property was not proved by preponderant evidence. Hence, petitioners cannot compel the successors-in-interest of the deceased Eugenia to execute a deed of absolute sale in their favor. Petitioners alleged in their Complaint that in 1992, Eugenia refused to accept further payments and suggested that she will convey to petitioners 293 square meters of her 860-square meter property, in proportion to payments already made. Thus, Eugenia caused the segregation of the area where the petitioners' building now stands, consisting of 293 square meters. 1avvphi1 In support of their contention, petitioners presented the testimony of Irene, who testified that Eugenia segregated for them an area of 293 square meters for the agreed price of P1,000.00 per square meter. The total purchase price allegedly agreed upon by the parties, amounting to P293,000.00, corresponded to the amount of payments already made by Irene. They likewise presented (1) 82 receipts covering the period October 13, 1986 to July 10, 1994; (2) the testimony of the surveyor, Engr. Ravacio, to show that the segregation survey of the 293-square meter portion of the property was made with the knowledge and consent of Eugenia; and (3) the resulting subdivision plan. On the other hand, respondents counter that the alleged contract of sale is contradicted by petitioners' own evidence. We cannot sustain the contention of the petitioners. The primal issue to be resolved is whether the parties subsequently entered into a contract of sale over 75

the segregated 293-square meter portion of Lot No. 263. It is a fundamental principle that for a contract of sale to be valid, the following elements must be present: (a) consent or meeting of the minds; (b) determinate subject matter; and (3) price certain in money or its equivalent. Until the contract of sale is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation between the parties. Contrary to petitioners' allegations that the 82 receipts indicated that they were issued "for payment of lot (at Sabayle)", a cursory examination thereof shows that the receipts from 1986 to 1992 do not consistently indicate "Sabayle Lot" or "Sabayle Lot Deposit". More than half of the receipts presented merely indicated receipt of differing sums of money from the petitioners. In addition, the receipts for the years 1993 to 1994 do not establish installment payments for the purchase of the disputed portion of Lot No. 263. Rather, the receipts indicate that the same were issued as proof of "cash advance", "cash for groceries, electric bill, water bill, telephone/long distance", "cash","cash for mktg" and "x x x cash to be paid a month after". These are not consistent with the allegation of the petitioners that they have paid the full amount of the purchase price for the 293-square meter portion of the lot by 1992. Moreover, the testimony of petitioners' witness, surveyor Engr. Ravacio, shows that Eugenia was neither around when the survey was conducted nor gave her express consent to the conduct of the same. On the other hand, respondents' witness, Sylvia, testified that the receipts issued to the petitioners were for the lot rentals. In addition, respondents' third witness, Corazon, testified that petitioners were their tenants in subject land, which she co-owns with her mother Eugenia, and disclaimed any sale of any portion of their lot to the petitioners.

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G.R. No. 158929 August 3, 2010 ROSARIO P. TAN, Petitioner, vs. ARTEMIO G. RAMIREZ, MOISES G. RAMIREZ, RODRIGO G. RAMIREZ, DOMINGO G. RAMIREZ, and MODESTA RAMIREZ ANDRADE, Respondents. Facts: On August 11, 1998, the petitioner, representing her parents (spouses Crispo and Nicomedesa P. Alumbro), filed with the Municipal Circuit Trial Court (MCTC) of Hindang-Inopacan, Leyte a complaint for the recovery of ownership and possession and/or quieting of title of a one-half portion of the subject property against the respondents. The petitioner alleged that her great-grandfather Catalino Jaca Valenzona was the owner of the subject property under a 1915 Tax Declaration (TD) No. 2724. Catalino had four children: Gliceria, Valentina, Tomasa, and Julian; Gliceria inherited the subject property when Catalino died; Gliceria married Gavino Oyao, but their union bore no children; when Gliceria died on April 25, 1952, Gavino inherited a one-half portion of the subject property, while Nicomedesa acquired the other half through inheritance, in representation of her mother, Valentina, who had predeceased Gliceria, and through her purchase of the shares of her brothers and sisters. In 1961, Nicomedesa constituted Roberto as tenant of her half of the subject property; on June 30, 1965, Nicomedesa bought Gavinos one-half portion of the subject property from the latters heirs, Ronito and Wilfredo Oyao, evidenced by a Deed of Absolute Sale of Agricultural Land; on August 3, 1965, Nicomedesa sold to Roberto this one-half portion in a Deed of Absolute Sale of Agricultural Land; and in 1997, Nicomedesa discovered that since 1974, Roberto had been reflecting the subject property solely in his name under TD No. 4193. The respondents, on the other hand, traced ownership of the subject property to Gavino who cultivated it since 1956; Roberto bought half of the subject property from Nicomedesa on August 3, 1965, and the remaining half from Gavinos heirs, Ronito and Wilfredo Oyao, on October 16, 1972. On January 9, 1975, a certain Santa Belacho, claiming to be Gavinos natural child, filed a complaint with the Court of First Instance of Baybay, Leyte against Roberto, Nicomedesa, Ronito and Wilfredo Oyao, docketed as Civil Case No. B-565, for recovery of possession and ownership of two (2) parcels of land, including the subject property; on September 16, 1977, Roberto bought the subject property from Belacho through a Deed of Absolute Sale of Land; and on October 5, 1977, Roberto and Nicomedesa entered into a Compromise Agreement with Belacho to settle Civil Case No. B-565. Belacho agreed in this settlement to dismiss the case and to waive her interest over the subject property in favor of Roberto, and the other parcel of land in favor of Nicomedesa in consideration of P1,800.00. Issue: Whether the CA erred in relying upon the compromise agreement and the contract of sale to conclude that the respondents had been possessors in good faith and with just title and could acquire the subject property through ordinary acquisitive prescription. Held: Neither can the respondents benefit from the contract of sale of the subject property, executed by Belacho in favor of Roberto, to support their claim of possession in good faith and with just title. In the vintage case of Leung Yee v. F.L. Strong Machinery Co. and Williamson, we explained good faith in this manner: One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim that he has acquired title thereto in good faith as against the true owner of the land or of an interest therein; and the same rule must be applied to one who has knowledge of facts which should have put him upon such 77

inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor. Good faith, or the want of it, can be ascertained only from the acts of the one claiming it, as it is a condition of mind that can only be judged by actual or fancied token or signs. In the present case, no dispute exists that Roberto, without Nicomedesas knowledge or participation, bought the subject property on September 16, 1977 or during the pendency of Civil Case No. B-565. Roberto, therefore, had actual knowledge that Belachos claim to ownership of the subject property, as Gavinos purported heir, was disputed because he (Roberto) and Nicomedesa were the defendants in Civil Case No. B-565. Roberto even admitted that he bought the subject property from Belacho to "avoid any trouble." He, thus, cannot claim that he acted in good faith under the belief that there was no defect or dispute in the title of the vendor, Belacho. Not being a possessor in good faith and with just title, the ten-year period required for ordinary acquisitive prescription cannot apply in Robertos favor. Even the thirty-year period under extraordinary acquisitive prescription has not been met because of the respondents claim to have been in possession, in the concept of owner, of the subject property for only twenty-four years, from the time the subject property was tax declared in 1974 to the time of the filing of the complaint in 1998.1avvphi1 Based on the foregoing, the CA erred in finding that the respondents acquired the petitioners one-fourth portion of the subject property through acquisitive prescription. As aptly found by the MCTC, the respondents are only entitled to three-fourths of the subject property because this was Gavinos rightful share of the conjugal estate that Roberto bought from Ronito and Wilfredo Oyao.

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G.R. No. 180665 August 11, 2010 HEIRS OF PAULINO ATIENZA, namely, RUFINA L. ATIENZA, ANICIA A. IGNACIO, ROBERTO ATIENZA, MAURA A. DOMINGO, AMBROCIO ATIENZA, MAXIMA ATIENZA, LUISITO ATIENZA, CELESTINA A. GONZALES, REGALADO ATIENZA and MELITA A. DELA CRUZ Petitioners, vs. DOMINGO P. ESPIDOL, Respondent. Facts: Petitioner Heirs of Paulino Atienza, namely, Rufina L. Atienza, Anicia A. Ignacio, Roberto Atienza, Maura A. Domingo, Ambrocio Atienza, Maxima Atienza, Luisito Atienza, Celestina A. Gonzales, Regalado Atienza and Melita A. Dela Cruz (collectively, the Atienzas) own a 21,959 square meters of registered agricultural land at Valle Cruz, Cabanatuan City. They acquired the land under an emancipation patent through the governments land reform program. On August 12, 2002 the Atienzas and respondent Domingo P. Espidol entered into a contract called Kasunduan sa Pagbibili ng Lupa na may PaunangBayad (contract to sell land with a down payment) covering the property. They agreed on a price of P130.00 per square meter or a total of P2,854,670.00, payable in three installments: P100,000.00 upon the signing of the contract; P1,750,000.00 in December 2002, and the remaining P974,670.00 in June 2003. Respondent Espidol paid the Atienzas P100,000.00 upon the execution of the contract and paid P30,000.00 in commission to the brokers. When the Atienzas demanded payment of the second installment of P1,750,000.00 in December 2002, however, respondent Espidol could not pay it. He offered to pay the Atienzas P500.000.00 in the meantime, which they did not accept. Claiming that Espidol breached his obligation, on February 21, 2003 the Atienzas filed a complaint for the annulment of their agreement with damages before the Regional Trial Court (RTC) of Cabanatuan City in Civil Case 4451. In his answer, respondent Espidol admitted that he was unable to pay the December 2002 second installment, explaining that he lost access to the money which he shared with his wife because of an injunction order issued by an American court in connection with a domestic violence case that she filed against him. In his desire to abide by his obligation, however, Espidol took time to travel to the Philippines to offer P800,000.00 to the Atienzas. Respondent Espidol also argued that, since their contract was one of sale on installment, his failure to pay the installment due in December 2002 did not amount to a breach. It was merely an event that justified the Atienzas not to convey the title to the property to him. The non-payment of an installment is not a legal ground for annulling a perfected contract of sale. Their remedy was to bring an action for specific performance. Moreover, Espidol contended that the action was premature since the last payment was not due until June 2003. In a decision dated January 24, 2005, the RTC ruled that, inasmuch as the non-payment of the purchase price was not considered a breach in a contract to sell on installment but only an event that authorized the vendor not to convey title, the proper issue was whether the Atienzas were justified in refusing to accept respondent Espidols offer of an amount lesser than that agreed upon on the second installment. The trial court held that, although respondents legal problems abroad cannot justify his failure to comply with his contractual obligation to pay an installment, it could not be denied that he made an honest effort to pay at least a portion of it. His traveling to the Philippines from America showed his willingness and desire to make good on his obligation. His good faith negated any notion that he intended to renege on what he owed. The Atienzas brought the case to court prematurely considering that the last installment was not then due. 79

Furthermore, said the RTC, any attempt by the Atienzas to cancel the contract would have to comply with the provisions of Republic Act (R.A.) 6552 or the Realty Installment Buyer Protection Act (R.A. 6552), particularly the giving of the required notice of cancellation, that they omitted in this case. The RTC thus declared the contract between the parties valid and subsisting and ordered the parties to comply with its terms and conditions. On appeal, the Court of Appeals (CA) affirmed the decision of the trial court. Not satisfied, the Atienzas moved for reconsideration. They argued that R.A. 6552 did not apply to the case because the land was agricultural and respondent Espidol had not paid two years worth of installment that the law required for coverage. And, in an apparent shift of theory, the Atienzas now also impugn the validity of their contract to sell, claiming that, since the property was covered by an emancipation patent, its sale was prohibited and void. But the CA denied the motion for reconsideration, hence, the present petition. Issue: Whether or not the Atienzas were entitled to the cancellation of the contract to sell they entered into with respondent Espidol on the ground of the latters failure to pay the second installment when it fell due Held: Regarding the right to cancel the contract for non-payment of an installment, there is need to initially determine if what the parties had was a contract of sale or a contract to sell. In a contract of sale, the title to the property passes to the buyer upon the delivery of the thing sold. In a contract to sell, on the other hand, the ownership is, by agreement, retained by the seller and is not to pass to the vendee until full payment of the purchase price. In the contract of sale, the buyers nonpayment of the price is a negative resolutory condition; in the contract to sell, the buyers full payment of the price is a positive suspensive condition to the coming into effect of the agreement. In the first case, the seller has lost and cannot recover the ownership of the property unless he takes action to set aside the contract of sale. In the second case, the title simply remains in the seller if the buyer does not comply with the condition precedent of making payment at the time specified in the contract. Here, it is quite evident that the contract involved was one of a contract to sell since the Atienzas, as sellers, were to retain title of ownership to the land until respondent Espidol, the buyer, has paid the agreed price. Indeed, there seems no question that the parties understood this to be the case. Admittedly, Espidol was unable to pay the second installment of P1,750,000.00 that fell due in December 2002. 1awph!1 That payment, said both the RTC and the CA, was a positive suspensive condition failure of which was not regarded a breach in the sense that there can be no rescission of an obligation (to turn over title) that did not yet exist since the suspensive condition had not taken place. And this is correct so far. Unfortunately, the RTC and the CA concluded that should Espidol eventually pay the price of the land, though not on time, the Atienzas were bound to comply with their obligation to sell the same to him. But this is error. In the first place, since Espidol failed to pay the installment on a day certain fixed in their agreement, the Atienzas can afterwards validly cancel and ignore the contract to sell because their obligation to sell under it did not arise. Since the suspensive condition did not arise, the parties stood as if the conditional obligation had never existed. Secondly, it was not a pure suspensive condition in the sense that the Atienzas made no undertaking while the installments were not yet due. Mr. Justice Edgardo L. Paras gave a fitting example of suspensive condition: "Ill buy your land for P1,000.00 if you pass the last bar examinations." This he said was suspensive for the bar examinations results will be awaited. Meantime the buyer is placed under no immediate obligation to the person who took the examinations. 80

Here, however, although the Atienzas had no obligation as yet to turn over title pending the occurrence of the suspensive condition, it was implicit that they were under immediate obligation not to sell the land to another in the meantime. When Espidol failed to pay within the period provided in their agreement, the Atienzas were relieved of any obligation to hold the property in reserve for him. The ruling of the RTC and the CA that, despite the default in payment, the Atienzas remained bound to this day to sell the property to Espidol once he is able to raise the money and pay is quite unjustified. The total price wasP2,854,670.00. The Atienzas decided to sell the land because petitioner Paulino Atienza urgently needed money for the treatment of his daughter who was suffering from leukemia. Espidol paid a measly P100,000.00 in down payment or about 3.5% of the total price, just about the minimum size of a brokers commission. Espidol failed to pay the bulk of the price, P1,750,000.00, when it fell due four months later in December 2002. Thus, it was not such a small default as to justify the RTC and the CAs decision to continue to tie up the Atienzas to the contract to sell upon the excuse that Espidol tried his honest best to pay. Although the Atienzas filed their action with the RTC on February 21, 2003, four months before the last installment ofP974,670.00 fell due in June 2003, it cannot be said that the action was premature. Given Espidols failure to pay the second installment of P1,750,000.00 in December 2002 when it was due, the Atienzas obligation to turn over ownership of the property to him may be regarded as no longer existing. The Atienzas had the right to seek judicial declaration of such non-existent status of that contract to relieve themselves of any liability should they decide to sell the property to someone else. Parenthetically, Espidol never offered to settle the full amount of the price in June 2003, when the last installment fell due, or during the whole time the case was pending before the RTC.

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G.R. No. 186094 August 23, 2010 PACIENCIA A. DALEON and CLARO EDUARDO D. JAVIER, JR., represented by their Attorney-in-Fact, GLORIA BAYONA, AXEL LEONARD DALEON, GINA DALEON, BENJAMIN A. DALEON, JR., for himself and as Attorney-in-Fact of NOELA DALEON VELOSO, LUCY ANN DALEON-BREVA and PETER A. DALEON, Petitioners, vs. MA. CATALINA P. TAN AND MANUEL P. TAN, Respondents. Facts: On November 6, 1997 petitioners Paciencia A. Daleon, Claro Eduardo D. Javier, Jr., Axel Leonard Daleon, Gina Daleon, Benjamin A. Daleon, Jr. Noela Daleon Veloso, Lucy Ann Daleon-Breva, and Peter A. Daleon (the Daleons), on the one hand, and the respondents Ma. Catalina P. Tan, Fidel P. Tan and Manuel P. Tan (the Tans), on the other, executed a contract to sell covering the Daleons 9.383-hectare of registered land at Ibabang Dupay, Lucena City, which they owned pro indiviso, for the price of P18.766 million. The contract included a provision, inserted by hand as its paragraph 15-A, which stated that "in the event that any of the checks paid by the [buyers] should [bounce], this contract shall be rescinded and the [sellers] shall forfeit 50% of the amount already paid by the [buyers], while the remaining 50% shall be returned x x x or placed as outstanding lien [on] the said title." Pursuant to the terms of their agreement, the Tans gave the Daleons a downpayment of P10.861 million and issued in their favor 12 postdated checks dated December 5, 1997 through November 5, 1998 in the amount of P658,750.00 per check to cover the remaining balance of P7.905 million. On November 14, 1997, eight days after the parties executed their agreement, one Bartolome Sy caused to be annotated on the title to the property an adverse claim on the undivided share of one of the Daleons. For this reason, the Tans placed a stop payment order on their first postdated check and repeatedly wrote the Daleons that, until the adverse claim on the property was canceled, they were stopping payment on their checks. They invoked their right as buyers in good faith to receive the property free from all liens and encumbrances. They also noted the Daleons misrepresentation regarding the clean status of the property. On February 19, 1998 a Consulta was further annotated on the propertys title relative to Bartolome Sys claim. The Daleons deposited the first three checks in their bank but these were returned for the reason "SPO/DAIF" or "stop payment order/drawn against insufficient funds." Meanwhile, the Daleons succeeded in getting a court order that directed the cancellation of Bartolome Sys adverse claim on their title to the property. They then deposited the other checks that the Tans gave them but these, too, were returned for the reason "SPO/DAIF." On March 18, 1998 the Tans wrote the Daleons, informing them that they were ready to make good on their checks provided the Daleons presented to them a clean title to the property. In addition, they requested the Daleons to submit to them the documents specified in paragraph 9 of the contract to sell as a prerequisite to the payment of the last two checks. Meanwhile, the Tans stop payment order on their checks remained in force. On October 3, 1998 the Tans wrote the Daleons, stating that the Tans had not yet received from the Daleons any news about the status of the Bartolome Sy issue. The Tans gave the Daleons five days within which to deliver the documents mentioned in paragraph 9 of the contract to sell. In response, on November 18, 1998 the Daleons filed an action against the Tans for rescission of their agreement and enforcement of the penalty of forfeiture of half of what the Tans already paid pursuant to paragraph 15-A of such agreement on the ground that the Tans breached its terms by placing a stop payment order on the postdated checks. The Daleons likewise filed a criminal complaint for violation 82

of the bouncing checks law or Batas Pambansa Bilang 22 (B.P. 22) against the Tans relative to the dishonored checks. The Tans filed their answer with a counterclaim for unrealized income as a result of their inability to use their downpayment ofP10.861 million. They sought the award to them of specific amounts of moral damages, exemplary damages, attorneys fees, and expenses of litigation. While the criminal complaint against the Tans did not prosper, the RTC rendered a decision in the rescission case against them dated February 26, 2007. The RTC a) rescinded the contract to sell between the parties; b) ordered the forfeiture in favor of the Daleons of P5,430,500.00 or 50% of what the Tans paid them; c) ordered the Daleons to return to the Tans the remaining 50% orP5,430,500.00 or have this obligation inscribed as an outstanding lien on the title; and d) ordered the Tans to pay the DaleonsP250,000.00 in attorneys fees and expenses of litigation and to pay the costs. The Tans appealed the case to the Court of Appeals (CA), which on May 29, 2008 rendered a decision, reversing the RTC judgment, ordering the Daleons to return to the Tans the P10,861,000.00 the latter paid with legal interests of 6% per annum from date of the filing of complaint until its full payment and further ordering the Daleons to pay the Tans attorneys fees and expenses of litigation of P300,000.00 and to pay the cost of suit. The CA held in substance that in a contract to sell where the seller retains ownership until the buyer pays the price in full, such full payment is a positive suspensive condition. In this situation, the buyers failure to pay the full price does not constitute a contractual breach, but merely an event that prevents the seller from relinquishing ownership and delivering the title. Thus, said the CA, rescission is not available in such case; the buyers failure to complete payment merely prevented the obligation of the seller to convey title. Following this theory, the CA held that the Daleons can only cancel the contract to sell but not rescind it. The Tans failure to pay the balance of the purchase price merely resulted in setting aside the contract to sell, placing the parties in the same situation as they were before the execution of the contract to sell. Paragraph 15-A, said the CA, lost its efficacy as a result of this setting aside of the contract to sell. Consequently, the Daleons were duty bound to return the full amount of P10.861 million with 6% interest per annum, on the principle that no person shall unjustly enrich himself at the expense of another. On January 13, 2009 the CA denied the Daleons reconsideration, prompting the latter to come to this Court. Issue: Whether or not the CA erred in ruling that the Daleons were not entitled under the circumstances to rescind the contract to sell and forfeit in their favor 50% of the Tans downpayment of P10.861 million pursuant to paragraph 15-A of that contract. Held: As a general rule, a contract is the law between the parties. Thus, "from the moment the contract is perfected, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all consequences which, according to their nature, may be in keeping with good faith, usage and law." Also, "the stipulations of the contract being the law between the parties, courts have no alternative but to enforce them as they were agreed [upon] and written, there being no law or public policy against the stipulated forfeiture of payments already made." However, it must be shown that private respondent-vendee failed to perform her obligation, thereby giving petitioners-vendors the right to demand the enforcement of the contract. 83 motion for

We concede the validity of the automatic forfeiture clause, which deems any previous payments forfeited and the contract automatically rescinded upon the failure of the vendee to pay three successive monthly installments or any one yearend lump sum payment. However, petitioners failed to prove the conditions that would warrant the implementation of this clause. But a forfeiture clause in a contract of sale, which in a sense is punitive and confiscatory, is to be construed strictissimi juris and, in resolving a controversy involving it, the principles of equity must apply to the end that exact justice is achieved. Here, the Daleons assumed that they were ready to hand over a clean title to the Tans had the latter not placed a stop payment order on their checks. This was not the case. The Tans had to place that stop payment for a valid reason. They agreed to buy the property believing that the sellers title was unblemished by any lien or unfavorable claim. Bartolome Sys adverse claim, which came shortly after the execution of the contract and the initial payment to the Daleons of P10.861 million, was certainly distressing. Its annotation on the title served as warning to third parties like the Tans that someone claimed an interest or a better right to the property than the registered owner. Certainly, the Tans were justified in placing a stop payment order on their checks to avoid greater loss since it may be assumed that they did not want to buy such an expensive property that had a cloud on its title. Besides, the Tans had the right to hold the Daleons to their warranties as sellers under Article 1547 of the Civil Code that the property was free from charges or encumbrances not known to the buyers. Further, Article 1545 of the Code provides that "where the ownership in the thing has not passed, the buyer may treat the fulfillment by the seller of his obligation to deliver the same as described and as warranted expressly or by implication in the contract of sale as a condition of the obligation of the buyer to perform his promise to accept and pay for the thing." The Daleons deposited the initial checks issued to them before they filed a belated action to have the adverse claim removed from their title. More, they ignored the Tans repeated demand to know what they were doing regarding that claim. In Tan v. Benolirao, the buyer of land in a contract to sell refused to pay the balance of the purchase price because of the sudden appearance of an annotation on the sellers title, judicially placed by excluded co-heirs, thus creating a legal lien on the property in favor of such co-heirs. The Court held that, because of the annotation, the sellers could no longer compel the buyer to pay the balance of the purchase price since they could not fulfill their obligation to transfer a clean title to the latter. The Court held that the buyers refusal to pay the balance cannot justify the sellers forfeiture of his downpayment. Thus: We, therefore, hold that the contract to sell was terminated when the vendors could no longer legally compel Tan to pay the balance of the purchase price as a result of the legal encumbrance which attached to the title of the property. Since Tans refusal to pay was due to the supervening event of a legal encumbrance on the property and not through his own fault or negligence, we find and so hold that the forfeiture of Tans down payment was clearly unwarranted. The above ruling in Tan applies to the present case. Although the Daleons later on successfully dealt with Sys adverse claim, they failed and refused to inform the Tans about it despite the latters several written demands for the Daleons to update them on the issue. Apparently, although the Tans were still interested in consummating the sale, the Daleons interest was in keeping their land and forfeiting 50% of the Tans downpayment of P10.861 million. Thus, instead of seeing the sale through to its endwhich was then within reach the Daleons took what they thought was a promising prospect offered by paragraph 15-A. The Court cannot, however, tolerate such covetousness.

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G.R. No. 156125 August 25, 2010 FRANCISCO MUOZ, JR., Petitioner, vs. ERLINDA RAMIREZ and ELISEO CARLOS, Respondents. Facts: Subject of the present case is a seventy-seven (77)-square meter residential house and lot located at 170 A. Bonifacio Street, Mandaluyong City (subject property), covered by Transfer Certificate of Title (TCT) No. 7650 of the Registry of Deeds of Mandaluyong City in the name of the petitioner. The residential lot in the subject property was previously covered by TCT No. 1427, in the name of Erlinda Ramirez, married to Eliseo Carlos (respondents). On April 6, 1989, Eliseo, a Bureau of Internal Revenue employee, mortgaged TCT No. 1427, with Erlindas consent, to the Government Service Insurance System (GSIS) to secure a P136,500.00 housing loan, payable within twenty (20) years, through monthly salary deductions of P1,687.66. The respondents then constructed a thirty-six (36)-square meter, two-story residential house on the lot. On July 14, 1993, the title to the subject property was transferred to the petitioner by virtue of a Deed of Absolute Sale, dated April 30, 1992, executed by Erlinda, for herself and as attorney-in-fact of Eliseo, for a stated consideration of P602,000.00. On September 24, 1993, the respondents filed a complaint with the RTC for the nullification of the deed of absolute sale, claiming that there was no sale but only a mortgage transaction, and the documents transferring the title to the petitioners name were falsified. The respondents alleged that in April 1992, the petitioner granted them a P600,000.00 loan, to be secured by a first mortgage on TCT No. 1427; the petitioner gave Erlinda a P200,000.00 advance to cancel the GSIS mortgage, and made her sign a document purporting to be the mortgage contract; the petitioner promised to give the P402,000.00 balance when Erlinda surrenders TCT No. 1427 with the GSIS mortgage cancelled, and submits an affidavit signed by Eliseo stating that he waives all his rights to the subject property; with the P200,000.00 advance, Erlinda paid GSIS P176,445.27 to cancel the GSIS mortgage on TCT No. 1427; in May 1992, Erlinda surrendered to the petitioner the clean TCT No. 1427, but returned Eliseos affidavit, unsigned; since Eliseos affidavit was unsigned, the petitioner refused to give the P402,000.00 balance and to cancel the mortgage, and demanded that Erlinda return the P200,000.00 advance; since Erlinda could not return the P200,000.00 advance because it had been used to pay the GSIS loan, the petitioner kept the title; and in 1993, they discovered that TCT No. 7650 had been issued in the petitioners name, cancelling TCT No.1427 in their name. The petitioner countered that there was a valid contract of sale. He alleged that the respondents sold the subject property to him after he refused their offer to mortgage the subject property because they lacked paying capacity and were unwilling to pay the incidental charges; the sale was with the implied promise to repurchase within one year, during which period (from May 1, 1992 to April 30, 1993), the respondents would lease the subject property for a monthly rental of P500.00; when the respondents failed to repurchase the subject property within the one-year period despite notice, he caused the transfer of title in his name on July 14, 1993; when the respondents failed to pay the monthly rentals despite demand, he filed an ejectment case against them with the Metropolitan Trial Court (MeTC), Branch 60, Mandaluyong City, on September 8, 1993, or sixteen days before the filing of the RTC case for annulment of the deed of absolute sale. During the pendency of the RTC case, or on March 29, 1995, the MeTC decided the ejectment case. It ordered Erlinda and her family to vacate the subject 85

property, to surrender its possession to the petitioner, and to pay the overdue rentals. In the RTC, the respondents presented the results of the scientific examination conducted by the National Bureau of Investigation of Eliseos purported signatures in the Special Power of Attorney dated April 29, 1992 and the Affidavit of waiver of rights dated April 29, 1992, showing that they were forgeries. The petitioner, on the other hand, introduced evidence on the paraphernal nature of the subject property since it was registered in Erlindas name; the residential lot was part of a large parcel of land owned by Pedro Ramirez and Fructuosa Urcla, Erlindas parents; it was the subject of Civil Case No. 50141, a complaint for annulment of sale, before the RTC, Branch 158, Pasig City, filed by the surviving heirs of Pedro against another heir, Amado Ramirez, Erlindas brother; and, as a result of a compromise agreement, Amado agreed to transfer to the other compulsory heirs of Pedro, including Erlinda, their rightful shares of the land. Issue: Whether the contract between the parties was a sale or an equitable mortgage. Held: Jurisprudence has defined an equitable mortgage "as one which although lacking in some formality, or form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, there being no impossibility nor anything contrary to law in this intent." Article 1602 of the Civil Code enumerates the instances when a contract, regardless of its nomenclature, may be presumed to be an equitable mortgage: (a) when the price of a sale with right to repurchase is unusually inadequate; (b) when the vendor remains in possession as lessee or otherwise; (c) when upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (d) when the purchaser retains for himself a part of the purchase price; (e) when the vendor binds himself to pay the taxes on the thing sold; and, (f) in any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation . These instances apply to a contract purporting to be an absolute sale. For the presumption of an equitable mortgage to arise under Article 1602 of the Civil Code, two (2) requisites must concur: (a) that the parties entered into a contract denominated as a contract of sale; and, (b) that their intention was to secure an existing debt by way of a mortgage. Any of the circumstances laid out in Article 1602 of the Civil Code, not the concurrence nor an overwhelming number of the enumerated circumstances, is sufficient to support the conclusion that a contract of sale is in fact an equitable mortgage. Contract is an equitable mortgage In the present case, there are four (4) telling circumstances pointing to the existence of an equitable mortgage. First, the respondents remained in possession as lessees of the subject property; the parties, in fact, executed a one-year contract of lease, effective May 1, 1992 to April 30, 1993. Second, the petitioner retained part of the "purchase price," the petitioner gave a P200,000.00 advance to settle the GSIS housing loan, but refused to give the P402,000.00 balance when Erlinda failed to submit Eliseos signed affidavit of waiver of rights. 86

Third, respondents paid the real property taxes on July 8, 1993, despite the alleged sale on April 30, 1992; payment of real property taxes is a usual burden attaching to ownership and when, as here, such payment is coupled with continuous possession of the property, it constitutes evidence of great weight that the person under whose name the realty taxes were declared has a valid and rightful claim over the land. Fourth, Erlinda secured the payment of the principal debt owed to the petitioner with the subject property. The records show that the petitioner, in fact, sent Erlinda a Statement of Account showing that as of February 20, 1993, she owed P384,660.00, and the daily interest, starting February 21, 1993, was P641.10. Thus, the parties clearly intended an equitable mortgage and not a contract of sale. That the petitioner advanced the sum of P200,000.00 to Erlinda is undisputed. This advance, in fact, prompted the latter to transfer the subject property to the petitioner. Thus, before the respondents can recover the subject property, they must first return the amount of P200,000.00 to the petitioner, plus legal interest of 12% per annum, computed from April 30, 1992.

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G.R. No. 168387 August 25, 2010 SALUN-AT MARQUEZ and NESTOR DELA CRUZ, Petitioners, vs. ELOISA ESPEJO, ELENITA ESPEJO, EMERITA ESPEJO, OPHIRRO ESPEJO, OTHNIEL ESPEJO, ORLANDO ESPEJO, OSMUNDO ESPEJO, ODELEJO ESPEJO and NEMI FERNANDEZ, Respondents Facts: Respondents Espejos were the original registered owners of two parcels of agricultural land, with an area of two hectares each. One is located at Barangay Lantap, Bagabag, Nueva Vizcaya (the Lantap property) while the other is located in Barangay Murong, Bagabag, Nueva Vizcaya (the Murong property). There is no dispute among the parties that the Lantap property is tenanted by respondent Nemi Fernandez (Nemi) (who is the husband of respondent Elenita Espejo (Elenita), while the Murong property is tenanted by petitioners Salun-at Marquez (Marquez) and Nestor Dela Cruz (Dela Cruz). The respondents mortgaged both parcels of land to Rural Bank of Bayombong, Inc. (RBBI) to secure certain loans. Upon their failure to pay the loans, the mortgaged properties were foreclosed and sold to RBBI. RBBI eventually consolidated title to the properties and transfer certificates of title (TCTs) were issued in the name of RBBI. TCT No. T-62096 dated January 14, 1985 was issued for the Murong property. On February 26, 1985, respondents Espejos bought back one of their lots from RBBI. the Deed of Sale did not mention the barangay where the property was located but mentioned the title of the property (TCT No. T-62096), which title corresponds to the Murong property. There is no evidence, however, that respondents took possession of the Murong property, or demanded lease rentals from the petitioners (who continued to be the tenants of the Murong property), or otherwise exercised acts of ownership over the Murong property. On the other hand, respondent Nemi (husband of respondent Elenita and brother-in-law of the other respondents), continued working on the other property -- the Lantap property -- without any evidence that he ever paid rentals to RBBI or to any landowner. The Deed of Sale was annotated on TCT No. T-62096 almost a decade later, on July 1, 1994. Meanwhile, on June 20, 1990, RBBI, pursuant to Sections 20 and 21 of Republic Act (RA) No. 6657, executed separate Deeds of Voluntary Land Transfer (VLTs) in favor of petitioners Marquez and Dela Cruz, the tenants of the Murong property. Both VLTs described the subject thereof as an agricultural land located in Barangay Murong and covered by TCT No. T-62836 (which, however, is the title corresponding to the Lantap property). After the petitioners completed the payment of the purchase price of P90,000.00 to RBBI, the DAR issued the corresponding Certificates of Land Ownership Award (CLOAs) to petitioners Marquez and Dela Cruz on September 5, 1991. Both CLOAs stated that their subjects were parcels of agricultural land situated in Barangay Murong. The CLOAs were registered in the Registry of Deeds of Nueva Vizcaya on September 5, 1991. On February 10, 1997 (more than 10 years after the Deed of Sale in favor of the respondents and almost seven years after the execution of VLTs in favor of the petitioners), respondents filed a Complaint before the Regional Agrarian Reform Adjudicator (RARAD) of Bayombong, Nueva Vizcaya for the cancellation of petitioners CLOAs, the deposit of leasehold rentals by petitioners in favor of respondents, and the execution of a deed of voluntary land transfer by RBBI in favor of respondent Nemi. The complaint was based on respondents theory that the 88

Murong property, occupied by the petitioners, was owned by the respondents by virtue of the 1985 buy-back, as documented in the Deed of Sale. They based their claim on the fact that their Deed of Sale refers to TCT No. 62096, which pertains to the Murong property. Petitioners filed their Answer and insisted that they bought the Murong property as farmer-beneficiaries thereof. They maintained that they have always displayed good faith, paid lease rentals to RBBI when it became the owner of the Murong property, bought the same from RBBI upon the honest belief that they were buying the Murong property, and occupied and exercised acts of ownership over the Murong property. Petitioners also argued that what respondents Espejos repurchased from RBBI in 1985 was actually the Lantap property, as evidenced by their continued occupation and possession of the Lantap property through respondent Nemi. RBBI answered that it was the Lantap property which was the subject of the buy-back transaction with respondents Espejos. It denied committing a grave mistake in the transaction and maintained its good faith in the disposition of its acquired assets in conformity with the rural banking rules and regulations. Issue: What are the subject properties of the parties respective contracts with RBBI Held: We are convinced that the subject of the Deed of Sale between RBBI and the respondents was the Lantap property, and not the Murong property. After the execution in 1985 of the Deed of Sale, the respondents did not exercise acts of ownership that could show that they indeed knew and believed that they repurchased the Murong property. They did not take possession of the Murong property. As admitted by the parties, the Murong property was in the possession of the petitioners, who occupied and tilled the same without any objection from the respondents. Moreover, petitioners paid leasehold rentals for using the Murong property to RBBI, not to the respondents. Aside from respondents neglect of their alleged ownership rights over the Murong property, there is one other circumstance that convinces us that what respondents really repurchased was the Lantap property. Respondent Nemi (husband of respondent Elenita) is the farmer actually tilling the Lantap property, without turning over the supposed landowners share to RBBI. This strongly indicates that the respondents considered themselves (and not RBBI) as the owners of the Lantap property. For if respondents (particularly spouses Elenita and Nemi) truly believed that RBBI retained ownership of the Lantap property, how come they never complied with their obligations as supposed tenants of RBBIs land? The factual circumstances of the case simply do not support the theory propounded by the respondents. We are likewise convinced that the subject of the Deeds of Voluntary Land Transfer (VLTs) in favor of petitioners was the Murong property, and not the Lantap property. When the VLTs were executed in 1990, petitioners were already the tenant-farmers of the Murong property, and had been paying rentals to RBBI accordingly. It is therefore natural that the Murong property and no other was the one that they had intended to acquire from RBBI with the execution of the VLTs. Moreover, after the execution of the VLTs, petitioners remained in possession of the Murong property, enjoying and tilling it without any opposition from anybody. Subsequently, after the petitioners completed their payment of the total purchase price of P90,000.00 to RBBI, the Department of Agrarian Reform (DAR) officials conducted their investigation of the Murong property which, with the presumption of regularity in the performance of official duty, did not reveal any anomaly. Petitioners were found to be in actual possession of the Murong property and were the qualified beneficiaries thereof. Thus, the DAR officials issued CLOAs in petitioners favor; and these CLOAs explicitly refer to the land in Barangay Murong. 89

All this time, petitioners were in possession of the Murong property, undisturbed by anyone for several long years, until respondents started the controversy in 1997. All of these contemporaneous and subsequent actions of RBBI and petitioners support their position that the subject of their contract (VLTs) is the Murong property, not the Lantap property. Conversely, there has been no contrary evidence of the parties actuations to indicate that they intended the sale of the Lantap property. Thus, it appears that the reference in their VLT to TCT No. T-62836 (Lantap property) was due to their honest but mistaken belief that the said title covers the Murong property. Such a mistake is not farfetched considering that TCT No. T-62836 only refers to the Municipality of Bayombong, Nueva Vizcaya, and does not indicate the particular barangay where the property is located. Moreover, both properties are bounded by a road and public land. Hence, were it not for the detailed technical description, the titles for the two properties are very similar. The respondents attempt to discredit petitioners argument that their VLTs were intrinsically ambiguous and failed to express their true intention by asking why petitioners never filed an action for the reformation of their contract. A cause of action for the reformation of a contract only arises when one of the contracting parties manifests an intention, by overt acts, not to abide by the true agreement of the parties. It seems fairly obvious that petitioners had no cause to reform their VLTs because the parties thereto (RBBI and petitioners) never had any dispute as to the interpretation and application thereof. They both understood the VLTs to cover the Murong property (and not the Lantap property). It was only much later, when strangers to the contracts argued for a different interpretation, that the issue became relevant for the first time.

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G.R. No. 173881 December 1, 2010 HYATT ELEVATORS and ESCALATORS CORPORATION, Petitioner, vs. CATHEDRAL HEIGHTS BUILDING COMPLEX ASSOCIATION, INC., Respondent Facts: On October 1, 1994, petitioner Hyatt Elevators and Escalators Corporation entered into an "Agreement to Service Elevators" (Service Agreement) with respondent Cathedral Heights Building Complex Association, Inc., where petitioner was contracted to maintain four passenger elevators installed in respondent's building. Under the Service Agreement, the duties and obligations of petitioner included monthly inspection, adjustment and lubrication of machinery, motors, control parts and accessory equipments, including switches and electrical wirings. Section D (2) of the Service Agreement provides that respondent shall pay for the additional charges incurred in connection with the repair and supply of parts. Petitioner claims that during the period of April 1997 to July 1998 it had incurred expenses amounting to Php 1,161,933.47 in the maintenance and repair of the four elevators as itemized in a statement of account. Petitioner demanded from respondent the payment of the aforesaid amount allegedly through a series of demand letters, the last one sent on July 18, 2000. Respondent, however, refused to pay the amount. Petitioner filed with the Regional Trial Court (RTC), Branch 100, Quezon City, a Complaint for sum of money against respondent. Issue: Whether or not there was a perfected contract of sale Held: By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. The absence of any of the essential elements will negate the existence of a perfected contract of sale. In the case at bar, the CA ruled that there was no perfected contract of sale between petitioner and respondent, to wit: Aside from the absence of consent, there was no perfected contract of sale because there was no meeting of minds upon the price. As the law provides, the fixing of the price can never be left to the discretion of one of the contracting parties. In this case, the absence of agreement as to the price is evidenced by the lack of purchase orders issued by CHBCAI where the quantity, quality and price of the spare parts needed for the repair of the elevators are stated. In these purchase orders, it would show that the quotation of the cost of the spare parts earlier informed by Hyatt is acceptable to CHBCAI. However, as revealed by the records, it was only Hyatt who determined the price, without the acceptance or conformity of CHBCAI. From the moment the determination of the price is left to the judgment of one of the contracting parties, it cannot be said that there has been an arrangement on the price since it is not possible for the other contracting party to agree on something of which he does not know beforehand. Based on the evidence presented in the RTC, it is clear to this Court that petitioner had failed to secure the necessary purchase orders from respondent's Board of Directors, or Finance Manager, to signify their assent to the price of the parts to be used in the repair of the elevators. In Boston Bank of the Philippines v. Manalo, this Court explained that the fixing of the price can never be left to the decision of one of the contracting parties, to wit: A definite agreement as to the price is an essential element of a binding agreement to sell personal or real property because it seriously affects the rights 91

and obligations of the parties. Price is an essential element in the formation of a binding and enforceable contract of sale. The fixing of the price can never be left to the decision of one of the contracting parties. But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected sale. There would have been a perfected contract of sale had respondent accepted the price dictated by petitioner even if such assent was given after the services were rendered. There is, however, no proof of such acceptance on the part of respondent.

