Page 1 of 193

OBLIGATIONS:
1.

(imposition of interest)

Sps. Ricardo and Elena Golez vs. Sps. Carlos and Amelita Navarro
G.R. No. 192532

January 30, 2013

FACTS:
Petitioners, Spouses Ricardo and Elena Golez, entered into a written agreement
and appointed Amelita Navarro, a real estate dealer, for the sale of their property in
Molave, Zamboanga del Sur. Navarro found an interested buyer, the Church of Jesus
Christ of Latter Day Saints (Mormons). No sale between them, however, transpired
because they could not agree on the selling price. Upon knowing this fact, the petitioners
took over and continued negotiations with the Mormons. Eventually, petitioners were
able to sell their property to the Mormons for the amount of P800,000. The respondent,
Amelita Navarro, was not notified of the sale. Upon her discovery of the said transaction,
Navarro demanded to be paid of her commission but petitioners refused. The repondents,
Amelita Navarro, together with her husband Carlos, instituted a civil case for collection
of sum of money, breach of contract, and damages against the petitioners at the RTC of
Molave, Zamboanga del Sur. Petitioners, in their answer and defense, denied any liability.
The RTC ruled in favor of the respondents. On appeal, the CA affirmed with
modifications the RTC Decision, ordering petitioners to pay, jointly and severally, to
respondents the amount P180,000 representing the commission for the sale of appellants
properties subject of the contract of agency plus "interest at the rate of 12% percent per
annum", computed "from the sale of defendants property to the Mormons Church on
November 9, 1994, until the agents commission shall be fully paid to the plaintiffs."
ISSUE/S:
W/N the order of payment of interest from the date of the sale was proper?
HELD:
No. The Supreme Court ruled that the interest that was imposed must not be from
the date of sale but it must be from the finality of the decision up to the satisfaction of
judgment. According to article 1169 of the civil code, when the demand is established
with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially. But if when 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.

Page 2 of 193
OBLIGATIONS:
2.

(Substantial breach)

Galileo Magsalang vs Northwestern Inc. University

G.R. No. 188986

March 20, 2013

FACTS:
Northwestern Inc. University, an educational institution offering maritime
courses, engaged the services of GL enterprises to install a new integrated bridge system
(IBS) as required by CHED to offer maritime transportation programs. Since
Northwesterns IBS was obsolete, it required GL to install specific components to form
the most modern IBS and for such purpose they entered into 2 contracts . Common to
both contracts are the following provisions: (1) the IBS and its components must be
compliant with the IMO and CHED standard and with manuals for simulators/major
equipment; (2) the contracts may be terminated if one party commits a substantial breach
of its undertaking; and (3) any dispute under the agreement shall first be settled mutually
between the parties, and if settlement is not obtained, resort shall be sought in the courts
of law. Northwestern paid P1 million as down payment, then GL assumed possession of
Northwesterns old IBS as trade in payment so the balance of the contract price remained
at 1.97Million. GL then delivered various materials.
When GL started installing the components, Northwestern halted operations for
the reason that the equipment were substandard. Northwestern explained that the
components were old, had no warranties, contained indications of being reconditioned
machines, and did not meet CHED and IMO standards thus it breached the terms of the
contracts. Northwestern demanded compliance w/ the agreement and suggested that GL
meet with its representatives. GL instead filed a complaint for breach of contract against
Northwestern for ordering the work stoppage and preventing installation of the materials.
Northwestern in its defense asserted that the equipment was substandard based on the
contracts and that succeeding works were unnecesary and that rescission should be
granted along w/ a counter claim for damages.
The RTC found both parties at fault and ordered mutual restitution based on the
equitable principle of mutual fault. The CA found that GLs delivery of defective
equipment substantially breached the contracts. It affirmed the RTC mutual restitution
and applied 1191 and granted 50,000 as attys fees to be paid to Northwestern.
ISSUE:
Whether the CA erred in finding substantial breach on the part of GL enterprises.
HELD:
Although the RTC and the CA concurred in ordering restitution, the courts a quo,
however, differed on the basis thereof. The RTC applied the equitable principle of mutual
fault, while the CA applied Article 1191 on rescission.

Page 3 of 193
The power to rescind the obligations of the injured party is implied in reciprocal
obligations, such as in this case. On this score, the CA correctly applied Article 1191,
which provides thus:
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 two contracts require no less than substantial breach before they can be
rescinded. Since the contracts do not provide for a definition of substantial breach that
would terminate the rights and obligations of the parties, we apply the definition found in
our jurisprudence.
This Court defined in Cannu v. Galang13 that substantial, unlike slight or casual
breaches of contract, are fundamental breaches that defeat the object of the parties in
entering into an agreement, since the law is not concerned with trifles.14
The question of whether a breach of contract is substantial depends upon the attending
circumstances.
In the case at bar, the parties explicitly agreed that the materials to be delivered
must be compliant with the CHED and IMO standards and must be complete with
manuals. Aside from these clear provisions in the contracts, the courts a quo similarly
found that the intent of the parties was to replace the old IBS in order to obtain CHED
accreditation for Northwesterns maritime-related courses.
Given these conditions, it was thus incumbent upon GL Enterprises to supply the
components that would create an IBS that would effectively facilitate the learning of the
students.
However, GL Enterprises miserably failed in meeting its responsibility. As
contained in the findings of the CA and the RTC, petitioner supplied substandard
equipment when it delivered components that (1) were old; (2) did not have instruction
manuals and warranty certificates; (3) bore indications of being reconditioned machines;
and, all told, (4) might not have met the IMO and CHED standards.
Evidently, the materials delivered were less likely to pass the CHED standards, because
the navigation system to be installed might not accurately point to the true north; and the
steering wheel delivered was one that came from an automobile, instead of one used in
ships. Logically, by no stretch of the imagination could these form part of the most
modern IBS compliant with the IMO and CHED standards.
Consequently, the CA correctly found substantial breach on the part of petitioner.
Decision of the Court of Appeals in CA-G.R. CV No. 88989 is hereby
AFFIRMED.

Page 4 of 193

OBLIGATIONS:
3.

(solidary obligation)

Novateknika Land Corp vs PNB

G.R. No. 194104

March 13, 2013

FACTS:
Petitioner, Novateknika Land Corp (NLC) w/ several other corporations entered
into a credit agreement w/ PNB for the availment pf an omnibus line in the principal
amount of 500,000,000. The borrowers bound themselves jointly and severally to PNB
such that PNB can demand payment from any of the borrowers. As security for the loan,
the borrowers executed a real estate mortgage over 21 properties w/c included 4 parcels
of land owned by NLC. The omnibus line was renewed twice. Several drawdowns
occured and the total outstanding obligation reached P593,449,464.79. Despite several
demands, the loan remained unpaid prompting PNB to file petitions for extra judicial
foreclosure over the properties. PNB eventually was awarded w/ the properties as sole
bidder.
NLC then filed an action for injunction w/ TRO arguing that 1. the right to bring
the mortgage action had already prescribed. 2. NLC as 3rd party mortgagor did not
benefit from the loans. 3. the Stockholders of NLC did not authorize the execution of the
mortgage over its properties.
The RTC denied the prayer for injunctive relief. The CA dismissed the petition for
failing to file a motion for reconsideration first.
ISSUE:
Whether NLC is correct in arguing that it cannot be held liable since it was only a
3rd party mortgagor and it did not benefit from the loans.
HELD:
As regards NLCs allegation that it cannot be held liable for the promissory notes
executed by KIC and PCC because it did not benefit from the proceeds of the loan, the
following provisions in the Loan Documents reveal that the petitioner bound itself to be
solidarily liable for the _loans made by its co-borrowers:
Credit Agreement dated December 13, 1993, Sec. 9.3:
The Borrowers shall be jointly and severally liable to the Bank for the full
payment and complete performance of all obligations of the Borrower as provided herein.
Accordingly, the Bank may demand payment and performance from any one of the
Borrowers.
Renewal and Conversion Agreement dated January 2, 1996, Sec. 10.03:
Nature of the Borrowers' Liability. The Borrowers shall be jointly and severally liable to
the Bank for the full payment and complete performance of all obligations of the

Page 5 of 193
Borrowers as provided herein. Accordingly, the Bank may demand payment and
performance from any one of the Borrowers.
In this case, NLC was unable to convincingly substantiate its claim that it had an
unmistakable right to be protected which was in danger of being violated by respondent
PNB. Although it is clear, as the petitioner avers, that it was the registered owner of the
four (4) properties subject of this petition, it is similarly clear that the said properties were
mortgaged to PNB, as evidenced by the Real Estate and Chattel Mortgage which was
duly registered with the Register of Deeds who then annotated such encumbrance in the
transfer certificates of title. Moreover, the Credit Agreement, the Renewal and
Conversion Agreement and the Second Renewal Agreement (collectively, the "Loan
Documents"), documenting the terms of the omnibus line granted to the petitioner and its
co-borrowers, all indicate that the full payment of the availments or advances on the
omnibus credit line are secured by the Real Estate and Chattel Mortgage, as stipulated in
Section 7 of the Credit Agreement:
Section 8 of the Renewal and Conversion Agreement and Section 3 of the Second
Renewal Agreement contain a similarly worded provision.
Thus, the foreclosure of the mortgage is but a necessary consequence of the nonpayment by petitioner of its obligation which was secured by the mortgage. It would have
been improper for the RTC to enjoin the foreclosure, the succeeding auction sale and the
issuance and registration of the certificate of sale in favor of the winning bidder in face of
the failure of petitioner to establish, at that time, its legal right to prevent and
consummate such foreclosure by PNB
Because there is no ambiguity in the terms of the Loan Documents, NLC must honor the
conditions of the omnibus credit line granted to it and its co-borrowers by respondent
PNB. The Court has repeatedly emphasized that "a contract duly executed is the law
between the parties and they are obliged to comply fully and not selectively with its
terms."
Petitioner NLC, as a solidary debtor, can be made to answer for the promissory
notes executed by KIC and PCC, in accordance with the Loan Documents, unless it can
prove otherwise. Hence, the Court agrees with the RTC when it justifiably ruled that NLC
could not escape liability for the reason that it simply acted as a third-party mortgagor
and did not profit from the loan.
Therefore, even if this Court permits the petitioner to dispense with the
requirement of filing a motion for reconsideration before resorting to certiorari, the
petitioner still cannot be granted the injunctive relief it prayed for because the Court finds
no abuse of discretion on the part of the RTC in denying the application for a writ of
preliminary injunction by the petitioner.
WHEREFORE, the petition is DENIED.

Page 6 of 193
OBLIGATIONS:
4.

(solidary liability)

Boston Equity Resources, Inc. vs. CA and Lolita G. Toledo

G.R. No. 173946

June 19, 2013

FACTS:
On 24 December 1997, petitioner filed a complaint for sum of money with a
prayer for the issuance of a writ of preliminary attachment against the spouses Manuel
and Lolita Toledo.6 Herein respondent filed an Answer dated 19 March 1998 but on 7
May 1998, she filed a Motion for Leave to Admit Amended Answer7 in which she
alleged, among others, that her husband and co-defendant, Manuel Toledo (Manuel), is
already dead.8 The death certificate of Manuel states "13 July 1995" as the date of death.
As a result, petitioner filed a motion, dated 5 August 1999, to require respondent to
disclose the heirs of Manuel. In compliance with the verbal order of the court during the
11 October 1999 hearing of the case, respondent submitted the required names and
addresses of the heirs. Petitioner then filed a Motion for Substitution, dated 18 January
2000, praying that Manuel be substituted by his children as party-defendants. It appears
that this motion was granted by the trial court in an Order dated 9 October 2000.
Pre-trial thereafter ensued and on 18 July 2001, the trial court issued its pre-trial order
containing, among others, the dates of hearing of the case.
The trial of the case then proceeded. Herein petitioner, as plaintiff, presented its
evidence and its exhibits were thereafter admitted.
On 26 May 2004, the reception of evidence for herein respondent was cancelled
upon agreement of the parties. On 24 September 2004, counsel for herein respondent was
given a period of fifteen days within which to file a demurrer to evidence. However, on 7
October 2004, respondent instead filed a motion to dismiss the complaint, citing the
following as grounds: (1) that the complaint failed to implead an indispensable party or a
real party in interest; hence, the case must be dismissed for failure to state a cause of
action; (2) that the trial court did not acquire jurisdiction over the person of Manuel
pursuant to Section 5, Rule 86 of the Revised Rules of Court; (3) that the trial court erred
in ordering the substitution of the deceased Manuel by his heirs; and (4) that the court
must also dismiss the case against Lolita Toledo in accordance with Section 6, Rule 86 of
the Rules of Court.
ISSUE:
Whether or not the estate of Manuel is an indispensable party.
RULING:
It is crystal clear that Article 1216 of the New Civil Code is the applicable
provision in this matter.
Said provision gives the creditor the right to "proceed against anyone of the
solidary debtors or some or all of them simultaneously." The choice is undoubtedly left to

Page 7 of 193
the solidary creditor to determine against whom he will enforce collection. In case of the
death of one of the solidary debtors, he (the creditor) may, if he so chooses, proceed
against the surviving solidary debtors without necessity of filing a claim in the estate of
the deceased debtors. It is not mandatory for him to have the case dismissed as against
the surviving debtors and file its claim against the estate of the deceased solidary debtor,
x x x. For to require the creditor to proceed against the estate, making it a condition
precedent for any collection action against the surviving debtors to prosper, would
deprive him of his substantive rights provided by Article 1216 of the New Civil Code.
As correctly argued by petitioner, if Section 6, Rule 86 of the Revised Rules of
Court were applied literally, Article 1216 of the New Civil Code would, in effect, be
repealed since under the Rules of Court, petitioner has no choice but to proceed against
the estate of [the deceased debtor] only. Obviously, this provision diminishes the
[creditors] right under the New Civil Code to proceed against any one, some or all of the
solidary debtors. Such a construction is not sanctioned by principle, which is too well
settled to require citation, that a substantive law cannot be amended by a procedural rule.
Otherwise stated, Section 6, Rule 86 of the Revised Rules of Court cannot be made to
prevail over Article 1216 of the New Civil Code, the former being merely procedural,
while the latter, substantive.
Based on the foregoing, the estate of Manuel is not an indispensable party and the
case can proceed as against respondent only. That petitioner opted to collect from
respondent and not from the estate of Manuel is evidenced by its opposition to
respondents motion to dismiss asserting that the case, as against her, should be dismissed
so that petitioner can proceed against the estate of Manuel.

Page 8 of 193
OBLIGATIONS:
5.

(rescission)

Teodoro A. Reyes vs. Ettore Rossi

G.R. No. 159823

February 18, 2013

FACTS: On October 31, 1997, petitioner Teodoro A. Reyes and Advanced Foundation
Construction Systems Corporation, represented by its Executive Project Director,
respondent Ettore Rossi, executed a deed of conditional sale involving the purchase by
Reyes of equipment. The parties agreed therein that Reyes would pay the sum of
P3,000,000.00 as downpayment, and the balance of P7,000,000.00 through four postdated checks. Reyes complied, but in January 1998, he requested the restructuring of his
obligation under the deed of conditional sale by replacing the four post-dated checks with
nine post-dated checks that would include interest at the rate of P25,000.00/month
accruing on the unpaid portion of the obligation on April 30, 1998, June 30, 1998, July
31, 1998, September 30, 1998 and October 31, 1998.
Advanced Foundation assented to Reyes request, and returned the four checks. In
turn, Reyes issued and delivered replacement checks. Rossi deposited three of the postdated checks on their maturity dates in Advanced Foundations bank account at the PCI
Bank in Makati. Two of the checks were denied payment ostensibly upon Reyes
instructions to stop their payment, while the third was dishonored for insufficiency of
funds.
Rossi likewise deposited two more checks but the checks were returned with the
notation Account Closed stamped on them. He did not anymore deposit the three
remaining checks on the assumption that they would be similarly dishonored.
In the meanwhile, on July 29, 1998, Reyes commenced an action for rescission of
contract and damages in the Regional Trial Court in Quezon City. On September 8, 1998,
Rossi charged Reyes with five counts of estafa and five counts of violation of Batas
Pambansa Blg. 22 in the Office of the City Prosecutor of Makati for the dishonor of the
said checks. Another criminal charge for violation of Batas Pambansa Blg. 22 was lodged
against Reyes in the Office of the City Prosecutor of Quezon City for the dishonor of
another check.
On September 29, 1998, Reyes submitted his counter-affidavit where he argued
that the Office of the City Prosecutor of Makati should suspend the proceedings because
of the pendency in the RTC of the civil action for rescission of contract that posed a
prejudicial question as to the criminal proceedings.
On November 20, 1998, the Assistant City Prosecutor handling the preliminary
investigation recommended the dismissal of the charges of estafa and the suspension of
the proceedings relating to the violation of Batas Pambansa Blg. 22 based on a prejudicial
question.
On January 5, 1999, the City Prosecutor of Makati approved the recommendation
of the handling Assistant City Prosecutor.
Rossi appealed the resolution of the City Prosecutor to the Department of Justice,
but the Secretary of Justice, by resolution of July 24, 2001, denied Rossis petition for
review.

Page 9 of 193
After the denial of his motion for reconsideration on April 29, 2002, Rossi
challenged the resolutions of the Secretary of Justice by petition for certiorari in the CA.
In the petition for certiorari, Rossi insisted that the Secretary of Justice had
committed grave abuse of discretion amounting to lack or excess of jurisdiction in
upholding the suspension of the criminal proceedings by the City Prosecutor of Makati
on account of the existence of a prejudicial question, and in sustaining the dismissal of
the complaints for estafa.
On May 30, 2003, the CAset aside the order suspending the preliminary
investigation in the preliminary investigations. Hence, this appeal by Reyes.
Contending that the rescission of the contract of sale constitutes a prejudicial
question, Reyes posits that the resolution of the civil action will be determinative of
whether or not he was criminally liable for the violations of Batas Pambansa Blg. 22. He
states that if the contract would be rescinded, his obligation to pay under the conditional
deed of sale would be extinguished, and such outcome would necessarily result in the
dismissal of the criminal proceedings for the violations of Batas Pambansa Blg. 22.
ISSUE: Whether an action for rescission of contract poses a prejudicial question.
HELD: The action for the rescission of the deed of sale on the ground that Advanced
Foundation did not comply with its obligation actually seeks one of the alternative
remedies available to a contracting party under Article 1191 of the Civil Code, to wit:
Article 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 fulfilment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he
has chosen fulfilment, 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.
Article 1191 of the Civil Code recognizes an implied or tacit resolutory condition
in reciprocal obligations. The condition is imposed by law, and applies even if there is no
corresponding agreement thereon between the parties. The explanation for this is that in
reciprocal obligations a party incurs in delay once the other party has performed his part
of the contract; hence, the party who has performed or is ready and willing to perform
may rescind the obligation if the other does not perform, or is not ready and willing to
perform.
It is true that the rescission of a contract results in the extinguishment of the
obligatory relation as if it was never created, the extinguishment having a retroactive
effect. The rescission is equivalent to invalidating and unmaking the juridical tie, leaving
things in their status before the celebration of the contract. However, until the contract is
rescinded, the juridical tie and the concomitant obligations subsist.
Accordingly, we agree with the holding of the CA that the civil action for the
rescission of contract was not determinative of the guilt or innocence of Reyes.

Page 10 of 193
OBLIGATIONS:
6.

(rescission)

Gotesco Properties, Inc. vs. Spouses Fajardo

G.R. No. 201167

February 27, 2013

FACTS:
On January 24, 1995, respondent-spouses Eugenio and Angelina Fajardo (Sps.
Fajardo) entered into a Contract to Sell with petitioner-corporation Gotesco Properties,
Inc. (GPI) for the purchase of a 100-square meter lot.
Sps. Fajardo undertook to pay the purchase price of P126,000.00 within a 10-year
period, including interest at the rate of nine percent (9%) per annum. GPI, on the other
hand, agreed to execute a final deed of sale (deed) in favor of Sps. Fajardo upon full
payment of the stipulated consideration. However, despite its full payment of the
purchase price on January 17, 2000 and subsequent demands, GPI failed to execute the
deed and to deliver the title and physical possession of the subject lot. Thus, on May 3,
2006, Sps. Fajardo filed before the Housing and Land Use Regulatory Board-Expanded
National Capital Region Field Office a complaint for specific performance or rescission
of contract with damages against GPI and the members of its Board of Directors.
Sps. Fajardo alleged that GPI failed to provide boundary marks for each lot and
that the mother title including the subject lot had no technical description and was even
levied upon by the Bangko Sentral ng Pilipinas (BSP) without their knowledge. They
thus prayed that GPI be ordered to execute the deed, to deliver the corresponding
certificate of title and the physical possession of the subject lot within a reasonable
period; or in the alternative, to cancel and/or rescind the contract and refund the total
payments made plus legal interest.
Petitioners claimed that the failure to deliver the title to Sps. Fajardo was beyond
their control because while GPI's petition for inscription of technical description was
favorably granted by the Regional Trial Court of Caloocan City, the same was reversed
by the CA; this caused the delay in the subdivision of the property into individual lots
with individual titles. Given the foregoing incidents, petitioners thus argued that Article
1191 of the Civil Code (Code) the provision on which Sps. Fajardo anchor their right of
rescission remained inapplicable since they were actually willing to comply with their
obligation but were only prevented from doing so due to circumstances beyond their
control. Separately, petitioners pointed out that BSP's adverse claim/levy which was
annotated long after the execution of the contract had already been settled.
The HLURB-ENCRFO ruled in favor of Sps. Fajardo, holding that GPIs
obligation to execute the corresponding deed and to deliver the transfer certificate of title
and possession of the subject lot arose and thus became due and demandable at the time
Sps. Fajardo had fully paid the purchase price for the subject lot. Consequently, GPIs
failure to meet the said obligation constituted a substantial breach of the contract which
perforce warranted its rescission. Petitioners were likewise held jointly and solidarily

Page 11 of 193
liable for the payment of moral and exemplary damages, attorney's fees and the costs of
suit.
On appeal, the HLURB Board of Commissioners affirmed the HLURB ruling. On
further appeal, such was affirmed by the OP. Finally, on petition for review, the CA also
affirmed such.
Petitioners insist that Sps. Fajardo have no right to rescind the contract
considering that GPI's inability to comply therewith was due to reasons beyond its control
and thus, should not be held liable to refund the payments they had received. Further,
since the individual petitioners never participated in the acts complained of nor found to
have acted in bad faith, they should not be held liable to pay damages and attorney's fees.
ISSUE:
Whether or not spouses Fajardo have no right to rescind the contract considering
that GPI's inability to comply therewith was due to reasons beyond its control and thus,
should not be held liable to refund the payments they had received.
HELD:
It is settled that in a contract to sell, the seller's obligation to deliver the
corresponding certificates of title is simultaneous and reciprocal to the buyer's full
payment of the purchase price.20 In this relation, Section 25 of PD 957, to wit:
Sec. 25. Issuance of Title. The owner or developer shall deliver the title of the lot
or unit to the buyer upon full payment of the lot or unit. No fee, except those required for
the registration of the deed of sale in the Registry of Deeds, shall be collected for the
issuance of such title. In the event a mortgage over the lot or unit is outstanding at the
time of the issuance of the title to the buyer, the owner or developer shall redeem the
mortgage or the corresponding portion thereof within six months from such issuance in
order that the title over any fully paid lot or unit may be secured and delivered to the
buyer in accordance herewith. (Emphasis supplied.)
In the present case, Sps. Fajardo claim that GPI breached the contract due to its
failure to execute the deed of sale and to deliver the title and possession over the subject
lot, notwithstanding the full payment of the purchase price made by Sps. Fajardo on
January 17, 2000 as well as the latters demand for GPI to comply with the
aforementioned obligations. For its part, petitioners proffer that GPI could not have
committed any breach of contract considering that its purported non-compliance was
largely impelled by circumstances beyond its control. Hence, absent any substantial
breach, Sps. Fajardo had no right to rescind the contract.
A perusal of the records shows that GPI acquired the subject property on March
10, 1992 through a Deed of Partition and Exchange executed between it and Andres
Pacheco, the former registered owner of the property. GPI was issued TCT No. 244220
on March 16, 1992 but the same did not bear any technical description. However, no
plausible explanation was advanced by the petitioners as to why the petition for

Page 12 of 193
inscription was filed only after almost eight (8) years from the acquisition of the subject
property.
Neither did petitioners sufficiently explain why GPI took no positive action to
cause the immediate filing of a new petition for inscription within a reasonable time from
notice of the July 15, 2003 CA Decision which dismissed GPIs earlier petition based on
technical defects, this notwithstanding Sps. Fajardo's full payment of the purchase price
and prior demand for delivery of title. GPI filed the petition before the RTC-Caloocan
only on November 23, 2006, following receipt of the letter dated February 10, 2006 and
the filing of the complaint on May 3, 2006, alternatively seeking refund of payments.
While the court a quo decided the latter petition for inscription in its favor, there is no
showing that the same had attained finality or that the approved technical description had
in fact been annotated on TCT No. 244220, or even that the subdivision plan had already
been approved.
Moreover, despite petitioners allegation that the claim of BSP had been settled,
there appears to be no cancellation of the annotations in GPIs favor. Clearly, the long
delay in the performance of GPI's obligation from date of demand on September 16, 2002
was unreasonable and unjustified. It cannot therefore be denied that GPI substantially
breached its contract to sell with Sps. Fajardo which thereby accords the latter the right to
rescind the same pursuant to Article 1191 of the Code, viz:
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.
At this juncture, it is noteworthy to point out that rescission does not merely
terminate the contract and release the parties from further obligations to each other, but
abrogates the contract from its inception and restores the parties to their original positions
as if no contract has been made. Consequently, mutual restitution, which entails the return
of the benefits that each party may have received as a result of the contract, is thus
required. To be sure, it has been settled that the effects of rescission as provided for in
Article 1385 of the Code are equally applicable to cases under Article 1191, to wit:
Mutual restitution is required in cases involving rescission under Article 1191.
This means bringing the parties back to their original status prior to the inception of the
contract. Article 1385 of the Civil Code provides, thus:
ART. 1385. Rescission creates the obligation to return the things which were the
object of the contract, together with their fruits, and the price with its interest;
consequently, it can be carried out only when he who demands rescission can return
whatever he may be obligated to restore.

Page 13 of 193
Neither shall rescission take place when the things which are the object of the
contract are legally in the possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing
the loss.
This Court has consistently ruled that this provision applies to rescission under
Article 1191:
Since Article 1385 of the Civil Code expressly and clearly states that "rescission
creates the obligation to return the things which were the object of the contract, together
with their fruits, and the price with its interest," the Court finds no justification to sustain
petitioners position that said Article 1385 does not apply to rescission under Article
1191.

Page 14 of 193
OBLIGATIONS:
7.

(rescission)

Anchor Savings Bank vs Henry Furigay et al

G.R. No. 191178

March 13, 2013

FACTS:
In April 1999, Anchor Savings Bank filed a complaint for a sum of money w/
damages along w/ an application for replevin against Ciudad Transport Services, its
President (Henry Furigay), Gelinda Furigay and another individual. The RTC ruled in
favor of Anchor. When the case was pending, the Furigays then donated their properties
in Pangasinan to their children. Anchor, claiming that the donation of the same was made
in fraud of creditors filed a complaint for rescission of deed of donation.
The RTC dismissed the complaint stating that the action for rescission had already
prescribed (an action for rescission grounded on fraud should be filed w/ in 4 years from
discovery of such fraud). The period must be reckoned from the date of the registration of
the deed which was on 4 April 2001 while the action was filed on 14 October 2005. The
CA found that the action for rescission had not yet prescribed but was premature for
failure to allege that it resorted to all legal remedies to satisfy the claim.
ISSUE:
Whether Anchor be allowed rescission under 1383 despite its failure to state the
ultimate facts as to its cause of action (it did not allege that it sought to exhaust the
properties of Ciudad Transport as to rescission).
HELD:
Section 1 of Rule 2 of the Revised Rules of Court requires that every ordinary
civil action must be based on a cause of action. Section 2 of the same rule defines a cause
of action as an act or omission by which a party violates the right of another. In order that
one may claim to have a cause of action, the following elements must concur: (1) a right
in favor of the plaintiff by whatever means and under whatever law it arises or is created;
(2) an obligation on the part of the named defendant to respect or not to violate such
right; and (3) an act or omission on the part of such defendant in violation of the right of
the plaintiff or constituting a breach of the obligation of the defendant to the plaintiff for
which the latter may maintain an action for recovery of damages or other appropriate
relief. In other words, "a cause of action arises when that should have been done is not
done, or that which should not have been done is done."
In Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc., it was
held that "before an action can properly be commenced, all the essential elements of the
cause of action must be in existence, that is, the cause of action must be complete. All
valid conditions precedent to the institution of the particular action, whether prescribed
by statute, fixed by agreement of the parties or implied by law must be performed or
complied with before commencing the action, unless the conduct of the adverse party has

Page 15 of 193
been such as to prevent or waive performance or excuse non-performance of the
condition."
Moreover, it is not enough that a party has, in effect, a cause of action. The rules
of procedure require that the complaint must contain a concise statement of the ultimate
or essential facts constituting the plaintiff's cause of action. "The test of the sufficiency of
the facts alleged in the complaint is whether or not, admitting the facts alleged, the court
can render a valid judgment upon the same in accordance with the prayer of plaintiff."
The focus is on the sufficiency, not the veracity, of the material allegations. Failure to
make a sufficient allegation of a cause of action in the complaint warrants its dismissal.
A cursory reading of the allegations of ASBs complaint would show that it failed
to allege the ultimate facts constituting its cause of action and the prerequisites that must
be complied before the same may be instituted. ASB, without availing of the first and
second remedies, that is, exhausting the properties of CTS, Henry H. Furigay and Genilda
C. Furigay or their transmissible rights and actions, simply undertook the third measure
and filed an action for annulment of the donation. This cannot be done.
In all, it is incorrect for ASB to argue that a complaint need not allege all the
elements constituting its cause of action since it would simply adduce proof of the same
during trial. "Nothing is more settled than the rule that in a motion to dismiss for failure
to state a cause of action, the inquiry is "into the sufficiency, not the veracity, of the
material allegations."28 The inquiry is confined to the four comers of the complaint, and
no other. Unfortunately for ASB, the Court finds the allegations of its complaint
insufficient in establishing its cause of action and in apprising the respondents of the
same so that they could defend themselves intelligently and effectively pursuant to their
right to due process. It is a rule of universal application that courts of justice are
constituted to adjudicate substantive rights. While courts should consider public policy
and necessity in putting an end to litigations speedily they must nevertheless harmonize
such necessity with the fundamental right of litigants to due process.
In relation to an action for rescission, it should be noted that the remedy of
rescission is subsidiary in nature; it cannot be instituted except when the party suffering
damage has no other legal means to obtain reparation for the same. Article 1177 of the
New Civil Code provides:
The creditors, after having pursued the property in possession of the debtor to
satisfy their claims, may exercise all the rights and bring all the actions of the latter for
the same purpose, save those which are inherent in his person; they may also impugn the
actions which the debtor may have done to defraud them.
Consequently, following the subsidiary nature of the remedy of rescission, a
creditor would have a cause of action to bring an action for rescission, if it is alleged that
the following successive measures have already been taken: (1) exhaust the properties of
the debtor through levying by attachment and execution upon all the property of the
debtor, except such as are exempt by law from execution; (2) exercise all the rights and
actions of the debtor, save those personal to him (accion subrogatoria); and (3) seek

Page 16 of 193
rescission of the contracts executed by the debtor in fraud of their rights (accion
pauliana).
With respect to an accion pauliana, it is required that the ultimate facts
constituting the following requisites must all be alleged in the complaint, viz.:
1) That the plaintiff asking for rescission, has credit prior to the alienation,
although demandable later;
2) That the debtor has made a subsequent contract conveying a patrimonial
benefit to a third person;
3) That the creditor has no other legal remedy to satisfy his claim, but would
benefit by rescission of the conveyance to the third person;
4) That act being impugned is fraudulent; and
5) That the third person who received the property conveyed, if by onerous title,
has been an accomplice in the fraud.
WHEREFORE, the petition is DENIED.

Page 17 of 193
OBLIGATIONS:
8.

(rescission)

Forest Hills Golf and Country Club vs Vertex Sales

G.R. No. 202205

March 6, 2013

FACTS:
Petitioner Forest Hills Golf & Country Club (Forest Hills) is a domestic nonprofit stock corporation that operates and maintains a golf and country club facility in
Antipolo City. Forest Hills was created as a result of a joint venture between Kings
Properties and Fil Estate Golf and Development Inc (FEGDI). Kings (40%) and FEGDI
(60%) owned the shares of stock of Forest Hills. FEGDI thgen sold to RS Asuncion Corp
1 class C common share for 1.1 million. Before full payment of the purchase price RS
Asuncion transferred its interests over the common share to Vertex Sales. RS Asuncion
advised Forest hills of the transfer, Vertex Sales was able to enjoy membership privileges
in the club. The common share remained in the name of FEGDI which led to Vertex Sales
to demand the issuance of a stock certificate in its name. As the demand was unheeded,
Vertex filed a complaint for rescission w/ damages against Forest Hills, FEGDI and FELI
(Developer ofthe course). Vertex argued that the defendants defaulted in their obligation
when they failed to issue the stock certificate. Forest Hills denied transacting business w/
Vertex and that the latter was not a party to the sale. Forest also alleged that Vertex
nonetheless was recognized as a stock holderand during the pendency of the case it issued
a stock certificate but Vertex refused to accept it.
The RTC dismissed Vertex's complaint as it did not find that there was a violation
of the essential terms of the contract (failure to issue stock certificate). The CA reversed
the RTC's decision declaring that physical delivery of the stock certificate is one of the
essential requisites for transfer of ownership. The CA granted rescission.
ISSUE:
Whether Forest Hills may question the rescission regarding the sale of the
common share of stock proper.
HELD:
Ruling on rescission of sale is a settled matter.
As correctly pointed out by Forest Hills, it was not a party to the sale even though
the subject of the sale was its share of stock. The corporation whose shares of stock are
the subject of a transfer transaction (through sale, assignment, donation, or any other
mode of conveyance) need not be a party to the transaction, as may be inferred from the
terms of Section 63 of the Corporation Code. However, to bind the corporation as well as
third parties, it is necessary that the transfer is recorded in the books of the corporation. In
the present case, the parties to the sale of the share were FEGDI as the seller and Vertex
as the buyer (after it succeeded RSACC). As party to the sale, FEGDI is the one who may
appeal the ruling rescinding the sale. The remedy of appeal is available to a party who has

Page 18 of 193
"a present interest in the subject matter of the litigation and is aggrieved or prejudiced by
the judgment. A party, in turn, is deemed aggrieved or prejudiced when his interest,
recognized by law in the subject matter of the lawsuit, is injuriously affected by the
judgment, order or decree."17 The rescission of the sale does not in any way prejudice
Forest Hills in such a manner that its interest in the subject matter the share of stock is
injuriously affected. Thus, Forest Hills is in no position to appeal the ruling rescinding
the sale of the share. Since FEGDI, as party to the sale, filed no appeal against its
rescission, we consider as final the CAs ruling on this matter.
Ruling on return of amounts paid by reason of the sale modified.
The CAs ruling ordering the "return to [Vertex] the amount it paid by reason of
the sale"18 did not specify in detail what the amount to be returned consists of and it did
not also state the extent of Forest Hills, FEGDI, and FELIs liability with regard to the
amount to be returned. The records, however, show that the following amounts were paid
by Vertex to Forest Hills, FEGDI, and FELI by reason of the sale.
A necessary consequence of rescission is restitution: the parties to a rescinded contract
must be brought back to their original situation prior to the inception of the contract;
hence, they must return what they received pursuant to the contract. Not being a party to
the rescinded contract, however, Forest Hills is under no obligation to return the amount
paid by Vertex by reason of the sale. Indeed, Vertex failed to present sufficient evidence
showing that Forest Hills received the purchase price for the share or any other fee paid
on account of the sale (other than the membership fee which we will deal with after) to
make Forest Hills jointly or solidarily liable with FEGDI for restitution.
Although Forest Hills received P150,000.00 from Vertex as membership fee, it
should be allowed to retain this amount. For three years prior to the rescission of the sale,
the nominees of Vertex enjoyed membership privileges and used the golf course and the
amenities of Forest Hills.25 We consider the amount paid as sufficient consideration for
the privileges enjoyed by Vertex's nominees as members of Forest Hills.
WHEREFORE, in view of the foregoing, the Court PARTIALLY GRANTS the
petition for review on certiorari. The decision dated February 22, 2012 and the resolution
dated May 31, 2012 of the Court of Appeals in CA-G.R. CV No. 89296 are hereby
MODIFIED. Petitioner Forest Hills Golf & Country Club is ABSOLVED from liability
for any amount paid by Vertex Sales and Trading, Inc. by reason of the rescinded sale of
one (1) Class "C" common share of Forest Hills Golf & Country Club.

Page 19 of 193
OBLIGATIONS:
9.

(rescission; contract to sell)

Nicolas P. Diego vs. Rodolfo P. Diego And Eduardo P. Diego

G.R. No. 179965

February 20, 2013

FACTS:
In 1993, petitioner Nicolas P. Diego (Nicolas) and his brother Rodolfo, respondent
herein, entered into an oral contract to sell covering Nicolass share, fixed at
P500,000.00, as co-owner of the familys Diego Building situated in Dagupan City.
Rodolfo made a downpayment of P250,000.00. It was agreed that the deed of sale shall
be executed upon payment of the remaining balance of P250,000.00. However, Rodolfo
failed to pay the remaining balance.
Meanwhile, the building was leased out to third parties, but Nicolass share in the
rents were not remitted to him by herein respondent Eduardo, another brother of Nicolas
and designated administrator of the Diego Building. Instead, Eduardo gave Nicolass
monthly share in the rents to Rodolfo. Despite demands and protestations by Nicolas,
Rodolfo and Eduardo failed to render an accounting and remit his share in the rents and
fruits of the building, and Eduardo continued to hand them over to Rodolfo.
Thus, on May 17, 1999, Nicolas filed a Complaint6 against Rodolfo and Eduardo
before the RTC of Dagupan City and docketed as Civil Case No. 99-02971-D. Nicolas
prayed that Eduardo be ordered to render an accounting of all the transactions over the
Diego Building; that Eduardo and Rodolfo be ordered to deliver to Nicolas his share in
the rents; and that Eduardo and Rodolfo be held solidarily liable for attorneys fees and
litigation expenses.
Rodolfo and Eduardo filed their Answer with Counterclaim7 for damages and
attorneys fees. They argued that Nicolas had no more claim in the rents in the Diego
Building since he had already sold his share to Rodolfo. Rodolfo admitted having
remitted only P250,000.00 to Nicolas. He asserted that he would pay the balance of the
purchase price to Nicolas only after the latter shall have executed a deed of absolute sale.
RTC
The trial court held that when Nicolas received the P250,000.00 downpayment, a
"contract of sale" was perfected. Consequently, Nicolas is obligated to convey such share
to Rodolfo, without right of rescission.
CA
CA sustained the trial courts decision in toto.
ISSUE:
Whether or not there was perfected contract of sale between petitioner Nicolas
Diego and respondent Rodolfo Diego over Nicolass share of the building because the
suspensive condition has not yet been fulfilled.
RULING:
SC
Petition is granted.
The contract entered into by Nicolas and Rodolfo was a contract to sell.

Page 20 of 193
a) The stipulation to execute a deed of sale upon full payment of the purchase
price is a unique and distinguishing characteristic of a contract to sell. It also shows that
the vendor reserved title to the property until full payment.
There is no dispute that in 1993, Rodolfo agreed to buy Nicolass share in the
Diego Building for the price of P500,000.00. There is also no dispute that of the total
purchase price, Rodolfo paid, and Nicolas received, P250,000.00. Significantly, it is also
not disputed that the parties agreed that the remaining amount of P250,000.00 would be
paid after Nicolas shall have executed a deed of sale.
d) That in case, BUYER has complied with the terms and conditions of this
contract, then the SELLERS shall execute and deliver to the BUYER the appropriate
Deed of Absolute Sale;
The Court further held that "[j]urisprudence has established that where the seller
promises to execute a deed of absolute sale upon the completion by the buyer of the
payment of the price, the contract is only a contract to sell."
b) The acknowledgement receipt signed by Nicolas as well as the
contemporaneous acts of the parties show that they agreed on a contract to sell, not of
sale. The absence of a formal deed of conveyance is indicative of a contract to sell.
Having established that the transaction was a contract to sell, the remedy of
rescission is not available in contracts to sell.
In view of our finding in the present case that the agreement between the parties is
a contract to sell, it follows that the appellate court erred when it decreed that a judicial
rescission of said agreement was necessary. This is because there was no rescission to
speak of in the first place. As we earlier pointed out, in a contract to sell, title remains
with the vendor and does not pass on to the vendee until the purchase price is paid in full.
Thus, in a contract to sell, the payment of the purchase price is a positive suspensive
condition. Failure to pay the price agreed upon is not a mere breach, casual or serious, but
a situation that prevents the obligation of the vendor to convey title from acquiring an
obligatory force. This is entirely different from the situation in a contract of sale, where
non-payment of the price is a negative resolutory condition. The effects in law are not
identical. In a contract of sale, the vendor has lost ownership of the thing sold and cannot
recover it, unless the contract of sale is rescinded and set aside. In a contract to sell,
however, the vendor remains the owner for as long as the vendee has not complied fully
with the condition of paying the purchase price. If the vendor should eject the vendee for
failure to meet the condition precedent, he is enforcing the contract and not rescinding it.
When the petitioners in the instant case repossessed the disputed house and lot for failure
of private respondents to pay the purchase price in full, they were merely enforcing the
contract and not rescinding it. As petitioners correctly point out, the Court of Appeals
erred when it ruled that petitioners should have judicially rescinded the contract pursuant
to Articles 1592 and 1191 of the Civil Code. Article 1592 speaks of non-payment of the
purchase price as a resolutory condition. It does not apply to a contract to sell. As to
Article 1191, it is subordinated to the provisions of Article 1592 when applied to sales of
immovable property. Neither provision is applicable in the present case

Page 21 of 193
OBLIGATIONS:
10.

(payment by cession or assignment)

Eagleridge Devt. Corp. vs. Cameron Granville 3 Asset Mgt, Inc.

G.R. No. 204700

April 10, 2013

FACTS:
Petitioners Eagleridge Development Corporation (EDC), and sureties Marcelo N.
Naval (Naval) and Crispin I. Oben (Oben) are the defendants in a collection suit initiated
by Export and Industry Bank (EIB) through a Complaint dated February 9, 2005, and
currently pending proceedings before the RTC Makati City.
By virtue of a Deed of Assignment EIB transferred EDC's outstanding loan obligations of
P10,232,998.00 to respondent. Thereafter, Cameron filed its Motion to Substitute/Join
EIB which was granted by the trial court.
Petitioners filed a Motion for Production/Inspection of the Loan Sale and
Purchase Agreement (LSPA) referred to in the Deed of Assignment. The trial court denied
petitioners' motion for production for being utterly devoid of merit. It ruled that there was
failure to show "good cause" for the production of the LSPA and failure to show that the
LSPA is material or contains evidence relevant to an issue involved in the action.
Petitioners filed their Petition for Certiorari with the CA to nullify and/or set aside the
RTC's Resolutions dated March 28, 2012 and May 28, 2012. CA dismissed the petition
for lack of petitioner Oben's verification and certification against forum shopping and
failure to attach a copy of the complaint.
ISSUE:
Whether respondent had acquired a valid title to the credit.(, i.e., EDCs
outstanding loan obligation, and whether it had a right to claim from petitioners.
HELD:
As respondent Camerons claim against the petitioners relies entirely on the
validity of the Deed of Assignment, it is incumbent upon respondent Cameron to allow
petitioners to inspect all documents relevant to the Deed, especially those documents
which, by express terms, were referred to and identified in the Deed itself. The LSPA,
which pertains to the same subject matter the transfer of the credit to respondent is
manifestly useful to petitioners defense.
Furthermore, under Section 17, Rule 132 of the 1997 Rules of Court, when part of
a writing or record is given in evidence by one party, the whole of the same subject may
be inquired into by the other, and when a detached writing or record is given in evidence,
any other writing or record necessary to its understanding may also be given in evidence.
Since the Deed of Assignment was produced in court by respondent and marked as one of
its documentary exhibits, the LSPA which was made a part thereof by explicit reference
and which is necessary for its understanding may also be inevitably inquired into by
petitioners.

Page 22 of 193
In this light, the relevance of the LSPA sought by petitioners is readily apparent.
Fair play demands that petitioners must be given the chance to examine the LSPA.
Besides, we find no great practical difficulty, and respondent did not allege any, in
presenting the document for inspection and copying of the petitioners.
Incidentally, the legal incidents of the case a quo necessitates the production of
said LSPA. Section 13 of the SPV Law clearly provides that "in the transfer of the NonPerforming Loans (NPLs), the provisions on subrogation and assignment of credits under
the New Civil Code shall apply." The law does not exclude the application of Article
1634 of the New Civil Code to transfers of NPLs by a financial institution to a special
purpose vehicle. Settled is the rule in statutory construction that "when the law is clear,
the function of the courts is simple application." Besides, it is within the power of an SPV
to restructure, condone, and enter into other forms of debt settlement involving NPLs.
Also, Section 19 of the SPV Law expressly states that redemption periods allowed
to borrowers under the banking law, the rules of court and/or other laws are applicable.
Hence, the equitable right of redemption allowed to a debtor under Article 1634 of the
Civil Code is applicable.
Therefore, as petitioners correctly pointed out, they have the right of legal
redemption by paying Cameron the transfer price plus the cost of money up to the time of
redemption and the judicial costs.
Certainly, it is necessary for the petitioners to be informed of the actual
consideration paid by the SPV in its acquisition of the loan, because it would be the
starting point for them to negotiate for the extinguishment of their obligation. As pointed
out by the petitioners, since the Deed of Assignment merely states "For value received",
the appropriate information may be supplied by the LSPA. It is self-evident that in order
to be able to intelligently match the price paid by respondent for the acquisition of the
loan, petitioner must be provided with the necessary information to enable it to make a
reasonably informed proposal. Because of the virtual refusal and denial of the production
of the LSPA, petitioners were never accorded the chance to reimburse respondent of the
consideration the latter has paid.
Consequently, this Court finds and so holds that the denial of the Motion for
Production despite the existence of "good cause," relevancy and materiality for the
production of the LSPA was unreasonable and arbitrary constituting grave abuse of
discretion on the part of the trial court. Hence, certiorari properly lies as a remedy in the
present case.
Indeed, the insistent refusal of respondent to produce the LSPA is perplexing and
unacceptable to this Court. Respondent even asserts that if petitioner EDC thinks that the
LSPA will bolster its defense, then it should secure a copy of the document from the
Bangko Sentral ng Pilipinas and not from respondent, because allegedly the document
was not marked by respondent as one of its exhibits.
In light of the general philosophy of full discovery of relevant facts, the unreceptive and
negative attitude by the respondent is abominable. The rules on discovery are accorded
broad and liberal interpretation precisely to enable the parties to obtain the fullest

Page 23 of 193
possible knowledge of the issues and facts, including those known only to their
adversaries, in order that trials may not be carried on in the dark.
Undoubtedly, the trial court had effectively placed petitioners at a great
disadvantage inasmuch as respondent effectively suppressed relevant documents related
to the transaction involved in the case a quo. Furthermore, the remedies of discovery
encouraged and provided for under the Rules of Court to be able to compel the
production of relevant documents had been put to naught by the arbitrary act of the trial
court.
WHEREFORE, the instant petition is GRANTED.