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G.R. No. 180997 November 17, 2010 SPOUSES MARIANO (a.k.a. QUAKY) and EMMA BOLAOS, Petitioners, vs. ROSCEF ZUIGA BERNARTE, CLARO ZUIGA, PERFECTO ZUIGA, and CEFERINA ZUIGA-GARCIA,Respondents. Facts: Subject of the controversy is a 238-square-meter lot, designated as Lot No. 1P, and situated in Poblacion, Rapu-Rapu, Albay. Petitioner-spouses Mariano and Emma Bolaos (petitioner-spouses) purchased it from Cresencia Zuiga-Echague (Cresencia) on June 20, 2001. The sale was registered in the name of petitionerspouses before the Municipal Assessors Office in Rapu-Rapu, Albay. On October 30, 2001, respondents Roscef Zuiga Bernarte, Claro Zuiga, Perfecto Zuiga, and Ceferina Zuiga-Garcia (Roscef, et al.) filed a complaint 4 for declaration of partial nullity of deeds of transfer and sale with prayer for preliminary injunction against petitioner-spouses, Flavia Zuiga (Flavia), and Cresencia before the Regional Trial Court (RTC) of Legazpi City, docketed as Civil Case No. 10033. The complaint, in essence, alleged that: Roscef, et al., and Flavia and Cresencia are legitimate half-blood brothers and sisters, all children of the deceased Roman Zuiga, Sr. (Roman) from his second and first marriages, respectively; during his lifetime, Roman owned a residential land with improvements, identified as Lot No. 1-P per Tax Declaration No. 99-001-01704 for the year 2000; Roman had the lot declared for taxation purposes in the name of Flavia, Sisters and Brothers, per a Sworn Statement he executed in 1973, and filed with the then Assessors Office, which issued Tax Declaration No. 2975; Roman died on August 9, 1976, and his heirs did not settle or partition the subject property; on June 20, 2001, Flavia, without authority from the co-owners of the lot, executed a notarized Deed of Absolute Sale over it in favor of Cresencia; Cresencia, in turn, also without authority from the said co-owners, executed on the same day a notarized Deed of Absolute Sale in favor of petitioner-spouses; on the basis of these notarized deeds, Tax Declaration No. 99-001-01703 was issued to petitioner-spouses as sole declared owners of Lot No. 1-P. In praying for preliminary injunction, Roscef, et al. further alleged that petitioner-spouses started demolishing their ancestral home on the subject property and initiated the construction of a new building thereon, despite pleas to desist from further destroying the ancestral home. In her answer with cross-claim, Flavia denied the genuineness and due execution of the Deed of Absolute Sale in favor of Cresencia, and alleged that the subsequent sale made by the latter was valid and effective only as to her aliquot share, but null and void as to the rest of the property. She also claimed that, during the confrontation before the barangay, she informed Mariano of these facts and even admonished him not to destroy the existing house on Lot No. 1-P, nor to make any constructions thereon. She said that, despite this notice, petitioner-spouses, on August 15, 2001, forcibly entered her house and demolished a large portion of it. In her own answer, Cresencia denied the material allegations of the complaint, and alleged that Flavia was the sole owner of Lot No. 1-P, thus making her a buyer and seller in good faith and for value. Cresencia also averred that Roscef, et al., as children of Roman by his second wife, do not have any share in the subject property since Roman had already orally partitioned it during his lifetime. For their part, petitioner-spouses alleged that the subject property was owned in common by Flavia, Cresencia, and their full-blood brothers and sisters only, and that, later on, Flavia acquired the entire lot. Flavia then sold it to Cresencia, who, in turn, sold it to petitioner-spouses. They asserted that they had 93

acquired Lot No. 1-P in good faith and for value, without any knowledge of the adverse claim of Roscef, et al. or that the property did not fully belong to Cresencia. During the pre-trial, the parties admitted that Roscef, et al., Flavia and Cresencia are legitimate half brothers and sisters and the identities of the parties and of the subject property. Aggrieved, petitioner-spouses interposed an appeal before the CA, ascribing error to the RTC in holding that the property was the capital of Roman and in declaring that the property interest acquired by them was limited only to the ideal shares of Flavia. The CA denied the appeal, and affirmed in toto the RTC judgment. Issue: Whether or not the CA wrongly applied the law on co-ownership, specifically Article 484, relative to Article 980 of the Civil Code. RULING: Considering that Roman died on August 9, 1976, the provisions of the Civil Code on succession, then the law in force, should apply, particularly Articles 979 and 980, viz. Art. 979. Legitimate children and their descendants succeed the parents and other ascendants, without distinction as to sex or age, and even if they should come from different marriages. x x x. Art. 980. The children of the deceased shall always inherit from him in their own right, dividing the inheritance in equal shares. Thus, the RTC correctly ruled that Lot No. 1-P rightfully belongs to the 11 children of Roman, seven (7) from his first marriage with Flavia and four (4) from his second marriage with Ceferina, in equal shares. As there was no partition among Romans children, the lot was owned by them in common. And inasmuch as Flavia did not successfully repudiate her sale of her aliquot share to Cresencia, the transfer stands as valid and effective. Consequently, what Cresencia sold to petitioner spouses was her own share and Flavias share in the property that she acquired by virtue of the notarized deed of sale, which is only 2/11 of Lot No. 1-P. Therefore, the restitution of the property in excess of that portion by petitioner spouses is clearly warranted. Indeed, the findings of the trial court, with respect to the operative facts and the credibility of witnesses, especially when affirmed by the appellate court, are accorded the highest degree of deference and respect by this Court, except when: (1) the findings of a trial court are grounded entirely on speculations, surmises, or conjectures; (2) a lower courts inference from its factual findings is manifestly mistaken, absurd, or impossible; (3) there is grave abuse of discretion in the appreciation of facts; (4) the findings of the court go beyond the issues of the case or fail to notice certain relevant facts which, if properly considered, will justify a different conclusion; (5) there is misapprehension of facts; and (6) the findings of fact are conclusions without mention of the specific evidence on which they are based are premised on the absence of evidence, or are contradicted by evidence on record. Notably, none of these exceptions is attendant in this case.

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G.R. No. 187824 November 17, 2010 FILINVEST DEVELOPMENT CORPORATION, Petitioner, vs. GOLDEN HAVEN MEMORIAL PARK, INC., Respondent. x - - - - - - - - - - - - - - - - - - - - - - -x G.R. No. 188265 GOLDEN HAVEN MEMORIAL PARK, INC. Petitioner, vs. FILINVEST DEVELOPMENT CORPORATION, Respondent. Facts: Petronila Yap (Yap), Victoriano and Policarpio Vivar (the Vivars), Benjamin Cruz (Cruz), Juan Aquino (Aquino), Gideon Corpuz (Corpuz), and Francisco Sobremesana (Sobremesana), and some other relatives inherited a parcel of land in Las Pias City covered by Transfer Certificate of Title (TCT) 67462 RT-1. Subsequently, the heirs had the land divided into 13 lots and, in a judicial partition, the court distributed four of the lots as follows: a) Lots 1 and 12 to Aquino; b) Lot 2 to Corpuz and Sobremesana; and (c) Lot 6 to Yap, Cruz, and the Vivars. The other lots were distributed to the other heirs. On March 6, 1989 Yap, acting for herself and for Cruz and the Vivars, executed an agreement to sell Lot 6 in favor of Golden Haven Memorial Park, Inc. (GHM), payable in three installments. On July 31, 1989 another heir, Aquino, acting for himself and for Corpuz and Sobremesana, also executed an agreement to sell Lots 1, 2, and 12 in favor of GHM, payable in the same manner. In both instances, GHM paid the first installment upon execution of the contract. On August 4, 1989 GHM caused to be annotated a Notice of Adverse Claim on TCT 67462 RT-1. On September 20, 1989 the sellers of the four lots wrote GHM that they were still working on the titling of the lots in their names and wanted to know if GHM was still interested in proceeding with their agreements. GHM replied in the affirmative on September 21, 1989 and said that it was just waiting for the sellers titles so it can pay the second installments. Sometime in August of 1989, Filinvest Development Corporation (Filinvest) applied for the transfer in its name of the titles over Lots 2, 4, and 5 but the Las Pias Register of Deeds declined its application. Upon inquiry, Filinvest learned that Lot 8, a lot belonging to some other heir or heirs and covered by the same mother title, had been sold to Household Development Corporation (HDC), a sister company of GHM, and HDC held the owners duplicate copy of that title. Filinvest immediately filed against HDC a petition for the surrender and cancellation of the co-owners duplicate copy of TCT 67462 RT-1. Filinvest alleged that it bought Lots 1, 2, 6, and 12 of the property from their respective owners as evidenced by three deeds of absolute sale in its favor dated September 10, November 18, and December 29, 1989 and that Filinvest was entitled to the registrations of such sales. On January 14, 1991 GHM filed against the sellers and Filinvest a complaint for the annulment of the deeds of sale issued in the latters favor before the Regional Trial Court (RTC) of Las Pias City in Civil Case 91-098. On March 16, 2006 the RTC rendered a decision after trial, declaring the contracts to sell executed by some of the heirs in GHMs favor valid and enforceable and the sale in favor of Filinvest null and void. Only Filinvest appealed among the defendants. On November 25, 2008 the Court of Appeals (CA) affirmed the RTC decision with respect to the validity of the contract to sell Lot 6 in GHMs favor. But the CA declared the contracts to sell Lots 1, 2, and 12 in GHMs favor void and the sale of the same lots in favor of Filinvest valid. Both parties filed their petitions for review before this Court, Filinvest in G.R. 187824, and GHM in G.R. 188265. 95

Issue: Whether or not the contracts to sell that the sellers executed in GHMs favor covering the same lots sold to Filinvest are valid and enforceable. Held: To prove good faith, the rule is that the buyer of registered land needs only show that he relied on the title that covers the property. But this is true only when, at the time of the sale, the buyer was unaware of any adverse claim to the property. Otherwise, the law requires the buyer to exercise a higher degree of diligence before proceeding with his purchase. He must examine not only the certificate of title, but also the sellers right and capacity to transfer any interest in the property. In such a situation, the buyer must show that he exercised reasonable precaution by inquiring beyond the four corners of the title. Failing in these, he may be deemed a buyer in bad faith. Here, Filinvest was on notice that GHM had caused to be annotated on TCT 67462 RT-1, the mother title, as early as August 4, 1989 a notice of adverse claim covering Lot 6. This notwithstanding, Filinvest still proceeded to buy Lots 1, 2, 6, and 12 on September 10, November 18, and December 29, 1989. Filinvest of course contends that, although the title carried a notice of adverse claim, that notice was only with respect to seller Yaps interest in Lot 6 and it did not affect Lots 1, 2, 12, and the remaining interests in Lot 6. The Court disagrees. The annotation of an adverse claim is intended to protect the claimants interest in the property. The notice is a warning to third parties dealing with the property that someone claims an interest in it or asserts a better right than the registered owner. Such notice constitutes, by operation of law, notice to the whole world. Here, although the notice of adverse claim pertained to only one lot and Filinvest wanted to acquire interest in some other lots under the same title, the notice served as warning to it that one of the owners was engaged in double selling. What is more, upon inquiry with the Register of Deeds of Las Pias, Filinvest also learned that the heirs of Andres Aldana sold Lot 8 to HDC and turned over the co-owners duplicate copy of TCT 67462 RT-1 to that company which had since then kept the title. Filinvest (referred to below as FDC) admits this fact in its petition, thus: Sometime in August 1989, FDC applied with the Register of Deeds of Las Pias for the transfer and registration of Lots 2, 4, and 5 in its name and surrendered the co-owners duplicate copy of TCT No. (67462) RT-1 given to it by the Vivar family, but the Register of Deeds of Las Pias City refused to do the transfer of title in the name of FDC and instead demanded from FDC to surrender as well the other co-owner's duplicate copy of TCT No. (67462) RT-1 which was issued to the heirs of Andres Aldana. Upon further inquiry, FDC came to know that the heirs of Andres Aldana sold Lot 8 and delivered their co-owner's duplicate copy of TCT No. (67462) RT-1 to Household Development Corporation, a sister company of respondent GHMPI. FDC made representations to Household Development Corporation for the surrender of said co-owner's duplicate copy of TCT No. (67462) RT-1 to the Register of Deeds of Las Pias City, but Household Development Corporation refused to do so. Filinvests knowledge that GHM, a competitor, had bought Lot 6 in which Filinvest was interested, that GHM had annotated an adverse claim to that Lot 6, and that GHM had physical possession of the title, should have put Filinvest on its toes regarding the prospects it faced if it bought the other lots covered by the title in question. Filinvest should have investigated the true status of Lots 1, 2, 6, and 12 96

by asking GHM the size and shape of its interest in the lands covered by the same title, especially since both companies were engaged in the business of developing lands. One who has knowledge of facts which should have put him upon such inquiry and investigation cannot claim that he has acquired title to the property in good faith as against the true owner of the land or of an interest in it. The Court upholds the validity of the contracts between GHM and its sellers. As the trial court aptly observed, GHM entered into valid contracts with its sellers but the latter simply and knowingly refused without just cause to honor their obligations. The sellers apparently had a sudden change of heart when they found out that Filinvest was willing to pay more. As to the award of exemplary damages, the Court sustains the CA ruling. This species of damages is allowed only in addition to moral damages such that exemplary damages cannot be awarded unless the claimant first establishes a clear right to moral damages. Here, since GHM failed to prove that it is entitled to moral damages, the RTCs award of exemplary damages had no basis. But the grant of attorneys fees is proper. As the RTC noted, this case has been pending since 1991, or for 19 years now. GHM was forced to litigate and incur expenses in order to protect its rights and interests.

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IV.
G.R. NO.163280 February 2, 2010 DORIS SUNBANUN, Petitioner, vs. AURORA GO , Respondent. Facts:

LEASE

Petitioner Doris U. Sunbanun is the owner of a residential house located at No. 68-F Junquera Street, Cebu City. On 7 July 1995, respondent Aurora B. Go leased the entire ground floor of petitioners residential house for one year which was to expire on 7 July 1996. As required under the lease contract, respondent paid a deposit of P16,000 to answer for damages and unpaid rent. To earn extra income, respondent accepted lodgers, mostly her relatives, from whom she received a monthly income of P15,000. Respondent paid the monthly rental until March 1996 when petitioner drove away respondents lodgers by telling them that they could stay on the rented premises only until 15 April 1996 since she was terminating the lease. The lodgers left the rented premises by 15 April 1996, and petitioner then padlocked the rooms vacated by respondents lodgers. On 10 May 1996, respondent filed an action for damages against petitioner. Respondent alleged that she lost her income from her lodgers for the months of April, May, and June 1996 totaling P45,000. Respondent, who worked in Hongkong, also incurred expenses for plane fares and other travel expenses in coming to the Philippines and returning to Hongkong. On the other hand, petitioner argued that respondent violated the lease contract when she subleased the rented premises. Besides, the lease contract was not renewed after its expiration on 7 July 1996; thus, respondent had no more right to stay in the rented premises. Petitioner also moved to dismiss the complaint in the trial court for failure to comply with prior barangay conciliation. During the pre-trial, petitioner moved for the case to be submitted for judgment on the pleadings considering that the only disagreement between the parties was the correct interpretation of the lease contract. Respondent did not object to petitioners motion. The trial court then directed the parties to submit their respective memoranda, after which the case would be considered submitted for decision. In its decision dated 28 March 2000, the trial court held that the case is not covered by the barangay conciliation process since respondent is a resident of Hongkong. The trial court noted that petitioner did not controvert respondents allegation that petitioner ejected respondents lodgers sometime in March 1996 even if the contract of lease would expire only on 7 July 1996. The trial court found untenable petitioners contention that subleasing the rented premises violated the lease contract. The trial court held that respondents act of accepting lodgers was in accordance with the lease contract which allows the lessee to use the premises as a dwelling or as lodging house. Thus, the trial court ordered petitioner to pay respondent actual damages of P45,000 for respondents lost income from her lodgers for the months of April, May, and June 1996, and attorneys fees of P8,000. Both parties appealed before the Court of Appeals. On 30 September 2003, the Court of Appeals rendered its decision in favor of respondent and modified the trial courts decision. Aside from actual damages and attorneys fees, the Court of Appeals also ordered petitioner to pay moral and exemplary damages and the cost of the suit. The Court of Appeals held that petitioners act of forcibly ejecting respondents lodgers three months prior to the termination of the lease contract without valid reason constitutes breach of contract. Petitioner also violated Article 1654 of the Civil Code which states that the lessor is obliged to maintain the lessee 98

in the peaceful and adequate enjoyment of the lease for the duration of the contract. The Court of Appeals awarded P50,000 as moral damages to respondent for breach of contract and for petitioners act of pre-terminating the lease contract without valid reason, which shows bad faith on the part of petitioner. The Court of Appeals also awarded respondent P50,000 as exemplary damages for petitioners oppressive act. Hence, this petition. ISSUES: Whether or not petitioners act of ejecting respondents lodgers three months before the lease contract expired without valid reason constitutes bad faith. Whether or nor award for damages is proper. Held: The Court denies the petition. We agree with the appellate court that petitioners act of ejecting respondents lodgers three months before the lease contract expired without valid reason constitutes bad faith. What aggravates the situation was that petitioner did not inform respondent, who was then working in Hongkong, about petitioners plan to pre-terminate the lease contract and evict respondents lodgers. Moral damages may be awarded when the breach of contract was attended with bad faith. In this case, it is undisputed that petitioner ejected respondents lodgers three months before the expiration of the lease contract on 7 July 1996. Petitioner maintains that she had the right to terminate the contract prior to its expiration because respondent allegedly violated the terms of the lease contract by subleasing the rented premises. Petitioners assertion is belied by the provision in the lease contract which states that the lessee can use the premises as a dwelling or as lodging house. Furthermore the lease contract clearly provides that petitioner leased to respondent the ground floor of her residential house for a term of one year commencing from 7 July 1995. Thus, the lease contract would expire only on 7 July 1996. However, petitioner started ejecting respondents lodgers in March 1996 by informing them that the lease contract was only until 15 April 1996. Clearly, petitioners act of ejecting respondents lodgers resulted in respondent losing income from her lodgers. Hence, it was proper for the trial court and the appellate court to order petitioner to pay respondent actual damages in the amount of P45,000. We likewise sustain the award of moral damages in favor of respondent. In this case, moral damages may be recovered under Article 2219 and Article 2220 of the Civil Code in relation to Article 21. The pertinent provisions read: Art. 2219. Moral damages may be recovered in the following and analogous cases: (10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34, and 35. Art. 2220. Wilfull injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. (Emphasis supplied) Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. Furthermore, we affirm the award of exemplary damages and attorneys fees. Exemplary damages may be awarded when a wrongful act is accompanied by bad faith or when the defendant acted in a wanton, fraudulent, reckless, oppressive, or 99

malevolent manner which would justify an award of exemplary damages under Article 2232 of the Civil Code. Since the award of exemplary damages is proper in this case, attorneys fees and cost of the suit may also be recovered as provided under Article 2208 of the Civil Code.

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G.R. NO. 162924 February 4, 2010 Mid- Pasig Land Development Corp. Petitioner, vs. Mario Tablante, Respondent. Facts: Petitioner is the registered owner of a piece of land situated in Pasig City, bounded by Meralco Avenue, Ortigas Avenue, Doa Julia Vargas Avenue, and Valle Verde Subdivision. On December 6, 1999, petitioner, represented by its Chairman and President, Ronaldo Salonga, and ECRM Enterprises, represented by its proprietor, Mario P. Tablante, executed an agreement whereby the former would lease to the latter an area, approximately one (1) hectare, of the aforesaid land, for a period of three (3) months, to be used as the staging area for the Home and Garden Exhibition Fair. On March 6, 2000, the date of the expiration of the Lease Agreement, Tablante assigned all his rights and interests under the said agreement to respondents Laurie M. Litam and/or Rockland Construction Company, Inc. (Rockland) under a Deed of Assignment of the same date. Petitioner eventually learned that respondent Tablante had executed a Contract of Lease with respondent MC Home Depot, Inc. on November 26, 1999 over the same parcel of land. Thereafter, respondent MC Home Depot, Inc. constructed improvements on the land and subdivided the area into fifty-nine (59) commercial stalls, which it leased to various entities. Upon the expiration of the lease on March 6, 2000, petitioner demanded that respondents vacate the land. A final demand was made in a letter dated December 20, 2000. In order to forestall ejectment from the premises, respondent Rockland filed a case for Specific Performance with the Regional Trial Court (RTC), Branch 266, Pasig City, on January 11, 2001, compelling petitioner to execute a new lease contract for another three (3) years, commencing in July 2000. This was docketed as Civil Case No. 68213. Petitioner moved to dismiss the complaint on the ground that it was anticipatory in nature. Consequently, on August 22, 2001, petitioner filed Civil Case No. 8788 for unlawful detainer against herein respondents, raffled to the Municipal Trial Court (MTC), Pasig City, Branch 70. Simultaneously, petitioner filed a supplemental motion to dismiss Civil Case No. 68213, on the ground of litis pendentia. Petitioners motion to dismiss was denied. The denial was questioned and eventually elevated to the Supreme Court. Meantime, on April 29, 2002, the MTC rendered judgment in the unlawful detainer (ejectment) case. In the main, the trial court ruled that the issue did not involve material or physical possession, but rather, whether or not ECRM had the right to exercise an option to renew its lease contract. The MTC stated that, considering that this issue was incapable of pecuniary estimation, jurisdiction over the case was vested in the RTC. The trial court, therefore, disposed, as follows: WHEREFORE, judgment is hereby rendered DISMISSING the complaint for lack of merit. In the meantime, the plaintiff is hereby ordered to pay the defendants attorneys fees and expenses of litigation in the amount of TWENTY THOUSAND PESOS (P20,000.00). On appeal, the RTC, Pasig City, Branch 160, affirmed in toto. In its decision dated July 10, 2003, the RTC ruled that: Relative to the issue raised by the appellant that the lower court erred in finding it had no jurisdiction over the subject matter of this case as the question of whether or not ECRM under the provisions of the lease agreement (pars. 3 and 13) has the right to exercise an option to renew its lease contract is one incapable of pecuniary estimation and therefore jurisdiction is vested in the Regional Trial Court. Republic Act No. 7691 grants Metropolitan Trial Courts the exclusive jurisdiction over cases of forcible entry and unlawful detainer. Since it has been sufficiently 101

established under the facts obtaining that the contract of lease has been renewed before the expiration of the lease period, and the appellant has consented to the renewal and assignment of the lease, it necessarily follows that the issue on whether the lower court erred in finding that it did not have jurisdiction over the subject matter raised by the appellant, deserves scant consideration and this court need not delve into it anymore. A petition for certiorari was consequently filed with the CA. ISSUES: WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN DISMISSING THE PETITION THUS EFFECTIVELY UPHOLDING THE DECISION OF THE REGIONAL TRIAL COURT, TO WIT: (a) THAT THE LEASE AGREEMENT WAS UNILATERALLY RENEWED AND THAT PETITIONER IS ESTOPPED FROM DENYING SUCH UNILATERAL RENEWAL; (b) THAT RESPONDENTS TABLANTE/ECRM, ROCKLAND AND MC HOME DEPOT COULD VALIDLY OCCUPY THE PROPERTY IN THE ABSENCE OF ANY VALID LEASE AGREEMENT CONSENTED TO BY PETITIONER; (c) PETITIONER [IS] LIABLE FOR ATTORNEYS FEES AND COSTS OF SUIT. Held: The petition is granted. From the foregoing, it is thus clear that the failure to attach the Secretarys Certificate, attesting to General Manager Antonio Mereloss authority to sign the Verification and Certification of Non-Forum Shopping, should not be considered fatal to the filing of the petition. Nonetheless, the requisite board resolution was subsequently submitted to the CA, together with the pertinent documents. Considering that petitioner substantially complied with the rules, the dismissal of the petition was, therefore, unwarranted. Time and again, we have emphasized that dismissal of an appeal on a purely technical ground is frowned upon especially if it will result in unfairness. The rules of procedure ought not to be applied in a very rigid, technical sense for they have been adopted to help secure, not override, substantial justice. For this reason, courts must proceed with caution so as not to deprive a party of statutory appeal; rather, they must ensure that all litigants are granted the amplest opportunity for the proper and just ventilation of their causes, free from the constraint of technicalities. After a finding that the CA erred in dismissing the petition before it, a remand of the case is in order. However, a perusal of the records reveals that this is no longer necessary in light of relevant developments obtaining in the case at bar. Petitioner, in its Memorandum dated October 28, 2005, alleged that respondents possessory claims had lapsed and, therefore, had become moot and academic. Respondent Rockland prayed that a three-year lease period be granted to it in order that it would be able to plan its activities more efficiently. Since the claimed lease contract had already expired as of July or August 2003, there appears no reason why respondents should continue to have any claim to further possession of the property. Respondent Rockland also stated in its Memorandum dated March 16, 2006 that it was no longer in possession of the subject property considering that: 50. In a Resolution dated 17 September 2004, in the case of Rockland Construction Company, Inc. vs. Mid-Pasig Land Development Corporation, et al., docketed as SCA No. 2673, and the Omnibus Order dated 12 November 2004, affirming the aforesaid Resolution, Branch 67 Pasig City Regional Trial Court 102

Presiding Judge Mariano M. Singzon awarded possession (albeit erroneously) of subject property to Pasig Printing Corporation, an intervenor in the SCA case.

51. At present, petitioner does not have a cause of action against herein respondent Rockland. Respondent is not unlawfully withholding possession of the property in question as in fact respondent is not in possession of the subject property. The issue of possession in this ejectment case has therefore been rendered moot and academic. This allegation was confirmed by respondent MC Home Depot, Inc. in its Comment/Memorandum dated May 22, 2007 submitted to the Court. It stated therein that the passage of time has rendered the issue of possession moot and academic with respect to respondent Rockland, as the three-year period has long been expired in 2003. Furthermore, respondent MC Home Depot, Inc. asserts that it is in rightful possession of the land on the strength of a Memorandum of Agreement dated November 22, 2004 between the latter and Pasig Printing Corporation. By petitioners admission that while it remains the registered owner of the land, possession of the same had been adjudicated in favor of Pasig Printing Corporation, another entity without any contractual relationship with petitioner, on the strength of an Order from the RTC of Pasig City. Considering that Pasig Printing Corporation has the jus possessionis over the subject property, it granted the MC Home Depot, Inc. actual occupation and possession of the subject property for a period of four (4) years, renewable for another four (4) years upon mutual agreement of the parties.

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G.R NO. 181842; February 5, 2010 Metrobank and SolidBank Corporation, Petitioner, vs. Bernardita H. Perez, Respondent. Facts: On September 17, 1997, petitioner Solidbank Corporation (Solidbank) forged a lease contract with Bernardita H. Perez (respondent), represented by her attorney-in-fact Patria H. Perez, over two parcels of land located in Sta. Maria, Bulacan for a period of 15 years commencing on January 1, 1998. Solidbank was to, as it did, construct a one-storey building specifically suited for bank premises. Solidbank was later acquired by its co-petitioner Metropolitan Bank and Trust Company (Metrobank), the latter as the surviving entity. On September 24, 2002, Metrobank sent a notice of termination of the lease contract effective September 30, 2002. Respondent, objecting to the termination, filed a complaint for breach of contract and damages against herein petitioners Solidbank and Metrobank before the Regional Trial Court (RTC) of Malolos, Bulacan praying that, inter alia, herein petitioners be ordered to pay her the would be unrealized income for the ensuing idle months of the said building. Metrobank asserted in its Answer with Counterclaim, however, that the lease contract did not prohibit pre-termination by the parties. After respondent rested her case, Metrobank was, by Order of January 12, 2006, declared to have waived its right to present evidence after its counsel incurred several unexcused absences. By Decision of April 5, 2006, Branch 22 of the Malolos RTC ruled in favor of respondent. On appeal, Metrobank challenged, in the main, the trial courts award of unrealized income for the ensuing idle months despite respondents failure to pay docket fees thereon to thus render the complaint dismissible for lack of jurisdiction. By Decision of November 23, 2007, the appellate court affirmed that of the trial court and denied, by Resolution of February 21, 2008, a reconsideration thereof. Hence, the present petition for review on certiorari. Issue: Whether or not respondent is liable to pay the plaintiff the would be unrealized income for the ensuing idle months of said building amounting to P7,126,494.30 (covering April 2006 until expiration of the contract of lease. Held: Metrobanks position fails. The ensuing months in which the leased premises would be rendered vacant could not be determined at the time of the filing of the complaint. It bears recalling that the building constructed on respondents leased premises was specifically constructed to house a bank, hence, the idle period before another occupant with like business may opt to lease would be difficult to project. On Metrobanks raising the issue of lack of jurisdiction over the complaint for respondents failure to pay the correct docket fees, apropos is the ruling in National Steel Corporation v. Court of Appeals: Although the payment of the proper docket fees is a jurisdictional requirement, the trial court may allow the plaintiff in an action to pay the same within a reasonable time before the expiration of the applicable prescriptive or reglementary period. If the plaintiff fails to comply with this requirement, the defendant should timely raise the issue of jurisdiction or else he would be 104

considered in estoppel. In the latter case, the balance between the appropriate docket fees and the amount actually paid by the plaintiff will be considered a lien on any award he may obtain in his favor. (emphasis and underscoring supplied) A word on the grant of moral and exemplary damages and attorneys fees. The Court notes that respondents witness-attorney-in-fact testified only on the existence of the lease agreement and unrealized income due to pre-termination. Since an award of moral damages is predicated on a categorical showing from the claimant that emotional and mental sufferings were actually experienced, absent any evidence thereon in the present case, the award must be disallowed. And so too must the award of attorneys fees, absent an indication in the trial courts Decision of the factual basis thereof, the award having been merely stated in the dispositive portion. Parenthetically, while respondent prayed in her complaint for the award of attorneys fees and testified during the trial that: Q: Now, in connection with the filing of this case and hiring your lawyer, do you have agreement with your counsel with respect to attorneys fees? A: Q: A: P100,000.00 acceptance fees. What about appearance fees? I forgot already, sir.,

WHEREFORE, the petition is in part GRANTED.

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G.R. No. 183612 March 15, 2010 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES, Petitioner, vs. GOLDEN HORIZON REALTY CORPORATION, Respondent. Facts: Petitioner National Development Company (NDC) is a government- owned and controlled corporation, created under Commonwealth Act No. 182, as amended by Com. Act No. 311 and Presidential Decree (P.D.) No. 668. Petitioner Polytechnic University of the Philippines (PUP) is a public, non-sectarian, non-profit educational institution created in 1978 by virtue of P.D. No. 1341. In the early sixties, NDC had in its disposal a ten (10)-hectare property located along Pureza St., Sta. Mesa, Manila. The estate was popularly known as the NDC Compound and covered by Transfer Certificate of Title Nos. 92885, 110301 and 145470. On September 7, 1977, NDC entered into a Contract of Lease (C-33-77) with Golden Horizon Realty Corporation (GHRC) over a portion of the property, with an area of 2,407 square meters for a period of ten (10) years, renewable for another ten (10) years with mutual consent of the parties. On May 4, 1978, a second Contract of Lease (C-12-78) was executed between NDC and GHRC covering 3,222.80 square meters, also renewable upon mutual consent after the expiration of the ten (10)-year lease period. In addition, GHRC as lessee was granted the "option to purchase the area leased, the price to be negotiated and determined at the time the option to purchase is exercised." Under the lease agreements, GHRC was obliged to construct at its own expense buildings of strong material at no less than the stipulated cost, and other improvements which shall automatically belong to the NDC as lessor upon the expiration of the lease period. Accordingly, GHRC introduced permanent improvements and structures as required by the terms of the contract. After the completion of the industrial complex project, for which GHRC spent P5 million, it was leased to various manufacturers, industrialists and other businessmen thereby generating hundreds of jobs. On June 13, 1988, before the expiration of the ten (10)-year period under the second lease contract, GHRC wrote a letter to NDC indicating its exercise of the option to renew the lease for another ten (10) years. As no response was received from NDC, GHRC sent another letter on August 12, 1988, reiterating its desire to renew the contract and also requesting for priority to negotiate for its purchase should NDC opt to sell the leased premises. NDC still did not reply but continued to accept rental payments from GHRC and allowed the latter to remain in possession of the property. Sometime after September 1988, GHRC discovered that NDC had decided to secretly dispose the property to a third party. On October 21, 1988, GHRC filed in the RTC a complaint for specific performance, damages with preliminary injunction and temporary restraining order. In the meantime, then President Corazon C. Aquino issued Memorandum Order No. 214 dated January 6, 1989, ordering the transfer of the whole NDC Compound to the National Government, which in turn would convey the said property in favor of PUP at acquisition cost. The memorandum order cited the serious need of PUP, considered the "Poor Mans University," to expand its campus, which adjoins the NDC Compound, to accommodate its growing student population, and the willingness of PUP to buy and of NDC to sell its property. The order of conveyance of the 10.31-hectare property would automatically result in the cancellation of NDCs total obligation in favor of the National Government in the amount of P57,193,201.64. 106

On February 20, 1989, the RTC issued a writ of preliminary injunction enjoining NDC and its attorneys, representatives, agents and any other persons assisting it from proceeding with the sale and disposition of the leased premises. Issue: Whether or not there was an implied new lease between respondent and petitioner NDC after the expiration of the lease contracts Held: The CA should have applied the ruling in Dizon v. Magsaysay that the lessee cannot any more exercise its option to purchase after the lapse of the one (1)-year period of the lease contract. With the implicit renewal of the lease on a monthly basis, the other terms of the original contract of lease which are revived in the implied new lease under Article 1670 of the Civil Code are only those terms which are germane to the lessees right of continued enjoyment of the property leased. The provision entitling the lessee the option to purchase the leased premises is not deemed incorporated in the impliedly renewed contract because it is alien to the possession of the lessee. Consequently, as in this case, respondents right of option to purchase the leased premises was not violated despite the impliedly renewed contract of lease with NDC. Respondent cannot favorably invoke the decision in G.R. Nos. 143513 and 143590 ( Polytechnic University of the Philippines v. Court of Appeals) for the simple reason, among others, that unlike in said cases, the contracts of lease of respondent with NDC were not mutually extended or renewed for another ten (10) years. Thus, when the leased premises were conveyed to PUP, respondent did not any more have any right of first refusal, which incidentally appears only in the second lease contract and not in the first lease contract. On its part, petitioner NDC assails the CA in holding that the contracts of lease were impliedly renewed for another ten (10)-year period. The provisions of C33-77 and C-12-78 clearly state that the lessee is granted the option "to renew for another ten (10) years with the mutual consent of both parties." As regards the continued receipt of rentals by NDC and possession by the respondent of the leased premises, the impliedly renewed lease was only month-to-month and not ten (10) years since the rentals are being paid on a monthly basis, as held in Dizon v. Magsaysay. Petitioner NDC further faults the CA in sustaining the RTCs decision which erroneously granted respondent the option to purchase the leased premises at the rate of P554.74 per square meter, the same rate for which NDC sold the property to petitioner PUP and/or the National Government, which is the mere acquisition cost thereof. It must be noted that such consideration or rate was imposed by Memorandum Order No. 214 under the premise that it shall, in effect, be a sale and/or purchase from one (1) government agency to another. It was intended merely as a transfer of one (1) user of the National Government to another, with the beneficiary, PUP in this case, merely returning to the petitioner/transferor the cost of acquisition thereof, as appearing on its accounting books. It does not in any way reflect the true and fair market value of the property, nor was it a price a "willing seller" would demand and accept for parting with his real property. Such benefit, therefore, cannot be extended to respondent as a private entity, as the latter does not share the same pocket, so to speak, with the National Government. The issue to be resolved is whether or not our ruling in Polytechnic University of the Philippines v. Court of Appeals applies in this case involving another lessee of NDC who claimed that the option to purchase the portion leased to it was similarly violated by the sale of the NDC Compound in favor of PUP pursuant to Memorandum Order No. 214. We rule in the affirmative. The second lease contract contained the following provision: 107

III. It is mutually agreed by the parties that this Contract of Lease shall be in full force and effect for a period of ten (10) years counted from the effectivity of the payment of rental as provided under sub-paragraph (b) of Article I, with option to renew for another ten (10) years with the mutual consent of both parties. In no case should the rentals be increased by more than 100% of the original amount fixed. Lessee shall also have the option to purchase the area leased, the price to be negotiated and determined at the time the option to purchase is exercised. [emphasis supplied] An option is a contract by which the owner of the property agrees with another person that the latter shall have the right to buy the formers property at a fixed price within a certain time. It is a condition offered or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with certain terms and conditions; or which gives to the owner of the property the right to sell or demand a sale. It binds the party, who has given the option, not to enter into the principal contract with any other person during the period designated, and, within that period, to enter into such contract with the one to whom the option was granted, if the latter should decide to use the option. Upon the other hand, a right of first refusal is a contractual grant, not of the sale of a property, but of the first priority to buy the property in the event the owner sells the same. As distinguished from an option contract, in a right of first refusal, while the object might be made determinate, the exercise of the right of first refusal would be dependent not only on the owners eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that are yet to be firmed up. As the option to purchase clause in the second lease contract has no definite period within which the leased premises will be offered for sale to respondent lessee and the price is made subject to negotiation and determined only at the time the option to buy is exercised, it is obviously a mere right of refusal, usually inserted in lease contracts to give the lessee the first crack to buy the property in case the lessor decides to sell the same. That respondent was granted a right of first refusal under the second lease contract appears not to have been disputed by petitioners. What petitioners assail is the CAs erroneous conclusion that such right of refusal subsisted even after the expiration of the original lease period, when respondent was allowed to continue staying in the leased premises under an implied renewal of the lease and without the right of refusal carried over to such month-to-month lease. Petitioners thus maintain that no right of refusal was violated by the sale of the property in favor of PUP pursuant to Memorandum Order No. 214. Petitioners position is untenable. When a lease contract contains a right of first refusal, the lessor has the legal duty to the lessee not to sell the leased property to anyone at any price until after the lessor has made an offer to sell the property to the lessee and the lessee has failed to accept it. Only after the lessee has failed to exercise his right of first priority could the lessor sell the property to other buyers under the same terms and conditions offered to the lessee, or under terms and conditions more favorable to the lessor.