Page 24 of 193
OBLIGATIONS:
11.

(tender of payment; concept)

Sps. Nameal & Lourdes Bonrostro vs. Sps. Juan & Constancia Luna
G.R. No. 172346

July 24, 2013

FACTS:
In 1992, respondent Constancia Luna (Constancia), as buyer, entered into a
Contract to Sell5 with Bliss Development Corporation (Bliss) involving a house and lot
identified as Lot 19, Block 26 of New Capitol Estates in Diliman, Quezon City. Barely a
year after, Constancia, this time as the seller, entered into another Contract to Sell6 with
petitioner Lourdes Bonrostro (Lourdes) concerning the same property under the
following terms and conditions:
1. The stipulated price of P1,250,000.00 shall be paid by the VENDEE to the
VENDOR in the following manner:
(a) P200,000.00 upon signing x x x the Contract To Sell,
(b) P300,000.00 payable on or before April 30, 1993,
(c) P330,000.00 payable on or before July 31, 1993,
(d) P417,000.00 payable to the New Capitol Estate, for 15 years at P6,867.12 a
month,
2. x x x In the event the VENDEE fails to pay the second installment on time, the
VENDEE will pay starting May 1, 1993 a 2% interest on the P300,000.00 monthly.
Likewise, in the event the VENDEE fails to pay the amount of P630,000.00 on the
stipulated time, this CONTRACT TO SELL shall likewise be deemed cancelled and
rescinded and x x x 5% of the total contract price of P1,250,000.00 shall be deemed
forfeited in favor of the VENDOR. Unpaid monthly amortization shall likewise be
deducted from the initial down payment in favor of the VENDOR.
Immediately after the execution of the said second contract, the spouses Bonrostro
took possession of the property. However, except for the P200,000.00 down payment,
Lourdes failed to pay any of the stipulated subsequent amortization payments.
ISSUE:
Whether or not tender of payment did not produce any effect whatsoever because it was
not accompanied by actual payment or followed by consignation.

Page 25 of 193
RULING:
Tender of payment is the manifestation by the debtor of a desire to comply with
or pay an obligation. If refused without just cause, the tender of payment will discharge
the debtor of the obligation to pay but only after a valid consignation of the sum due shall
have been made with the proper court. Consignation is the deposit of the [proper
amount with a judicial authority] in accordance with rules prescribed by law, after the
tender of payment has been refused or because of circumstances which render direct
payment to the creditor impossible or inadvisable.
Tender of payment, without more, produces no effect. [T]o have the effect of
payment and the consequent extinguishment of the obligation to pay, the law requires the
companion acts of tender of payment and consignation.
As to the effect of tender of payment on interest, noted civilist Arturo M.
Tolentino explained as follows:
When a tender of payment is made in such a form that the creditor could have
immediately realized payment if he had accepted the tender, followed by a prompt
attempt of the debtor to deposit the means of payment in court by way of consignation,
the accrual of interest on the obligation will be suspended from the date of such tender.
But when the tender of payment is not accompanied by the means of payment, and the
debtor did not take any immediate step to make a consignation, then interest is not
suspended from the time of such tender. x x x x.
Here, the subject letter merely states Lourdes willingness and readiness to pay
but it was not accompanied by payment. She claimed that she made numerous telephone
calls to Atty. Carbon reminding the latter to collect her payment, but, neither said lawyer
nor Constancia came to collect the payment. After that, the spouses Bonrostro took no
further steps to effect payment. They did not resort to consignation of the payment with
the proper court despite knowledge that under the contract, non-payment of the
installments on the agreed date would make them liable for interest thereon. The spouses
Bonrostro erroneously assumed that their notice to pay would excuse them from paying
interest. Their claimed tender of payment did not produce any effect whatsoever because
it was not accompanied by actual payment or followed by consignation. Hence, it did not
suspend the running of interest. The spouses Bonrostro are therefore liable for interest on
the subject installments from the date of default until full payment of the sums of
P300,000.00 and P330,000.00.

Page 26 of 193
OBLIGATIONS:
12.

(legal compensation)

Mondragon Personal Sales Inc. vs Victoriano Sola

G.R. No. 174882

January 21, 2013

FACTS:
Petitioner Mondragon Personal Sale Inc., entered into a contract of services w/
Sola. The contract was for 3 years from 2 October 1994 until 1 October 1997. Sola
undertook to provide service facilities to Mondragons products. Sola was entitled to a
service fee. Before the execution of the agreement, Solas wife, Lina, had a Franchise
Distributorship Agreement w/ Mondragon where she incurred a debt. In a letter to
Mondragon, Sola confirmed his wifes indebtedness for P1,973,154.73

and

(P1,490,091.15 which was still subject to reconciliation) and bound themselves to pay the
same on installment. Mondragon then withheld Solas service fees from February to April
1995 and applied them as partial payments. Subsequently, Sola closed his office cum
bodega where Mondragon products were stored and customers dealt with. Sola filed a
complaint for accounting and rescission against Mondragon alleging that the withholding
of the service fees totaling P222,202.84 paralyzed his business leaving him no choice but
to suspend operations.
In its answer, Mondragon argued that by way of Solas letter he obligated himself
to pay his wifes indebtedness through installment. As such the service fees were applied
by way of compensation to the amounts owed. The RTC ruled in favor of Mondragon
ordering Sola to pay the principal balance. Sola Appealed and the CA remanded the case
for the determination of amount of service fees withheld. The CA found that Sola was
entitled to rescind the contract of services as Mondragon breached the same by
withholding service fees. The CA ruled that Sola did not assume his wifes obligation as
he did not substitute himself in the shoes of his wife and that novation is never presumed.
Accordingly, the CA found the act of withholding service fees and applying them to the
indebtedness unlawful.
ISSUE:
Whether there is a legal compensation in this case considering that Sola became a
co debtor of his wife and that Mondragon applied such service fees as partial payment.
HELD:
A reading of the letter shows that respondent becomes a co-debtor of his wife's
accountabilities with petitioner. Notably, the last paragraph of his letter which states "I
fully understand and voluntarily agree to the above undertaking with full knowledge of
the consequences which may arise therefrom" and which was signed by respondent alone,
shows that he solidarily bound himself to pay such debt. Based on the letter, respondent's
wife had an account with petitioner in the amount of P3,463,173.88, out of which only
the amount of P1,973,154.73 was confirmed while the remaining amount of

Page 27 of 193
P1,490,019.15 would still be subject to reconciliation. As respondent bound himself to
pay the amount of P1,973,154.73, he becomes petitioner's principal debtor to such
amount.
On the other hand, respondent, as petitioner's service contractor, was entitled to a
payment of service fees as provided in their contract of services dated January 26, 1995.
We note that respondent never refuted the amount of monthly sales recorded but only
assailed in the RTC the rate of the service fees which he was entitled to. However, we
find that there could be no other computation of the rate of the service fees other than
what was provided in the contract of services dated January 26, 1995 signed by
respondent and petitioner. Thus, we give credence to petitioner's computation of
respondent's service fees for the months of February to April 1995 in the total amount of
P125,040.01. Since respondent promised petitioner in his letter dated January 26, 1995,
to monthly pay a certain amount to cover the indebtedness to petitioner which he failed to
do, the latter withheld the payment of respondent's service fees and applied the same as
partial payments of the debt by way of compensation.
We find that petitioner's act of withholding respondent's service fees/commissions
and applying them to the latter's outstanding obligation with the former is merely an
acknowledgment of the legal compensation that occurred by operation of law between the
parties.17 Compensation is a mode of extinguishing to the concurrent amount the
obligations of persons who in their own right and as principals are reciprocally debtors
and creditors of each other. Legal compensation takes place by operation of law when all
the requisites are present, as opposed to conventional compensation which takes place
when the parties agree to compensate their mutual obligations even in the absence of
some requisites.18 Legal compensation requires the concurrence of the following
conditions:
(1) That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other; (2) That both debts consist in a sum of money, or if
the things due are consumable, they be of the same kind, and also of the same quality if
the latter has been stated; (3) That the two debts be due; (4) That they be liquidated and
demandable; (5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the debtor.
We find the presence of all the requisites for legal compensation. Petitioner and
respondent are both principal obligors and creditors of each other. Their debts to each
other consist in a sum of money. Respondent acknowledged and bound himself to pay
petitioner the amount of P1,973,154.73 which was already due, while the service fees
owing to respondent by petitioner become due every month. Respondent's debt is
liquidated and demandable, and petitioner's payments of service fees are liquidated and
demandable every month as they fall due. Finally, there is no retention or controversy
commenced by third persons over either of the debts. Thus, compensation is proper up to
the concurrent amount where petitioner owes respondent P125,040.01 for service fees,
while respondent owes petitioner P1,973,154.73.

Page 28 of 193
As legal compensation took place in this case, there is no basis for respondent to
ask for rescission since he was the first to breach their contract when, on April 29, 1995,
he suddenly closed and padlocked his bodega cum office in General Santos City occupied
by petitioner.
WHEREFORE, the petition for review is GRANTED. The Decision dated
February 10, 2006 and the Resolution dated September 6, 2006 of the Court of Appeals
are hereby REVERSED and SET ASIDE.

Page 29 of 193
OBLIGATIONS:
13.

(solutio indebiti)

MBTC vs Absolute Mgt. Corp. (AMC)

G.R. No. 170498

January 9, 2013

FACTS:
Sherwood Holdings Corporation, Inc. (SCHI) filed a complaint for sum of money
against AMC. SCHI alleged that it made advanced payments to AMC for the purchase of
plywood and ply boards in the sum of P12,277,500. These were covered by Metrobank
checks that were all crossed and made payable to AMC. The checks were given to AMCs
general manager, Chua. Chua died and a special proceeding for the settlement of estate
was commenced in the RTC. SCHI made demands on AMC for undelivered items worth
P8,331,700. AMC made an investigation and found out that Chua received 18 Metrobank
checks worth P31,807,500 which were all crossed and payable to AMC or "for payees
account only." In its answer with counterclaims and third-party complaint,11 AMC
averred that it had no knowledge of Chuas transactions with SHCI and it did not receive
any money from the latter. AMC also asked the RTC to hold Metrobank liable for the
subject checks in case it is adjudged liable to SHCI. In its answer, Metrobank admitted
that it deposited the checks to the account of Ayala Lumber and Hardware which Chua
owned. Metrobank argued that AMC had knowledge of Chuas arrangements and despite
the same, it did not call the attention of Metrobank as to Chuas lack of authority to
deposit the checks in Ayala Lumber. AMC gave Chua unbridled control in managing
AMCs affairs. This measure of control amounted to gross negligence that was the
proximate cause of the loss that AMC must now bear. Metrobank then filed a motion for
leave to admit fourth-party complaint against Chuas estate. It alleged that Chuas estate
should reimburse Metrobank in case it would be held liable in the third-party complaint
filed against it by AMC.
The RTC denied Metrobanks motion as its allegation is a type of quasi contract
and that it should have been filed in the special proceedings and not as a 4th party
complaint in the RTC. The CA affirmed the RTCs ruling.
ISSUES:
(1) Whether quasi-contracts are included in claims that should be filed pursuant to
Rule 86, Section 5 of the Rules of Court.
(2) Whether Metrobanks claim against the Estate of Chua is based on a quasicontract.
HELD 1:
Yes. In Maclan v. Garcia, Gabriel Maclan filed a civil case to recover from Ruben
Garcia the necessary expenses he spent as possessor of a piece of land. Garcia acquired
the land as an heir of its previous owner. He set up the defense that this claim should have
been filed in the special proceedings to settle the estate of his predecessor. Maclan, on the
other hand, contended that his claim arises from law and not from contract, express or
implied. Thus, it need not be filed in the settlement of the estate of Garcias predecessor,
as mandated by Section 5, Rule 87 of the Rules of Court (now Section 5, Rule 86).

Page 30 of 193
The Court held under these facts that a claim for necessary expenses spent as
previous possessor of the land is a kind of quasi-contract. Citing Leung Ben v.
OBrien,40 it explained that the term "implied contracts," as used in our remedial law,
originated from the common law where obligations derived from quasi-contracts and
from law are both considered as implied contracts. Thus, the term quasi-contract is
included in the concept "implied contracts" as used in the Rules of Court. Accordingly,
liabilities of the deceased arising from quasi-contracts should be filed as claims in the
settlement of his estate, as provided in Section 5, Rule 86 of the Rules of Court.
HELD 2:
Yes. Both the RTC and the CA described Metrobanks claim against Chuas estate
as one based on quasi-contract. A quasi-contract involves a juridical relation that the law
creates on the basis of certain voluntary, unilateral and lawful acts of a person, to avoid
unjust enrichment.42 The Civil Code provides an enumeration of quasi-contracts,43 but
the list is not exhaustive and merely provides examples.
According to the CA, Metrobanks fourth-party complaint falls under the quasicontracts enunciated in Article 2154 of the Civil Code.45 Article 2154 embodies the
concept "solutio indebiti" which arises when something is delivered through mistake to a
person who has no right to demand it. It obligates the latter to return what has been
received through mistake.
Solutio indebiti, as defined in Article 2154 of the Civil Code, has two
indispensable requisites: first, that something has been unduly delivered through mistake;
and second, that something was received when there was no right to demand it.
In its fourth-party complaint, Metrobank claims that Chuas estate should reimburse it if
it becomes liable on the checks that it deposited to Ayala Lumber and Hardwares account
upon Chuas instructions.
This fulfills the requisites of solutio indebiti. First, Metrobank acted in a manner
akin to a mistake when it deposited the AMC checks to Ayala Lumber and Hardwares
account; because of Chuas control over AMCs operations, Metrobank assumed that the
checks payable to AMC could be deposited to Ayala Lumber and Hardwares account.
Second, Ayala Lumber and Hardware had no right to demand and receive the checks that
were deposited to its account; despite Chuas control over AMC and Ayala Lumber and
Hardware, the two entities are distinct, and checks exclusively and expressly payable to
one cannot be deposited in the account of the other. This disjunct created an obligation on
the part of Ayala Lumber and Hardware, through its sole proprietor, Chua, to return the
amount of these checks to Metrobank.
The Court notes, however, that its description of Metrobanks fourth-party
complaint as a claimclosely analogous to solutio indebiti is only to determine the validity
of the lower courts orders denying it. It is not an adjudication determining the liability of
Chuas estate against Metrobank. The appropriate trial court should still determine
whether Metrobank has a lawful claim against Chuas estate based on quasi-contract.
Petition is DENIED for lack of merit.

Page 31 of 193
OBLIGATIONS:
14.

(subrogation)

Vector Shipping Corporation & Francisco Soriano vs. American

Home Assurance Company & Sulpicio Lines, Inc.
G.R. No. 159213

July 3, 2013

FACTS:
Vector Shipping Corporation (Vector) and Francisco Soriano appeal the decision
promulgated on July 22, 2003, whereby the Court of Appeals (CA) held them jointly and
severally liable to pay P7 ,455,421.08 to American Home Assurance Company
(respondent) as and by way of actual damages on the basis of respondent being the
subrogee of its insured Caltex Philippines, Inc. (Caltex).
Vector was the operator of the motor tanker M/T Vector, while Soriano was the
registered owner of the M/T Vector. Respondent is a domestic insurance corporation.
On September 30, 1987, Caltex entered into a contract of Affreightment with Vector for
the transport of Caltexs petroleum cargo through the M/T Vector. Caltex insured the
petroleum cargo with respondent for P7,455,421.08 under Marine Open Policy No. 345093-6. In the evening of December 20, 1987, the M/T Vector and the M/V Doa Paz, the
latter a vessel owned and operated by Sulpicio Lines, Inc., collided in the open sea near
Dumali Point in Tablas Strait, located between the Provinces of Marinduque and Oriental
Mindoro. The collision led to the sinking of both vessels. The entire petroleum cargo of
Caltex on board the M/T Vector perished. On July 12, 1988, respondent indemnified
Caltex for the loss of the petroleum cargo in the full amount of P7,455,421.08.
On March 5, 1992, respondent filed a complaint against Vector, Soriano, and
Sulpicio Lines, Inc. to recover the full amount of P7,455,421.08 it paid to Caltex (Civil
Case No. 92-620).7 The case was raffled to Branch 145 of the Regional Trial Court
(RTC) in Makati City.
On December 10, 1997, the RTC issued a resolution dismissing Civil Case No.
92-620.
Respondent appealed to the CA reversing the decision of the RTC.
ISSUE:
Whether or not respondent established its right of subrogation.
RULING:
Subrogation under Article 2207 of the Civil Code gives rise to a cause of action
created by law.
Article 2207 of the Civil Code is founded on the well-settled principle of
subrogation. If the insured property is destroyed or damaged through the fault or
negligence of a party other than the assured, then the insurer, upon payment to the
assured, will be subrogated to the rights of the assured to recover from the wrongdoer to
the extent that the insurer has been obligated to pay. Payment by the insurer to the
assured operates as an equitable assignment to the former of all remedies which the latter

Page 32 of 193
may have against the third party whose negligence or wrongful act caused the loss. The
right of subrogation is not dependent upon, nor does it grow out of, any privity of
contract or upon written assignment of claim. It accrues simply upon payment of the
insurance claim by the insurer [Compania Maritima v. Insurance Company of North
America, G.R. No. L-18965, October 30, 1964, 12 SCRA 213; Firemans Fund Insurance
Company v. Jamilla & Company, Inc., G.R. No. L-27427, April 7, 1976, 70 SCRA 323].
It is undeniable that respondent preponderantly established its right of subrogation. Its
Exhibit C was Marine Open Policy No. 34-5093-6 that it had issued to Caltex to insure
the petroleum cargo against marine peril.22 Its Exhibit D was the formal written claim of
Caltex for the payment of the insurance coverage of P7,455,421.08 coursed through
respondents adjuster. Its Exhibits E to H were marine documents relating to the perished
cargo on board the M/V Vector that were processed for the purpose of verifying the
insurance claim of Caltex.24 Its Exhibit I was the subrogation receipt dated July 12, 1988
showing that respondent paid Caltex P7,455,421.00 as the full settlement of Caltexs
claim under Marine Open Policy No. 34-5093-6.25 All these exhibits were
unquestionably duly presented, marked, and admitted during the trial.26 Specifically,
Exhibit C was admitted as an authentic copy of Marine Open Policy No. 34-5093-6,
while Exhibits D, E, F, G, H and I, inclusive, were admitted as parts of the testimony of
respondents witness Efren Villanueva, the manager for the adjustment service of the
Manila Adjusters and Surveyors Company.
Consistent with the pertinent law and jurisprudence, therefore, Exhibit I was
already enough by itself to prove the payment of P7,455,421.00 as the full settlement of
Caltexs claim. The payment made to Caltex as the insured being thereby duly
documented, respondent became subrogated as a matter of course pursuant to Article
2207 of the Civil Code. In legal contemplation, subrogation is the "substitution of another
person in the place of the creditor, to whose rights he succeeds in relation to the debt;"
and is "independent of any mere contractual relations between the parties to be affected
by it, and is broad enough to cover every instance in which one party is required to pay a
debt for which another is primarily answerable, and which in equity and conscience ought
to be discharged by the latter."

OBLIGATIONS:

(subrogation; insurance)

Page 33 of 193

15.

Asian Terminals, Inc. vs. Philam Insurance Co., Inc. (Now Chartis
Philippines Insurance, Inc.).
G.R. No. 181163

July 24, 2013

FACTS:
On April 15, 1995, Nichimen Corporation shipped to Universal Motors
Corporation (Universal Motors) 219 packages containing 120 units of brand new Nissan
Pickup Truck Double Cab 4x2 model, without engine, tires and batteries, on board the
vessel S/S "Calayan Iris" from Japan to Manila. The shipment, which had a declared
value of US$81,368 or P29,400,000, was insured with Philam against all risks under
Marine Policy No. 708-8006717-4.
The carrying vessel arrived at the port of Manila on April 20, 1995, and when the
shipment was unloaded by the staff of ATI, it was found that the package marked as 03245-42K/1 was in bad order. The Turn Over Survey of Bad Order Cargoes dated April 21,
1995 identified two packages, labeled 03-245-42K/1 and 03/237/7CK/2, as being dented
and broken. Thereafter, the cargoes were stored for temporary safekeeping inside CFS
Warehouse in Pier No. 5.
On May 11, 1995, the shipment was withdrawn by R.F. Revilla Customs
Brokerage, Inc., the authorized broker of Universal Motors, and delivered to the latters
warehouse in Mandaluyong City. Upon the request of Universal Motors, a bad order
survey was conducted on the cargoes and it was found that one Frame Axle Sub without
LWR was deeply dented on the buffle plate while six Frame Assembly with Bush were
deformed and misaligned. Owing to the extent of the damage to said cargoes, Universal
Motors declared them a total loss.
On August 4, 1995, Universal Motors filed a formal claim for damages in the
amount of P643,963.84 against Westwind, ATI and R.F. Revilla Customs Brokerage, Inc.
When Universal Motors demands remained unheeded, it sought reparation from and was
compensated in the sum of P633,957.15 by Philam. Accordingly, Universal Motors
issued a Subrogation Receipt dated November 15, 1995 in favor of Philam.
On January 18, 1996, Philam, as subrogee of Universal Motors, filed a Complaint
for damages against Westwind, ATI and R.F. Revilla Customs Brokerage, Inc. before the
RTC of Makati City, Branch 148.
On September 24, 1999, the RTC rendered judgment in favor of Philam and ordered
Westwind and ATI to pay Philam, jointly and severally, the sum of P633,957.15 with
interest at the rate of 12% per annum, P158,989.28 by way of attorneys fees and
expenses of litigation.
The court a quo ruled that there was sufficient evidence to establish the respective
participation of Westwind and ATI in the discharge of and consequent damage to the
shipment. It found that the subject cargoes were compressed while being hoisted using a
cable that was too short and taut.

Page 34 of 193
The trial court observed that while the staff of ATI undertook the physical
unloading of the cargoes from the carrying vessel, Westwinds duty officer exercised full
supervision and control throughout the process. It held Westwind vicariously liable for
failing to prove that it exercised extraordinary diligence in the supervision of the ATI
stevedores who unloaded the cargoes from the vessel. However, the court absolved R.F.
Revilla Customs Brokerage, Inc. from liability in light of its finding that the cargoes had
been damaged before delivery to the consignee.
The trial court acknowledged the subrogation between Philam and Universal
Motors on the strength of the Subrogation Receipt dated November 15, 1995. It likewise
upheld Philams claim for the value of the alleged damaged vehicle parts contained in
Case Nos. 03-245-42K/1 and 03-245-51K or specifically for "7 pieces of Frame Axle Sub
Without Lower and Frame Assembly with Bush."
On appeal, the CA affirmed with modification the ruling of the RTC.
ISSUE:
Whether or not the right of subrogation accrues simply upon payment by the
insurance company of the insurance claim.
RULING:
The Court holds that petitioner Philam has adequately established the basis of its
claim against petitioners ATI and Westwind. Philam, as insurer, was subrogated to the
rights of the consignee, Universal Motors Corporation, pursuant to the Subrogation
Receipt executed by the latter in favor of the former. The right of subrogation accrues
simply upon payment by the insurance company of the insurance claim. Petitioner
Philams action finds support in Article 2207 of the Civil Code, which provides as
follows:

Art. 2207. If the plaintiffs property has been insured, and he has received

indemnity from the insurance company for the injury or loss arising out of the wrong or
breach of contract complained of, the insurance company shall be subrogated to the rights
of the insured against the wrongdoer or the person who has violated the contract. x x x.
Yet, even with the exclusion of Marine Certificate No. 708-8006717-4, the
Subrogation Receipt, on its own, is adequate proof that petitioner Philam paid the
consignees claim on the damaged goods. Petitioners ATI and Westwind failed to offer
any evidence to controvert the same. In Malayan Insurance Co., Inc. v. Alberto, the Court
explained the effect of payment by the insurer of the insurance claim in this wise:
We have held that payment by the insurer to the insured operates as an equitable
assignment to the insurer of all the remedies that the insured may have against the third
party whose negligence or wrongful act caused the loss. The right of subrogation is not
dependent upon, nor does it grow out of, any privity of contract. It accrues simply upon
payment by the insurance company of the insurance claim. The doctrine of subrogation
has its roots in equity. It is designed to promote and accomplish justice; and is the mode
that equity adopts to compel the ultimate payment of a debt by one who, in justice,
equity, and good conscience, ought to pay.

Page 35 of 193
CONTRACTS:
16.

(offer and acceptance)

Heirs of Fausto Ignacio vs Home Bankers Savings and Trust

Company
G.R. No. 177783

January 23, 2013

FACTS:
In August 1981, petitioner, Fausto Ignacio mortgaged 2 parcels of land to Home
Savings Bank and Trust Company ( the predecessor of Home bankers Savings and Trust
Company) as a security for his P500,000 loan. When Fausto defaulted the Bank
foreclosed the real estate mortgage. At the foreclosure sale, the Bank was the highest
bidder. The certificate of sale was issued to the bank and registered in the Registry of
Deeds. Since Fausto failed to redeem the properties w/ in 1 year from such registration,
title to the properties were consolidated in favor of the bank. Fausto then offered to
repurchase the properties. The bank considered the offer but no repurchase contract was
made. The foreclosed properties were cancelled and issued in the name of the Bank as
TCT Nos. 111058 and 111059. 111059 was divided into 6 lots. These 6 lots were sold to
various persons. Expenses for the subdivision of lots covered by 111059 and one of its
portions were shouldered by Fausto who also negotiated the sale of the 6 lots. Fausto
wrote the Bank and proposed to pay P600,000 as balance of the repurchase price. He
requested that the Bank release the land covered by 111058 and one of the lots under
111059 that remained unsold. The Bank refused so fausto filed an adverse claim over the
said titles.
The Bank eventually sold the land under 111058 and the lot under 111059 that
Fausto asked for to Spouses Rodriguez and the Zunigas. Fausto filed an action for
specific performance and damages against the Bank asking for the reconveyance of the
subject properties. The RTC ruled in Ignacios favor allowing for the reconveyance of the
2 properties to him. The CA reversed the decision of the RTC holding that there was no
contract of repurchase that was perfected and that the Bank was well with in its rights in
selling the properties to the Spouses Rodriguez and the Zunigas.
ISSUE:
Whether there is a contract of repurchase that was perfected between the
petitioner and the Bank.
HELD:
None. Contracts are perfected by mere consent, which is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which are to
constitute the contract.
In Palattao v. Court of Appeals, this Court held that if the acceptance of the offer
was not absolute, such acceptance is insufficient to generate consent that would perfect a
contract. Thus: Contracts that are consensual in nature, like a contract of sale, are

Page 36 of 193
perfected upon mere meeting of the minds. Once there is concurrence between the offer
and the acceptance upon the subject matter, consideration, and terms of payment, a
contract is produced. The offer must be certain. To convert the offer into a contract, the
acceptance must be absolute and must not qualify the terms of the offer; it must be plain,
unequivocal, unconditional, and without variance of any sort from the proposal. A
qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and
is a rejection of the original offer. Consequently, when something is desired which is not
exactly what is proposed in the offer, such acceptance is not sufficient to generate consent
because any modification or variation from the terms of the offer annuls the offer.
The acceptance must be identical in all respects with that of the offer so as to
produce consent or meeting of the minds. Where a party sets a different purchase price
than the amount of the offer, such acceptance was qualified which can be at most
considered as a counter-offer; a perfected contract would have arisen only if the other
party had accepted this counter-offer. In Villanueva v. Philippine National Bank this
Court further elucidated on the meaning of unqualified acceptance, as follows:While it
is impossible to expect the acceptance to echo every nuance of the offer, it is imperative
that it assents to those points in the offer which, under the operative facts of each
contract, are not only material but motivating as well. Anything short of that level of
mutuality produces not a contract but a mere counter-offer awaiting acceptance. More
particularly on the matter of the consideration of the contract, the offer and its acceptance
must be unanimous both on the rate of the payment and on its term. An acceptance of an
offer which agrees to the rate but varies the term is ineffective.
Petitioner submitted as evidence of a perfected contract of repurchase the March
22, 1984 letter (Exhibit "I")27 from Rita B. Manuel, then President of UPI, a corporation
formed by respondent bank to dispose of its acquired assets, with notations handwritten
by petitioner himself.
According to petitioner, he wrote the notations in the presence of a certain Mr.
Lazaro, the representative of Mrs. Manuel (President), and a certain Mr. Fajardo, which
notations supposedly represent their "compromise agreement."28 These notations
indicate that the repurchase price would be P900,000.00 which shall be paid as follows:
P150,000 - end of May '84; P150,000 - end of June '84; Balance - "Depending on
financial position". Petitioner further alleged the following conditions of the verbal
agreement: (1) respondent bank shall release the equivalent land area for payments made
by petitioner who shall shoulder the expenses for subdivision of the land; (2) in case any
portion of the subdivided land is sold by petitioner, a separate document of sale would be
executed directly to the buyer; (3) the remaining portion of the properties shall not be
subject of respondent bank's transaction without the consent and authority of petitioner;
(4) the petitioner shall continue in possession of the properties and whatever portion still
remaining, and attending to the needs of its tenants; and (5) payments shall be made
directly to UPI
The foregoing clearly shows that petitioner's acceptance of the respondent bank's terms
and conditions for the repurchase of the foreclosed properties was not absolute. Petitioner

Page 37 of 193
set a different repurchase price and also modified the terms of payment, which even
contained a unilateral condition for payment of the balance (P600,000), that is, depending
on petitioner's "financial position." The CA thus considered the qualified acceptance by
petitioner as a counter-proposal which must be accepted by respondent bank. However,
there was no evidence of any document or writing showing the conformity of respondent
bank's officers to this counter-proposal.
WHEREFORE, the petition for review on certiorari is DENIED.

CONTRACTS:

(perfection of contracts)

Page 38 of 193
17.

Robern Development Corporation vs. People's Landless Association

G.R. No. 173622

March 11, 2013

FACTS:
Al-Amanah owned a 2000-square meter lot located in Magtu-od, Davao City and
covered by Transfer Certificate of Title (TCT) No. 138914.4 On December 12, 1992, AlAmanah Davao Branch, thru its officer-in-charge Febe O. Dalig (OIC Dalig), asked5
some of the members of PELA to desist from building their houses on the lot and to
vacate the same, unless they are interested to buy it. The informal settlers thus expressed
their interest to buy the lot at P100.00 per square meter, which Al-Amanah turned down
for being far below its asking price. Consequently, Al-Amanah reiterated its demand to
the informal settlers to vacate the lot.
In a letter dated March 18, 1993, the informal settlers together with other
members comprising PELA offered to purchase the lot for P300,000.00, half of which
shall be paid as down payment and the remaining half to be paid within one year. In the
lower portion of the said letter, Al-Amanah made the following annotation:
Note:
Subject offer has been acknowledged/received but processing to take effect upon
putting up of the partial amt. of P150,000.00 on or before April 15, 1993.
By May 3, 1993, PELA had deposited P150,000.00 as evidenced by four bank receipts.
For the first three receipts, the bank labelled the payments as "Partial deposit on sale of
TCT No. 138914", while it noted the 4th receipt as "Partial/Full payment on deposit on
sale of A/asset TCT No. 138914."
In the meantime, the PELA members remained in the property and introduced
further improvements.
On November 29, 1993, Al-Amanah, thru Davao Branch Manager Abraham D.
Ututalum-Al Haj, wrote then PELA President Bonifacio Cuizon, Sr. informing him of the
Head Offices disapproval of PELAs offer to buy the said 2,000-square meter lot.
Subsequently, Al-Amanah sent similarly worded letters, all dated December 14, 1993, to
19 PELA members demanding that they vacate the lot.
In a letter dated December 20, 1993, PELA, through Atty. Pedro S. Castillo,
replied that it had already reached an agreement with Al-Amanah regarding the sale of
the subject lot based on their offered price:
Meanwhile, acting on Roberns undated written offer, Al-Amanah issued a
Recommendation Sheet dated December 27, 1993 addressed to its Board Operations
Committee, indicating therein that Robern is interested to buy the lot for P400,000.00;
that it has already deposited 20% of the offered purchase price; that it is buying the lot on
"as is" basis; and, that it is willing to shoulder the relocation of all informal settlers
therein. On December 29, 1993, the Head Office informed the Davao Branch Manager
that the Board Operations Committee had accepted Roberns offer.
Eight days later, Robern was informed of the acceptance. Al-Amanah stressed that it is
Roberns responsibility to eject the occupants in the subject lot, if any, as well as the

Page 39 of 193
payment of the remaining amount within 15 days; otherwise, the P80,000.00 deposit shall
be forfeited.
In a letter dated January 13, 1994, Robern expressed to Al-Amanah its uncertainty
on the status of the subject lot.
To convince Robern that it has no existing contract with PELA, Al-Amanah
furnished it with copies of the Head Offices rejection letter of PELAs bid, the demand
letters to vacate, and the proof of consignment of PELAs P150,000.00 deposit to the
Regional Trial Court (RTC) of Davao City that PELA refused to withdraw. Thereafter, on
February 2, 1994, it informed Robern that should the latter fail to pay the balance by
February 9, 1994, its P80,000.00 deposit will be forfeited and the lot shall be up for sale
to other prospective buyers. Meanwhile, Al-Amanah requested for assistance for the
removal of the houses not only from the Office of the City Engineer of Davao City21 but
also from Mayor Rodrigo Duterte. Gaining a favorable legal opinion from the City Legal
Officer, the matter was indorsed to the Chief of Demolition Consensus of the Department
of Public Services for action.
On March 4, 1994, Robern paid the balance of the purchase price. The Deed of
Sale over the realty was executed on April 6, 1994 and TCT No. T-21298325 was issued
in Roberns name the following day.
A week later, PELA consigned P150,000.00 in the RTC of Davao City. Then on
April 14, 1994, it wrote Al-Amanah asking the latter to withdraw the amount consigned.
Three months later, as its members were already facing eviction and possible
demolition of their houses, and in order to protect their rights as vendees, PELA filed a
suit for Annulment and Cancellation of Void Deed of Sale against Al-Amanah, its
Director Engr. Farouk Carpizo (Engr. Carpizo), OIC Dalig, Robern, and Roberns
President and General Manager, petitioner Rodolfo Bernardo (Bernardo) before the RTC
of Davao City. It insisted that as early as March 1993 it has a perfected contract of sale
with Al-Amanah. However, in an apparent act of bad faith and in cahoots with Robern,
Al-Amanah proceeded with the sale of the lot despite the prior sale to PELA.
RTC dismissed PELAs Complaint.
Reversing the RTC in its assailed decision, the CA ruled that there was already a
perfected contract of sale between PELA and Al-Amanah.
ISSUE:
Whether there was a perfected contract of sale between PELA and Al-Amanah.
RULING:
A contract of sale is perfected at the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price. Thus, for a contract of sale to
be valid, all of the following essential elements must concur: "a) consent or meeting of
the minds; b) determinate subject matter; and c) price certain in money or its equivalent."
In the case at bench, there is no controversy anent the determinate subject matter, i.e., the
2,000-square meter lot. This leaves us to resolve whether there was a concurrence of the
remaining elements.

Page 40 of 193
As for the price, fixing it can never be left to the decision of only 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."
As regards consent, "when there is merely an offer by one party without
acceptance of the other, there is no contract." The decision to accept a bidders proposal
must be communicated to the bidder. However, a binding contract may exist between the
parties whose minds have met, although they did not affix their signatures to any written
document, as acceptance may be expressed or implied. It "can be inferred from the
contemporaneous and subsequent acts of the contracting parties." Thus, we held: x x x
The rule is that except where a formal acceptance is so required, although the acceptance
must be affirmatively and clearly made and must be evidenced by some acts or conduct
communicated to the offeror, it may be made either in a formal or an informal manner,
and may be shown by acts, conduct, or words of the accepting party that clearly manifest
a present intention or determination to accept the offer to buy or sell. Thus, acceptance
may be shown by the acts, conduct, or words of a party recognizing the existence of the
contract of sale.
There is no perfected contract of sale between PELA and Al-Amanah for want of
consent and agreement on the price.
After scrutinizing the testimonial and documentary evidence in the records of the
case, we find no proof of a perfected contract of sale between Al-Amanah and PELA. The
parties did not agree on the price and no consent was given, whether express or implied.
Contracts undergo three stages: "a) negotiation which begins from the time the
prospective contracting parties indicate interest in the contract and ends at the moment of
their agreement[; b) perfection or birth, x x x which takes place when the parties agree
upon all the essential elements of the contract x x x; and c) consummation, which occurs
when the parties fulfill or perform the terms agreed upon, culminating in the
extinguishment thereof."
In the case at bench, the transaction between Al-Amanah and PELA remained in
the negotiation stage. The offer never materialized into a perfected sale, for no oral or
documentary evidence categorically proves that Al-Amanah expressed amenability to the
offered P300,000.00 purchase price. Before the lapse of the 1-year period PELA had set
to pay the remaining balance, Al-Amanah expressly rejected its offered purchase price,
although it took the latter around seven months to inform the former and this entitled
PELA to award of damages. Al-Amanahs act of selling the lot to another buyer is the
final nail in the coffin of the negotiation with PELA. Clearly, there is no double sale,
thus, we find no reason to disturb the consummated sale between Al-Amanah and
Robern.
CONTRACTS:
18.

(perfection of contracts)

Ali Akang vs. Municipality Of Isulan, Sultan Kudarat

G.R. No. 186014

June 26, 2013

Page 41 of 193

FACTS:
Ali Akang (petitioner) is a member of the national and cultural community
belonging to the Maguindanaon tribe of Isulan, Province of Sultan Kudarat and the
registered owner of Lot 5-B-2-B-14-F (LRC) Psd 1100183 located at Kalawag III, Isulan,
Sultan Kudarat, covered by Transfer Certificate of Title (TCT) No. T-3653,5 with an area
of 20,030 square meters.
Sometime in 1962, a two-hectare portion of the property was sold by the
petitioner to the Municipality of Isulan, Province of Sultan Kudarat (respondent) through
then Isulan Mayor Datu Ampatuan under a Deed of Sale executed on July 18, 1962,
which states: "That for and in consideration of the sum of THREE THOUSAND PESOS
([P]3,000.00), Philippine Currency, value to be paid and deliver to me, and of which
receipt of which shall be acknowledged by me to my full satisfaction by the MUNICIPAL
GOVERNMENT OF ISULAN, represented by the Municipal Mayor, Datu Sama
Ampatuan, hereinafter referred to as the VENDEE, I hereby sell, transfer, cede, convey
and assign as by these presents do have sold, transferred, ceded, conveyed and assigned,
an area of TWO (2) hectares, more or less, to and in favor of the MUNICIPAL
GOVERNMENT OF ISULAN, her (sic) heirs, assigns and administrators to have and to
hold forevery (sic) and definitely, which portion shall be utilized purposely and
exclusively as a GOVERNMENT CENTER SITE x x x."
The respondent immediately took possession of the property and began
construction of the municipal building.
Thirty-nine (39) years later or on October 26, 2001, the petitioner, together with
his wife, Patao Talipasan, filed a civil action for Recovery of Possession of Subject
Property and/or Quieting of Title thereon and Damages against the respondent,
represented by its Municipal Mayor, et al.
In his complaint, the petitioner alleged, among others, that the agreement was one
to sell, which was not consummated as the purchase price was not paid.
In its answer, the respondent denied the petitioners allegations, claiming, among others:
that the petitioners cause of action was already barred by laches; that the Deed of Sale
was valid; and that it has been in open, continuous and exclusive possession of the
property for forty (40) years.
After trial, the RTC rendered judgment in favor of the petitioner. The RTC
construed the Deed of Sale as a contract to sell, based on the wording of the contract,
which allegedly showed that the consideration was still to be paid and delivered on some
future date a characteristic of a contract to sell. In addition, the RTC observed that the
Deed of Sale was not determinate as to its object since it merely indicated two (2)
hectares of the 97,163 sq m lot, which is an undivided portion of the entire property
owned by the petitioner. The RTC found that segregation must first be made to identify
the parcel of land indicated in the Deed of Sale and it is only then that the petitioner could
execute a final deed of absolute sale in favor of the respondent.

Page 42 of 193
ISSUE:
Whether the Deed of Sale dated July 18, 1962 is a valid and perfected c

ontract

of sale.
RULING:
The petitioner alleges that the Deed of Sale is merely an agreement to sell, which
was not perfected due to non-payment of the stipulated consideration.32 The respondent,
meanwhile, claims that the Deed of Sale is a valid and perfected contract of absolute sale.
A contract of sale is defined under Article 1458 of the Civil Code: By the contract of sale,
one of the contracting parties obligates himself to transfer the ownership of and to deliver
a determinate thing, and the other to pay therefore a price certain in money or its
equivalent.
The elements of a contract of sale are: (a) consent or meeting of the minds, that is,
consent to transfer ownership in exchange for the price; (b) determinate subject matter;
and (c) price certain in money or its equivalent.
A contract to sell, on the other hand, is defined by Article 1479 of the Civil Code:
A bilateral contract whereby the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof to the prospective buyer, binds
himself to sell the said property exclusively to the prospective buyer upon fulfillment of
the condition agreed upon, that is, full payment of the purchase price.
In a contract of sale, the title to the property passes to the buyer upon the delivery of the
thing sold, whereas in a contract to sell, the ownership is, by agreement, retained by the
seller and is not to pass to the vendee until full payment of the purchase price.
The Deed of Sale executed by the petitioner and the respondent is a perfected contract of
sale, all its elements being present. There was mutual agreement between them to enter
into the sale, as shown by their free and voluntary signing of the contract. There was also
an absolute transfer of ownership of the property by the petitioner to the respondent as
shown in the stipulation: "x x x I petitioner hereby sell, transfer, cede, convey and assign
as by these presents do have sold, transferred, ceded, conveyed and assigned, x x x."36
There was also a determine subject matter, that is, the two-hectare parcel of land as
described in the Deed of Sale. Lastly, the price or consideration is at Three Thousand
Pesos (P3,000.00), which was to be paid after the execution of the contract. The fact that
no express reservation of ownership or title to the property can be found in the Deed of
Sale bolsters the absence of such intent, and the contract, therefore, could not be one to
sell. Had the intention of the petitioner been otherwise, he could have: (1) immediately
sought judicial recourse to prevent further construction of the municipal building; or (2)
taken legal action to contest the agreement. The petitioner did not opt to undertake any of
such recourses.
Even assuming, arguendo, that the petitioner was not paid, such non payment is
immaterial and has no effect on the validity of the contract of sale. A contract of sale is a
consensual contract and what is required is the meeting of the minds on the object and the
price for its perfection and validity. In this case, the contract was perfected the moment

Page 43 of 193
the petitioner and the respondent agreed on the object of the sale the two-hectare parcel
of land, and the price Three Thousand Pesos (P3,000.00). Non-payment of the purchase
price merely gave rise to a right in favor of the petitioner to either demand specific
performance or rescission of the contract of sale.

CONTRACTS:
19.