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G.R. No. 183628 April 7, 2010 DANIEL T. SO, Petitioner, vs. FOOD FEST LAND, INC. Respondent Facts: Food Fest Land Inc. (Food Fest) entered into a September 14, 1999 Contract of Lease with Daniel T. So (So) over a commercial space in San Antonio Village, Makati City for a period of three years (1999-2002) on which Food Fest intended to operate a Kentucky Fried Chicken carry out branch. Before forging the lease contract, the parties entered into a preliminary agreement dated July 1, 1999, the pertinent portion of which stated: The lease shall not become binding upon us unless and until the government agencies concerned shall authorize, permit or license us to open and maintain our business at the proposed Lease Premises. We shall promptly make an application for permits, licenses and authority for our business and shall exercise due diligence to obtain it, provided, however, that you shall assist us by submitting such documents and papers and comply with such other requirements as the governmental agencies may impose. We shall give notice to you when the permits, license and authorities have been obtained. We shall also notify you if any of the required permits, licenses and authorities shall not be be (sic) given or granted within fifteen days (15) from your conform (sic)hereto. In such case, the agreement may be canceled and all rights and obligations hereunder shall cease. (underscoring supplied) While Food Fest was able to secure the necessary licenses and permits for the year 1999, it failed to commence business operations. For the year 2000, Food Fests application for renewal of barangay business clearance was "held in abeyance until further study of [its] kitchen facilities." As the barangay business clearance is a prerequisite to the processing of other permits, licenses and authority by the city government, Food Fest was unable to operate. Fearing further business losses, Food Fest, by its claim, communicated its intent to terminate the lease contract to So who, however, did not accede and instead offered to help Food Fest secure authorization from the barangay. On Sos advice, Food Fest wrote requests addressed to city officials for assistance to facilitate renewal. In August 2000, Food Fest, for the second time, purportedly informed So of its intent to terminate the lease, and it in fact stopped paying rent. So later sent a November 22, 2000 demand letter to Food Fest for the payment of rental arrearages and reiterated his offer to help it secure clearance from the barangay. Thus So wrote: "With regard to securing permits from the barangay & the City Hall, [with] which I am trying to help you, some form of representation, maybe not in cash, would definitely help in forging a longer term relationship." Food Fest demurred to the offer. By letter of March 26, 2001, So again demanded payment of rentals from Food Fest from September 2000 to March 2001 amounting to P123,200.00. Food Fest denied any liability, however, and started to remove its fixtures and equipment from the premises. On April 2, 2001, So sent Food Fest a Final Notice of Termination with demand to pay and to vacate. On April 26, 2001, So filed a complaint for ejectment and damages against Food Fest before the Metropolitan Trial Court (MeTC) of Makati City. 109

Issue: Whether or not they are liable for damages Held: As for Food Fests invocation of the principle of rebus sic stantibus as enunciated in Article 1267 of the Civil Code to render the lease contract functus officio, and consequently release it from responsibility to pay rentals, the Court is not persuaded. Article 1267 provides: Article 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in part. This article, which enunciates the doctrine of unforeseen events, is not, however, an absolute application of the principle of rebus sic stantibus, which would endanger the security of contractual relations. The parties to the contract must be presumed to have assumed the risks of unfavorable developments. It is, therefore, only in absolutely exceptional changes of circumstances that equity demands assistance for the debtor. Food Fest claims that its failure to secure the necessary business permits and licenses rendered the impossibility and non-materialization of its purpose in entering into the contract of lease, in support of which it cites the earlier-quoted portion of the preliminary agreement dated July 1, 1999 of the parties. The cause or essential purpose in a contract of lease is the use or enjoyment of a thing. A partys motive or particular purpose in entering into a contract does not affect the validity or existence of the contract; an exception is when the realization of such motive or particular purpose has been made a condition upon which the contract is made to depend. The exception does not apply here. It is clear that the condition set forth in the preliminary agreement pertains to the initial application of Food Fest for the permits, licenses and authority to operate. It should not be construed to apply to Food Fests subsequent applications. Consider the following qualification in the preliminary agreement: xxx We shall also notify you if any of the required permits, licenses and authorities shall not be be (sic) given or granted within fifteen days (15) from your conform (sic) hereto. In such case, the agreement may be canceled and all rights and obligations hereunder shall cease. (underscoring supplied) Food Fest was able to secure the permits, licenses and authority to operate when the lease contract was executed. Its failure to renew these permits, licenses and authority for the succeeding year, does not, however, suffice to declare the lease functus officio, nor can it be construed as an unforeseen event to warrant the application of Article 1267. Contracts, once perfected, are binding between the contracting parties. Obligations arising therefrom have the force of law and should be complied with in good faith. Food Fest cannot renege from the obligations it has freely assumed when it signed the lease contract.

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G.R. No. 180542 April 12, 2010 HUBERT NUEZ, Petitioner, vs. SLTEAS PHOENIX SOLUTIONS, INC., through its representative, CESAR SYLIANTENG Respondent, Facts: The subject matter of the instant suit is a 635.50 square meter parcel of land situated at Calle Solana, Intramuros, Manila and registered in the name of respondent SLTEAS Phoenix Solutions, Inc. under Transfer Certificate of Title (TCT) No. 87556 of the Manila City Registry of Deeds. Despite having acquired the same thru the 4 June 1999 Deed of Assignment executed in its favor by the Spouses Ong Tiko and Emerenciana Sylianteng, it appears that respondent was constrained to leave the subject parcel idle and unguarded for some time due to important business concerns. In October 2003, an ocular inspection conducted by respondents representatives revealed that the property was already occupied by petitioner Hubert Nuez and 21 other individuals. Initially faulting one Vivencia Fidel with unjustified refusal to heed its verbal demands to vacate the subject parcel, respondent filed its 5 December 2003 complaint for forcible entry which was docketed as Civil Case No. 177060 before Branch 4 of the Metropolitan Trial Court (MeTC) of Manila. Additionally impleading petitioner and the rest of the occupants of the property, respondent filed its 9 January 2004 amended complaint, alleging, among other matters, that thru its representatives and predecessors-in-interest, it had continuously possessed the subject realty, over which it exercised all attributes of ownership, including payment of real property taxes and other sundry expenses; that without the benefit of any lease agreement or possessory right, however, petitioners and his co-defendants have succeeded in occupying the property by means of strategy and stealth; and, that according to reliable sources, the latter had been in occupancy of the same parcel since 1999. Together with the ejectment of the occupants of the subject premises, respondent prayed for the grant of its claims for reasonable rentals, attorneys fees, litigation expenses and the costs. Specifically denying the material allegations of the foregoing amended complaint in his 14 February 2004 Answer, petitioner averred that the property occupied by him is owned by one Maria Ysabel Potenciano Padilla Sylianteng, with whom he had concluded a subsisting lease agreement over the same, and that, in addition to respondents lack of cause of action against him, the MeTC had no jurisdiction over the case for lack of prior demand to vacate and referral of the controversy to the barangay authorities for a possible amicable settlement. Likewise questioning the MeTCs jurisdiction over the case, the rest of the defendants filed a Motion to Dismiss which they adopted as their answer subsequent to its 27 February 2004 denial upon the finding that a sufficient cause of action can be gleaned from the allegations of the complaint. Issue: Whether or not PETITIONER SHOULD NOT VACATE THE LEASED PREMISES CONSIDERING THAT THERE IS AN EXISTING LEASE CONTRACT WITH THE OWNER WHICH IS IN VIOLATION OF THE PROVISION OF ARTICLE 1671 OF THE NEW CIVIL CODE Held: Petitioner is, finally, out on a limb in faulting the Court of Appeals with failure to apply the first paragraph of Article 1676 of the Civil Code of the Philippines in relation to the lease he claims to have concluded with one Maria Ysabel Potenciano Padilla Sylianteng. In the absence of proof of his lessors title or respondents prior knowledge of said contract of lease, petitioners harping over the same provision simply amounts to an implied admission that the premises occupied by him lie 111

within the metes and bounds of the subject parcel. Even then, the resolution of said issue is clearly inappropriate since ejectment cases are summary actions intended to provide an expeditious manner for protecting possession or right to possession without involvement of title. Moreover, if a defendants mere assertion of ownership in an ejectment case will not oust the MeTC of its summary jurisdiction, we fail to see why it should be any different in this case where petitioner merely alleged his lessors supposed title over the subject parcel.

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G.R. No. 174632 : June 16, 2010 FELICIDAD T. MARTIN, MELISSA M. ISIDRO, GRACE M. DAVID, CAROLINE M. GARCIA, VICTORIA M. ROLDAN, and BENJAMIN T. MARTIN, JR., Petitioners, vs. DBS BANK PHILIPPINES, INC. (Formerly known as Bank of Southeast Asia) now merged with and into BPI FAMILY BANK, Respondent. Facts: On March 27, 1997 Felicidad T. Martin, Melissa M. Isidro, Grace M. David, Caroline M. Garcia, Victoria M. Roldan, and Benjamin T. Martin, Jr. (the Martins), as lessors, entered into a lease contract with the DBS Bank Philippines, Inc. (DBS), formerly known as Bank of Southeast Asia and now merged with Bank of the Philippine Islands, as lessee, covering a commercial warehouse and lots that DBS was to use for office, warehouse, and parking yard for repossessed vehicles. The lease was for five years, from March 1, 1997 to March 1, 2002, at a monthly rent of P300,000.00 for the first year, P330,000.00 for the second year, P363,000.00 for the third year, P399,300.00 for the fourth year, and P439,230.00 for the final year, all net of withholding taxes. DBS paid a deposit of P1,200,000.00 and advance rentals of P600,000.00. On May 25 and August 13, 1997 heavy rains flooded the leased property and submerged into water the DBS offices there along with its 326 repossessed vehicles. As a result, on February 11, 1998 DBS wrote the Martins demanding that they take appropriate steps to make the leased premises suitable as a parking yard for its vehicles. DBS suggested the improvement of the drainage system or the raising of the property's ground level. In response, the Martins filled the property's grounds with soil and rocks. But DBS lamented that the property remained unsuitable for its use since the Martins did not level the grounds. Worse, portions of the perimeter fence collapsed because of the excessive amount of soil and rock that were haphazardly dumped on it. In June 1998, DBS vacated the property but continued paying the monthly rents. On September 11, 1998, however, it made a final demand on the Martins to restore the leased premises to tenantable condition on or before September 30, 1998, otherwise, it would rescind the lease contract. On September 24, 1998 the Martins contracted the services of Altitude Systems & Technologies Co. for the reconstruction of the perimeter fence on the property. On October 13, 1998 DBS demanded the rescission of the lease contract and the return of its deposit. At that point, DBS had already paid the monthly rents from March 1997 to September 1998. The Martins refused, however, to comply with DBS' demand. On July 7, 1999 DBS filed a complaint against the Martins for rescission of the contract of lease with damages before the Regional Trial Court (RTC) of Makati City, Branch 141, in Civil Case 99-1266. Claiming that the leased premises had become untenantable, DBS demanded rescission of the lease contract as well as the return of its deposit of P1,200,000.00. On November 12, 2001 the Makati City RTC rendered a decision, dismissing the complaint against the Martins. The trial court found that, although the floods submerged DBS' vehicles, the leased premises remained tenantable and undamaged. Moreover, the Martins had begun the repairs that DBS requested but were not given sufficient time to complete the same. It held that DBS unjustifiably abandoned the leased premises and breached the lease contract. Thus, the trial court ordered its deposit of P1,200,000.00 deducted from the unpaid rents due the Martins and ordered DBS to pay them the remaining P15,198,360.00 in unpaid rents. Issue: 113

Whether or not the Martins allowed the leased premises to remain untenantable after the floods, justifying DBS' rescission of the lease agreement between them; and Whether or not DBS is entitled to the rescission of the lease contract only from July 7, 1999 when it filed its action for rescission, entitling the Martins to collect rents until that time. Held: One. Unless the terms of a contract are against the law, morals, good customs, and public policy, such contract is law between the parties and its terms bind them. In Felsan Realty & Development Corporation v. Commonwealth of Australia, the Court regarded as valid and binding a provision in the lease contract that allowed the lessee to pre-terminate the same when fire damaged the leased building, rendering it uninhabitable or unsuitable for living. Here, paragraph VIII of the lease contract between DBS and the Martins permitted rescission by either party should the leased property become untenantable because of natural causes. Thus: In case of damage to the leased premises or any portion thereof by reason of fault or negligence attributable to the LESSEE, its agents, employees, customers, or guests, the LESSEE shall be responsible for undertaking such repair or reconstruction. In case of damage due to fire, earthquake, lightning, typhoon, flood, or other natural causes, without fault or negligence attributable to the LESSEE, its agents, employees, customers or guests, the LESSOR shall be responsible for undertaking such repair or reconstruction. In the latter case, if the leased premises become untenantable, either party may demand for the rescission of this contract and in such case, the deposit referred to in paragraph III shall be returned to the LESSEE immediately. (Underscoring supplied.) The Martins claim that DBS cannot invoke the above since they undertook the repair and reconstruction of the leased premises, incurring P1.6 million in expenses. The Martins point out that the option to rescind was available only if they failed to do the repair work and reconstruction. But, under their agreement, the remedy of rescission would become unavailable to DBS only if the Martins, as lessors, made the required repair and reconstruction after the damages by natural cause occurred, which meant putting the premises after the floods in such condition as would enable DBS to resume its use of the same for the purposes contemplated in the agreement, namely, as office, warehouse, and parking space for DBS' repossessed vehicles. Here, it is undisputed that the floods of May 25 and August 13, 1997 submerged the DBS offices and its 326 repossessed vehicles. The floods rendered the place unsuitable for its intended uses. And, while the Martins did some repairs, they did not restore the place to meet DBS' needs. The photographs taken of the place show that the Martins filled the grounds with soil and rocks to raise the elevation but did not level and compact the same so they could accommodate the repossessed vehicles. Moreover, the heaviness of the filling materials caused portions of the perimeter walls to collapse or lean dangerously. Indeed, the Office of the City Engineer advised DBS that unless those walls were immediately demolished or rehabilitated, they would endanger passersby. For their part, although the Martins insisted that they successfully repaired and restored the leased areas, they failed to produce photographs that would contradict those that DBS presented in court. For one thing, the evidence for DBS shows that the Martins simply dumped soil and rocks on the grounds, creating an uneven terrain that would not permit vehicular parking. True, the Martins contracted the services of Altitude Systems and Technologies Co. but the scope of work covered only the construction of a new perimeter fence, leaving out works that are essential to the leveling and compacting of the grounds. 114

Undeniably, the DBS suffered considerable damages when flood waters deluged its offices and 326 repossessed vehicles. Notably, DBS vacated the leased premises in June of 1998, without rescinding the lease agreement, evidently to allow for unhindered repair of the grounds. In fact, DBS continued to pay the monthly rents until September 1998, showing how DBS leaned back to enable the Martins to finish the repair and rehabilitation of the place. The Martins provided basis for rescission by DBS when they failed to do so. The Martins point out that paragraph X of the contract forbade the pretermination of the lease. But, as the Court held in Manila International Airport Authority v. Gingoyon, the various stipulations in a contract must be read together and given effect as their meanings warrant. Here, paragraph X, which barred pretermination of the lease agreement, cannot be read in isolation. Paragraph VIII gave DBS and the Martins the right to rescind the agreement in the event the property becomes untenantable due to natural causes, including floods, unless proper repairs and rehabilitation are carried out. Two. As for the effective date of rescission, the record shows that DBS made a final demand on the Martins on September 11, 1998, giving the latter up to September 30, 1998 within which to fully restore the leased property to a tenantable condition, otherwise, it would rescind their lease contract. Consequently, the Martins may be regarded in default with respect to their obligation to repair and rehabilitate the leased property by the end of September 1998 when they did not comply with the demand. Contrary to the ruling of the CA, it is not the filing of the action for rescission that marks the violation of the lease agreement but the failure of the Martins to repair and rehabilitate the property despite demand. Finally, Paragraph III of the lease contract states that the deposit DBS made is to apply to any: a) unpaid telephone, electric, and water bills, and b) unpaid rents. As it happened, DBS left no unpaid utility bills. Also, since DBS paid the rents up to September 1998, it owed no unpaid rents when it exercised its right to rescind its lease contract with the Martins. The latter must, therefore, return the full deposit of P1,200,000.00 to DBS.

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G.R. No. 164791 June 29, 2010 SELWYN F. LAO AND EDGAR MANANSALA, Petitioners, vs. SPECIAL PLANS, INC., Respondent. Facts: Petitioners Selwyn F. Lao (Lao) and Edgar Manansala (Manansala), together with Benjamin Jim (Jim), entered into a Contract of Lease with respondent Special Plans, Inc. (SPI) for the period January 16, 1993 to January 15, 1995 over SPI's building at No. 354 Quezon Avenue, Quezon City. Petitioners intended to use the premises for their karaoke and restaurant business known as "Saporro Restaurant". Upon expiration of the lease contract, it was renewed for a period of eight months at a rental rate of P23,000.00 per month. On June 3, 1996, SPI sent a Demand Letter to the petitioners asking for full payment of rentals in arrears. Receiving no payment, SPI filed on July 23, 1996 a Complaint for sum of money with the Metropolitan Trial Court (MeTC) of Quezon City, claiming that Jim and petitioners have accumulated unpaid rentals of P118,000.00 covering the period March 16, 1996 to August 16, 1996. Issue: Whether or not there can be compensation Held: The Civil Code provides that compensation shall take place when two persons, in their own right, are creditors and debtors of each other. In order for compensation to be proper, it is necessary that: 1. Each one of the obligors be bound principally and that he be at the same time a principal creditor of the other; 2. 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. 4. The two debts are due: The debts are liquidated and demandable;

5. Over neither of them be any retention or controversy, commenced by third parties and communicated in due time to the debtor. Petitioners failed to properly discharge their burden to show that the debts are liquidated and demandable. Consequently, legal compensation is inapplicable. A claim is liquidated when the amount and time of payment is fixed. If acknowledged by the debtor, although not in writing, the claim must be treated as liquidated. 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 plaintiff's 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.

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G.R. No. 179743 August 2, 2010 HADJA FATIMA GAGUIL MAGOYAG, joined by her husband, HADJI HASAN MADLAWI MAGOYAG, Petitioners, vs. HADJI ABUBACAR MARUHOM, Respondent. Facts: On December 20, 1982, respondent Hadji Abubacar Maruhom (respondent) was awarded a market stall at the Reclamation Area by the Islamic City of Marawi. On December 1, 1985, respondent orally sold his stall to petitioner for P20,000.00. Later, on December 10, 1985, respondent executed a Deed of Assignment, confirming the oral sale; assigning, selling, transferring, and conveying his market stall to petitioners for a consideration of P20,000.00. In the same Deed of Assignment, petitioners leased the subject stall to respondent for a monthly rental of P250.00, beginning December 1, 1985, renewable every year at the option of petitioners. Respondent undertook to pay in advance the rentals for six months amounting to P1,500.00 on or before December 1, 1985. Respondent religiously paid the monthly rentals of P250.00, which was increased to P300.00 on December 1, 1988; and to P400.00 beginning December 1, 1991. However, on June 1, 1993, respondent simply stopped paying the rentals. Respondent promised to settle his unpaid account, but he failed to make good his promise. Petitioner then demanded that respondent vacate the property, but the demand just fell on deaf ears. Accordingly, on August 22, 1994, petitioners filed a complaint for recovery of possession and damages, with prayer for issuance of a temporary restraining order (TRO), with the Regional Trial Court (RTC) of Marawi City. Issue: Whether or not the subject stall is owned by the City Government of Marawi that cannot be leased or alienated. The Deed of Assignment that he executed in favor of the petitioners is, therefore, null and void. Held: The records show that Market Stall No. CTD 1583 is owned by the City Government of Marawi. Indeed, the RTC and the CA correctly held that it was the City Government of Marawi, not respondent, that owned Market Stall No. CTD 1583. Respondent, as a mere grantee of the subject stall, was prohibited from selling, donating, or otherwise alienating the same without the consent of the City Government; violation of the condition shall automatically render the sale, donation, or alienation null and void. Thus, we sustain the CA in declaring the Deed of Assignment null and void, but we cannot abide by the CAs final disposition. A void contract is equivalent to nothing; it produces no civil effect. It does not create, modify, or extinguish a juridical relation. Parties to a void agreement cannot expect the aid of the law; the courts leave them as they are, because they are deemed in pari delicto or in equal fault. To this rule, however, there are exceptions that permit the return of that which may have been given under a void contract. One of the exceptions is found in Article 1412 of the Civil Code, which states: Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: (1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other's undertaking; (2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has 117

been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise. Respondent was well aware that as mere grantee of the subject stall, he cannot sell it without the consent of the City Government of Marawi. Yet, he sold the same to petitioners. The records, however, are bereft of any allegation and proof that petitioners had actual knowledge of the status of respondents ownership of the subject stall. Petitioners can, therefore, recover the amount they had given under the contract.

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G.R. No. 151168 August 25, 2010 CEBU AUTOMETIC MOTORS, INC. and TIRSO UYTENGSU III, Petitioners, Vs. GENERAL MILLING CORPORATION, Respondent. Facts: GMC, a domestic corporation, is the registered owner of the GMC Plaza Complex, a commercial building on Legaspi Extension corner McArthur Boulevard, Cebu City. On February 2, 1998, GMC, represented by its General Manager, Luis Calalang Jr. (Calalang), entered into a contract with CAMI, a domestic corporation, for the lease of a 2,906 square meter commercial space within GMCs building (leased premises). The lease contract was for a period of twenty (20) years, with the monthly rental fixed at P10,000.00. The contract further stipulated that the property shall be used exclusively by CAMI as a garage and repair shop for vehicles, and imposed upon CAMI the following terms and conditions: C. The LESSEE shall upon the signing of this contract immediately deposit with the LESSOR the following amounts: a. The sum of PESOS: - TEN THOUSAND & 00/100 (P10,000.00) inclusive of VAT Philippine currency, to be applied as rental for the last month; b. The sum PESOS TEN THOUSAND & 00/100 (P10,000.00) as guarantee deposit to defray the cost of the repairs necessary to keep the leased premises in a good state of repair and to pay the LESSEES unpaid bills from the various utility services in the leased premises; that this amount shall be refundable, if upon the termination of this contract, the leased premises are in good state of repair and the various utility bills have been paid. xxxx H. The LESSEE shall not place or install any signboard, billboard, neon lights, or other form of advertising signs on the leased premises or on any part thereof, except upon the prior written consent of the LESSOR. xxxx M. Finally, the failure on the part of the LESSOR to insist upon a strict performance of any of the terms, conditions and covenants hereof shall not be deemed a relinquishment or waiver of any right or remedy that said LESSOR may have, nor shall it be construed as a waiver of any subsequent breach or default of the terms, conditions and covenants herein contained, unless expressed in writing and signed by the LESSOR or its duly authorized representative. According to GMC, CAMI violated the provisions of the lease contract when: a) CAMI subleased a portion of the leased premises without securing GMCs prior written consent; b) CAMI introduced improvements to the leased premises without securing GMCs consent; and c) CAMI did not deliver the required advance rental and deposit to GMC upon the execution of the lease contract. On June 11, 1999, GMC sent CAMI a letter informing the latter that it was terminating the lease contract and demanding that CAMI vacate the premises and settle all its unpaid accounts before the end of that month. On July 7, 1999, GMC filed a complaint for unlawful detainer with the MTCC against CAMI, asserting that it terminated the lease contract on June 11, 1999 because CAMI violated the terms of the contract and continued to do so despite GMCs repeated demands and reminders for compliance; and that CAMI refused to vacate the leased premises. GMC also impleaded Uytengsu, the General Manager of CAMI, in his official and personal capacities. 119

Issue: Whether GMC sent CAMI the required demand letter. Held: The law of contracts (essentially, Articles 1191 of the Civil Code for judicial rescission and Article 1659 for the judicial rescission of lease agreements) firmly establishes that the failure to pay or to comply with the contractual term does not, by itself, give rise to a cause of action for rescission; the cause of action only accrues after the lessee has been in default for its failure to heed the demand to pay or to comply. With the contract judicially rescinded, the demand to vacate finds full legal basis. Article 1673, implemented pursuant to Section 2, Rule 70, does away with a separate judicial action for rescission, and allows under a single complaint the judicial ejectment of the lessee after extrajudicial rescission has taken place. These combined remedies account for the separate aspects of the demand letter: the demand to pay rentals or to comply with the terms of the lease, and to vacate. The tenant's refusal to heed the demand to vacate, coming after the demand to pay or to comply similarly went unheeded, renders unlawful the continued possession of the leased premises; hence, the unlawful detainer action. In Dio v. Concepcion, we ruled that: Under Article 1673 of the Civil Code, the lessor may judicially eject the lessee for, among other causes: (1) lack of payment of the price stipulated; or (2) violation of any of the conditions agreed upon in the contract. Previous to the institution of such action, the lessor must make a demand upon the lessee to pay or comply with the conditions of the lease and to vacate the premises. It is the owners demand for the tenant to vacate the premises and the tenants refusal to do so which makes unlawful the withholding of possession. Such refusal violates the owners right of possession giving rise to an action for unlawful detainer. [Emphasis supplied.]

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G.R. No. 176381 December 15, 2010 PCI LEASING AND FINANCE, INC., Petitioner, vs. TROJAN METAL INDUSTRIES INCORPORATED, WALFRIDO DIZON, ELIZABETH DIZON, and JOHN DOE,Respondents. Facts: Sometime in 1997, respondent Trojan Metal Industries, Inc. (TMI) came to petitioner PCI Leasing and Finance, Inc. (PCILF) to seek a loan. Instead of extending a loan, PCILF offered to buy various equipment TMI owned, namely: a Verson double action hydraulic press with cushion, a Hinohara powerpress 75-tons capacity, a USIclearing powerpress 60-tons capacity, a Watanabe powerpress 60-tons capacity, a YMGP powerpress 30-tons capacity, a YMGP powerpress 15-tons capacity, a lathe machine, a vertical milling machine, and a radial drill. Hard-pressed for money, TMI agreed. PCILF and TMI immediately executed deeds of sale evidencing TMIs sale to PCILF of the various equipment in consideration of the total amount of P 2,865,070.00. PCILF and TMI then entered into a lease agreement, dated 8 April 1997, whereby the latter leased from the former the various equipment it previously owned. Pursuant to the lease agreement, TMI issued postdated checks representing 24 monthly installments. The monthly rental for the Verson double action hydraulic press with cushion was in the amount of P62,328.00; for the Hinohara powerpress 75-tons capacity, the USI-clearing powerpress 60-tons capacity, the Watanabe powerpress 60-tons capacity, the YMGP powerpress 30-tons capacity, and the YMGP powerpress 15-tons capacity, the monthly rental was in the amount of P49,259.00; and for the lathe machine, the vertical milling machine, and the radial drill, the monthly rental was in the amount of P22,205.00. The lease agreement required TMI to give PCILF a guaranty deposit of P1,030,350.00, which would serve as security for the timely performance of TMIs obligations under the lease agreement, to be automatically forfeited should TMI return the leased equipment before the expiration of the lease agreement. Further, spouses Walfrido and Elizabeth Dizon, as TMIs President and VicePresident, respectively executed in favor of PCILF a Continuing Guaranty of Lease Obligations. Under the continuing guaranty, the Dizon spouses agreed to immediately pay whatever obligations would be due PCILF in case TMI failed to meet its obligations under the lease agreement. To obtain additional loan from another financing company, TMI used the leased equipment as temporary collateral. PCILF considered the second mortgage a violation of the lease agreement. At this time, TMIs partial payments had reached P1,717,091.00. On 8 December 1998, PCILF sent TMI a demand letter for the payment of the latters outstanding obligation. PCILFs demand remained unheeded. On 7 May 1999, PCILF filed in the Regional Trial Court (Branch 79) of Quezon City a complaint against TMI, spouses Dizon, and John Doe (collectively referred to as "respondents" hereon) for recovery of sum of money and personal property with prayer for the issuance of a writ of replevin, docketed as Civil Case No. Q-99-37559. On 7 September 1999, the RTC issued the writ of replevin PCILF prayed for, directing the sheriff to take custody of the leased equipment. Not long after, PCILF sold the leased equipment to a third party and collected the proceeds amounting to P1,025,000.00. In their answer, respondents claimed that the sale with lease agreement was a mere scheme to facilitate the financial lease between PCILF and TMI. Respondents explained that in a simulated financial lease, property of the debtor would be sold to the creditor to be repaid through rentals; at the end of the lease period, the property sold would revert back to the debtor. Respondents prayed that they be 121

allowed to reform the lease agreement to show the true agreement between the parties, which was a loan secured by a chattel mortgage. Issue: Whether the sale with lease agreement the parties entered into was a financial lease or a loan secured by chattel mortgage Held: Since the transaction between PCILF and TMI involved equipment already owned by TMI, it cannot be considered as one of financial leasing, as defined by law, but simply a loan secured by the various equipment owned by TMI. Articles 1359 and 1362 of the Civil Code provide: Art. 1359. When, there having been a meeting of the minds of the parties to a contract, their true intention is not expressed in the instrument purporting to embody the agreement, by reason of mistake, fraud, inequitable conduct, or accident, one of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed. Art. 1362. If one party was mistaken and the other acted fraudulently or inequitably in such a way that the instrument does not show their true intention, the former may ask for the reformation of the instrument. Under Article 1144 of the Civil Code, the prescriptive period for actions based upon a written contract and for reformation of an instrument is ten years. The right of action for reformation accrued from the date of execution of the lease agreement on 8 April 1997. TMI timely exercised its right of action when it filed an answer on 14 February 2000 asking for the reformation of the lease agreement. Hence, had the true transaction between the parties been expressed in a proper instrument, it would have been a simple loan secured by a chattel mortgage, instead of a simulated financial leasing. Thus, upon TMIs default, PCILF was entitled to seize the mortgaged equipment, not as owner but as creditor-mortgagee for the purpose of foreclosing the chattel mortgage. PCILFs sale to a third party of the mortgaged equipment and collection of the proceeds of the sale can be deemed in the exercise of its right to foreclose the chattel mortgage as creditor-mortgagee. However, the exact date of the sale of the mortgaged equipment, which is needed to compute the interest on the remaining balance of the principal loan, cannot be gleaned from the facts on record. We thus remand the case to the RTC for the computation of the total amount due from the date of demand on 8 December 1998 until the date of sale of the mortgaged equipment to a third party, which amount due shall be offset against the proceeds of the sale. In the absence of stipulation, the applicable interest due on the remaining balance of the loan is the legal rate of 12% per annum, computed from the date PCILF sent a demand letter to TMI on 8 December 1998. No interest can be charged prior to this date because TMI was not yet in default prior to 8 December 1998. The interest due shall also earn legal interest from the time it is judicially demanded, pursuant to Article 2212 of the Civil Code, which provides: Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point.

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G.R. No. 154366 November 17, 2010 CEBU BIONIC BUILDERS SUPPLY, INC. and LYDIA SIA, Petitioners, vs. DEVELOPMENT BANK OF THE PHILIPPINES, JOSE TO CHIP, PATRICIO YAP and ROGER BALILA, Respondents. Facts: The facts leading to the instant petition are as follows: On June 2, 1981, the spouses Rudy R. Robles, Jr. and Elizabeth R. Robles entered into a mortgage contract 7 with DBP in order to secure a loan from the said bank in the amount of P500,000.00. The properties mortgaged were a parcel of land situated in Tabunoc, Talisay, Cebu, which was then covered by Transfer Certificate of Title (TCT) No. T- 47783 of the Register of Deeds of Cebu, together with all the existing improvements, and the commercial building to be constructed thereon (subject properties). Upon completion, the commercial building was named the State Theatre Building. On October 28, 1981, Rudy Robles executed a contract of lease in favor of petitioner Cebu Bionic Builders Supply, Inc. (Cebu Bionic), a domestic corporation engaged in the construction business, as well as the sale of hardware materials. The contract was not registered by the parties thereto with the Registry of Deeds of Cebu. Subsequently, the spouses Robles failed to settle their loan obligation with DBP. The latter was, thus, prompted to effect extrajudicial foreclosure on the subject properties. On February 6, 1987, DBP was the lone bidder in the foreclosure sale and thereby acquired ownership of the mortgaged subject properties. On October 13, 1988, a final Deed of Sale was issued in favor of DBP. Meanwhile, on June 18, 1987, DBP sent a letter to Bonifacio Sia, the husband of petitioner Lydia Sia who was then President of Cebu Bionic, notifying the latter of DBPs acquisition of the State Theatre Building. On July 7, 1987, the counsel of Bonifacio Sia replied to the above letter. Thereafter, on November 14, 1989, a Certificate of Time Deposit for P11,395.64 was issued in the name of Bonifacio Sia and the same was allegedly remitted to DBP as advance rental deposit. For reasons unclear, however, no written contract of lease was executed between DBP and Cebu Bionic. In the meantime, subsequent to the acquisition of the subject properties, DBP offered the same for sale along with its other assets. Pursuant thereto, DBP published a series of invitations to bid on such properties, which were scheduled on January 19, 1989, February 23, 1989, April 13, 1989, and November 15, 1990. As no interested bidder came forward, DBP publicized an Invitation on Negotiated Sale/Offer. In the morning of December 3, 1990, the last day for the acceptance of negotiated offers, petitioners submitted through their representative, Judy Garces, a letter-offer form, offering to purchase the subject properties forP1,840,000.00. Attached to the letter-offer was a copy of the Negotiated Sale Rules and Procedures issued by DBP and a managers check for the amount of P184,000.00, representing 10% of the offered purchase price. This offer of petitioners was not accepted by DBP, however, as the corresponding deposit therefor was allegedly insufficient. 123

After the lapse of the above-mentioned 15-day acceptance period, petitioners did not submit any other offer/proposal to purchase the subject properties. 1avvphi1 On December 17, 1990, respondents To Chip, Yap and Balila presented their letter-offer to purchase the subject properties on a cash basis for P1,838,100.00. Said offer was accompanied by a downpayment of 10% of the offered purchase price, amounting to P183,810.00. On even date, DBP acknowledged the receipt of and accepted their offer. On December 28, 1990, respondents To Chip, Yap and Balila paid the balance of the purchase price and DBP issued a Deed of Sale over the subject properties in their favor. On January 11, 1991, the counsel of respondents To Chip, Yap and Balila sent a letter addressed to the proprietor of Cebu Bionic, informing the latter of the transfer of ownership of the subject properties. Cebu Bionic was ordered to vacate the premises within thirty (30) days from receipt of the letter and directed to pay the rentals from January 1, 1991 until the end of the said 30-day period. The counsel of Cebu Bionic replied that his client received the above letter on January 11, 1991. He stated that he has instructed Cebu Bionic to verify first the ownership of the subject properties since it had the preferential right to purchase the same. He likewise requested that he be furnished a copy of the deed of sale executed by DBP in favor of respondents To Chip, Yap and Balila. On February 15, 1991, respondent To Chip wrote a letter to the counsel of Cebu Bionic, insisting that he and his co-respondents Yap and Balila urgently needed the subject properties to pursue their business plans. He also reiterated their demand for Cebu Bionic to vacate the premises. Shortly thereafter, on February 27, 1991, the counsel of respondents To Chip, Yap and Balila sent its final demand letter to Cebu Bionic, warning the latter to vacate the subject properties within seven (7) days from receipt of the letter, otherwise, a case for ejectment with damages will be filed against it. Despite the foregoing notice, Cebu Bionic still paid to DBP, on March 22, 1991, the amount of P5,000.00 as monthly rentals on the unit of the State Theatre Building it was occupying for period of November 1990 to March 1991. On April 10, 1991, petitioners filed against respondents DBP, To Chip, Yap and Balila a complaint for specific performance, cancellation of deed of sale with damages, injunction with a prayer for the issuance of a writ of preliminary injunction. The complaint was docketed as Civil Case No. CEB-10104 in the RTC. Petitioners alleged, inter alia, that Cebu Bionic was the lessee and occupant of a commercial space in the State Theatre Building from October 1981 up to the time of the filing of the complaint. During the latter part of 1990, DBP advertised for sale the State Theatre Building and the commercial lot on which the same was situated. In the prior invitation to bid, the bidding was scheduled on November 15, 1990; while in the next, under the 15-day acceptance period, the submission of proposals was to be made from November 19, 1990 up to 12:00 noon of December 3, 1990. Petitioners claimed that, at about 10:00 a.m. on December 3, 1990, they duly submitted to Atty. Apolinar Panal, Jr., Chief of the Acquired Assets of DBP, the following documents, namely: 6.1 Letter-offer form, offering to purchase the property advertised, for the price of P1,840,000,which was higher than the starting price of P1,838,100.00 on cash basis. x x x; 6.2 Negotiated Sale Rules and Procedures, duly signed by plaintiff, x x x; 124

6.3 Managers check for the amount of P184,000 representing 10% of the deposit dated December 3, 1990 and issued by Allied Banking Corp. in favor of the Development Bank of the Philippines. x x x. (Emphasis ours.) Petitioners asserted that the above documents were initially accepted but later returned. DBP allegedly advised petitioners that "there was no urgent need for the same x x x, considering that the property will necessarily be sold to [Cebu Bionic] for the reasons that there was no other interested party and that [Cebu Bionic] was a preferred party being the lessee and present occupant of the property subject of the lease[.]" Petitioners then related that, without their knowledge, DBP sold the subject properties to respondents To Chip, Yap and Balila. The sale was claimed to be simulated and fictitious, as DBP still received rentals from petitioners until March 1991. By acquiring the subject properties, petitioners contended that DBP was deemed to have assumed the contract of lease executed between them and Rudy Robles. As such, DBP was bound by the provision of the lease contract, which stated that: 9. Should the Lessor decide to sell the property during the term of this lease contract or immediately after the expiration of the lease, the Lessee shall have the first option to buy and shall match offers from outside parties. Petitioners sought the rescission of the contract of sale between DBP and respondents To Chip, Yap and Balila. Petitioners also prayed for the issuance of a writ of preliminary injunction, restraining respondents To Chip, Yap and Balila from registering the Deed of Sale in the latters favor and from undertaking the ejectment of petitioners from the subject properties. Likewise, petitioners entreated that DBP be ordered to execute a deed of sale covering the subject properties in their name and to pay damages and attorneys fees. In its answer, DBP denied the existence of a contract of lease between itself and petitioners. DBP countered that the letter-offer of petitioners was actually not accepted as their offer to purchase was on a term basis, which therefore required a 20% deposit. The 10% deposit accompanying the petitioners letter-offer was declared insufficient. DBP stated that the letter-offer form was not completely filled out as the "Term" and "Mode of Payment" fields were left blank. DBP then informed petitioner Lydia Sia of the inadequacy of her offer. After ascertaining that there was no other offeror as of that time, Lydia Sia allegedly summoned back her representative who did not leave a copy of the letter-offer and the attached documents. DBP maintained that petitioners documents did not show that the same were received and approved by any approving authority of the bank. The letter-offer attached to the complaint, which indicated that the mode of payment was on a cash basis, was allegedly not the document shown to DBP. In addition, DBP argued that there was no assumption of the lease contract between Rudy Robles and petitioners since it acquired the subject properties through the involuntary mode of extrajudicial foreclosure and its request to petitioners to sign a new lease contract was simply ignored. DBP, therefore, insisted that petitioners occupancy of the unit in the State Theatre Building was merely upon its acquiescence. The petitioners payment of rentals on March 22, 1991 was supposedly made in bad faith as they were made to a mere teller who had no knowledge of the sale of the subject properties to respondents To Chip, Yap and Balila. DBP, thus, prayed for the dismissal of the complaint and, by way of counterclaim, asked that petitioners be ordered to pay damages and attorneys fees. Respondents To Chip, Yap and Balila no longer filed a separate answer, adopting instead the answer of DBP. In an Order dated July 31, 1991, the RTC granted the prayer of petitioners for the issuance of a writ of preliminary injunction.

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On April 25, 1997, the RTC rendered judgment in Civil Case No. CEB-10104, finding meritorious the complaint of the petitioners. Explained the trial court: It is a fact on record that [petitioners] complied with the requirements of deposit and advance rental as conditions for constitution of lease between the parties. [Petitioners] in complying with the requirements, issued a time deposit in the amount of P11,395.64 and remitted faithfully its monthly rentals until April, 1991, which monthly rental was no longer accepted by the DBP. Although there was no formal written contract executed between [respondent] DBP and the [petitioners], it is very clear that DBP opted to continue the old and previous contract including the terms thereon by accepting the requirements contained in paragraph 2 of its letter dated June 18, 1987 . It is also a fact on record that under the lease contract continued by the DBP on the [petitioners], it is provided in paragraph 9 thereof that the lessee shall have the first option to buy and shall match offers from outside parties. And yet, [respondent] DBP never gave [petitioners] the first option to buy or to match offers from outside parties, more specifically [respondents] To Chip, Balila and Yap.It is also a fact on record that [respondent] DBP in its letter dated June 18, 1987 to [petitioners] wrote in paragraph 3 thereof, "that in case there is better offer or if a property will be subject of purchase offer, within the term, the lessee is given the option of first refusal, otherwise, he has to vacate the premises within thirty (30) days". Yet, [respondent] DBP never informed [petitioners] that there was an interested party to buy the property, meaning, [respondents To Chip, Yap and Balila], thus depriving [petitioners] of the opportunity of first refusal promised to them in its letter dated June 18, 1987 . x x x. (Emphases ours.) As regards the offer of petitioners to purchase the subject properties from DBP, the RTC gave more credence to the petitioners version of the facts, to wit: It is also a fact on record that when [respondent] DBP offered the property for negotiated sale under the 15-day acceptance period[, which] ended at noon of December 3, 1991, [Cebu Bionic] submitted its offer, complete with [the required documents.] x x x. xxxx These requirements, however, were unceremoniously returned by [respondent] bank with the assurance that since there was no other bidder of the said property, there was no urgency for the same and that [Cebu Bionic] also, in all events, is entitled to first option being the present lessee. The declaration of Atty. Panal to the effect that Cebu Bionic wanted to buy the property on installment terms, such that the deposit of P184,000.00 was insufficient being only 10% of the offer, could not be given much credence as it is refuted by Exh. "H" which is the negotiated offer to purchase form under the 15-day acceptance period accomplished by [petitioners] which shows clearly the written word "Cash" after the printed words "Term" and "Mode of Payment", Exhibit "J", the Managers check issued by Allied Banking Corporation dated December 3, 1990 in the amount of P184,000.00 representing 10% of the offer showing the mode of payment is for cash; Exhibit "K" which is the application for Managers check in the amount of P184,000.00 dated December 3, 1990 showing the beneficiary as DBP. If it is true that the offer of [petitioners] was for installment payments, then in the ordinary course of human behavior, it would not have wasted effort in securing a Managers check in the amount of P184,000.00 which was insufficient for 20% deposit as required for installment payments. More credible is the explanation [given by] witness Judy Garces when she said that DBP through Atty. Panal returned the documents submitted by her, saying that there was no urgency for the same as there was no other bidder of [the said] property and that Cebu Bionic was entitled to a first option to buy being the present lessee. In the letter also of [respondent] bank 126

dated June 18, 1987, it is important to note that aside from requiring Cebu Bionic to comply with certain requirements of time deposit and advance rental, as condition for constitution of lease between the parties and which was complied by Cebu Bionic[,] said letter further states in paragraph 3 thereof that "in case there is [a] better offer or if the property will be subject of a purchase offer, within the term, the lessee is given the option of first refusal, otherwise, he has to vacate the premises within thirty days". In answer to the Courts question, however, Atty. Panal admitted that he did not tell [petitioners] that there was another party who was willing to purchase the property, in violation of [petitioners] right of first refusal. (Emphasis ours.) Likewise, the RTC found that respondents To Chip, Yap and Balila were aware of the lease contract involving the subject properties before they purchased the same from DBP. Thus: [Respondent] Jose To Chip lamely pretends ignorance that [petitioners] are lessees of the property, subject matter of this case. He states that he and his partners, the other [respondents], were given assurances by Atty. Panal of the DBP that [Lydia Sia] is not a lessee, although he knew that [petitioners] were presently occupying the property and that it was possessed by [petitioners] even before it was owned by the DBP. x x x. xxxx [Respondent] Roger Balila, in his testimony, likewise pretended ignorance that he knew that [Lydia Sia] was a lessee of the property. x x x. xxxx Upon further questioning by the Court, he admitted that [Lydia Sia] was not possessing the building freely; that she was a lessee of Rudy Robles, the former owner, but cleverly insisted in disowning knowledge that [Lydia Sia] was a lessee, denying knowledge that [Lydia Sia] was paying rentals to [respondent] bank. His pretended ignorance x x x was a way of evading [Cebu Bionics] right of first priority to buy the property under the contract of lease. x x x The Court is convinced that [respondents To Chip, Yap and Balila] knew that [Cebu Bionic] was the present lessee of the property before they bought the same from [respondent] bank. Common observation, knowledge and experience dictates that as a prudent businessman, it was but natural that he ask Lydia Sia what her status was in occupying the property when he went to talk to her, that he ask her if she was a lessee. But he said, all he asked her was whether she was interested to buy the property. x x x. Issues: Whether or not there was a contract of lease between petitioners and DBP; Whether or not this contract contained a right of first refusal in favor of petitioners; Whether or not respondents To Chip, Yap and Balila are likewise bound by such right of first refusal. Held: In essence, the questions that must be resolved are Petitioners contend that there was a contract of lease between them and DBP, considering that they had been allowed to occupy the premises of the subject property from 1987 up to 1991 and DBP received their rental payments 127

corresponding to the said period. Petitioners claim that DBP were aware of their lease on the subject property when the latter foreclosed the same and the acquisition of the subject properties through foreclosure did not terminate the lease. Petitioners subscribe to the ruling of the RTC that even if there was no written contract of lease, DBP chose to continue the existing contract of lease between petitioners and Rudy Robles by accepting the requirements set down by DBP on the letter dated June 18, 1987. Petitioners likewise posit that the contract of lease between them and Rudy Robles never expired, inasmuch as the contract did not have a definite term and none of the parties thereto terminated the same. In view of the continuation of the lease contract between petitioners and Rudy Robles, petitioners submit that Article 1670 of the Civil Code on implied lease is not applicable on the instant case. We are not persuaded. In Uy v. Land Bank of the Philippines, the Court held that "[i]n respect of the lease on the foreclosed property, the buyer at the foreclosure sale merely succeeds to the rights and obligations of the pledgor-mortgagor subject to the provisions of Article 1676 of the Civil Code on its possible termination. This article provides that [t]he purchaser of a piece of land which is under a lease that is not recorded in the Registry of Property may terminate the lease, save when there is a stipulation to the contrary in the contract of sale, or when the purchaser knows of the existence of the lease. In short, the buyer at the foreclosure sale, as a rule, may terminate an unregistered lease except when it knows of the existence of the lease." In the instant case, the lease contract between petitioners and Rudy Robles was not registered. During trial, DBP denied having any knowledge of the said lease contract. It asserted that the lease was merely presumed in view of the existence of tenants in the subject property. Nevertheless, DBP recognized and acknowledged this lease contract in its letter dated June 18, 1987, which was addressed to Bonifacio Sia, then President of Cebu Bionic. DBP even required Sia to pay the monthly rental for the month of June 1987, thereby exercising the right of the previous lessor, Rudy Robles, to collect the rental payments from the lessee. In the same letter, DBP extended an offer to Cebu Bionic to continue the lease on the subject property, outlining the provisions of the proposed contract and specifically instructing the latter to come to the bank for the execution of the same. DBP likewise gave Cebu Bionic a 30-day period within which to act on the said contract execution. Should Cebu Bionic fail to do so, it would be deemed uninterested in continuing with the lease. In that eventuality, the letter states that Cebu Bionic should vacate the premises within the said period. Instead of acceding to the terms of the aforementioned letter, the counsel of Cebu Bionic sent a counter-offer to DBP dated July 7, 1987, suggesting a different mode of payment for the rentals and requesting for a 60-day period within which time the parties will execute a new contract of lease. The parties, however, failed to execute a written contract of lease. Petitioners put the blame on DBP, asserting that no contract was signed because DBP did not prepare it for them. DBP, on the other hand, counters that it was petitioners who did not positively act on the conditions for the execution of the lease contract. In view of the counter-offer of petitioners, DBP and respondents To Chip, Yap and Balila argue that there was no meeting of minds between DBP and petitioners, which would have given rise to a new contract of lease. The Court rules that, indeed, no new contract of lease was ever perfected between petitioners and DBP. In Metropolitan Manila Development Authority v. JANCOM Environmental Corporation, we emphasized that: 128

Under Article 1305 of the Civil Code, "[a] contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service." A contract undergoes three distinct stages preparation or negotiation, its perfection, and finally, its 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 wherein the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof ( Bugatti vs. CA, 343 SCRA 335 [2000]). Article 1315 of the Civil Code, provides that a contract is perfected by mere consent. Consent, on the other hand, is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract (See Article 1319, Civil Code). x x x. In the case at bar, there was no concurrence of offer and acceptance vis-vis the terms of the proposed lease agreement. In fact, after the reply of petitioners counsel dated July 7, 1987, there was no indication that the parties undertook any other action to pursue the execution of the intended lease contract. Petitioners even admitted that they merely waited for DBP to present the contract to them, despite being instructed to come to the bank for the execution of the same. Contrary to the ruling of the RTC, the Court is also not convinced that DBP opted to continue the existing lease contract between petitioners and Rudy Robles. The findings of the RTC that DBP supposedly accepted the requirements the latter set forth in its letter dated June 18, 1987 is not well taken. To recapitulate, the third paragraph of the letter reads: If you wish to continue on leasing the property, we request you to come to the Bank for the execution of a Contract of Lease, the salient conditions of which are as follows: 1. The lease will be on month to month basis, for a maximum period of one (1) year; 2. Deposit equivalent to two (2) months rental and advance of one (1) month rental, and the remaining amount for one year period (equivalent to 9 months rental) shall be secured by either surety bond, cash bond or assigned time deposit; 3. That in case there is a better offer or if the property will be subject of a purchase offer, within the term, the lessor is given an option of first refusal, otherwise he has to vacate the premises within thirty (30) days from date of notice. The so-called "requirements" enumerated in the above paragraph are not really requirements to be complied with by the petitioners for the execution of the proposed lease contract, as apparently considered by the RTC and the petitioners. A close reading of the letter reveals that the items enumerated therein were in fact the salient terms and conditions of the proposed contract of lease, which the DBP and the petitioners were to execute if the latter were so willing. Also, the Certificate of Time Deposit in the amount of P11,395.64, which was allegedly paid to DBP as advance rental deposit pursuant to the said requirements, was not even clearly established as such since it was neither secured by a security bond or a cash bond, nor was it assigned to DBP. The contention that the lease contract between petitioners and Rudy Robles did not expire, given that it did not have a definite term and the parties thereto failed to terminate the same, deserves scant consideration. To recall, the second 129

paragraph of the terms and conditions of the contract of lease between petitioners and Rudy Robles reads: 2. That the term of this agreement shall start on November 1, 1981 and shall terminate on the last day of every month thereafter; provided however that this contract shall be automatically renewed on a month to month basis if no notice, in writing, is sent to the other party to terminate this agreement after fifteen (15) days from receipt of said notice. (Emphases ours.) Crystal clear from the above provision is that the lease is on a month-tomonth basis. Relevantly, the well-entrenched principle is that a lease from monthto-month is with a definite period and expires at the end of each month upon the demand to vacate by the lessor. As held by the Court of Appeals in the assailed Amended Decision, the above-mentioned lease contract was duly terminated by DBP by virtue of its letter dated June 18, 1987. We reiterate that the letter explicitly directed the petitioners to come to the office of the DBP if they wished to enter into a new lease agreement with the said bank. Otherwise, if no contract of lease was executed within 30 days from the date of the letter, petitioners were to be considered uninterested in entering into a new contract and were thereby ordered to vacate the property. As no new contract was in fact executed between petitioners and DBP within the 30-day period, the directive to vacate, thus, took effect. DBPs letter dated June 18, 1987, therefore, constituted the written notice that was required to terminate the lease agreement between petitioners and Rudy Robles. From then on, the petitioners continued possession of the subject property could be deemed to be without the consent of DBP. Thusly, petitioners assertion that Article 1670 of the Civil Code is not applicable to the instant case is correct. The reason, however, is not that the existing contract was continued by DBP, but because the lease was terminated by DBP, which termination was accompanied by a demand to petitioners to vacate the premises of the subject property. Article 1670 states that "[i]f at the end of the contract the lessee should continue enjoying the thing leased for fifteen days with the acquiescence of the lessor, and unless a notice to the contrary by either party has previously been given, it is understood that there is an implied new lease, not for the period of the original contract, but for the time established in Articles 1682 and 1687. The other terms of the original contract shall be revived." In view of the order to vacate embodied in the letter of DBP dated June 18, 1987 in the event that no new lease contract is entered into, the petitioners continued possession of the subject properties was without the acquiescence of DBP, thereby negating the constitution of an implied lease. Contrary to the ruling of the RTC, DBPs acceptance of petitioners rental payments of P5,000.00 for the period of November 1990 to March 1991 did not likewise give rise to an implied lease between petitioners and DBP. In Tagbilaran Integrated Settlers Association (TISA) Incorporated v. Court of Appeals, 71 we held that "the subsequent acceptance by the lessor of rental payments does not, absent any circumstance that may dictate a contrary conclusion, legitimize the unlawful character of their possession." In the present case, the petitioners rental payments to DBP were made in lump sum on March 22, 1991. Significantly, said payments were remitted only after petitioners were notified of the sale of the subject properties to respondents To Chip, Yap and Balila and after the petitioners were given a final demand to vacate the properties. These facts substantially weaken, if not controvert, the finding of the RTC and the argument of petitioners that the latter were faithfully remitting their rental payments to DBP until the year 1991. Thus, having determined that the petitioners and DBP neither executed a new lease agreement, nor entered into an implied lease contract, it follows that petitioners claim of entitlement to a right of first refusal has no leg to stand on. Furthermore, even if we were to grant, for the sake of argument, that an implied 130

lease was constituted between petitioners and the DBP, the right of first refusal that was contained in the prior lease contract with Rudy Robles was not renewed therewith. This is in accordance with the ruling in Dizon v. Magsaysay, which involved the issue of whether a provision regarding a preferential right to purchase is revived in an implied lease under Article 1670, to wit: "[T]he other terms of the original contract" which are revived in the implied new lease under Article 1670 are only those terms which are germane to the lessees right of continued enjoyment of the property leased. This is a reasonable construction of the provision, which is based on the presumption that when the lessor allows the lessee to continue enjoying possession of the property for fifteen days after the expiration of the contract he is willing that such enjoyment shall be for the entire period corresponding to the rent which is customarily paid in this case up to the end of the month because the rent was paid monthly. Necessarily, if the presumed will of the parties refers to the enjoyment of possession the presumption covers the other terms of the contract related to such possession, such as the amount of rental, the date when it must be paid, the care of the property, the responsibility for repairs, etc. But no such presumption may be indulged in with respect to special agreements which by nature are foreign to the right of occupancy or enjoyment inherent in a contract of lease. DBP cannot, therefore, be accused of violating the rights of petitioners when it offered the subject properties for sale, and eventually sold the same to respondents To Chip, Yap and Balila, without first notifying petitioners. Neither were the said respondents bound by any right of first refusal in favor of petitioners. Consequently, the sale of the subject properties to respondents was valid. Petitioners claim for rescission was properly dismissed.

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V.

LOAN

G.R. No. 160545 March 9, 2010 PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION and ROGELIO S. PANTALEON, Petitioners, vs. ARTHUR F. MENCHAVEZ, Respondent. Facts: On December 8, 1993, Pantaleon, the President and Chairman of the Board of PRISMA, obtained a P1,000,000.00 loan from the respondent, with a monthly interest of P40,000.00 payable for six months, or a total obligation ofP1,240,000.00 to be paid within six (6) months, under a schedule of payments. The checks corresponding to the above amounts are hereby acknowledged. and six (6) postdated checks corresponding to the schedule of payments. Pantaleon signed the promissory note in his personal capacity, and as duly authorized by the Board of Directors of PRISMA. The petitioners failed to completely pay the loan within the stipulated six (6)-month period. From September 8, 1994 to January 4, 1997, the petitioners paid the following amounts to the respondent: September October 1995. 8, 1994 P320,000.00

8,

P600,000.00 P158,772.00 P30,000.00

November 8, 1995. January . 4, 1997

As of January 4, 1997, the petitioners had already paid a total of P1,108,772.00. However, the respondent found that the petitioners still had an outstanding balance of P1,364,151.00 as of January 4, 1997, to which it applied a 4% monthly interest. Thus, on August 28, 1997, the respondent filed a complaint for sum of money with the RTC to enforce the unpaid balance, plus 4% monthly interest, P30,000.00 in attorneys fees, P1,000.00 per court appearance and costs of suit. In their Answer dated October 6, 1998, the petitioners admitted the loan of P1,240,000.00, but denied the stipulation on the 4% monthly interest, arguing that the interest was not provided in the promissory note. Pantaleon also denied that he made himself personally liable and that he made representations that the loan would be repaid within six (6) months. Issue: Whether the parties agreed to the 4% monthly interest on the loan. If so, does the rate of interest apply to the 6-month payment period only or until full payment of the loan? Held: Interest due should be stipulated in writing; otherwise, 12% per annum Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. When the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations governs. In such cases, courts have no authority to alter the contract by construction or to make a new contract for the 132

parties; a court's duty is confined to the interpretation of the contract the parties made for themselves without regard to its wisdom or folly, as the court cannot supply material stipulations or read into the contract words the contract does not contain. It is only when the contract is vague and ambiguous that courts are permitted to resort to the interpretation of its terms to determine the parties intent. In the present case, the respondent issued a check for P1,000,000.00. In turn, Pantaleon, in his personal capacity and as authorized by the Board, executed the promissory note quoted above. Thus, the P1,000,000.00 loan shall be payable within six (6) months, or from January 8, 1994 up to June 8, 1994. During this period, the loan shall earn an interest of P40,000.00 per month, for a total obligation of P1,240,000.00 for the six-month period. We note that this agreed sum can be computed at 4% interest per month, but no such rate of interest was stipulated in the promissory note; rather a fixed sum equivalent to this rate was agreed upon. Article 1956 of the Civil Code specifically mandates that "no interest shall be due unless it has been expressly stipulated in writing." Under this provision, the payment of interest in loans or forbearance of money is allowed only if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for the payment of interest was reduced in writing. The concurrence of the two conditions is required for the payment of interest at a stipulated rate. Thus, we held in Tan v. Valdehueza and Ching v. Nicdao that collection of interest without any stipulation in writing is prohibited by law. Applying this provision, we find that the interest of P40,000.00 per month corresponds only to the six (6)-month period of the loan, or from January 8, 1994 to June 8, 1994, as agreed upon by the parties in the promissory note. Thereafter, the interest on the loan should be at the legal interest rate of 12% per annum, consistent with our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals : When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code." (Emphasis supplied) We reiterated this ruling in Security Bank and Trust Co. v. RTC-Makati, Br. 61, Sulit v. Court of Appeals, Crismina Garments, Inc. v. Court of Appeals , Eastern Assurance and Surety Corporation v. Court of Appeals , Sps. Catungal v. Hao, Yong v. Tiu, and Sps. Barrera v. Sps. Lorenzo. Thus, the RTC and the CA misappreciated the facts of the case; they erred in finding that the parties agreed to a 4% interest, compounded by the application of this interest beyond the promissory notes six (6)-month period. The facts show that the parties agreed to the payment of a specific sum of money of P40,000.00 per month for six months, not to a 4% rate of interest payable within a six (6)-month period. Medel v. Court of Appeals not applicable The CA misapplied Medel v. Court of Appeals in finding that a 4% interest per month was unconscionable. In Medel, the debtors in a P500,000.00 loan were required to pay an interest of 5.5% per month, a service charge of 2% per annum, and a penalty charge of 1% per month, plus attorneys fee equivalent to 25% of the amount due, until the loan is fully paid. Taken in conjunction with the stipulated service charge and penalty, we found the interest rate of 5.5% to be excessive, iniquitous, unconscionable, exorbitant and hence, contrary to morals, thereby rendering the stipulation null and void. Applying Medel, we invalidated and reduced the stipulated interest in Spouses Solangon v. Salazar of 6% per month or 72% per annum interest on 133

a P60,000.00 loan; in Ruiz v. Court of Appeals, of 3% per month or 36% per annum interest on a P3,000,000.00 loan; in Imperial v. Jaucian, of 16% per month or 192% per annum interest on aP320,000.00 loan; in Arrofo v. Quio, of 7% interest per month or 84% per annum interest on a P15,000.00 loan; inBulos, Jr. v. Yasuma, of 4% per month or 48% per annum interest on a P2,500,000.00 loan; and in Chua v. Timan, of 7% and 5% per month for loans totalling P964,000.00. We note that in all these cases, the terms of the loans were open-ended; the stipulated interest rates were applied for an indefinite period. Medel finds no application in the present case where no other stipulation exists for the payment of any extra amount except a specific sum of P40,000.00 per month on the principal of a loan payable within six months. Additionally, no issue on the excessiveness of the stipulated amount of P40,000.00 per month was ever put in issue by the petitioners; they only assailed the application of a 4% interest rate, since it was not agreed upon. It is a familiar doctrine in obligations and contracts that the parties are bound by the stipulations, clauses, terms and conditions they have agreed to, which is the law between them, the only limitation being that these stipulations, clauses, terms and conditions are not contrary to law, morals, public order or public policy. The payment of the specific sum of money of P40,000.00 per month was voluntarily agreed upon by the petitioners and the respondent. There is nothing from the records and, in fact, there is no allegation showing that petitioners were victims of fraud when they entered into the agreement with the respondent. Therefore, as agreed by the parties, the loan of P1,000,000.00 shall earn P40,000.00 per month for a period of six (6) months, or from December 8, 1993 to June 8, 1994, for a total principal and interest amount of P1,240,000.00. Thereafter, interest at the rate of 12% per annum shall apply. The amounts already paid by the petitioners during the pendency of the suit, amounting to P1,228,772.00 as of February 12, 1999, should be deducted from the total amount due, computed as indicated above. We remand the case to the trial court for the actual computation of the total amount due.

134

G.R. No. 171201 June 18, 2010 SPOUSES BENEDICT and MARICEL DY TECKLO, Petitioners, vs. RURAL BANK OF PAMPLONA, INC. represented by its President/Manager, JUAN LAS, Respondent. Facts: On 20 January 1994, spouses Roberto and Maria Antonette Co obtained from respondent Rural Bank of Pamplona, Inc. a P100,000.00 loan due in three months or on 20 April 1994. The loan was secured by a real estate mortgage on a 262-square meter residential lot owned by spouses Co located in San Felipe, Naga City and covered by Transfer Certificate of Title (TCT) No. 24196. The mortgage was registered in the Register of Deeds of Naga City on 21 January 1994 and duly annotated on the TCT of the mortgaged property as Entry No. 58182. One of the stipulations in the mortgage contract was that the mortgaged property would also answer for the future loans of the mortgagor. Pursuant to this provision, spouses Co obtained on 4 March 1994 a second loan from respondent bank in the amount of P150,000.00 due in three months or on 2 June 1994. Petitioners, spouses Benedict and Maricel Dy Tecklo, meanwhile instituted an action for collection of sum of money against spouses Co. The case, docketed as Civil Case No. 94-3161, was assigned to the Regional Trial Court (Branch 25) of Naga City. In the said case, petitioners obtained a writ of attachment on the mortgaged property of spouses Co. The notice of attachment was annotated on the TCT of the mortgaged property as Entry No. 58941. When the two loans remained unpaid after becoming due and demandable, respondent bank instituted extrajudicial foreclosure proceedings. In its 5 September 1994 petition for extrajudicial foreclosure, respondent bank sought the satisfaction solely of the first loan although the second loan had also become due. At the public auction scheduled on 19 December 1994, respondent bank offered the winning bid of P142,000.00, which did not include the second loan. The provisional certificate of sale to respondent bank was annotated on the TCT of the mortgaged property as Entry No. 60794. Petitioners then exercised the right of redemption as successors-in-interest of the judgment debtor. Stepping into the shoes of spouses Co, petitioners tendered on 9 August 1995 the amount of P155,769.50, based on the computation made by the Office of the Provincial Sheriff, as follows: Bid price '..................................................... Interest on the bid price from December 19, 1994 to August 9, 1995 at 1% per month '........................................ Expenses incurred in connection with the registration of the Provisional Certificate of Sale '.................................... Interest on '........................... the expenses 188.50 135 P142,000.00

10,934.00

2,647.00

P155,769.50 Respondent bank objected to the non-inclusion of the second loan. It also claimed that the applicable interest rate should be the rate fixed in the mortgage, which was 24% per annum plus 3% service charge per annum and 18% penalty per annum. However, the Provincial Sheriff insisted that the interest rate should only be 12% per annum. Respondent bank then sought annulment of the redemption, injunction, and damages in the Regional Trial Court (Branch 61) of Naga City docketed as Civil Case No. RTC 96-3521. Issue: Whether the redemption amount includes the second loan in the amount of P150,000.00 even if it was not included in respondent bank's application for extrajudicial foreclosure. Held: Petitioners pointed out that the second loan was not annotated as an additional loan on the TCT of the mortgaged property. Petitioners argued that the second loan was just a private contract between respondent bank and spouses Co, which could not bind third parties unless duly registered. Petitioners stressed that respondent bank's application for extrajudicial foreclosure referred solely to the first loan. Respondent bank insisted that the mortgage secured not only the first loan but also future loans spouses Co might obtain from respondent bank. According to respondent bank, this was specifically provided in the mortgage contract. Respondent bank contended that petitioners, as redemptioner by virtue of the preliminary attachment they obtained against spouses Co, should assume all the debts secured by the mortgaged property. The mortgage contract in this case contains a blanket mortgage clause. A blanket mortgage clause, which makes available future loans without need of executing another set of security documents, has long been recognized in our jurisprudence. It is meant to save time, loan closing charges, additional legal services, recording fees, and other costs. A blanket mortgage clause is designed to lower the cost of loans to borrowers, at the same time making the business of lending more profitable to banks. Settled is the rule that mortgages securing future loans are valid and legal contracts. It is the act of registration which creates a constructive notice to the whole world and binds third persons. By definition, registration is the ministerial act by which a deed, contract, or instrument is inscribed in the records of the office of the Register of Deeds and annotated on the back of the TCT covering the land subject of the deed, contract, or instrument. A person dealing with registered land is not required to go beyond the TCT to determine the liabilities attaching to the property. He is only charged with notice of such burdens on the property as are duly annotated on the TCT. To require him to do more is to defeat one of the primary objects of the Torrens system.

136

G.R. No. 179105 July 26, 2010 METROPOLITAN BANK AND TRUST COMPANY, Petitioner, vs. LARRY MARIAS, Respondent. Facts: Sometime in April 1998, respondent Larry Marias returned to the Philippines from the United States of America. He opened a personal dollar savings account by depositing US$100,000.00 with petitioner Metropolitan Bank and Trust Company. On April 13, 1998, respondent obtained a loan from petitioner in the amount of P2,300,000.00, evidenced by Promissory Note No. 355873. From the initial deposit of US$100,000.00, respondent withdrew US$67,227.95, then deposited it under Account No. 0-26400171-6 (Foreign Currency Deposit [FCD] No. 505671), which he used as security for the P2,300,000.00 loan. Respondent subsequently opened two more foreign currency accounts Account No. 0-26400244-5 (FCD No. 505688) and Account No. 0-264-00357-3 (FCD No. 739809) depositing therein US$25,000.00 and US$17,000.00, respectively. On April 30, 1999, respondent obtained a second loan of P645,150.00, secured by Account No. 0-264-00357-3 (FCD No. 739809). When he inquired about his dollar deposits, respondent discovered that petitioner made deductions against the formers accounts. On May 31, 1999, respondent, through his counsel, demanded from petitioner a proper and complete accounting of his dollar deposits, and the restoration of his deposits to their proper amount without the deductions. In response, petitioner explained that the deductions made from respondents dollar accounts were used to pay the interest due on the latters loan with the former. These deductions, according to petitioner, were authorized by respondent through the Deeds of Assignment with Power of Attorney voluntarily executed by respondent. Unsatisfied, and believing that the deductions were unauthorized, respondent commenced an action for Damages against petitioner and its Kabihasnan, Paraaque City Branch Manager Expedito Fernandez (Fernandez) before the RTC, Las Pias City. The case was docketed as Civil Case No. 99-0172 and was raffled to Branch 255. While admitting the existence of the P2,300,000.00 and P645,150.00 loans, respondent claimed that when he signed the loan documents, they were all in blank and they were actually filled up by petitioner. Aside from the complete accounting of his dollar accounts and the restoration of the true amounts of his deposits, respondent sought the payment ofP400,000.00 as moral damages, P100,000.00 as exemplary damages, and P100,000.00 as attorneys fees. On its part, petitioner insisted that respondent freely and voluntarily signed the loan documents. While admitting the full payment of respondents P2,300,000.00 and P645,150.00 loans, petitioner claimed that the payments were made using the formers US$67,227.95, US$25,000.00, and US$17,000.00 time deposits. Accordingly, there was nothing to account for and restore. By way of counterclaim, petitioner prayed for the payment of P200,000.00 as attorneys fees,P1,000,000.00 as moral damages, and P500,000.00 as exemplary damages. Issue: WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN ORDERING PETITIONER TO ACCOUNT FOR AND RETURN TO RESPONDENT THE SUMS OF US$30,000.00 AND US$25,000.00. Held: As provided in Article 1159 of the Civil Code, "obligations arising from contract have the force of law between the contracting parties and should be complied with in good faith." Verily, parties may freely stipulate their duties and 137

obligations which perforce would be binding on them. Not being repugnant to any legal proscription, the agreement entered into between petitioner and respondent must be respected and given the force of law between them. Upon the maturity of the first loan on April 8, 1999, petitioner was authorized to automatically deduct, by way of offsetting, respondents outstanding debt (including interests) to it from the latters deposit accounts and their accumulated interest. Respondent did not object to the deduction made from the proceeds of Account No. 0-26400171-6, but would limit such deduction only to the payment of the principal of P2,300,000.00. However, it should be borne in mind that in addition to the authority to effect the said deduction for the principal loan amount, petitioner was authorized to make further deductions for interest payments at the rate of 22.929% per annum until April 21, 1999. With respect to the second loan, barely a month after the execution of the promissory note and definitely prior to the maturity date, respondent already paid the principal of P645,150.00 out of the deposited amount in Account No. 0-26400357-3. Pursuant to the promissory note, respondent agreed to pay interest at the rate of 16.987% per annum. While it is conceded that petitioner had the right to offset the unpaid interests due it against the deposits of respondent, the issue of whether it acted judiciously is an entirely different matter. As business affected with public interest, and because of the nature of their functions, banks are under obligation to treat the accounts of their depositors with meticulous care, always having in mind the fiduciary nature of their relationship. Pursuant to the above disquisition, it is clear that despite such authority, petitioner should still account for whatever excess deductions made on respondents deposits and return to respondent such amounts taken from him. To be sure, respondent had interest-earning deposits with petitioner in accordance with their agreement. On the other hand, after respondent paid the principal on April 21, 1999 and May 10, 1999 on the two loans which he obtained from petitioner, the latter had the authority to make deductions for the payment of interest as stipulated in respondents promissory notes. When we consider the total amount of respondents deposits in his dollar accounts inclusive of interests earned vis--vis his total obligations to petitioner, we find that the total depletion of his accounts is not warranted. Hence, we find no reason to disturb the CA conclusion on the award of damages. As aptly explained in Bank of the Philippine Islands v. Court of Appeals: For the above reasons, the Court finds no reason to disturb the award of damages granted by the CA against petitioner. This whole incident would have been avoided had petitioner adhered to the standard of diligence expected of one engaged in the banking business. A depositor has the right to recover reasonable moral damages even if the banks negligence may not have been attended with malice and bad faith, if the former suffered mental anguish, serious anxiety, embarrassment and humiliation. Moral damages are not meant to enrich a complainant at the expense of defendant. It is only intended to alleviate the moral suffering she has undergone. The award of exemplary damages is justified, on the other hand, when the acts of the bank are attended by malice, bad faith or gross negligence. The award of reasonable attorneys fees is proper where exemplary damages are awarded. It is proper where depositors are compelled to litigate to protect their interest.

138

G.R. No. 171925 July 23, 2010 SOLIDBANK CORPORATION, (now Metropolitan Company), Petitioner, vs. PERMANENT HOMES, INCORPORATED, Respondent. Facts:

Bank

and

Trust

The records disclose that PERMANENT HOMES is a real estate development company, and to finance its housing project known as the "Buena Vida Townhomes" located within Merville Subdivision, Paraaque City, it applied and was subsequently granted by SOLIDBANK with an "Omnibus Line" credit facility in the total amount of SIXTY MILLION PESOS. Of the entire loan, FIFTY NINE MILLION as [sic] time loan for a term of up to three hundred sixty (360) days, with interest thereon at prevailing market rates, and subject to monthly repricing. The remaining ONE MILLION was available for domestic bills purchase. To secure the aforesaid loan, PERMANENT HOMES initially mortgaged three (3) townhouse units within the Buena Vida project in Paraaque. At the time, however, the instant complaint was filed against SOLIDBANK, a total of thirty six (36) townhouse units were mortgaged with said bank. Of the 60 million available to PERMANENT HOMES, it availed of a total of 41.5 million pesos, covered by three (3) promissory notes, which contain the following provisions, thus: "xxx 5. We/I irrevocably authorize Solidbank to increase or decrease at any time the interest rate agreed in this Note or Loan on the basis of, among others, prevailing rates in the local or international capital markets. For this purpose, We/I authorize Solidbank to debit any deposit or placement account with Solidbank belonging to any one of us. The adjustment of the interest rate shall be effective from the date indicated in the written notice sent to us by the bank, or if no date is indicated, from the time the notice was sent. 6. Should We/I disagree to the interest rate adjustment, We/I shall prepay all amounts due under this Note or Loan within thirty (30) days from the receipt by anyone of us of the written notice. Otherwise, We/I shall be deemed to have given our consent to the interest rate adjustment." Contrary, however, to the specific provisions as afore-quoted, there was a standing agreement by the parties that any increase or decrease in interest rates shall be subject to the mutual agreement of the parties. For the first loan availment of PERMANENT HOMES on March 20, 1997, in the amount of 19.6 MILLION, from the initial interest rate of 14.25% per annum (p.a.), the same was increased 15% p.a. effective May 19, 1997; it was again increased to 26% p.a. effective July 18, 1997. It was thereafter reduced to 20% p.a. effective August 18, 1997, and then increased to 24% p.a. effective September 17, 1997. The rate was increased further to 30% p.a. effective October 17, 1997, then decreased to 27% p.a. on November 17, 1997, and again increased to 34% p.a. effective December 17, 1997. The rate then decreased to 30% p.a. on January 16, 1998. For the second loan availment in the amount of 18 million, the rate was initially pegged at 15.75% p.a. on June 24, 1997. A month later, the rate increased to 23.5% p.a. It thereafter decreased to 20% p.a. effective August 24, 1997, but again increased to 22.5% p.a. effective September 24, 1997. For the next month, the rate surged to 30% p.a., and decreased to 27% p.a. for the month of November. The rate again surged to 34% p.a. for the month of December, and was decreased to 30% p.a. from January 22, 1998 to February 20, 1998. 139

For the third loan availment on July 15, 1997, in the amount of 3.9 million, the interest rate was initially pegged at 35% p.a., but this was decreased to 21% p.a. from August 14 until September 11, 1997. The rate increased slightly to 23% p.a. on September 12, 1997, and surged to 27% p.a. on October 13, 1997. The rate went down slightly to 27% p.a. for the month of November, and to 26% p.a. for the month of December. The rate, however, again surged to 30% p.a. on January 12, 1998 before settling at 29% p.a. for the month of February. It is [Permanents] stand that SOLIDBANK unilaterally and arbitrarily accelerated the interest rates without any declared basis of such increases, of which PERMANENT HOMES had not agreed to, or at the very least, been informed of. This is contrary to their earlier agreement that any interest rate changes will be subject to mutual agreement of the parties. PERMANENT HOMES further admits that it was not able to protest such arbitrary increases at the time they were imposed by SOLIDBANK, for fear that SOLIDBANK might cut off the credit facility it extended to PERMANENT HOMES. Permanent was then in the midst of the construction of its project in Merville, Paraaque City, and SOLIDBANK knew that it was relying substantially on the credit facility the latter extended to it. [Permanent] thus filed a case before the trial court seeking the following: (1) the annulment of the increases in interest rates on the loans it obtained from SOLIDBANK, on the ground that it was violative of the principle of mutuality of agreement of the parties, as enunciated in Article 1409 of the New Civil Code, (2) the fixing of the interest rates at the applicable interest rate, and (3) for the trial court to order SOLIDBANK to make an accounting of the payments it made, so as to determine the amount of refund PERMANENT is entitled to, as well as to order SOLIDBANK to release the remaining available balance of the loan it extended to PERMANENT. In addition, [Permanent] prays for the payment of compensatory, moral and exemplary damages. SOLIDBANK, on the other hand, avers that PERMANENT HOMES has no cause of action against it, in view of the pertinent provisions of the Omnibus Credit Line and the promissory notes agreed to and signed by PERMANENT HOMES. Thus, in accordance with said provisions, SOLIDBANK was authorized to, upon due notice, periodically adjust the interest rates on PERMANENT HOMES loan availments during the monthly interest repricing dates, depending on the changes in prevailing interest rates in the local and international capital markets. In fact, SOLIDBANK avers that four (4) days before July 15, 1997, the Bangko Sentral ng Pilipinas (BSP) declared that it could no longer support the Philippine currency from external speculative forces, hence, the local currency was allowed to seek its own exchange rate level. As a result of the volatile exchange rate ratio, banks were then hesitant to extend loans, and in some instances that it granted loans, they had to ensure that they will not be at the losing end of the deal, so to speak, by the repricing of the interest rates every month. SOLIDBANK insists that PERMANENT HOMES should not be allowed to renege on its contractual obligations, as it freely and voluntarily bound itself to the provisions of the Omnibus Credit Line and the promissory notes. PERMANENT HOMES presented as witnesses Jacqueline S. Lim, its Vice President and Chief Financial Officer, Engr. Rey A. Romasanta, its Executive Vice President and Chief Operating Officer, and Martha Julia Flores, its Treasury Officer. On March 24, 1998, the trial court issued a temporary restraining order (TRO), after a summary hearing, which enjoined SOLIDBANK from implementing and collecting the increases in interest rates and from initiating any action, including the foreclosure of the mortgaged properties. Ms. Lims testimony centered on PERMANENT HOMES allegations that the repricing of the interest rates was done by SOLIDBANK without any written agreement entered into between the parties. In fact, Ms. Lim accounted that SOLIDBANK will merely advise them of the interest rate for the period, after said period had already commenced, and at times very late in the period, by fax messages. When PERMANENT HOMES called SOLIDBANKs attention to the seemingly surging rates it imposed on its loan, SOLIDBANK will merely answer that 140

it was the banks policy, without offering any basis for such increase. Furthermore, Ms. Lim also mentioned SOLIDBANKs alleged practice of imposing interest on unpaid interest, at the highest rate of 30% p.a.. Ms. Lim also presented a tabulation, which presents the number of days their billing statements were sent late, from the time the interest period started. It is PERMANENT HOMES stand that since the purpose of the billing statements was to inform them beforehand of the applicable interest rate for the period, the late billings will clearly show SOLIDBANKs arbitrary imposition of the repriced interest rates, as well as its indifference to PERMANENT HOMES plight. To illustrate, for the first loan availment in the amount of P19.6 million, the billing statements which should have notified PERMANENT HOMES of the repriced interest rates were faxed to PERMANENT HOMES between eighteen (18) to thirtythree (33) days late. For the second loan availment in the amount of P18 million, the faxed billings were late between six (6) to twenty-one (21) days, and one instance where PERMANENT HOMES received no billing at all. For the third loan availment in the amount of P3.9 million, the faxed billings were late between seven (7) to twenty-nine (29) days, and also an instance where PERMANENT HOMES received no billing at all. This practice, according to Ms. Lim, clearly affected its operations, as the completion of its construction project was unnecessarily delayed, to its prejudice and its buyers. This was the import of the testimony of PERMANENT HOMES second witness, Engr. Rey A. Romasanta. According to Engr. Rey, the target date of completion was August 1997, but in view of the shortage of funds by reason of SOLIDBANKs refusal for PERMANENT HOMES to make further availments on its omnibus credit line, the project was completed only on February 1998. PERMANENT HOMES third and final witness was Martha Julia Flores, its Treasury Officer, who explained that as such, it was her who received the late billings from SOLIDBANK. She would also call up SOLIDBANK to ask what the repriced interest rate for the coming interest period, to no avail, as SOLIDBANK will merely fax its billings almost always, as abovementioned, late in the period. Ms. Flores admitted that she prepared the tabulation presented before the court, which showed how late SOLIDBANKs billings were sent to PERMANENT HOMES, as well as the computation of interest rates that SOLIDBANK had allegedly overcharged on its loan, vis-a-vis the average of the high and the low published lending rates of SOLIDBANK. SOLIDBANK, to establish its defense, presented its lone witness, Mr. Cesar Lugtu, who testified to the effect that, contrary to PERMANENT HOMES assertions that it was not promptly informed of the repriced interest rates, SOLIDBANKs officers verbally advised PERMANENT HOMES of the repriced rates at the start of the period, and even added that their transaction[s] were based on trust. Aside from these allegations, however, no written memorandum or note was presented by SOLIDBANK to support their assertion that PERMANENT HOMES was timely advised of the repriced interests. Issue: Whether the Honorable Court of Appeals was correct in ruling that the increases in the interest rates on [Permanents] loans are void for having been unilaterally imposed without basis. Held: The Usury Law had been rendered legally ineffective by Resolution No. 224 dated 3 December 1982 of the Monetary Board of the Central Bank, and later by Central Bank Circular No. 905 which took effect on 1 January 1983. These circulars removed the ceiling on interest rates for secured and unsecured loans regardless of maturity. The effect of these circulars is to allow the parties to agree on any interest that may be charged on a loan. The virtual repeal of the Usury Law is within the range of judicial notice which courts are bound to take into account. Although 141

interest rates are no longer subject to a ceiling, the lender still does not have an unbridled license to impose increased interest rates. The lender and the borrower should agree on the imposed rate, and such imposed rate should be in writing.