(contract of sale; disputable presumptions)

Hospicio D. Rosaroso et. Al. vs. Lucila Laborte Soria Et. Al.
G.R. No. 194846

June 19, 2013

Page 44 of 193

FACTS:
Spouses Luis Rosaroso (Luis) and Honorata Duazo (Honorata) acquired several
real properties in Daan Bantayan, Cebu City, including the subject properties. The couple
had nine (9) children namely: Hospicio, Arturo, Florita, Lucila, Eduardo, Manuel, Cleofe,
Antonio, and Angelica. On April 25, 1952, Honorata died. Later on, Luis married
Lourdes Pastor Rosaroso (Lourdes). On January 16, 1995, a complaint for Declaration of
Nullity of Documents with Damages was filed by Luis, as one of the plaintiffs, against
his daughter, Lucila R. Soria (Lucila); Lucilas daughter, Laila S. Solutan (Laila); and
Meridian Realty Corporation (Meridian). Due to Luis untimely death, however, an
amended complaint was filed on January 6, 1996, with the spouse of Laila, Ham Solutan
(Ham); and Luis second wife, Lourdes, included as defendants. In the Amended
Complaint, it was alleged by petitioners Hospicio D. Rosaroso, Antonio D. Rosaroso
(Antonio), Angelica D. Rosaroso (Angelica), and Cleofe R. Labindao (petitioners) that on
November 4, 1991, Luis, with the full knowledge and consent of his second wife,
Lourdes, executed the Deed of Absolute Sale (First Sale) covering the properties with
Transfer Certificate of Title (TCT) No. 31852 (Lot No. 8); TCT. No. 11155 (Lot 19); TCT
No. 10885 (Lot No. 22); TCT No. 10886 (Lot No. 23); and Lot Nos. 5665 and 7967, all
located at Daanbantayan, Cebu, in their favor. They also alleged that, despite the fact that
the said properties had already been sold to them, respondent Laila, in conspiracy with
her mother, Lucila, obtained the Special Power of Attorney (SPA), dated April 3, 1993,
from Luis (First SPA); that Luis was then sick, infirm, blind, and of unsound mind; that
Lucila and Laila accomplished this by affixing Luis thumb mark on the SPA which
purportedly authorized Laila to sell and convey, among others, Lot Nos. 8, 22 and 23,
which had already been sold to them; and that on the strength of another SPA by Luis,
dated July 21, 1993 (Second SPA), respondents Laila and Ham mortgaged Lot No. 19 to
Vital Lending Investors, Inc. for and in consideration of the amount of P150,000.00 with
the concurrence of Lourdes. Petitioners further averred that a second sale took place on
August 23, 1994, when the respondents made Luis sign the Deed of Absolute Sale
conveying to Meridian three (3) parcels of residential land for P960,500.00 (Second
Sale); that Meridian was in bad faith when it did not make any inquiry as to who were the
occupants and owners of said lots; and that if Meridian had only investigated, it would
have been informed as to the true status of the subject properties and would have desisted
in pursuing their acquisition. Petitioners, thus, prayed that they be awarded moral
damages, exemplary damages, attorneys fees, actual damages, and litigation expenses
and that the two SPAs and the deed of sale in favor of Meridian be declared null and void
ab initio. On their part, respondents Lucila and Laila contested the First Sale in favor of
petitioners. They submitted that even assuming that it was valid, petitioners were
estopped from questioning the Second Sale in favor of Meridian because they failed not
only in effecting the necessary transfer of the title, but also in annotating their interests on
the titles of the questioned properties. With respect to the assailed SPAs and the deed of
absolute sale executed by Luis, they claimed that the documents were valid because he

Page 45 of 193
was conscious and of sound mind and body when he executed them. In fact, it was Luis
together with his wife who received the check payment issued by Meridian where a big
part of it was used to foot his hospital and medical expenses. Respondent Meridian, in its
Answer with Compulsory Counterclaim, averred that Luis was fully aware of the
conveyances he made. In fact, Sophia Sanchez (Sanchez), Vice-President of the
corporation, personally witnessed Luis affix his thumb mark on the deed of sale in its
favor. As to petitioners contention that Meridian acted in bad faith when it did not
endeavor to make some inquiries as to the status of the properties in question, it
countered that before purchasing the properties, it checked the titles of the said lots with
the Register of Deeds of Cebu and discovered therein that the First Sale purportedly
executed in favor of the plaintiffs was not registered with the said Register of Deeds.
Finally, it argued that the suit against it was filed in bad faith. On her part, Lourdes
posited that her signature as well as that of Luis appearing on the deed of sale in favor of
petitioners, was obtained through fraud, deceit and trickery. She explained that they
signed the prepared deed out of pity because petitioners told them that it was necessary
for a loan application. In fact, there was no consideration involved in the First Sale. With
respect to the Second Sale, she never encouraged the same and neither did she participate
in it. It was purely her husbands own volition that the Second Sale materialized. She,
however, affirmed that she received Meridians payment on behalf of her husband who
was then bedridden.
ISSUE:
Whether or not the first Deed of Sale was valid.
RULING:
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.
These presumptions operate against an adversary who has not introduced proof to rebut
them. They create the necessity of presenting evidence to rebut the prima facie case they
created, 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 this case, the respondents failed to trounce the said presumption. Aside from their bare
allegation that the sale was made without a consideration, they failed to supply clear and
convincing evidence to back up this claim. It is elementary in procedural law that bare
allegations, unsubstantiated by evidence, are not equivalent to proof under the Rules of
Court.
Granting that there was no delivery of the consideration, the seller would have no
right to sell again what he no longer owned. His remedy would be to rescind the sale for
failure on the part of the buyer to perform his part of their obligation pursuant to Article

Page 46 of 193
1191 of the New Civil Code. In the case of Clara M. Balatbat v. Court Of Appeals and
Spouses Jose Repuyan and Aurora Repuyan, it was written: The failure of the buyer to
make good the price does not, in law, cause the ownership to revest to the seller unless
the bilateral contract of sale is first rescinded or resolved pursuant to Article 1191 of the
New Civil Code. Non-payment only creates a right to demand the fulfillment of the
obligation or to rescind the contract.

CONTRACT:
20.

(essential requisites; vices of consent)

Rodolfo Cruz and Esperanza Ibias vs Atty. Gruspe

G.R. No. 191431

March 13, 2013

Page 47 of 193
FACTS:
The claim arose from an accident that occurred when a mini bus owned by Cruz
(driven by Arturo Davin) collided w/ a Toyota Corolla owned by Atty Gruspe. Gruspe's
car was a total wreck. The following day Cruz w/ Ibias went to Gruspe's office and
apoligized. Cruz and Ibiaz executed a Joint Affidavit of Undertaking promising jointly
and severally to replace the Gruspes damaged car in 20 days or, alternatively, they would
pay the cost of Gruspes car amounting to P350,000.00, with interest at 12% per month
until fully paid. Cruz and Ibias failed to comply and Gruspe filed a collection case against
them. Cruz and Ibias, in their answer alleged that Atty Gruspe deceived them into signing
the joint affidavit. (Ibias died and was substituted by his widow Esperanza)
The RTC ruled in favor of Gruspe ordering as well 15% per annum until fully
paid. The CA affirmed the RTC's decision but reduced the interest to 12% per annum and
declared that the joint affidavit is a contract.
ISSUES:
(1) Whether the joint affidavit of undertaking is a contract.
(2) Whether the consent was vitiated.
(3) Whether the petitioners are in default despite the absence of demand.
HELD 1:
Contracts are obligatory no matter what their forms may be, whenever the
essential requisites for their validity are present. In determining whether a document is an
affidavit or a contract, the Court looks beyond the title of the document, since the
denomination or title given by the parties in their document is not conclusive of the
nature of its contents.8 In the construction or interpretation of an instrument, the intention
of the parties is primordial and is to be pursued. If the terms of the document are clear
and leave no doubt on the intention of the contracting parties, the literal meaning of its
stipulations shall control. If the words appear to be contrary to the parties evident
intention, the latter shall prevail over the former. A simple reading of the terms of the
Joint Affidavit of Undertaking readily discloses that it contains stipulations characteristic
of a contract. As quoted in the CA decision,10 the Joint Affidavit of Undertaking
contained a stipulation where Cruz and Leonardo promised to replace the damaged car of
Gruspe, 20 days from October 25, 1999 or up to November 15, 1999, of the same model
and of at least the same quality. In the event that they cannot replace the car within the
same period, they would pay the cost of Gruspes car in the total amount of P350,000.00,
with interest at 12% per month for any delayed payment after November 15, 1999, until
fully paid. These, as read by the CA, are very simple terms that both Cruz and Leonardo
could easily understand.
HELD 2:

Page 48 of 193
There is also no merit to the argument of vitiated consent. An allegation of
vitiated consent must be proven by preponderance of evidence; Cruz and Leonardo failed
to support their allegation.
Although the undertaking in the affidavit appears to be onerous and lopsided, this
does not necessarily prove the alleged vitiation of consent. They, in fact, admitted the
genuineness and due execution of the Joint Affidavit and Undertaking when they said that
they signed the same to secure possession of their vehicle. If they truly believed that the
vehicle had been illegally impounded, they could have refused to sign the Joint Affidavit
of Undertaking and filed a complaint, but they did not. That the release of their mini bus
was conditioned on their signing the Joint Affidavit of Undertaking does not, by itself,
indicate that their consent was forced they may have given it grudgingly, but it is not
indicative of a vitiated consent that is a ground for the annulment of a contract.
Thus, on the issue of the validity and enforceability of the Joint Affidavit of Undertaking,
the CA did not commit any legal error that merits the reversal of the assailed decision.
HELD 3:
Nevertheless, the CA glossed over the issue of demand which is material in the
computation of interest on the amount due. The RTC ordered Cruz and Leonardo to pay
Gruspe "P350,000.00 as cost of the car xxx plus fifteen percent (15%) per annum from
November 15, 1999 until fully paid."11 The 15% interest (later modified by the CA to be
12%) was computed from November 15, 1999 the date stipulated in the Joint Affidavit
of Undertaking for the payment of the value of Gruspes car. In the absence of a finding
by the lower courts that Guruspe made a demand prior to the filing of the complaint, the
interest cannot be computed from November 15, 1999 because until a demand has been
made, Cruz and Leonardo could not be said to be in default.
"In order that the debtor may be in default, it is necessary that the following
requisites be present: (1) that the obligation be demandable and already liquidated; (2)
that the debtor delays performance; and (3) that the creditor requires the performance
judicially and extrajudicially." Default generally begins from the moment the creditor
demands the performance of the obligation. In this case, demand could be considered to
have been made upon the filing of the complaint on November 19, 1999, and it is only
from this date that the interest should be computed.
WHEREFORE, we AFFIRM the decision dated July 30, 2009 and the resolution
dated February 19, 2010 of the Court of Appeals in CA-G.R. CV No. 86083, subject to
the Modification that the twelve percent (12%) per annum interest imposed on the
amount due shall accrue only from November 19, 1999, when judicial demand was made.

CONTRACTS:
21.

(void contract; effects)

Joselito C. Borromeo vs. Juan T. Mina

G.R. No. 193747

June 5, 2013

Page 49 of 193

FACTS:
Subject of this case is a 1.1057 hectare parcel of agriculture land, situated in
Barangay Magsaysay, Naguilian, Isabela, denominated as Lot No. 5378 and covered by
Transfer Certificate of Title (TCT) No. EP-43526, registered in the name of respondent
(subject property). It appears from the foregoing TCT that respondents title over the said
property is based on Emancipation Patent No. 393178 issued by the Department of
Agrarian Reform (DAR) on May 2, 1990.
Petitioner filed a Petition dated June 9, 2003 before the Provincial Agrarian
Reform Office (PARO) of Isabela, seeking that: (a) his landholding over the subject
property (subject landholding) be exempted from the coverage of the governments OLT
program under Presidential Decree No. 27 dated October 21, 1972 (PD 27); and (b)
respondents emancipation patent over the subject property be consequently revoked and
cancelled. To this end, petitioner alleged that he purchased the aforesaid property from its
previous owner, one Serafin M. Garcia (Garcia), as evidenced by a deed of sale notarized
on February 19, 1982 (1982 deed of sale). For various reasons, however, he was not able
to effect the transfer of title in his name. Subsequently, to his surprise, he learned that an
emancipation patent was issued in respondents favor without any notice to him. He
equally maintained that his total agricultural landholdings was only 3.3635 hectares and
thus, within the landowner's retention limits under both PD 27 and Republic Act No.
6647, otherwise known as the "Comprehensive Agrarian Reform Law of 1988." In this
regard, he claimed that the subject landholding should have been excluded from the
coverage of the governments OLT program.
Petitioner filed a subsequent Petition dated September 1, 2003 also with the
PARO which contained identical allegations as those stated in his June 9, 2003 Petition
(PARO petitions) and similarly prayed for the cancellation of respondents emancipation
patent.
After due investigation, the Municipal Agrarian Reform Officer (MARO) Joey
Rolando M. Unblas issued a Report dated September 29, 2003, finding that the subject
property was erroneously identified by the same office as the property of petitioners
father, the late Cipriano Borromeo. In all actuality, however, the subject property was
never owned by Cipriano Borromeo as its true owner was Garcia notably, a perennial
PD 27 landowner who later sold the same to petitioner.
Based on these findings, the MARO recommended that: (a) the subject
landholding be exempted from the coverage of the OLT; and (b) petitioner be allowed to
withdraw any amortizations deposited by respondent with the Land Bank of the
Philippines (LBP) to serve as rental payments for the latters use of the subject property.
ISSUE:
Whether or not the sale of the subject property to petitioner is valid.
RULING:

Page 50 of 193
PARO
PARO adopted the recommendation of the MARO.
DAR REGIONAL DIRECTOR
Finding petitioner the true owner of the subject property and affirmed the PARO's
Decision. However it did not order the cancellation of respondents emancipation patent.
DAR SECRETARY
Affirmed in toto the DAR Regional Directors ruling.
CA
It reversed and set aside the DAR Secretary's ruling.
SC
Petition is denied. The assailed decision and resolution of the Court of Appeals
affirmed.
PD 27 prohibits the transfer of ownership over tenanted rice and/or corn lands
after October 21, 1972 except only in favor of the actual tenant tillers thereon. As held in
the case of Sta. Monica Industrial and Development Corporation v. DAR Regional
Director for Region III,36 citing Heirs of Batongbacal v. CA: x x x P.D. No. 27, as
amended, forbids the transfer or alienation of covered agricultural lands after October 21,
1972 except to the tenant-beneficiary. x x x.
In Heirs of Batongbacal v. Court of Appeals, involving the similar issue of sale of
a covered agricultural land under P.D. No. 27, this Court held: Clearly, therefore,
Philbanking committed breach of obligation as an agricultural lessor. As the records
show, private respondent was not informed about the sale between Philbanking and
petitioner, and neither was he privy to the transfer of ownership from Juana Luciano to
Philbanking. As an agricultural lessee, the law gives him the right to be informed about
matters affecting the land he tills, without need for him to inquire about it.
In other words, transfer of ownership over tenanted rice and/or corn lands after
October 21, 1972 is allowed only in favor of the actual tenant-tillers thereon. Hence, the
sale executed by Philbanking on January 11, 1985 in favor of petitioner was in violation
of the aforequoted provision of P.D. 27 and its implementing guidelines, and must thus be
declared null and void. Records reveal that the subject landholding fell under the
coverage of PD 27 on October 21, 1972 and as such, could have been subsequently sold
only to the tenant thereof, i.e., the respondent. Notably, the status of respondent as tenant
is now beyond dispute considering petitioners admission of such fact. Likewise, as
earlier discussed, petitioner is tied down to his initial theory that his claim of ownership
over the subject property was based on the 1982 deed of sale. Therefore, as Garcia sold
the property in 1982 to the petitioner who is evidently not the tenant-beneficiary of the
same, the said transaction is null and void for being contrary to law.
In consequence, petitioner cannot assert any right over the subject landholding, such as
his present claim for landholding exemption, because his title springs from a null and
void source. A void contract is equivalent to nothing; it produces no civil effect; and it
does not create, modify or extinguish a juridical relation. Hence, notwithstanding the
erroneous identification of the subject landholding by the MARO as owned by Cipriano

Page 51 of 193
Borromeo, the fact remains that petitioner had no right to file a petition for landholding
exemption since the sale of the said property to him by Garcia in 1982 is null and void.
Proceeding from this, the finding that petitioners total agricultural landholdings is way
below the retention limits set forth by law thus, becomes irrelevant to his claim for
landholding exemption precisely because he has no right over the aforementioned
landholding.

CONTRACTS:
22.

(void contract)

Land Bank of the Philippines vs. Eduardo Cacayuran

G.R. No. 191667

April 17, 2013

Page 52 of 193
FACTS:
From 2005 to 2006, the Municipalitys Sangguniang Bayan (SB) passed certain
resolutions to implement a multi-phased plan (Redevelopment Plan) to redevelop the
Agoo Public Plaza (Agoo Plaza) where the Imelda Garden and Jose Rizal Monument
were situated.
To finance phase 1 of the said plan, the SB initially passed Resolution authorizing
then Mayor Eufranio Eriguel (Mayor Eriguel) to obtain a loan from Land Bank and
incidental thereto, mortgage a 2,323.75 square meter lot situated at the southeastern
portion of the Agoo Plaza (Plaza Lot) as collateral. To serve as additional security, it
further authorized the assignment of a portion of its internal revenue allotment (IRA) and
the monthly income from the proposed project in favor of Land Bank. The foregoing
terms were confirmed, approved and ratified through Resolution No. 139-2005.
Consequently, Land Bank extended a P4,000,000.00 loan in favor of the Municipality
(First Loan), the proceeds of which were used to construct ten (10) kiosks at the northern
and southern portions of the Imelda Garden. After completion, these kiosks were rented
out.
On March 7, 2006, the SB passed Resolution No. 58-2006, approving the
construction of a commercial center on the Plaza Lot as part of phase II of the
Redevelopment Plan. To finance the project, Mayor Eriguel was again authorized to
obtain a loan from Land Bank, posting as well the same securities as that of the First
Loan. All previous representations and warranties of Mayor Eriguel related to the
negotiation and obtention of the new loan were ratified on September 5, 2006 through
Resolution No. 128-2006. In consequence, Land Bank granted a second loan in favor of
the Municipality in the principal amount of P28,000,000.00 (Second Loan).
Unlike phase 1 of the Redevelopment Plan, the construction of the commercial
center at the Agoo Plaza was vehemently objected to by some residents of the
Municipality. Led by respondent Eduardo Cacayuran (Cacayuran), these residents
claimed that the conversion of the Agoo Plaza into a commercial center, as funded by the
proceeds from the First and Second Loans (Subject Loans), were "highly irregular,
violative of the law, and detrimental to public interests, and will result to wanton
desecration of the said historical and public park." The foregoing was embodied in a
Manifesto, launched through a signature campaign conducted by the residents and
Cacayuran.
Cacayuran, invoking his right as a taxpayer, filed a Complaint against the
Implicated Officers and Land Bank, assailing, among others, the validity of the Subject
Loans on the ground that the Plaza Lot used as collateral thereof is property of public
dominion and therefore, beyond the commerce of man. Upon denial of the Motion to
Dismiss the Implicated Officers and Land Bank filed their respective Answers. SB passed
Municipal Ordinance No. 02-2007, declaring the area where the APC stood as
patrimonial property of the Municipality.

Page 53 of 193
RTC ruled in favor of Cacayuran, declaring the nullity of the Subject Loans. CA
affirmed with modification the RTCs ruling, excluding Vice Mayor Eslao from any
personal liability arising from the Subject Loans.
ISSUE:
Whether the Subject Loans are ultra vires therefore void.
HELD:
Generally, an ultra vires act is one committed outside the object for which a
corporation is created as defined by the law of its organization and therefore beyond the
powers conferred upon it by law. There are two (2) types of ultra vires acts. As held in
Middletown Policemen's Benevolent Association v. Township of Middletown:
There is a distinction between an act utterly beyond the jurisdiction of a municipal
corporation and the irregular exercise of a basic power under the legislative grant in
matters not in themselves jurisdictional. The former are ultra vires in the primary sense
and void; the latter, ultra vires only in a secondary sense which does not preclude
ratification or the application of the doctrine of estoppel in the interest of equity and
essential justice.
In other words, an act which is outside of the municipalitys jurisdiction is
considered as a void ultra vires act, while an act attended only by an irregularity but
remains within the municipalitys power is considered as an ultra vires act subject to
ratification and/or validation. To the former belongs municipal contracts which (a) are
entered into beyond the express, implied or inherent powers of the local government unit;
and (b) do not comply with the substantive requirements of law e.g., when expenditure of
public funds is to be made, there must be an actual appropriation and certificate of
availability of funds; while to the latter belongs those which (a) are entered into by the
improper department, board, officer of agent; and (b)do not comply with the formal
requirements of a written contract e.g., the Statute of Frauds.
Applying these principles to the case at bar, it is clear that the Subject Loans
belong to the first class of ultra vires acts deemed as void. Records disclose that the said
loans were executed by the Municipality for the purpose of funding the conversion of the
Agoo Plaza into a commercial center pursuant to the Redevelopment Plan. However, the
conversion of the said plaza is beyond the Municipalitys jurisdiction considering the
propertys nature as one for public use and thereby, forming part of the public dominion.
Accordingly, it cannot be the object of appropriation either by the State or by private
persons. Nor can it be the subject of lease or any other contractual undertaking. In
Villanueva v. Castaeda, Jr., citing Espiritu v. Municipal Council of Pozorrubio, the Court
pronounced that: Town plazas are properties of public dominion, to be devoted to public
use and to be made available to the public in general. They are outside the commerce of
man and cannot be disposed of or even leased by the municipality to private parties.
In this relation, Article 1409(1) of the Civil Code provides that a contract whose
purpose is contrary to law, morals, good customs, public order or public policy is

Page 54 of 193
considered void and as such, creates no rights or obligations or any juridical relations.
Consequently, given the unlawful purpose behind the Subject Loans which is to fund the
commercialization of the Agoo Plaza pursuant to the Redevelopment Plan, they are
considered as ultra vires in the primary sense thus, rendering them void and in effect,
non-binding on the Municipality.
Nevertheless, while the Subject Loans cannot bind the Municipality for being
ultra vires, the officers who authorized the passage of the Subject Resolutions are
personally liable. Case law states that public officials can be held personally accountable
for acts claimed to have been performed in connection with official duties where they
have acted ultra vires, as in this case.
WHEREFORE, the petition is DENIED. Accordingly, the March 26, 2010
Decision of the Court of Appeals in CA-G.R. CV. No. 89732 is hereby AFFIRMED.

CONTRACTS:
23.

(autonomy of contracts)

Spouses Mallari vs. Prudential Bank (now BPI)

G.R. No. 197861

June 5, 2013

Page 55 of 193

FACTS:
Petitioner Florentino T. Mallari (Florentino) obtained from respondent Prudential
Bank-Tarlac Branch (respondent bank), a loan in the amount of P300,000.00 as
evidenced by Promissory Note (PN) No. BD 84-055. Under the promissory note, the loan
was subject to an interest rate of 21% per annum (p.a.), attorney's fees equivalent to 15%
of the total amount due but not less than P200.00 and, in case of default, a penalty and
collection charges of 12% p.a. of the total amount due. The loan had a maturity date of
January 10, 1985, but was renewed up to February 17, 1985. Petitioner Florentino
executed a Deed of Assignment wherein he authorized the respondent bank to pay his
loan with his time deposit with the latter in the amount ofP300,000.00.
Petitioners spouses Florentino and Aurea Mallari (petitioners) obtained again
from respondent bank another loan of P1.7 million as evidenced by PN No. BDS 60689 with a maturity date of March 22, 1990. They stipulated that the loan will bear 23%
interest p.a., attorney's fees equivalent to 15% p.a. of the total amount due, but not less
than P200.00, and penalty and collection charges of 12% p.a. Petitioners executed a Deed
of Real Estate Mortgage in favor of respondent bank covering petitioners' property under
Transfer Certificate of Title (TCT) No. T-215175 of the Register of Deeds of Tarlac to
answer for the said loan.
Petitioners failed to settle their loan obligations with respondent bank, thus, the
latter, through its lawyer, sent a demand letter to the former for them to pay their
obligations, which when computed up to January 31, 1992, amounted to P571,218.54 for
PN No. BD 84-055 and P2,991,294.82 for PN No. BDS 606-89.
Respondent bank filed with the Regional Trial Court (RTC) of Tarlac, a petition
for the extrajudicial foreclosure of petitioners' mortgaged property for the satisfaction of
the latter's obligation ofP1,700,000.00 secured by such mortgage, thus, the auction sale
was set by the Provincial Sheriff on April 23, 1992. Respondent bank's Assistant Manager
sent petitioners two (2) separate Statements of Account as of April 23, 1992, i.e., the loan
of P300,000.00 was increased to P594,043.54, while the P1,700,000.00 loan was
already P3,171,836.18.
Petitioners filed a complaint for annulment of mortgage, deeds, injunction,
preliminary injunction, temporary restraining order and damages Petitioners asked the
court to restrain respondent bank from proceeding with the scheduled foreclosure sale.
RTC denied the Application for a Writ of Preliminary Injunction. However, in
petitioners' Supplemental Motion for Issuance of a Restraining Order and/or Preliminary
Injunction to enjoin respondent bank and the Provincial Sheriff from effecting or
conducting the auction sale, the RTC reversed itself and issued the restraining order in its
Order dated January 14, 1993. Respondent bank filed its Motion to Lift Restraining
Order, which the RTC granted in its Order dated March 9, 1993. Respondent bank then
proceeded with the extrajudicial foreclosure of the mortgaged property. Certificate of
Sale was issued to respondent bank being the highest bidder. Subsequently, respondent
bank filed a Motion to Dismiss Complaint for failure to prosecute action for unreasonable

Page 56 of 193
length of time to which petitioners filed their Opposition. RTC issued its Order denying
respondent bank's Motion to Dismiss Complaint. Trial thereafter ensued. Petitioner
Florentino was presented as the lone witness for the plaintiffs. Subsequently, respondent
bank filed a Demurrer to Evidence. RTC issued its Order granting respondent's demurrer
to evidence. Appeal to the CA was denied.
ISSUE:
Whether the 23% p.a. interest rate and the 12% p.a. penalty charge on
petitioners'P1,700,000.00 loan to which they agreed upon is excessive or unconscionable
under the circumstances.
HELD:
Parties are free to enter into agreements and stipulate as to the terms and
conditions of their contract, but such freedom is not absolute. As Article 1306 of the Civil
Code provides, "The contracting parties may establish such stipulations, clauses, terms
and conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy." Hence, if the stipulations in the
contract are valid, the parties thereto are bound to comply with them, since such contract
is the law between the parties. In this case, petitioners and respondent bank agreed upon
on a 23% p.a. interest rate on the P1.7 million loan. However, petitioners now contend
that the interest rate of 23% p.a. imposed by respondent bank is excessive or
unconscionable, invoking our ruling in Medel v. Court of Appeals, Toring v. Spouses
Ganzon-Olan, and Chua v. Timan.
We are not persuaded. We do not consider the interest rate of 23% p.a. agreed
upon by petitioners and respondent bank to be unconscionable.
Clearly, jurisprudence establish that the 24% p.a. stipulated interest rate was not
considered unconscionable, thus, the 23% p.a. interest rate imposed on petitioners' loan in
this case can by no means be considered excessive or unconscionable. We also do not
find the stipulated 12% p.a. penalty charge excessive or unconscionable.
In Ruiz v. CA, we held: The 1% surcharge on the principal loan for every month
of default is valid.1wphi1 This surcharge or penalty stipulated in a loan agreement in
case of default partakes of the nature of liquidated damages under Art. 2227 of the New
Civil Code, and is separate and distinct from interest payment. Also referred to as a
penalty clause, it is expressly recognized by law. It is an accessory undertaking to assume
greater liability on the part of an obligor in case of breach of an obligation. The obligor
would then be bound to pay the stipulated amount of indemnity without the necessity of
proof on the existence and on the measure of damages caused by the breach. And in
Development Bank of the Philippines v. Family Foods Manufacturing Co., Ltd., we held
that: Here, petitioners defaulted in the payment of their loan obligation with respondent
bank and their contract provided for the payment of 12% p.a. penalty charge, and since
there was no showing that petitioners' failure to perform their obligation was due to force
majeure or to respondent bank's acts, petitioners cannot now back out on their obligation

Page 57 of 193
to pay the penalty charge. A contract is the law between the parties and they are bound by
the stipulations therein.
WHEREFORE, the petition for review is DENIED. The Decision dated June 17,
2010 and the Resolution dated July 20, 2011 of the Court of Appeals are hereby
AFFIRMED.
SO ORDERED.

CONTRACTS:
24.

(mutuality of contracts)

Spouses Juico vs. China Banking Corp.

G.R. No. 187678

April 10, 2013

Page 58 of 193

FACTS:
Spouses Ignacio F. Juico and Alice P. Juico (petitioners) obtained a loan from
China Banking Corporationas evidenced by two Promissory Notes both dated October 6,
1998 and numbered 507-001051-3and 507-001052-0, for the sums of 116,216,000 and
P4, 139,000, respectively. The loan was secured by a Real Estate Mortgage (REM) over
petitioners property located at 49 Greensville St., White Plains, Quezon City covered by
(TCT) No. RT-103568 (167394) PR-41208 of the Register of Deeds of Quezon City.
When petitioners failed to pay the monthly amortizations due, respondent demanded the
full payment of the outstanding balance with accrued monthly interests. On September 5,
2000, petitioners received respondents last demand letter dated August 29, 2000. As of
February 23, 2001, the amount due on the two promissory notes totaled P19,201,776.63
representing the principal, interests, penalties and attorneys fees. On the same day, the
mortgaged property was sold at public auction, with respondent as highest bidder for the
amount of P10,300,000. Petitioners received a demand letter dated May 2, 2001 from
respondent for the payment ofP8,901,776.63, the amount of deficiency after applying the
proceeds of the foreclosure sale to the mortgage debt. As its demand remained unheeded,
respondent filed a collection suit in the trial court.
RTC ruled in favor of respondent. When the case was elevated to the CA, the
latter affirmed the trial courts decision.
ISSUE:
Whether the interest rates imposed upon them by respondent are valid.
HELD:
The appeal is partly meritorious. The principle of mutuality of contracts is
expressed in Article 1308 of the Civil Code, which provides: Article 1308. The contract
must bind both contracting parties; its validity or compliance cannot be left to the will of
one of them. Article 1956 of the Civil Code likewise ordains that "no interest shall be due
unless it has been expressly stipulated in writing." The binding effect of any agreement
between parties to a contract is premised on two settled principles: (1) that any obligation
arising from contract has the force of law between the parties; and (2) that there must be
mutuality between the parties based on their essential equality. Any contract which
appears to be heavily weighed in favor of one of the parties so as to lead to an
unconscionable result is void. Any stipulation regarding the validity or compliance of the
contract which is left solely to the will of one of the parties, is likewise, invalid.
Escalation clauses refer to stipulations allowing an increase in the interest rate
agreed upon by the contracting parties. This Court has long recognized that there is
nothing inherently wrong with escalation clauses which are valid stipulations in
commercial contracts to maintain fiscal stability and to retain the value of money in long
term contracts. Hence, such stipulations are not void per se. Nevertheless, an escalation
clause "which grants the creditor an unbridled right to adjust the interest independently

Page 59 of 193
and upwardly, completely depriving the debtor of the right to assent to an important
modification in the agreement" is void. A stipulation of such nature violates the principle
of mutuality of contracts. Thus, this Court has previously nullified the unilateral
determination and imposition by creditor banks of increases in the rate of interest
provided in loan contracts.
It is now settled that an escalation clause is void where the creditor unilaterally
determines and imposes an increase in the stipulated rate of interest without the express
conformity of the debtor. Such unbridled right given to creditors to adjust the interest
independently and upwardly would completely take away from the debtors the right to
assent to an important modification in their agreement and would also negate the element
of mutuality in their contracts. While a ceiling on interest rates under the Usury Law was
already lifted under Central Bank Circular No. 905, nothing therein "grants lenders carte
blanche authority to raise interest rates to levels which will either enslave their borrowers
or lead to a hemorrhaging of their assets.
In this case, the trial and appellate courts, in upholding the validity of the
escalation clause, underscored the fact that there was actually no fixed rate of interest
stipulated in the promissory notes as this was made dependent on prevailing rates in the
market.
Escalation clauses are not basically wrong or legally objectionable as long as they
are not solely potestative but based on reasonable and valid grounds. Obviously, the
fluctuation in the market rates is beyond the control of private respondent.
Here, the escalation clause in the promissory notes authorizing the respondent to adjust
the rate of interest on the basis of a law or regulation issued by the Central Bank of the
Philippines, should be read together with the statement after the first paragraph where no
rate of interest was fixed as it would be based on prevailing market rates. While the latter
is not strictly an escalation clause, its clear import was that interest rates would vary as
determined by prevailing market rates. Evidently, the parties intended the interest on
petitioners loan, including any upward or downward adjustment, to be determined by the
prevailing market rates and not dictated by respondents policy. It may also be mentioned
that since the deregulation of bank rates in 1983, the Central Bank has shifted to a
market-oriented interest rate policy.
This notwithstanding, we hold that the escalation clause is still void because it
grants respondent the power to impose an increased rate of interest without a written
notice to petitioners and their written consent. Respondents monthly telephone calls to
petitioners advising them of the prevailing interest rates would not suffice. A detailed
billing statement based on the new imposed interest with corresponding computation of
the total debt should have been provided by the respondent to enable petitioners to make
an informed decision. An appropriate form must also be signed by the petitioners to
indicate their conformity to the new rates. Compliance with these requisites is essential to
preserve the mutuality of contracts. For indeed, one-sided impositions do not have the
force of law between the parties, because such impositions are not based on the parties
essential equality.

Page 60 of 193
Modifications in the rate of interest for loans pursuant to an escalation clause
must be the result of an agreement between the parties. Unless such important change in
the contract terms is mutually agreed upon, it has no binding effect. In the absence of
consent on the part of the petitioners to the modifications in the interest rates, the adjusted
rates cannot bind them. Hence, we consider as invalid the interest rates in excess of 15%,
the rate charged for the first year.

CONTRACTS:
25.

(rescissible contract)

Fil-estate Golf and Devt., Inc. And Filestate Land, Inc. vs.Vertex Sales
and Trading, Inc.,

Page 61 of 193
G.R. No. 202079

June 10, 2013

FACTS:
Petitioner, FEGDI is a stock corporation whose primary business is the
development of golf courses. FELI is also a stock corporation, but is engaged in real
estate development. FEGDI was the developer of the Forest Hills Golf and Country Club
(Forest Hills) and, in consideration for its financing support and construction efforts, was
issued several shares of stock of Forest Hills.
Sometime in August 1997, FEGDI sold, on installment, to RS Asuncion
Construction Corporation (RSACC) one Class "C" Common Share of Forest Hills
for P1,100,000.00. Prior to the full payment of the purchase price, RSACC sold, on
February 11, 1999,5 the Class "C" Common Share to respondent Vertex Sales and
Trading, Inc. (Vertex). RSACC advised FEGDI of the sale to Vertex and FEGDI, in turn,
instructed Forest Hills to recognize Vertex as a shareholder. For this reason, Vertex
enjoyed membership privileges in Forest Hills.
Despite Vertexs full payment, the share remained in the name of FEGDI.
Seventeen (17) months after the sale (or on July 28, 2000), Vertex wrote FEDGI a letter
demanding the issuance of a stock certificate in its name. FELI replied, initially requested
Vertex to first pay the necessary fees for the transfer. Although Vertex complied with the
request, no certificate was issued. This prompted Vertex to make a final demand. As the
demand went unheeded, Vertex filed a Complaint for Rescission with Damages and
Attachment against FEGDI, FELI and Forest Hills. It averred that the petitioners
defaulted in their obligation as sellers when they failed and refused to issue the stock
certificate covering the subject share despite repeated demands.
RTC dismissed the complaint for insufficiency of evidence. CA reversed the RTC
and rescinded the sale of the share. Citing Section 63 of the Corporation Code, the CA
held that there can be no valid transfer of shares where there is no delivery of the stock
certificate. It considered the prolonged issuance of the stock certificate a substantial
breach that served as basis for Vertex to rescind the sale. The CA ordered the petitioners
to return the amounts paid by Vertex by reason of the sale.
ISSUE:
Whether the delay in the issuance of a stock certificate can be considered a
substantial breach as to warrant rescission of the contract of sale.
HELD:
The petition lacks merit.
Physical delivery is necessary to transfer ownership of stocks. The factual
backdrop of this case is similar to that of Raquel-Santos v. Court of Appeals, where the
Court held that in "a sale of shares of stock, physical delivery of a stock certificate is one
of the essential requisites for the transfer of ownership of the stocks purchased."

Page 62 of 193
In that case, Trans-Phil Marine Ent., Inc. (Trans-Phil) and Roland Garcia bought
Piltel shares from Finvest Securities Co., Inc. (Finvest Securities) in February 1997.
Since Finvest Securities failed to deliver the stock certificates, Trans-Phil and Garcia
filed an action first for specific performance, which was later on amended to an action for
rescission. The Court ruled that Finvest Securities failure to deliver the shares of stock
constituted substantial breach of their contract which gave rise to a right on the part of
Trans-Phil and Garcia to rescind the sale.
Section 63 of the Corporation Code provides:
SEC. 63. Certificate of stock and transfer of shares. The capital stock of stock
corporations shall be divided into shares for which certificates signed by the president or
vice-president, countersigned by the secretary or assistant secretary, and sealed with the
seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so
issued are personal property and may be transferred by delivery of the certificate or
certificates indorsed by the owner or his attorney-in-fact or other person legally
authorized to make the transfer.1wphi1 No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded in the books of the corporation showing
the names of the parties to the transaction, the date of the transfer, the number of the
certificate or certificates and the number of shares transferred.
No shares of stock against which the corporation holds any unpaid claim shall be
transferable in the books of the corporation.
In this case, Vertex fully paid the purchase price by February 11, 1999 but the
stock certificate was only delivered on January 23, 2002 after Vertex filed an action for
rescission against FEGDI.
Under these facts, considered in relation to the governing law, FEGDI clearly
failed to deliver the stock certificates, representing the shares of stock purchased by
Vertex, within a reasonable time from the point the shares should have been delivered.
This was a substantial breach of their contract that entitles Vertex the right to rescind the
sale under Article 1191 of the Civil Code. It is not entirely correct to say that a sale had
already been consummated as Vertex already enjoyed the rights a shareholder can
exercise. The enjoyment of these rights cannot suffice where the law, by its express
terms, requires a specific form to transfer ownership.
"Mutual restitution is required in cases involving rescission under Article 1191" of
the Civil Code; such restitution is necessary to bring back the parties to their original
situation prior to the inception of the contract. Accordingly, the amount paid to FEGDI by
reason of the sale should be returned to Vertex. On the amount of damages, the CA is
correct in not awarding damages since Vertex failed to prove by sufficient evidence that it
suffered actual damage due to the delay in the issuance of the certificate of stock.
Regarding the involvement of FELI in this case, no privity of contract exists
between Vertex and FELI. "As a general rule, a contract is a meeting of minds between
two persons.1wphi1 The Civil Code upholds the spirit over the form; thus, it deems an
agreement to exist, provided the essential requisites are present. A contract is upheld as
long as there is proof of consent, subject matter and cause. Moreover, it is generally

Page 63 of 193
obligatory in whatever form it may have been entered into. From the moment there is a
meeting of minds between the parties, [the contract] is perfected."
In the sale of the Class "C" Common Share, the parties are only FEGDI, as seller,
and Vertex, as buyer. As can be seen from the records, FELl was only dragged into the
action when its staff used the wrong letterhead in replying to Vertex and issued the wrong
receipt for the payment of transfer taxes. Thus FELl should be absolved from any
liability.
WHEREFORE, we hereby DENY the petition. The decision dated February 22,
2012 and the resolution dated May 31, 2012 of the Court of Appeals in CA-G.R. CV No.
89296 are AFFIRMED with the MODIFICATION that Fil-Estate Land, Inc. is
ABSOLVED from any liability.

CONTRACTS:
26.

(interpretation of contract)

Star Two (SPV-AMC), INC. vs Paper City Corp. of the Phil.

G.R. No. 169211

March 6, 2013

Page 64 of 193
FACTS:
Rizal Commercial Banking Corporation (RCBC), Metropolitan Bank and Trust
Co. (Metrobank) and Union Bank of the Philippines (Union Bank) are banking
corporations duly organized and existing under the laws of the Philippines. On the other
hand, respondent Paper City is a domestic corporation engaged in the manufacture of
paper products particularly cartons, newsprint and clay-coated paper.
Paper City applied for and was granted several loans and credit accommodations
by RCBC. The loans were secured by 4 deeds of continuing chattel mortgages on its
machineries. A unilateral cancellation of deed of continuing chattel mortgage was
executed by RCBC (as trustee bank). Subsequently, RCBC, Metrobank, and Union Bank
entered into a Mortgage Trust Indenture (MTI) w/ paper city. In the MTI, Paper City
acquired an additional loan of 170,000,000 in addition to the previous loan (110,000,000
partly secured by various parcels of land pursuant to 5 real estate mortgages). The new
loan would be secured as well by the same 5 real estate mortgages. 3 supplemental
indentures were made where the loan obligation was increased up to 555,000,000 w/
additional securities composed of a 2 story building and other machineries. Paper City
was able to meet its obligations for some time until the economic crisis occurred.
Eventually Paper defaulted.
RCBC then filed a petition for extrajudicial foreclosure. The foreclosure sale
prompted Paper City to file a complaint alleging that the extra judicial sale was void due
to lack of notice. Paper entered into a compromise agreement w/ Union Bank.
Negotiations w/ the other creditor banks remained pending. Paper City filed a motion to
remove or dispose machinery which the RTC denied explaining that the same were
covered by the certificate of sale. Paper City filed its motion for reconsideration which
the RTC granted reversing its order. The RTC explained that the machineries are chattels
by agreement and it further ruled that the deed of cancellation executed by RCBC was
not valid as it was unilaterally made. The CA affirmed the RTC's ruling as it relied on the
plain language of the MTIs. The CA held that no provision MTIs treats the machineries
as real property.
ISSUE:
Whether the CA was correct in using the "plain language" in interpreting the
MTIs?
HELD:
Repeatedly, the parties stipulated that the properties mortgaged by Paper City to
RCBC are various parcels of land including the buildings and existing improvements
thereon as well as the machineries and equipments, which as stated in the granting clause
of the original mortgage, are "more particularly described and listed that is to say, the real
and personal properties listed in Annexes A and B x x x of which the Paper City is the
lawful and registered owner." Significantly, Annexes "A" and "B" are itemized listings of
the buildings, machineries and equipments typed single spaced in twenty-seven pages of
the document made part of the records.

Page 65 of 193
A court's purpose in examining a contract is to interpret the intent of the
contracting parties, as objectively manifested by them. The process of interpreting a
contract requires the court to make a preliminary inquiry as to whether the contract before
it is ambiguous. A contract provision is ambiguous if it is susceptible of two reasonable
alternative interpretations. Where the written terms of the contract are not ambiguous and
can only be read one way, the court will interpret the contract as a matter of law.
Then till now the pronouncement has been that if the language used is as clear as
day and readily understandable by any ordinary reader, there is no need for construction.
The case at bar is covered by the rule.
The plain language and literal interpretation of the MTIs must be applied. The
petitioner, other creditor banks and Paper City intended from the very first execution of
the indentures that the machineries and equipments enumerated in Annexes "A" and "B"
are included. Obviously, with the continued increase in the amount of the loan, totaling
hundreds of millions of pesos, Paper City had to offer all valuable properties acceptable
to the creditor banks.
The plain and obvious inclusion in the mortgage of the machineries and
equipments of Paper City escaped the attention of the CA which, instead, turned to
another "plain language of the MTI" that "described the same as personal properties." It
was error for the CA to deduce from the "description" exclusion from the mortgage.
The MTIs did not describe the equipments and machineries as personal property.
Had the CA looked into Annexes "A" and "B" which were referred to by the phrase "real
and personal properties," it could have easily noted that the captions describing the listed
properties were "Buildings," "Machineries and Equipments," "Yard and Outside," and
"Additional Machinery and Equipment." No mention in any manner was made in the
annexes about "personal property." Notably, while "personal" appeared in the granting
clause of the original MTI, the subsequent Deed of Amendment specifically stated that:
The machineries and equipment listed in Annexes "A" and "B" form part of the
improvements listed above and located on the parcels of land subject of the Mortgage
Trust Indenture and the Real Estate Mortgage.
The word "personal" was deleted in the corresponding granting clauses in the
Deed of Amendment and in the First, Second and Third Supplemental Indentures.
WHEREFORE, the petition is GRANTED. Accordingly, the Decision and
Resolution of the Court of Appeals dated 8 March 2005 and 8 August 2005 upholding the
15 August 2003 and 1 December 2003 Orders of the Valenzuela Regional Trial Court are
hereby REVERSED and SET ASIDE and the original Order of the trial court dated 28
February 2003 denying the motion of respondent to remove or dispose of machinery is
hereby REINSTATED.
CONTRACTS:
27.

(interpretation of contract)

Sps. Jesus and Coronacion Cabahug vs NPC

G.R. No. 186069

January 30, 2013

Page 66 of 193

FACTS:
Spouses Cabahug are the owners of two parcels of land situated in Barangay
Capokpok, Tabango, Leyte, registered in their names under Transfer Certificate of Title
(TCT) Nos. T-9813 and T-1599 of the Leyte provincial registry.They were among the
defendants in Special Civil Action No. 0019-PN, a suit for expropriation earlier filed by
NPC before the RTC, in connection with its Leyte-Cebu Interconnection Project. The suit
was later dismissed when NPC opted to settle with the landowners by paying an easement
fee equivalent to 10% of value of their property in accordance with Section 3-A of
Republic Act (RA) No. 6395. In view of the conflicting land values presented by the
affected landowners, it appears that the Leyte Provincial Appraisal Committee, upon
request of NPC, fixed the valuation of the affected properties at P45.00 per square meter.
Jesus Cabahug executed two documents denominated as Right of Way Grant in
favor of NPC. For and in consideration of the easement fees in the sums of P112,225.50
and P21,375.00, Jesus Cabahug granted NPC a continuous easement of right of way for
the latters transmissions lines and their appurtenances over 24,939 and 4,750 square
meters of the parcels of land covered by TCT Nos. T-9813 and T-1599, respectively. By
said grant, Jesus Cabahug agreed not to construct any building or structure whatsoever,
nor plant in any area within the Right of Way that will adversely affect or obstruct the
transmission line of NPC, except agricultural crops, the growth of which will not exceed
three meters high. Under paragraph 4 of the grant, however, Jesus Cabahug reserved the
option to seek additional compensation for easement fee, based on the Supreme Courts
18 January 1991 Decision in G.R. No. 60077, entitled National Power Corporation v.
Spouses Misericordia Gutierrez and Ricardo Malit, et al. (Gutierrez).
The Spouses Cabahug filed the complaint for the payment of just compensation,
damages and attorneys fees against NPC which was docketed as Civil Case No. PN-0213
before the RTC. Claiming to have been totally deprived of the use of the portions of land
covered by TCT Nos. T-9813 and T-1599, the Spouses Cabahug alleged, among other
matters, that in accordance with the reservation provided under paragraph 4 of the
aforesaid grant, they have demanded from NPC payment of the balance of the just
compensation for the subject properties which, based on the valuation fixed by the Leyte
Provincial Appraisal Committee, amounted to P1,202,404.50. In its answer, on the other
hand, NPC averred that it already paid the full easement fee mandated under Section 3-A
of RA 6395 and that the reservation in the grant referred to additional compensation for
easement fee, not the full just compensation sought by the Spouses Cabahug. Acting on
the motion for judgment on the pleadings that was filed by the Spouses Cabahug
The RTC ruled in favor the Spouses Cabahug in allowing further collection. The
CA reversed the RTC's decision.
ISSUE:
Whether the collection of further sums would violate contract or the grant of right
of way executed between the Spouses Cabahug and the NPC.

Page 67 of 193

HELD:
No. The CA regarded the Grant of Right of Way executed by Jesus Cabahug in
favor of NPC as a valid and binding contract between the parties, a fact affirmed by the
OSG in its 8 October 2009 Comment to the petition at bench.18 Given that the parties
have already agreed on the easement fee for the portions of the subject parcels traversed
by NPCs transmissions lines, the CA ruled that the Spouses Cabahugs attempt to collect
further sums by way of additional easement fee and/or just compensation is violative of
said contract and tantamount to unjust enrichment at the expense of NPC. As correctly
pointed out by the Spouses Cabahug, however, the CAs ruling totally disregards the
fourth paragraph of the Grant executed by Jesus Cabahug which expressly states as
follows:
That I hereby reserve the option to seek additional compensation for Easement
Fee, based on the Supreme Court Decision in G.R. No. 60077, promulgated on January
18, 1991, which jurisprudence is designated as "NPC vs. Gutierrez" case.
From the foregoing reservation, it is evident that the Spouses Cabahugs receipt of
the easement fee did not bar them from seeking further compensation from NPC. Even by
the basic rules in the interpretation of contracts, we find that the CA erred in holding that
the payment of additional sums to the Spouses Cabahug would be violative of the parties
contract and amount to unjust enrichment. Indeed, the rule is settled that a contract
constitutes the law between the parties who are bound by its stipulations which, when
couched in clear and plain language, should be applied according to their literal tenor.
Courts cannot supply material stipulations, read into the contract words it does not
contain or, for that matter, read into it any other intention that would contradict its plain
import. Neither can they rewrite contracts because they operate harshly or inequitably as
to one of the parties, or alter them for the benefit of one party and to the detriment of the
other, or by construction, relieve one of the parties from the terms which he voluntarily
consented to, or impose on him those which he did not.
Considering that Gutierrez was specifically made the point of reference for Jesus
Cabahugs reservation to seek further compensation from NPC, we find that the CA
likewise erred in finding that the ruling in said case does not apply to the case at bench.
Concededly, the NPC was constrained to file an expropriation complaint in Gutierrez due
to the failure of the negotiations for its acquisition of an easement of right of way for its
transmission lines. The issue that was eventually presented for this Courts resolution,
however, was the propriety of making NPC liable for the payment of the full market
value of the affected property despite the fact that transfer of title thereto was not required
by said easement. In upholding the landowners right to full just compensation, the Court
ruled that the power of eminent domain may be exercised although title is not transferred
to the expropriator in an easement of right of way. Just compensation which should be
neither more nor less than the money equivalent of the property is, moreover, due where
the nature and effect of the easement is to impose limitations against the use of the land
for an indefinite period and deprive the landowner its ordinary use.

Page 68 of 193
WHEREFORE, premises considered, the petition is GRANTED and the CA's
assailed 16 May 2007 Decision and 9 January 2009 Resolution are, accordingly,
REVERSED and SET ASIDE

TRUSTS:
28.

(trust agreement; elements)

Joseph Goyanko, Jr. vs. Ucpb
G.R. No. 179096

February 06, 2013

Page 69 of 193

FACTS:
In 1995, the late Joseph Goyanko, Sr. invested Two Million Pesos
(P2,000,000.00) with Philippine Asia Lending Investors, Inc. family, represented by the
petitioner, and his illegitimate family presented conflicting claims to PALII for the release
of the investment. Pending the investigation of the conflicting claims, PALII deposited
the proceeds of the investment with UCPB on October 29, 1996 under the name "Phil
Asia: ITF (In Trust For) The Heirs of Joseph Goyanko, Sr.". On September 27, 1997, the
deposit under the Account was P1,509,318.76.
On December 11, 1997, UCPB allowed PALII to withdraw One Million Five
Hundred Thousand Pesos (P1,500,000.00) from the Account, leaving a balance of only
P9,318.76. When UCPB refused the demand to restore the amount withdrawn plus legal
interest from December 11, 1997, the petitioner filed a complaint before the RTC. In its
answer to the complaint, UCPB admitted, among others, the opening of the ACCOUNT
under the name "ITF (In Trust For) The Heirs of Joseph Goyanko, Sr.," and the
withdrawal on December 11, 1997.
The RTC dismissed the petitioners complaint and awarded UCPB attorneys fees,
litigation expenses and the costs of the suit. The RTC did not consider the words "ITF
HEIRS" sufficient to charge UCPB with knowledge of any trust relation between PALII
and Goyankos heirs. It concluded that UCPB merely performed its duty as a depository
bank in allowing PALII to withdraw from the ACCOUNT, as the contract of deposit was
officially only between PALII, in its own capacity, and UCPB. The petitioner appealed
his case to the CA.
Before the CA, the petitioner maintained that by opening the ACCOUNT, PALII
established a trust by which it was the "trustee" and the HEIRS are the "trustorsbeneficiaries;" thus, UCPB should be liable for allowing the withdrawal.
The CA partially granted the petitioners appeal. It affirmed the August 27, 2003
decision of the RTC, but deleted the award of attorneys fees and litigation expenses. The
CA held that no express trust was created between the HEIRS and PALII. For a trust to be
established, the law requires, among others, a competent trustor and trustee and a clear
intention to create a trust, which were absent in this case. Quoting the RTC with approval,
the CA noted that the contract of deposit was only between PALII in its own capacity and
UCPB, and the words "ITF HEIRS" were insufficient to establish the existence of a trust.
The CA concluded that as no trust existed, expressly or impliedly, UCPB is not liable for
the amount withdrawn.
The petitioners motion for reconsideration was denied. Hence, this appeal.
The petitioner argues in his petition that: first, an express trust was created. In so
doing, the petitioner emphasizes that from the established definition of a trust, PALII is
clearly the trustor as it created the trust; UCPB is the trustee as it is the party in whom
confidence is reposed as regards the property for the benefit of another; and the HEIRS
are the beneficiaries as they are the persons for whose benefit the trust is created. Also,
quoting Development Bank of the Philippines v. Commission on Audit, the petitioner

Page 70 of 193
argues that the naming of the cestui que trust is not necessary as it suffices that they are
adequately certain or identifiable.
Second, UCPB was negligent and in bad faith in allowing the withdrawal and in
failing to inquire into the nature of the ACCOUNT. Finally, the CA erred in affirming the
RTCs dismissal of his case for lack of cause of action. The petitioner insists that since an
express trust clearly exists, UCPB, the trustee, should not have allowed the withdrawal.
UCPB posits, in defense, that the ACCOUNT involves an ordinary deposit
contract between PALII and UCPB only, which created a debtor-creditor relationship
obligating UCPB to return the proceeds to the account holder-PALII. Thus, it was not
negligent in handling the ACCOUNT when it allowed the withdrawal. The mere
designation of the ACCOUNT as "ITF" is insufficient to establish the existence of an
express trust or charge it with knowledge of the relation between PALII and the HEIRS.
UCPB also argues that contrary to the petitioners assertion, the records failed to
show that PALII and UCPB executed a trust agreement, and PALIIs letters made it clear
that PALII, on its own, intended to turn-over the proceeds of the ACCOUNT to its
rightful owners.
ISSUE:
Whether there existed, as between the parties, a trust agreement.
HELD:
A trust, either express or implied, is the fiduciary relationship "x x x between one
person having an equitable ownership of property and another person owning the legal
title to such property, the equitable ownership of the former entitling him to the
performance of certain duties and the exercise of certain powers by the latter." Express or
direct trusts are created by the direct and positive acts of the trustor or of the parties. No
written words are required to create an express trust. This is clear from Article 1444 of
the Civil Code, but, the creation of an express trust must be firmly shown; it cannot be
assumed from loose and vague declarations or circumstances capable of other
interpretations.
In Rizal Surety & Insurance Co. v. CA, we laid down the requirements before an
express trust will be recognized:
Basically, these elements include a competent trustor and trustee, an ascertainable trust
res, and sufficiently certain beneficiaries. xxx each of the above elements is required to
be established, and, if any one of them is missing, it is fatal to the trusts (sic).
Furthermore, there must be a present and complete disposition of the trust property,
notwithstanding that the enjoyment in the beneficiary will take place in the future. It is
essential, too, that the purpose be an active one to prevent trust from being executed into
a legal estate or interest, and one that is not in contravention of some prohibition of
statute or rule of public policy. There must also be some power of administration other
than a mere duty to perform a contract although the contract is for a thirdparty
beneficiary. A declaration of terms is essential, and these must be stated with reasonable

Page 71 of 193
certainty in order that the trustee may administer, and that the court, if called upon so to
do, may enforce, the trust. [emphasis ours]
Under these standards, we hold that no express trust was created. First, while an
ascertainable trust res and sufficiently certain beneficiaries may exist, a competent trustor
and trustee do not. Second, UCPB, as trustee of the ACCOUNT, was never under any
equitable duty to deal with or given any power of administration over it. On the contrary,
it was PALII that undertook the duty to hold the title to the ACCOUNT for the benefit of
the HEIRS. Third, PALII, as the trustor, did not have the right to the beneficial enjoyment
of the ACCOUNT. Finally, the terms by which UCPB is to administer the ACCOUNT
was not shown with reasonable certainty. While we agree with the petitioner that a trusts
beneficiaries need not be particularly identified for a trust to exist, the intention to create
an express trust must first be firmly established, along with the other elements laid above;
absent these, no express trust exists.
Contrary to the petitioners contention, PALIIs letters and UCPBs records
established UCPBs participation as a mere depositary of the proceeds of the investment.
In the March 28, 1996 letter, PALII manifested its intention to pursue an active role in
and up to the turnover of those proceeds to their rightful owners, while in the November
15, 1996 letter, PALII begged the petitioner to trust it with the safekeeping of the
investment proceeds and documents. Had it been PALIIs intention to create a trust in
favor of the HEIRS, it would have relinquished any right or claim over the proceeds in
UCPBs favor as the trustee. As matters stand, PALII never did.
UCPBs records and the testimony of UCPBs witness likewise lead us to the
same conclusion. While the words "ITF HEIRS" may have created the impression that a
trust account was created, a closer scrutiny reveals that it is an ordinary savings account.
We give credence to UCPBs explanation that the word "ITF" was merely used to
distinguish the ACCOUNT from PALIIs other accounts with UCPB. A trust can be
created without using the word "trust" or "trustee," but the mere use of these words does
not automatically reveal an intention to create a trust. If at all, these words showed a
trustee-beneficiary relationship between PALII and the HEIRS.
Contrary to the petitioners position, UCPB did not become a trustee by the mere
opening of the ACCOUNT. While this may seem to be the case, by reason of the
fiduciary nature of the banks relationship with its depositors, this fiduciary relationship
does not "convert the contract between the bank and its depositors from a simple loan to a
trust agreement, whether express or implied." It simply means that the bank is obliged to
observe "high standards of integrity and performance" in complying with its obligations
under the contract of simple loan. Per Article 1980 of the Civil Code, a creditor-debtor
relationship exists between the bank and its depositor. The savings deposit agreement is
between the bank and the depositor; by receiving the deposit, the bank impliedly agrees
to pay upon demand and only upon the depositors order.
Since the records and the petitioners own admission showed that the ACCOUNT
was opened by PALII, UCPBs receipt of the deposit signified that it agreed to pay PALII
upon its demand and only upon its order. Thus, when UCPB allowed PALII to withdraw

Page 72 of 193
from the ACCOUNT, it was merely performing its contractual obligation under their
savings deposit agreement. No negligence or bad faith can be imputed to UCPB for this
action. As far as UCPB was concerned, PALII is the account holder and not the HEIRS.
As we held in Falton Iron Works Co. v. China Banking Corporation. the banks duty is to
its creditor-depositor and not to third persons. Third persons, like the HEIRS here, who
may have a right to the money deposited, cannot hold the bank responsible unless there is
a court order or garnishment. The petitioners recourse is to go before a court of
competent jurisdiction to prove his valid right over the money deposited.

SALES:
29.

(void contract)
Joselito Borromeo vs. Juan Mina
G.R. No. 193747

June 5, 2013

Page 73 of 193
FACTS:
Petitioner Borromeo allegedly purchased a property which was previously owned
by Serafin Garcia as evidenced by a deed of sale notarized on February 19, 1982.
Petitioner was unable to effect the transfer the title to his name for an unknown reason.
Thereafter, he discovered that an emancipation patent was issued to respondent Mina
without any notice to him. After an investigation conducted, it was discovered that the
property was erroneously identified by the office as the property of petitioners father,
Cipriano Borromeo. It was never owned by petitioners father as the true owner was
Serafin M. Garcia. Department of Agrarian Reform (DAR) Regional Director, upon
discovering the error, did not order the cancellation of respondents emancipation patent.
He merely directed the petitioner to institute a proceeding before the DAR Adjudication
Board. The DAR Secretary affirmed the decision of the Regional Director but the CA
reversed and set aside the ruling. The CA found the said sale to be null and void for being
a prohibited transaction under PD 27, which forbids the transfers or alienation of covered
agricultural lands after October 21, 1972 except to the tenant-beneficiaries thereof, of
which petitioner was not.
ISSUE/S:
W/N the CA erred in declaring the sale between petitioner and Garcia null and
void?

HELD:
No. The Supreme Court held that the transfer of ownership over the lands after
October 21, 1972 is allowed only in favor of the actual tenant-tillers. Records revealed
that the subject landholding fell under the coverage of PD 27 on October 21, 1972, and as
such, could have been subsequently sold only to the tenant thereof, i.e., the respondent.
On the other hand, Garcia sold the property in 1982 to the petitioner who is evidently not
the tenant-beneficiary of the same, the said transaction is null and void for being contrary
to law.
In consequence, petitioner cannot assert any right over the subject landholding,
such as his present claim for landholding exemption, because his title springs from a null
and void source. A void contract is equivalent to nothing; it produces no civil effect; and
it does not create, modify or extinguish a juridical relation. Hence, notwithstanding the
erroneous identification of the subject landholding by the MARO as owned by Cipriano
Borromeo, the fact remains that petitioner had no right to file a petition for landholding
exemption since the sale of the said property to him by Garcia in 1982 is null and void.
SALES:
30.

(contract of sale; oral)

Rogelio Dantis vs. Julio Maghinang, Jr.
G.R. No. 191696

April 10, 2013

Page 74 of 193
FACTS:
A complaint for quieting of title and recovery of possession with damages filed by
petitioner Rogelio Dantis against respondent Julio Maghinang, Jr. before the RTC of
Bulacan. Rogelio alleged that he was the registered owner of a parcel of land covered by
Transfer Certificate of Title (TCT) No. T-125918 located in Sta. Rita, San Miguel,
Bulacan. He acquired ownership of the property through a deed of extrajudicial partition
of the estate of his deceased father. Julio, Jr. occupied and built a house on a portion of
his property without any right at all. Demands were made upon Julio, Jr. that he vacate
the premises but the same fell on deaf ears. Thus, Dantis prayed that judgment be
rendered declaring him to be the true and real owner of the parcel of land covered by
TCT No. T-125918 and ordering Julio, Jr. to deliver the possession of that portion of the
land he was occupying and to pay rentals for his occupation thereon.
In his Answer, Julio, Jr. denied the material allegations of the complaint and
claimed that he was the actual owner of the subject lot, where he was living. He claimed
that he had been in open and continuous possession of the property for almost thirty (30)
years and the subject lot was once tenanted by his ancestral relatives until it was sold by
Dantis father (Emilio) to his father (Julio, Sr.). He succeeded to the ownership of the
subject lot after his father died and that he was entitled to a separate registration of the
subject lot on the basis of the documentary evidence of sale and his open and
uninterrupted possession of the property.
The RTC rendered its decision declaring Rogelio as the true owner of the entire
lot located in Sta. Rita, San Miguel, Bulacan, as evidenced by his TCT over the same.
The RTC did not lend any probative value on the documentary evidence of sale adduced
by Julio, Jr. consisting of: 1) an affidavit allegedly executed by Ignacio Dantis, Rogelios
grandfather, whereby said affiant attested, among others, to the sale of the subject lot
made by his son, Emilio, to Julio, Sr. and 2) an undated handwritten receipt of initial
down payment in the amount of 100.00 supposedly issued by Emilio to Julio, Sr. in
connection with the sale of the subject lot. The RTC ruled that even if these documents
were adjudged as competent evidence, they would only serve as proofs that the purchase
price for the subject lot had not yet been completely paid and, hence, Rogelio was not
duty-bound to deliver the property to Julio, Jr. The RTC found Julio, Jr. to be a mere
possessor by tolerance.
On appeal, the CA reversed the decision of the trial court. It ruled that ruled that
the partial payment of the purchase price, coupled with the delivery of the res, gave
efficacy to the oral sale and brought it outside the operation of the statute of frauds. It
also declared that Julio, Jr. and his predecessors-in-interest had an equitable claim over
the subject lot, which imposed on Rogelio and his predecessors-in-interest a personal
duty to convey what had been sold after full payment of the selling price.

Page 75 of 193
ISSUE/S:
W/N there was a perfected oral contract of sale between Emilio and Julio, Sr.
regarding the subject parcel of land?
HELD:
The Supreme Court held that there was no valid and perfected oral contract for
failure of Julio, Jr. to prove the concurrence of the essential requisites of a contract of sale
by adequate and competent evidence.
By the contract of sale, one of the contracting parties obligates himself to transfer
the ownership of, and to deliver, a determinate thing, and the other to pay therefor a price
certain in money or its equivalent. A contract of sale is a consensual contract and, thus, is
perfected by mere consent which is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract. Until the
contract of sale is perfected, it cannot, as an independent source of obligation, serve as a
binding juridical relation between the parties.
The essential elements of a contract of sale are: a) consent or meeting of the
minds, that is, consent to transfer ownership in exchange for the price; b) determinate
subject matter; and c) price certain in money or its equivalent. The absence of any of the
essential elements shall negate the existence of a perfected contract of sale.
Julio, Jr. wanted to prove the sale by a receipt when it should be the receipt that
should further corroborate the existence of the sale. At best, his testimony only alleges
but does not prove the existence of the verbal agreement. Julio, Jr. miserably failed to
establish by preponderance of evidence that there was a meeting of the minds of the
parties as to the subject matter and the purchase price. The purported receipt does not
specify a determinate subject matter. Nowhere does it provide a description of the
property subject of the sale, including its metes and bounds, as well as its total area. The
Court notes that while Julio, Jr. testified that the land subject of the sale consisted of 352
square meters, the receipt, however, states that its more than 400 square meters.
Moreover, the receipt does not categorically declare the price certain in money. Neither
does it state the mode of payment of the purchase price and the period for its payment.
Therefore, it cannot be said that a definite and firm sales agreement between the
parties had been perfected over the lot in question. The Court had ruled in several cases
that a definite agreement on the manner of payment of the purchase price is an essential
element in the formation of a binding and enforceable contract of sale. The fact,
therefore, that the petitioners delivered to the respondent the sum of P10,000 as part of
the down payment that they had to pay cannot be considered as sufficient proof of the
perfection of any purchase and sale agreement between the parties herein under Art. 1482

Page 76 of 193
of the new Civil Code, as the petitioners themselves admit that some essential matter - the
terms of payment - still had to be mutually covenanted.

SALES:
31.

(contract of sale)
Ali Akang vs. Municipality of Isulan, Sultan Kudarat Province
G.R. No. 186014

June 26, 2013

Page 77 of 193

FACTS:
Ali Akang, herein petitioner, is a member of the national and cultural community
belonging to the Maguindanaon tribe of Sultan Kudarat. Sometime in 1962, he sold his
two hectare portion of his property to the Municipality of Isulan, Province of Sultan
Kudarat through then Mayor Datu Ampatuan under a Deed of Sale executed on July 18,
1962. Herein respondent immediately took possession of the property and began
construction of the municipal building. 39 years later, or on October 26, 2001, petitioner
together with his wife, filed at the RTC of Isulan, Sultan Kudarat a Complaint for
Recovery of Possession of Subject Property and/or Quieting of Title thereon and
damages. According to petitioner, the agreement was a contract to sell and not a contract
of sale and since there was allegedly, no payment of the purchase price, the contract to
sell has not been consummated.
The RTC held that it was a contract to sell while the CA held that the Deed of Sale
is not a mere contract to sell but a perfected contract of sale and that said Deed of Sale
already transferred ownership of the subject land to the Municipality of Sultan Kudarat.
Hence, this petition.
ISSUE/S:
W/N the contract in this present case was to sell and not of sale?
HELD:
The SC held that the Deed of Sale is a valid contract of sale, and hence, petitioner
is not entitled to recover the subject land. Accordingly, the SC differentiated the contract
of sale from a contract to sell. A contract of sale is defined under Article 1458 of the NCC
as By the contract of sale, one of the parties obligates himself to transfer the ownership
of and to deliver a determinate thing, and the other to pay therefore a price certain in
money or its equivalent. The elements being: 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. On the other hand, a contract to sell is
defined under Article 1479 of the NCC as A bilateral contract whereby the prospective
seller, while expressly reserving the ownership of the subject property despite delivery
thereof to the prospective buyer, binds himself to sell the said property exclusively to the
prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of
the purchase price.
In a contract of sale, title to the property passes to the buyer upon the delivery of the
thing sold, whereas in a contract to sell, the ownership is, by agreement, retained by the
seller and is not to pass to the vendee until full payment of the purchase price. The deed
of sale executed by the petitioner and the respondent is a perfected contract of sale, all its
elements being present. With regard to the allegation of non-payment, it is immaterial and
has no effect on the validity of the contract of sale, assuming arguendo that there was

Page 78 of 193
indeed non- payment, for the reason that a contract of sale is a consensual contract and
what is required is the meeting of the minds on the object and the price for its perfection
and validity. In this case, the contract was perfected the moment the petitioner and the
respondent agreed on the object of the sale (the 2 hectare parcel of a land) and the price
(P3000). Non-payment of the purchase price merely gave rise to a right in favor of the
petitioner to either demand specific performance or rescission of the contract of sale.

SALES:
32.

(contract of sale)
Heirs of Fausto Igancio, et. al. vs. Home Bankers Savings and Trust
Co, et. al.
G.R. No. 177783

January 23, 2013

Page 79 of 193
FACTS:
In August 1991, Petitioner Fausto mortgaged two parcels of land to Home
Savings Bank and Trust Company, as security for the P500,000 loan extended to him by
the respondent bank. When petitioner defaulted in the payment of his loan, respondent
bank proceeded to foreclose the real estate mortgage. Foreclosure sale was held on
January 26,1983. The respondent bank was the highest bidder during the foreclosure sale
and purchased the subject property for the sum of P764,984. On February 2, 1983, a
certificate of foreclosure sale issued to respondent bank was registered with the Registry
of Deeds in Calamba Laguna.
Petitioner failed to redeem property within one year. Despite the lapse of the
redemption period, petitioner offered to repurchase property. While respondent
considered the offer of repurchase, there was no repurchase contract executed between
them. Petitioner, in a letter, expressed his willingness to pay the amount of P600,000 in
full as balance of repurchase price and requested respondent bank to release to him the
remaining parcel of lands. Respondent bank turned down the offer, which made petitioner
to cause the annotation of an adverse claim on the title on September 18,1989.
Prior to the annotation, respondent bank sold subject property to respondent
spouses Philip and Thelma Rodriguez, without informing petitioner. On December 27,
1989, petitioner filed an action for specific performance and damages in the RTC against
respondent bank, claiming that there was a verbal agreement regarding the repurchase
between himself and the banks collection agent, Universal Properties Inc. (UPI). He
argued that there was implied acceptance of the counter-offer of the sale through the
receipt of the terms by representatives of UPI. The bank denied that it gave its consent to
the counter-offer of petitioner. It countered that it did not approve the unilateral
amendments placed by the petitioner.
ISSUE/S:
W/N contract for the repurchase of the foreclosed properties was perfected?
HELD:
No. The Supreme Court declared that the Bank as a corporation can only exercise
its powers and transact business through its board of directors or officers and agents
authorized by a board resolution or its by-laws. A person representing the corporation in
negotiations must be authorized by the corporation to accept the counter-offer to a sale.
Since the respondent bank did not accede to the counter proposal of the petitioner, there
was no valid acceptance of the offer.
Section 23 of the Corporation Code mandates that a corporation shall only act
through a board of directors. An agent cannot bind a corporation in any contract without

Page 80 of 193
delegation of powers from the board. Mere communication of modified terms to a bank
agent who gave his assent has no effect on the corporation.
A contract of sale is perfected only when there is consent validly given. There is
no consent when a party merely negotiates a qualified acceptance or a counter-offer. An
acceptance must reflect all aspects of the offer to amount to a meeting of the minds
between the parties.
In this case, while it is apparent that petitioner proposed new terms and conditions
to the repurchase agreement, there was no showing that the Bank approved the modified
offer. The negotiations between petitioner and UPI, the collection agent, were merely
preparatory to the repurchase agreement and, therefore, was not binding on the
respondent bank. Petitioner could not compel the bank to accede to the repurchase of the
property.

SALES:
33.

(contract to sell)
Moldex Realty Inc. vs. Flora Saberon
G.R. No. 176289

April 8, 2013

Page 81 of 193
FACTS:
Petitioner, Moldex Realty Inc., was requested by Respondent Saberon to reserve a
lot in Cavite, which was supported by a reservation application. Respondent paid the
necessary monthly amortizations with interests and surcharges upon delays and made
periodical payments from 1992-1996. Moldex sent Flora a notarized Notice of
Cancellation of Reservation Application and Contract to Sell upon finding out that the
latter has an unpaid account which amounted to P576,569.89. Flora then filed before the
Housing and Land Use Regulatory Board (HLURB) a complaint for the annulment of the
contract to sell, recovery of her interests, damages, and cancellation of Moldexs license
to sell. Flora contended that Moldex violated Section 5 of PD No. 957 when it sold to her
the subject lot before it was issued a license to sell. On the other hand, Moldex contended
that it exercised its right under the Maceda Law since Flora was unable to settle her
account. Moldex cancelled the reservation agreement and forfeited all the payments
made. HLURB Arbiter ruled that the Contract to Sell was void because of the lack of
license to sell by Moldex. On appeal, the Office of the President affirmed the HLURB
Arbiters decision. The CA also agreed with the findings of the HLURB Arbiter that
contract to sell was void for non-observance of the mandatory provision of Section 5 of
PD No. 957.
ISSUE/S:
W/N the contract to sell entered by the parties was valid and binding?
HELD:
Yes. The Supreme Court ruled that the contract to sell is valid. The lack of a
certificate of registration and a license to sell does not result to the nullification or
invalidation of the contract to sell entered into with a buyer. However, respondent Flora
is entitled to a fifty percent (50%) refund under the Maceda Law. According to the law, a
buyer who has paid at least two years of instalments has the right of either to avail the
grace period to pay or the cash surrender value.

SALES:
34.

(unnotarized deed of sale)

Spouses Sabitsana vs.Muertegui
G.R. No. 181359

August 5, 2013

Page 82 of 193
FACTS:
Alberto Garcia (Garcia) executed an unnotarized Deed of Sale in favor of
respondent Juanito Muertegui (Juanito) over a 7,500-square meter parcel of unregistered
land (the lot) located in Dalutan Island, Talahid, Almeira, Biliran, Leyte del Norte
covered by Tax Declaration (TD) No. 1996 issued in 1985 in Garcias name.
Juanitos father Domingo Muertegui, Sr. (Domingo Sr.) and brother Domingo Jr. took
actual possession of the lot and planted thereon coconut and ipil-ipil trees. They also paid
the real property taxes on the lot for the years 1980 up to 1998.
Garcia sold the lot to the Muertegui family lawyer, petitioner Atty. Clemencio C.
Sabitsana, Jr. (Atty. Sabitsana), through a notarized deed of absolute sale. The sale was
registered with the Register of Deeds on February 6, 1992. TD No. 1996 was cancelled
and a new one, TD No. 5327, was issued in Atty. Sabitsanas name. Although Domingo
Jr. and Sr. paid the real estate taxes, Atty. Sabitsana also paid real property taxes in 1992,
1993, and 1999. In 1996, he introduced concrete improvements on the property, which
shortly thereafter were destroyed by a typhoon.
When Domingo Sr. passed away, his heirs applied for registration and coverage of
the lot under the Public Land Act or Commonwealth Act No. 141. Atty. Sabitsana, in a
letter dated August 24, 1998 addressed to the Department of Environment and Natural
Resources CENRO/PENRO office in Naval, Biliran, opposed the application, claiming
that he was the true owner of the lot. He asked that the application for registration be held
in abeyance until the issue of conflicting ownership has been resolved.
Juanito, through his attorney-in-fact Domingo Jr., filed Civil Case No. B-1097 for
quieting of title and preliminary injunction, against herein petitioners Atty. Sabitsana and
his wife, Rosario, claiming that they bought the lot in bad faith and are exercising acts of
possession and ownership over the same, which acts thus constitute a cloud over his title.
The Complaint prayed, among others, that the Sabitsana Deed of Sale, the August 24,
1998 letter, and TD No. 5327 be declared null and void and of no effect; that petitioners
be ordered to respect and recognize Juanitos title over the lot; and that moral and
exemplary damages, attorneys fees, and litigation expenses be awarded to him.
In their Answer with Counterclaim, petitioners asserted mainly that the sale to
Juanito is null and void absent the marital consent of Garcias wife, Soledad Corto
(Soledad); that they acquired the property in good faith and for value; and that the
Complaint is barred by prescription and laches. They likewise insisted that the Regional
Trial Court (RTC) of Naval, Biliran did not have jurisdiction over the case, which
involved title to or interest in a parcel of land the assessed value of which is merely
P1,230.00.
The evidence and testimonies of the respondents witnesses during trial reveal that
petitioner Atty. Sabitsana was the Muertegui familys lawyer at the time Garcia sold the
lot to Juanito, and that as such, he was consulted by the family before the sale was
executed; that after the sale to Juanito, Domingo Sr. entered into actual, public, adverse
and continuous possession of the lot, and planted the same to coconut and ipil-ipil; and

Page 83 of 193
that after Domingo Sr.s death, his wife Caseldita, succeeded him in the possession and
exercise of rights over the lot.
On the other hand, Atty. Sabitsana testified that before purchasing the lot, he was
told by a member of the Muertegui family, Carmen Muertegui Davies (Carmen), that the
Muertegui family had bought the lot, but she could not show the document of sale; that
he then conducted an investigation with the offices of the municipal and provincial
assessors; that he failed to find any document, record, or other proof of the sale by Garcia
to Juanito, and instead discovered that the lot was still in the name of Garcia; that given
the foregoing revelations, he concluded that the Muerteguis were merely bluffing, and
that they probably did not want him to buy the property because they were interested in
buying it for themselves considering that it was adjacent to a lot which they owned; that
he then proceeded to purchase the lot from Garcia; that after purchasing the lot, he wrote
Caseldita in October 1991 to inform her of the sale; that he then took possession of the lot
and gathered ipil-ipil for firewood and harvested coconuts and calamansi from the lot;
and that he constructed a rip-rap on the property sometime in 1996 and 1997.
The trial court issued its Decision, finds in favor of the plaintiff and against the
defendants, hereby declaring the Deed of Sale dated 2 September 1981 as valid and
preferred while the Deed of Absolute Sale dated 17 October 1991 and Tax Declaration
No. 5327 in the name of Atty. Clemencio C. Sabitsana, Jr. are VOID and of no legal
effect.
CA, denied the appeal and affirmed the trial courts Decision in toto. It held that
even though the lot admittedly was conjugal property, the absence of Soledads signature
and consent to the deed did not render the sale to Juanito absolutely null and void, but
merely voidable. Since Garcia and his wife were married prior to the effectivity of the
Family Code, Article 173 of the Civil Code22should apply; and under the said provision,
the disposition of conjugal property without the wifes consent is not void, but merely
voidable. In the absence of a decree annulling the deed of sale in favor of Juanito, the
same remains valid.
ISSUE:
Whether the petitioner has the better right over the lot
HELD:
No. The Petition must be denied. It must be remembered that the suit for quieting
of title was prompted by petitioners August 24, 1998 letter-opposition to respondents
application for registration. Thus, in order to prevent a cloud from being cast upon his
application for a title, respondent filed Civil Case No. B-1097 to obtain a declaration of
his rights. In this sense, the action is one for declaratory relief, which properly falls
within the jurisdiction of the RTC pursuant to Rule 63 of the Rules.
Article 1544 of the Civil Code does not apply to sales involving unregistered land.
Both the trial court and the CA are, however, wrong in applying Article 1544 of the Civil
Code. Both courts seem to have forgotten that the provision does not apply to sales

Page 84 of 193
involving unregistered land. Suffice it to state that the issue of the buyers good or bad
faith is relevant only where the subject of the sale is registered land, and the purchaser is
buying the same from the registered owner whose title to the land is clean. In such case,
the purchaser who relies on the clean title of the registered owner is protected if he is a
purchaser in good faith for value.
Act No. 3344 applies to sale of unregistered lands.
What applies in this case is Act No. 3344, as amended, which provides for the
system of recording of transactions over unregistered real estate. Act No. 3344 expressly
declares that any registration made shall be without prejudice to a third party with a better
right. The question to be resolved therefore is: who between petitioners and respondent
has a better right to the disputed lot? Respondent has a better right to the lot.
The sale to respondent Juanito was executed on September 2, 1981 via an
unnotarized deed of sale, while the sale to petitioners was made via a notarized document
only on October 17, 1991, or ten years thereafter. Thus, Juanito who was the first buyer
has a better right to the lot, while the subsequent sale to petitioners is null and void,
because when it was made, the seller Garcia was no longer the owner of the lot. Nemo
dat quod non habet.
Thus said, judgment must be rendered in favor of respondent to prevent the
petitioners' void sale from casting a cloud upon his valid title.
WHEREFORE, premises considered, the Petition is DENIED. The January 25, 2007
Decision and the January 11, 2008 Resolution of the Court of Appeals in CA-G.R. CV
No. 79250 are AFFIRMED. Costs against petitioners.

SALES:
35.

(alternative remedies)
Spouses Deo Agner and Maricon Agner vs. BPI Family Savings Bank,
Inc.
G.R. No. 182963

June 3, 2013

Page 85 of 193

FACTS:
Petitioners spouses executed a Promissory Note with Chattel Mortgage in favor of
Citimotors, Inc. The contract provides, among others, that: for receiving the amount of
Php834, 768.00, petitioners shall pay Php 17,391.00 every 15th day of each succeeding
month until fully paid; the loan is secured by a 2001 Mitsubishi Adventure Super Sport;
and an interest of 6% per month shall be imposed for failure to pay each installment on or
before the stated due date.
On the same day, Citimotors, Inc. assigned all its rights, title and interests in the
Promissory Note with Chattel Mortgage to ABN AMRO Savings Bank, Inc. (ABN
AMRO), which, on May 31, 2002, likewise assigned the same to respondent BPI Family
Savings Bank, Inc. For failure to pay four successive installments from May 15, 2002 to
August 15, 2002, respondent, through counsel, sent to petitioners a demand letter dated
August 29, 2002, declaring the entire obligation as due and demandable and requiring to
pay Php576,664.04, or surrender the mortgaged vehicle immediately upon receiving the
letter. As the demand was left unheeded, respondent filed on October 4, 2002 an action
for Replevin and Damages before the RTC. A writ of replevin was issued. Despite this,
the subject vehicle was not seized. Trial on the merits ensued.
RTC ruled for the respondent and ordered petitioners to jointly and severally pay the
amount of Php576,664.04 plus interest at the rate of 72% per annum from August 20,
2002 until fully paid, and the costs of suit.
Petitioners appealed the decision to the Court of Appeals (CA), but the CA
affirmed the lower courts decision and, subsequently, denied the motion for
reconsideration; hence, this petition.
ISSUES:
(1) Whether the respondent has no cause of action, because the Deed of
Assignment executed in its favor did not specifically mention ABN AMROs account
receivable from petitioners;
(2) Whether the petitioners cannot be considered to have defaulted in payment for
lack of competent proof that they received the demand letter; and
(3) whether the respondents remedy of resorting to both actions of replevin and
collection of sum of money is contrary to the provision of Article 1484 of the Civil Code
and the Elisco Tool Manufacturing Corporation v. Court of Appeals ruling.

HELD 1:
It would be sufficient to state that the matter surrounding the Deed of Assignment
had already been considered by the trial court and the CA. Likewise, it is an issue of fact
that is not a proper subject of a petition for review under Rule 45. An issue is factual
when the doubt or difference arises as to the truth or falsehood of alleged facts, or when

Page 86 of 193
the query invites calibration of the whole evidence, considering mainly the credibility of
witnesses, existence and relevancy of specific surrounding circumstances, their relation to
each other and to the whole, and the probabilities of the situation. Time and again, We
stress that this Court is not a trier of facts and generally does not weigh anew evidence
which lower courts have passed upon.
HELD 2:
Records bear that both verbal and written demands were in fact made by
respondent prior to the institution of the case against petitioners. Even assuming, for
arguments sake, that no demand letter was sent by respondent, there is really no need for
it because petitioners legally waived the necessity of notice or demand in the Promissory
Note with Chattel Mortgage, which they voluntarily and knowingly signed in favor of
respondents predecessor-in-interest. Said contract expressly stipulates:
In case of my/our failure to pay when due and payable, any sum which I/We are
obliged to pay under this note and/or any other obligation which I/We or any of us may
now or in the future owe to the holder of this note or to any other party whether as
principal or guarantor x x x then the entire sum outstanding under this note shall, without
prior notice or demand, immediately become due and payable. (Emphasis and
underscoring supplied)
A provision on waiver of notice or demand has been recognized as legal and valid in
Bank of the Philippine Islands v. Court of Appeals, wherein We held:
The Civil Code in Article 1169 provides that one incurs in delay or is in default
from the time the obligor demands the fulfillment of the obligation from the obligee.
However, the law expressly provides that demand is not necessary under certain
circumstances, and one of these circumstances is when the parties expressly waive
demand. Hence, since the co-signors expressly waived demand in the promissory notes,
demand was unnecessary for them to be in default.
Further, the Court even ruled in Navarro v. Escobido that prior demand is not a
condition precedent to an action for a writ of replevin, since there is nothing in Section 2,
Rule 60 of the Rules of Court that requires the applicant to make a demand on the
possessor of the property before an action for a writ of replevin could be filed.
HELD 3:
There is no violation of Article 1484 of the Civil Code and the Courts decision in Elisco
Tool Manufacturing Corporation v. Court of Appeals. The Court therein ruled: The
remedies provided for in Art. 1484 are alternative, not cumulative. The exercise of one
bars the exercise of the others. This limitation applies to contracts purporting to be leases
of personal property with option to buy by virtue of Art. 1485. The condition that the
lessor has deprived the lessee of possession or enjoyment of the thing for the purpose of
applying Art. 1485 was fulfilled in this case by the filing by petitioner of the complaint
for replevin to recover possession of movable property. By virtue of the writ of seizure
issued by the trial court, the deputy sheriff seized the vehicle on August 6, 1986 and

Page 87 of 193
thereby deprived private respondents of its use. The car was not returned to private
respondent until April 16, 1989, after two (2) years and eight (8) months, upon issuance
by the Court of Appeals of a writ of execution.
Compared with Elisco, the vehicle subject matter of this case was never recovered
and delivered to respondent despite the issuance of a writ of replevin. As there was no
seizure that transpired, it cannot be said that petitioners were deprived of the use and
enjoyment of the mortgaged vehicle or that respondent pursued, commenced or
concluded its actual foreclosure. The trial court, therefore, rightfully granted the
alternative prayer for sum of money, which is equivalent to the remedy of "exacting
fulfillment of the obligation." Certainly, there is no double recovery or unjust enrichment
to speak of.

SALES:
36.

(persons relatively incapacitated to buy)

Heirs of Manuel Uy Ek Liong vs. Mauricia Meer Castillo
G.R. No. 176425

June 5, 2013

Page 88 of 193
FACTS:
Alongside her husband, Felipe Castillo, respondent Mauricia Meer Castillo was
the owner of four parcels of land situated in Silangan Mayao, Lucena City and registered
in their names. With the death of Felipe, a deed of extrajudicial partition over his estate
was executed by his heirs. The properties were utilized as security for the payment of a
tractor purchased by Mauricias nephew, Santiago Rivera, from Bormaheco, Inc. It
appears, however, that the subject properties were subsequently sold at a public auction
where Insurance Corporation of the Philippines (ICP) tendered the highest bid. Having
consolidated its title, ICP likewise sold said parcels in favor of Philippine Machinery
Parts Manufacturing Co., Inc. (PMPMCI), which in turn, caused the same to be titled in
its name.
Respondents and Buenaflor then instituted a Complaint before the then CFI of
Quezon for the purpose of seeking the annulment of the transactions and/or proceedings
involving the subject parcels, as well as, the TCTs procured by PMPMCI. Encountering
financial difficulties in the prosecution of the civil case, respondents and Buenaflor
entered into an Agreement dated 20 September 1978 whereby they procured the legal
services of Atty. Edmundo Zepeda and the assistance of Manuel Uy Ek Liong who, as
financier, agreed to underwrite the litigation expenses entailed by the case. In exchange, it
was stipulated in the notarized Agreement that, in the event of a favorable decision in
Civil Case No. 8085, Atty. Zepeda and Manuel would be entitled to "a share of forty
(40%) percent of all the realties and/or monetary benefits, gratuities or damages" which
may be adjudicated in favor of respondents.
On the same date, respondents and Buenaflor entered into another notarized
agreement denominated as a Kasunduan whereby they agreed to sell their remaining 60%
share in the subject parcels in favor of Manuel for the sum of P180,000. The parties
stipulated that Manuel would pay a downpayment in the sum ofP1,000 upon the
execution of the Kasunduan, and that respondents and Buenaflor would retain and remain
the owners of a 1,750-square meter portion of said real properties. It was likewise agreed
that any party violating the Kasunduan would pay the aggrieved party a penalty fixed in
the sum of P50,000, together with the attorneys fees and litigation expenses incurred
should a case be subsequently filed in court. The parties likewise agreed to further enter
into such other stipulations as would be necessary to ensure that the sale would push
through and/or in the event of illegality or impossibility of any part of the Kasunduan.
With his death on 19 August 1989, Manuel was survived by petitioners, Heirs of Manuel
Uy Ek Liong, who were later represented in the negotiations regarding the subject parcels
and in this suit by petitioner Belen Lim Vda. de Uy. The record of the case showed that
the proceedings in Civil Case No. 8085 culminated in favor of respondents and
Buenaflor. The remaining forty 40% was, in turn, registered in the names of petitioners
and Atty. Zepeda under TCT No. T-72026.

Page 89 of 193

ISSUE/S:
W/N the Agreement was void ab initio for being contrary to law and public policy
for being violative of Article 1491 (5) of the Civil Code of the Philippines, which
prohibits lawyers from acquiring properties which are the objects of the litigation in
which they have taken part?
HELD:
No. The Agreement did not violate Article 1491 (5) of the Civil Code. Admittedly,
Article 1491 (5) of the Civil Code prohibits lawyers from acquiring by purchase or
assignment the property or rights involved which are the object of the litigation in which
they intervene by virtue of their profession. The CA lost sight of the fact, however, that
the prohibition applies only during the pendency of the suit and generally does not cover
contracts for contingent fees where the transfer takes effect only after the finality of a
favorable judgment.
Viewed in the light of the autonomous nature of contracts enunciated under
Article 1306 of the Civil Code, on the other hand, the Supreme Court held that the
Kasunduan was correctly found by the RTC to be a valid and binding contract between
the parties. As a notarized document that carries the evidentiary weight conferred upon it
with respect to its due execution, the Kasunduan was shown to have been signed by
respondents with full knowledge of its contents, as may be gleaned from the testimonies
elicited from Philip and Leovina.

SALES:
37.

(authority to sell)
Reman Recio vs. Heirs of Sps. Aguedo and Maria Altamirano
G.R. No. 182349

FACTS:

July 24, 2013

Page 90 of 193
Nena Recio, the mother of Reman Recio, leased from the respondents Alejandro,
Adelaida, Catalina, Alfredo, Francisco, all surnamed Altamirano, Violeta Altamirano
Olfato, and Loreto Altamirano Vda. De Maralit a parcel of land with improvements,
situated at Lipa City, Batangas. The petitioner claimed that in 1988, the Altamiranos
offered to sell the subject property to Nena for P500,000. The latter accepted such offer,
which prompted the Altamiranos to waive the rentals for the subject property. However,
the sale did not materialize at that time due to the fault of the Altamiranos. Nonetheless,
Nena continued to occupy and use the property with the consent of the Altamiranos.
In the latter part of 1994, the petitioner renewed Nenas option to buy the subject
property. The petitioner conducted a series of negotiations with respondent Alejandro
who introduced himself as representing the other heirs. After the said negotiations, the
Altamiranos through Alejandro entered into an oral contract of sale with the petitioner
over the subject property. Petitioner made partial payments to the Altamiranos in the total
amount of P100,000. Alejandro duly received and acknowledged these partial payments
as shown in a receipt. Petitioner made another payment in the amount of P50,000, which
Alejandro again received and acknowledged through a receipt of the same date.
Subsequently, the petitioner offered in many instances to pay the remaining balance of
the agreed purchase price of the subject property, but Alejandro kept on avoiding the
petitioner. Because of this, the petitioner demanded from the Altamiranos, through
Alejandro, the execution of a Deed of Absolute Sale in exchange for the full payment of
the agreed price. Thus, the petitioner filed a complaint for Specific Performance with
Damages.
The petitioner discovered that the subject property has been subsequently sold to
respondents Spouses Lajarca while the case was still pending. On August 23, 2005, the
trial court rendered a decision in favor of plaintiff and against defendants. Aggrieved, the
Spouses Lajarca filed an appeal. The CA affirmed RTC's decision. Hence, this petition.
ISSUE/S:
W/N the verbal contract of sale between Alejandro and the petitioner was valid?
W/N Alejandro has the authority to sell the property to Spouses Lajarca?

HELD:
Yes. A valid contract of sale requires: (a) a meeting of minds of the parties to
transfer ownership of the thing sold in exchange for a price; (b) the subject matter, which
must be a possible thing; and (c) the price certain in money or its equivalent.