142

G.R. No. 171736 July 5, 2010 PENTACAPITAL INVESTMENT CORPORATION, Petitioner, vs. MAKILITO B. MAHINAY, Respondent. Facts: Petitioner filed a complaint for a sum of money against respondent Makilito Mahinay based on two separate loans obtained by the latter, amounting to P1,520,000.00 and P416,800.00, or a total amount of P1,936,800.00. These loans were evidenced by two promissory notes dated February 23, 1996. Despite repeated demands, respondent failed to pay the loans, hence, the complaint. In his Answer with Compulsory Counterclaim, respondent claimed that petitioner had no cause of action because the promissory notes on which its complaint was based were subject to a condition that did not occur. While admitting that he indeed signed the promissory notes, he insisted that he never took out a loan and that the notes were not intended to be evidences of indebtedness. By way of counterclaim, respondent prayed for the payment of moral and exemplary damages plus attorneys fees. Respondent explained that he was the counsel of Ciudad Real Development Inc. (CRDI). In 1994, Pentacapital Realty Corporation (Pentacapital Realty) offered to buy parcels of land known as the Molino Properties, owned by CRDI, located in Molino, Bacoor, Cavite. The Molino Properties, with a total area of 127,708 square meters, were sold atP400.00 per sq m. As the Molino Properties were the subject of a pending case, Pentacapital Realty paid only the down payment amounting to P12,000,000.00. CRDI allegedly instructed Pentacapital Realty to pay the formers creditors, including respondent who thus received a check worth P1,715,156.90. It was further agreed that the balance would be payable upon the submission of an Entry of Judgment showing that the case involving the Molino Properties had been decided in favor of CRDI. Respondent, Pentacapital Realty and CRDI allegedly agreed that respondent had a charging lien equivalent to 20% of the total consideration of the sale in the amount of P10,277,040.00. Pending the submission of the Entry of Judgment and as a sign of good faith, respondent purportedly returned the P1,715,156.90 check to Pentacapital Realty. However, the Molino Properties continued to be haunted by the seemingly interminable court actions initiated by different parties which thus prevented respondent from collecting his commission. On motion of respondent, the Regional Trial Court (RTC) allowed him to file a Third Party Complaint against CRDI, subject to the payment of docket fees. Admittedly, respondent earlier instituted an action for Specific Performance against Pentacapital Realty before the RTC of Cebu City, Branch 57, praying for the payment of his commission on the sale of the Molino Properties. In an Amended Complaint, respondent referred to the action he instituted as one of Preliminary Mandatory Injunction instead of Specific Performance. Acting on Pentacapital Realtys Motion to Dismiss, the RTC dismissed the case for lack of cause of action. The dismissal became final and executory. With the dismissal of the aforesaid case, respondent filed a Motion to Permit Supplemental Compulsory Counterclaim. In addition to the damages that respondent prayed for in his compulsory counterclaim, he sought the payment of his commission amounting to P10,316,640.00, plus interest at the rate of 16% per annum, as well as attorneys fees equivalent to 12% of his principal claim. Respondent claimed that Pentacapital Realty is a 100% subsidiary of petitioner. Thus, although petitioner did not directly participate in the transaction between Pentacapital Realty, CRDI and respondent, the latters claim against petitioner was based on the doctrine of piercing the veil of corporate fiction. Simply stated, respondent alleged that petitioner and Pentacapital Realty are one and the same entity belonging to the Pentacapital Group of Companies. 143

Over the opposition of petitioner, the RTC, in an Order dated August 22, 2002, allowed the filing of the supplemental counterclaim. Aggrieved, petitioner sought recourse in the CA through a special civil action for certiorari, seeking to reverse and set aside the RTC Order. The case was docketed as CA-G.R. SP No. 74851. On December 20, 2005, the CA rendered the assailed Decision dismissing the petition. The appellate court sustained the allowance of the supplemental compulsory counterclaim based on the allegations in respondents pleading. The CA further concluded that there was a logical relationship between the claims of petitioner in its complaint and those of respondent in his supplemental compulsory counterclaim. The CA declared that it was inconsequential that respondent did not clearly allege the facts required to pierce the corporate separateness of petitioner and its subsidiary, the Pentacapital Realty. Issue: Whether or not the promissory notes lacked consideration as he did not receive the proceeds of the loan Held: Under Article 1354 of the Civil Code, it is presumed that consideration exists and is lawful unless the debtor proves the contrary. Moreover, under Section 3, Rule 131 of the Rules of Court, the following are disputable presumptions: (1) private transactions have been fair and regular; (2) the ordinary course of business has been followed; and (3) there was sufficient consideration for a contract. A presumption may operate against an adversary who has not introduced proof to rebut it. The effect of a legal presumption upon a burden of proof is to create the necessity of presenting evidence to meet the legal presumption or the prima facie case created thereby, and which, if no proof to the contrary is presented and offered, will prevail. The burden of proof remains where it is, but by the presumption, the one who has that burden is relieved for the time being from introducing evidence in support of the averment, because the presumption stands in the place of evidence unless rebutted. In the present case, as proof of his claim of lack of consideration, respondent denied under oath that he owed petitioner a single centavo. He added that he did not apply for a loan and that when he signed the promissory notes, they were all blank forms and all the blank spaces were to be filled up only if the sale transaction over the subject properties would not push through because of a possible adverse decision in the civil cases involving them (the properties). He thus posits that since the sale pushed through, the promissory notes did not become effective. Contrary to the conclusions of the RTC and the CA, we find such proof insufficient to overcome the presumption of consideration. The presumption that a contract has sufficient consideration cannot be overthrown by the bare, uncorroborated and self-serving assertion of respondent that it has no consideration. The alleged lack of consideration must be shown by preponderance of evidence. As it now appears, the promissory notes clearly stated that respondent promised to pay petitioner P1,520,000.00 andP416,800.00, plus interests and penalty charges, a year after their execution. Nowhere in the notes was it stated that they were subject to a condition. As correctly observed by petitioner, respondent is not only a lawyer but a law professor as well. He is, therefore, legally presumed not only to exercise vigilance over his concerns but, more importantly, to know the legal and binding effects of promissory notes and the intricacies involving the execution of negotiable instruments including the need to execute an agreement to document extraneous collateral conditions and/or agreements, if truly there were such. This militates against respondents claim that there was indeed such an agreement. Thus, the promissory notes should be accepted as they appear on their face.

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Respondents liability is not negated by the fact that he has uncollected commissions from the sale of the Molino properties. As the records of the case show, at the time of the execution of the promissory notes, the Molino properties were subject of various court actions commenced by different parties. Thus, the sale of the properties and, consequently, the payment of respondents commissions were put on hold. The non-payment of his commissions could very well be the reason why he obtained a loan from petitioner. In Sierra v. Court of Appeals, we held that: A promissory note is a solemn acknowledgment of a debt and a formal commitment to repay it on the date and under the conditions agreed upon by the borrower and the lender. A person who signs such an instrument is bound to honor it as a legitimate obligation duly assumed by him through the signature he affixes thereto as a token of his good faith. If he reneges on his promise without cause, he forfeits the sympathy and assistance of this Court and deserves instead its sharp repudiation. Aside from the payment of the principal obligation of P1,936,800.00, the parties agreed that respondent pay interest at the rate of 25% from February 17, 1997 until fully paid. Such rate, however, is excessive and thus, void. Since the stipulation on the interest rate is void, it is as if there was no express contract thereon. To be sure, courts may reduce the interest rate as reason and equity demand. In this case, 12% interest is reasonable. The promissory notes likewise required the payment of a penalty charge of 3% per month or 36% per annum. We find such rates unconscionable. This Court has recognized a penalty clause as an accessory obligation which the parties attach to a principal obligation for the purpose of ensuring the performance thereof by imposing on the debtor a special prestation (generally consisting of the payment of a sum of money) in case the obligation is not fulfilled or is irregularly or inadequately fulfilled. However, a penalty charge of 3% per month is unconscionable; hence, we reduce it to 1% per month or 12% per annum, pursuant to Article 1229 of the Civil Code which states: Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.

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G.R. No. 174979 August 11, 2010 BONIFACIO SANZ MACEDA, JR., Petitioner, vs. DEVELOPMENT BANK OF THE PHILIPPINES, Respondent. Facts: It appears that on July 28, 1976 plaintiff Bonifacio Maceda, Jr. (Maceda) obtained a loan from the defendant DBP in the amount of P7.3 million to finance the expansion of the Old Gran Hotel in Leyte. Upon approval of said loan, plaintiff Maceda executed a promissory note and a mortgage of real estate. Project cost of the New Gran Hotel was P10.5M. DBP fixed a debt-equity ratio of 70%-30%, corresponding to DBP and Macedas respective infusion in the hotel project. Macedas equity infusion was P2.93M, or 30% of P10.5M. The DBP Governor at that time, Recio Garcia, in-charge of loans for hotels, allegedly imposed the condition that DBP would choose the building contractor, namely, Moreman Builders Co. (Moreman). The contractor would directly receive the loan releases from DBP, after verification by DBP of the construction progress. The period of loan availment was 360 days from date of initial release of the loan. Similarly, suppliers of equipment and furnishings for the hotel were also to be paid directly by DBP. The construction deadline was set for December 22, 1977. Maceda filed a complaint for Rescission of the building contract with Damages against the contractor Moreman, before the then Manila Court of First Instance Branch 39, which was docketed as Civil Case No. 113498. In its decision dated November 28, 1978, the CFI rescinded the building contract, suspended the period of availment, allowed Maceda to himself take over construction, and directed DBP to release to Maceda the sum of P1.003M, which had previously been approved for release in January 1978. The DBP was further ordered to give plaintiff Maceda such other amounts still pending release. Moreman filed an appeal which was subsequently dismissed in 1990 by the Supreme Court. Entry of judgment on this case was issued on April 23, 1990. In the meantime, Maceda also instituted the case a quo for Specific Performance with Damages against defendant DBP before the Makati RTC in 1984. The Manila CFIs November 28, 1978 Decision and the factual findings therein contained became part of the evidence submitted before the Makati RTC as Exh. "D." In essence, Macedas complaint before the Makati RTC alleged that DBP conspired with the contractor, Moreman, by approving anomalous loan releases to the latter despite exaggerated charges and valuation made by said contractor on the hotel project. In effect, it was alleged that despite only a 15% accomplishment which should have cost only P700,000.00, the contractor, thru the active connivance of the DBP, was able to rake in a total of P3,174,358.38 or 60% of the cost of the projected hotel building. When plaintiff Maceda himself tried to resume the completion and construction of the hotel project, after the building contract with Moreman was already rescinded by the CFI Manila, defendant allegedly blocked efforts of the plaintiff by delaying the release of funds from his loan with the DBP and imposing onerous conditions which made it difficult for plaintiff to pursue the construction of the New Gran Hotel. It was further alleged that due to such delays on the part of the DBP, the period of availment of the loan expired without the plaintiffs [sic] having availed of the total approved amount of their loan. The construction of the hotel was never finished. Worse, due to interests and penalties, the obligation of the plaintiff has ballooned to P11,817,365.90 as of January 31, 1984, not to mention the amount ofP810,702.68 supposedly representing interests and charges for the period of February 1, 1978 to October 1979. Finally, DBP allegedly threatened to foreclose the mortgaged properties of the plaintiff. Issue: What is the applicable interest rate? Held: 146

In accordance with our ruling in Sta. Lucia Realty and Development v. Spouses Buenaventura, the applicable interest rate on the P6,153,398.05 to be paid by DBP to Maceda is 6% per annum, to be reckoned from the time of the filing of the complaint on 15 October 1984, because the case at bar involves a breach of obligation and not a loan or forbearance of money. We guide ourselves with the rules of thumb established in Eastern Shipping Lines, Inc. v. Court of Appeals. 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. Pursuant to these rules, the interest rate of 12% per annum shall apply from the finality of judgment until the total amount awarded is fully paid. The imposition of interest already takes into account the passage of time, and is meant to compensate Maceda for any further delays in payment by DBP.

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G.R. No. 179395 December 15, 2010 MAXWELL HEAVY EQUIPMENT CORPORATION, Petitioner, vs. ERIC UYCHIAOCO YU, Respondent. Facts: On 3 April 2001 and 2 May 2001, Maxwell obtained loans from BPI, G. Araneta Avenue Branch, in the total sum ofP8,800,000.00 covered by two Promissory Notes and secured by a real estate mortgage over two lots registered in Yus name. Promissory Note No. 1-6743742-001 for P800,000.00 was due on 26 March 2002 while Promissory Note No. 1-6743742-002 for P8,000,000.00 was due on 24 April 2002. Yu signed as Maxwells co-maker in the Promissory Note covering the P8,000,000 loan. It appears that Yu did not sign as co-maker in the Promissory Note for P800,000. Maxwell defaulted in the payment of the loans, forcing Yu to pay BPI P8,888,932.33 representing the principal loan amounts with interest, through funds borrowed from his mother, Mina Yu, to prevent the foreclosure of his real properties. Thereafter, Yu demanded reimbursement from Maxwell of the entire amount paid to BPI. However, Maxwell failed to reimburse Yu. Consequently, Yu filed with the trial court a complaint for sum of money and damages. Issue: Whether Yu is entitled to reimbursement from Maxwell for the loan payment made to BPI. This issue in turn depends on whether the transactions with BPI were accommodation loans solely for Yus benefit. Held: The Court of Appeals affirmed the trial courts finding that "it was Yu who accommodated Maxwell by allowing the use of his real properties as collateral [for Maxwells loans]." The appellate court concurred with the trial court that Maxwell is the principal borrower since it was Maxwell which paid interest on the loans. Additionally, various documents designated Maxwell as borrower and communications demanding payment of the loans sent by BPI were addressed to Maxwell as the borrower, with Yu indicated only as the owner of the real properties as loan collateral. Furthermore, we affirm the finding that Maxwell gravely failed to substantiate its claim that the loans were purely for Yus benefit. Maxwells evidence consisting of the testimony of Caroline Yu, Yus spouse and then president of Maxwell, was uncorroborated. On the other hand, Yus and his mothers testimonies were supported by various documents establishing the real nature of the loan, and belying Maxwells allegations. Yu presented the following: (1) Corporate Resolution to Borrow, dated 21 August 2000, where Maxwell authorized Caroline Yu to loan from BPI on its behalf; (2) the two Promissory Notes, dated 3 April 2001 and 2 May 2001, signed by Caroline Yu as Maxwells representative; and (3) two disclosure statements, dated 3 April 2001 and 2 May 2001, on "loan/credit transaction" signed by Caroline Yu, designating Maxwell as the borrower. Based on the foregoing, it is clear that Maxwell is the principal borrower solely liable for the payment of the loans. While Maxwell is the real debtor, it was Yu who paid BPI the entire amount of Maxwells loans. Hence, contrary to Maxwells view, Article 1236 of the Civil Code applies. This provision reads:

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The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. The above provision grants the plaintiff (Yu) the right to recovery and creates an obligation on the part of the defendant (Maxwell) to reimburse the plaintiff. In this case, Yu paid BPI P8,888,932.33, representing the amount of the principal loans with interest, thereby extinguishing Maxwells loan obligation with BPI. Pursuant to Article 1236 of the Civil Code, Maxwell, which was indisputably benefited by Yus payment, must reimburse Yu the same amount of P8,888,932.33.

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VI.

ALEATORY CONTRACTS- INSURANCE, GAMBLING, LIFE ANNUITY

G.R NO. 111794 February 4, 2010 ASIAN TERMINALS INC. Petitioners, vs. DAEHAN FIRE AND MARINE INSURANCE CO., LTD. Respondent. Facts: On July 8, 2000, Doosan Corporation (Doosan) shipped twenty-six (26) boxes of printed aluminum sheets on board the vessel Heung-A Dragon owned by Dongnama Shipping Co., Ltd. (Dongnama). The shipment was covered by Bill of Lading No. DNALHMBUMN010010 and consigned to Access International, with address at No. 9 Parada St., San Juan, Metro Manila. Doosan insured the subject shipment with respondent Daehan Fire and Marine Insurance Co., Ltd. under an allrisk marine cargo insurance policy, payable to its settling agent in the Philippines, the Smith Bell & Co., Inc. (Smith Bell). On July 12, 2000, the vessel arrived in Manila and the containerized van was discharged and unloaded in apparent good condition, as no survey and exceptions were noted in the Equipment Interchange Receipt (EIR) issued by petitioner. The container van was stored in the Container Yard of the Port. On July 18, 2000, Access International requested from petitioner and the licensed Customs Broker, Victoria Reyes Lazo (V. Reyes Lazo), a joint survey of the shipment at the place of storage in the Container Yard, but no such inspection was conducted. On July 19, 2000, V. Reyes Lazo withdrew, and petitioner released, the shipment and delivered it to Access Internationals warehouse in Binondo, Manila. While the shipment was at Access Internationals warehouse, the latter, together with its surveyor, Lloyds Agency, conducted an inspection and noted that only twelve (12) boxes were accounted for, while fourteen (14) boxes were missing. Access International thus filed a claim against petitioner and V. Reyes Lazo for the missing shipment amounting to $34,993.28. For failure to collect its claim, Access International sought indemnification from respondent in the amount of $45,742.81. On November 8, 2000, respondent paid the amount of the claim and Access International accordingly executed a Subrogation Receipt in favor of the former. On July 10, 2001, respondent, represented by Smith Bell, instituted the present case against Dongnama, Uni-ship, Inc. (Uni-ship), petitioner, and V. Reyes Lazo before the RTC. Respondent alleged that the losses, shortages and short deliveries sustained by the shipment were caused by the joint fault and negligence of Dongnama, petitioner and V. Reyes Lazo. Dongnama and Uni-ship filed a Motion to Dismiss on the grounds that Daehan lacked legal capacity to sue and that the complaint stated no cause of action. The trial court, however, denied the motion in an Order dated August 31, 2001. Thereafter, Dongnama and Uni-ship filed their Answer with Counterclaim and Cross-Claim Ad Cautelam denying any liability for the damages/losses sustained by the shipment, pointing out that it was on a Full Container Load, Said to Contain, and Shippers Load and Count bases, under which they had no means of verifying the contents of the containers. They also alleged that the container van was properly discharged from the vessel with seals intact and no exceptions noted. Moreover, they claimed that the losses occurred while the subject shipment was in the custody, possession or control of the shipper, its trucker, the arrastre operator, or their representatives, or due to the consignees own negligence. They further questioned the absence of notice of loss within the three (3)-day period provided under the Carriage of Goods by Sea Act. Finally, they averred that their liability, if there be any, should only be limited to US$500.00 per package or customary freight unit. 150

For its part, petitioner denied liability, claiming that it exercised due diligence in handling and storing the subject container van. It, likewise, assailed the timeliness of the complaint, having been filed beyond the fifteen (15)-day period under its Contract for Cargo Handling Services with the Philippine Ports Authority (PPA). If at all, petitioner added, its liability should only be limited to P5,000.00. In her Answer, V. Reyes Lazo questioned respondents capacity to sue in Philippine courts. She accused respondent of engaging in a fishing expedition since the latter could not determine with clarity the party at fault. On December 2, 2002, in their Joint Motion to Dismiss, respondent, on one hand, and Dongnama and Uni-ship, on the other, prayed that the complaint be dismissed against the latter, alleging that they could not be held liable based on the EIR. The motion was granted on December 9, 2002. Consequently, the case proceeded as against petitioner and V. Reyes Lazo. As no amicable settlement was reached during the pretrial, trial on the merits ensued. On August 4, 2004, the RTC dismissed the complaint for insufficiency of evidence. It found the complaint fatally flawed, having been signed by a person who had no authority from complainant (respondent herein) corporation to act for and on behalf of the latter. The RTC, likewise, held that respondent failed to prove that the loss/damage of the subject cargoes was due to the fault or negligence of petitioner or V. Reyes Lazo. It added that the cargoes were damaged when they were already in Access Internationals possession, considering that an inspection was conducted in the latters warehouse. On appeal, the CA reversed and set aside the RTC decision. Issue: Who is liable for the loss of the goods? Ruling: Petition denied. Petitioner denies liability for the loss of the subject shipment, considering that the consignees representative signified receipt of the goods in good order without exception. This being the case, respondent, as subrogee, is bound by such acknowledgment. As to the extent of its liability, if there be any, petitioner insists that it be limited to P5,000.00 per package, as provided for in its Management Contract with the PPA. We do not agree with petitioner. Respondent, as insurer, was subrogated to the rights of the consignee, pursuant to the subrogation receipt executed by the latter in favor of the former. The relationship, therefore, between the consignee and the arrastre operator must be examined. This relationship is akin to that existing between the consignee and/or the owner of the shipped goods and the common carrier, or that between a depositor and a warehouseman. In the performance of its obligations, an arrastre operator should observe the same degree of diligence as that required of a common carrier and a warehouseman. Being the custodian of the goods discharged from a vessel, an arrastre operators duty is to take good care of the goods and to turn them over to the party entitled to their possession. In a claim for loss filed by the consignee (or the insurer), the burden of proof to show compliance with the obligation to deliver the goods to the appropriate party devolves upon the arrastre operator. Since the safekeeping of the goods is its responsibility, it must prove that the losses were not due to its negligence or to that of its employees. To prove the exercise of diligence in handling the subject 151

cargoes, petitioner must do more than merely show the possibility that some other party could be responsible for the loss or the damage. It must prove that it exercised due care in the handling thereof. Petitioner failed to do this. Instead, it insists that it be exonerated from liability, because the customs brokers representative received the subject shipment in good order and condition without exception. The appellate courts conclusion on this matter is instructive: ATI may not disclaim responsibility for the shortage/pilferage of fourteen (14) boxes of printed aluminum sheet while the container van remained in its custody for seven (7) days (at the Container Yard) simply because the alleged representative of the customs broker had withdrawn the shipment from its premises and signed the EIR without any complaint. The signature of the person/broker representative merely signifies that said person thereby frees the ATI from any liability for loss or damage to the cargo so withdrawn while the same was in the custody of such representative to whom the cargo was released. It does not foreclose any remedy or right of the consignee to prove that any loss or damage to the subject shipment occurred while the same was under the custody, control and possession of the arrastre operator. Clearly, petitioner cannot be excused from culpability simply because another person could be responsible for the loss. This is especially true in the instant case because, while the subject shipment was in petitioners custody, Access International requested that a joint survey be conducted at the place of storage. Moreover, it was shown in the Survey Report prepared by Access Internationals surveyor that petitioner was remiss in its obligations to handle the goods with due care and to ensure that they reach the proper party in good order as to quality and quantity. Considering that both petitioner and V. Reyes Lazo were negligent in the performance of their duties in the handling, storage and delivery of the subject shipment to the consignee, resulting in the loss of 14 boxes of printed aluminum sheets, both shall be solidarily liable for such loss. As to the extent of petitioners liability, we cannot sustain its contention that it be limited to P5,000.00 per package. Petitioners responsibility and liability for losses and damages are set forth in Section 7.01 of the Management Contract drawn between the PPA and the Marina Port Services, Inc., petitioners predecessorin-interest, to wit: CLAIMS AND LIABILITY FOR LOSSES AND DAMAGES Section 7.01. Responsibility and Liability for Losses and Damages; Exceptions. The CONTRACTOR shall, at its own expense, handle all merchandise in all work undertaken by it, hereunder, diligently and in a skillful, workman-like and efficient manner. The CONTRACTOR shall be solely responsible as an independent contractor, and hereby agrees to accept liability and to pay to the shipping company, consignees, consignors or other interested party or parties for the loss, damage or non-delivery of cargoes in its custody and control to the extent of the actual invoice value of each package which in no case shall be more than FIVE THOUSAND PESOS (P5,000.00) each, unless the value of the cargo shipment is otherwise specified or manifested or communicated in writing together with the declared Bill of Lading value and supported by a certified packing list to the CONTRACTOR by the interested party or parties before the discharge or loading unto vessel of the goods. This amount of Five Thousand Pesos (P5,000.00) per package may be reviewed and adjusted by the AUTHORITY from time to time. The CONTRACTOR shall not be responsible for the condition or the contents of any package received, nor for the weight nor for any loss, injury or damage to the said cargo before or while the goods are being received or remains in the piers, sheds, warehouses or facility, if the loss, injury or damage is caused by force majeure or other causes beyond the CONTRACTORS control or capacity to prevent or remedy; 152

PROVIDED that a formal claim together with the necessary copies of Bill of Lading, Invoice, Certified Packing List and Computation arrived at covering the loss, injury or damage or non-delivery of such goods shall have been filed with the CONTRACTOR within fifteen (15) days from day of issuance by the CONTRACTOR of a certificate of non-delivery; PROVIDED, however, that if said CONTRACTOR fails to issue such certification within fifteen (15) days from receipt of a written request by the shipper/consignee or his duly authorized representative or any interested party, said certification shall be deemed to have been issued, and thereafter, the fifteen (15) day period within which to file the claim commences; PROVIDED, finally, that the request for certification of loss shall be made within thirty (30) days from the date of delivery of the package to the consignee. xxxx The CONTRACTOR shall be solely responsible for any and all injury or damage that may arise on account of the negligence or carelessness of the CONTRACTOR, its agent or employees in the performance of the undertaking under the Contract. Further, the CONTRACTOR hereby agrees to hold free the AUTHORITY, at all times, from any claim that may be instituted by its employee by reason of the provisions of the Labor Code, as amended. As clearly stated above, such limitation does not apply if the value of the cargo shipment is communicated to the arrastre operator before the discharge of the cargoes. It is undisputed that Access International, upon arrival of the shipment, declared the same for taxation purposes, as well as for the assessment of arrastre charges and other fees. For the purpose, the invoice, packing list and other shipping documents were presented to the Bureau of Customs as well as to petitioner for the proper assessment of the arrastre charges and other fees. Such manifestation satisfies the condition of declaration of the actual invoices of the value of the goods before their arrival, to overcome the limitation on the liability of the arrastre operator. Then, the arrastre operator, by reason of the payment to it of a commensurate charge based on the higher declared value of the merchandise, could and should take extraordinary care of the special or valuable cargo. What would, indeed, be unfair and arbitrary is to hold the arrastre operator liable for the full value of the merchandise after the consignee has paid the arrastre charges only on a basis much lower than the true value of the goods. The stipulation requiring the consignee to inform the arrastre operator and to give advance notice of the actual invoice value of the goods to be put in its custody is adopted for the purpose of determining its liability, that it may obtain compensation commensurate to the risk it assumes, not for the purpose of determining the degree of care or diligence it must exercise as a depositary or warehouseman.

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VII. GUARANTY AND SURETYSHIP

G.R. No. 187116 October 18, 2010 ASSET BUILDERS CORPORATION, Petitioner, vs. STRONGHOLD INSURANCE COMPANY, INCORPORATED, Respondent Facts: On April 28, 2006, Asset Builders Corporation (ABC) entered into an agreement with Lucky Star Drilling & Construction Corporation (Lucky Star) as part of the completion of its project to construct the ACG Commercial Complex on "NHA Avenue corner Olalia Street, Barangay Dela Paz, Antipolo City." 2 As can be gleaned from the "Purchase Order,"3 Lucky Star was to supply labor, materials, tools, and equipment including technical supervision to drill one (1) exploratory production well on the project site. The total contract price for the said project wasP1,150,000.00. The salient terms and conditions of said agreement are as follows: i. Lump sum price--------PHP1,150,000.00; ii. 50% downpayment---upon submission of surety bond in an equivalent amount and performance bond equivalent to 30 % of contract amount; iii. Completion date-----60 calendar days; iv. Penalty----2/10 of 1% of total contract amount for every day of delay; v. Terms---50% down payment to be released after submission of bonds; vi. RetentionSubject to 10% retention to be released after the project is accepted by the owner; To guarantee faithful compliance with their agreement, Lucky Star engaged respondent Stronghold which issued two (2) bonds in favor of petitioner. The first, SURETY BOND G(16) No. 141558, dated May 9, 2006, covers the sum of P575,000.004 or the required downpayment for the drilling work. On May 20, 2006, ABC paid Lucky Star P575,000.00 (with 2% withholding tax) as advance payment, representing 50% of the contract price. 7 Lucky Star, thereafter, commenced the drilling work. By July 18, 2006, just a few days before the agreed completion date of 60 calendar days, Lucky Star managed to accomplish only ten (10) % of the drilling work. On the same date, petitioner sent a demand letter to Lucky Star for the immediate completion of the drilling work 8 with a threat to cancel the agreement and forfeit the bonds should it still fail to complete said project within the agreed period. On August 3, 2006, ABC sent a Notice of Rescission of Contract with Demand for Damages to Lucky Star.9 Pertinent portions of said notice read: Pursuant to paragraph 1 of the Terms and Conditions of the service contract, notice is hereby made on you of the rescission of the contract and accordingly demand is hereby made on you, within seven (7) days from receipt hereof: (1) to refund the down payment of PHP563,500.00, plus legal interest thereon; (2) to pay liquidated damages equivalent to 2/10 of 1% of the contract price for every day of delay, or a total of PHP138,000.00; (3) to pay the amount guaranteed by your performance bond in the amount of PHP345,000.00; (4) to pay PHP150,000.00 in other consequential damages; 154

(5) to pay exemplary damages in the amount of PHP150,000.00; (6) to vacate the project site, together with all your men and equipment. Should you refuse to comply with our demand within the above period, we shall be constrained to sue you in court, in which event we shall demand payment of attorneys fees in the amount of at least PHP100,000.0. On August 16, 2006, ABC sent a Notice of Claim for payment to Stronghold to make good its obligation under its bonds.10 Despite notice, ABC did not receive any reply either from Lucky Star or Stronghold, prompting it to file its Complaint for Rescission with Damages against both before the RTC Issue: whether or not respondent insurance company, as surety, can be held liable under its bonds Held: Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship. [Emphasis supplied] As provided in Article 2047, the surety undertakes to be bound solidarily with the principal obligor. That undertaking makes a surety agreement an ancillary contract as it presupposes the existence of a principal contract. Although the contract of a surety is in essence secondary only to a valid principal obligation, the surety becomes liable for the debt or duty of another although it possesses no direct or personal interest over the obligations nor does it receive any benefit therefrom.17 Let it be stressed that notwithstanding the fact that the surety contract is secondary to the principal obligation, the surety assumes liability as a regular party to the undertaking.18 Stronghold Insurance Company, Inc. v. Republic-Asahi Glass Corporation, 19 reiterating the ruling in Garcia v. Court of Appeals, 20 expounds on the nature of the suretys liability: X x x. The suretys obligation is not an original and direct one for the performance of his own act, but merely accessory or collateral to the obligation contracted by the principal. Nevertheless, although the contract of a surety is in essence secondary only to a valid principal obligation, his liability to the creditor or promisee of the principal is said to be direct, primary and absolute; in other words, he is directly and equally bound with the principal. Suretyship, in essence, contains two types of relationship the principal relationship between the obligee (petitioner) and the obligor (Lucky Star), and the accessory surety relationship between the principal (Lucky Star) and the surety (respondent). In this arrangement, the obligee accepts the suretys solidary undertaking to pay if the obligor does not pay. Such acceptance, however, does not change in any material way the obligees relationship with the principal obligor. Neither does it make the surety an active party to the principal obligee-obligor relationship. Thus, the acceptance does not give the surety the right to intervene in the principal contract. The suretys role arises only upon the obligors default, at which time, it can be directly held liable by the obligee for payment as a solidary obligor.

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G.R. No. 184041 October 13, 2010 ANICETO G. SALUDO, JR., Petitioner, vs. SECURITY BANK CORPORATION, Respondent Facts: On 30 May 1996, Booklight was extended an omnibus line credit facility by SBC in the amount of P10,000,000.00. Said loan was covered by a Credit Agreement and a Continuing Suretyship with petitioner as surety, both documents dated 1 August 1996, to secure full payment and performance of the obligations arising from the credit accommodation. Booklight drew several availments of the approved credit facility from 1996 to 1997 and faithfully complied with the terms of the loan. On 30 October 1997, SBC approved the renewal of credit facility of Booklight in the amount of P10,000,000.00 under the prevailing security lending rate. From August 3 to 14, 1998, Booklight executed nine (9) promissory notes in favor of SBC in the aggregate amount of P9,652,725.00. For failure to settle the loans upon maturity, demands were made on Booklight and petitioner for the payment of the obligation but the duo failed to pay. As of 15 May 2000, the obligation of Booklight stood atP10,487,875.41, inclusive of interest past due and penalty. On 16 June 2000, SBC filed against Booklight and herein petitioner an action for collection of sum of money with the RTC. Booklight initially filed a motion to dismiss, which was later on denied for lack of merit. In his Answer, Booklight asserted that the amount demanded by SBC was not based on the omnibus credit line facility of 30 May 1996, but rather on the amendment of the credit facilities on 15 October 1996 increasing the loan line from P8,000,000.00 toP10,000,000.00. Booklight denied executing the promissory notes. It also claimed that it was not in default as in fact, it paid the sum of P1,599,126.11 on 30 September 1999 as a prelude to restructuring its loan for which it earnestly negotiated for a mutually acceptable agreement until 5 July 2000, without knowing that SBC had already filed the collection case. In his Answer to the complaint, herein petitioner alleged that under the Continuing Suretyship, it was the parties understanding that his undertaking and liability was merely as an accommodation guarantor of Booklight. He countered that he came to know that Booklight offered to pay SBC the partial payment of the loan and proposed the restructuring of the obligation. Petitioner argued that said offer to pay constitutes a valid tender of payment which discharged Booklights obligation to the extent of the offer. Petitioner also averred that the imposition of the penalty on the supposed due and unpaid principal obligation based on the penalty rate of 2% per month is clearly unconscionable. On 7 March 2005, Booklight was declared in default. Consequently, SBC presented its evidence ex-parte. The case against petitioner, however, proceeded and the latter was able to present evidence on his behalf. After trial, the RTC ruled that petitioner is jointly and solidarily liable with Booklight under the Continuing Suretyship Agreement. Issue: Whether or not petitioner should be held solidarily liable for the second credit facility extended to Booklight Held: Comprehensive or continuing surety agreements are, in fact, quite commonplace in present day financial and commercial practice. A bank or financing company which anticipates entering into a series of credit transactions with a particular company, normally requires the projected principal debtor to execute a 156

continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of transactions with its creditor; with such suretyship agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor. There is no doubt that Booklight was extended two (2) credit facilities, each with a one-year term, by SBC. Booklight availed of these two (2) credit lines. While Booklight was able to comply with its obligation under the first credit line, it defaulted in the payment of the loan obligation amounting to P9,652,725.00 under the second credit line. There is likewise no dispute that the first credit line facility, with a term from 30 June 1996 to 30 June 1997, was covered by a Continuing Suretyship with petitioner acting as the surety. The dispute is on the coverage by the Continuing Suretyship of the loan contracted under the second credit facility. Under the Continuing Suretyship, petitioner undertook to guarantee the following obligations: a) "Guaranteed Obligations" the obligations of the Debtor arising from all credit accommodations extended by the Bank to the Debtor, including increases, renewals, roll-overs, extensions, restructurings, amendments or novations thereof, as well as (i) all obligations of the Debtor presently or hereafter owing to the Bank, as appears in the accounts, books and records of the Bank, whether direct or indirect, and (ii) any and all expenses which the Bank may incur in enforcing any of its rights, powers and remedies under the Credit Instruments as defined hereinbelow; (Emphasis supplied.) Whether the second credit facility is considered a renewal of the first or a brand new credit facility altogether was indirectly answered by the trial court when it invoked paragraph 10 of the Continuing Suretyship which provides: 10. Continuity of Suretyship. This Suretyship shall remain in full force and effect until full and due payment and performance of the Guaranteed Obligations. This Suretyship shall not be terminated by the partial payment to the Bank of Guaranteed Obligations by any other surety or sureties of the Guaranteed Obligations, even if the particular surety or sureties are relieved of further liabilities. and concluded that the liability of petitioner did not expire upon the termination of the first credit facility.

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G.R. No. 187023 November 17, 2010 EVANGELINE D. IMANI, Petitioner, vs. METROPOLITAN BANK & TRUST COMPANY, Respondent. Facts: On August 28, 1981, Evangeline D. Imani (petitioner) signed a Continuing Suretyship Agreement in favor of respondent Metropolitan Bank & Trust Company (Metrobank), with Cesar P. Dazo, Nieves Dazo, Benedicto C. Dazo, Cynthia C. Dazo, Doroteo Fundales, Jr., and Nicolas Ponce as her co-sureties. As sureties, they bound themselves to pay Metrobank whatever indebtedness C.P. Dazo Tannery, Inc. (CPDTI) incurs, but not exceeding Six Million Pesos (P6,000,000.00). Later, CPDTI obtained loans of P100,000.00 and P63,825.45, respectively. The loans were evidenced by promissory notes signed by Cesar and Nieves Dazo. CPDTI defaulted in the payment of its loans. Metrobank made several demands for payment upon CPDTI, but to no avail. This prompted Metrobank to file a collection suit against CPDTI and its sureties, including herein petitioner. The case was docketed as Civil Case No. 15717. After due proceedings, the RTC rendered a decision in favor of Metrobank. The dispositive portion of the decision reads: WHEREFORE, in view of the foregoing, the Court renders a judgment in favor of [Metrobank] ordering defendants, C.P. Dazo Tannery, Inc., Cesar P. Dazo, Nieves Dazo, Benedicto C. Dazo, Evangelina D. Imani, Cynthia C. Dazo, Doroteo Fundales, Jr., and Nicolas Ponce to pay [respondent] Metropolitan Bank and Trust Company. Therein defendants appealed to the CA. On September 29, 1997, the CA issued a Resolution dismissing the appeal. Consequently, on October 22, 1997, the CA issued an Entry of Judgment. Metrobank then filed with the RTC a motion for execution, which was granted on December 7, 1999. A writ of execution was issued against CPDTI and its codefendants. The sheriff levied on a property covered by Transfer Certificate of Title (TCT) No. T-27957 P(M) and registered in the name of petitioner. A public auction was conducted and the property was awarded to Metrobank, as the highest bidder. Metrobank undertook to consolidate the title covering the subject property in its name, and filed a Manifestation and Motion, praying that spouses Sina and Evangline Imani be directed to surrender the owners copy of TCT No. T-27957 P(M) for cancellation. Petitioner opposed the motion and filed her Comment with Urgent Motion to Cancel and Nullify the Levy on Execution, the Auction Sale and Certificate of Sale Over TCT No. T-27957 P(M). She argued that the subject property belongs to the conjugal partnership; as such, it cannot be held answerable for the liabilities incurred by CPDTI to Metrobank. Neither can it be subject of levy on execution or public auction. Hence, petitioner prayed for the nullification of the levy on execution and the auction sale, as well as the certificate of sale in favor of Metrobank. On June 20, 2005, the RTC issued an Order denying Metrobanks motion, explaining that: [Petitioner] Evangelina D. Imani incurred the obligation to [Metrobank] by the mere fact that she executed the Continuing Suretyship Agreement in favor of [Metrobank]. The loan proceeds were not intended for [petitioner] Evangelina D. Imani. It cannot therefore be presumed that the loan proceeds had redounded to the benefit of her family. It is also worth stressing that the records of this case is bereft of any showing that at the time of the signing of the Suretyship Agreement 158

and even at the time of execution and sale at public auction of the subject property, [petitioner] Evangelina D. Imani has the authority to dispose of or encumber their conjugal partnership properties. Neither was she conferred the power of administration over the said properties. Hence, when she executed the Suretyship Agreement, she had placed the Conjugal Partnership in danger of being dissipated. The law could have not allowed this in keeping with the mandate of protecting and safeguarding the conjugal partnership. This is also the reason why the husband or the wife cannot dispose of the conjugal partnership properties even onerously, if without the consent of the other, or gratuitously, as by way of donation. The RTC decreed that: WHEREFORE, in view of the foregoing, [Metrobanks] motion for issuance of an Order directing Spouses Sina Imani and Evangeline Dazo-Imani to surrender the owners copy of TCT No. T-27957 P(M) to the Register of Deeds of Meycauayan, Bulacan for cancellation, is DENIED. On the other hand, [petitioners] Motion to Cancel and Nullify the Levy on Execution, the Auction Sale and Certificate of Sale with respect to the real property covered by TCT No. T-27957 P(M) is GRANTED. The Levy on Execution and the Sale by Public Auction of the property covered by TCT No. T-27957 P(M) are nullified and the Certificate of Sale over the same property is hereby Cancelled. SO ORDERED. Metrobank filed a motion for reconsideration. Petitioner opposed the motion, asserting that the property belongs to the conjugal partnership. Attached to her opposition were an Affidavit executed by Crisanto Origen, the former owner of the property, attesting that spouses Sina and Evangeline Imani were the vendees of the subject property; and the photocopies of the checks allegedly issued by Sina Imani as payment for the subject property. However, despite petitioners opposition, the RTC issued an Order dated August 15, 2005, setting aside its June 20, 2005 Order. Thus: WHEREFORE, premises considered, the Motion for Reconsideration is GRANTED. The Order dated June 20, 2005 is set aside. Evangelina Dazo-Imani is hereby ordered to surrender TCT No. T-27957 P(M) to the Register of Deeds of Meycauayan, Bulacan for cancellation. The effectivity of the Levy on Execution, the Auction Sale and the Certificate of Sale with respect to the real property covered by TCT No. T-27957 P(M) is reinstated. SO ORDERED. But on petitioners motion for reconsideration, the RTC issued an Order dated November 22, 2005, reinstating its June 20, 2005 Order. In so ruling, the RTC relied on the affidavit of Crisanto Origen, and declared the property levied upon as conjugal, which cannot be held answerable for petitioners personal liability. Metrobank assailed the November 22, 2005 Order via a petition for certiorari in the CA, ascribing grave abuse of discretion on the part of the RTC for annulling the levy on execution and the auction sale, and for canceling the certificate of sale. On July 3, 2008, the CA rendered the now challenged Decision reversing the RTC, 159

Petitioner filed a motion for reconsideration, but the CA denied it on March 3, 2009. Issue: WHETHER OR NOT THE UNSUPPORTED TEMPORARY RULING THAT THE PROPERTY IS NOT CONJUGAL AND THE SUGGESTION TO VINDICATE THE RIGHTS OF SINA IMANI AND THE CONJUGAL PARTNERSHIP IN A SEPARATE ACTION UNDER SEC. 16, RULE 39 ENCOURAGE MULTIPLICITY OF SUITS AND VIOLATE THE POLICY OF THE RULES FOR EXPEDIENT AND INEXPENSIVE DISPOSITION OF ACTIONS. Held: Petitioner asserts that the subject property belongs to the conjugal partnership. As such, it cannot be made to answer for her obligation with Metrobank. She faults the CA for sustaining the writ of execution, the public auction, and the certificate of sale. We sustain the CA ruling on this point. Indeed, all property of the marriage is presumed to be conjugal. However, for this presumption to apply, the party who invokes it must first prove that the property was acquired during the marriage. Proof of acquisition during the coverture is a condition sine qua non to the operation of the presumption in favor of the conjugal partnership. Thus, the time when the property was acquired is material. Francisco v. CA is instructive, viz.: Article 160 of the New Civil Code provides that "all property of the marriage is presumed to belong to the conjugal partnership, unless it be proved that it pertains exclusively to the husband or to the wife." However, the party who invokes this presumption must first prove that the property in controversy was acquired during the marriage. Proof of acquisition during the coverture is a condition sine qua non for the operation of the presumption in favor of the conjugal partnership. The party who asserts this presumption must first prove said time element. Needless to say, the presumption refers only to the property acquired during the marriage and does not operate when there is no showing as to when property alleged to be conjugal was acquired. To support her assertion that the property belongs to the conjugal partnership, petitioner submitted the Affidavit of Crisanto Origen, attesting that petitioner and her husband were the vendees of the subject property, and the photocopies of the checks allegedly issued by Sina Imani as payment for the subject property. Unfortunately for petitioner, the said Affidavit can hardly be considered sufficient evidence to prove her claim that the property is conjugal. As correctly pointed out by Metrobank, the said Affidavit has no evidentiary weight because Crisanto Origen was not presented in the RTC to affirm the veracity of his Affidavit: The basic rule of evidence is that unless the affiants themselves are placed on the witness stand to testify on their affidavits, such affidavits must be rejected for being hearsay. Stated differently, the declarants of written statements pertaining to disputed facts must be presented at the trial for cross-examination. In the same vein, the photocopies of the checks cannot be given any probative value. In Concepcion v. Atty. Fandio, Jr. and Intestate Estate of the Late Don Mariano San Pedro y Esteban v. Court of Appeals, we held that a photocopy of a 160

document has no probative value and is inadmissible in evidence. Thus, the CA was correct in disregarding the said pieces of evidence. Similarly, the certificate of title could not support petitioners assertion. As aptly ruled by the CA, the fact that the land was registered in the name of Evangelina Dazo-Imani married to Sina Imani is no proof that the property was acquired during the spouses coverture. Acquisition of title and registration thereof are two different acts. It is well settled that registration does not confer title but merely confirms one already existing. Indubitably, petitioner utterly failed to substantiate her claim that the property belongs to the conjugal partnership. Thus, it cannot be rightfully said that the CA reversed the RTC ruling without valid basis.