Page 91 of 193
In the instant case, all these elements were present. The records disclosed that the
Altamiranos were the ones who offered to sell the property to Nena but the transaction
did not push through due to the fault of the respondents. Thereafter, the petitioner
renewed Nenas option to purchase the property to which Alejandro, as the representative
of the Altamiranos verbally agreed. The determinate subject matter is parcel of land with
improvements, situated at Lipa City, Batangas. The price agreed for the sale of the
property was P500,000. It cannot be denied that the oral contract of sale entered into
between the petitioner and Alejandro was valid.
No. The CA found that it was only Alejandro who agreed to the sale. There is no
evidence to show that the other co-owners consented to Alejandros sale transaction with
the petitioner. Hence, for want of authority to sell the subject parcel of land, the CA ruled
that Alejandro only sold his aliquot share of the subject property to the petitioner. In
Alcantara v. Nido, the Court emphasized the requirement of a SPA before an agent may
sell an immovable property. Thus, the Court declared the sale of the said land null and
void under Articles 1874 and 1878 of the Civil Code.
Moreover, the fact that Alejandro allegedly represented a majority of the coowners in the transaction with the Spouses Lajarca, is of no moment. The Court cannot
just simply assume that Alejandro had the same authority when he transacted with the
petitioner. In Woodchild Holdings, Inc. v. Roxas Electric and Construction Company, Inc.
the Court stated that persons dealing with an assumed agency, whether the assumed
agency be a general or special one, are bound at their peril, if they would hold the
principal liable, to ascertain not only the fact of agency but also the nature and extent of
authority, and in case either is controverted, the burden of proof is upon them to establish
it. In other words, when the petitioner relied only on the words of respondent Alejandro
without securing a copy of the SPA in favor of the latter, the petitioner is bound by the
risk accompanying such trust on the mere assurance of Alejandro.
The same Woodchild case stressed that apparent authority based on estoppel can
arise from the principal who knowingly permit the agent to hold himself out with
authority and from the principal who clothe the agent with indicia of authority that would
lead a reasonably prudent person to believe that he actually has such authority. Apparent
authority of an agent arises only from acts or conduct on the part of the principal and
such acts or conduct of the principal must have been known and relied upon in good faith
and as a result of the exercise of reasonable prudence by a third person as claimant and
such must have produced a change of position to its detriment. In the instant case, the
sale to the Spouses Lajarca and other transactions where Alejandro allegedly represented
a considerable majority of the co-owners transpired after the sale to the petitioner; thus,
the petitioner cannot rely upon these acts or conduct to believe that Alejandro had the
same authority to negotiate for the sale of the subject property to him. The petitioner can
only apply the principle of apparent authority if he is able to prove the acts of the

Page 92 of 193
Altamiranos which justify his belief in Alejandros agency; that the Altamiranos had such
knowledge thereof; and if the petitioner relied upon those acts and conduct, consistent
with ordinary care and prudence.
The instant case shows no evidence on record of specific acts which the
Altamiranos made before the sale of the subject property to the petitioner, indicating that
they fully knew of the representation of Alejandro. Absent the consent of Alejandros coowners, the Court holds that the sale between the other Altamiranos and the petitioner is
null and void. But as held by the appellate court, the sale between the petitioner and
Alejandro is valid insofar as the aliquot share of respondent Alejandro is concerned.
Being a co-owner, Alejandro can validly and legally dispose of his share even without the
consent of all the other co-heirs. Since the balance of the full price has not yet been paid,
the amount paid shall represent as payment to his aliquot share. This then leaves the sale
of the lot of the Altamiranos to the Spouses Lajarca valid only insofar as their shares are
concerned, exclusive of the aliquot part of Alejandro, as ruled by the CA.

SALES:
38.

(double sale)
Sps. Vallido vs.Sps. Pono
G.R. No. 200173

April 15, 2013

Page 93 of 193
FACTS:
Martino Dandan (Martino) was the registered owner of a parcel of land in
Kananga, Leyte, with an area of 28,214 square meters, granted under Homestead Patent
No. V-21513 on and covered by Original Certificate of Title (OCT) No. P-429.
Martino, who was at that time living in Kananga, Leyte, sold a portion of the subject
property equivalent to 18,214 square meters to respondent Purificacion Cerna
(Purificacion). Upon execution of the Deed of Absolute Sale, Martino gave Purificacion
the owners copy of OCT No. P-429. The transfer, however, was not recorded in the
Registry of Deeds. Purificacion sold her 18,214 square meter portion of the subject
property to respondent Marianito Pono (Marianito) and also delivered OCT No. P-429 to
him. Marianito registered the portion he bought for taxation purposes, paid its taxes, took
possession, and allowed his son respondent Elmer Pono (Elmer) and daughter-in-law,
Juliet Pono (Juliet), to construct a house thereon. Marianito kept OCT No. P-429. The
transfer, however, was also not recorded in the Registry of Deeds. Meanwhile, Martino
left Kananga, Leyte, and went to San Rafael III, Noveleta, Cavite, and re-settled there. He
sold the whole subject property to his grandson, petitioner Esmeraldo Vallido
(Esmeraldo), also a resident of Noveleta, Cavite. Considering that Martino had delivered
OCT No. P-429 to Purificacion in 1960, he no longer had any certificate of title to hand
over to Esmeraldo.
Martino filed a petition seeking for the issuance of a new owners duplicate copy
of OCT No. P-429, which he claimed was lost. He stated that he could not recall having
delivered the said owners duplicate copy to anybody to secure payment or performance
of any legal obligation.
The petition was granted by the RTC. Esmeraldo registered the deed of sale in the
Registry of Deeds and (TCT) No. TP-13294 was thereafter issued in the name of the
petitioners. Subsequently, the petitioners filed before the RTC a complaint for quieting of
title, recovery of possession of real property and damages against the respondents. In
their Answer, respondents Elmer and Juliet averred that their occupation of the property
was upon permission of Marianito. They included a historical chronology of the
transactions from that between Martino and Purificacion to that between Purificacion and
Marianito. RTC promulgated a decision favoring the petitioners. CA ruled in favor of the
respondents. The CA agreed that there was a double sale. It, however, held that the
petitioners were neither buyers nor registrants in good faith.
ISSUE:
Whether there was a double sale.
HELD:
It is undisputed that there is a double sale and that the respondents are the first
buyers while the petitioners are the second buyers. The burden of proving good faith lies
with the second buyer (petitioners herein) which is not discharged by simply invoking the
ordinary presumption of good faith.

Page 94 of 193
This Court holds that the petitioners are NOT buyers in good faith as they failed
to discharge their burden of proof. Notably, it is admitted that Martino is the grandfather
of Esmeraldo. As an heir, petitioner Esmeraldo cannot be considered as a third party to
the prior transaction between Martino and Purificacion. In Pilapil v. Court of Appeals, it
was written:
The purpose of the registration is to give notice to third persons. And, privies are
not third persons. The vendor's heirs are his privies. Against them, failure to register will
not vitiate or annul the vendee's right of ownership conferred by such unregistered deed
of sale.
The non-registration of the deed of sale between Martino and Purificacion is
immaterial as it is binding on the petitioners who are privies. Based on the privity
between petitioner Esmeraldo and Martino, the petitioner as a second buyer is charged
with constructive knowledge of prior dispositions or encumbrances affecting the subject
property. The second buyer who has actual or constructive knowledge of the prior sale
cannot be a registrant in good faith.
Moreover, although it is a recognized principle that a person dealing on a
registered land need not go beyond its certificate of title, it is also a firmly settled rule
that where there are circumstances which would put a party on guard and prompt him to
investigate or inspect the property being sold to him, such as the presence of
occupants/tenants thereon, it is expected from the purchaser of a valued piece of land to
inquire first into the status or nature of possession of the occupants. As in the common
practice in the real estate industry, an ocular inspection of the premises involved is a
safeguard that a cautious and prudent purchaser usually takes. Should he find out that the
land he intends to buy is occupied by anybody else other than the seller who, as in this
case, is not in actual possession, it would then be incumbent upon the purchaser to verify
the extent of the occupants possessory rights.
The failure of a prospective buyer to take such precautionary steps would mean
negligence on his part and would preclude him from claiming or invoking the rights of a
"purchaser in good faith." It has been held that "the registration of a later sale must be
done in good faith to entitle the registrant to priority in ownership over the vendee in an
earlier sale."
There are several indicia that should have placed the petitioners on guard and
prompted them to investigate or inspect the property being sold to them. First, Martino,
as seller, did not have possession of the subject property. Second, during the sale on July
4, 1990, Martino did not have the owners duplicate copy of the title. Third, there were
existing permanent improvements on the land. Fourth, the respondents were in actual
possession of the land. These circumstances are too glaring to be overlooked and should
have prompted the petitioners, as prospective buyers, to investigate or inspect the land.
Where the vendor is not in possession of the property, the prospective vendees are
obligated to investigate the rights of one in possession.
As the petitioners cannot be considered buyers in good faith, they cannot lean on
the indefeasibility of their TCT in view of the doctrine that the defense of indefeasibility

Page 95 of 193
of a torrens title does not extend to transferees who take the certificate of title in bad
faith.
The Court cannot ascribe good faith to those who have not shown any diligence in
protecting their rights.
Lastly, it is uncontroverted that the respondents were occupying the land since
January 4, 1960 based on the deed of sale between Martino and Puriticacion. They have
also made improvements on the land by erecting a house of mixed permanent materials
thereon, which was also admitted by the petitioners. The respondents, without a doubt,
are possessors in good faith. Ownership should therefore vest in the respondents because
they were first in possession of the property in good faith.
WHEREFORE, the petition is DENIED.

SALES:
39.

(buyer in good faith)

Editha Padlan, vs. Elenita Dinglasan and Felicisimo Dinglasan
G.R. No. 180321

March 20, 2013

Page 96 of 193
FACTS:
Elenita Dinglasan (Elenita) was the registered owner of a parcel of land
designated as Lot No. 625 of the Limay Cadastre which is covered by Transfer Certificate
of Title (TCT) No. T-105602, with an aggregate area of 82,972 square meters. While on
board a jeepney, Elenitas mother, Lilia Baluyot (Lilia), had a conversation with one
Maura Passion (Maura) regarding the sale of the said property. Believing that Maura was
a real estate agent, Lilia borrowed the owners copy of the TCT from Elenita and gave it
to Maura. Maura then subdivided the property into several lots from Lot No. 625-A to
Lot No. 625-O, under the name of Elenita and her husband Felicisimo Dinglasan
(Felicisimo).
Through a falsified deed of sale bearing the forged signature of Elenita and her
husband Felicisimo, Maura was able to sell the lots to different buyers. On April 26,
1990, Maura sold Lot No. 625-K to one Lorna Ong (Lorna), who later caused the
issuance of TCT No. 134932 for the subject property under her name. A few months later,
or sometime in August 1990, Lorna sold the lot to petitioner Editha Padlan for P4,000.00.
Thus, TCT No. 134932 was cancelled and TCT No. 137466 was issued in the name of
petitioner.
After learning what had happened, respondents demanded petitioner to surrender
possession of Lot No. 625-K, but the latter refused. Respondents were then forced to file
a case before the Regional Trial Court (RTC) of Balanga, Bataan for the Cancellation of
Transfer Certificate of Title No. 137466, docketed as Civil Case No. 438-ML. Summons
was, thereafter, served to petitioner through her mother, Anita Padlan.
Respondents moved to declare petitioner in default and prayed that they be allowed to
present evidence ex parte.
Petitioner, through counsel, filed an Opposition to Declare Defendant in Default
with Motion to Dismiss Case for Lack of Jurisdiction Over the Person of Defendant.
Petitioner claimed that the court did not acquire jurisdiction over her, because the
summons was not validly served upon her person, but only by means of substituted
service through her mother. Petitioner maintained that she has long been residing in Japan
after she married a Japanese national and only comes to the Philippines for a brief
vacation once every two years.
Charlie Padlan, the brother of petitioner, testified that his sister is still in Japan
and submitted a copy of petitioners passport and an envelope of a letter that was
allegedly sent by his sister. Nevertheless, on April 5, 2001, the RTC issued an Order
denying petitioners motion to dismiss and declared her in default. Thereafter, trial
ensued.
RTC rendered a Decision finding petitioner to be a buyer in good faith and, consequently,
dismissed the complaint. Not satisfied, respondents sought recourse before the CA.
CA rendered a Decision in favor of the respondent. Consequently, the CA
reversed and set aside the Decision of the RTC and ordered the cancellation of the TCT
issued in the name of Lorna and the petitioner, and the revival of respondents own title.
The CA found that petitioner purchased the property in bad faith from Lorna. The CA

Page 97 of 193
opined that although a purchaser is not expected to go beyond the title, based on the
circumstances surrounding the sale, petitioner should have conducted further inquiry
before buying the disputed property. The fact that Lorna bought a 5,000-square-meter
property for only P4,000.00 and selling it after four months for the same amount should
have put petitioner on guard. With the submission of the Judgment in Criminal Case No.
4326 rendered by the RTC, Branch 2, Balanga, Bataan, entitled People of the Philippines
v. Maura Passion and the testimonies of respondents, the CA concluded that respondents
sufficiently established that TCT No. 134932 issued in the name of Lorna and TCT No.
137466 issued in the name of petitioner were fraudulently issued and, therefore, null and
void.
ISSUE:
Whether or not petitioner is a buyer in good faith and for value.
HELD:
Respondents Complaint narrates that they are the duly registered owners of Lot
No. 625 of the Limay Cadastre which was covered by TCT No. T-105602. Without their
knowledge and consent, the land was divided into several lots under their names through
the fraudulent manipulations of Maura. One of the lots was Lot 625-K, which was
covered by TCT No. 134785. On April 26, 1990, Maura sold the subject lot to Lorna. By
virtue of the fictitious sale, TCT No. 134785 was cancelled and TCT No. 134932 was
issued in the name of Lorna. Sometime in August 1990, Lorna sold the lot to petitioner
for a consideration in the amount of P4,000.00. TCT No. 134932 was later cancelled and
TCT No. 137466 was issued in the name of petitioner. Despite demands from the
respondents, petitioner refused to surrender possession of the subject property.
Respondents were thus constrained to engage the services of a lawyer and incur expenses
for litigation. Respondents prayed for the RTC (a) to declare TCT No. 137466 null and to
revive TCT No. T-105602 which was originally issued and registered in the name of the
respondents; and (b) to order petitioner to pay attorneys fees in the sum of P50,000.00
and litigation expenses of P20,000.00, plus cost of suit.
An action "involving title to real property" means that the plaintiff's cause of
action is based on a claim that he owns such property or that he has the legal rights to
have exclusive control, possession, enjoyment, or disposition of the same. Title is the
"legal link between (1) a person who owns property and (2) the property itself." "Title" is
different from a "certificate of title" which is the document of ownership under the
Torrens system of registration issued by the government through the Register of Deeds.
While title is the claim, right or interest in real property, a certificate of title is the
evidence of such claim.
In the present controversy, before the relief prayed for by the respondents in their
complaint can be granted, the issue of who between the two contending parties has the
valid title to the subject lot must first be determined before a determination of who

Page 98 of 193
between them is legally entitled to the certificate of title covering the property in
question.
From the Complaint, the case filed by respondent is not simply a case for the
cancellation of a particular certificate of title and the revival of another. The
determination of such issue merely follows after a court of competent jurisdiction shall
have first resolved the matter of who between the conflicting parties is the lawful owner
of the subject property and ultimately entitled to its possession and enjoyment. The action
is, therefore, about ascertaining which of these parties is the lawful owner of the subject
lot, jurisdiction over which is determined by the assessed value of such lot.
In no uncertain terms, the Court has already held that a complaint must allege the
assessed value of the real property subject of the complaint or the interest thereon to
determine which court has jurisdiction over the action. In the case at bar, the only basis of
valuation of the subject property is the value alleged in the complaint that the lot was sold
by Lorna to petitioner in the amount of P4,000.00. No tax declaration was even presented
that would show the valuation of the subject property. In fact, in one of the hearings,
respondents counsel informed the court that they will present the tax declaration of the
property in the next hearing since they have not yet obtained a copy from the Provincial
Assessors Office. However, they did not present such copy.
To reiterate, where the ultimate objective of the plaintiffs is to obtain title to real
property, it should be filed in the proper court having jurisdiction over the assessed value
of the property subject thereof. Since the amount alleged in the Complaint by respondents
for the disputed lot is only P4,000.00, the MTC and not the RTC has jurisdiction over the
action. Therefore, all proceedings in the RTC are null and void.
Consequently, the remaining issues raised by petitioner need not be discussed
further.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals
in CA-G.R. CV No. 86983, dated June 29, 2007, and its Resolution dated October 23,
2007, are REVERSED and SET ASIDE. The Decision of the Regional Trial Court, dated
July I, 2005, is declared NULL and VOID. The complaint in Civil Case No. 438-ML is
dismissed without prejudice.

SALES:
40.

(buyer in good faith)

Sps. Esmeraldo and Arsenia Vallido vs. Sps. Elmer and Juliet Pono, &
Purificacion Cernapong
G.R. No. 200173

April 15, 2013

Page 99 of 193

FACTS:
Martino Danan, the registered owner of a parcel of land in Kananga Leyte, sold a
portion of the property to respondent Purificacion Cernapong. Upon execution of the
Deed of Absolute Sale, Martino gave Purificacion the owners copy of OCT No. P-429.
The transfer, however, was not recorded in the Registry of Deeds. Purificacion
Cernapong subsequently sold the property to Marianito Pono. Marianito registered the
portion he bought for taxation purposes, paid its taxes, took possession, and allowed his
son respondent Elmer Pono (Elmer) and daughter-in-law, Juliet Pono (Juliet), to construct
a house thereon. Marianito kept OCT No. P-429. The transfer, however, was also not
recorded in the Registry of Deeds. When Martino Dandan left Leyte, he sold the whole
property to his grandson, petitioner Esmeraldo Allido. Martino Danan was able to request
for a duplicate title and gave it to Esmeraldo in which he registered the deed of sale in the
Registry of Deeds and a Transfer of Certificate of Title was issued under petitioners
name. Petitioners, thereafter, filed a complaint of quieting of title, recovery of possession
of real property and damages against the respondents.
RTC promulgated a decision favoring the petitioners. The trial court held that
there was a double sale under Article 1544 of the Civil Code. The respondents were the
first buyers while the petitioners were the second buyers. The trial court deemed the
petitioners as buyers in good faith because during the sale the tile of the subject property
was clean and free from all liens. The petitioners were also deemed registrants in good
faith because at the time of the registration of the deed of sale, both OCT No. P-429 and
TCT No. TP-13294 did not bear any annotation or mark of any lien or encumbrance. The
trial court concluded that because the petitioners registered the sale in the Register of
Deeds, they had a better right over the respondents.
Upon appeal, the CA ruled in favor of the respondents. The CA agreed that there
was a double sale. It, however, held that the petitioners were neither buyers nor
registrants in good faith. The respondents indisputably were occupying the subject land.
It wrote that where the land sold was in the possession of a person other than the vendor,
the purchaser must go beyond the certificate of title and make inquiries concerning the
rights of the actual possessors. It further stated that mere registration of the sale was not
enough as good faith must concur with the registration. Thus, it ruled that the petitioners
failed to discharge the burden of proving that they were buyers and registrants in good
faith. Accordingly, the CA concluded that because the sale to Purificacion took place in
1960, thirty (30) years prior to Esmeraldos acquisition in 1990, the respondents had a
better right to the property. Hence, this petition.
ISSUE/S:
W/N petitioner spouses were buyers and registrants in good faith?
HELD:

Page 100 of 193

No. The Supreme Court ruled that there was a double sale in this case and that the
respondents are the first buyers while the petitioners are the second buyers. The burden of
proving good faith lies with the second buyer, petitioners herein, which they failed to
discharge. Based on the privity between petitioner Esmeraldo and Martino, the petitioner
as a second buyer is charged with constructive knowledge of prior dispositions or
encumbrances affecting the subject property. The second buyer who has actual or
constructive knowledge of the prior sale cannot be a registrant in good faith.
Although it is a recognized principle that a person dealing on a registered land
need not go beyond its certificate of title, it is also a firmly settled rule that where there
are circumstances which would put a party on guard and prompt him to investigate or
inspect the property being sold to him, such as the presence of occupants/tenants thereon,
it is expected from the purchaser of a valued piece of land to inquire first into the status
or nature of possession of the occupants. As in the common practice in the real estate
industry, an ocular inspection of the premises involved is a safeguard that a cautious and
prudent purchaser usually takes. Should he find out that the land he intends to buy is
occupied by anybody else other than the seller who, as in this case, is not in actual
possession, it would then be incumbent upon the purchaser to verify the extent of the
occupants possessory rights.
The failure of a prospective buyer to take such precautionary steps would mean
negligence on his part and would preclude him from claiming or invoking the rights of a
"purchaser in good faith." In this case, petitioners, as prospective buyers, should have
investigated the land. There were evidences that should have prompted the petitioners
that land is occupied by respondent before. Petitioners admitted that there were
improvements on the land such as a house erected with permanent materials. Therefore,
petitioners cannot be considered buyers in good faith, having not shown any diligence in
protecting their rights.

SALES:
41.

(perfection)
Robern Development Corp vs People's Landless Association
G.R. No. 173622

March 11, 2013

FACTS: Al-Amanah Islamic Development Bank owned a 2000 sqm lot in Davao. Al
Amanah through its officer-in-charge asked some members of the Peoples Landless

Page 101 of 193

Association (PELA) to desist from building their houses on the said lot and to vacate the
same unless they were going to buy it. The informal settlers offered to buy at 100 per sqm
which Al amanah turned down. Then the informal settlers along with PELA offered to
purchase the lot for 300,000 and that half of which will be given as down payment while
the remaining half to be paid in one year. PELA deposited 150,000. The PELA members
remained in the property and introduced improvements. The branch manager oif Al
amanah then wrote PELA informing them that of the head office's disapproval of PELA's
offer. Al amanah sent other letters demanding that the PELA members vacate the lot.
PELA through a letter made by its attorney, Pedro Castro, replied to Al amanah stating
that it had already reached an agreement regarding the sale of the lot.
Robern Development Corp (Robern) also interested in buying the lot sent a
written offer for 400,000 and that it deposited 20% of the offered purchase price. Al
amanah made a recommendation sheet as to Robern's offer. Al amanah then informed
Robern of its acceptance and stressed that it was the latter's responsibility to eject the
occupants. Robern wrote Al amanah about the uncertainty of the status of the land as
PELA stated that receipts were issued as to their down payment on the land. To convince
Robern that it has no existing contract with PELA, Al amanah furnished Robern with
copies of the rejection letter of PELA's offer. Robern then paid the balance of the
purchase price and a deed of sale was executed. PELA then consigned 150,000 w/ the
RTC. PELA's members facing eviction filed a suit for annulment and cancellation of a
void deed of sale against Al amanah and Robern. PELA argued that there was a perfected
contract of sale between itself and Al amanah. Robern for their part asserted that it was a
purchaser in good faith and for value.
The RTC dismissed PELA's complaint. The CA reversed the RTC's ruling and
stated that a perfected contract of sale was entered into.
ISSUE: Whether there was a perfected contract of sale between PELA and Al-Amanah.
HELD: There is no controversy anent the determinate subject matter, i.e., the 2,000square meter lot. This leaves us to resolve whether there was a concurrence of the
remaining elements.
There is no perfected contract of sale between PELA and Al-Amanah for want of consent
and agreement on the price.
After scrutinizing the testimonial and documentary evidence in the records of the
case, we find no proof of a perfected contract of sale between Al-Amanah and PELA. The
parties did not agree on the price and no consent was given, whether express or implied.
When PELA Secretary Florida Ramos (Ramos) testified, she referred to the
March 18, 1993 letter which PELA sent to Al-Amanah as the document supposedly
embodying the perfected contract of sale. However, we find that the March 18, 1993
letter referred to was merely an offer to buy.
According to the plan of PELA, about 24 landless families can be accommodated
in the property. We hope the Bank can help these families own even a small plot for their

Page 102 of 193

shelter. This would be in line with the governments program of housing which the
present administration promised to put in high gear this year.59 (Emphasis supplied)
We cannot agree with the CAs ratiocination that receipt of the amount, coupled with the
phrase written on the four receipts as "deposit on sale of TCT No. 138914," signified a
tacit acceptance by Al-Amanah of PELAs offer. For sure, the money PELA gave was not
in the concept of an earnest money. Besides, as testified to by then OIC Dalig, it is the
usual practice of Al-Amanah to require submission of a bid deposit which is
acknowledged by way of bank receipts before it entertains offers.
It is thus undisputed, and PELA even acknowledges, that OIC Dalig made it clear
that the acceptance of the offer, notwithstanding the deposit, is subject to the approval of
the Head Office. Recognizing the corporate nature of the bank and that the power to sell
its real properties is lodged in the higher authorities,65 she never falsely represented to
the bidders that she has authority to sell the banks property. And regardless of PELAs
insistence that she execute a written agreement of the sale, she refused and told PELA to
wait for the decision of the Head Office, making it clear that she has no authority to
execute any deed of sale.
The transaction between Al-Amanah and PELA remained in the negotiation stage.
The offer never materialized into a perfected sale, for no oral or documentary evidence
categorically proves that Al-Amanah expressed amenability to the offered P300,000.00
purchase price. Before the lapse of the 1-year period PELA had set to pay the remaining
balance, Al-Amanah expressly rejected its offered purchase price, although it took the
latter around seven months to inform the former and this entitled PELA to award of
damages.67 Al-Amanahs act of selling the lot to another buyer is the final nail in the
coffin of the negotiation with PELA. Clearly, there is no double sale, thus, we find no
reason to disturb the consummated sale between Al-Amanah and Robern.
WHEREFORE, we PARTIALLY GRANT the Petition. Except for paragraph 6 of
the Court of Appeals Decision which had already been long settled, the rest of the
judgment in the assailed August 16, 2005 Decision and May 30, 2006 Resolution of the
Court of Appeals in CA-G.R. No. CV No. 66071 are hereby ANNULLED and SET
ASIDE. The August 10, 1999 Decision of the Regional Trial Court of Davao City, Branch
12, dismissing the Complaint for Annulment and Cancellation of Void Deed of Sale filed
by respondent People's Landless Association is REINSTATED and AFFIRMED. The
amount of Pesos: Three Hundred Thousand (P300,000.00) consigned with the Regional
Trial Court of Davao City may now be withdrawn by People's Landless Association.
SALES:
42.

(equitable mortgage)
Sps. Lehner and Ludy Martires vs. Menelia Chua
G.R. No. 174240

FACTS:

March 20, 2013

Page 103 of 193

Respondent Menelia Chua borrowed from Petitioner Spouses the amount of
P150,000. The loan was secured by a real estate mortgage over the twenty-four memorial
lots located at the Holy Cross Memorial Park respondent co-owned with her mother.
Respondent failed to fully settle her obligation. Subsequently, without foreclosure of the
mortgage, ownership of the subject lots was transferred in the name of petitioners via a
Deed of Transfer. On June 23, 1997, respondent filed with the RTC of Quezon City a
Complaint against the petitioners, Manila Memorial Park Inc. (the company which owns
the Holy Cross Memorial Park), and the Register of Deeds of Quezon City, praying for
the annulment of the contract of mortgage between her and petitioners on the ground that
ownership of the subject lots was transferred in the name of petitioners by virtue of a
forged Deed of Transfer and Affidavit of Warranty.
After trial, the RTC of Quezon City rendered a Decision in favor of the petitioners
and Manila Memorial Park Cemetery, Inc. On appeal, the CA affirmed the decision of the
trial court. The CA ruled that respondent voluntarily entered into a contract of loan and
that the execution of the Deed of Transfer is sufficient evidence of petitioners' acquisition
of ownership of the subject property. However, the CA subsequently reversed its decision
on ground that the Deed of Transfer which, on its face, transfers ownership of the subject
property to petitioners was, in fact, an equitable mortgage. The CA held that the true
intention of respondent was merely to provide security for her loan and not to transfer
ownership of the property to petitioners.
ISSUE/S:
W/N contract is an equitable mortgage?
W/N ownership of the subject lots may be transferred without foreclosure of the
mortgage?
HELD:
The Supreme Court held that the contract is an equitable mortgage. The subject
lots, however, may not be transferred without foreclosure due to a forged Deed of
Transfer and Affidavit of Warranty.
An equitable mortgage has been defined 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.
One of the circumstances provided for under Article 1602 of the Civil Code, where a
contract shall be presumed to be an equitable mortgage, is "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." In the instant case, it has
been established that the intent of both petitioners and respondent is that the subject
property shall serve as security for the latter's obligation to the former. As correctly
pointed out by the CA, the circumstances surrounding the execution of the disputed Deed
of Transfer would show that the said document was executed to circumvent the terms of

Page 104 of 193

the original agreement and deprive respondent of her mortgaged property without the
requisite foreclosure.
Since the original transaction between the parties was a mortgage, the subsequent
assignment of ownership of the subject lots to petitioners without the benefit of
foreclosure proceedings, partakes of the nature of a pactum commissorium, as provided
for under Article 2088 of the Civil Code. Pactum commissorium is a stipulation
empowering the creditor to appropriate the thing given as guaranty for the fulfilment of
the obligation in the event the obligor fails to live up to his undertakings, without further
formality, such as foreclosure proceedings, and a public sale.
In the instant case, evidence points to the fact that the sale of the subject property, as
proven by the disputed Deed of Transfer, was simulated to cover up the automatic
transfer of ownership in petitioners' favor. While there was no stipulation in the mortgage
contract which provides for petitioners' automatic appropriation of the subject mortgaged
property in the event that respondent fails to pay her obligation, the subsequent acts of the
parties and the circumstances surrounding such acts point to no other conclusion than that
petitioners were empowered to acquire ownership of the disputed property without need
of any foreclosure.
Furthermore, the Court cannot fathom why respondent would agree to transfer
ownership of the subject property, whose value is much higher than her outstanding
obligation to petitioners. Considering that the disputed property was mortgaged to secure
the payment of her obligation, the most logical and practical thing that she could have
done, if she is unable to pay her debt, is to wait for it to be foreclosed. She stands to lose
less of the value of the subject property if the same is foreclosed, rather than if the title
thereto is directly transferred to petitioners. This is so because in foreclosure, unlike in
the present case where ownership of the property was assigned to petitioners, respondent
can still claim the balance from the proceeds of the foreclosure sale, if there be any. In
such a case, she could still recover a portion of the value of the subject property rather
than losing it completely by assigning its ownership to petitioners.

LEASE:
43.

(sublease)
Analita p. Inocencio vs. Hospicio De San Jose
G.R. No. 201787

FACTS:

September 25, 2013

Page 105 of 193

Hospicio de San Jose (HDSJ) leased a parcel of land located in Pasay City to
German Inocencio (German). The lease contract was effective for a period of one year,
and was renewed for one-year periods several times. The last written contract was
executed on 31 May 1951. Section 6 of the lease contract provides: Este contrato es
intransferible, a menos que para ello se obtenga elconsentimiento escrito del arrendador.
(This contract is nontransferable unless prior consent of the lessor is obtained in writing.)
In 1946, German constructed two buildings on the parcel of land which he subleased. He
also designated his son Ramon Inocencio (Ramon)to administer the said property.
On 21 September 1990, German received a letter from HDSJ informing him that
the increased rentals shall take effect in November 1990instead of August 1990, "to give
him ample time to make the necessary rental adjustments with his sublessees.
German passed away in 1997. Evidence on record shows that Ramon did not
notify HDSJ of Germans death. After Germans passing, Ramon collected the rentals
from the sublessees, and paid the rentals to HDSJ, and the taxes on the property. On 1
March 2001, HDSJs property administrator, Five Star Multi-Services, Inc., notified
Ramon that HDSJ is terminating the lease contract effective 31 March 2001: We
acknowledge the fact that Hospicio de San Jose has been accepting the payment of your
rentals since the demise of Mr. German Inocencio. Hence, an implied contract of lease
between the two of you exists. However, since there is no stipulation as to the period of
the contract and you are paying a monthly rentals to our client, the period for the lease is
on a month-to-month basis (Art. 1687). Thus as of this date, your contract should expire
on March 31, 2001.
Ramon then sent a letter to HDSJ dated 12 March 2001, suggesting that the lease
contract be renegotiated for the welfare of the sublessees occupying the parcel of land.
On 3 April 2001, HDSJ notified Ramon that the lease contract shall not be renewed
because Ramon has "continually subleased the subject premises to about 20 families (in
addition to a commercial establishment) without the knowledge and consent of the lessor,
[HDSJ]." Thereafter, HDSJ refused to accept Ramons tender of payment of rentals.
On 3 March 2005, HDSJ sent a letter to Ramon: (1) reiterating its stand that the
lease contract was terminated effective 31 March 2001;(2) demanding payment of
P756,449.26 as unrealized fruits; and (3) giving him 30 days to vacate the property. The
sublessees were given written notices to vacate within 30 days. HDSJ also posted a
Patalastas stating that it is willing to work out an amicable arrangement with the
sublessees, although the latter are not considered as legal occupants or tenants of the
property. Because of this, some of the sublessees refused to pay rentals to Ramon.
HDSJ also entered into lease contracts with: (1) Harish Chetandas on 25 May 2005; (2)
Enrique Negare on 12 April 2005; (3) Lamberto Estefa on 25 May 2005; and (4) Sofronio
Chavez, Jr. on 21 May 2005.
On 28 June 2005, HDSJ filed a Complaint before Branch 48 of the Metropolitan
Trial Court of Pasay (MeTC-Pasay) for unlawful detainer against Ramon and his
sublessees. The complaint alleged that Ramon and his sublessees have been illegally
occupying the leased premises since 31 March 2001. HDSJ sought the following

Page 106 of 193

damages: 17.1 Actual damages, in the amount of Php552,195.36, equivalent to the
reasonable value of the use and occupation of the premises from the period of 31 March
2001 until the present; and 17.2 Attorneys fees in the amount of Php50,000.00, for
defendants refusal to vacate the property and for compelling plaintiff to incur expenses
to protect its interests. Furthermore, it is clear that defendants acted in gross and evident
bad faith in refusing to satisfy plaintiffs plainly valid, just, and demandable claim.
MeTC-Pasay ruled in favor of HDSJ. Aggrieved, Analita filed an appeal before
the RTC-Pasay. On 21 January 2009, the RTC-Pasay dismissed Analitas appeal and
affirmed in toto the decision of the MeTC-Pasay. It held that "even before the termination
of the contract, [Ramon] had no right to sublease the said property due to the
intransferability clause in the contract." Analita moved for reconsideration, but it was
denied. Analita then filed a petition for review under Rule 42 of the Rules of Court before
the CA. The CA affirmed the decision of the RTC-Pasay but modified the award for
damages.
ISSUE:
Whether the sublease contracts were invalid;
HELD:
Yes. Article 1311 of the Civil Code provides: 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.
We have previously ruled that lease contracts, by their nature, are not personal.
The general rule, therefore, is lease contracts survive the death of the parties and continue
to bind the heirs except if the contract states otherwise. In Sui Man Hui Chan v. Court of
Appeals, we held that:
A lease contract is not essentially personal in character. Thus, the rights and
obligations therein are transmissible to the heirs. The general rule, therefore, is that heirs
are bound by contracts entered into by their predecessors-in-interest except when the
rights and obligations arising therefrom are not transmissible by (1) their nature, (2)
stipulation or (3) provision of law. In the subject Contract of Lease, not only were there
no stipulations prohibiting any transmission of rights, but its very terms and conditions
explicitly provided for the transmission of the rights of the lessor and of the lessee to their
respective heirs and successors. The contract is the law between the parties. The death of
a party does not excuse nonperformance of a contract, which involves a property right,
and the rights and obligations thereunder pass to the successors or representatives of the
deceased. Similarly, nonperformance is not excused by the death of the party when the
other party has a property interest in the subject matter of the contract.
Section 6 of the lease contract provides that "this contract is nontransferable
unless prior consent of the lessor is obtained in writing." Section 6 refers to transfers inter
vivos and not transmissions mortis causa. What Section 6 seeks to avoid is for the lessee

Page 107 of 193

to substitute a third party in place of the lessee without the lessors consent. This merely
reiterates what Article 1649 of the Civil Code provides: Art. 1649. The lessee cannot
assign the lease without the consent of the lessor, unless there is a stipulation to the
contrary.
In any case, HDSJ also acknowledged that Ramon is its month-to-month lessee.
Thus, the death of German did not terminate the lease contract executed with HDSJ, but
instead continued with Ramon as the lessee. HDSJ recognized Ramon as its lessee in a
letter dated 1 March 2001:
We acknowledge the fact that Hospicio de San Jose has been accepting the
payment of your rentals since the demise of Mr. [German] Inocencio. Hence, an implied
contract of lease between the two of you exists. However, since there is no stipulation as
to the period of the contract and you are paying a monthly rental to our client, the period
for the lease is on a month-to-month basis (Art. 1687). Thus as of this date, your contract
should expire on March 31, 2001.
Section 6 of the lease contract requires written consent of the lessor before the
lease may be assigned or transferred. In Tamio v. Tecson, we explained the nature of an
assignment of lease:
In the case of cession or assignment of lease rights on real property, there is a
novation by the substitution of the person of one of the parties the lessee. The
personality of the lessee, who dissociates from the lease, disappears; only two persons
remain in the juridical relation the lessor and the assignee who is converted into the
new lessee.
Assignment or transfer of lease, which is covered by Article 1649 of the Civil
Code, is different from a sublease arrangement, which is governed by Article 1650 of the
same Code. In a sublease, the lessee becomes in turn a lessor to a sublessee. The
sublessee then becomes liable to pay rentals to the original lessee. However, the juridical
relation between the lessor and lessee is not dissolved. The parties continue to be bound
by the original lease contract. Thus, in a sublease arrangement, there are at least three
parties and two distinct juridical relations.
Ramon had a right to sublease the premises since the lease contract did not
contain any stipulation forbidding subleasing. Article 1650 of the Civil Code states:
Art. 1650. When in the contract of lease of things there is no express prohibition, the
lessee may sublet the thing leased, in whole or in part, without prejudice to his
responsibility for the performance of the contract toward the lessor.
Therefore, we hold that the sublease contracts executed by Ramon were valid.
LEASE:
44.

(ejectment)
Optima Realty Corporation vs. Hertz Philippines Exclusive Cars, Inc.
G.R. No. 183035

FACTS:

Januray 9, 2013

Page 108 of 193

On December 12, 2002, Hertz Phil. Exclusive Cars Inc. entered into a contract of
lease with Petitioner Optima over a 131-square meters office unit and a parking slot in the
Optima Building for a period of three years, which began on March 1, 2003 and ended on
February 28, 2006. On March 9, 2004, the parties amended their lease contract by
shortening lease period for two years and five months, commencing on October 1, 2003
and ending on February 28, 2006. Renovations in the Optima Building commenced in
January and ended in November 2005, which resulted in a 50% drop in the monthly sales
of Hertz. This prompted them to request a 50% discount on its rent. Optima granted the
request of Hertz. However, Hertz still failed to pay its rentals for a total of seven month.
Hertz also failed to pay its utility bills from November 2005 to February 2006. On
December 8, 2005, Optima wrote a letter reminding Hertz that the contract of lease could
only be renewed only by a new negotiation between the parties, and upon written notice
by lessee to the lessor at least 90 days prior to the termination of lease. Since no letter or
response was received from Hertz to re-negotiate, Optima informed that the lease will be
expiring on February 28, 2006 and would not be renewed. On December 21, 2005, Hertz
advised Optima to re-negotiate. However Optima no longer entertained the request of
Hertz since the renewal must be given by lessee at least 90 days prior to expiration of
contract.
Hertz, thereafter, filed a complaint for specific performance, injunction and
damages, and a sum of money with prayer for the issuance of a Temporary Restraining
Order and Writ of Preliminary Injunction against Optima. With Hertz refusing to vacate
the premises after the expiration of the lease, Optima, on the other hand, filed a complaint
for unlawful detainer and damages with prayer for the issuance of a TRO and Preliminary
Mandatory Injunction against Hertz. The MeTC rendered a Decision, ruling that
petitioner Optima had established its right to evict Hertz from the subject premises due to
non-payment of rentals and the expiration of the period of lease. Finding no compelling
reason to warrant the reversal of the MeTCs Decision, the RTC affirmed it by dismissing
the appeal in a Decision dated 16 March 2007. On appeal, the CA ruled that, due to the
improper service of summons, the MeTC failed to acquire jurisdiction over the person of
respondent Hertz. The appellate court, thereafter, reversed the RTC and remanded the
case to the MeTC to ensure the proper service of summons.
ISSUE/S:
W/N the eviction of respondents was proper?
HELD:
Yes. The Supreme Court ruled that the eviction of the respondent Hertz was
proper. The Court held that Hertz failed to pay rental arrearages and utility bills to
Optima and the contract of lease expired without any request from Hertz for a
renegotiation at least 90 days prior to its expiration. The pertinent provision of the
Contract of Lease reads:

Page 109 of 193

x x x The lease can be renewed only by a new negotiation between the parties upon
written notice by the LESSEE to be given to the LESSOR at least 90 days prior to
termination of the above lease period. x x x
As the lease was set to expire on 28 February 2006, Hertz had until 30 November
2005 within which to express its interest in negotiating an extension of the lease with
Optima.
However, Hertz failed to communicate its intention to negotiate for an extension
of the lease within the time agreed upon by the parties. Thus, by its own provisions, the
Contract of Lease expired on 28 February 2006. Under the Civil Code, failure of the
lessee to pay timely rentals and utility charges entitles the lessor to judicially eject lessee.
The expiry of the period agreed upon by parties is a valid ground for judicial ejectment.

LEASE:
45.

(ejectment)
Sps. Purificacion and Ruperto Estanislao vs. Sps. Norma and
Damiano Gudito
G.R. No. 173166

March 13, 2013

Page 110 of 193

FACTS:
Respondents (Gudito spouses) are the owners of a residential lot being leased by
petitioners Estanislao spouses) on a month-to-month basis. Petitioners had been renting
and occupying the subject lot since 1934 and were the ones who built the house on the
subject lot in accordance with their lease agreement with one Gaspar Vasquez. When
Gaspar Vasquez died, the portion of the lot on which petitioners house was erected was
inherited by his son Victorino Vasquez. The Vasquez spouses then wanted the Estanislao
family and the other tenants to vacate the said property, but the tenants refused.
Therefore, the Vasquez spouses refused to accept their rental payments. Petitioner
Purificacion Estanislao, with due notice to Ester Vasquez, deposited the amount of her
monthly rentals at Allied Banking Corporation under a savings account in the name of
Ester Vasquez as lessor.
Meanwhile, a Deed of Donation was executed by the Vasquez spouses in favor of
respondent Norma Vasquez Gudito. Respondents then notified petitioners to remove their
house and vacate the premises within three months because of their urgent need of the
residential lot. However, petitioners failed to comply. Respondents then filed a Complaint
for Unlawful Detainer/Ejectment against petitioners before the MeTC of Manila. The trial
court rendered a Decision in favor of respondents. On appeal, the RTC of Manila
rendered a Decision reversing the MeTCs decision. Dissatisfied, respondents interposed
an appeal before the CA. The CA annulled and set aside the RTCs decision and
reinstated the MeTCs decision. Hence, this petition.
ISSUE/S:
W/N Estanislao spouses right of first refusal over the land they have leased is a
valid defense to deny the Gudito spouses of their inherent right to possess the subject
property?
HELD:
The Supreme Court held that Petitioners cannot use P.D. 1517 as a shield to deny
respondents of their inherent right to possess the subject property. Furthermore, the
Gudito spouses have overwhelmingly established their right of possession by virtue of the
Deed of Donation made in their favour, and therefore, had the right to eject the Estanislao
spouses from the subject residential lot.
The Gudito spouses have complied with the provisions of the law in order for them to
legally eject the petitioners. Section 5 (c) of Batas Pambansa Blg. 25 states:
Sec. 5. Grounds for judicial ejectment. Ejectment shall be allowed on the following
grounds:
xxxx
(c) Legitimate need of owner/ lessor to repossess his property for his own use or for the
use of any immediate member of his family as a residential unit, such owner or

Page 111 of 193

immediate member not being the owner of any other available residential unit within the
same city or municipality: Provided, however, that the lease for a definite period has
expired: Provided, further, that the lessor has given the lessee formal notice within three
(3) months in advance of the lessors intention to repossess the property: Provided,
finally, that the owner/ lessor is prohibited from leasing the residential unit or allowing its
use by a third party for at least one year.
They have urgent need of the same to build their own house to be used as their
residence. Also, petitioners had already been asked to leave the premises as early as 1982,
but sternly refused, hence, its former owners refused to accept their rental payments.
When the same property was donated to respondents, petitioners were allowed to
continue occupying the subject lot since respondents did not as yet have the money to
build a house of their own. But now that respondents have sufficient money to build their
own house, petitioners still rebuff respondents demand to vacate the premises and to
remove or demolish their house. Clearly, since respondents have complied with the
requirements of the law, their right to possess the subject property for their own use as
family residence cannot be denied.
Furthermore, petitioners have failed to prove that the transfer of the subject
property was merely a ploy designed to defeat and circumvent their right of first refusal
under the law. As emphasized by the CA, the Deed of Donation executed in favor of
respondents was signed by the parties and their witnesses, and was even notarized by a
notary public.
By the same token, this Court is not persuaded with petitioners insistence that
they cannot be evicted in view of Section 6 of P.D. 1517, which states
SECTION 6. Land Tenancy in Urban Land Reform Areas. Within the Urban Zones
legitimate tenants who have resided on the land for ten years or more who have built their
homes on the land and residents who have legally occupied the lands by contract,
continuously for the last ten years shall not be dispossessed of the land and shall be
allowed the right of first refusal to purchase the same within a reasonable time and at
reasonable prices, under terms and conditions to be determined by the Urban Zone
Expropriation and Land Management Committee created by Section 8 of this Decree.
(Emphasis and underscoring supplied)

Under P.D. 1517, in relation to P.D. 2016, the lessee is given the right of first
refusal over the land they have leased and occupied for more than ten years and on which
they constructed their houses. But the right of first refusal applies only to a case where
the owner of the property intends to sell it to a third party. If the owner of the leased
premises do not intend to sell the property in question but seeks to eject the tenant on the
ground that the former needs the premises for residential purposes, the tenant cannot
invoke the land reform law."

Page 112 of 193

Clearly, the circumstances required for the application of P.D. 1517 are lacking in
this case, since respondents had no intention of selling the subject property to third
parties, but seek the eviction of petitioners on the valid ground that they need the property
for residential purposes.

LEASE:
46.

(fixing of period)
Sps. Alberto and Susan Castro vs. Amparo Palenzuela, et. al.
G.R. No. 184698

January 21, 2013

FACTS:
Respondents are owners of several fishponds in Bulacan, which were leased to
Spouses Alberto and Susan Castro for a period of five years. The petitioners, spouses

Page 113 of 193

Castro, only vacated the fishponds forty-one days after the expiration date of the contract.
Previously, or on July 22, 1999, respondents sent a letter to petitioners declaring the latter
as trespassers and demanding the settlement of the latters outstanding obligations,
including rent for petitioners continued stay within the premises, in the amount of
P378,451, which was unheeded. This led the respondents to file a case for collection of
sum of money with damages. Respondents contended that petitioners violated their lease
agreement; which terms were the following: non-payment of rents, failure to maintain the
warehouses, subletting the fishponds, and refusal to vacate the premises on the expiration
of the lease stipulated in the contract.
The RTC of Quezon City issued its Decision holding that petitioners violated the
terms of the lease agreement, and thus, liable to the respondents. On appeal, the CA held
that the preponderance of evidence, which remained uncontroverted by petitioners, points
to the fact that petitioners indeed failed to pay rent in full, considering that their postdated
checks bounced upon presentment, and their unauthorized extended stay from July 1 until
August 11, 1999. It added that petitioners were undeniably guilty of violating several
provisions of the lease agreement, as it has also been shown that they failed to pay rent on
time and illegally subleased the property to one Cynthia Reyes, who even made direct
payments of rentals to respondents on several occasions.
ISSUE/S:
W/N respondents were authorized to charge additional rents for petitioners
extended stay beyond the period for the lease agreement, even though it was stipulated in
the agreement itself?
HELD:
Yes. The Supreme Court ruled that the fact that petitioners accepted the demand
letter dated July 22, 1999, which was a charge for additional rent, this was an admitted
liability on their part. Petitioners could have rejected the demand letter. The court also
ruled in the contention of respondents that when the petitioners continued enjoying the
premises when the lease expired, there was an implied new lease that was created which
they have the obligation to pay additional rent. According to Article 1670 of the Civil
Code, if at the end of the contract the lessee should continue enjoying the thing leased for
fifteen days with the acquiescence of the lessor, and unless a notice to the contrary by
either party has previously been given, it is understood that there is an implied new lease,
not for the period of the original contract, but for the time established in Articles 1682
and 1687 of the Civil Code.
LEASE:
47.

[non application of Quasi Delict or Vicarious liability of an employer]

Spouses Mamaril vs The Boy Scout of the Philippines
G.R. No. 179382

FACTS:

January 14, 2013

Page 114 of 193

Spouses Mamaril, jeepney operators, park their 6 jeepneys at night at the Boy
scout of The Philippines compound at Malate for P300.00 per month for each unit. On
May 26, 1995, all 6 were parked inside the BSP compound but on the following morning,
one the jeeps (plate no. DCG 392) was missing. The security guards (Gaddhi and Pena),
said that a male person who looked familiar to them took the vehicle out. The Spouses
Mamaril then filed a complaint for damages against BSP, AIB Security Agency, and the
security guards (Gaddi and Pena). Spouses Mamaril averred that the loss of the jeepney
was due to the gross negligence of the security guards on duty who allowed it to be
driven out by a stranger despite their agreement that only authorized drivers could do so.
They prayed that Pena and Gaddi be liable together w/ BSP and AIB. BSP denied liability
arguing that Spouses Mamaril directly dealed w/ AIB and that the parking ticket stated
that "Management shall not be responsible for loss of vehicle or any of its accessories or
article left therein." BSP invoked the guard service contract between itself and AIB which
covered only the protection of BSPs properties. AIB denied liability contending that it
observed due diligence in the selection and supervision of its security guards..
The RTC held the BSP, AIB jointly and severally liable w/ the security guards.
The CA affirmed the finding of negliegence on the part of the security gaurds but it
absolved BSP from any liability based on the guard service contract.

ISSUE:
Whether BSP shall be held liable as based on the Guard Service contract and the
parking ticket it issued.
HELD:
No. It is undisputed that the proximate cause of the loss of Sps. Mamaril's vehicle
was the negligent act of security guards Pea and Gaddi in allowing an unidentified
person to drive out the subject vehicle. Proximate cause has been defined as that cause,
which, in natural and continuous sequence, unbroken by any efficient intervening cause,
produces the injury or loss, and without which the result would not have occurred.
On the other hand, the records are bereft of any finding of negligence on the part of BSP.
Hence, no reversible error was committed by the CA in absolving it from any liability for
the loss of the subject vehicle based on fault or negligence. Neither will the vicarious
liability of an employer under Article 2180 of the Civil Code apply in this case. It is
uncontested that Pea and Gaddi were assigned as security guards by AIB to BSP
pursuant to the Guard Service Contract. Clearly, therefore, no employer-employee
relationship existed between BSP and the security guards assigned in its premises.
Consequently, the latter's negligence cannot be imputed against BSP but should be
attributed to AIB, the true employer of Pea and Gaddi.
The Guard Service Contract between defendant-appellant BSP and defendant AIB
Security Agency is purely between the parties therein. It may be observed that although

Page 115 of 193

the whereas clause of the said agreement provides that defendant-appellant desires
security and protection for its compound and all properties therein, as well as for its
officers and employees, while inside the premises, the same should be correlated with
paragraph 3(a) thereof which provides that the security agency shall indemnify
defendant-appellant for all losses and damages suffered by it attributable to any act or
negligence of the former's guards.
Otherwise stated, defendant-appellant sought the services of defendant AIB
Security Agency for the purpose of the security and protection of its properties, as well as
that of its officers and employees, so much so that in case of loss of [sic] damage suffered
by it as a result of any act or negligence of the guards, the security agency would then be
held responsible therefor. There is absolutely nothing in the said contract that would
indicate any obligation and/or liability on the part of the parties therein in favor of third
persons such as herein plaintiffs-appellees.
The Court concurs with the finding of the CA that the contract between the parties
herein was one of lease as defined under Article 1643 of the Civil Code. It has been held
that the act of parking a vehicle in a garage, upon payment of a fixed amount, is a lease.
Even in a majority of American cases, it has been ruled that where a customer simply
pays a fee, parks his car in any available space in the lot, locks the car and takes the key
with him, the possession and control of the car, necessary elements in bailment, do not
pass to the parking lot operator, hence, the contractual relationship between the parties is
one of lease.
In the instant case, the owners parked their six (6) passenger jeepneys inside the BSP
compound for a monthly fee of P300.00 for each unit and took the keys home with them.
Hence, a lessor-lessee relationship indubitably existed between them and BSP. On this
score, Article 1654 of the Civil Code provides that "the lessor (BSP) is obliged: (1) to
deliver the thing which is the object of the contract in such a condition as to render it fit
for the use intended; (2) to make on the same during the lease all the necessary repairs in
order to keep it suitable for the use to which it has been devoted, unless there is a
stipulation to the contrary; and (3) to maintain the lessee in the peaceful and adequate
enjoyment of the lease for the entire duration of the contract." In relation thereto, Article
1664 of the same Code states that "the lessor is not obliged to answer for a mere act of
trespass which a third person may cause on the use of the thing leased; but the lessee
shall have a direct action against the intruder." Here, BSP was not remiss in its obligation
to provide Sps. Mamaril a suitable parking space for their jeepneys as it even hired
security guards to secure the premises; hence, it should not be held liable for the loss
suffered by Sps. Mamaril.
It bears to reiterate that the subject loss was caused by the negligence of the
security guards in allowing a stranger to drive out plaintiffs-appellants' vehicle despite the
latter's instructions that only their authorized drivers may do so. Moreover, the agreement
with respect to the ingress and egress of Sps. Mamaril's vehicles were coordinated only
with AIB and its security guards, without the knowledge and consent of BSP.
Accordingly, the mishandling of the parked vehicles that resulted in herein complained

Page 116 of 193

loss should be recovered only from the tort feasors (Pea and Gaddi) and their employer,
AIB; and not against the lessor, BSP.
The instant petition is DENIED.

LEASE:
48.

(household service; compensation due the contractor)

Licomcen Inc. vs. Engr. Salvador Abainza
G.R. No. 199781

February 18, 2013

FACTS:
Respondent Engr. Salvador Abainza filed an action for sum of money and
damages against Liberty Commercial Center Inc. (Liberty) at the RTC of Legazpi City.

Page 117 of 193

Respondent alleged that in 1997 and 1998, he was hired by LICOMCEN to various
projects in their commercial centers, mainly at the LCC Central Mall, Naga City, for the
supply, fabrication, and installation of air-conditioning ductworks. Respondent completed
the project, which included some changes and revisions of the original plan at the behest
of Liberty. However, despite several demands by respondent, Liberty failed to pay the
remaining balance due on the project in the sum of P1,777,202.80.
Liberty denied the material allegations of the complaint and countered that the
collection suit was not filed against the real party-in-interest. Thus, respondent amended
his complaint to include petitioner as defendant. The HRD Administrative Manager of
Liberty testified that petitioner LICOMCEN, Inc. is a sister company of Liberty and that
the incorporators and directors of both companies are the same.
The RTC of Legazpi City held that LICOMCENs claim that it fully paid
respondent the total cost of the project in the amount of P6,700,000 is only to the cost of
the original plan, but the additional costs of P1,777,202.80 which pertains for labor,
materials, and equipment on the revised plan were not paid by LICOMCEN.
ISSUE/S:
W/N petitioner is liable for the additional cost incurred that pertains to the labor,
materials, and equipment on the revised project?
HELD:
Yes. The Supreme Court held that petitioner is liable for the additional cost
incurred that pertains to the labor, materials, and equipment on the revised project. The
defense of petitioner invoking Article 1724 of the Civil Code is not applicable to the case,
which states that:
The contractor who undertakes to build a structure or any other work for a
stipulated price, in conformity with plans and specifications agreed upon with the
landowner, can neither withdraw from the contract nor demand an increase in the price on
account of the higher cost of labor or materials, save when there has been a change in the
plans and specifications, provided:
(1) Such change has been authorized by the proprietor in writing; and
(2) The additional price to be paid to the contractor has been determined in
writing by both parties.
The Court held that petitioner cannot invoke Article 1724 of the Civil Code to
refuse paying its obligation considering that the alleged original contract was never even
signed by both parties because of the various changes imposed by the petitioner on the
original plan.

Page 118 of 193

EXTRA-CONTRACTUAL OBLIGATIONS:

(Quasi-delict; solidary liability of

joint torfeasors)

49.

Cathay Pacific Airways vs. Juanita Reyes, et. al. and Sampaguita
Travel Corporation
G.R. No.185891

June 26, 2013

FACTS:
Wilfredo Reyes and his family scheduled a trip from April 12, 1997 to May 4,
1997 to Adelaide, Australia. They then made a travel reservation with Sampaguita Travel

Page 119 of 193

Corp. Wilfredo paid for the airfare, and in return, was issued four round-trip tickets. One
week before the scheduled flight back home, Wilfredo reconfirmed with Cathay Pacific
their return flight and was confirmed that the reservation was still okay. However, on the
day of their flight, Cathay Pacific advised them that they do not have a confirmed
booking. Since there was no space in the plane, they were not allowed to board. Wilfredo
filed a complaint for damages against Sampaguita Travel and Cathay Pacific. The trial
court ruled in favor of the respondents. The decision of the trail court was reversed by CA
on appeal, absolving Sampaguita Travel of any liability.
ISSUE/S:
W/N Sampaguita Travel is liable?
HELD:
Yes. The Supreme Court ruled that Sampaguita Travel was solidarily liable with
Cathay Pacific as they were joint tortfeasors for a quasi-delict. Both parties acted together
in creating the confusion that led to their negligence. According to Article 2194 of the
Civil Code, joint tortfeasors who are responsible for a quasi-delict shall be liable
solidarily.

EXTRA-CONTRACTUAL OBLIGATIONS:
50.

(common carriers; actual shortage)

Asian Terminals vs Simon Enterprises

G.R. No. 177116

February 27, 2013

FACTS:
On October 25, 1995, Cotiquincybunge Export Co. loaded 6,843.700 metric tons
of soybean meal in bulk on board the vessel Sea Dream. The same was to be delivered in
Manila to Simon Enterprises as consignee. The shipment was discharged w/ Asian
Terminals as arrastre in Manila. Simon Enterprises received the shipment claimed a

Page 120 of 193

shortage of 18.556 metric tons (it received 6,825.144 metric ). Again Contiquinbunge
made another export (on board Tern) to which the shipment was discharged at the
receiving barges of Asian Terminals and eventually delivered to Simon Enterprises. Again
Simon Enterprises claimed a shortage 199.863 (difference between 3,300 and 3,100
metric tons). Simon Enterprises filed an action for damages against the unknown owner
of vessels Tern and Sea Dream (and its local agent Inter Asia) and Asian Terminals. The
claim as to Sea Dream was settled. The owner of Tern and Inter Asia prayed for dismissal
alleging that Simon Enterprises has no cause of action as the claim had already prescribed
pursuant of the provisions of the code of commerce.
The RTC held that Asian Terminals and its co defendants solidarily liable to
Simon for damages from the shortage. The CA affirmed the RTC's decision.
ISSUE:
Whether the CA erred as to the issue of actual shortage allowing for the
presumption of negligence on the part of a common carrier.
HELD:
The CA erred in affirming the decision of the trial court holding petitioner ATI
solidarily liable with its co-defendants for the shortage incurred in the shipment of the
goods to respondent.
We note that the matters raised by petitioner ATI involve questions of fact which
are generally not reviewable in a petition for review on certiorari under Rule 45 of the
1997 Rules of Civil Procedure, as amended, as the Court is not a trier of facts. Section 1
thereof provides that "the petition x x x shall raise only questions of law, which must be
distinctly set forth."
A question of law exists when the doubt or controversy concerns the correct
application of law or jurisprudence to a certain set of facts; or when the issue does not
call for an examination of the probative value of the evidence presented, the truth or
falsehood of facts being admitted. A question of fact exists when the doubt or difference
arises as to the truth or falsehood of facts or when the query invites calibration of the
whole evidence considering mainly the credibility of the witnesses, the existence and
relevancy of specific surrounding circumstances as well as their relation to each other and
to the whole, and the probability of the situation.
The well-entrenched rule in our jurisdiction is that only questions of law may be
entertained by this Court in a petition for review on certiorari. This rule, however, is not
ironclad and admits certain exceptions, such as when (1) the conclusion is grounded on
speculations, surmises or conjectures; (2) the inference is manifestly mistaken, absurd or
impossible; (3) there is grave abuse of discretion; (4) the judgment is based on a
misapprehension of facts; (5) the findings of fact are conflicting; (6) there is no citation
of specific evidence on which the factual findings are based; (7) the findings of absence
of facts are contradicted by the presence of evidence on record; (8) the findings of the
Court of Appeals are contrary to those of the trial court; (9) the Court of Appeals

Page 121 of 193

manifestly overlooked certain relevant and undisputed facts that, if properly considered,
would justify a different conclusion; (10) the findings of the Court of Appeals are beyond
the issues of the case; and (11) such findings are contrary to the admissions of both
parties.
Petitioner ATI is correct in arguing that the respondent failed to prove that the
subject shipment suffered actual shortage, as there was no competent evidence to prove
that it actually weighed 3,300 metric tons at the port of origin.
Though it is true that common carriers are presumed to have been at fault the
plaintiff must still, before the burden is shifted to the defendant, prove that the subject
shipment suffered actual shortage. This can only be done if the weight of the shipment at
the port of origin and its subsequent weight at the port of arrival have been proven by a
preponderance of evidence, and it can be seen that the former weight is considerably
greater than the latter weight, taking into consideration the exceptions provided in Article
1734 of the Civil Code.
In this case, respondent failed to prove that the subject shipment suffered
shortage, for it was not able to establish that the subject shipment was weighed at the port
of origin at Darrow, Louisiana, U.S.A. and that the actual weight of the said shipment
was 3,300 metric tons.
The Berth Term Grain Bill of Lading23 (Exhibit "A"), the Proforma Invoice24
(Exhibit "B"), and the Packing List25 (Exhibit "C"), being used by respondent to prove
that the subject shipment weighed 3,300 metric tons, do not, in fact, help its cause. The
Berth Term Grain Bill of Lading states that the subject shipment was carried with the
qualification "Shippers weight, quantity and quality unknown," meaning that it was
transported with the carrier having been oblivious of the weight, quantity, and quality of
the cargo. This interpretation of the quoted qualification is supported by Wallem
Philippines Shipping, Inc. v. Prudential Guarantee & Assurance, Inc.,26 a case involving
an analogous stipulation in a bill of lading, wherein the Supreme Court held that: Indeed,
as the bill of lading indicated that the contract of carriage was under a "said to weigh"
clause, the shipper is solely responsible for the loading while the carrier is oblivious of

EXTRA-CONTRACTUAL OBLIGATIONS:
51.

(common carriers; negligence)

Asian Terminals vs Simon Enterprises

G.R. No. 177116

February 27, 2013

FACTS:
On October 25, 1995, Contiquincybunge Export Company loaded 6,843.700
metric tons of U.S. Soybean Meal in Bulk on board the vessel MN "Sea Dream" at the
Port of Darrow, Louisiana, U.S.A., for delivery to the Port of Manila to respondent Simon
Enterprises, Inc., as consignee. When the vessel arrived at the South Harbor in Manila,
the shipment was discharged to the receiving barges of petitioner Asian Terminals, Inc.

Page 122 of 193

(ATI), the arrastre operator. Respondent later received the shipment but claimed having
received only 6,825.144 metric tons of U.S. Soybean Meal, or short by 18.556 metric
tons, which is estimated to be worth US$7,100.16 or P186,743.20.
On November 25, 1995, Contiquincybunge Export Company made another shipment to
respondent and allegedly loaded on board the vessel M/V "Tern" at the Port of Darrow,
Louisiana, U.S.A. 3,300.000 metric tons of U.S. Soybean Meal in Bulk for delivery to
respondent at the Port of Manila. The carrier issued its clean Berth Term Grain Bill of
Lading.
On January 25, 1996, the carrier docked at the inner Anchorage, South Harbor,
Manila. The subject shipment was discharged to the receiving barges of petitioner ATI
and received by respondent which, however, reported receiving only 3,100.137 metric
tons instead of the manifested 3,300.000 metric tons of shipment. Respondent filed
against petitioner ATI and the carrier a claim for the shortage of 199.863 metric tons,
estimated to be worth US$79,848.86 or P2,100,025.00, but its claim was denied.
Thus, on December 3, 1996, respondent filed with the Regional Trial Court (RTC)
of Manila an action for damages against the unknown owner of the vessels M/V "Sea
Dream" and M/V "Tern," its local agent Inter-Asia Marine Transport, Inc., and petitioner
ATI alleging that it suffered the losses through the fault or negligence of the said
defendants. Respondent sought to claim damages plus attorneys fees and costs of suit. Its
claim against the unknown owner of the vessel M/V "Sea Dream," however, was later
settled in a Release and Quitclaim dated June 9, 1998, and only the claims against the
unknown owner of the M/V "Tern," Inter-Asia Marine Transport, Inc., and petitioner ATI
remained.
The RTC held that Asian Terminals and its co defendants solitarily liable to
Simon for damages from the shortage. The CA affirmed the RTC's decision.

ISSUE:
Whether Simon Enterprises was able to prove negligence on the part of Asian
Terminals.
HELD:
Respondent has not proven any negligence on the part of the former. Respondent
relied on the Survey Reports of Del Pan Surveyors to prove that the subject shipment
suffered loss. The conclusion that there was a shortage arose from an evaluation of the
weight of the cargo using the barge displacement method. This is a type of draught
survey, which is a method of cargo weight determination by ships displacement
calculations.40 The basic principle upon which the draught survey methodology is based
is the Principle of Archimedes, i.e., a vessel when floating in water, will displace a weight
of water equal to its own weight. It then follows that if a weight of cargo is loaded on (or
unloaded from) a vessel freely floating in water, then the vessel will sink (or float) into
the water until the total weight of water displaced is equal to the original weight of the

Page 123 of 193

vessel, plus (or minus) the cargo which has been loaded (or unloaded) and plus (or
minus) density variation of the water between the starting survey (first measurement) and
the finishing survey (second measurement). It can be seen that this method does not entail
the weighing of the cargo itself, but as correctly stated by the petitioner, the weight of the
shipment is being measured by mere estimation of the water displaced by the barges
before and after the cargo is unloaded from the said barges. Exhibit "D-1" of respondent
states that the average weight of each bag is 52 kilos. A total of 63,391 bags45 were
discharged from the barges, and the tare weight46 was established at 0.0950 kilos.47
Therefore, if one were to multiply 52 kilos per bag by 63,391 bags and deduct the tare
weight of 0.0950 kilos multiplied by 63,391 bags, the result would be 3,290,309.65 kilos,
or 3,290.310 metric tons. This would mean that the shortage was only 9.69 metric tons, if
we suppose that respondent was able to establish that the shipment actually weighed
3,300 metric tons at the port of loading.
However, the computation in Exhibit "D-2" would show that Del Pan Surveyors
inexplicably used 49 kilos as the weight per bag, instead of 52 kilos, therefore resulting in
the total net weight of 3,100,137 kilos or 3,100.137 metric tons. This was the figure used
as basis for respondent's conclusion that there is a shortage of 199.863 metric tons.
These discrepancies only lend credence to petitioner ATI's assertion that the weighing
methods respondent used as bases are unreliable and should not be completely relied
upon.
Considering that respondent was not able to establish conclusively that the subject
shipment weighed 3,300 metric tons at the port of loading, and that it cannot therefore be
concluded that there was a shortage for which petitioner should be responsible; bearing in
mind that the subject shipment most likely lost weight in transit due to the inherent nature
of Soya Bean Meal; assuming that the shipment lost weight in transit due to desorption,
the shortage of 199.863 metric tons that respondent alleges is a minimal 6.05% of the
weight of the entire shipment, which is within the allowable 10% allowance for loss; and
noting that the respondent was not able to show negligence on the part of the petitioner
and that the weighing methods which respondent relied upon to establish the shortage it
alleges is inaccurate, respondent cannot fairly claim damages against petitioner for the
subject shipment's alleged shortage.
AGENCY:
52.

(form of contract)
Yoshizaki vs. Joy Training Center Of Aurora, Inc.
G.R. No. 174978

July 31, 2013

FACTS:
Respondent Joy Training Center of Aurora, Inc. (Joy Training) is a non-stock,
non-profit religious educational institution. It was the registered owner of a parcel of land
and the building thereon (real properties) located in San Luis Extension Purok No. 1,

Page 124 of 193

Barangay Buhangin, Baler, Aurora. The parcel of land was designated as Lot No. 125-L
and was covered by Transfer Certificate of Title (TCT) No. T-25334.
On November 10, 1998, the spouses Richard and Linda Johnson sold the real
properties, a Wrangler jeep, and other personal properties in favor of the spouses Sally
and Yoshio Yoshizaki. On the same date, a Deed of Absolute Sale and a Deed of Sale of
Motor Vehicle6 were executed in favor of the spouses Yoshizaki. The spouses Johnson
were members of Joy Trainings board of trustees at the time of sale. On December 7,
1998, TCT No. T-25334 was cancelled and TCT No. T-260527 was issued in the name of
the spouses Yoshizaki.
On December 8, 1998, Joy Training, represented by its Acting Chairperson
Reuben V. Rubio, filed an action for the Cancellation of Sales and Damages with prayer
for the issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction
against the spouses Yoshizaki and the spouses Johnson before the Regional Trial Court of
Baler, Aurora (RTC). On January 4, 1999, Joy Training filed a Motion to Amend
Complaint with the attached Amended Complaint. The amended complaint impleaded
Cecilia A. Abordo, officer-in-charge of the Register of Deeds of Baler, Aurora, as
additional defendant. The RTC granted the motion on the same date.
In the complaint, Joy Training alleged that the spouses Johnson sold its properties
without the requisite authority from the board of directors. It assailed the validity of a
board resolution dated September 1, 1998 which purportedly granted the spouses Johnson
the authority to sell its real properties. It averred that only a minority of the board,
composed of the spouses Johnson and Alexander Abadayan, authorized the sale through
the resolution. It highlighted that the Articles of Incorporation provides that the board of
trustees consists of seven members, namely: the spouses Johnson, Reuben, Carmencita
Isip, Dominador Isip, Miraflor Bolante, and Abelardo Aquino.
Cecilia and the spouses Johnson were declared in default for their failure to file an
Answer within the reglementary period. On the other hand, the spouses Yoshizaki filed
their Answer with Compulsory Counterclaims on June 23, 1999. They claimed that Joy
Training authorized the spouses Johnson to sell the parcel of land. They asserted that a
majority of the board of trustees approved the resolution. They maintained that the actual
members of the board of trustees consist of five members, namely: the spouses Johnson,
Reuben, Alexander, and Abelardo. Moreover, Connie Dayot, the corporate secretary,
issued a certification dated February 20, 1998 authorizing the spouses Johnson to act on
Joy Trainings behalf. Furthermore, they highlighted that the Wrangler jeep and other
personal properties were registered in the name of the spouses Johnson. Lastly, they
assailed the RTCs jurisdiction over the case. They posited that the case is an intracorporate dispute cognizable by the Securities and Exchange Commission (SEC).
After the presentation of their testimonial evidence, the spouses Yoshizaki formally
offered in evidence photocopies of the resolution and certification, among others. Joy
Training objected to the formal offer of the photocopied resolution and certification on
the ground that they were not the best evidence of their contents. In an Order dated May
18, 2004, the RTC denied the admission of the offered copies.

Page 125 of 193

ISSUE:
Whether or not there was a contract of agency to sell the real properties.
RULING:
Article 1868 of the Civil Code defines a contract of agency as a contract whereby
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. It may be express, or
implied from the acts of the principal, from his silence or lack of action, or his failure to
repudiate the agency, knowing that another person is acting on his behalf without
authority.
As a general rule, a contract of agency may be oral.
However, it must be written when the law requires a specific form. Specifically,
Article 1874 of the Civil Code provides that the contract of agency must be written for
the validity of the sale of a piece of land or any interest therein. Otherwise, the sale shall
be void. A related provision, Article 1878 of the Civil Code, states that special powers of
attorney are necessary to convey real rights over immovable properties.
The special power of attorney mandated by law must be one that expressly
mentions a sale or that includes a sale as a necessary ingredient of the authorized act. We
unequivocably declared in Cosmic Lumber Corporation v. Court of Appeals that a special
power of attorney must express the powers of the agent in clear and unmistakable
language for the principal to confer the right upon an agent to sell real estate. When there
is any reasonable doubt that the language so used conveys such power, no such
construction shall be given the document. The purpose of the law in requiring a special
power of attorney in the disposition of immovable property is to protect the interest of an
unsuspecting owner from being prejudiced by the unwarranted act of another and to
caution the buyer to assure himself of the specific authorization of the putative agent.
The certification is a mere general power of attorney which comprises all of Joy
Trainings business. Article 1877 of the Civil Code clearly states that [a]n agency
couched in general terms comprises only acts of administration, even if the principal
should state that he withholds no power or that the agent may execute such acts as he
may consider appropriate, or even though the agency should authorize a general and
unlimited management.
Necessarily, the absence of a contract of agency renders the contract of sale
unenforceable; Joy Training effectively did not enter into a valid contract of sale with the
spouses Yoshizaki. Sally cannot also claim that she was a buyer in good faith. She
misapprehended the rule that persons dealing with a registered land have the legal right to
rely on the face of the title and to dispense with the need to inquire further, except when
the party concerned has actual knowledge of facts and circumstances that would impel a
reasonably cautious man to make such inquiry. This rule applies when the ownership of a
parcel of land is disputed and not when the fact of agency is contested

Page 126 of 193

AGENCY:
53.

(SPA; corporations; ratification)

Spouses Lim vs CA, Abbu, and BPI
G.R. No. 192615

January 30, 2013

FACTS:
Respondent Bank of the Philippine Islands (BPI) filed before the Regional Trial
Court (RTC), Branch 20, Cagayan de Oro City, a complaint for collection of money with
prayer for preliminary injunction against the petitioners. The verification and certification
against forum-shopping attached to the complaint were signed by Francisco R. Ramos
(Ramos), then BPI Assistant Vice-President and Mindanao Region Lending Head.

Page 127 of 193

On April 22, 1999, the petitioners moved to dismiss BPIs complaint on the ground that
there was a pending action for foreclosure proceedings before the RTC of Ozamis City,
filed by BPI against Philcompak, a corporation where the petitioners are the majority
stockholders. The RTC found that the present complaint and the pending action for
foreclosure proceedings involved different causes of action; hence, the RTC denied the
petitioners motion to dismiss and the subsequent motion for reconsideration.
The petitioners also moved to consolidate the present complaint with the other
cases pending before the RTC of Ozamis City, but the RTC (Cagayan de Oro City) denied
their motion. The court likewise denied the petitioners subsequent motion for
reconsideration.
On May 26, 2008, the petitioners filed another motion to dismiss, this time, on the
ground that there had been a fatal defect in the verification and certification against forum
shopping attached to BPIs complaint. They argued that the verification and certification
did not state or declare that Ramos was filing the subject complaint in a representative
capacity or as an authorized officer of BPI; nor did it state that Ramos was authorized by
BPIs Board of Directors to file the complaint through a board resolution made
specifically for the purpose. BPI filed a comment on the petitioners second motion to
dismiss.
Together with its comment, BPI submitted a copy of the Special Power of
Attorney (SPA) signed and executed by Rosario Jurado-Benedicto (Benedicto), the
Assistant Vice-President of BPI, granting Ramos the authority to represent the bank and
sign the verification and certification against forum shopping on BPIs behalf. Also, it
submitted a copy of the certified true copy of BPIs Corporate Secretarys Certificate
showing that Benedicto was among those authorized by the banks Executive Committee
to grant and extend a SPA to other bank officers to appear in court in cases where BPI is
the complainant or plaintiff. BPI contended that its submissions already constituted
substantial compliance with the procedural rules and should be applied in this case to
facilitate and effectuate the ends of substantial justice. BPI also contended that the
petitioners, by raising the issue of Ramos authority only in their May 26, 2008 motion to
dismiss and after having already filed several motions in court, are now estopped from
raising and are deemed to have waived this issue by reason of laches.
The RTC denied the Spuses Lim's motion to dismiss. The CA dismissed the Spuses lim's
petition for certiorari.
ISSUE:
Whether the Special Power of Attorney and Corporate Secretarys Certificate that
BPI belatedly submitted constituted substantial compliance with the requirements under
the rules on verification and certification.
HELD:
No. A closer look into the SPA and the Corporate Secretarys Certificate submitted
by BPI reveals that, at the time the subject complaint was filed on January 26, 1999,

Page 128 of 193

Ramos did not have the express authority to file and sign the verification and certification
against forum shopping attached to BPIs complaint. The SPA, which appointed Ramos
and/or Atty. Mateo G. Delegencia as BPIs attorneys-in-fact in the case against the
petitioners, was executed only on July 8, 2008. Even the Corporate Secretarys Certificate
that named the officers authorized by the BPIs Executive Committee to grant and extend
a SPA to other officers of the bank was executed only on February 21, 2007. The
Executive Committee is part of the banks permanent organization and, in between
meetings of BPIs Board of Directors, possesses and exercises all the powers of the board
in the management and direction of the banks affairs.
BPIs subsequent execution of the SPA, however, constituted a ratification of
Ramos unauthorized representation in the collection case filed against the petitioners. A
corporation can act only through natural persons duly authorized for the purpose or by a
specific act of its board of directors,17 and can also ratify the unauthorized acts of its
corporate officers.18 The act of ratification is confirmation of what its agent or delegate
has done without or with insufficient authority.
In PNCC Skyway Traffic Management and Security Division Workers
Organization (PSTMSDWO) v. PNCC Skyway Corporation,20 we considered the
subsequent execution of a board resolution authorizing the Union President to represent
the union in a petition filed against PNCC Skyway Corporation as an act of ratification
by the union that cured the defect in the petitions verification and certification against
forum shopping. We held that "assuming that Mr. Soriano (PSTMSDWOs President) has
no authority to file the petition on February 27, 2006, the passing on June 30, 2006 of a
Board Resolution authorizing him to represent the union is deemed a ratification of his
prior execution, on February 27, 2006, of the verification and certificate of non-forum
shopping, thus curing any defects thereof."
In Cagayan Valley Drug Corporation v. Commissioner of Internal Revenue,21 we
likewise recognized that certain officials or employees of a company could sign the
verification and certification without need of a board resolution, such as, but not limited
to: the Chairperson of the Board of Directors, the President of a corporation, the General
Manager or Acting General Manager, Personnel Officer, and an Employment Specialist in
a labor case. For other corporate officials and employees, the determination of the
sufficiency of their authority is done on a case-to-case basis.
We note that, at the time the complaint against the petitioners was filed, Ramos
also held the position of Assistant Vice-President for BPI Northern Mindanao and was
then the highest official representing the bank in the Northern Mindanao area.23 This
position and his standing in the BPI hierachy, to our mind, place him in a sufficiently
high and authoritative position to verify the truthfulness and correctness of the allegations
in the subject complaint, to justify his authority in filing the complaint and to sign the
verification and certification against forum shopping. Whatever is lacking, from the
strictly corporate point of view, was cured when BPI subsequently (although belatedly)
issued the appropriate SPA.

Page 129 of 193

WHEREFORE., premises considered, we hereby DENY the present petition for
review on certiorari. Costs against the petitioners.

AGENCY:
54.

(apparent authority of an agent; estoppel)

Recio vs. Heirs Of The Spouses Aguedo And Altamirano
G.R. No. 182349

July 24, 2013

FACTS:
In the 1950s, Nena Recio (Nena), the mother of Reman Recio, leased from the
respondents Alejandro, Adelaida, Catalina, Alfredo, Francisco, all surnamed Altamirano,
Violeta Altamirano Olfato, and Loreto Altamirano Vda. De Maralit (referred to as the
Altamiranos) a parcel of land with improvements, situated at No. 39 10 de Julio Street
(now Esteban Mayo Street), Lipa City, Batangas. The said land has an area of more or

Page 130 of 193

less eighty-nine square meters and fifty square decimeters (89.50 sq m), and is found at
the northern portion of two (2) parcels of land covered by Transfer Certificate of Title
(TCT) Nos. 66009 and 66010 of the Registry of Deeds of Lipa City. The Altamiranos
inherited the subject land from their deceased parents, the spouses Aguedo Altamirano
and Maria Valduvia.
Nena used the ground floor of the subject property as a retail store for grains and
the upper floor as the familys residence. The petitioner claimed that in 1988, the
Altamiranos offered to sell the subject property to Nena for Five Hundred Thousand
Pesos (P500,000.00). The latter accepted such offer, which prompted the Altamiranos to
waive the rentals for the subject property. However, the sale did not materialize at that
time due to the fault of the Altamiranos. Nonetheless, Nena continued to occupy and use
the property with the consent of the Altamiranos.
Meanwhile, the Altamiranos consolidated the two (2) parcels of land covered by
TCT Nos. 66009 and 66010. They were eventually subdivided into three (3) parcels of
land which were then denominated as Lots 1, 2, and 3 of the Consolidation-Subdivision
Plan PCS-04-00367. Subsequently, TCT No. T-102563 of the Registry of Deeds of Lipa
City was issued to cover the subject property. The petitioner and his family remained in
peaceful possession of Lot No. 3.
In the latter part of 1994, the petitioner renewed Nenas option to buy the subject
property. The petitioner conducted a series of negotiations with respondent Alejandro
who introduced himself as representing the other heirs. After the said negotiations, the
Altamiranos through Alejandro entered into an oral contract of sale with the petitioner
over the subject property. In January 1995, in view of the said oral contract of sale, the
petitioner made partial payments to the Altamiranos in the total amount of One Hundred
Ten Thousand Pesos (P110,000.00). Alejandro duly received and acknowledged these
partial payments as shown in a receipt dated January 24, 1995. On April 14, 1995, the
petitioner made another payment in the amount of Fifty Thousand Pesos (P50,000.00),
which Alejandro again received and acknowledged through a receipt of the same date.
Subsequently, the petitioner offered in many instances to pay the remaining balance of
the agreed purchase price of the subject property in the amount of Three Hundred Forty
Thousand Pesos (P340,000.00), but Alejandro kept on avoiding the petitioner. Because of
this, the petitioner demanded from the Altamiranos, through Alejandro, the execution of a
Deed of Absolute Sale in exchange for the full payment of the agreed price.
Thus, on February 24, 1997, the petitioner filed a complaint for Specific Performance
with Damages. On March 14, 1997, the petitioner also caused to annotate on the TCT No.
T-102563 a Notice of Lis Pendens.
Pending the return of service of summons to the Altamiranos, the petitioner
discovered that the subject property has been subsequently sold to respondents Lauro and
Marcelina Lajarca (Spouses Lajarca). TCT No. T-102563 was cancelled and a new title,
TCT No. 112727, was issued in the name of the Spouses Lajarca by virtue of a Deed of
Sale executed by the latter and the Altamiranos on February 26, 1998. Thus, the petitioner

Page 131 of 193

filed an Amended Complaint impleading the Spouses Lajarca and adding as a cause of
action the annulment of the sale between the Altamiranos and the Spouses Lajarca.
Thereafter, trial ensued. Alejandro was called to testify at the instance of the petitioner
but after a brief testimony, he excused himself and never returned to the witness stand
despite several subpoenas. For the respondents, the Altamiranos manifested that they
would no longer present any witness while the Spouses Lajarca were considered to have
waived their right to present evidence since they failed to appear on the day set for them
to do so.
ISSUE:
Whether or not a sale of real property, binds his co-owners, by one purporting to
be an agent of the owner without any written authority from the latter is null and void.
RULING:
In Woodchild Holdings, Inc. v. Roxas Electric and Construction Company, Inc.
the Court stated that persons dealing with an assumed agency, whether the assumed
agency be a general or special one, are bound at their peril, if they would hold the
principal liable, to ascertain not only the fact of agency but also the nature and extent of
authority, and in case either is controverted, the burden of proof is upon them to establish
it. In other words, when the petitioner relied only on the words of respondent Alejandro
without securing a copy of the SPA in favor of the latter, the petitioner is bound by the
risk accompanying such trust on the mere assurance of Alejandro.
The same Woodchild case stressed that apparent authority based on estoppel can arise
from the principal who knowingly permit the agent to hold himself out with authority and
from the principal who clothe the agent with indicia of authority that would lead a
reasonably prudent person to believe that he actually has such authority. Apparent
authority of an agent arises only from acts or conduct on the part of the principal and
such acts or conduct of the principal must have been known and relied upon in good faith
and as a result of the exercise of reasonable prudence by a third person as claimant and
such must have produced a change of position to its detriment. In the instant case, the
sale to the Spouses Lajarca and other transactions where Alejandro allegedly represented
a considerable majority of the co-owners transpired after the sale to the petitioner; thus,
the petitioner cannot rely upon these acts or conduct to believe that Alejandro had the
same authority to negotiate for the sale of the subject property to him.
In Alcantara v. Nido, the Court emphasized the requirement of an SPA before an
agent may sell an immovable property. In the said case, Revelen was the owner of the
subject land. Her mother, respondent Brigida Nido accepted the petitioners offer to buy
Revelens land at Two Hundred Pesos (P200.00) per sq m. However, Nido was only
authorized verbally by Revelen. Thus, the Court declared the sale of the said land null
and void under Articles 1874 and 1878 of the Civil Code.

Page 132 of 193

AGENCY:
55.

(relative incapacity)
Tumibay et. al. vs. Spouses Lopez
G.R. No.171692

June 3, 2013

FACTS:
On March 23, 1998, petitioners filed a Complaint7 for declaration of nullity ab
initio of sale, and recovery of ownership and possession of land with the RTC of
Malaybalay City. The case was raffled to Branch 9 and docketed as Civil Case No. 275998.
In their Complaint, petitioners alleged that they are the owners of a parcel of land
located in Sumpong, Malaybalay, Bukidnon covered by Transfer Certificate of Title

Page 133 of 193

(TCT) No. T-253348 (subject land) in the name of petitioner Aurora; that they are natural
born Filipino citizens but petitioner Delfin acquired American citizenship while his wife,
petitioner Aurora, remained a Filipino citizen; that petitioner Aurora is the sister of
Reynalda Visitacion (Reynalda);9 that on July 23, 1997, Reynalda sold the subject land to
her daughter, Rowena Gay T. Visitacion Lopez (respondent Rowena), through a deed of
sale10 for an unconscionable amount of P95,000.00 although said property had a market
value of more than P2,000,000.00; that the subject sale was done without the knowledge
and consent of petitioners; and that, for these fraudulent acts, respondents should be held
liable for damages. Petitioners prayed that (1) the deed of sale dated July 23, 1997 be
declared void ab initio, (2) the subject land be reconveyed to petitioners, and (3)
respondents be ordered to pay damages.
On May 19, 1998, respondents filed their Answer11 with counterclaim.
Respondents averred that on December 12, 1990, petitioners executed a special power of
attorney (SPA)12 in favor of Reynalda granting the latter the power to offer for sale the
subject land; that sometime in 1994, respondent Rowena and petitioners agreed that the
former would buy the subject land for the price of P800,000.00 to be paid on installment;
that on January 25, 1995, respondent Rowena paid in cash to petitioners the sum of
$1,000.00; that from 1995 to 1997, respondent Rowena paid the monthly installments
thereon as evidenced by money orders; that, in furtherance of the agreement, a deed of
sale was executed and the corresponding title was issued in favor of respondent Rowena;
that the subject sale was done with the knowledge and consent of the petitioners as
evidenced by the receipt of payment by petitioners; and that petitioners should be held
liable for damages for filing the subject Complaint in bad faith. Respondents prayed that
the Complaint be dismissed and that petitioners be ordered to pay damages.
On May 25, 1998, petitioners filed an Answer to Counterclaim.13 Petitioners
admitted the existence of the SPA but claimed that Reynalda violated the terms thereof
when she (Reynalda) sold the subject land without seeking the approval of petitioners as
to the selling price. Petitioners also claimed that the monthly payments from 1995 to
1997 were mere deposits as requested by respondent Rowena so that she (Rowena) would
not spend the same pending their agreement as to the purchase price; and that Reynalda,
acting with evident bad faith, executed the deed of sale in her favor but placed it in the
name of her daughter, respondent Rowena, which sale is null and void because an agent
cannot purchase for herself the property subject of the agency.
Trial court held: (1) the SPA merely authorized Reynalda to offer for sale the
subject land for a price subject to the approval of the petitioners; (2) Reynalda violated
the terms of the SPA when she sold the subject land to her daughter, respondent Rowena,
without first seeking the approval of petitioners as to the selling price thereof; (3) the SPA
does not sufficiently confer on Reynalda the authority to sell the subject land; (4)
Reynalda, through fraud and with bad faith, connived with her daughter, respondent
Rowena, to sell the subject land to the latter; and, (5) the sale contravenes Article 1491,
paragraph 2, of the Civil Code which prohibits the agent from acquiring the property
subject of the agency unless the consent of the principal has been given. The trial court

Page 134 of 193

held that Reynalda, as agent, acted outside the scope of her authority under the SPA.
Thus, the sale is null and void and the subject land should be reconveyed to petitioners.
The trial court further ruled that petitioners are not entirely free from liability because
they received from respondent Rowena deposits totaling $12,000.00. Under the principle
of unjust enrichment, petitioners should, thus, be ordered to reimburse the same without
interest.
CA reversed the decision of the RTC. It ruled that: (1) the SPA sufficiently
conferred on Reynalda the authority to sell the subject land; (2) although there is no
direct evidence of petitioners approval of the selling price of the subject land, petitioner
Auroras acts of receiving two money orders and several dollar checks from respondent
Rowena over the span of three years amount to the ratification of any defect in the
authority of Reynalda under the SPA; (3) petitioners are estopped from repudiating the
sale after they had received the deposits totaling $12,000.00; (4) the sale is not contrary
to public policy because there is no rule or law which prohibits the sale of property
subject of the agency between the agent and his children unless it would be in fraud of
creditors which is not the case here; (5) petitioners impliedly ratified the subject SPA and
contract of sale as well as its effects; and, (6) the selling price of P800,000.00 for the
subject land is deemed reasonable based on the testimony of respondent Rowena as this
was the selling price agreed upon by her and petitioner Delfin.
ISSUE:
1.

Whether under the SPA Reynalda had the power to sell the subject land.

2.

Whether the actuations of petitioner Aurora in receiving money from

respondent Rowena amounted to the ratification of the breach in the exercise of the SPA.
RULING:
SC
Based on the foregoing, we rule that (1) Reynalda, as agent, acted beyond the
scope of her authority under the SPA when she executed the deed of sale dated July 23,
1997 in favor of respondent Rowena, as buyer, without the knowledge and consent of
petitioners, and conveyed the subject land to respondent Rowena at a price not approved
by petitioners, as principals and sellers, (2) respondent Rowena was aware of the limits of
the authority of Reynalda under the SPA, and (3) petitioners did not ratify, impliedly or
expressly, the acts of Reynalda. Under Article 1898 of the Civil Code, the sale is void and
petitioners are, thus, entitled to the reconveyance of the subject land.
Wherefore, the petition is granted.

Page 135 of 193

LOAN:
56.