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VIII. PLEDGE, MORTGAGE AND ANTICHRESIS

G.R NO. 180945 February 12, 2010 PNB, Petitioner, vs. Mercedes Corpuz, Respondent. Facts: On October 4, 1974 respondent Mercedes Corpuz delivered her owners duplicate copy of Transfer Certificate of Title (TCT) 32815 to Dagupan City Rural Bank as security against any liability she might incur as its cashier. She later left her job and went to the United States. On October 24, 1994 the rural bank where she worked cancelled its lien on Corpuzs title, she having incurred no liability to her employer. Without Corpuzs knowledge and consent, however, Natividad Alano, the rural banks manager, turned over Corpuzs title to Julita Camacho and Amparo Callejo. Conniving with someone from the assessors office, Alano, Camacho, and Callejo prepared a falsified deed of sale, making it appear that on February 23, 1995 Corpuz sold her land to one Mary Bondoc for P50,000.00. They caused the registration of the deed of sale, resulting in the cancellation of TCT 32815 and the issuance of TCT 63262 in Bondocs name. About a month later or on March 27, 1995 the trio executed another fictitious deed of sale with Mary Bondoc selling the property to the spouses Rufo and Teresa Palaganas for only P15,000.00. This sale resulted in the issuance of TCT 63466 in favor of the Palaganases. Nine days later or on April 5, 1995 the Palaganases executed a deed of sale in favor of spouses Virgilio and Elena Songcuan for P50,000.00, resulting in the issuance of TCT 63528. Finally, four months later or on August 10, 1995 the Songcuans took out a loan of P1.1 million from petitioner Philippine National Bank (PNB) and, to secure payment, they executed a real estate mortgage on their title. Before granting the loan, the PNB had the title verified and the property inspected. On November 20, 1995 respondent Corpuz filed, through an attorney-in-fact, a complaint before the Dagupan Regional Trial Court (RTC) against Mary Bondoc, the Palaganases, the Songcuans, and petitioner PNB, asking for the annulment of the layers of deeds of sale covering the land, the cancellation of TCTs 63262, 63466, and 63528, and the reinstatement of TCT 32815 in her name. On June 29, 1998 the RTC rendered a decision granting respondent Corpuzs prayers. This prompted petitioner PNB to appeal to the Court of Appeals (CA). On July 31, 2007 the CA affirmed the decision of the RTC and denied the motion for its reconsideration, prompting PNB to take recourse to this Court. Issue: The sole issue presented in this case is whether or not petitioner PNB is a mortgagee in good faith, entitling it to its lien on the title to the property in dispute.

Held: Petitioner PNB points out that, since it did a credit investigation, inspected the property, and verified the clean status of the title before giving out the loan to the Songcuans, it should be regarded as a mortgagee in good faith. PNB claims that the precautions it took constitute sufficient compliance with the due diligence required of banks when dealing with registered lands. As a rule, the Court would not expect a mortgagee to conduct an exhaustive investigation of the history of the mortgagors title before he extends a loan. But petitioner PNB is not an ordinary mortgagee; it is a bank. Banks are expected to be 162

more cautious than ordinary individuals in dealing with lands, even registered ones, since the business of banks is imbued with public interest. It is of judicial notice that the standard practice for banks before approving a loan is to send a staff to the property offered as collateral and verify the genuineness of the title to determine the real owner or owners. One of the CAs findings in this case is that in the course of its verification, petitioner PNB was informed of the previous TCTs covering the subject property. And the PNB has not categorically contested this finding. It is evident from the faces of those titles that the ownership of the land changed from Corpuz to Bondoc, from Bondoc to the Palaganases, and from the Palaganases to the Songcuans in less than three months and mortgaged to PNB within four months of the last transfer. The above information in turn should have driven the PNB to look at the deeds of sale involved. It would have then discovered that the property was sold for ridiculously low prices: Corpuz supposedly sold it to Bondoc for just P50,000.00; Bondoc to the Palaganases for just P15,000.00; and the Palaganases to the Songcuans also for just P50,000.00. Yet the PNB gave the property an appraised value of P781,760.00. Anyone who deliberately ignores a significant fact that would create suspicion in an otherwise reasonable person cannot be considered as an innocent mortgagee for value. The Court finds no reason to reverse the CA decision. WHEREFORE, the Court DENIES the petition and AFFIRMS the decision of the Court of Appeals dated July 31, 2007 and its resolution dated December 17, 2007 in CA-G.R. CV 60616.

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G.R. No. 165950 August 11, 2010 EQUITABLE PCI BANK, INC., Petitioner, vs. OJ-MARK TRADING, INC. and SPOUSES OSCAR AND EVANGELINE MARTINEZ, Respondents. Facts: Respondent-spouses Oscar and Evangeline Martinez obtained loans from petitioner Equitable PCI Bank, Inc. in the aggregate amount of Four Million FortyEight Thousand Eight Hundred Pesos (P4,048,800.00). As security for the said amount, a Real Estate Mortgage (REM) was executed over a condominium unit in San Miguel Court, Valle Verde 5, Pasig City, Metro Manila where the spouses are residing. Respondent Oscar Martinez signed the REM both as principal debtor and as President of the registered owner and third-party mortgagor, respondent OJ-Mark Trading, Inc. The REM was annotated on Condominium Certificate of Title No. PT21363 of the Registry of Deeds of Pasig City. Respondent-spouses defaulted in the payment of their outstanding loan obligation, which as of October 31, 2002 stood at P4,918,160.03. In a letter dated May 15, 2002, they offered to settle their indebtedness "with the assignment to the Bank of a commercial lot of corresponding value" and also requested for recomputation at a lower interest rate and condonation of penalties. While petitioners officers held a meeting with respondent Oscar Martinez, the latter however failed to submit the required documents such as certificates of title and tax declarations so that the bank can evaluate his proposal to pay the mortgage debt via dacion en pago. Consequently, petitioner initiated the extrajudicial foreclosure of the real estate mortgage by filing an ex parte petition before the Office of the Executive Judge, Regional Trial Court (RTC) of Pasig City. Issue: Wwhether or not the respondents have shown a clear legal right to enjoin the foreclosure and public auction of the third-party mortgagors property while the case for annulment of REM on said property is being tried. Held: We cannot agree with respondents position that petitioners act of initiating extrajudicial foreclosure proceeding while they negotiated for a dacion en pago was illegal and done in bad faith. As respondent-spouses themselves admitted, they failed to comply with the documentary requirements imposed by the petitioner for proper evaluation of their proposal. In any event, petitioner had found the subdivision lots offered for dacion as unacceptable, not only because the lots were not owned by respondents as in fact, the lots were not yet titled but also for the reason that respondent Oscar Martinezs claimed right therein was doubtful or inchoate, and hence not in esse. Requests by debtors-mortgagors for extensions to pay and proposals for restructuring of the loans, without acceptance by the creditor-mortgagee, remain as that. Without more, those proposals neither novated the parties mortgage contract nor suspended its execution. In the same vein, negotiations for settlement of the mortgage debt by dacion en pago do not extinguish the same nor forestall the creditor-mortgagees exercise of its right to foreclose as provided in the mortgage contract. As we held in Tecnogas Philippines Manufacturing Corporation v. Philippine National Bank -Dacion en pago is a special mode of payment whereby the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding obligation. The undertaking is really one of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be 164

charged against the debtors debt. As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present. It is only when the thing offered as an equivalent is accepted by the creditor that novation takes place, thereby, totally extinguishing the debt. On the first issue, the Court of Appeals did not err in ruling that Tecnogas has no clear legal right to an injunctive relief because its proposal to pay by way of dacion en pago did not extinguish its obligation. Undeniably, Tecnogas proposal to pay by way of dacion en pago was not accepted by PNB. Thus, the unaccepted proposal neither novates the parties mortgage contract nor suspends its execution as there was no meeting of the minds between the parties on whether the loan will be extinguished by way of dacion en pago. Necessarily, upon Tecnogas default in its obligations, the foreclosure of the REM becomes a matter of right on the part of PNB, for such is the purpose of requiring security for the loans. [emphasis supplied.] Respondent-spouses alleged "proprietary right" in the mortgaged condominium unit appears to be based merely on respondents averment that respondent OJ-Mark Trading, Inc. is a family corporation. However, there is neither allegation nor evidence to show prima facie that such purported right, whether as majority stockholder or creditor, was superior to that of petitioner as creditormortgagee. The rule requires that in order for a preliminary injunction to issue, the application should clearly allege facts and circumstances showing the existence of the requisites. It must be emphasized that an application for injunctive relief is construed strictly against the pleader. We note that the claim of exemption under Art. 153 of the Family Code, thereby raising issue on the mortgaged condominium unit being a family home and not corporate property, is entirely inconsistent with the clear contractual agreement of the REM. Assuming arguendo that the mortgaged condominium unit constitutes respondents family home, the same will not exempt it from foreclosure as Article 155 (3) of the same Code allows the execution or forced sale of a family home "for debts secured by mortgages on the premises before or after such constitution." Respondents thus failed to show an ostensible right that needs protection of the injunctive writ. Clearly, the appellate court seriously erred in sustaining the trial courts orders granting respondents application for preliminary injunction. Anent the grave and irreparable injury which respondents alleged they will suffer if no preliminary injunction is issued, this Court has previously declared that all is not lost for defaulting mortgagors whose properties were foreclosed by creditors-mortgagees, viz: In any case, petitioners will not be deprived outrightly of their property. Pursuant to Section 47 of the General Banking Law of 2000, mortgagors who have judicially or extrajudicially sold their real property for the full or partial payment of their obligation have the right to redeem the property within one year after the sale. They can redeem their real estate by paying the amount due, with interest rate specified, under the mortgage deed; as well as all the costs and expenses incurred by the bank. Moreover, in extrajudicial foreclosures, petitioners have the right to receive any surplus in the selling price. This right was recognized in Sulit v. CA, in which the Court held that "if the mortgagee is retaining more of the proceeds of the sale than he is entitled to, this fact alone will not affect the validity of the sale but simply gives the mortgagor a cause of action to recover such surplus.

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IX.

AGENCY

G.R. No. 179909 : January 25, FAR EAST BANK AND TRUST COMPANY (NOW BANK OF THE PHILIPPINE ISLANDS) AND ROLANDO BORJA, DEPUTY SHERIFF,Petitioners, vs. SPS. ERNESTO AND LEONOR C. CAYETANO,Respondents. Facts: Respondent Leonor C. Cayetano (Cayetano) executed a special power of attorney in favor of her daughter Teresita C. Tabing (Tabing) authorizing her to contract a loan from petitioner in an amount not more than three hundred thousand pesos (P300,000.00) and to mortgage her two (2) lots located in Barangay Carolina, Naga City with Transfer Certificate of Title Nos. 12304 and 11621. For the approval of the loan, Cayetano also executed an affidavit of non-tenancy. Petitioner loaned Tabing one hundred thousand pesos (P100,000.00) secured by two (2) promissory notes and a real estate mortgage over Cayetanos two (2) properties. The mortgage document was signed by Tabing and her husband as mortgagors in their individual capacities, without stating that Tabing was executing the mortgage contract for and in behalf of the owner (Cayetano). Petitioner foreclosed the mortgage for failure of the respondents and the spouses Tabing to pay the loan. A notice of public auction sale, to be conducted on September 18, 1991, was sent to respondents. The latters lawyer responded with a letter to petitioner requesting that the public auction be postponed. Respondents letter went unheeded and the public auction was held as scheduled wherein the subject properties were sold to petitioner for one hundred sixty thousand pesos (P160,000.00). Subsequently, petitioner consolidated its title and obtained new titles in its name after the redemption period lapsed without respondents taking any action. More than five (5) years later, Tabing, on behalf of Cayetano, sent a letter dated September 10, 1996 to petitioner expressing the intent to repurchase the properties for two hundred fifty thousand pesos (P250,000.00) with proposed terms of payment. Petitioner refused the offer stating that the minimum asking price for the properties was five hundred thousand pesos (P500,000.00) and it was not amenable to the proposed terms of payment. Petitioner nevertheless gave respondents the chance to buy back the properties by joining a bidding to be set in some future date. However, respondents filed on December 18, 1996 a complaint for annulment of mortgage and extrajudicial foreclosure of the properties with damages in the RTC of Naga City. Respondents sought nullification of the real estate mortgage and extrajudicial foreclosure sale, as well as the cancellation of petitioners title over the properties. Issue: Whether or not the principal is bound by the real estate mortgage executed by the authorized agent in her own name without indicating the principal Held: It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real property executed by an agent, it must upon its face purport to be made, signed and sealed in the name of the principal, otherwise, it will bind the agent only. It is not enough merely that the agent was in fact authorized to make the mortgage, if he has not acted in the name of the principal. Neither is it ordinarily sufficient that in the mortgage the agent describes himself as acting by virtue of a power of attorney, if in fact the agent has acted in his own name and has set his own hand and seal to the mortgage. This is especially true where the agent himself is a party to the instrument. However clearly the body of the mortgage may show and intend that it shall be the act of the principal, yet, unless in fact it is 166

executed by the agent for and on behalf of his principal and as the act and deed of the principal, it is not valid as to the principal. [EMPHASIS SUPPLIED] Thus, while Poizat may have had the authority to borrow money and mortgage the real property of his wife, the law specifies how and in what manner it must be done, and the stubborn fact remains that, as to the transaction in question, that power was never exercised. The mortgage in question was executed by him and him only, and for such reason, it is not binding upon the wife, and as to her, it is null and void. In Bombon, respondent Ederlinda M. Gallardo (Gallardo) authorized Rufino S. Aquino (Aquino) to contract a loan from any bank and secure it with mortgage on her property. Gallardo also delivered her owners copy of Transfer Certificate of Title to Aquino. Aquino obtained a loan from petitioner bank and executed a deed of real estate mortgage without indicating that he was acting in behalf of Gallardo. At the beginning of the mortgage deed, it was mentioned that the mortgage was executed by Aquino, attorney-in-fact of Gallardo, together with a description of his legal capacity to contract. Gallardo and her husband filed a complaint for annulment of mortgage against the petitioner and Aquino and one (1) of the grounds raised was that the mortgagor in the deed was Aquino instead of Gallardo. The trial court ordered the suspension of the foreclosure of the real estate mortgage until after the decision in the annulment case shall have become final and executory. The dismissal of the complaint for annulment of mortgage was appealed to the Court of Appeals which reversed the trial court and declared the mortgage contract void and unenforceable against Gallardo. Upon elevation to this Court, we held that "Aquinos act of signing the Deed of Real Estate Mortgage in his name alone as mortgagor, without any indication that he was signing for and in behalf of the property owner, Ederlinda M. Gallardo, bound himself alone in his personal capacity as a debtor of the petitioner Bank and not as the agent or attorney-in-fact of Gallardo." In the fairly recent case of Gozun v. Mercado, respondent Mercado denied having authorized his sister-in-law (Lilian) to borrow money from petitioner who gave her "cash advance" of P253,000.00 allegedly for allowances of poll watchers. Petitioner sued respondent to collect on various sums due from the latter including the "cash advance" obtained by Lilian. The trial court found for the petitioner and ordered the respondent to pay all amounts being claimed by the petitioner. The Court of Appeals reversed the trial courts decision and dismissed the complaint for lack of cause of action. When the case reached this Court, petitioner argued that respondent had informed him that he had authorized Lilian to obtain the loan and hence, following Macke v. Camps which held that one who clothes another with apparent authority as his agent, and holds him out to the public as such, respondent cannot be permitted to deny the authority. We sustained the Court of Appeals ruling on the matter and held that respondent was not liable for the "cash advance" given by petitioner to Lilian who signed the receipt in her name alone, without indicating therein that she was acting for and in behalf of respondent. She thus bound herself in her personal capacity and not as an agent of respondent or anyone for that matter.

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G.R. No. 165133 April 19, 2010 SPOUSES JOSELINA ALCANTARA AND ANTONIO ALCANTARA, and SPOUSES JOSEFINO RUBI AND ANNIE DISTOR- RUBI, Petitioners, vs. BRIGIDA L. NIDO, as attorney-in-fact of REVELEN N. SRIVASTAVA, Respondent. Facts: Revelen, who is respondents daughter and of legal age, is the owner of an unregistered land with an area of 1,939 square meters located in Cardona, Rizal. Sometime in March 1984, respondent accepted the offer of petitioners to purchase a 200-square meter portion of Revelens lot (lot) at P200 per square meter. Petitioners paid P3,000 as downpayment and the balance was payable on installment. Petitioners constructed their houses in 1985. In 1986, with respondents consent, petitioners occupied an additional 150 square meters of the lot. By 1987, petitioners had already paid P17,500 before petitioners defaulted on their installment payments. On 11 May 1994, respondent, acting as administrator and attorney-in-fact of Revelen, filed a complaint for recovery of possession with damages and prayer for preliminary injunction against petitioners with the RTC. Issue: Whether or not contract entered into by respondent, in representation of her daughter, and former defendant Eduardo Rubi (deceased), is void Held: Articles 1874 and 1878 of the Civil Code provide: Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void. Art. 1878. Special powers of attorney are necessary in the following cases: xxx (5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration; xxx Article 1874 of the Civil Code explicitly requires a written authority before an agent can sell an immovable property. Based on a review of the records, there is absolutely no proof of respondents written authority to sell the lot to petitioners. In fact, during the pre-trial conference, petitioners admitted that at the time of the negotiation for the sale of the lot, petitioners were of the belief that respondent was the owner of lot. Petitioners only knew that Revelen was the owner of the lot during the hearing of this case. Consequently, the sale of the lot by respondent who did not have a written authority from Revelen is void. A void contract produces no effect either against or in favor of anyone and cannot be ratified. A special power of attorney is also necessary to enter into any contract by which the ownership of an immovable is transmitted or acquired for a valuable consideration. Without an authority in writing, respondent cannot validly sell the lot to petitioners. Hence, any "sale" in favor of the petitioners is void. 168

Our ruling in Dizon v. Court of Appeals is instructive: When the sale of a piece of land or any interest thereon is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void. Thus the authority of an agent to execute a contract for the sale of real estate must be conferred in writing and must give him specific authority, either to conduct the general business of the principal or to execute a binding contract containing terms and conditions which are in the contract he did execute. A special power of attorney is necessary to enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration. The express mandate required by law to enable an appointee of an agency (couched) in general terms to sell must be one that expressly mentions a sale or that includes a sale as a necessary ingredient of the act mentioned. For the principal to confer the right upon an agent to sell real estate, a power of attorney must so express the powers of the agent in clear and unmistakable language. When there is any reasonable doubt that the language so used conveys such power, no such construction shall be given the document. Further, Article 1318 of the Civil Code enumerates the requisites for a valid contract, namely: 1. consent of the contracting parties; 2. object certain which is the subject matter of the contract; 3. cause of the obligation which is established. Respondent did not have the written authority to enter into a contract to sell the lot. As the consent of Revelen, the real owner of the lot, was not obtained in writing as required by law, no contract was perfected. Consequently, petitioners failed to validly acquire the lot.

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G.R. No. 165554 July 26, 2010 LAZARO PASCO and LAURO PASCO, Petitioners, vs. HEIRS OF FILOMENA DE GUZMAN, represented by CRESENCIA DE GUZMANPRINCIPE, Respondents. Facts: The present petition began with a Complaint for Sum of Money and Damages filed on December 13, 2000 by respondents, the heirs of Filomena de Guzman (Filomena), represented by Cresencia de Guzman-Principe (Cresencia), against petitioners Lauro Pasco (Lauro) and Lazaro Pasco (Lazaro). The case was filed before the Municipal Trial Court (MTC) of Bocaue, Bulacan, and docketed as Civil Case No. MM-3191. In their Complaint, herein respondents alleged that on February 7, 1997, petitioners obtained a loan in the amount ofP140,000.00 from Filomena (now deceased). To secure the petitioners loan, Lauro executed a chattel mortgage on his Isuzu Jeep in favor of Filomena. Upon her death, her heirs sought to collect from the petitioners, to no avail. Despite numerous demands, petitioners refused to either pay the balance of the loan or surrender the Isuzu Jeep to the respondents. Thus, respondents were constrained to file the collection case to compel the petitioners to pay the principal amount of P140,000.00 plus damages in the amount of 5% monthly interest from February 7, 1997, 25% attorneys fees, exemplary damages, and expenses of litigation. Filomenas heirs, consisting of Avelina de Guzman-Cumplido, Cecilia de Guzman, Rosita de Guzman, Natividad de Guzman, and Cresencia de GuzmanPrincipe, authorized Cresencia to act as their attorney-in-fact through a Special Power of Attorney (SPA) dated April 6, 1999. The SPA authorized Cresencia to do the following on behalf of the co-heirs: 1) To represent us on all matters concerning the intestate estate of our deceased sister, Filomena de Guzman; 2) To file cases for collection of all accounts due said Filomena de Guzman or her estate, including the power to file petition for foreclosure of mortgaged properties; 3) To do and perform all other acts necessary to carry out the powers hereinabove conferred. During the pre-trial of the case on February 15, 2002, the parties verbally agreed to settle the case. On February 21, 2002, the parties jointly filed a Compromise Agreement that was signed by the parties and their respective counsel. Issue: Whether or not the SPA did not validly authorize Cresencia to enter into the Compromise Agreement on behalf of her co-heirs. Held: As regards the third issue, petitioners maintain that the SPA was fatally defective because Cresencia was not specifically authorized to enter into a compromise agreement. Here, we fully concur with the findings of the CA that: x x x It is undisputed that Cresencias co-heirs executed a Special Power of Attorney, dated 6 April 1999, designating the former as their attorney-in-fact and empowering her to file cases for collection of all the accounts due to Filomena or her estate. Consequently, Cresencia entered into the subject Compromise Agreement in order to collect the overdue loan obtained by Pasco from Filomena. In 170

so doing, Cresencia was merely performing her duty as attorney-in-fact of her coheirs pursuant to the Special Power of Attorney given to her. Our ruling in Trinidad v. Court of Appeals is illuminating. In Trinidad, the heirs of Vicente Trinidad executed a SPA in favor of Nenita Trinidad (Nenita) to be their representative in litigation involving the sale of real property covered by the decedents estate. As here, there was no specific authority to enter into a Compromise Agreement. When a compromise agreement was finally reached, the heirs later sought to invalidate it, claiming that Nenita was not specifically authorized to enter into the compromise agreement. We held then, as we do now, that the SPA necessarily included the power of the attorney-in-fact to compromise the case, and that Nenitas co-heirs could not belatedly disavow their original authorization. This ruling is even more significant here, where the co-heirs have not taken any action to invalidate the Compromise Agreement or assail their SPA. Moreover, we note that petitioners never assailed the validity of the SPA during the pre-trial stage prior to entering the Compromise Agreement. This matter was never even raised as a ground in petitioners Motion to Set Aside the compromise, or in the initial Petition before the RTC. It was only months later, in December 2002, that petitioners rather self-servingly - claimed that the SPA was insufficient. The stated interest rate should be reduced. Although the petition is unmeritorious, we find the 5% monthly interest rate stipulated in Clause 4 of the Compromise Agreement to be iniquitous and unconscionable. Accordingly, the legal interest of 12% per annum must be imposed in lieu of the excessive interest stipulated in the agreement. As we held in Castro v. Tan: In several cases, we have ruled that stipulations authorizing iniquitous or unconscionable interests are contrary to morals, if not against the law. In Medel v. Court of Appeals, we annulled a stipulated 5.5% per month or 66% per annum interest on a P500,000.00 loan and a 6% per month or 72% per annum interest on a P60,000.00 loan, respectively, for being excessive, iniquitous, unconscionable and exorbitant. In Ruiz v. Court of Appeals, we declared a 3% monthly interest imposed on four separate loans to be excessive. In both cases, the interest rates were reduced to 12% per annum. In this case, the 5% monthly interest rate, or 60% per annum, compounded monthly, stipulated in the Kasulatan is even higher than the 3% monthly interest rate imposed in the Ruiz case. Thus, we similarly hold the 5% monthly interest to be excessive, iniquitous, unconscionable and exorbitant, contrary to morals, and the law. It is therefore voidab initio for being violative of Article 1306 of the Civil Code. x x x (citations omitted) The proceeds of the loan should be released to Filomenas heirs only upon settlement of her estate. Finally, it is true that Filomenas estate has a different juridical personality than that of the heirs. Nonetheless, her heirs certainly have an interest in the preservation of the estate and the recovery of its properties, for at the moment of Filomenas death, the heirs start to own the property, subject to the decedent's liabilities. In this connection, Article 777 of the Civil Code states that "[t]he rights to the succession are transmitted from the moment of the death of the decedent." Unfortunately, the records before us do not show the status of the proceedings for the settlement of the estate of Filomena, if any. But to allow the release of the funds directly to the heirs would amount to a distribution of the estate; which distribution and delivery should be made only after, not before, the payment of all debts, charges, expenses, and taxes of the estate have been paid. We thus decree that respondent Cresencia should deposit the amounts received from the petitioners with the MTC of Bocaue, Bulacan and in turn, the MTC of 171

Bocaue, Bulacan should hold in abeyance the release of the amounts to Filomenas heirs until after a showing that the proper procedure for the settlement of Filomenas estate has been followed.

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G.R. No. 181672 September 20, 2010 SPS. ANTONIO & LETICIA VEGA, Petitioner, vs. SOCIAL SECURITY SYSTEM (SSS) & PILAR DEVELOPMENT CORPORATION, Respondents Facts: Magdalena V. Reyes (Reyes) owned a piece of titled land in Pilar Village, Las Pias City. On August 17, 1979 she got a housing loan from respondent Social Security System (SSS) for which she mortgaged her land. In late 1979, however, she asked the petitioner spouses Antonio and Leticia Vega (the Vegas) to assume the loan and buy her house and lot since she wanted to emigrate. Upon inquiry with the SSS, an employee there told the Vegas that the SSS did not approve of members transferring their mortgaged homes. The Vegas could, however, simply make a private arrangement with Reyes provided they paid the monthly amortizations on time. This practice, said the SSS employee, was commonplace. Armed with this information, the Vegas agreed for Reyes to execute in their favor a deed of assignment of real property with assumption of mortgage and paid Reyes P20,000.00 after she undertook to update the amortizations before leaving the country. The Vegas then took possession of the house in January 1981. But Reyes did not readily execute the deed of assignment. She left the country and gave her sister, Julieta Reyes Ofilada (Ofilada), a special power of attorney to convey ownership of the property. Sometime between 1983 and 1984, Ofilada finally executed the deed promised by her sister to the Vegas. Ofilada kept the original and gave the Vegas two copies. The latter gave one copy to the Home Development Mortgage Fund and kept the other. Unfortunately, a storm in 1984 resulted in a flood that destroyed the copy left with them. In 1992, the Vegas learned that Reyes did not update the amortizations for they received a notice to Reyes from the SSS concerning it. They told the SSS that they already gave the payment to Reyes but, since it appeared indifferent, on January 6, 1992 the Vegas updated the amortization themselves and paid P115,738.48 to the SSS, through Antonio Vegas personal check. They negotiated seven additional remittances and the SSS accepted P8,681.00 more from the Vegas. Meanwhile, on April 16, 1993 respondent Pilar Development Corporation (PDC) filed an action for sum of money against Reyes before the Regional Trial Court (RTC) of Manila in Civil Case 93-6551. PDC claimed that Reyes borrowed from Apex Mortgage and Loans Corporation (Apex) P46,500.00 to buy the lot and construct a house on it. Apex then assigned Reyes credit to the PDC on December 29, 1992, hence, the suit by PDC for the recovery of the unpaid debt. On August 26, 1993 the RTC rendered judgment, ordering Reyes to pay the PDC the loan of P46,398.00 plus interest and penalties beginning April 11, 1979 as well as attorneys fees and the costs. Unable to do so, on January 5, 1994 the RTC issued a writ of execution against Reyes and its Sheriff levied on the property in Pilar Village. On February 16, 1994 the Vegas requested the SSS to acknowledge their status as subrogees and to give them an update of the account so they could settle it in full. The SSS did not reply. Meantime, the RTC sheriff published a notice for the auction sale of the property on February 24, March 3 and 10, 1994. He also served on the Vegas notice of that sale on or about March 20, 1994. On April 5, 1994, the Vegas filed an affidavit of third party claimant and a motion for leave to admit a motion in intervention to quash the levy on the property. Still, stating that Vegas remedy lay elsewhere, the RTC directed the sheriff to proceed with the execution. Meantime, the Vegas got a telegram dated August 29, 1994, informing them that the SSS intended to foreclose on the property to satisfy the unpaid housing debt of P38,789.58. On October 19, 1994 the Vegas requested the SSS in writing for the exact computation of the indebtedness and for assurance 173

that they would be entitled to the discharge of the mortgage and delivery of the proper subrogation documents upon payment. They also sent a P37,521.95 managers check that the SSS refused to accept. On November 8, 1994 the Vegas filed an action for consignation, damages, and injunction with application for preliminary injunction and temporary restraining order against the SSS, the PDC, the sheriff of RTC Branch 19, and the Register of Deeds before the RTC of Las Pias in Civil Case 94-2943. Still, while the case was pending, on December 27, 1994 the SSS released the mortgage to the PDC. And on August 22, 1996 the Register of Deeds issued TCT T-56657 to the PDC. A writ of possession subsequently evicted the Vegas from the property. On May 8, 2002 the RTC decided Civil Case 94-2943 in favor of the Vegas. It ruled that the SSS was barred from rejecting the Vegas final payment of P37,521.95 and denying their assumption of Reyes debt, given the SSS previous acceptance of payments directly from them. The Vegas were subrogated to the rights of Reyes and substituted her in the SSS housing loan and mortgage contract. That the Vegas had the receipts show that they were the ones who made those payments. The RTC ordered the PDC to deliver to the Vegas the certificate of title covering the property. It also held the SSS and PDC solidarily liable to the Vegas for P300,000.00 in moral damages,P30,000.00 in exemplary damages, and P50,000.00 in attorneys fees and for costs of the suit. The SSS appealed to the Court of Appeals (CA) in CA G.R. CV 77582. On August 30, 2007 the latter court reversed the RTC decision for the reasons that the Vegas were unable to produce the deed of assignment of the property in their favor and that such assignment was not valid as to PDC. Their motion for reconsideration having been denied, the Vegas filed this petition for review on certiorari under Rule 45. Issue: Whether or not the Vegas presented adequate proof of Reyes sale of the subject property to them Held: One. The CA ruled that the Vegas were unable to prove that Reyes assigned the subject property to them, given that they failed to present the deed of assignment in their favor upon a claim that they lost it. But the rule requiring the presentation of the original of that deed of assignment is not absolute. Secondary evidence of the contents of the original can be adduced, as in this case, when the original has been lost without bad faith on the part of the party offering it. Here, not only did the Vegas prove the loss of the deed of assignment in their favor and what the same contained, they offered strong corroboration of the fact of Reyes sale of the property to them. They took possession of the house and lot after they bought it. Indeed, they lived on it and held it in the concept of an owner for 13 years before PDC came into the picture. They also paid all the amortizations to the SSS with Antonio Vegas personal check, even those that Reyes promised to settle but did not. And when the SSS wanted to foreclose the property, the Vegas sent a managers check to it for the balance of the loan. Neither Reyes nor any of her relatives came forward to claim the property. The Vegas amply proved the sale to them. Two. Reyes acquired the property in this case through a loan from the SSS in whose favor she executed a mortgage as collateral for the loan. Although the loan was still unpaid, she assigned the property to the Vegas without notice to or the consent of the SSS. The Vegas continued to pay the amortizations apparently in Reyes name. Meantime, Reyes apparently got a cash loan from Apex, which assigned the credit to PDC. This loan was not secured by a mortgage on the property but PDC succeeded in getting a money judgment against Reyes and had it executed on the property. Such property was still in Reyes name but, as pointed 174

out above, the latter had disposed of it in favor of the Vegas more than 10 years before PDC executed on it. The question is: was Reyes disposal of the property in favor of the Vegas valid given a provision in the mortgage agreement that she could not do so without the written consent of the SSS? The CA ruled that, under Article 1237 of the Civil Code, the Vegas who paid the SSS amortizations except the last on behalf of Reyes, without the latters knowledge or against her consent, cannot compel the SSS to subrogate them in her rights arising from the mortgage. Further, said the CA, the Vegas claim of subrogation was invalid because it was done without the knowledge and consent of the SSS as required under the mortgage agreement. But Article 1237 cannot apply in this case since Reyes consented to the transfer of ownership of the mortgaged property to the Vegas. Reyes also agreed for the Vegas to assume the mortgage and pay the balance of her obligation to SSS. Of course, paragraph 4 of the mortgage contract covering the property required Reyes to secure SSS consent before selling the property. But, although such a stipulation is valid and binding, in the sense that the SSS cannot be compelled while the loan was unpaid to recognize the sale, it cannot be interpreted as absolutely forbidding her, as owner of the mortgaged property, from selling the same while her loan remained unpaid. Such stipulation contravenes public policy, being an undue impediment or interference on the transmission of property. Besides, when a mortgagor sells the mortgaged property to a third person, the creditor may demand from such third person the payment of the principal obligation. The reason for this is that the mortgage credit is a real right, which follows the property wherever it goes, even if its ownership changes. Article 2129 of the Civil Code gives the mortgagee, here the SSS, the option of collecting from the third person in possession of the mortgaged property in the concept of owner. More, the mortgagor-owners sale of the property does not affect the right of the registered mortgagee to foreclose on the same even if its ownership had been transferred to another person. The latter is bound by the registered mortgage on the title he acquired. After the mortgage debt to SSS had been paid, however, the latter had no further justification for withholding the release of the collateral and the registered title to the party to whom Reyes had transferred her right as owner. Under the circumstance, the Vegas had the right to sue for the conveyance to them of that title, having been validly subrogated to Reyes rights. Three. The next question is: was Reyes sale of the property to the Vegas binding on PDC which tried to enforce the judgment credit in its favor on the property that was then still mortgaged to the SSS? The CA ruled that Reyes assignment of the property to the Vegas did not bind PDC, which had a judgment credit against Reyes, since such assignment neither appeared in a public document nor was registered with the register of deeds as Article 1625 of the Civil Code required. Article 1625 reads: Art. 1625. An assignment of a credit, right or action shall produce no effect as against third persons, unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real property. (1526) But Article 1625 referred to assignment of credits and other incorporeal rights. Reyes did not assign any credit or incorporeal right to the Vegas. She sold the Vegas her house and lot. They became owner of the property from the time she executed the deed of assignment covering the same in their favor. PDC had a judgment for money against Reyes only. A courts power to enforce its judgment applies only to the properties that are indisputably owned by the judgment 175

obligor. Here, the property had long ceased to belong to Reyes when she sold it to the Vegas in 1981. The PDC cannot take comfort in the fact that the property remained in Reyes name when it bought the same at the sheriff sale. The PDC cannot assert that it was a buyer in good faith since it had notice of the Vegas claim on the property prior to such sale. Under the circumstances, the PDC must reconvey the subject property to the Vegas or, if this is no longer possible, pay them its current market value as the trial court may determine with interest of 12 percent per annum from the date of the determination of such value until it is fully paid. Further, considering the distress to which the Vegas were subjected after the unlawful levy on their property, aggravated by their subsequent ouster from it through a writ of possession secured by PDC, the RTC was correct in awarding the Vegas moral damages of P300,000.00, exemplary damages of P30,000.00 and attorneys fees of P50,000.00 plus costs of the suit. But these are to be borne solely by PDC considering that the SSS had nothing to do with the sheriffs levy on the property. It released the title to the PDC simply because it had a sheriffs sale in its favor. The PDC is, however, entitled to reimbursement from the Vegas of the sum of P37,820.15 that it paid to the SSS for the release of the mortgaged title.

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G.R. No. 165803 September 1, 2010 SPOUSES REX AND CONCEPCION AGGABAO, Petitioners, vs. DIONISIO Z. PARULAN, JR. and MA. ELENA PARULAN, Respondents. Facts: Involved in this action are two parcels of land and their improvements (property) located at No. 49 Miguel Cuaderno Street, Executive Village, BF Homes, Paraaque City and registered under Transfer Certificate of Title (TCT) No. 63376 and TCT No. 63377 in the name of respondents Spouses Maria Elena A. Parulan (Ma. Elena) and Dionisio Z. Parulan, Jr. (Dionisio), who have been estranged from one another. In January 1991, real estate broker Marta K. Atanacio (Atanacio) offered the property to the petitioners, who initially did not show interest due to the rundown condition of the improvements. But Atanacios persistence prevailed upon them, so that on February 2, 1991, they and Atanacio met with Ma. Elena at the site of the property. During their meeting, Ma. Elena showed to them the following documents, namely: (a) the owners original copy of TCT No. 63376; (b) a certified true copy of TCT No. 63377; (c) three tax declarations; and (d) a copy of the special power of attorney (SPA) dated January 7, 1991 executed by Dionisio authorizing Ma. Elena to sell the property. Before the meeting ended, they paid P20,000.00 as earnest money, for which Ma. Elena executed a handwritten Receipt of Earnest Money, whereby the parties stipulated that: (a) they would pay an additional payment of P130,000.00 on February 4, 1991; (b) they would pay the balance of the bank loan of the respondents amounting to P650,000.00 on or before February 15, 1991; and (c) they would make the final payment of P700,000.00 once Ma. Elena turned over the property on March 31, 1991. On February 4, 1991, the petitioners went to the Office of the Register of Deeds and the Assessors Office of Paraaque City to verify the TCTs shown by Ma. Elena in the company of Atanacio and her husband (also a licensed broker). There, they discovered that the lot under TCT No. 63376 had been encumbered to Banco Filipino in 1983 or 1984, but that the encumbrance had already been cancelled due to the full payment of the obligation. They noticed that the Banco Filipino loan had been effected through an SPA executed by Dionisio in favor of Ma. Elena. They found on TCT No. 63377 the annotation of an existing mortgage in favor of the Los Baos Rural Bank, also effected through an SPA executed by Dionisio in favor of Ma. Elena, coupled with a copy of a court order authorizing Ma. Elena to mortgage the lot to secure a loan of P500,000.00. The petitioners and Atanacio next inquired about the mortgage and the court order annotated on TCT No. 63377 at the Los Baos Rural Bank. There, they met with Atty. Noel Zarate, the banks legal counsel, who related that the bank had asked for the court order because the lot involved was conjugal property. Following their verification, the petitioners delivered P130,000.00 as additional down payment on February 4, 1991; and P650,000.00 to the Los Baos Rural Bank on February 12, 1991, which then released the owners duplicate copy of TCT No. 63377 to them. On March 18, 1991, the petitioners delivered the final amount of P700,000.00 to Ma. Elena, who executed a deed of absolute sale in their favor. However, Ma. Elena did not turn over the owners duplicate copy of TCT No. 63376, claiming that said copy was in the possession of a relative who was then in Hongkong. She assured them that the owners duplicate copy of TCT No. 63376 would be turned over after a week. On March 19, 1991, TCT No. 63377 was cancelled and a new one was issued in the name of the petitioners.