(payment of interests)
Spouses Bonrostro vs. Spouses Luna
G.R. No. 172346

July 24, 2013

FACTS:
Respondent Constancia Luna (Constancia), as buyer, entered into a Contract to
Sell with Bliss Development Corporation (Bliss) involving a house and lot identified as
Lot 19, Block 26 of New Capitol Estates in Diliman, Quezon City. Barely a year after,
Constancia, this time as the seller, entered into another Contract to Sell with petitioner

Page 136 of 193

Lourdes Bonrostro (Lourdes) concerning the same property under the following terms
and conditions:
1. The stipulated price of P1,250,000.00 shall be paid by the VENDEE to the
VENDOR in the following manner:
(a) P200,000.00 upon signing x x x the Contract To Sell,
(b) P300,000.00 payable on or before April 30, 1993,
(c) P330,000.00 payable on or before July 31, 1993,
(d) P417,000.00 payable to the New Capitol Estate, for 15 years at P6,867.12 a month,
2. x x x In the event the VENDEE fails to pay the second installment on time, the
VENDEE will pay starting May 1, 1993 a 2% interest on the P300,000.00 monthly.
Likewise, in the event the VENDEE fails to pay the amount of P630,000.00 on the
stipulated time, this CONTRACT TO SELL shall likewise be deemed cancelled and
rescinded and x x x 5% of the total contract price of P1,250,000.00 shall be deemed
forfeited in favor of the VENDOR. Unpaid monthly amortization shall likewise be
deducted from the initial down payment in favor of the VENDOR.
Immediately after the execution of the said second contract, the spouses Bonrostro
took possession of the property. However, except for the P200,000.00 down payment,
Lourdes failed to pay any of the stipulated subsequent amortization payment.
Constancia and her husband, respondent Juan Luna (spouses Luna), filed before
the RTC a Complaint for Rescission of Contract and Damages against the spouses
Bonrostro praying for the rescission of the contract, delivery of possession of the subject
property, payment by the latter of their unpaid obligation, and awards of actual, moral
and exemplary damages, litigation expenses and attorneys fees.
In their Answer with Compulsory Counterclaim, the spouses Bonrostro averred
that they were willing to pay their total balance of P630,000.00 to the spouses Luna after
they sought from them a 60-day extension to pay the same. However, during the time that
they were ready to pay the said amount in the last week of October 1993, Constancia and
her lawyer, Atty. Arlene Carbon (Atty. Carbon), did not show up at their rendezvous. On
November 24, 1993, Lourdes sent Atty. Carbon a letter expressing her desire to pay the
balance, but received no response from the latter. Claiming that they are still willing to
settle their obligation, the spouses Bonrostro prayed that the court fix the period within
which they can pay the spouses Luna.
RTC rendered its Decision focusing on the sole issue of whether the spouses
Bonrostros delay in their payment of the installments constitutes a substantial breach of
their obligation under the contract warranting rescission. As their Motion for
Reconsideration was likewise denied in an Order. The spouses Luna appealed to the CA.
The CA concluded that since the contract entered into by and between the parties is a
Contract to Sell, rescission is not the proper remedy. Moreover, the subject contract being
specifically a contract to sell a real property on installment basis, it is governed by
Republic Act No. 6552 or the Maceda Law, Section 4.
ISSUE:

Page 137 of 193

Whether the CA correctly modified the RTC Decision with respect to interests.
HELD:
The Petition lacks merit. Clearly, the RTC arrived at the above-quoted conclusion
based on its mistaken premise that rescission is applicable to the case. Hence, its
determination of whether there was substantial breach. As may be recalled, however, the
CA, in its assailed Decision, found the contract between the parties as a contract to sell,
specifically of a real property on installment basis, and as such categorically declared
rescission to be not the proper remedy. This is considering that in a contract to sell,
payment of the price is a positive suspensive condition, failure of which is not a breach of
contract warranting rescission under Article 1191 of the Civil Code but rather just an
event that prevents the supposed seller from being bound to convey title to the supposed
buyer. Also, and as correctly ruled by the CA, Article 1191 cannot be applied to sales of
real property on installment since they are governed by the Maceda Law.
Tender of payment "is the manifestation by the debtor of a desire to comply with
or pay an obligation. If refused without just cause, the tender of payment will discharge
the debtor of the obligation to pay but only after a valid consignation of the sum due shall
have been made with the proper court." "Consignation is the deposit of the proper amount
with a judicial authority in accordance with rules prescribed by law, after the tender of
payment has been refused or because of circumstances which render direct payment to
the creditor impossible or inadvisable."
"Tender of payment, without more, produces no effect." "To have the effect of
payment and the consequent extinguishment of the obligation to pay, the law requires the
companion acts of tender of payment and consignation."
As to the effect of tender of payment on interest, noted civilist Arturo M.
Tolentino explained as follows: When a tender of payment is made in such a form that the
creditor could have immediately realized payment if he had accepted the tender, followed
by a prompt attempt of the debtor to deposit the means of payment in court by way of
consignation, the accrual of interest on the obligation will be suspended from the date of
such tender. But when the tender of payment is not accompanied by the means of
payment, and the debtor did not take any immediate step to make a consignation, then
interest is not suspended from the time of such tender.
Under Article 2209 of the Civil Code, "if the obligation consists in the payment of
a sum of money, and the debtor incurs in delay, the indemnity for damages, there being
no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest." There being no stipulation on interest in case of
delay in the payment of amortization, the CA thus correctly imposed interest at the legal
rate which is now 12% per annum.
WHEREFORE, the Petition for Review on Certiorari is DENIED and the assailed
Decision dated April 15, 2005 and the Resolution dated April 17, 2006 of the Court of
Appeals in CA-G.R. CV No. 56414 are AFFIRMED.

Page 138 of 193

LOAN:
57.

(equitable mortgage; pactum commissorium)

Spouses Martires vs Menelia Chua
G.R. No. 174240

March 20, 2013

FACTS:
Subject of the instant controversy are twenty-four memorial lots located at the
Holy Cross Memorial Park in Barangay Bagbag, Novaliches, Quezon City. The property,
more particularly described as "Lot: 24 lots, Block 213, Section: Plaza of Heritage-Reg.,"
is covered by Transfer Certificate of Title (TCT) No. 342914. Respondent, together with

Page 139 of 193

her mother, Florencia R. Calagos, own the disputed property. Their co-ownership is
evidenced by a Deed of Sale and Certificate of Perpetual Care, denominated as Contract
No. 31760, which was executed on June 4, 1992.
Chua borrowed P150,000 from Spouses Martires. The loan was secured by a real
estate mortgage over 24 memorial lot owned by Chua and her mother, Florencia Chua
committed to pay a monthly interest of 8% and an additional 10% in case of default.
Chua failed to fully settle her obligation. Without foreclosure, the subject lots were
transferred in the name of the Spouses Martires via a deed of transfer. Chua then filed a
complaint against the Spouses Martires seeking the annulment of the contract of
mortgage between her and the petitioners grounded on exorbitant interest. Chua amended
her complaint to include the allegation that the deed of transfer was forged along with the
affidavit of warranty by the Spouses Martires.
The RTC dismissed Chuas complaint. The lower court ruled in favor of the
Spouses Martires in granting their counterclaim and prayer for damages. The CA
affirmed the judgment of the RTC but lessened the award of damages in favor of the
Spouses Martires. The CA found that Chua voluntarily entered into a contract of loan and
that the deed of transfer is sufficient evidence of acwquisition of ownership. Chua filed
her motion for reconsideration which the CA granted. The CA then reversed the RTCs
judgment. The CA found that the deed of transfer was really an equitable mortgage as the
true intention of Chua was to provide security for her loan and not to transfer ownership
of the property.
ISSUE:
Whether the CA erred in considering the deed of transfer as an equitable mortgage
HELD:
Based on the foregoing, the Court finds no cogent reason to depart from the
findings of the CA that the agreement between petitioners and respondent is, in fact, an
equitable mortgage.
An equitable mortgage has been defined 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.30
One of the circumstances provided for under Article 1602 of the Civil Code,
where a contract shall be presumed to be an equitable mortgage, is "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." In the instant case, it has
been established that the intent of both petitioners and respondent is that the subject
property shall serve as security for the latter's obligation to the former. As correctly
pointed out by the CA, the circumstances surrounding the execution of the disputed Deed
of Transfer would show that the said document was executed to circumvent the terms of

Page 140 of 193

the original agreement and deprive respondent of her mortgaged property without the
requisite foreclosure.
With respect to the foregoing discussions, it bears to point out that in Misena v.
Rongavilla,31 a case which involves a factual background similar to the present case, this
Court arrived at the same ruling. In the said case, the respondent mortgaged a parcel of
land to the petitioner as security for the loan which the former obtained from the latter.
Subsequently, ownership of the property was conveyed to the petitioner via a Deed of
Absolute Sale. Applying Article 1602 of the Civil Code, this Court ruled in favor of the
respondent holding that the supposed sale of the property was, in fact, an equitable
mortgage as the real intention of the respondent was to provide security for the loan and
not to transfer ownership over the property.
Since the original transaction between the parties was a mortgage, the subsequent
assignment of ownership of the subject lots to petitioners without the benefit of
foreclosure proceedings, partakes of the nature of a pactum commissorium, as provided
for under Article 2088 of the Civil Code.
Pactum commissorium is a stipulation empowering the creditor to appropriate the
thing given as guaranty for the fulfillment of the obligation in the event the obligor fails
to live up to his undertakings, without further formality, such as foreclosure proceedings,
and a public sale.
In the instant case, evidence points to the fact that the sale of the subject property, as
proven by the disputed Deed of Transfer, was simulated to cover up the automatic
transfer of ownership in petitioners' favor. While there was no stipulation in the mortgage
contract which provides for petitioners' automatic appropriation of the subject mortgaged
property in the event that respondent fails to pay her obligation, the subsequent acts of the
parties and the circumstances surrounding such acts point to no other conclusion than that
petitioners were empowered to acquire ownership of the disputed property without need
of any foreclosure.
Indeed, the Court agrees with the CA in not giving credence to petitioners'
contention in their Answer filed with the RTC that respondent offered to transfer
ownership of the subject property in their name as payment for her outstanding
obligation. As this Court has held, all persons in need of money are liable to enter into
contractual relationships whatever the condition if only to alleviate their financial burden
albeit temporarily.
Hence, courts are duty-bound to exercise caution in the interpretation and
resolution of contracts lest the lenders devour the borrowers like vultures do with their
prey.34 Aside from this aforementioned reason, the Court cannot fathom why respondent
would agree to transfer ownership of the subject property, whose value is much higher
than her outstanding obligation to petitioners. Considering that the disputed property was
mortgaged to secure the payment of her obligation, the most logical and practical thing
that she could have done, if she is unable to pay her debt, is to wait for it to be foreclosed.
She stands to lose less of the value of the subject property if the same is foreclosed, rather
than if the title thereto is directly transferred to petitioners. This is so because in

Page 141 of 193

foreclosure, unlike in the present case where ownership of the property was assigned to
petitioners, respondent can still claim the balance from the proceeds of the foreclosure
sale, if there be any. In such a case, she could still recover a portion of the value of the
subject property rather than losing it completely by assigning its ownership to petitioners.
WHEREFORE, the instant petition is DENIED.

LOAN:
58.

(interest from the time judgment is final and executory)

Spouses Ricardo and Elena Golez vs Spouses Carlos and Amelita
Navarro
G.R. No. 192532

January 30, 2013

FACTS:
On October 5, 1993, the Spouses Golez entered into an agreement w/ Amelita as
real estate dealer. Amelita was appointed as the Spouses Golez' exclusive agent in the sale
of their property in Zamboanga del Sur. It was also agreed that if the price of the sale
exceeds Php 600,000, Amelita would be given a commission of 90% of the amount in

Page 142 of 193

excess. Amelita found an interested buyer, the Mormons, but no sale occurred since they
could not agree on the selling price. Spouses Golez upon knowing this took over
negotiations and eventually successfully sold the their property for Php 800,000. The sale
included other lots owned by the Spouses Golez amounting to Php 1,300,000. Amelita
was not given any commission so she then asserted her right to be paid commsssion but
the Spouse Golez refused. No amicable settlement was made in the office of the
Barangay Captain of Molave. Amelita w/ her husband then filed a collection suit, breach
of contract and damages against the Spouses Golez in the RTC of Molave.
The RTC ruled in Amelita's favor. As to the award of agent's commission earned,
the unpaid sum was to earn interest at the rate of 12% per annum from the sale of the
Spouses Golez to the Mormons until it is fully paid. The CA affirmed but modified the
RTC decision, ordering appellants to pay(Php180,000.00) representing the commission
for the sale of appellants properties subject of the contract of agency. The Spouses
Navarro then filed a motion for the issuance of a writ of execution which was granted.
The respondents then filed a motion for the judicial determination of the monetary
awards subject for execution since the clerk of court did not incorporate the interest. The
RTC issued an order stating that Php 180,000 representing agent's commission as
modified by the CA and Php 324,000 as interest of unpaid commissions.
ISSUE:
Whether the trial court erred in ordering the payment of interest from the date of
sale when none is so decreed in the modified decision of the CA.
HELD:
In the present case, the Court finds meritorious grounds to admit the petition and
absolve the petitioners from their procedural lapse.
It is undisputed that the CA Decision dated September 29, 2006 is already final
and executory. As a rule, once a judgment becomes final and executory, all that remains is
the execution of the decision which is a matter of right. The prevailing party is entitled to
a writ of execution, the issuance of which is the trial courts ministerial duty. The writ of
execution, however, must conform substantially to every essential particular of the
judgment promulgated. It must conform, more particularly, to that ordained or decreed in
the dispositive portion of the decision.
The dispute in this case revolves around the order of execution issued by the RTC,
which commanded the Clerk of Court and Ex-Officio Sheriff to issue an alias writ of
execution ordering the defendants to pay the plaintiffs the total amount of P504,000.00.
In so ordering, it was the belief of the RTC that the monetary award included the 12% per
annum interest originally provided in its decision. This is, however, in direct variance
with the dispositive portion of the CA Decision, which merely provided for the award of
a commission in the amount of P180,000.00 without any provision on the imposition of
an interest, thus:

Page 143 of 193

(2) Ordering appellants to pay, jointly and severally, to appellees the amount of one
hundred eighty thousand pesos (Php180,000.00) representing the commission for the sale
of appellants properties subject of the contract of agency.
What was merely ordered by the CA was the payment of P180,000.00, nothing
more. The portion "in its other aspects, the appealed decision shall remain undisturbed"42
pertains to those sections that were not disturbed or modified by the CA, that is, payment
of the costs of action and the issuance of a writ of attachment against the estate of the
petitioners. It cannot be construed to extend to the award of P180,000.00. If the CA
intended that there should be a 12% per annum interest to be imposed on the principal
sum of P180,000.00, "from the date of sale until fully paid," it could have done so in
plain and specific terms. But it did not.
Having said that, it must however be clarified that the imposition of 12% interest
is still warranted in the case at bar, not from the date of sale on November 9, 1994, as the
respondents insist; but from the finality of the decision up to the satisfaction of judgment
in line with the doctrine laid down in Eastern Shipping Lines, Inc. v. Court of Appeals.
The records disclose that the September 29, 2006 Decision of the CA modifying that of
the RTC became final and executory when this Court affirmed the same in G.R. No.
178648 and denied with finality the motion for reconsideration thereof in the Resolution
dated February 28, 2009. The Court notes that the petitioners also concede that the
payment of 12% interest from the finality of judgment is in order pursuant to Eastern
Shippings Lines, Inc. where the Court held that:
"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 extra judicially (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.
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."
The Clerk of Court and Ex-Officio Sheriff of the Regional Trial Court of Molave,
Zamboanga del Sur, Branch 23, is hereby ORDERED to issue an alias writ of execution
ordering Spouses Ricardo and Elena Golez to pay, jointly and severally, to Spouses
Carlos and Amelita Navarro the amount of one hundred eighty thousand pesos
(P180,000.00) representing the commission for the sale of appellants' properties subject

Page 144 of 193

of the contract of agency with 12% interest from finality of judgment on February 28,
2009 until fully paid.

LOAN:
59.

(Interest)
Advocates for Truth in Lending vs Banko Sentral Monetary Board
G.R. No. 192986

January 15, 2013

FACTS:
Petitioner, Advocates for Truth in Lending (AFTIL) is a non stock and non profit
corporation engaged in pro bono activities relating to money lending issues. AFTIL by
way of a petition for certiorari directly to the SC contend that under sec. 1-a of Act 2655

Page 145 of 193

(The Usury law of 1916) as amended by PD 1684, the Central Bank Monetary Board was
authorized only to prescribe the maximum rates of interest for a loan or for the
forbearance of any money, goods, or credits and to change such rates whenever warranted
by prevailing economic and social conditions. AFTIL argue that PD 1684 did not
authorize the CB-MB to suspend the limits of interest on all credit transactions via CB
circular No. 905. AFTIL attached to their petition copies of Senate Bills and resolutions
of the 10th Congress calling for investigations into the alleged unconscionable
commercial interest rates imposed by Banks and Financial Institutions. AFTIL points out
the Bills filed by Senators Sotto, Blas Ople, Magsaysay, Honasan, and Drilon seeking to
amend Act 2655. Some of the senators also urged the senate committee to investigate
ways to curb the high commercial interest rates then obtaining in the country.
ISSUES:
1.) If under PD 1684, the CB-MB was authorized to suspend the limits on interest.
2.) If the lifting of ceilings for interest allow for stipulations charging excessive
interest.
HELD 1:
The CB-MB merely suspended the effectivity of the Usury Law when it issued
CB Circular No. 905.
The power of the CB to effectively suspend the Usury Law pursuant to P.D. No.
1684 has long been recognized and upheld in many cases. As the Court explained in the
landmark case of Medel v. CA, citing several cases, CB Circular No. 905 "did not repeal
nor in anyway amend the Usury Law but simply suspended the latters effectivity;" that
"a CB Circular cannot repeal a law, [for] only a law can repeal another law;" that "by
virtue of CB Circular No. 905, the Usury Law has been rendered ineffective;" and "Usury
has been legally non-existent in our jurisdiction. Interest can now be charged as lender
and borrower may agree upon."
In First Metro Investment Corp. v. Este Del Sol Mountain Reserve, Inc. cited in
DBP v. Perez, we also belied the contention that the CB was engaged in self-legislation.
Thus: Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law
but simply suspended the latters effectivity. The illegality of usury is wholly the creature
of legislation. A Central Bank Circular cannot repeal a law. Only a law can repeal another
law.
In PNB v. Court of Appeals, an escalation clause in a loan agreement authorized
the PNB to unilaterally increase the rate of interest to 25% per annum, plus a penalty of
6% per annum on past dues, then to 30% on October 15, 1984, and to 42% on October
25, 1984. The Supreme Court invalidated the rate increases made by the PNB and upheld
the 12% interest imposed by the CA, in this wise: P.D. No. 1684 and C.B. Circular No.
905 no more than allow contracting parties to stipulate freely regarding any subsequent
adjustment in the interest rate that shall accrue on a loan or forbearance of money, goods

Page 146 of 193

or credits. In fine, they can agree to adjust, upward or downward, the interest previously
stipulated.
Thus, according to the Court, by lifting the interest ceiling, CB Circular No. 905
merely upheld the parties freedom of contract to agree freely on the rate of interest. It
cited Article 1306 of the New Civil Code, under which the contracting parties may
establish such stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order, or public
policy.
HELD 2:
The lifting of the ceilings for interest rates does not authorize stipulations
charging excessive, unconscionable, and iniquitous interest. It is settled that nothing in
CB Circular No. 905 grants lenders a carte blanche authority to raise interest rates to
levels which will either enslave their borrowers or lead to a hemorrhaging of their assets.
The imposition of an unconscionable rate of interest on a money debt, even if
knowingly and voluntarily assumed, is immoral and unjust. It is tantamount to a
repugnant spoliation and an iniquitous deprivation of property, repulsive to the common
sense of man. It has no support in law, in principles of justice, or in the human conscience
nor is there any reason whatsoever which may justify such imposition as righteous and as
one that may be sustained within the sphere of public or private morals.
Stipulations authorizing iniquitous or unconscionable interests have been
invariably struck down for being contrary to morals, if not against the law. Indeed, under
Article 1409 of the Civil Code, these contracts are deemed inexistent and void ab initio,
and therefore cannot be ratified, nor may the right to set up their illegality as a defense be
waived.
Nonetheless, the nullity of the stipulation of usurious interest does not affect the
lenders right to recover the principal of a loan, nor affect the other terms thereof. Thus,
in a usurious loan with mortgage, the right to foreclose the mortgage subsists, and this
right can be exercised by the creditor upon failure by the debtor to pay the debt due. The
debt due is considered as without the stipulated excessive interest, and a legal interest of
12% per annum will be added in place of the excessive interest formerly imposed,
following the guidelines laid down in the landmark case of Eastern Shipping Lines, Inc.
v. Court of Appeals, regarding the manner of computing legal interest:
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if
proper, and the applicable rate, as follows: The 12% per annum rate under CB Circular
No. 416 shall apply only to loans or forbearance of money, goods, or credits, as well as to
judgments involving such loan or forbearance of money, goods, or credit, while the 6%
per annum under Art. 2209 of the Civil Code applies "when the transaction involves the
payment of indemnities in the concept of damage arising from the breach or a delay in the
performance of obligations in general," with the application of both rates reckoned "from
the time the complaint was filed until the [adjudged] amount is fully paid." In either
instance, the reckoning period for the commencement of the running of the legal interest

Page 147 of 193

shall be subject to the condition "that the courts are vested with discretion, depending on
the equities of each case, on the award of interest."
The Petition for certiorari is DISMISSED.

COMPROMISE:
60.

(compromise)

Land Bank vs Heirs of Spouses Soriano

G.R. No. 178312,

January 30, 2013

FACTS:
The respondents are the children of the late Spouses Jorja Rigor-Soriano and
Magin Soriano, the owners of the two parcels of land covered by TCT No. NT 146092
(2839) and TCT NO. NT-61608, both of the Registry of Deeds of Nueva Ecija,

Page 148 of 193

containing an area of 10.9635 hectares located in Poblacion/Talabutab, Gen. Natividad,
Nueva Ecija and 4.1224 hectares located in Macabucod, Aliaga, Nueva Ecija,
respectively. The lands became subject to the Operation Land Transfer and were valued
by the Department of Agrarian reform at P10,000.00/hectare. The Heirs of Spouses
Soriano commenced an action for just compensation arguing that the said valuation was
too low for ones that were irrigated and produced 150 cavans per hectare. They asked
that it be pegged at 1.8 million based on Admin Order 61 Series of 1992 and RA
6657.The Land Bank disagreed insisting that the valuation is governed by PD 27 and EO
228. The Land Bank asked that the Valuation of the DAR be retained or a judicial
valuation be made.
The RTC ordered the Land Bank to pay 1.2 million as just compensation. The CA
sustained the ruling of the RTC. The Land Bank submitted a joint manifestation to the
court and a motion stating the approval of the revaluation of thre properties based on
DAR Admin Order 1 Series of 2010. The revaluations were P229,799.42and P2,260,725.
The Land Bank prayed that the appeal be resolved on the acceptance of payment by the
Heirs of Soirano. The Land Bank submitted a manifestation informing the court that the
parties filed their joint motion to approve the attached agreement which the court later
received.
ISSUE:
Whether or not the court should approve the said agreement.
HELD:
Land Bank submitted to the Court a so-called Joint Manifestation and Motion
(Re: Unconditional Acceptance of Revaluation) dated February 9, 2012, stating that the
approval by Land Banks responsible officers of the revaluation of the properties pursuant
to DAR Administrative Order No. 1 dated February 18, 2010, Series of 2010, as follows:
(a) P229,799.42, for the acquired area consisting of 2.3539 hectares located in
Macabucod, Aliaga, Nueva Ecija and covered by TCT No. NT 61608; and (b)
P2,260,725.87 for the acquired area consisting of 10.4795 hectares located in Talubatab,
Gen. Natividad, Nueva Ecija and covered by TCT No. NT-146092, was communicated to
the respondents for their unconditional acceptance. It prayed that the appeal be now
resolved on the basis of the acceptance of payment by the respondents.
Under the resolution dated March 12, 2012, the Court required the respondents to
comment on Land Banks submission of the Joint Manifestation and Motion (Re:
Unconditional Acceptance of Revaluation) dated February 29, 2012; directed the parties
to submit their formal written agreement within 15 days from notice; and deferred action
on the Joint Manifestation and Motion (Re: Unconditional Acceptance of Revaluation)
dated February 29, 2012 pending compliance by the parties.
On December 4, 2012, Land Bank submitted a Manifestation, informing the Court that
the parties had filed by registered mail their Joint Motion to Approve the Attached
Agreement, submitting therewith their Agreement dated November 29, 2012.
On December 7, 2012, the Court received the Joint Motion to Approve the Attached
Agreement and the Agreement dated November 29, 2012. Thereby, the parties prayed that

Page 149 of 193

the Court consider and approve the Agreement as its disposition of the petition for review
on certiorari, and render its judgment in accordance with the terms of the Agreement.
There is no question that the foregoing Agreement was a compromise that the
parties freely and voluntarily entered into for the purpose of finally settling their dispute
in this case. Under Article 2028 of the Civil Code, a compromise is a contract whereby
the parties, by making reciprocal concessions, avoid a litigation or put an end to one
already commenced. Accordingly, a compromise is either judicial, if the objective is to
put an end to a pending litigation, or extrajudicial, if the objective is to avoid a litigation.
As a contract, a compromise is perfected by mutual consent. However, a judicial
compromise, while immediately binding between the parties upon its execution, is not
executory until it is approved by the court and reduced to a judgment. The validity of a
compromise is dependent upon its compliance with the requisites and principles of
contracts dictated by law. Also, the terms and conditions of a compromise must not be
contrary to law, morals, good customs, public policy and public order.
A review of the terms of the Agreement, particularly paragraph 6 and paragraph 7,
indicates that it is a judicial compromise because the parties intended it to terminate their
pending litigation by fully settling their dispute. Indeed, with the respondents thereby
expressly signifying their "unconditional or absolute acceptance and full receipt of the
foregoing amounts as just compensation for subject properties the First Party and the
Second Party hereby consider the case titled "Land Bank of the Philippines v. Heirs of
Spouses Jorja Rigor-Soriano and Magin Soriano, namely: Marivel S. Carandang and
Joseph Soriano (G.R. No. 178312) pending before the Supreme Court, closed and
terminated," the ultimate objective of the action to determine just compensation for the
landowners was achieved.
WHEREFORE, finding the Agreement to have been validly and voluntarily
executed by the parties in compliance with the requirements of law, the Court hereby
APPROVES it. Considering that the Agreement shows that the payment of just
compensation was already fully executed, and that the affected properties were already
delivered to Land Bank of the Philippines, thereby leaving nothing further to be complied
with by the parties, the Court declares this appeal CLOSED and TERMINATED, without
pronouncements as to costs of suit.
SURETYSHIP:
61.

(suretyship)

Manila Insurance Co. vs Spouses Amurao

G.R. No. 179628

January 16, 2013

FACTS:
Respondent-spouses Roberto and Aida Amurao entered into a Construction
Contract Agreement (CCA) with Aegean Construction and Development Corporation
(Aegean) for the construction of a six-storey commercial building in Tomas Morato
corner E. Rodriguez Avenue, Quezon City. To guarantee its full and faithful compliance

Page 150 of 193

with the terms and conditions of the CCA, Aegean posted performance bonds secured by
petitioner The Manila Insurance Company, Inc. (petitioner) and Intra Strata Assurance
Corporation (Intra Strata).
On November 15, 2001, due to the failure of Aegean to complete the project,
respondent spouses filed with the Regional Trial Court (RTC) of Quezon City, Branch
217, a Complaint, docketed as Civil Case No. Q-01-45573, against petitioner and Intra
Strata to collect on the performance bonds they issued in the amounts ofP2,760,000.00
and P4,440,000.00, respectively.
Intra Strata, for its part, filed an Answer and later, a Motion to Admit Third Party
Complaint, with attached Third Party Complaint against Aegean, Ronald D. Nicdao, and
Arnel A. Mariano.
Petitioner, on the other hand, filed a Motion to Dismiss on the grounds that the
Complaint states no cause of action and that the filing of the Complaint is premature due
to the failure of respondent-spouses to implead the principal contractor, Aegean. The
RTC, however, denied the motion in an Order dated May 8, 2002. Thus, petitioner filed
an Answer with Counterclaim and Cross-claim, followed by a Third Party
Complaint against Aegean and spouses Ronald and Susana Nicdao.
During the pre-trial, petitioner and Intra Strata discovered that the CCA entered
into by respondent-spouses and Aegean contained an arbitration clause.
Hence, they filed separate Motions to Dismiss on the grounds of lack of cause of action
and lack of jurisdiction.
The RTC denied both motions leading Manila Insurance to appeal. The CA ruled
that the arbitration clause does not merit a dismissal of the cas under the cca, it is only
when there are differences in the interpretation of Article I of the construction agreement
that the parties can resort to arbitration. The CA explained that the performance bond was
intended to be coterminous w/ the construction of the building and that the consideration
that supports the principal contract supports the subsidiary one as well. Although the
contract of surety is only an accessory to the principal contract, the suretys liability is
direct, primary and absolute.

ISSUE:
Whether the CA erred in treating Manila Insurance as a solidary debtor instead of
a solidary guarantor.
HELD:
A contract of suretyship is defined as "an agreement whereby a party, called the
surety, guarantees the performance by another party, called the principal or obligor, of an
obligation or undertaking in favor of a third party, called the obligee. It includes official
recognizances, stipulations, bonds or undertakings issued by any company by virtue of
and under the provisions of Act No. 536, as amended by Act No. 2206." We have

Page 151 of 193

consistently held that a suretys liability is joint and several, limited to the amount of the
bond, and determined strictly by the terms of contract of suretyship in relation to the
principal contract between the obligor and the obligee. It bears stressing, however, that
although the contract of suretyship is secondary to the principal contract, the suretys
liability to the obligee is nevertheless direct, primary, and absolute.
In this case, respondent-spouses (obligee) filed with the RTC a Complaint against
petitioner (surety) to collect on the performance bond it issued. Petitioner, however, seeks
the dismissal of the Complaint on the grounds of lack of cause of action and lack of
jurisdiction.
The respondent-spouses have cause of action against the petitioner; the performance bond
is coterminous with the CCA. Petitioner claims that respondent-spouses have no cause of
action against it because at the time it issued the performance bond, the CCA was not yet
signed by respondent-spouses and Aegean.
We do not agree. A careful reading of the Performance Bond reveals that the
"bond is coterminous with the final acceptance of the project." Thus, the fact that it was
issued prior to the execution of the CCA does not affect its validity or effectivity.
In William Golangco Construction Corporation v. Ray Burton Development
Corporation, we declared that monetary claims under a construction contract are disputes
arising from "differences in interpretation of the contract" because "the matter of
ascertaining the duties and obligations of the parties under their contract all involve
interpretation of the provisions of the contract." Following our reasoning in that case, we
find that the issue of whether respondent-spouses are entitled to collect on the
performance bond issued by petitioner is a "dispute arising in the course of the execution
and performance of the CCA by reason of difference in the interpretation of the contract
documents."
The fact that petitioner is not a party to the CCA cannot remove the dispute from
the jurisdiction of the CIAC because the issue of whether respondent-spouses are entitled
to collect on the performance bond, as we have said, is a dispute arising from or
connected to the CCA.
In fact, in Prudential Guarantee and Assurance, Inc. v. Anscor Land, Inc., we
rejected the argument that the jurisdiction of CIAC is limited to the construction industry,
and thus, cannot extend to surety contracts. In that case, we declared that "although not
the construction contract itself, the performance bond is deemed as an associate of the
main construction contract that it cannot be separated or severed from its principal. The
Performance Bond is significantly and substantially connected to the construction
contract that there can be no doubt it is the CIAC, under Section 4 of E.O. No. 1008,
which has jurisdiction over any dispute arising from or connected with it."
WHEREFORE, the petition is hereby GRANTED.

Page 152 of 193

MORTGAGE:
62.

(foreclosure, redemption)

Spouses Hojas vs. Phil. Amanah Bank and Ramon Kue

G.R. No. 193453

June 5, 2013

FACTS:
Spouses Rubin and Portia Hojas (petitioners), alleged that on April 11, 1980, they
secured a loan from respondent Philippine Amanah Bank (PAB) in the amount
of P450,000.00; that this loan was secured by a mortgage, covering both personal and
real properties; that from May 14, 1981 to June 27, 1986, they made various payments

Page 153 of 193

amounting to P486,162.13; that PAB, however, did not properly credit their payments;
that based on the summary of payments furnished by PAB to them on February 24, 1989,
only 13 payments were credited, erroneously amounting to P317,048.83; that PAB did
not credit the payment they made totalingP165,623.24; and that, in the statement of their
account as of October 17, 1984, PAB listed their total payment as 412,211.54 on the
principal, and P138,472.09 as 30% interest, all amounting to P550,683.63, despite the
fact that at that time, petitioners had already paid the total sum of P486,162.13.
Petitioners further averred that for failure to pay the loan, PAB applied for the
extrajudicial foreclosure of the mortgaged real properties of petitioners with the ExOfficio Sheriff; that consequently, a Notice of Extrajudicial Foreclosure was issued on
January 12, 1987 setting the foreclosure sale on April 21, 1987 and, stating therein the
mortgage debt in the sum of P450,000.00; and that, in the public auction conducted, PAB
acquired said real property.
It was further alleged that on March 9, 1988, through the intervention of then
Senator Aquilino Pimentel, Farouk A. Carpizo (Carpizo), the OICPresident of PAB, wrote
Roberto Hojas (Roberto), petitioners son, informing him that although the one-year
redemption period would expire on April 21, 1988, by virtue of the banks incentive
scheme, the redemption period was extended until December 31, 1988; that despite said
letter from the OIC-President, the OIC of the Project Development Department of PAB
wrote Rubin Hojas that the real properties acquired by PAB would be sold in a public
bidding before the end of August, 1988; that on November 4, 1988, a public bidding was
conducted; that in the said bidding, the mortgaged properties were awarded to respondent
Ramon Kue (Kue); that subsequently, they received a letter from the OIC of the Project
Development Department, dated January 3, 1989, informing them that they had fifteen
(15) days from receipt within which to vacate the premises; that Kue then sent another
letter, dated January 31, 1989, informing them that he had already acquired the said
property and that they were requested to vacate the premises within fifteen (15) days
from receipt thereof; and that because of this development, on May 7, 1991, petitioners
filed an action for "Determination of True Balance of Mortgage Debt, Annulment/Setting
Aside of Extrajudicial Foreclosure of Mortgage and Damages, with Prayer for
Preliminary Injunction" against PAB.
RTC dismissed petitioners complaint. Petitioner then appealed to CA.The CA
denied the appeal.
ISSUE:
Whether or not the CA erred in not holding PAB to have violated the principle of
estoppel when the latter conducted the November 4, 1988 public sale.
HELD:
No. The petition is bereft of merit.
Through estoppel, an admission or representation is rendered conclusive upon the
person making it, and cannot be denied or disproved as against the person relying on

Page 154 of 193

it. This doctrine is based on the grounds of public policy, fair dealing, good faith, and
justice and its purpose is to forbid one to speak against his own act, representations or
commitments to the injury of one to whom they were directed and who reasonably relied
on it. Thus, in order for this doctrine to operate, a representation must have been made to
the detriment of another who relied on it. In other words, estoppel would not lie against
one who, in the first place, did not make any representation.
In this case, a perusal of the letter, on which petitioners based their position that
the redemption period had been extended, shows otherwise. Pertinent portions of the said
letter read:
Our records show that the above account has already been foreclosed by the bank.
However, the borrowers concerned can still exercise the one (1) year right of redemption
over the foreclosed properties until April 21, 1988.
As the Bank has adopted an incentive scheme whereby payments are liberalized
to give chances to former owners to repossess their properties, we suggest that you advise
your parents to drop by at our Zamboanga Office so they can avail of this rare privilege
which shall be good only up to December 31, 1988.
As correctly held by the RTC and upheld by the CA, the date "December 31,
1988" refers to the last day when owners of foreclosed properties, like petitioners, could
submit their payment proposals to the bank. The letter was very clear. It was about the
availment of the liberalized payment scheme of the bank. On the last day for redemption,
the letter was also clear. It was April 21, 1988. It was never extended.
The opportunity given to the petitioners was to avail of the liberalized payment scheme
which program would expire on December 31, 1988.
Here, there is no estoppel to speak of. The letter does not show that the Bank had
unqualifiedly represented to the Hojases that it had extended the redemption period to
December 31, 1988. Thus, the Hojases have no basis in positing that the public sale
conducted on November 4, 1988 was null and void for having been prematurely
conducted.
The general rule in redemption is that it is not sufficient that a person offering to
redeem manifests his desire to do so. The statement of intention must be accompanied by
an actual and simultaneous tender of payment. This constitutes the exercise of the right to
repurchase.
In several cases decided by the Court where the right to repurchase was held to
have been properly exercised, there was an unequivocal tender of payment for the full
amount of the repurchase price. Otherwise, the offer to redeem is ineffectual. Bona fide
redemption necessarily implies a reasonable and valid tender of the entire repurchase
price, otherwise the rule on the redemption period fixed by law can easily be
circumvented.
In the case at bench, the record is bereft of concrete evidence that would show
that, aside from the fact that petitioners manifested their intention to avail of the scheme,
they were also ready to pay the redemption price. Hence, as they failed to exercise their

Page 155 of 193

right of redemption and failed to take advantage of the liberalized incentive scheme, PAB
was well within its right to sell its property in a public sale.
WHEREFORE, the petition is DENIED.

MORTGAGE:
63.

(mortgagee in good faith)

Philippine National Bank vs. Spouses Maranon

G.R. No. 189316

June 1, 2013

FACTS:
The controversy at bar involves a 152-square meter parcel of land located at
Cuadra-Smith Streets, Downtown, Bacolod (subject lot) erected with a building leased by
various tenants. The subject lot was among the properties mortgaged by Spouses Rodolfo
and Emilie Montealegre (Spouses Montealegre) to PNB as a security for a loan. In their
transactions with PNB, Spouses Montealegre used Transfer Certificate of Title (TCT) No.

Page 156 of 193

T-156512 over the subject lot purportedly registered in the name of Emilie Montealegre
(Emilie).
When Spouses Montealegre failed to pay the loan, PNB initiated foreclosure
proceedings on the mortgaged properties, including the subject lot. In the auction sale
held on August 16, 1991, PNB emerged as the highest bidder. It was issued the
corresponding Certificate of Sale dated December 17, 1991 which was subsequently
registered on February 4, 1992.
Before the expiration of the redemption period or on July 29, 1992, Spouses
Maraon filed before the RTC a complaint for Annulment of Title, Reconveyance and
Damages against Spouses Montealegre, PNB, the Register of Deeds of Bacolod City and
the Ex-Officio Provincial Sheriff of Negros Occidental. The complaint, docketed as Civil
Case No. 7213, alleged that Spouses Maraon are the true registered owners of the
subject lot by virtue of TCT No. T-129577 which was illegally cancelled by TCT No. T156512 under the name of Emilie who used a falsified Deed of Sale bearing the forged
signatures of Spouse Maraon to effect the transfer of title to the property in her name.
In its Answer, PNB averred that it is a mortgagee in good faith and for value and
that its mortgage lien on the property was registered thus valid and binding against the
whole world.
As reflected in the Pre-trial Order dated March 12, 1996, the parties stipulated, among
others, that the period for legal redemption of the subject lot has already expired.
While the trial proceedings were ongoing, Paterio Tolete (Tolete), one of the tenants of
the building erected on the subject lot deposited his rental payments with the Clerk of
Court of Bacolod City which, as of October 24, 2002, amounted to P144,000.00.
RTC rendered its Decision in favor of the respondents. RTC concluded the sale to
be null and void and as such it did not transfer any right or title in law. PNB was
adjudged to be a mortgagee in good faith whose lien on the subject lot must be respected.
What precipitated the controversy at hand were the subsequent motions filed by Spouses
Maraon for release of the rental payments deposited with the Clerk of Court and paid to
PNB by Tolete.
Spouses Maraon filed an Urgent Motion for the Withdrawal of Deposited
Rentals praying that the P144,000.00 rental fees deposited by Tolete with the Clerk of
Court be released in their favor for having been adjudged as the real owner of the subject
lot. The RTC granted the motion. Spouses Maraon again filed with the RTC an Urgent
Ex-Parte Motion for Withdrawal of Deposited Rentals praying that the P30,000.00 rental
fees paid to PNB by Tolete be released in their favor. The said lease payments were for
the five (5)-month period from August 1999 to December 1999 at the monthly lease rate
of P6,000.00.
RTC granted the motion reasoning that pursuant to its Decision dated June 2,
2006 declaring Spouses Maraon to be the true registered owners of the subject lot, they
are entitled to its fruits. The PNB differed with the RTCs ruling and moved for
reconsideration averring that as declared by the RTC in its Decision dated June 2, 2006,
its mortgage lien should be carried over to the new title reconveying the lot to Spouses

Page 157 of 193

Maraon. PNB further argued that with the expiration of the redemption period on
February 4, 1993, or one (1) year from the registration of the certificate of sale, PNB is
now the owner of the subject lot hence, entitled to its fruits. PNB prayed that (1) the
Order dated September 8, 2006 be set aside, and (2) an order be issued directing Spouses
Maraon to turn over to PNB the amount of P144,000.00 released in their favor by the
Clerk of Court.
RTC issued an Order again directing PNB to release to Spouses Maraon
theP30,000.00 rental payments considering that they were adjudged to have retained
ownership over the property.
RTC issued another Order denying PNBs motion for reconsideration and
reiterating the directives in its Order dated September 8, 2006.
Aggrieved, PNB sought recourse with the CA via a petition for certiorari and
mandamus claiming that as the lawful owner of the subject lot per the RTCs judgment
dated June 2, 2006, it is entitled to the fruits of the same such as rentals paid by tenants
hence, the ruling that "the real estate mortgage lien of the PNB registered on the title of
Lot No. 177-A-1 Bacolod Cadastre shall stay and be respected." PNB also contended that
it is an innocent mortgagee.
CA denied the petition and affirmed the RTCs judgment ratiocinating that not
being parties to the mortgage transaction between PNB and Spouses Montealegre,
Spouses Maraon cannot be deprived of the fruits of the subject lot as the same will
amount to deprivation of property without due process of law.
ISSUE:
Whether CA erroneously altered the RTC Decision by reversing the
pronouncement that PNB is a mortgagee-in-good-faith.

HELD:
We deny the petition. It is readily apparent from the facts at hand that the status of
PNBs lien on the subject lot has already been settled by the RTC in its Decision dated
June 2, 2006 where it was adjudged as a mortgagee in good faith whose lien shall subsist
and be respected. The decision lapsed into finality when neither of the parties moved for
its reconsideration or appealed.
Being a final judgment, the dispositions and conclusions therein have become
immutable and unalterable not only as against the parties but even the courts. This is
known as the doctrine of immutability of judgments which espouses that a judgment that
has acquired finality becomes immutable and unalterable, and may no longer be modified
in any respect even if the modification is meant to correct erroneous conclusions of fact
or law and whether it will be made by the court that rendered it or by the highest court of
the land. The significance of this rule was emphasized in Apo Fruits Corporation v. Court
of Appeals, to wit:

Page 158 of 193

The reason for the rule is that if, on the application of one party, the court could change
its judgment to the prejudice of the other, it could thereafter, on application of the latter,
again change the judgment and continue this practice indefinitely. The equity of a
particular case must yield to the overmastering need of certainty and unalterability of
judicial pronouncements.
The doctrine of immutability and inalterability of a final judgment has a two-fold
purpose: (1) to avoid delay in the administration of justice and thus, procedurally, to
make orderly the discharge of judicial business and (2) to put an end to judicial
controversies, at the risk of occasional errors, which is precisely why courts exist.
Controversies cannot drag on indefinitely. The rights and obligations of every litigant
must not hang in suspense for an indefinite period of time. The doctrine is not a mere
technicality to be easily brushed aside, but a matter of public policy as well as a timehonored principle of procedural law. (Citations omitted)
Rent is a civil fruit that belongs to the owner of the property producing it by right
of accession The rightful recipient of the disputed rent in this case should thus be the
owner of the subject lot at the time the rent accrued. It is beyond question that Spouses
Maraon never lost ownership over the subject lot. This is the precise consequence of the
final and executory judgment in Civil Case No. 7213 rendered by the RTC on June 3,
2006 whereby the title to the subject lot was reconveyed to them and the cloud thereon
consisting of Emilies fraudulently obtained title was removed. Ideally, the present
dispute can be simply resolved on the basis of such pronouncement. However, the
application of related legal principles ought to be clarified in order to settle the
intervening right of PNB as a mortgagee in good faith.
The protection afforded to PNB as a mortgagee in good faith refers to the right to
have its mortgage lien carried over and annotated on the new certificate of title issued to
Spouses Maraon as so adjudged by the RTC. Thereafter, to enforce such lien thru
foreclosure proceedings in case of non-payment of the secured debt, as PNB did so
pursue. The principle, however, is not the singular rule that governs real estate mortgages
and foreclosures attended by fraudulent transfers to the mortgagor.
WHEREFORE, foregoing considered, the petition is hereby DENIED. The
Decision dated June 18, 2008 and Resolution dated August 10, 2009 of the Court of
Appeals in CA-G.R. SP No. 02513 are AFFIRMED.
MORTGAGE:
64.

(extrajucial foreclosure)

Spouses Tolosa vs. United Coconut Planters Bank

G.R. No. 183058

April 3, 2013

FACTS:
Spouses Tolosa entered into a Credit Agreement with respondent (UCPB) for the
purpose of availing of the latters credit facilities. To secure their credit availments, the
Spouses Tolosa executed deeds of real estate mortgage over 4 properties in Barangay
Caticlan, Malay, Aklan, which were registered and/or declared for taxation purposes in

Page 159 of 193

their names under the following certificates of title and/or tax declarations, to wit: (a)
(TCT) Nos. T-23589; (b) (OCT) No. P-14743; (c) Tax Declaration No. ARP-TD 1561
(038-12-006-04-051); and Tax Declaration No. ARP-TD 93-006-0362 (038-12-006-04050). For failure of the Spouses Tolosa to pay their principal obligation which amounted
to P13,300,000.00, exclusive of interests, penalties and other charges, UCPB foreclosed
the mortgage on the aforesaid realties and filed a petition for the extra-judicial sale
thereof with the Office of the Clerk of Court and Ex-Officio Sheriff of Kalibo, Aklan.
After the due notice and publication, the mortgaged properties were sold at a
public auction where UCPB tendered the highest bid of P17,240,000.00. The proceeds of
the sale were credited towards the partial satisfaction of the Spouses Tolosas mortgage
obligation which, inclusive of interests, penalties and other charges, was pegged
at P24,253,847.64. Issued the corresponding certificate of sale, UCPB caused the same to
be registered with the Office of the Register of Deeds of Aklan on 5 January 2000. For
failure of the Spouses Tolosa to exercise their right of redemption within the prescribed
one year period, UCPB went on to consolidate its ownership over the subject realties on
22 January 2001. With the cancellation of those in the name of the Spouses Tolosa, the
new certificates of title and tax declarations were subsequently issued in the name of
UCPB. UCPB filed an ex-parte petition for issuance of a writ of possession in the
cadastral case before the RTC. Spouses Tolosa filed their Opposition, calling the RTCs
attention to the pendency of the complaint for declaration of nullity of promissory notes,
foreclosure of mortgage and certificate of sale as well as accounting and damages which
they instituted against UCPB.
RTC issued an order, holding in abeyance the issuance of the writ of possession
sought by UCPB. UCPB filed its Rule 65 petition for certiorari before the CA. The CA
rendered the herein assailed decision, nullifying the RTCs 1 December 2004 Decision
and granting the writ of possession sought by UCPB.
ISSUES:
Whether ca reversibly erred in ordering the grant of the writ of possession sought
by ucpb despite the rule that the surplus in the bid price should first be paid to the
mortgagor before he can be deprived of possession of the property mortgaged.