177

Ma. Elena did not turn over the duplicate owners copy of TCT No. 63376 as promised. In due time, the petitioners learned that the duplicate owners copy of TCT No. 63376 had been all along in the custody of Atty. Jeremy Z. Parulan, who appeared to hold an SPA executed by his brother Dionisio authorizing him to sell both lots. At Atanacios instance, the petitioners met on March 25, 1991 with Atty. Parulan at the Manila Peninsula. For that meeting, they were accompanied by one Atty. Olandesca. They recalled that Atty. Parulan "smugly demandedP800,000.00" in exchange for the duplicate owners copy of TCT No. 63376, because Atty. Parulan represented the current value of the property to be P1.5 million. As a counter-offer, however, they tendered P250,000.00, which Atty. Parulan declined, giving them only until April 5, 1991 to decide. Hearing nothing more from the petitioners, Atty. Parulan decided to call them on April 5, 1991, but they informed him that they had already fully paid to Ma. Elena. Thus, on April 15, 1991, Dionisio, through Atty. Parulan, commenced an action (Civil Case No. 91-1005 entitledDionisio Z. Parulan, Jr., represented by Jeremy Z. Parulan, as attorney in fact, v. Ma. Elena Parulan, Sps. Rex and Coney Aggabao), praying for the declaration of the nullity of the deed of absolute sale executed by Ma. Elena, and the cancellation of the title issued to the petitioners by virtue thereof. In turn, the petitioners filed on July 12, 1991 their own action for specific performance with damages against the respondents. Both cases were consolidated for trial and judgment in the RTC. Issue: Might the ruling in Veloso v. Court of Appeals be applied in favor of the petitioners despite the finding of forgery of the SPA? Held: The petitioners contend that the forgery of the SPA notwithstanding, the CA could still have decided in their favor conformably with Veloso v. Court of Appeals, a case where the petitioner husband claimed that his signature and that of the notary public who had notarized the SPA the petitioner supposedly executed to authorize his wife to sell the property had been forged. In denying relief, the Court upheld the right of the vendee as an innocent purchaser for value. Veloso is inapplicable, however, because the contested property therein was exclusively owned by the petitioner and did not belong to the conjugal regime. Veloso being upon conjugal property, Article 124 of the Family Code did not apply. In contrast, the property involved herein pertained to the conjugal regime, and, consequently, the lack of the written consent of the husband rendered the sale void pursuant to Article 124 of the Family Code. Moreover, even assuming that the property involved in Veloso was conjugal, its sale was made on November 2, 1987, or prior to the effectivity of the Family Code; hence, the sale was still properly covered by Article 173 of the Civil Code, which provides that a sale effected without the consent of one of the spouses is only voidable, not void. However, the sale herein was made already during the effectivity of the Family Code, rendering the application of Article 124 of the Family Code clear and indubitable. The fault of the petitioner in Veloso was that he did not adduce sufficient evidence to prove that his signature and that of the notary public on the SPA had been forged. The Court pointed out that his mere allegation that the signatures had been forged could not be sustained without clear and convincing proof to substantiate the allegation. Herein, however, both the RTC and the CA found from 178

the testimonies and evidence presented by Dionisio that his signature had been definitely forged, as borne out by the entries in his passport showing that he was out of the country at the time of the execution of the questioned SPA; and that the alleged notary public, Atty. Datingaling, had no authority to act as a Notary Public for Manila during the period of 1990-1991.

179

X.

TRUSTS

G.R. No. 181844 September 29, 2010 SPS. FELIPE and JOSEFA PARINGIT, Petitioner, vs. MARCIANA PARINGIT BAJIT, ADOLIO PARINGIT and ROSARIO PARINGIT ORDOO, Respondents. Facts: During their lifetime, spouses Julian and Aurelia Paringit leased a lot on Norma Street, Sampaloc, Manila (the lot) from Terocel Realty, Inc. (Terocel Realty). They built their home there and raised five children, namely, Florencio, Felipe, Marciana, Adolio, and Rosario. Aurelia died on November 6, 1972. For having occupied the lot for years, Terocel Realty offered to sell it to Julian but he did not have enough money at that time to meet the payment deadline. Julian sought the help of his children so he can buy the property but only his son Felipe and wife Josefa had the financial resources he needed at that time. To bring about the purchase, on January 16, 1984 Julian executed a deed of assignment of leasehold right in favor of Felipe and his wife that would enable them to acquire the lot. On January 30, 1984 the latter bought the same from Terocel Realty for P55,500.00 to be paid in installments. On April 12, 1984 Felipe and his wife paid the last installment and the realty company executed a Deed of Absolute Sale in their favor and turned over the title to them. On February 25, 1985, due to issues among Julians children regarding the ownership of the lot, Julian executed an affidavit clarifying the nature of Felipe and his wifes purchase of the lot. He claimed that it was bought for the benefit of all his children. He said in his affidavit: 3. That recently, the Terocel Realty, Inc., owners of the subdivision lots in Sampaloc, gave a limited period to actual occupants like us within which to purchase the lands occupied and as I had no funds at that time, I asked all my children and their respective spouses to contribute money with which to purchase the lot and thereafter to divide the lot among themselves but only my son Felipe Paringit and his wife Josefa answered my plea and so, in order that they could purchase the land, I assigned to my son and his wife my right to the whole property and with this assignment, the couple purchased the parcel of land from the Terocel Realty, Inc. for the sum of Fifty Five Thousand Five Hundred Pesos (P55,500.00) Philippine currency on April 12, 1984 as shown in the Deed of Absolute sale executed by the Terocel Realty, Inc. bearing Registry No. 273, Page 56, Book XV, Series of 1984, of Notary Public of Manila, Atty. Albino B. Achas plus the sum of P4,500.00 expenses or a total of Sixty Thousand (P60,000.00); xxxx 5. That to set the records straight, and to effect peace and understanding among my children and their respective families, I, as father and head of the family, hereby declare: xxxx c) That my conjugal share in the above described property is one half or 75 sq. m. and the other half or 75 sq. m. belongs to my deceased wife; d) That I waive my share in the estate of my deceased wife and as she has no will regarding the said estate, the same must be divided equally among my five children at 15 sq. m. each; but each of them should reimburse their brother Felipe and his wife, Josefa the proportional amount advanced by them as I also will reimburse him the sum of P30,000.00 or one half of the amount that the couple advanced. 180

e) That if any of my children claims or needs a bigger area than 15 sq. m., he/she should amicably talk with or negotiate with any other brother or sister for transfer or assignment of such area as they agree. Expressing their concurrence with what their father said in his affidavit, Felipes siblings, namely, Marciana, Rosario, and Adolio (collectively, Marciana, et al) signed the same. Josefa, Felipes wife, also signed the affidavit for Felipe who was in Saudi Arabia. Only Florencio, among the siblings, did not sign. On January 23, 1987 Felipe and his wife registered their purchase of the lot, resulting in the issuance of Transfer Certificate of Title 172313 in their names. Despite the title, however, the spouses moved to another house on the same street in 1988. Marciana, et al, on the other hand, continued to occupy the lot with their families without paying rent. This was the situation when their father Julian died on December 21, 1994. On December 18, 1995 Felipe and his wife sent a demand letter to Marciana, et al asking them to pay rental arrearages for occupying the property from March 1990 to December 1995 at the rate of P2,400.00 a month, totalingP168,000.00. Marciana, et al refused to pay or reply to the letter, believing that they had the right to occupy the house and lot, it being their inheritance from their parents. On March 11, 1996 Felipe and his wife filed an ejectment suit against them. The suit prospered, resulting in the ejectment of Marciana, et al and their families from the property. Shortly after, Felipe and his wife moved into the same. To vindicate what they regarded as their right to the lot and the house, on July 24, 1996 Marciana, et al filed the present action against Felipe and his wife for annulment of title and reconveyance of property before the Regional Trial Court (RTC) of Manila, Branch 39. Issue: Whether or not the CA erred in finding that Felipe and his wife purchased the subject lot under an implied trust for the benefit of all the children of Julian Held: But the circumstances of this case are actually what implied trust is about. Although no express agreement covered Felipe and his wifes purchase of the lot for the siblings and their father, it came about by operation of law and is protected by it. The nature of the transaction established the implied trust and this in turn gave rise to the rights and obligations provided by law. Implied trust is a rule of equity, independent of the particular intention of the parties. Here, the evidence shows that Felipe and his wife bought the lot for the benefit of Julian and his children, rather than for themselves. Thus: First. There is no question that the house originally belonged to Julian and Aurelia who built it. When Aurelia died, Julian and his children inherited her conjugal share of the house. When Terocel Realty, therefore, granted its long time tenants on Norma Street the right to acquire the lots on which their house stood, that right technically belonged to Julian and all his children. If Julian really intended to sell the entire house and assign the right to acquire the lot to Felipe and his wife, he would have arranged for Felipes other siblings to give their conformity as co-owners to such sale. And if Felipe and his wife intended to buy the lot for themselves, they would have, knowing that Felipes siblings co-owned the same, taken steps to secure their conformity to the purchase. These did not happen. Second. Julian said in his affidavit that Felipe and his wife bought the lot from Terocel Realty on his behalf and on behalf of his other children. Felipe and his wife advanced the payment because Julian and his other children did not then have the money needed to meet the realty companys deadline for the purchase. Julian added that his other children were to reimburse Felipe for the money he advanced for them. 181

Notably, Felipe, acting through his wife, countersigned Julians affidavit the way his siblings did. The document expressly acknowledged the parties intention to establish an implied trust between Felipe and his wife, as trustees, and Julian and the other children as trustors. Josefa, Felipes wife, of course claims that she signed the document only to show that she received a copy of it. But her signature did not indicate that fact. She signed the document in the manner of the others. Third. If Felipe and his wife really believed that the assignment of the house and the right to buy the lot were what their transactions with Julian were and if the spouses also believed that they became absolute owners of the same when they paid for the lot and had the title to it transferred in their name in 1987, then their moving out of the house in 1988 and letting Marciana, et al continue to occupy the house did not make sense. They would make sense only if, as Marciana, et al and their deceased father claimed, Felipe and his wife actually acquired the lot only in trust for Julian and all the children. Fourth. Felipe and his wife demanded rent from Marciana, et al only on December 18, 1995, a year following Julians death on December 21, 1994. This shows that from 1984 when they bought the lot to December 18, 1995, when they made their demand on the occupants to leave, or for over 10 years, Felipe and his wife respected the right of the siblings to reside on the property. This is incompatible with their claim that they bought the house and lot for themselves back in 1984. Until they filed the suit, they did nothing to assert their supposed ownership of the house and lot.

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G.R. No. 171717 December 15, 2010 RAMON B. BRITO, SR., Petitioner, vs. SEVERINO D. DIANALA, VIOLETA DIANALA SALES, JOVITA DIANALA DEQUINTO, ROSITA DIANALA, CONCHITA DIANALA and JOEL DEQUINTO, Respondents. Facts: Subject of the present petition is a parcel of land located at Barrio Sicaba, Cadiz City, Negros Occidental. The said tract of land is a portion of Lot No. 1536-B, formerly known as Lot No. 591-B, originally owned by a certain Esteban Dichimo and his wife, Eufemia Dianala, both of whom are already deceased. On September 27, 1976, Margarita Dichimo, assisted by her husband, Ramon Brito, Sr., together with Bienvenido Dichimo, Francisco Dichimo, Edito Dichimo, Maria Dichimo, Herminia Dichimo, assisted by her husband, Angelino Mission, Leonora Dechimo, assisted by her husband, Igmedio Mission, Felicito, and Merlinda Dechimo, assisted by her husband, Fausto Dolleno, filed a Complaint for Recovery of Possession and Damages with the then Court of First Instance (now Regional Trial Court) of Negros Occidental, against a certain Jose Maria Golez. The case was docketed as Civil Case No. 12887. Petitioner's wife, Margarita, together with Bienvenido and Francisco, alleged that they are the heirs of a certain Vicente Dichimo, while Edito, Maria, Herminia, Leonora, Felicito and Merlinda claimed to be the heirs of one Eusebio Dichimo; that Vicente and Eusebio are the only heirs of Esteban and Eufemia; that Esteban and Eufemia died intestate and upon their death Vicente and Eusebio, as compulsory heirs, inherited Lot No. 1536-B; that, in turn, Vicente and Eusebio, and their respective spouses, also died intestate leaving their pro indiviso shares of Lot No. 1536-B as part of the inheritance of the complainants in Civil Case No. 12887. On July 29, 1983, herein respondents filed an Answer-in-Intervention claiming that prior to his marriage to Eufemia, Esteban was married to a certain Francisca Dumalagan; that Esteban and Francisca bore five children, all of whom are already deceased; that herein respondents are the heirs of Esteban and Francisca's children; that they are in open, actual, public and uninterrupted possession of a portion of Lot No. 1536-B for more than 30 years; that their legal interests over the subject lot prevails over those of petitioner and his co-heirs; that, in fact, petitioner and his co-heirs have already disposed of their shares in the said property a long time ago. Issue: Whether or not there is an implied trust. Held: Article 1456 of the Civil Code provides that a person acquiring property through fraud becomes, by operation of law, a trustee of an implied trust for the benefit of the real owner of the property. An action for reconveyance based on an implied trust prescribes in ten years, the reckoning point of which is the date of registration of the deed or the date of issuance of the certificate of title over the property. Thus, in Caro v. Court of Appeals, this Court held as follows: x x x The case of Liwalug Amerol, et al. v. Molok Bagumbaran, G.R. No. L33261, September 30, 1987,154 SCRA 396, illuminated what used to be a gray area on the prescriptive period for an action to reconvey the title to real property and, corollarily, its point of reference: x x x It must be remembered that before August 30, 1950, the date of the effectivity of the new Civil Code, the old Code of Civil Procedure (Act No. 190) governed prescription. It provided: 183

SEC. 43. Other civil actions; how limited.- Civil actions other than for the recovery of real property can only be brought within the following periods after the right of action accrues: xxx xxx xxx

3. Within four years: xxx An action for relief on the ground of fraud, but the right of action in such case shall not be deemed to have accrued until the discovery of the fraud; xxx xxx xxx

In contrast, under the present Civil Code, we find that just as an implied or constructive trust is an offspring of the law (Art. 1456, Civil Code), so is the corresponding obligation to reconvey the property and the title thereto in favor of the true owner. In this context, and vis-a-vis prescription, Article 1144 of the Civil Code is applicable. Article 1144. The following actions must be brought within ten years from the time the right of action accrues: (1) Upon a written contract; (2) Upon an obligation created by law; (3) Upon a judgment. xxx xxx x x x (Italics supplied.)

An action for reconveyance based on an implied or constructive trust must perforce prescribe in ten years and not otherwise. A long line of decisions of this Court, and of very recent vintage at that, illustrates this rule. Undoubtedly, it is now well settled that an action for reconveyance based on an implied or constructive trust prescribes in ten years from the issuance of the Torrens title over the property. The only discordant note, it seems, is Balbin vs. Medalla, which states that the prescriptive period for a reconveyance action is four years. However, this variance can be explained by the erroneous reliance on Gerona vs. de Guzman. But in Gerona, the fraud was discovered on June 25, 1948, hence Section 43(3) of Act No. 190, was applied, the new Civil Code not coming into effect until August 30, 1950 as mentioned earlier. It must be stressed, at this juncture, that article 1144 and article 1456, are new provisions. They have no counterparts in the old Civil Code or in the old Code of Civil Procedure, the latter being then resorted to as legal basis of the four-year prescriptive period for an action for reconveyance of title of real property acquired under false pretenses. An action for reconveyance has its basis in Section 53, paragraph 3 of Presidential Decree No. 1529, which provides: In all cases of registration procured by fraud, the owner may pursue all his legal and equitable remedies against the parties to such fraud without prejudice, however, to the rights of any innocent holder of the decree of registration on the original petition or application, x x x. This provision should be read in conjunction with Article 1456 of the Civil Code, x x x xxxx The law thereby creates the obligation of the trustee to reconvey the property and the title thereto in favor of the true owner. Correlating Section 53, paragraph 3 of Presidential Decree No. 1529 and Article 1456 of the Civil Code with Article 1144(2) of the Civil Code, supra, 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. x x x 184

In the instant case, TCT No. T-12561 was obtained by petitioner and his coheirs on September 28, 1990, while respondents filed their complaint for reconveyance on August 18, 1999. Hence, it is clear that the ten-year prescriptive period has not yet expired.

185

XI.

EXTRA-CONTRACTUAL OBLIGATIONS: QUASI-DELICTS

G.R. No. 157009 March 17, 2010 SULPICIO LINES, INC., Petitioner, vs. DOMINGO E. CURSO, LUCIA E. CURSO, MELECIO E. CURSO, SEGUNDO E. CURSO, VIRGILIO E. CURSO, DIOSDADA E. CURSO, and CECILIA E. CURSO, Respondents. Facts: On October 23, 1988, Dr. Curso boarded at the port of Manila the MV Doa Marilyn, an inter-island vessel owned and operated by petitioner Sulpicio Lines, Inc., bound for Tacloban City. Unfortunately, the MV Doa Marilyn sank in the afternoon of October 24, 1988 while at sea due to the inclement sea and weather conditions brought about by Typhoon Unsang. The body of Dr. Curso was not recovered, along with hundreds of other passengers of the ill-fated vessel. At the time of his death, Dr. Curso was 48 years old, and employed as a resident physician at the Naval District Hospital in Naval, Biliran. He had a basic monthly salary of P3,940.00, and would have retired from government service by December 20, 2004 at the age of 65. On January 21, 1993, the respondents, allegedly the surviving brothers and sisters of Dr. Curso, sued the petitioner in the RTC in Naval, Biliran to claim damages based on breach of contract of carriage by sea, averring that the petitioner had acted negligently in transporting Dr. Curso and the other passengers. They stated, among others, that their parents had predeceased Dr. Curso, who died single and without issue; and that, as such, they were Dr. Cursos surviving heirs and successors in interest entitled to recover moral and other damages. They prayed for judgment, as follows: (a) compensatory damages of P1,924,809.00; (b) moral damages of P100,000.00; (c) exemplary or corrective damages in the amount deemed proper and just; (d) expenses of litigation of at least P50,000.00; (e) attorneys fees ofP50,000.00; and (f) costs of suit. The petitioner denied liability, insisting that the sinking of the vessel was due to force majeure (i.e., Typhoon Unsang),which exempted a common carrier from liability. It averred that the MV Doa Marilyn was seaworthy in all respects, and was in fact cleared by the Philippine Coast Guard for the voyage; and that after the accident it conducted intensive search and rescue operations and extended assistance and aid to the victims and their families. Issue: ARE THE BROTHERS AND SISTERS OF A DECEASED PASSENGER IN A CASE OF BREACH OF CONTRACT OF CARRIAGE ENTITLED TO AN AWARD OF MORAL DAMAGES AGAINST THE CARRIER? Held: As a general rule, moral damages are not recoverable in actions for damages predicated on a breach of contract, unless there is fraud or bad faith. As an exception, moral damages may be awarded in case of breach of contract of carriage that results in the death of a passenger, in accordance with Article 1764, in relation to Article 2206 (3), of the Civil Code, which provide: Article 1764. Damages in cases comprised in this Section shall be awarded in accordance with Title XVIII of this Book, concerning Damages. Article 2206 shall also apply to the death of a passenger caused by the breach of contract by a common carrier. Article 2206. The amount of damages for death caused by a crime or quasidelict shall be at least three thousand pesos, even though there may have been mitigating circumstances. In addition: 186

(1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the indemnity shall be paid to the heirs of the latter; such indemnity shall in every case be assessed and awarded by the court, unless the deceased on account of permanent physical disability not caused by the defendant, had no earning capacity at the time of his death; (2) If the deceased was obliged to give support according to the provisions of article 291, the recipient who is not an heir called to the decedent's inheritance by the law of testate or intestate succession, may demand support from the person causing the death, for a period not exceeding five years, the exact duration to be fixed by the court; (3) The spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand moral damages for mental anguish by reason of the death of the deceased. The foregoing legal provisions set forth the persons entitled to moral damages. The omission from Article 2206 (3) of the brothers and sisters of the deceased passenger reveals the legislative intent to exclude them from the recovery of moral damages for mental anguish by reason of the death of the deceased. Inclusio unius est exclusio alterius . The solemn power and duty of the courts to interpret and apply the law do not include the power to correct the law by reading into it what is not written therein. Thus, the CA erred in awarding moral damages to the respondents. The petitioner has correctly relied on the holding in Receiver for North Negros Sugar Company, Inc. v. Ybaez, to the effect that in case of death caused by quasidelict, the brother of the deceased was not entitled to the award of moral damages based on Article 2206 of the Civil Code. Essentially, the purpose of moral damages is indemnity or reparation, that is, to enable the injured party to obtain the means, diversions, or amusements that will serve to alleviate the moral suffering he has undergone by reason of the tragic event. According to Villanueva v. Salvador, the conditions for awarding moral damages are: (a) there must be an injury, whether physical, mental, or psychological, clearly substantiated by the claimant; (b) there must be a culpable act or omission factually established; (c) the wrongful act or omission of the defendant must be the proximate cause of the injury sustained by the claimant; and (d) the award of damages is predicated on any of the cases stated in Article 2219 of the Civil Code. To be entitled to moral damages, the respondents must have a right based upon law. It is true that under Article 1003 of the Civil Code they succeeded to the entire estate of the late Dr. Curso in the absence of the latters descendants, ascendants, illegitimate children, and surviving spouse. However, they were not included among the persons entitled to recover moral damages, as enumerated in Article 2219 of the Civil Code, viz: Article 2219. Moral damages may be recovered in the following and analogous cases: (1) A criminal offense resulting in physical injuries; (2) Quasi-delicts causing physical injuries; (3) Seduction, abduction, rape or other lascivious acts; (4) Adultery or concubinage; (5) Illegal or arbitrary detention or arrest; (6) Illegal search; (7) Libel, slander or any other form of defamation; 187

(8) Malicious prosecution; (9) Acts mentioned in article 309; (10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34 and 35. The parents of the female seduced, abducted, raped or abused referred to in No. 3 of this article, may also recover moral damages. The spouse, descendants, ascendants and brothers and sisters may bring the action mentioned in No. 9 of this article, in the order named. 1avvphi1 Article 2219 circumscribes the instances in which moral damages may be awarded. The provision does not include succession in the collateral line as a source of the right to recover moral damages. The usage of the phrase analogous cases in the provision means simply that the situation must be held similar to those expressly enumerated in the law in question following the ejusdem generis rule. Hence, Article 1003 of the Civil Code is not concerned with recovery of moral damages. In fine, moral damages may be recovered in an action upon breach of contract of carriage only when: ( a) where death of a passenger results, or ( b) it is proved that the carrier was guilty of fraud and bad faith, even if death does not result. Article 2206 of the Civil Code entitles the descendants, ascendants, illegitimate children, and surviving spouse of the deceased passenger to demand moral damages for mental anguish by reason of the death of the deceased

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G.R. No. 171092 March 15, 2010 EDNA DIAGO LHUILLIER, Petitioner, vs. BRITISH AIRWAYS, Respondent. Facts: On April 28, 2005, petitioner Edna Diago Lhuillier filed a Complaint for damages against respondent British Airways before the Regional Trial Court (RTC) of Makati City. She alleged that on February 28, 2005, she took respondents flight 548 from London, United Kingdom to Rome, Italy. Once on board, she allegedly requested Julian Halliday (Halliday), one of the respondents flight attendants, to assist her in placing her hand-carried luggage in the overhead bin. However, Halliday allegedly refused to help and assist her, and even sarcastically remarked that "If I were to help all 300 passengers in this flight, I would have a broken back!" Petitioner further alleged that when the plane was about to land in Rome, Italy, another flight attendant, Nickolas Kerrigan (Kerrigan), singled her out from among all the passengers in the business class section to lecture on plane safety. Allegedly, Kerrigan made her appear to the other passengers to be ignorant, uneducated, stupid, and in need of lecturing on the safety rules and regulations of the plane. Affronted, petitioner assured Kerrigan that she knew the planes safety regulations being a frequent traveler. Thereupon, Kerrigan allegedly thrust his face a mere few centimeters away from that of the petitioner and menacingly told her that "We dont like your attitude." Upon arrival in Rome, petitioner complained to respondents ground manager and demanded an apology. However, the latter declared that the flight stewards were "only doing their job." Thus, petitioner filed the complaint for damages, praying that respondent be ordered to pay P5 million as moral damages, P2 million as nominal damages, P1 million as exemplary damages, P300,000.00 as attorneys fees,P200,000.00 as litigation expenses, and cost of the suit. Issue: WHETHER X X X PHILIPPINE COURTs HAVE JURISDICTION OVER A TORTIOUS CONDUCT COMMITTED AGAINST A FILIPINO CITIZEN AND RESIDENT BY AIRLINE PERSONNEL OF A FOREIGN CARRIER TRAVELLING BEYOND THE TERRITORIAL LIMIT OF ANY FOREIGN COUNTRY; AND THUS IS OUTSIDE THE AMBIT OF THE WARSAW CONVENTION. Held: The Warsaw Convention has the force and effect of law in this country. It is settled that the Warsaw Convention has the force and effect of law in this country. In Santos III v. Northwest Orient Airlines, we held that: The Republic of the Philippines is a party to the Convention for the Unification of Certain Rules Relating to International Transportation by Air, otherwise known as the Warsaw Convention. It took effect on February 13, 1933. The Convention was concurred in by the Senate, through its Resolution No. 19, on May 16, 1950. The Philippine instrument of accession was signed by President Elpidio Quirino on October 13, 1950, and was deposited with the Polish government on November 9, 1950. The Convention became applicable to the Philippines on February 9, 1951. On September 23, 1955, President Ramon Magsaysay issued Proclamation No. 201, declaring our formal adherence thereto, "to the end that the same and every article and clause thereof may be observed and fulfilled in good faith by the Republic of the Philippines and the citizens thereof." The Convention is thus a treaty commitment voluntarily assumed by the Philippine government and, as such, has the force and effect of law in this country. 189

The Warsaw Convention applies because the air travel, where the alleged tortious conduct occurred, was between the United Kingdom and Italy, which are both signatories to the Warsaw Convention. Article 1 of the Warsaw Convention provides: 1. This Convention applies to all international carriage of persons, luggage or goods performed by aircraft for reward. It applies equally to gratuitous carriage by aircraft performed by an air transport undertaking. 2. For the purposes of this Convention the expression "international carriage" means any carriage in which, according to the contract made by the parties, the place of departure and the place of destination, whether or not there be a break in the carriage or a transhipment, are situated either within the territories of two High Contracting Parties, or within the territory of a single High Contracting Party, if there is an agreed stopping place within a territory subject to the sovereignty, suzerainty, mandate or authority of another Power, even though that Power is not a party to this Convention. A carriage without such an agreed stopping place between territories subject to the sovereignty, suzerainty, mandate or authority of the same High Contracting Party is not deemed to be international for the purposes of this Convention. (Emphasis supplied) Thus, when the place of departure and the place of destination in a contract of carriage are situated within the territories of two High Contracting Parties, said carriage is deemed an "international carriage". The High Contracting Parties referred to herein were the signatories to the Warsaw Convention and those which subsequently adhered to it. In the case at bench, petitioners place of departure was London, United Kingdom while her place of destination was Rome, Italy. Both the United Kingdom and Italy signed and ratified the Warsaw Convention. As such, the transport of the petitioner is deemed to be an "international carriage" within the contemplation of the Warsaw Convention. Since the Warsaw Convention applies in the instant case, then the jurisdiction over the subject matter of the action is governed by the provisions of the Warsaw Convention. Under Article 28(1) of the Warsaw Convention, the plaintiff may bring the action for damages before 1. the court where the carrier is domiciled; 2. the court where the carrier has its principal place of business; 3. the court where the carrier has an establishment by which the contract has been made; or 4. the court of the place of destination. In this case, it is not disputed that respondent is a British corporation domiciled in London, United Kingdom with London as its principal place of business. Hence, under the first and second jurisdictional rules, the petitioner may bring her case before the courts of London in the United Kingdom. In the passenger ticket and baggage check presented by both the petitioner and respondent, it appears that the ticket was issued in Rome, Italy. Consequently, under the third jurisdictional rule, the petitioner has the option to bring her case before the courts of Rome in Italy. Finally, both the petitioner and respondent aver that the place of destination is Rome, Italy, which is properly designated given the routing presented in the said passenger ticket and baggage check. Accordingly, petitioner may bring her action before the courts of Rome, Italy. We thus find that the RTC of Makati correctly ruled that it does not have jurisdiction over the case filed by the petitioner.

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G.R. No. 156599 July 26, 2010 BORMAHECO, INCORPORATED, Petitioner, vs. MALAYAN INSURANCE COMPANY, INCORPORATED and INTERWORLD BROKERAGE CORPORATION,Respondents. Facts: On December 13, 1985, Marcel Kopfli Company of Lucerne, Switzerland shipped the following cargo to the Manila Peninsula Hotel (the Hotel): (a) one unit Kolb modular construction bakery oven; (b) one steam extraction hood; (c) one lateral proofer; (d) one proofing cabinet; (e) one trolley for setters; (f) eight setters; and (g) spare parts for the Kolb bakery oven. The cargo was packed in one crate and loaded on board the vessel MS Nedlloyd Dejima which left the port of Fos, Switzerland on said date. The cargo was insured by the Hotel with the private respondent Malayan Insurance Company (Malayan). On January 6, 1986, MS Nedlloyd Dejima arrived at the port in Manila. The subject cargo was unloaded at Pier 13 of the South Harbor in good order and condition. On February 3, 1986, pursuant to its contract with the Hotel, the other private respondent Interworld Brokerage Corporation (Interworld) withdrew the cargo from the pier and delivered it to the Hotels warehouse. For this undertaking, Interworld secured the services of petitioner Border Machinery & Heavy Equipment Co., Incorporated (Bormaheco) to provide a forklift truck and a qualified operator for the purpose of unloading the cargo from the delivery truck. At the premises of the warehouse, Bormahecos forklift operator, Custodio Trinidad, proceeded to unload the cargo from the delivery truck. He placed the fork under the crate and immediately lifted it. The cargo fell from the fork at a height of six feet and broke open. As a result, the Kolb construction bakery oven, the lateral proofer and the proofing cabinet sustained "extensive damage" and were declared as a "total loss." For the loss, the Hotel sought indemnity from Malayan under its insurance policy. Malayan paid the Hotel the sum ofP690,849.68 plus the additional amount of P75,151.33 representing the pro-rata share of the freight charges on the damaged items. In turn, Malayan, which was subrogated to the rights of the Hotel, made formal demands for reimbursement from Interworld but to no avail. On August 7, 1986, Malayan filed a complaint against Interworld before the RTC of Manila, docketed as Civil Case No. 86-37017 and raffled to Branch 17 thereof. Interworld, on the other hand, filed a Third-Party Complaint against Bormaheco for indemnity or other relief for the damages of the cargo. After trial, the RTC resolved the conflict in favor of the private respondents as it found that the forklift operator lifted the cargo when it was not yet properly balanced causing it to tilt, fall and sustain damages. Issue: WHETHER OR NOT THE PETITIONER SHOULD BE HELD LIABLE FOR THE NEGLIGENCE OF RESPONDENT INTERWORLD FOR THE IMPROPER PACKING OF THE GOODS Held: Bormaheco questions the factual findings of both the trial court and the appellate court, more particularly the extent of the damage caused to the cargo. Bormaheco also challenges the findings that its forklift operator, Custodio Trinidad, was at fault or negligent, and insists that the damage to, or loss of, the cargo was due to the improper crating. Bormaheco may have forgotten that the Court is not a trier of facts and that, in this petition for review on certiorari, will not admit questions other than questions of law. 191

The antecedents mentioned earlier in this disposition readily show the congruence in the factual findings of the trial court and the appellate court. Thus, and in the absence of any exceptional circumstances to warrant the contrary, this Court must abide by the prevailing rule that findings of fact of the trial court, more so when affirmed by the Court of Appeals, are binding and conclusive upon It. Accordingly, the trial court and the appellate courts findings that the subject "oven, proofing cabinet and lateral proofer were badly dented and deformed and that their glass parts were broken to pieces," and that the oven was also rendered inoperable, stand. The findings of the two courts below, with regard to the fault of Bormahecos forklift operator, also hold. Hence, the Court agrees with the RTC and the CA that Interworld is liable under its contract with the Hotel for the loss of the cargo due to the negligence of those employed by it Bormaheco and its forklift operator. The relationship between Interworld and the Hotel, in whose place Malayan was subrogated, was contractual arising from the formers commitment to transport the subject cargo to the latters warehouse. With its failure to comply with this obligation due to the negligence of the forklift operator of Bormaheco whom it contracted to unload the subject cargo and pursuant to Articles 1172 and 1173 of the New Civil Code, Interworld necessarily becomes liable. In turn, Bormaheco is liable to Interworld for the acts of its forklift operator whom the trial court and the appellate court found to have been grossly negligent.

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G.R. No. 166250 July 26, 2010 UNSWORTH TRANSPORT INTERNATIONAL (PHILS.), INC., Petitioner, vs. COURT OF APPEALS and PIONEER INSURANCE AND SURETY CORPORATION, Respondents. Facts: On August 31, 1992, the shipper Sylvex Purchasing Corporation delivered to UTI a shipment of 27 drums of various raw materials for pharmaceutical manufacturing, consisting of: "1) 3 drums (of) extracts, flavoring liquid, flammable liquid x x x banana flavoring; 2) 2 drums (of) flammable liquids x x x turpentine oil; 2 pallets. STC: 40 bags dried yeast; and 3) 20 drums (of) Vitabs: Vitamin B Complex Extract." UTI issued Bill of Lading No. C320/C15991-2, covering the aforesaid shipment. The subject shipment was insured with private respondent Pioneer Insurance and Surety Corporation in favor of Unilab against all risks in the amount of P1,779,664.77 under and by virtue of Marine Risk Note Number MC RM UL 0627 92 and Open Cargo Policy No. HO-022-RIU. On the same day that the bill of lading was issued, the shipment was loaded in a sealed 1x40 container van, with no. APLU-982012, boarded on APLs vessel M/V "Pres. Jackson," Voyage 42, and transshipped to APLs M/V "Pres. Taft" for delivery to petitioner in favor of the consignee United Laboratories, Inc. (Unilab). On September 30, 1992, the shipment arrived at the port of Manila. On October 6, 1992, petitioner received the said shipment in its warehouse after it stamped the Permit to Deliver Imported Goods procured by the Champs Customs Brokerage. Three days thereafter, or on October 9, 1992, Oceanica Cargo Marine Surveyors Corporation (OCMSC) conducted a stripping survey of the shipment located in petitioners warehouse. The survey results stated: 2-pallets STC 40 bags Dried Yeast, both in good order condition and properly sealed 19- steel drums STC Vitamin B Complex Extract, all in good order condition and properly sealed 1-steel drum STC Vitamin B Complex Extra[ct] with cut/hole on side, with approx. spilling of 1% On October 15, 1992, the arrastre Jardine Davies Transport Services, Inc. (Jardine) issued Gate Pass No. 7614 which stated that "22 drums Raw Materials for Pharmaceutical Mfg." were loaded on a truck with Plate No. PCK-434 facilitated by Champs for delivery to Unilabs warehouse. The materials were noted to be complete and in good order in the gate pass. On the same day, the shipment arrived in Unilabs warehouse and was immediately surveyed by an independent surveyor, J.G. Bernas Adjusters & Surveyors, Inc. (J.G. Bernas). The Report stated: 1-p/bag torn on side contents partly spilled 1-s/drum #7 punctured and retaped on bottom side content lacking 5-drums shortship/short delivery On October 23 and 28, 1992, the same independent surveyor conducted final inspection surveys which yielded the same results. Consequently, Unilabs quality control representative rejected one paper bag containing dried yeast and one steel drum containing Vitamin B Complex as unfit for the intended purpose. On November 7, 1992, Unilab filed a formal claim for the damage against private respondent and UTI. On November 20, 1992, UTI denied liability on the basis of the gate pass issued by Jardine that the goods were in complete and good condition; while private respondent paid the claimed amount on March 23, 1993. By virtue of the Loss and Subrogation Receipt issued by Unilab in favor of private 193

respondent, the latter filed a complaint for Damages against APL, UTI and petitioner with the RTC of Makati. The case was docketed as Civil Case No. 93-3473 and was raffled to Branch 134. Issue: WHETHER OR NOT PETITIONER UTI EXERCISED THE REQUIRED ORDINARY DILIGENCE Held: Though it is not our function to evaluate anew the evidence presented, we refer to the records of the case to show that, as correctly found by the RTC and the CA, petitioner failed to rebut the prima facie presumption of negligence in the carriage of the subject shipment. First, as stated in the bill of lading, the subject shipment was received by UTI in apparent good order and condition in New York, United States of America. Second, the OCMSC Survey Report stated that one steel drum STC Vitamin B Complex Extract was discovered to be with a cut/hole on the side, with approximate spilling of 1%. Third, though Gate Pass No. 7614, issued by Jardine, noted that the subject shipment was in good order and condition, it was specifically stated that there were 22 (should be 27 drums per Bill of Lading No. C320/C15991-2) drums of raw materials for pharmaceutical manufacturing. Last, J.G. Bernas Survey Report stated that "1-s/drum was punctured and retaped on the bottom side and the content was lacking, and there was a short delivery of 5-drums." All these conclusively prove the fact of shipment in good order and condition, and the consequent damage to one steel drum of Vitamin B Complex Extract while in the possession of petitioner which failed to explain the reason for the damage. Further, petitioner failed to prove that it observed the extraordinary diligence and precaution which the law requires a common carrier to exercise and to follow in order to avoid damage to or destruction of the goods entrusted to it for safe carriage and delivery.

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G.R. No. 148974 July 2, 2010 OMC CARRIERS, INC. and JERRY AALUCAS y PITALINO, Petitioners, vs. SPOUSES ROBERTO C. NABUA and ROSARIO T. NABUA, Respondents. Facts: On August 4, 1995, at about 3:00 p.m., an Isuzu private tanker with plate no. PCH 612, owned by and registered in the name of petitioner OMC Carriers, Inc. and then being driven by its employee Jerry P. Aalucas (Aalucas), was cruising along Quirino Highway towards the general direction of Lagro, Quezon City. At Barangay Pasong Putik, Novaliches, Quezon City, the aforesaid private tanker hit a private vehicle, an Isuzu Gemini with plate no. NDF 372, which was making a left turn towards a nearby Caltex gasoline station. The impact heavily damaged the right side portion of the latter motor and mortally injured its 18-year-old driver, Reggie T. Nabua, who was later pronounced dead on arrival at the Fairview Polymedic Hospital. Respondent spouses Berlino and Rosario Nabua, the parents of the victim, filed a Complaint for damages against petitioners and the General Manager of OMC Carriers, Chito Calauag, before the RTC of Quezon City, Branch 224. The complaint was docketed as Civil Case No. Q-95-24838 and entitled, Spouses Berlino C. Nabua and Rosario T. Nabua, Plaintiffs, vs. OMC Carriers, Inc., its General Manager, Chito Calauag, and Jerry Aalucas y Pitalino, Defendants. Issue: Whether or not company exercised due diligence in the selection and supervision of their employees Held: Article 2180 of the Civil Code provides: 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 in this article shall cease when the persons herein mentioned prove they observed all the diligence of a good father of a family to prevent damage. It is thus clear that the employer of a negligent employee is liable for the damages caused by the latter. When an injury is caused by the negligence of an employee, there instantly arises a presumption of the law that there was negligence on the part of the employer, either in the selection of his employee or in the supervision over him after such selection. However, the presumption may be overcome by a clear showing on the part of the employer that he has exercised the care and diligence of a good father of a family in the selection and supervision of his employee. In other words, the burden of proof is on the employer. Thus, petitioners must prove two things: first, that they had exercised due diligence in the selection of petitioner Aalucas, and second, that after hiring Aalucas, petitioners had exercised due diligence in supervising him. The question is: how does an employer prove that he indeed exercised the diligence of a good father of a family in the selection and supervision of his employee? The case of Metro Manila Transit Corporation v. Court of Appeals is instructive:

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In fine, the party, whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of presenting at the trial such amount of evidence required by law to obtain a favorable judgment.In making proof in its or his case, it is paramount that the best and most complete evidence is formally entered. Coming now to the case at bar, while there is no rule which requires that testimonial evidence, to hold sway, must be corroborated by documentary evidence, inasmuch as the witnesses testimonies dwelt on mere generalities, we cannot consider the same as sufficiently persuasive proof that there was observance of due diligence in the selection and supervision of employees. Petitioners attempt to prove its "deligentissimi patris familias" in the selection and supervision of employees through oral evidence must fail as it was unable to buttress the same with any other evidence, object or documentary, which might obviate the apparent biased nature of the testimony. Our view that the evidence for petitioner MMTC falls short of the required evidentiary quantum as would convincingly and undoubtedly prove its observance of the diligence of a good father of a family has its precursor in the underlying rationale pronounced in the earlier case of Central Taxicab Corp. vs. Ex-Meralco Employees Transportation Co., et al., set amidst an almost identical factual setting, where we held that: xxxx The failure of the defendant company to produce in court any record or other documentary proof tending to establish that it had exercised all the diligence of a good father of a family in the selection and supervision of its drivers and buses, notwithstanding the calls therefore by both the trial court and the opposing counsel, argues strongly against its pretensions. We are fully aware that there is no hard-and-fast rule on the quantum of evidence needed to prove due observance of all the diligence of a good father of a family as would constitute a valid defense to the legal presumption of negligence on the part of an employer or master whose employee has by his negligence, caused damage to another. x x x(R)educing the testimony of Albert to its proper proportion, we do not have enough trustworthy evidence left to go by. We are of the considerable opinion, therefore, that the believable evidence on the degree of care and diligence that has been exercised in the selection and supervision of Roberto Leon y Salazar, is not legally sufficient to overcome the presumption of negligence against the defendant company. (Italics supplied.) In the case at bar, while this Court may be satisfied that petitioner company had exercised due diligence in the selection of petitioner Aalucas, the focus now shifts as to whether or not petitioner company had satisfied the test of due supervision. After a thorough and extensive review of the records, this Court is unconvinced that petitioner company had satisfactorily discharged its burden. The alleged Memorandum (Exhibit 6) alluded to by petitioner company amounts to nothing more than a "reminder memo on offenses punishable by dismissal," wherein specific offenses are spelled out to which erring employees may be punished by the company. Likewise, the alleged circulars from Petron amount to nothing more than minutes of the "Haulers Meeting," a list of "Hot Spots" and a "Table of Penalties." These circulars do not, in any way, concern safety procedures to prevent accident or damage to property or injury to people on the road. It bears to stress that the existence of supervisory policies cannot be casually invoked to overturn the presumption of negligence on the part of the employer. The testimonies relating to the checking of damages during carbarn time, the inspection if drivers were given traffic violation tickets and inspection of the validity of the drivers licenses are all oral evidence without any object or documentary evidence to support them. Like in Metro Transit, this Court is unable to accept the self-serving nature of the testimonies without any other evidence. The alleged daily 196

inspections conducted were not supported by any evidence on record. Moreover, even the seminars regarding safety and driving, allegedly conducted by petitioners witness, Max Pagsaligan, were not satisfactorily established in evidence. Specifically, there is no record that petitioner Aalucas attended such seminars. Normally, employers keep files concerning the qualifications, work experience, training, evaluation, and discipline of their employees , The failure of petitioners to put forth evidence to substantiate the testimonies of the witnesses is certainly fatal to its cause.

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G.R. No. 150666 August 3, 2010 LUCIANO BRIONES and NELLY BRIONES, Petitioners, vs. JOSE MACABAGDAL, FE D. MACABAGDAL and VERGON REALTY INVESTMENTS CORPORATION, Respondents. Facts: Respondent-spouses purchased from Vergon Realty Investments Corporation (Vergon) Lot No. 2-R, a 325-square-meter land located in Vergonville Subdivision No. 10 at Las Pias City, Metro Manila and covered by Transfer Certificate of Title No. 62181 of the Registry of Deeds of Pasay City. On the other hand, petitioners are the owners of Lot No. 2-S, which is adjacent to Lot No. 2-R. Sometime in 1984, after obtaining the necessary building permit and the approval of Vergon, petitioners constructed a house on Lot No. 2-R which they thought was Lot No. 2-S. After being informed of the mix up by Vergons manager, respondent-spouses immediately demanded petitioners to demolish the house and vacate the property. Petitioners, however, refused to heed their demand. Thus, respondent-spouses filed an action to recover ownership and possession of the said parcel of land with the RTC of Makati City. Petitioners insisted that the lot on which they constructed their house was the lot which was consistently pointed to them as theirs by Vergons agents over the seven (7)-year period they were paying for the lot. They interposed the defense of being buyers in good faith and impleaded Vergon as third-party defendant claiming that because of the warranty against eviction, they were entitled to indemnity from Vergon in case the suit is decided against them. Issue: Whether or not Vergon was negligent Held: As to the liability of Vergon, petitioners failed to present sufficient evidence to show negligence on Vergons part. Petitioners claim is obviously one (1) for tort, governed by Article 2176 of the Civil Code, which 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 preexisting contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter. (Emphasis ours.) Under this provision, it is the plaintiff who has to prove by a preponderance of evidence: (1) the damages suffered by the plaintiff; (2) the fault or negligence of the defendant or some other person for whose act he must respond; and (3) the connection of cause and effect between the fault or negligence and the damages incurred. This the petitioners failed to do. The President of Vergon signed the building permit as a precondition for its approval by the local government, but it did not guarantee that petitioners were constructing the structure within the metes and bounds of petitioners lot. The signature of the President of Vergon on the building permit merely proved that petitioners were authorized to make constructions within the subdivision project of Vergon. And while petitioners acted in good faith in building their house on Lot No. 2-R, petitioners did not show by what authority the agents or employees of Vergon were acting when they pointed to the lot where the construction was made nor was petitioners claim on this matter corroborated by sufficient evidence.

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G.R. No. 165339 August 23, 2010 EQUITABLE PCI BANK, Petitioner vs. ARCELITO B. TAN, Respondent. Facts: Respondent Arcelito B.Tan maintained a current and savings account with Philippine Commercial International Bank (PCIB), now petitioner Equitable PCI Bank. On May 13, 1992, respondent issued PCIB Check No. 275100 postdated May 30, 1992 in the amount of P34,588.72 in favor of Sulpicio Lines, Inc. As of May 14, 1992, respondent's balance with petitioner was P35,147.59. On May 14, 1992, Sulpicio Lines, Inc. deposited the aforesaid check to its account with Solid Bank, Carbon Branch, Cebu City. After clearing, the amount of the check was immediately debited by petitioner from respondent's account thereby leaving him with a balance of only P558.87. Meanwhile, respondent issued three checks from May 9 to May 16, 1992, specifically, PCIB Check No. 275080 dated May 9, 1992, payable to Agusan del Sur Electric Cooperative Inc. (ASELCO) for the amount of P6,427.68; PCIB Check No. 275097 dated May 10, 1992 payable to Agusan del Norte Electric Cooperative Inc., (ANECO) for the amount of P6,472.01; and PCIB Check No. 314104 dated May 16, 1992 payable in cash for the amount of P10,000.00. When presented for payment, PCIB Check Nos. 275080, 275097 and 314014 were dishonored for being drawn against insufficient funds. As a result of the dishonor of Check Nos. 275080 and 275097 which were payable to ASELCO and ANECO, respectively, the electric power supply for the two mini-sawmills owned and operated by respondent, located in Talacogon, Agusan del Sur; and in Golden Ribbon, Butuan City, was cut off on June 1, 1992 and May 28, 1992, respectively, and it was restored only on July 20 and August 24, 1992, respectively. Due to the foregoing, respondent filed with the Regional Trial Court (RTC) of Cebu City a complaint against petitioner, praying for payment of losses consisting of unrealized income in the amount of P1,864,500.00. He also prayed for payment of moral damages, exemplary damages, attorney's fees and litigation expenses. Respondent claimed that Check No. 275100 was a postdated check in payment of Bills of Lading Nos. 15, 16 and 17, and that his account with petitioner would have had sufficient funds to cover payment of the three other checks were it not for the negligence of petitioner in immediately debiting from his account Check No. 275100, in the amount of P34,588.72, even as the said check was postdated to May 30, 1992. As a consequence of petitioner's error, which brought about the dishonor of the two checks paid to ASELCO and ANECO, the electric supply to his two mini-sawmills was cut off, the business operations thereof were stopped, and purchase orders were not duly served causing tremendous losses to him. In its defense, petitioner denied that the questioned check was postdated May 30, 1992 and claimed that it was a current check dated May 3, 1992. It alleged further that the disconnection of the electric supply to respondent's sawmills was not due to the dishonor of the checks, but for other reasons not attributable to the bank. After trial, the RTC, in its Decision dated June 21, 1993, ruled in favor of petitioner and dismissed the complaint. Aggrieved by the Decision, respondent filed a Notice of Appeal. In its Decision dated May 31, 2004, the Court of Appeals reversed the decision of the trial court and directed petitioner to pay respondent the sum of P1,864,500.00 as actual damages, P50,000.00 by way of moral damages, P50,000.00 as exemplary damages and attorney's fees in the amount of P30,000.00. Petitioner filed a motion for reconsideration, which the CA denied in a Resolution dated August 24, 2004. 199

Issue: What is the diligence required of banks Held: The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of R.A. 8791 decrees: Declaration of Policy. The State recognizes the vital role of banks in providing an environment conducive to the sustained development of the national economy and the fiduciary nature of banking that requires high standards of integrity and performance. In furtherance thereof, the State shall promote and maintain a stable and efficient banking and financial system that is globally competitive, dynamic and responsive to the demands of a developing economy. Although R.A. 8791 took effect only in the year 2000, the Court had already imposed on banks the same high standard of diligence required under R.A. 8791 at the time of the untimely debiting of respondent's account by petitioner in May 1992. In Simex International (Manila), Inc. v. Court of Appeals , which was decided in 1990, the Court held that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. The diligence required of banks, therefore, is more than that of a good father of a family. In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs. From the foregoing, it is clear that petitioner bank did not exercise the degree of diligence that it ought to have exercised in dealing with its client.

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G.R. No. 167363 December 15, 2010 SEALOADER SHIPPING CORPORATION, Petitioner, vs. GRAND CEMENT MANUFACTURING CORPORATION, JOYCE LAUNCH & TUG CO., INC., ROMULO DIANTAN & JOHNNY PONCE, Respondents. Facts: Sealoader Shipping Corporation (Sealoader) is a domestic corporation engaged in the business of shipping and hauling cargo from one point to another using sea-going inter-island barges. Grand Cement Manufacturing Corporation (now Taiheiyo Cement Philippines, Inc.), on the other hand, is a domestic corporation engaged in the business of manufacturing and selling cement through its authorized distributors and, for which purposes, it maintains its own private wharf in San Fernando, Cebu, Philippines. On March 24, 1993, Sealoader executed a Time Charter Party Agreement with Joyce Launch and Tug Co., Inc. (Joyce Launch), a domestic corporation, which owned and operated the motor tugboat M/T Viper. By virtue of the agreement, Sealoader chartered the M/T Viper in order to tow the formers unpropelled barges for a minimum period of fifteen days from the date of acceptance, renewable on a fifteen-day basis upon mutual agreement of the parties. Subsequently, Sealoader entered into a contract with Grand Cement for the loading of cement clinkers and the delivery thereof to Manila. On March 31, 1994, Sealoaders barge, the D/B Toploader, arrived at the wharf of Grand Cement tugged by the M/T Viper. The D/B Toploader, however, was not immediately loaded with its intended cargo as the employees of Grand Cement were still loading another vessel, the Cargo Lift Tres. On April 4, 1994, Typhoon Bising struck the Visayas area, with maximum recorded winds of 120 kilometers per hour. Public storm signal number 3 was raised over the province of Cebu. The D/B Toploader was, at that time, still docked at the wharf of Grand Cement. In the afternoon of said date, as the winds blew stronger and the waves grew higher, the M/T Viper tried to tow the D/B Toploader away from the wharf. The efforts of the tugboat were foiled, however, as the towing line connecting the two vessels snapped. This occurred as the mooring lines securing the D/B Toploader to the wharf were not cast off. The following day, the employees of Grand Cement discovered the D/B Toploader situated on top of the wharf, apparently having rammed the same and causing significant damage thereto. On October 3, 1994, Grand Cement filed a Complaint for Damages against Sealoader Issue: the question that needs to be resolved by this Court is who, among the parties in this case, should be liable for the damage sustained by the wharf of Grand Cement. Held: The Court finds that the evidence proffered by Sealoader to prove the negligence of Grand Cement was marred by contradictions and are, thus, weak at best. We therefore conclude that the contributory negligence of Grand Cement was not established in this case. On the issue of the negligence of Grand Cement, the Court of Appeals initially affirmed the ruling of the RTC that the damage to the wharf of Grand Cement was caused by the negligent acts of Sealoader, Joyce Launch and Johnny Ponce. Upon motion of Sealoader, however, the Court of Appeals rendered an Amended Decision, finding that Grand Cement was guilty of contributory negligence. The award of actual damages to Grand Cement was, thus, reduced by 50%. 201

Article 2179 of the Civil Code defines the concept of contributory negligence as follows: Art. 2179. When the plaintiffs own negligence was the immediate and proximate cause of his injury, he cannot recover damages. But if his negligence was only contributory, the immediate and proximate cause of the injury being the defendants lack of due care, the plaintiff may recover damages, but the courts shall mitigate the damages to be awarded. Contributory negligence is conduct on the part of the injured party, contributing as a legal cause to the harm he has suffered, which falls below the standard to which he is required to conform for his own protection. We find that, contrary to the judgment of the Court of Appeals in the Amended Decision dated March 3, 2005, Grand Cement was not guilty of negligent acts, which contributed to the damage that was incurred on its wharf. To recall, the Court of Appeals subsequently found that Grand Cement likewise did not exercise due diligence since it belatedly informed Sealoader of the approaching typhoon and, thereafter, still continued to load another vessel. The Court of Appeals further gave more credence to the claim of Sealoader that there were no employees of Grand Cement manning the pier when the typhoon struck. The Court holds that Sealoader had the responsibility to inform itself of the prevailing weather conditions in the areas where its vessel was set to sail. Sealoader cannot merely rely on other vessels for weather updates and warnings on approaching storms, as what apparently happened in this case. Common sense and reason dictates this. To do so would be to gamble with the safety of its own vessel, putting the lives of its crew under the mercy of the sea, as well as running the risk of causing damage to the property of third parties for which it would necessarily be liable.

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G.R. No. 181560 November 15, 2010 VITARICH CORPORATION, Petitioner, vs. CHONA LOSIN, Respondent. Facts: Respondent Chona Losin (Losin) was in the fastfood and catering services business named Glamours Chicken House, with address at Parang Road, Cotabato City. Since 1993, Vitarich, particularly its Davao Branch, had been her supplier of poultry meat. In 1995, however, her account was transferred to the newly opened Vitarich branch in General Santos City. In the months of July to November 1996, Losins orders of dressed chicken and other meat products allegedly amounted to P921,083.10. During this said period, Losins poultry meat needs for her business were serviced by Rodrigo Directo (Directo) and Allan Rosa (Rosa), both salesmen and authorized collectors of Vitarich, and Arnold Baybay (Baybay), a supervisor of said corporation. Unfortunately, it was also during the same period that her account started to experience problems because of the fact that Directo delivered stocks to her even without prior booking which is the customary process of doing business with her. On August 24, 1996, Directos services were terminated by Vitarich without Losins knowledge. He left without turning over some supporting invoices covering the orders of Losin. Rosa and Baybay, on the other hand, resigned on November 30, 1996 and December 30, 1996, respectively. Just like Directo, they did not also turn over pertinent invoices covering Losins account. On February 12, 1997, demand letters were sent to Losin covering her alleged unpaid account amounting toP921,083.10. Because of said demands, she checked her records and discovered that she had an overpayment to Vitarich in the amount of P500,000.00. She relayed this fact to Vitarich and further informed the latter that checks were issued and the same were collected by Directo. It appears that Losin had issued three (3) checks amounting to P288,463.30 which were dishonored either for reasons - Drawn Against Insufficient Funds (DAIF) or Stop Payment. On March 2, 1998, Vitarich filed a complaint for Sum of Money against Losin, Directo, Rosa, and Baybay before the RTC. On August 9, 2001, the RTC rendered its Decision in favor of Vitarich, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered in favor of plaintiff, ordering defendant Chona Losin to pay plaintiff. As to the complaint against defendant Allan Rosa and Arnold Baybay, the same is dismissed. The complaint against Rodrigo Directo still remains and is hereby ordered archived until he could be served with summons. Not satisfied with the RTC decision, Losin appealed to the CA presenting the following: Issue: WHETHER THE LOWER COURT ERRED IN NOT FINDING VITARICH CORPORATION NEGLIGENT IN THE SELECTION OF ITS EMPLOYEES AND NEITHER FINDING THE CORPORATION LIABLE FOR DAMAGES A CLEAR VIOLATION OF ARTICLE 2180 OF THE CIVIL CODE. 203

Held: On November 26, 2007, the CA rendered the assailed decision in favor of Losin. Pertinently, the said decision reads: It is axiomatic that we should not interfere with the judgment of the trial court in determining the credibility of witnesses, unless there appears in the record some fact or circumstances of weight and influence which has been overlooked or the significance of which has been misinterpreted. The reason is that the trial court is in a better position to determine questions involving credibility having heard the witnesses and having observed their deportment and manner of testifying during the trial unless there is showing that the findings of the lower court are totally devoid of support or glaringly erroneous as to constitute palpable error or grave abuse of discretion. This is such an instance. 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. Thus, the elements of agency are (i) consent, express or implied, of the parties to establish the relationship; (ii) the object is the execution of a juridical act in relation to a third person; (iii) the agent acts as a representative and not for himself; and (iv) the agent acts within the scope of his authority. The Civil Code defines a contract of agency as follows: "Art. 1868. 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." As far as Losin is concerned, Directo was a duly authorized agent of Vitarich Corporation. As such, it fell upon Directo to place her orders of dressed chicken and other related products to their General Santos City branch. All such orders were taken from the Vitarich bodega by Directo as testified by Alona Calinawan, then bookkeeper of Vitarich from March 1995 to September 1998, who was responsible for all the customers accounts, receivables and withdrawals of dressed chicken from their bodega. A perusal of the records would show that Vitarich included in their list of collectibles from Losin several amounts that were not supported by their Charge Sales Invoices such as P44,987.70, P3,300.00; P28,855.40; P98,166.20; P73,806.00; and P93,888.80 and which form part of their total claim of P912,083.10. Furthermore, Vitarich also submitted Charge Sales Invoices showing the amount of P70,000.00, P41,792.40, P104,137.40 and P158,522.80 as part of their exhibits but which amounts are not included in its summary statement of collectibles against Losin. It is noted that the dressed chicken and other related products as manifested by the Charge Sales Invoices, were taken out of the bodega and received by Directo, who is now at large. There was no evidence presented by Vitarich to prove that aforesaid stocks were delivered to Losin. Contrary to what Vitarich claimed that Directo resigned on August 24, 1996, exhibit X shows that he was terminated. The fact can not be put aside that Directo was the salesman and authorized collector and by law, the agent of Vitarich. Criminal acts committed by Directo by his non-remittance of the proceeds of the checks given by Losin, is his separate accountability with Vitarich and should not be imputed to their client, Losin. In fact, defendant Directo absconded when plaintiff-appellee started to question his collectibles. The totality of Directos acts clearly indicated a deliberate attempt to escape liability. The Civil Code provides: 204

"Art. 1921. If the agency has been entrusted for the purpose of contracting with specified persons, its revocation shall not prejudice the latter if they were not given notice thereof." "Art. 1922. If the agent had general powers, revocation of the agency does not prejudice third persons who acted in good faith and without knowledge of the revocation. Notice of the revocation in a newspaper of general circulation is a sufficient warning to third persons." (Emphasis Ours) The reason for the law is obvious. Since the third persons have been made to believe by the principal that the agent is authorized to deal with them, they have the right to presume that the representation continues to exist in the absence of notification by the principal. Nowhere in the records can it be found that Losin was notified of the fact that Directo was no longer representing the interest of Vitarich and that the latter has terminated Directos services. There is also an absence of any proof to show that Directos termination has been published in a newspaper of general circulation. It is well settled that a question of fact is to be determined by the evidence offered to support the particular contention. In defendant-appellants Statement of Payments Made to Vitarich, prepared and signed by Losins bookkeeper, Imelda S. Cinco, all the checks enumerated therein coincides with the bank statements submitted by RCBC, thus corroborating Losins claim that she has paid Vitarich. Vitarichs contention that defendant Baybay tried very hard to hide his accountabilities to the plaintiff x x x but failed to explain why the account remained unpaid, confirms its belief that their own agents as such, are accountable for transactions made with third persons. "As a Sales Supervisor, he is principally liable for the behavior of his subordinates (Directo & Rosa) and for the enforcement of company rules" which may have gone beyond their authority to do such acts. Anent the third assigned error that the lower court erred in not finding Vitarich negligent in the selection of its employees thereby making the former liable for damages under Article 2180 of the Civil Code, We find the same to be without basis as said article explicitly holds that: "ART. 2180. The obligation imposed by Article 2176 is demandable not only for ones own acts or omissions, but also for those of persons for whom one is responsible. 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. Pursuant to Article 2180 of the Civil Code, that vicarious liability attaches only to an employer when the tortuous conduct of the employee relates to, or is in the course of, his employment. The question to ask should be whether at the time of the damage or injury, the employee is engaged in the affairs or concerns of the employer or, independently, in that of his own? Vitarich incurred no liability when Directos conduct, act or omission went beyond the range of his employment. Section 1, Rule 133 of the Rules of Court provides: "SECTION 1. Preponderance of evidence, how determined . - In civil cases, the party having the burden of proof must establish his case by a preponderance of evidence. In determining where the preponderance or superior weight of evidence on the issues involved lies, the court may consider all the facts and circumstances of the case, the witnesses manner of testifying, their intelligence, their means and opportunity of knowing the facts to which they are testifying, the nature of the facts to which they testify, the probability or improbability of their testimony, their 205

interest or want of interest, and also their personal credibility so far as the same may legitimately appear upon the trial. The court may also consider the number of witnesses, though the preponderance is not necessarily with the greater number." "Preponderance of evidence is the weight, credit, and value of the aggregate evidence on either side and is usually considered to be synonymous with the term greater weight of the evidence or greater weight of the credible evidence." It is evidence which is more convincing to the court as worthy of belief than that which is offered in opposition thereto. We reviewed the factual and legal issues of this case in light of the general rules of evidence and the burden of proof in civil cases, as explained by the Supreme Court in Jison v. Court of Appeals: "xxx Simply put, he who alleges the affirmative of the issue has the burden of proof, and upon the plaintiff in a civil case, the burden of proof never parts. However, in the course of trial in a civil case, once plaintiff makes out a prima facie case in his favour, the duty or the burden of evidence shifts to defendant to controvert plaintiffs prima facie case, otherwise, a verdict must be returned in favour of plaintiff. Moreover, in civil cases, the party having the burden of proof must produce a preponderance of evidence thereon, with plaintiff having to rely on the strength of his own evidence and not upon the weakness of the defendants. The concept of preponderance of evidence refers to evidence which is of greater weight, or more convincing, that which is offered in opposition to it; at bottom, it means probability of truth." Hence, Vitarich who has the burden of proof must produce such quantum of evidence, with the former having to rely on the strength of its own evidence and not on the weakness of the defendant-appellant Losins. In this light, we have meticulously perused the records of this case and [found] that the court a quo had erred in appreciating the evidence presented. In deciding this appeal, the Court relies on the rule that a party who has the burden of proof in a civil case must establish his cause of action by a preponderance of evidence. When the evidence of the parties is in equipoise, or when there is a doubt as to where the preponderance of evidence lies, the party with the burden of proof fails and the petition/complaint must thus be denied. We find that plaintiff-appellee Vitarich failed to prove that the goods were ever delivered and received by Losin, said charge sales invoices being undated and unsigned by Losin being the consignee of the goods. On the other hand, Losin could not also prove that she has overpaid Vitarich. Hence, her contention that she has overpaid Vitarich and her prayer for refund of the alleged overpaid amount, must necessarily fail.

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XII. DAMAGES
G.R. NO. 179117 February 3, 2010 Northwest Airlines,Inc. , Petitioner, vs. Spouses Edward and Nelia Heshan, Respondent. Facts: In July 1998, Edward Heshan (Edward) purchased three (3) roundtrip tickets from Northwest Airlines, Inc. (petitioner) for him, his wife Nelia Heshan (Nelia) and daughter Dara Ganessa Heshan (Dara) for their trip from Manila to St. Louis, Missouri, USA and back to attend an ice skating competition where then seven yearold Dara was to participate. When Daras participation in the ice skating event ended on August 7, 1998, the Heshans proceeded to the airport to take the connecting flight from St. Louis to Memphis on their way to Los Angeles. At the airport, the Heshans first checked-in their luggage at the airports curbside check-in near the entrance. Since they arrived three hours early for their 6:05 p.m. flight (Flight No. 972M), the Heshans whiled away the time at a nearby coffee shop. At 5:15 p.m. when the check-in counter opened, Edward took to the line where he was second in the queue. When his turn came and presented the tickets to petitioners customer service agent Ken Carns (Carns) to get the boarding passes, he was asked to step aside and wait to be called again. After all the other departing passengers were given their boarding passes, the Heshans were told to board the plane without any boarding pass given to them and to just occupy open seats therein. Inside the plane, the Heshans noticed that only one vacant passenger seat was available, which was offered to Dara, while Edward and Nelia were directed to occupy two folding seats located at the rear portion of the plane. To respondents, the two folding seats were crew seats intended for the stewardesses. Upset that there were not enough passenger seats for them, the Heshans complained to the cabin crew about the matter but were told that if they did not like to occupy the seats, they were free to disembark from the plane. And disembark they did, complaining thereafter to Carns about their situation. Petitioners plane then departed for Memphis without respondents onboard. The Heshans were later endorsed to and carried by Trans World Airways to Los Angeles. Respondents arrived in Los Angeles at 10:30 p.m. of the same day but had to wait for three hours at the airport to retrieve their luggage from petitioners Flight No. 972M. Respondents stayed for five days more in the U.S. before going back home to Manila. On September 24, 1998, respondents sent a letter to petitioner to demand indemnification for the breach of contract of carriage. Via letter of December 4, 1998, petitioner replied that respondents were prohibited to board Flight No. 972M for verbally abus[ing] [the] flight crew. As their demand remained unheeded, respondents filed a complaint for breach of contract with damages at the Regional Trial Court (RTC) of Quezon City. From the depositions of petitioners employees Carns, Mylan Brown (Brown) and Melissa Seipel (Seipel), the following version is gathered: The Heshans did not have reservations for particular seats on the flight. When they requested that they be seated together, Carns denied the request and explained that other passengers had pre-selected seats and that the computerized seating system did not reflect that the request could be accommodated at the time. Carns nonetheless assured the Heshans that they would be able to board the plane and be seated accordingly, as he in fact instructed them ten minutes before 207

the planes departure, to board the plane even without boarding passes and to occupy open seats therein. By Seipels claim, as the Heshans were upset upon learning that they were not seated together on the plane, she told them that she would request other passengers to switch places to accommodate their demand; that she never had a chance to try to carry out their demand, however, as she first had to find space for their bags in the overhead compartment; and that the Heshans cursed her which compelled her to seek assistance from Brown in dealing with them. Brown averred that she went to the back portion of the plane to help out but she was brushed aside by Nelia who was cursing them as she stormed out of the plane followed by Edward and Dara. Petitioner denied that the Heshans (hereafter respondents) were told to occupy folding seats or crew seats since [Federal Aviation Authority] regulations say no passengers are to sit there. As for respondents not having been given boarding passes, petitioner asserted that that does not in itself mean that the flight was overbooked, for this is done on last minute boarding when flights are full and in order to get passengers on their way and to get the plane out on time. This is acceptable procedure. Branch 96 of the RTC, by Decision of August 20, 2002, rendered judgment in favor of respondents. On appeal, the Court of Appeals, by Decision of June 22, 2007, sustained the trial courts findings but reduced the award of moral and exemplary damages to P2 million and P300,000, respectively. In affirming the findings of the trial court, the appellate court held: [I]t is clear that the only instances [ sic] when the [petitioner] and its agents allow its passengers to board the plane without any boarding pass is when the flights are full and the plane is running late. Taking into account the fact that the [respondents] arrived at the airport early, checked-in their baggage before hand and were in fact at the gates of the boarding area on time, thus, it could not be said that they can fall under the exceptional circumstance [ sic]. It bears stressing at this juncture that it becomes a highly irregular situation that despite the fact that the [respondents] showed up on time at the boarding area[,] they were made to go in last and sans any boarding passes. Thus, We hold that it can be logically inferred that the reason why no boarding passes were immediately issued to the [respondents] is because Flight 972 from St. Louis to Memphis is full and the [respondents] were bumped off from their flight. (emphasis, italics and underscoring supplied) Reconsideration having been denied by the appellate court, petitioner filed the present petition for review. Issue: Whether or not the respondents were entitled to moral, exemplary damages and award of attorneys fees; and Assuming arguendo that respondents were entitled to award of damages, whether or not the court erred in awarding excessive damages to respondents. Held: The petition is in part meritorious. There is a need to substantially reduce the moral damages awarded by the appellate court. While courts are given discretion to determine the amount of damages to be awarded, it is limited by the principle that the amount awarded should not be palpably and scandalously excessive. Moral damages are neither intended to impose a penalty to the wrongdoer, nor to enrich the claimant. Taking into consideration the facts and circumstances 208

attendant to the case, an award to respondents of P500,000, instead of P2,000,000, as moral damages is to the Court reasonable.

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G.R. NO. 169467 February 25, 2010 Alfredo and Cleopatre Pacis, Petitioner vs. Jerome Jovanne Morales, Respondent. Facts: On 17 January 1995, petitioners Alfredo P. Pacis and Cleopatra D. Pacis (petitioners) filed with the trial court a civil case for damages against respondent Jerome Jovanne Morales (respondent). Petitioners are the parents of Alfred Dennis Pacis, Jr. (Alfred), a 17-year old student who died in a shooting incident inside the Top Gun Firearms and Ammunitions Store (gun store) in Baguio City. Respondent is the owner of the gun store. On January 19, 1991, Alfred Dennis Pacis, then 17 years old and a first year student at the Baguio Colleges Foundation taking up BS Computer Science, died due to a gunshot wound in the head which he sustained while he was at the Top Gun Firearm[s] and Ammunition[s] Store located at Upper Mabini Street, Baguio City. The gun store was owned and operated by defendant Jerome Jovanne Morales. With Alfred Pacis at the time of the shooting were Aristedes Matibag and Jason Herbolario. They were sales agents of the defendant, and at that particular time, the caretakers of the gun store. The bullet which killed Alfred Dennis Pacis was fired from a gun brought in by a customer of the gun store for repair. The gun, an AMT Automag II Cal. 22 Rimfire Magnum with Serial No. SNH34194 (Exhibit Q), was left by defendant Morales in a drawer of a table located inside the gun store. Defendant Morales was in Manila at the time. His employee Armando Jarnague, who was the regular caretaker of the gun store was also not around. He left earlier and requested sales agents Matibag and Herbolario to look after the gun store while he and defendant Morales were away. Jarnague entrusted to Matibag and Herbolario a bunch of keys used in the gun store which included the key to the drawer where the fatal gun was kept. It appears that Matibag and Herbolario later brought out the gun from the drawer and placed it on top of the table. Attracted by the sight of the gun, the young Alfred Dennis Pacis got hold of the same. Matibag asked Alfred Dennis Pacis to return the gun. The latter followed and handed the gun to Matibag. It went off, the bullet hitting the young Alfred in the head. A criminal case for homicide was filed against Matibag before branch VII of this Court. Matibag, however, was acquitted of the charge against him because of the exempting circumstance of accident under Art. 12, par. 4 of the Revised Penal Code. By agreement of the parties, the evidence adduced in the criminal case for homicide against Matibag was reproduced and adopted by them as part of their evidence in the instant case. On 8 April 1998, the trial court rendered its decision in favor of petitioners. Respondent appealed to the Court of Appeals. In its Decision dated 11 May 2005, the Court of Appeals reversed the trial courts Decision and absolved respondent from civil liability under Article 2180 of the Civil Code. Petitioners filed a motion for reconsideration, which the Court of Appeals denied in its Resolution dated 19 August 2005. Hence, this petition. 210

Issue: Whether or not respondent is civilly liable for the death of Alfred. Held: We find the petition meritorious. This case for damages arose out of the accidental shooting of petitioners son. Under Article 1161 of the Civil Code, petitioners may enforce their claim for damages based on the civil liability arising from the crime under Article 100 of the Revised Penal Code or they may opt to file an independent civil action for damages under the Civil Code. In this case, instead of enforcing their claim for damages in the homicide case filed against Matibag, petitioners opted to file an independent civil action for damages against respondent whom they alleged was Matibags employer. Petitioners based their claim for damages under Articles 2176 and 2180 of the Civil Code. Unlike the subsidiary liability of the employer under Article 103 of the Revised Penal Code, the liability of the employer, or any person for that matter, under Article 2176 of the Civil Code is primary and direct, based on a persons own negligence. Article 2176 states: 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 quasi-delict and is governed by the provisions of this Chapter. Clearly, respondent did not exercise the degree of care and diligence required of a good father of a family, much less the degree of care required of someone dealing with dangerous weapons, as would exempt him from liability in this case.

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G.R. No. 171365 October 6, 2010 ERMELINDA C. MANALOTO, AURORA J. CIFRA, FLORDELIZA J. ARCILLA, LOURDES J. CATALAN, ETHELINDA J. HOLT, BIENVENIDO R. JONGCO, ARTEMIO R. JONGCO, JR. and JOEL JONGCO, Petitioners, vs. ISMAEL VELOSO III, Respondent Facts: This case is an off-shoot of an unlawful detainer case filed by [herein petitioners] Ermelinda C. Manaloto, Aurora J. Cifra, Flordeliza J. Arcilla, Lourdes J. Catalan, Ethelinda J. Holt, Bienvenido R. Jongco, Artemio R. Jongco, Jr. and Joel Jongco against [herein respondent]. In said complaint for unlawful detainer, it was alleged that they are the lessors of a residential house located at No. 42 Big Horseshoe Drive, Horseshoe Village, Quezon City [subject property] which was leased to [respondent] at a monthly rental of P17,000.00. The action was instituted on the ground of [respondent's] failure to pay rentals from May 23, 1997 to December 22, 1998 despite repeated demands. [Respondent] denied the nonpayment of rentals and alleged that he made an advance payment ofP825,000.00 when he paid for the repairs done on the leased property. After trial, the Metropolitan Trial Court (MeTC) decided in favor of [petitioners] by ordering [respondent] to (a) vacate the premises at No. 42 Big Horseshoe Drive, Horseshoe Village, Quezon City; (b) pay [petitioners] the sum of P306,000.00 corresponding to the rentals due from May 23, 1997 to November 22, 1998, and the sum of P17,000.00 a month thereafter until [respondent] vacates the premises; and (c) pay [petitioners] the sum of P5,000.00 as attorney's fees. On appeal to the Regional Trial Court (RTC) [Branch 88, Quezon City], the MeTC decision was reversed. [Respondent] was ordered to pay arrearages from May 23, 1997 up to the date of the decision but he was also given an option to choose between staying in the leased property or vacating the same, subject to the reimbursement by [petitioners] of one-half of the value of the improvements which it found to be in the amount ofP120,000.00. [Respondent] was also given the right to remove said improvements pursuant to Article 1678 of the Civil Code, should [petitioners] refuse to pay P60,000.00. Issue: Whether or not moral damages may be recovered Held: Petitioners are also expected to respect respondent's "dignity, personality, privacy and peace of mind" under Article 26 of the Civil Code, which provides: ART. 26. Every person shall respect the dignity, personality, privacy and peace of mind of his neighbors and other persons. The following and similar acts, though they may not constitute a criminal offense, shall produce a cause of action for damages, prevention and other relief: (1) Prying into the privacy of another's residence; (2) Meddling with or disturbing the private life or family relations of another; (3) Intriguing to cause another to be alienated from his friends; (4) Vexing or humiliating another on account of his religious beliefs, lowly station in life, place of birth, physical defect, or other personal condition.

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Thus, Article 2219(10) of the Civil Code allows the recovery of moral damages for acts and actions referred to in Article 26, among other provisions, of the Civil Code. In Concepcion v. Court of Appeals, we explained that: The philosophy behind Art. 26 underscores the necessity for its inclusion in our civil law. The Code Commission stressed in no uncertain terms that the human personality must be exalted. The sacredness of human personality is a concomitant consideration of every plan for human amelioration. The touchstone of every system of law, of the culture and civilization of every country, is how far it dignifies man. If the statutes insufficiently protect a person from being unjustly humiliated, in short, if human personality is not exalted - then the laws are indeed defective. Thus, under this article, the rights of persons are amply protected, and damages are provided for violations of a person's dignity, personality, privacy and peace of mind. It is petitioner's position that the act imputed to him does not constitute any of those enumerated in Arts. 26 and 2219. In this respect, the law is clear. The violations mentioned in the codal provisions are not exclusive but are merely examples and do not preclude other similar or analogous acts. Damages therefore are allowable for actions against a person's dignity, such as profane, insulting, humiliating, scandalous or abusive language. Under Art. 2217 of the Civil Code, moral damages which include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury, although incapable of pecuniary computation, may be recovered if they are the proximate result of the defendant's wrongful act or omission.

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G.R. No. 177556 December 8, 2010 TRANSCEPT CONSTRUCTION AND MANAGEMENT PROFESSIONALS, INC., Petitioner, vs. TERESA C. AGUILAR, Respondent. Facts: On 18 August 2004, Teresa C. Aguilar (Aguilar) entered into an OwnerGeneral Contractor Agreement (First Contract) with Transcept Construction and Management Professionals, Inc. (Transcept) for the construction of a two-storey split level vacation house (the Project) located at Phase 3, Block 3, Lot 7, Canyon Woods, Laurel, Batangas. Under the First Contract, the Project would cost P3,486,878.64 and was to be completed within 210 working days from the date of the First Contract or on 7 June 2005. Aguilar paid a downpayment of P1 million on 27 August 2004. On 30 November 2004, Transcept submitted its First Billing to Aguilar for work accomplishments from start to 15 November 2004, in accordance with the Progressive Billing payment scheme. Aguilar paid P566,356. On 1 February 2005, Aguilar received the Second Billing amounting to P334,488 for the period of 16 November 2004 to 15 December 2004. Transcept informed Aguilar that non-payment would force them to halt all works on the Project. Aguilar questioned the Second Billing as unusual for being 45 days ahead of actual accomplishment. Aguilar did not pay and on 2 February 2005, Transcept stopped working on the Project. Thereafter, Aguilar hired ASTEC, a duly accredited testing laboratory, to test Transcepts quality of work. The test showed substandard works done by Transcept. In a letter dated 7 March 2005, Transcept outlined its program to reinforce or redo the substandard works discovered by ASTEC. On 28 March 2005, ASTEC, through Engr. Jaime E. Rioflorido (Engr. Rioflorido), sent Aguilar an Evaluation of Contractors Performance which showed that aside from the substandard workmanship and use of substandard materials, Transcept was unreasonably and fraudulently billing Aguilar. Of the downpayment amounting to P1,632,436.29, Engr. Riofloridos reasonable assessment of Transcepts accomplishment amounted only to P527,875.94. Engr. Rioflorido recommended the partial demolition of Transcepts work. On 30 May 2005, Transcept and Aguilar entered into a Construction Contract (Second Contract) to extend the date of completion from 7 June 2005 to 29 July 2005 and to use up the P1.6 million downpayment paid by Aguilar. Aguilar hired the services of Engr. Edgardo Anonuevo (Engr. Anonuevo) to ensure that the works would comply with the plans in the Second Contract. Transcept failed to finish the Project on 29 July 2005, alleging that the delay was due to additional works ordered by Aguilar. Transcept also asked for payment of the additional amount of P290,824.96. Aguilar countered that the Second Contract did not provide for additional works. On 2 September 2005, Aguilar sent a demand letter to Transcept asking for payment of P581,844.54 for refund and damages. Transcept ignored the demand letter. On 6 September 2005, Aguilar filed a complaint against Transcept before CIAC. Issue: Whether the Court of Appeals erred in awarding Aguilar liquidated damages Held: Section 20.11(A)(a) of the Construction Industry Authority of the Philippines (CIAP) Document No. 102 provides that "[t]here is substantial completion when the 214

Contractor completes 95% of the Work, provided that the remaining work and the performance of the work necessary to complete the Work shall not prevent the normal use of the completed portion." According to CIACs computation, Transcepts accomplishment amounted to 98.16% of the contract price. It is beyond the 95% required under CIAP Document No. 102 and is considered a substantial completion of the Project. We thus agree with CIACs application of Article 1234 of the Civil Code, which provides that "[i]f the obligation had been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee." There being a substantial completion of the Project, Aguilar is not entitled to liquidated damages but only to actual damages of P30,076.72, representing the unaccomplished works in the Second Contract as found by the CIAC, which is the difference between the contract price of P1,632,436.29 and the accomplishment of P1,602,359.97.

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