HELD:
The petition is bereft of merit.
A writ of possession is simply an order by which the sheriff is commanded by the
court to place a person in possession of a real or personal property. Under Section 7 of
Act No. 3135, as amended, a writ of possession may be issued in favor of a purchaser in a
foreclosure sale either (1) within the one-year redemption period, upon the filing of a
bond; or (2) after the lapse of the redemption period, without need of a bond. Within the
one-year redemption period, the purchaser may apply for a writ of possession by filing a
petition in the form of an ex parte motion under oath, in the registration or cadastral

Page 160 of 193

proceedings of the registered property. The law requires only that the proper motion be
filed, the bond approved and no third person is involved. After the consolidation of title
in the buyers name for failure of the mortgagor to redeem the property, entitlement to the
writ of possession becomes a matter of right. In the latter case, the right of possession
becomes absolute because the basis thereof is the purchasers ownership of the property.
The rule is likewise settled that the proceeding in a petition for a writ of
possession is ex-parte and summary in nature. As one brought for the benefit of one party
only and without notice by the court to any person adverse of interest, it is a judicial
proceeding wherein relief is granted without giving the person against whom the relief is
sought an opportunity to be heard. The issuance of the writ of possession is, in turn, a
ministerial function in the exercise of which trial courts are not granted any
discretion. Since the judge to whom the application for writ of possession is filed need
not look into the validity of the mortgage or the manner of its foreclosure, it has been
ruled that the ministerial duty of the trial court does not become discretionary upon the
filing of a complaint questioning the mortgage. Corollarily, any question regarding the
validity of the extrajudicial foreclosure sale and the resulting cancellation of the writ may,
likewise, be determined in a subsequent proceeding as outlined in Section 8 of Act No.
3135.
Gauged from the foregoing principles, we find that the CA committed no
reversible error in ordering the issuance of the writ of possession sought by UCPB. The
record shows that UCPB caused the extrajudicial foreclosure of the mortgage on the
subject realties as a consequence of the Spouses Tolosas default on their mortgage
obligation. As the highest bidder at the 4 January 2000 foreclosure sale, UCPB
consolidated its ownership on 22 January 2001 or upon failure of the Spouses Tolosa to
exercise their right of redemption within the one-year period therefor prescribed.
Subsequent to the issuance of the certificates of title and tax declarations over the same
properties in its name, UCPB complied with the requirements under Act 3135 by filing its
ex-parte petition for issuance of a writ of possession before the RTC on 2 September
2004. Since UCPB had already become the absolute and registered owner of said
properties, the CA correctly ruled that it was the ministerial duty of the RTC to issue the
writ of possession in favor of the former.
WHEREFORE, premises considered, the petition is DENIED for lack of merit.
Accordingly, the CA' s assailed 31 May 2007 Decision and 21 May 2008 Resolution are
AFFIRMED in toto.
SO ORDERED.

Page 161 of 193

MORTGAGE:
65.

(redemption)

Goldenway Merchandising Corp.vs. Equitable PCI Bank

G.R. No. 195540

March 13, 2013

FACTS:
Goldenway Merchandising Corporation (petitioner) executed a Real Estate
Mortgage in favor of Equitable PCI Bank (respondent) over its real properties situated in
Valenzuela, Bulacan (now Valenzuela City) and covered by Transfer Certificate of Title
(TCT) Nos. T-152630, T-151655 and T-214528 of the Registry of Deeds for the Province
of Bulacan. The mortgage secured the Two Million Pesos (P2,000,000.00) loan granted

Page 162 of 193

by respondent to petitioner and was duly registered.
As petitioner failed to settle its loan obligation, respondent extrajudicially
foreclosed the mortgage on December 13, 2000. During the public auction, the
mortgaged properties were sold for P3,500,000.00 to respondent. Accordingly, a
Certificate of Sale was issued to respondent on January 26, 2001. On February 16, 2001,
the Certificate of Sale was registered and inscribed on TCT Nos. T-152630, T-151655 and
T-214528.
In a letter dated March 8, 2001, petitioners counsel offered to redeem the
foreclosed properties by tendering a check in the amount of P3,500,000.00. On March 12,
2001, petitioners counsel met with respondents counsel reiterating petitioners intention
to exercise the right of redemption. However, petitioner was told that such redemption is
no longer possible because the certificate of sale had already been registered. Petitioner
also verified with the Registry of Deeds that title to the foreclosed properties had already
been consolidated in favor of respondent and that new certificates of title were issued in
the name of respondent on March 9, 2001.
Petitioner filed a complaint for specific performance and damages against the
respondent, asserting that it is the one-year period of redemption under Act No. 3135
which should apply and not the shorter redemption period provided in Republic Act
(R.A.) No. 8791. Petitioner argued that applying Section 47 of R.A. 8791 to the real
estate mortgage executed in 1985 would result in the impairment of obligation of
contracts and violation of the equal protection clause under the Constitution.
Additionally, petitioner faulted the respondent for allegedly failing to furnish it and the
Office of the Clerk of Court, RTC of Valenzuela City with a Statement of Account as
directed in the Certificate of Sale, due to which petitioner was not apprised of the
assessment and fees incurred by respondent, thus depriving petitioner of the opportunity
to exercise its right of redemption prior to the registration of the certificate of sale.
In its Answer with Counterclaim, respondent pointed out that petitioner cannot
claim that it was unaware of the redemption price which is clearly provided in Section 47
of R.A. No. 8791, and that petitioner had all the opportune time to redeem the foreclosed
properties from the time it received the letter of demand and the notice of sale before the
registration of the certificate of sale. As to the check payment tendered by petitioner,
respondent said that even assuming arguendo such redemption was timely made, it was
not for the amount as required by law.
The trial court rendered its decision dismissing the complaint as well as the
counterclaim. Aggrieved, petitioner appealed to the CA which affirmed the trial courts
decision. According to the CA, petitioner failed to justify why Section 47 of R.A. No.
8791 should be declared unconstitutional. Furthermore, the appellate court concluded that
a reading of Section 47 plainly reveals the intention to shorten the period of redemption
for juridical persons and that the foreclosure of the mortgaged properties in this case
when R.A. No. 8791 was already in effect clearly falls within the purview of the said
provision. Petitioners motion for reconsideration was likewise denied by the CA.

Page 163 of 193

ISSUE:
Whether CA erred in holding that petitioner can no longer exercise the right of
redemption over its foreclosed properties after the certificate of sale in favor of
respondent had been registered.
HELD:
No. Petitioners contention that Section 47 of R.A. 8791 violates the
constitutional proscription against impairment of the obligation of contract has no basis.
The purpose of the non-impairment clause of the Constitution is to safeguard the
integrity of contracts against unwarranted interference by the State. As a rule, contracts
should not be tampered with by subsequent laws that would change or modify the rights
and obligations of the parties. Impairment is anything that diminishes the efficacy of the
contract. There is an impairment if a subsequent law changes the terms of a contract
between the parties, imposes new conditions, dispenses with those agreed upon or
withdraws remedies for the enforcement of the rights of the parties.
Section 47 did not divest juridical persons of the right to redeem their foreclosed
properties but only modified the time for the exercise of such right by reducing the oneyear period originally provided in Act No. 3135. The new redemption period commences
from the date of foreclosure sale, and expires upon registration of the certificate of sale or
three months after foreclosure, whichever is earlier. There is likewise no retroactive
application of the new redemption period because Section 47 exempts from its operation
those properties foreclosed prior to its effectivity and whose owners shall retain their
redemption rights under Act No. 3135.
Petitioners claim that Section 47 infringes the equal protection clause as it discriminates
mortgagors/property owners who are juridical persons is equally bereft of merit.
We agree with the CA that the legislature clearly intended to shorten the period of
redemption for juridical persons whose properties were foreclosed and sold in accordance
with the provisions of Act No. 3135.
The difference in the treatment of juridical persons and natural persons was based
on the nature of the properties foreclosed whether these are used as residence, for which
the more liberal one-year redemption period is retained, or used for industrial or
commercial purposes, in which case a shorter term is deemed necessary to reduce the
period of uncertainty in the ownership of property and enable mortgagee-banks to dispose
sooner of these acquired assets. It must be underscored that the General Banking Law of
2000, crafted in the aftermath of the 1997 Southeast Asian financial crisis, sought to
reform the General Banking Act of 1949 by fashioning a legal framework for maintaining
a safe and sound banking system. In this context, the amendment introduced by Section
47 embodied one of such safe and sound practices aimed at ensuring the solvency and
liquidity of our banks. It cannot therefore be disputed that the said provision amending
the redemption period in Act 3135 was based on a reasonable classification and germane
to the purpose of the law.
This legitimate public interest pursued by the legislature further enfeebles

Page 164 of 193

petitioners impairment of contract theory.
The right of redemption being statutory, it must be exercised in the manner
prescribed by the statute, and within the prescribed time limit, to make it effective.
Furthermore, as with other individual rights to contract and to property, it has to give way
to police power exercised for public welfare. The concept of police power is wellestablished in this jurisdiction. It has been defined as the "state authority to enact
legislation that may interfere with personal liberty or property in order to promote the
general welfare." Its scope, ever-expanding to meet the exigencies of the times, even to
anticipate the future where it could be done, provides enough room for an efficient and
flexible response to conditions and circumstances thus assuming the greatest benefits.
The freedom to contract is not absolute; all contracts and all rights are subject to
the police power of the State and not only may regulations which affect them be
established by the State, but all such regulations must be subject to change from time to
time, as the general well-being of the community may require, or as the circumstances
may change, or as experience may demonstrate the necessity. Settled is the rule that the
non-impairment clause of the Constitution must yield to the loftier purposes targeted by
the Government. The right granted by this provision must submit to the demands and
necessities of the States power of regulation. Such authority to regulate businesses
extends to the banking industry which, as this Court has time and again emphasized, is
undeniably imbued with public interest.
Having ruled that the assailed Section 47 of R.A. No. 8791 is constitutional, we
find no reversible error committed by the CA in holding that petitioner can no longer
exercise the right of redemption over its foreclosed properties after the certificate of sale
in favor of respondent had been registered.
WHEREFORE, the petition for review on certiorari is DENIED for lack of merit.
The Decision dated November 19, 2010 and Resolution dated January 31, 2011 of the
Court of Appeals in CA-G.R. CV No. 91120 are hereby AFFIRMED.

MORTGAGE:
66.

(redemption)

Rural Bank of Sta. Barbara (Iloilo), Inc. vs. Gerry Centeno

G.R. No. 200667

March 11, 2013

FACTS:
Spouses Gregorio and Rosario Centeno (Sps. Centeno) were the previous owners
of the subject lots. During that time, they mortgaged the foregoing properties in favor of
petitioner Rural Bank of Sta. Barbara (Iloilo), Inc. as security for a P1,753.65 loan. Sps.
Centeno, however, defaulted on the loan, prompting petitioner to cause the extrajudicial
foreclosure of the said mortgage. Consequently, the subject lots were sold to petitioner

Page 165 of 193

being the highest bidder at the auction sale. On October 10, 1969, it obtained a Certificate
of Sale at Public Auction which was later registered with the Register of Deeds of Iloilo
City on December 13, 1971.
Sps. Centeno failed to redeem the subject lots within the one (1) year redemption
period pursuant to Section of Act No. 3135.7 Nonetheless, they still continued with the
possession and cultivation of the aforesaid properties. Sometime in 1983, respondent
Gerry Centeno, son of Sps. Centeno, took over the cultivation of the same. On March 14,
1988, he purchased the said lots from his parents. Accordingly, Rosario Centeno paid the
capital gains taxes on the sale transaction and tax declarations were eventually issued in
the name of respondent. While the latter was in possession of the subject lots, petitioner
secured on November 25, 1997 a Final Deed of Sale thereof and in 1998, was able to
obtain the corresponding tax declarations in its name.
Petitioner filed a petition for the issuance of a writ of possession before the RTC,
claiming entitlement to the said writ by virtue of the Final Deed of Sale covering the
subject lots. Respondent opposed the petition, asserting that he purchased and has, in fact,
been in actual, open and exclusive possession of the same properties for at least fifteen
(15) years. He further averred that the foreclosure sale was null and void owing to the
forged signatures in the real estate mortgage. Moreover, he claims that petitioners rights
over the subject lots had already prescribed.
RTC rendered its Decision in Cadastral Case No. 98-069, finding petitioner to be
the lawful owner of the subject lots whose rights became absolute due to respondents
failure to redeem the same. Consequently, it found the issuance of a writ of possession
ministerial on its part. Dissatisfied, respondent appealed to the CA.
CA, through its January 31, 2012 Decision, reversed the RTC and ruled against
the issuance of a writ of possession. It considered respondent as a third party who is
actually holding the property adverse to the judgment obligor and as such, has the right to
ventilate his claims in a proper judicial proceeding i.e., an ejectment suit or
reinvindicatory action.
Aggrieved, petitioner filed the instant petition.

ISSUE:
Whether or not petitioner is entitled to a writ of possession over the subject lots.
HELD: The petition is meritorious. It is well-established that after consolidation of title
in the purchasers name for failure of the mortgagor to redeem the property, the
purchasers right to possession ripens into the absolute right of a confirmed owner. At that
point, the issuance of a writ of possession, upon proper application and proof of title, to a
purchaser in an extrajudicial foreclosure sale becomes merely a ministerial function,
unless it appears that the property is in possession of a third party claiming a right
adverse to that of the mortgagor. The foregoing rule is contained in Section 33, Rule 39
of the Rules of Court which partly provides: Sec. 33. Deed and possession to be given at

Page 166 of 193

expiration of redemption period; by whom executed or given. Upon the expiration of the
right of redemption, the purchaser or redemptioner shall be substituted to and acquire all
the rights, title, interest and claim of the judgment obligor to the property as of the time
of the levy. The possession of the property shall be given to the purchaser or last
redemptioner by the same officer unless a third party is actually holding the property
adversely to the judgment obligor. (Emphasis and underscoring supplied)
In China Banking Corporation v. Lozada, the Court held that the phrase "a third
party who is actually holding the property adversely to the judgment obligor"
contemplates a situation in which a third party holds the property by adverse title or right,
such as that of a co-owner, tenant or usufructuary. The co-owner, agricultural tenant, and
usufructuary possess the property in their own right, and they are not merely the
successor or transferee of the right of possession of another co-owner or the owner of the
property. Notably, the property should not only be possessed by a third party, but also
held by the third party adversely to the judgment obligor.
In this case, respondent acquired the subject lots from his parents, Sps. Centeno,
on March 14, 1988 after they were purchased by petitioner and its Certificate of Sale at
Public Auction was registered with the Register of Deeds of Iloilo City in 1971. It cannot
therefore be disputed that respondent is a mere successor-in-interest of Sps. Centeno.
Consequently, he cannot be deemed as a "third party who is actually holding the property
adversely to the judgment obligor" under legal contemplation. Hence, the RTC had the
ministerial duty to issue as it did issue the said writ in petitioners favor.
On the issue regarding the identity of the lots as raised by respondent in his
Comment, records show that the RTC had already passed upon petitioners title over the
subject lots during the course of the proceedings. Accordingly, the identity of the said lots
had already been established for the purpose of issuing a writ of possession. It is
hornbook principle that absent any clear showing of abuse, arbitrariness or capriciousness
committed by the lower court, its findings of facts are binding and conclusive upon the
Court, as in this case.
Finally, anent the issue of laches, it must be maintained that the instant case only revolves
around the issuance of a writ of possession which is merely ministerial on the RTC's part
as above-explained. As such, all defenses which respondent may raise including that of
laches should be ventilated through a proper proceeding.
WHEREFORE, the petition is GRANTED. The January 31, 2012 Decision of the
Cebu City Court of Appeals in CA-G.R. CV No. 78398 is REVERSED and SET ASIDE.
Accordingly, the October 8, 2002 Decision of the Regional Trial Court of Barotac Viejo,
Iloilo City, Branch 66 in Cadastral Case No. 98-069 is hereby REINSTATED.
SO ORDERED.

Page 167 of 193

.
MORTGAGE:
67.

(redemption)

Ermitao vs Paglas
G.R. No. 174436

January 23, 2013

FACTS:
Respondent and petitioner, through her representative, lsabelo R. Ermitao,
executed a Contract of Lease wherein petitioner leased in favor of respondent a 336
square meter residential lot and a house standing thereon located at No. 20 Columbia St.,
Phase l, Doa Vicenta Village, Davao City. The contract period is one (1) year, which
commenced on November 4, 1999, with a monthly rental rate of P13,500.00. Pursuant to

Page 168 of 193

the contract, respondent paid petitioner P2,000.00 as security deposit to answer for
unpaid rentals and damage that may be cause to the leased unit.
Subsequent to the execution of the lease contract, respondent received
information that sometime in March 1999, petitioner mortgaged the subject property in
favor of a certain Charlie Yap (Yap) and that the same was already foreclosed with Yap as
the purchaser of the disputed lot in an extra-judicial foreclosure sale which was registered
on February 22, 2000. Yap's brother later offered to sell the subject property to
respondent. Respondent entertained the said offer and negotiations ensued. On June 1,
2000, respondent bought the subject property from Yap for P950,000.00. A Deed of Sale
of Real Property was executed by the parties as evidence of the contract. However, it was
made clear in the said Deed that the property was still subject to petitioner's right of
redemption.
Prior to respondent's purchase of the subject property, petitioner filed a suit for the
declaration of nullity of the mortgage in favor of Yap as well as the sheriff's provisional
certificate of sale which was issued after the disputed house and lot were sold on
foreclosure.
Meanwhile, on May 25, 2000, petitioner sent a letter demanding respondent to pay the
rentals which are due and to vacate the leased premises. A second demand letter was sent
on March 25, 2001. Respondent ignored both letters.
Petitioner filed with the Municipal Trial Court in Cities (MTCC), Davao City, a
case of unlawful detainer against respondent.
MTCC, Branch 6, Davao City dismissed the case filed by petitioner and awarded
respondent the amounts of P25,000.00 as attorney's fees and P2,000.00 as appearance fee.
Petitioner filed an appeal with the Regional Trial Court (RTC) of Davao City.
On February 14, 2003, the RTC rendered its Decision, the dispositive portion of which
reads as follows: WHEREFORE, PREMISES CONSIDERED, the assailed Decision is
AFFIRMED with MODIFICATION. AFFIRMED insofar as it dismissed the case for
unlawful detainer but modified in that the award of attorney's fees in defendant's herein
respondent's favor is deleted and that the defendant respondent is ordered to pay plaintiff
herein petitioner the equivalent of ten months unpaid rentals on the property or the total
sum of P135,000.00.
Aggrieved by the Decision of the RTC, petitioner filed a petition for review with
the CA. On September 8, 2004, the CA rendered its assailed Decision disposing, thus:
WHEREFORE, premises considered, the assailed Decision of the Regional Trial Court,
Branch 16, 11th Judicial Region, Davao City is AFFIRMED with the MODIFICATIONS.
ISSUE:
Whether or not the court of appeals erred when it ruled that private respondent
was a buyer in good faith even if she was informed by petitioner through a letter advising
her that the real estate mortgage contract was sham, fictitious as it was a product of
forgery because petitioner's purported signature appearing therein was signed and
falsified by a certain angela celosia.

Page 169 of 193

HELD:
At the outset, it bears to reiterate the settled rule that the only question that the
courts resolve in ejectment proceedings is: who is entitled to the physical possession of
the premises, that is, to the possession de facto and not to the possession de jure. It does
not even matter if a party's title to the property is questionable. In an unlawful detainer
case, the sole issue for resolution is the physical or material possession of the property
involved, independent of any claim of ownership by any of the party litigants. Where the
issue of ownership is raised by any of the parties, the courts may pass upon the same in
order to determine who has the right to possess the property. The adjudication is,
however, merely provisional and would not bar or prejudice an action between the same
parties involving title to the property.
In the instant case, pending final resolution of the suit filed by petitioner for the
declaration of nullity of the real estate mortgage in favor of Yap, the MTCC, the RTC and
the CA were unanimous in sustaining the presumption of validity of the real estate
mortgage over the subject property in favor of Yap as well as the presumption of
regularity in the performance of the duties of the public officers who subsequently
conducted its foreclosure sale and issued a provisional certificate of sale. Based on the
presumed validity of the mortgage and the subsequent foreclosure sale, the MTCC, the
RTC and the CA also sustained the validity of respondent's purchase of the disputed
property from Yap. The Court finds no cogent reason to depart from these rulings of the
MTCC, RTC and CA. Thus, for purposes of resolving the issue as to who between
petitioner and respondent is entitled to possess the subject property, this presumption
stands.
Going to the main issue in the instant petition, it is settled that in unlawful
detainer, one unlawfully withholds possession thereof after the expiration or termination
of his right to hold possession under any contract, express or implied. In such case, the
possession was originally lawful but became unlawful by the expiration or termination of
the right to possess; hence, the issue of rightful possession is decisive for, in such action,
the defendant is in actual possession and the plaintiffs cause of action is the termination
of the defendants right to continue in possession.
There is no dispute that at the time that respondent purchased Yap's rights over the
subject property, petitioner's right of redemption as a mortgagor has not yet expired. It is
settled that during the period of redemption, it cannot be said that the mortgagor is no
longer the owner of the foreclosed property, since the rule up to now is that the right of a
purchaser at a foreclosure sale is merely inchoate until after the period of redemption has
expired without the right being exercised. The title to land sold under mortgage
foreclosure remains in the mortgagor or his grantee until the expiration of the redemption
period and conveyance by the master's deed. Indeed, the rule has always been that it is
only upon the expiration of the redemption period, without the judgment debtor having

Page 170 of 193

made use of his right of redemption, that the ownership of the land sold becomes
consolidated in the purchaser
It, thus, clearly follows from the foregoing that, during the period of redemption,
the mortgagor, being still the owner of the foreclosed property, remains entitled to the
physical possession thereof subject to the purchaser's right to petition the court to give
him possession and to file a bond pursuant to the provisions of Section 7 of Act No. 3135,
as amended. The mere purchase and certificate of sale alone do not confer any right to the
possession or beneficial use of the premises.
The situation became different, however, after the expiration of the redemption
period on February 23, 2001. Since there is no allegation, much less evidence, that
petitioner redeemed the subject property within one year from the date of registration of
the certificate of sale, respondent became the owner thereof. Consolidation of title
becomes a right upon the expiration of the redemption period. Having become the owner
of the disputed property, respondent is then entitled to its possession.
In this regard, this Court agrees with the findings of the MTCC that, based on the
evidence and the pleadings filed by petitioner, respondent is liable for payment of rentals
beginning May 2000 until February 2001, or for a period of ten (10) months. However, it
is not disputed that respondent already gave to petitioner the sum of P27,000.00, which is
equivalent to two (2) months rental, as deposit to cover for any unpaid rentals. It is only
proper to deduct this amount from the rentals due to petitioner, thus leaving P108,000.00
unpaid rentals.
As to attorneys fees and litigation expenses, the Court agrees with the RTC that since
petitioner is, in entitled to unpaid rentals, her complaint which, among others, prays for
the payment of unpaid rentals, is justified. Thus, the award of attorney' and litigation
expenses to respondent should be deleted.
WHEREFORE, the Decision and Resolution of the Court of Appeals in CA-G.R.
SP No. 77617, dated September 8, 2004 and August 16, 2006, respectively, are
AFFIRMED with the following MODIFICATIONS: (1) respondent is ORDERED to pay
petitioner P108,000.00 as and for unpaid rentals; (2) the award of attorneys fees and
litigation expenses to respondent is DELETED.
MORTGAGE:
68.

(foreclosure sale)

TML Gasket Industries, Inc. vs. BPI Family Savings Bank, Inc.
G.R. No. 188768

January 7, 2013

FACTS:
Sometime in September 1996, TML obtained a loan from the Bank of Southeast
Asia, Inc. (BSA), which TML can avail via a credit facility of P85,000,000.00. As
security for the loan, TML executed a real estate mortgage over commercial and
industrial lots located at Dr. A. Santos Avenue, Paraaque City covered by Transfer
Certificate of Title (TCT) Nos. 81278 and 81303 of the Registry of Deeds of Paraaque

Page 171 of 193

City. For additional security, BSA required TML to execute a promissory note for each
availment from the credit facility.
On different dates from September 1996 to 31 July 1997, TML executed several
promissory notes (PN), which provided in pertinent part:
Since time is of the essence hereof, TML is in default under this Note, without need for
notice, demand, presentment or any other act or deed in any of the following events: a)
TML fails to pay when due, totally or partially, the principal, interest and other charges
under this Note.
During the period of the loan, BSA changed its corporate name to DBS Bank
Phils. (DBS), which eventually merged with BPI under the latters corporate name.
TML defaulted in the payment of its loan leading BPI to extra-judicially foreclose the
mortgaged properties. As of 25 June 2002, TMLs indebtedness to BPI amounted to
P71,877,930.56, excluding penalties, charges, attorneys fees and other expenses of
foreclosure.
On 24 October 2002, the Ex-Officio Sheriff of RTC, Paraaque City issued a
Notice of Extra-judicial Foreclosure Sale of the mortgaged properties.
Because of the imminent foreclosure sale of its mortgaged properties, TML, on 21
November 2002, filed a "Complaint for Declaratory Relief, Accounting, Declaration of
Nullity of Notice of Extra-Judicial Sale, Increased (sic) in Interest Rates, Penalty Charges
Plus, (sic) Damages, with Prayer for the Issuance of Temporary Restraining Order (TRO)
and/or Writ of Preliminary Injunction" against BPI and DBS before the RTC, Branch 194,
Paraaque City.
In an Order dated 20 June 2003, the trial court denied TMLs application for the
issuance of a preliminary injunction. Furthermore, TML has in its favor the right of
redemption. On motion for reconsideration, the trial court made a complete turn-around.
It ordered the issuance of the writ in favor of TML, subject to the posting of a bond in the
amount of P300,000.00.
BPI filed a petition for certiorari under Rule 65 of the Rules of Court before the
Court of Appeals, seeking to annul and set aside the twin Orders of the trial court
respectively dated 22 August 2003 and 27 November 2003 which granted the writ of
preliminary injunction in favor of
TML and enjoined the foreclosure sale of the mortgaged properties. The appellate court
found grave abuse of discretion in the trial courts issuance of the orders.
ISSUE:
Whether CA erred in setting aside the orders of the trial court which granted the
writ of preliminary injunction in favor of TML and enjoined the foreclosure sale of the
mortgaged properties.
HELD:
No. We subscribe to the appellate courts ruling. In this case, TML anchors its
right to the mortgaged properties on its claim that it cannot be considered in default of its

Page 172 of 193

loan obligation to BPI. Consequently, the mortgaged properties cannot be foreclosed.
TML claims it had been religiously paying its loan; however, BPIs unilateral increase of
the rate of interest to 33% prevented TML from further paying the loan. Thus, for TML,
while an accounting and liquidation of the actual amount of its obligation to BPI remains
undetermined, it cannot be considered in default. Ultimately, TML avers that the
threatened foreclosure and auction sale of its mortgaged properties while its loan with
BPI subsists is a violation of its right.
We note that TML categorically admitted that it has an existing loan with BPI,
secured by a real estate mortgage and several promissory notes, and that it stopped
paying for one reason or another. On that point, we affirm the appellate courts findings:
It is settled rule of law that foreclosure is proper when the debtors are in default of the
payment of their obligation. On this note, it must be recalled that the promissory notes
executed by TML in favor of BPI states that the Borrower - in this case, TML is
considered in default when it fails to pay when due, totally or partially, the principal,
interest and other charges under the promissory note(s).
In its Complaint, TML admitted that it has not paid its obligation with BPI by
reason of the exorbitant rates of interest unilaterally imposed by the latter. However,
regardless of TMLs defenses, the fact that it has an outstanding obligation with BPI
which it failed to pay despite demand remains undisputed. Verily, TMLs failure to
comply with the terms and conditions of its credit agreement with BPI, as embodied in
the real estate mortgage and the promissory notes it issued in favor of the latter, entitles
BPI to extrajudicially foreclose the mortgaged properties.
To our mind, the grounds relied upon by the trial court, do not justify the issuance
of a writ of preliminary injunction in favor of TML. Under the factual setting of this case,
TML has no right to be protected from the impending foreclosure of its properties.
Certainly, the said foreclosure is authorized under the real estate mortgage and the
promissory notes voluntarily executed by TML in favor of BPI. Needless to say, BPIs
exercise of its right to foreclose the subject properties does not, in any way, constitute a
violation of TMLs property rights. On the contrary, the foreclosure of the mortgage is to
enforce the contractual obligation of BPI.
The issuance of a preliminary injunction rests entirely within the discretion of the
court taking cognizance of the case and is generally not interfered with except in cases of
manifest abuse. For the issuance of the writ of preliminary injunction to be proper, it must
be shown that the invasion of the right sought to be protected is material and substantial,
that the right of complainant is clear and unmistakable and that there is an urgent and
paramount necessity for the writ to prevent serious damage. In the absence of a clear
legal right, the issuance of a writ of injunction constitutes grave abuse of discretion.
From the foregoing, it is apparent that the trial court committed grave abuse of
discretion when it revoked its previous order and subsequently issued a writ of
preliminary injunction simply on the following grounds: "(a) that TMLs mortgage debt is
unliquidated; (b) that TML stands to suffer great and irreparable damages if it wins the
case but, in the process, loses its mortgaged properties to BPI, or even worse, to third

Page 173 of 193

parties; and, (c) that, considering, the brief redemption period under the General Banking
Act, TMLs chance to redeem its properties would be next to impossible."
Pursuant to the parties' Credit Agreement, petitioners likewise know that any
delay in the payment of the principal obligation will subject them to a penalty charge of
one percent per month, computed from the due date until the obligation is paid in full.
Petitioners do not have any clear right to be protected. As shown in our earlier
findings, they failed to substantiate their allegations that their right to due process had
been violated and the maturity of their obligation forestalled. Since they indisputably
failed to meet their obligations in spite of repeated demands, we hold that there is no
legal justification to enjoin respondent from enforcing its undeniable right to foreclose
the mortgaged properties.
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.
Lastly, as the Court of Appeals had done, we clarify that our disposition in this case
pertains only to the propriety of the trial courts Orders issuing a writ of preliminary
injunction in favor of TML to enjoin the foreclosure of TMLs mortgaged properties. We
do not dispose herein of the main case pending before the RTC, Branch 194, Paraaque
City docketed as Civil Case No. 02-0504.
All told, there is no reversible error in the appellate courts decision, reversing and
setting aside the Orders dated 22 August 2003 and 27 November 2003 of the trial court
and lifting the writ of preliminary injunction issued in favor of TML.
WHEREFORE, the Petition is DENIED. The Decision of the Court of Appeals in CAG.R. SP No. 81932 is AFFIRMED.
SO ORDERED
MORTGAGE:
69.

(accomodation mortgage)
Spouses Ramos vs. Raul Obispo
G.R. No. 193804

February 27, 2013

FACTS:
Sometime in August 1996, petitioners executed a Real Estate Mortgage (REM) in
favor of respondent Far East Bank and Trust Company (FEBTC)-Fairview Branch, over
their property covered by a transfer certificate of title of the Registry of Deeds of Quezon
City. The notarized REM secured credit accommodations extended to Obispo in the
amount of P1,159,096.00. On even date, the REM was registered and annotated on the
aforesaid title.

Page 174 of 193

On September 17, 1999, FEBTC received a letter from petitioners informing that
Obispo, to whom they entrusted their property to be used as collateral for a P250,000.00
loan in their behalf, had instead secured a loan forP1,159,096.00, and had failed to return
their title despite full payment by petitioners of P250,000.00. Petitioners likewise
demanded that FEBTC furnish them with documents and papers pertinent to the
mortgage failing which they will be constrained to refer the matter to their lawyer for the
filing of appropriate legal action against Obispo and FEBTC.
There being no action taken by FEBTC, petitioners filed on October 12, 1999 a
complaint for annulment of real estate mortgage with damages against FEBTC and
Obispo. Petitioners alleged that they signed the blank REM form given by Obispo who
facilitated the loan with FEBTC, and that they subsequently received the loan proceeds of
P250,000.00 which they paid in full through Obispo. With their loan fully settled, they
demanded the release of their title but Obispo refused to talk or see them, as he is now
hiding from them. Upon verification with the Registry of Deeds of Quezon City,
petitioners said they were surprised to learn that their property was in fact mortgaged for
P1,159,096.00. Petitioners thus prayed that the REM be declared void and cancelled.
FEBTC posited that petitioners agreed to execute the REM over their property as
partial security for the loans obtained by Obispo with a total principal balance
ofP2,500,000.00. Since the obligation secured by the REM remains unpaid, FEBTC
contended that it should not be compelled to release the mortgage on the subject property.
Under its cross-claim, FEBTC prayed that in the event of judgment rendered in favor of
petitioners, Obispo should be made liable to answer for all the claims that may be
adjudged against it plus all damages it suffered.
On motion of petitioners, Obispo was declared in default

After trial, the RTC

rendered judgment in favor of the plaintiffs declaring, among others, the real estate
mortgage in favor of defendant Far East Bank & Trust Company null and void.
FEBTC appealed to the CA which reversed the trial courts decision and
dismissed the complaint, holding that petitioners were third-party mortgagors under
Article 2085 of the Civil Code and that they failed to present any evidence to prove their
allegations.
Petitioners motion for reconsideration was denied by the CA. Hence, this petition.
ISSUE:
Whether the mortgage contract was an accomodation mortgage.
HELD:
The validity of an accommodation mortgage is allowed under Article 2085 of the
Civil Code which provides that "[t]hird persons who are not parties to the principal
obligation may secure the latter by pledging or mortgaging their own property." An
accommodation mortgagor, ordinarily, is not himself a recipient of the loan, otherwise
that would be contrary to his designation as such.

Page 175 of 193

In this case, petitioners denied having executed an accommodation mortgage and
claimed to have executed the REM to secure only their P250,000.00 loan and not the
P1,159,096.00 personal indebtedness of Obispo. They claimed it was Obispo who filled
up the REM form contrary to their instructions and faulted FEBTC for being negligent in
not ascertaining the authority of Obispo and failing to furnish petitioners with copies of
mortgage documents. Obispo initially gave them P100,000.00 and the balance was given
a few months later. After supposedly completing payment of the amount of P250,000.00
to Obispo, petitioners discovered that the REM secured a bigger amount. Because of the
alleged fraud committed upon them by Obispo who made them sign the REM form in
blank, petitioners sought to have the REM annulled and their title over the mortgaged
property released by FEBTC. In other words, since their consent to the REM was
vitiated, judicial declaration of its nullity is in order. The RTC granted relief to petitioners
while the CA found the subject REM as a valid third-party or accommodation mortgage
due to petitioners failure to substantiate their allegations with the requisite quantum of
evidence.
It bears stressing that an accommodation mortgagor, ordinarily, is not himself a
recipient of the loan, otherwise that would be contrary to his designation as such. We
have held that it is not always necessary that the accommodation mortgagor be apprised
beforehand of the entire amount of the loan nor should it first be determined before the
execution of the Special Power of Attorney in favor of the debtor. This is especially true
when the words used by the parties indicate that the mortgage serves as a continuing
security for credit obtained as well as future loan availments.
Here, petitioners as owners signed the REM as mortgagors and there is no
evidence adduced that suggests fraud or irregularity in its execution. Petitioners are not
contracting parties whom the law considers ignorant or disadvantaged but former
overseas workers with sufficient education as to be well-aware of the consequences of
their personal decisions, consistent with the legal presumption that a person takes
ordinary care of his concerns. Hence, it can be reasonably inferred from the facts on
record that it was more probable that petitioners allowed Obispo to use their property as
additional collateral so as to avail of his existing credit line with FEBTC instead of
petitioners directly applying for a separate loan.
There being valid consent on the part of petitioners as accommodation
mortgagors, no reversible error was committed by the CA in reversing the trial courts
decision which declared the REM as void and awarded damages to petitioners.
A preponderance of the evidence is essential to establish the invalidity of a
mortgage, and it has been said that clear and convincing proof is necessary to show fraud,
duress, or undue influence. Any relevant and material evidence otherwise competent is
admissible on the issue of the validity of a mortgage.23 Petitioners utterly failed to
present relevant evidence to support their factual claims and offered no explanation
whatsoever. Such omission is fatal to their cause.

Page 176 of 193

DAMAGES: (extent of recovery)

70.

Manila Electric Company vs. Atty. Pablito M. Castillo, doing business

under the trade name and style of Permanent Light Manufacturing
Enterprises, and Guia S. Castillo
G.R. No. 182976

January 14, 2013

FACTS:
Respondents Pablito M. Castillo and Guia S. Castillo are spouses engaged in the
business of manufacturing and selling among others fluorescent fixtures and office steel
under the name and style of Permanent Light Manufacturing Enterprises (Permanent

Page 177 of 193

Light). Sometime in April 1994, Joselito Ignacio and Peter Legaspi, Fully Phased
Inspectors of petitioner Meralco, sought permission to inspect Permanent Lights electric
meter. Said inspection was carried out in the presence of Mike Malikay, an employee of
respondents. The results of the inspection, which are contained in a Special Investigation
Report, show that the meter was tampered with and electric supply to Permanent Light
was immediately disconnected.
By petitioner MERALCOs claim, it sustained losses in the amount of
P126,319.92 over a 24-month period, on account of Permanent Lights tampered meter.
The next day, in order to secure the reconnection of electricity to Permanent Light,
respondents paid P50,000 as down payment on the differential bill to be rendered by
MERALCO. Thereafter respondent settled the bill charged by the petitioner. However,
respondent received significant increase in the bill as charged by the petitioner thus
contested those assessments and later filed against MERALCO a Petition for Injunction,
Recovery of a Sum of Money and Damages with Prayer for the Issuance of a Temporary
Restraining Order (TRO) and Writ of Preliminary Injunction and was granted therafter by
the RTC of Pasig City. However The RTC rendered a decision in favor of the respondent
and against the petitioner ordering the latter to pay the former of the overpayment as well
as the moral and exemplary damages.
On appeal, the CA affirmed with modification the Decision of the RTC. It deleted
the award of P1,138,898.86 in favor of respondents and instead ordered petitioner to pay
temperate damages in the amount of P500,000. The CA held that petitioner abused its
right when it disconnected the electricity of Permanent Light. The appellate court upheld
the validity of the provision in petitioners service contract which allows the utility
company to disconnect service upon a customers failure to pay the differential billing. It
however stressed that under Section 97 of Revised Order No. 1 of the Public Service
Commission, the right of a public utility to discontinue its service to a customer is subject
to the requirement of a 48-hour written notice of disconnection. Petitioners failure in this
regard, according to the appellate court, justifies the award of moral and exemplary
damages to respondents. However, instead of actual damages, the CA awarded
respondents temperate damages in the amount of P500,000.
ISSUE/S:
W/N the CA erred in affirming the award of moral and exemplary damages, as
well as, temperate damages in favor of the respondents?
HELD:
Yes. Under the Revised Terms and Conditions of Service vis-a-vis Section 48 of
ERB Resolution No. 95-21, petitioner is obliged to furnish respondents with a 48-hour
notice of disconnection. Having failed in this regard, we find basis for the award of moral
and exemplary damages in favor of respondents for the unceremonious disconnection of
electricity to Permanent Light.

Page 178 of 193

Moral damages are awarded to compensate the claimant for physical suffering,
mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation and similar injury. Jurisprudence has established the following
requisites for the award of moral damages: (1) there is an injury whether physical, mental
or psychological, which was clearly sustained by the claimant; (2) there is a culpable act
or omission factually established; (3) the wrongful act or omission of the defendant is the
proximate cause of the injury sustained by the claimant; and (4) the award of damages is
predicated on any of the cases stated in Article 2219 of the Civil Code.
Pertinent to the case at hand, Article 32 of the Civil Code provides for the award of moral
damages in cases where the rights of individuals, including the right against deprivation
of property without due process of law, are violated. Here, petitioner failed to establish
factual basis for the immediate disconnection of electricity to Permanent Light and to
comply with the notice requirement provided by law.
In addition to moral damages, exemplary damages are imposed by way of
example or correction for the public good. In this case, to serve as an example - that
before disconnection of electric supply can be effected by a public utility, the requisites of
law must be complied with - we sustain the award of exemplary damages to respondents.
Actual damages are compensation for an injury that will put the injured party in
the position where it was before the injury. They pertain to such injuries or losses that are
actually sustained and susceptible of measurement. Except as provided by law or by
stipulation, a party is entitled to adequate compensation only for such pecuniary loss as is
duly proven. Basic is the rule that to recover actual damages, not only must the amount of
loss be capable of proof; it must also be actually proven with a reasonable degree of
certainty premised upon competent proof or the best evidence obtainable.
In this case, we are convinced that respondents sustained damages from the
abnormal increase in Permanent Lights electric bills after petitioner replaced the latters
meter on April 19, 1994. However, respondents failed to establish the exact amount
thereof by competent evidence. Considering the attendant circumstances, an award of
temperate damages in the amount of P300,000 is just and reasonable.

DAMAGES:
71.

(attorneys fees)
Orchard Golf and Country Club vs Amelia Francisco
G.R. No. 178125

March 18, 2013

FACTS:
Petitioner, The Orchard Golf and Country Club (the Club), operates and maintains
two golf courses in Dasmarias, Cavite for Club members and their guests. The Club
likewise has a swimming pool, bowling alley, cinema, fitness center, courts for tennis,
badminton and basketball, restaurants, and function rooms. Amelia Francisco was
employed as the Head of the Club's General Accounting Division. Amelia reprted directly
to the Club's Financial comptroller Jose Famy. Famy directed Amelia to draft a letter to

Page 179 of 193

SGV concerning the accounting treatment of property sold or donated to the club. Despite
several reminders, Amelia failed to prepare the letter. Famy required Amelia to make a
written explanation which she failed to do as she approached the General manager who
assured her that he would discuss the matter w/ Famy. Famy then issued 2 other
memorandums concerning the suspension of Amelia for 15 days w/ out pay. Amelia then
wrote to the general and administrative manager Nuevo questioning Famy's suspending
her. Nuevo replied and took Famy's side explaining that the latter's actions were within
his authority. Amelia wrote to the general manager requesting an investigation into
Famy's possible involvement in alleged fraudulent acts as to release of club checks.
Subsequently, Amelia's

suspension

expired

then

Famy issued

another

memorandum transferring Amelia temporarily to the Cost Accounting section

w/o

diminution in salary and benefits. In turn, Famy sought an investigation into Amelia's
alleged insubordination concerning an unauthorized change of day off and required the
latter to explain the same. Amelia replied and stated that Famy had a personal vendetta
against her for inquiring into the anomalies Famy was allegedly involved with. Amelia
also took the transfer to the cost accounting section as a constructive dismissal which led
her to later on file an illegal dismissal case against the Club and Famy. Amelia's letter to
the Club's chairman was distributed by a club member, for this she was required to make
an explanation. The club found no merit in her explanation and gave her a notice of
disciplinary action. Amelia amended her complaint to illegal suspension. She was then
placed on forced leave and after the same expired, she was permanently transferred to the
cost accounting department. Amelia amended her complaint to include constructive
dismissal wanting to be reinstated to her former position.
The Labor Arbiter dismissed Amelia's complaint. The NLRC modified the
decision and took the transfer as an illegal constructive dismissal and awarder her 50,000
in atty's fees. The CA sustained the ruling along with the grant of atty's fees.
ISSUE:
Whether the CA erred in awarding attorney's fees in the amount of 50,000.

HELD:
With respect to the award of attorneys fees, we find the same to be due and
owing to respondent given the circumstances prevailing in this case as well as the fact
that this case has spanned the whole judicial process from the Labor Arbiter to the NLRC,
the CA and all the way up to this Court. Under Article 2208 of the Civil Code, attorneys
fees and expenses of litigation other than judicial costs may be recovered if the claimant
is compelled to litigate with third persons or to incur expenses to protect his interest by
reason of an unjustified act or omission of the party from whom it is sought, and where
the courts deem it just and equitable that attorneys fees and expenses of litigation should
be recovered.
As for petitioners argument that in the absence of an award of exemplary
damages, attorneys fees may not be granted, the Court finds this unavailing. An award of

Page 180 of 193

attorneys fees is not predicated on a grant of exemplary damages. Given the
circumstances of this case, it is regretful that the Labor Arbiter and the NLRC failed to
award moral and exemplary damages prayed for by the respondent. But because
respondent did not appeal the denial, the Court may no longer modify the ruling in this
regard. Respondent is entitled to receive her accrued salary differential, merit increases
and productivity bonuses since 2001.
Respondent raises the side issue pertaining to petitioners alleged withholding of
her accrued salary differential, merit increases and productivity bonuses since 2001. She
claims that during the pendency of this case, petitioner effected salary adjustments, merit
increases and productivity bonuses to other employees. As proof, she submitted the
Notice of Personnel Action-Salary Adjustment of Arsenio Rodrigo Neyra, the former
Cost Accountant which position she now occupies, and pertinent portions of the
Collective Bargaining Agreement. She now seeks payment of these amounts.
Notably, petitioner does not refute its grant of salary increases, merit increases
and productivity bonuses to other employees. In its attempt to rebuff Franciscos claim,
petitioner merely argues that the same should no longer be entertained because it was
never raised before the proceedings below.
Interestingly, it never categorically denied that such salary increases, merit
increases and productivity bonuses have indeed been given to the other employees.
At this juncture, it must be stressed that "technical rules of procedure are not
binding in labor cases. The application of technical rules of procedure may be relaxed to
serve the demands of substantial justice." "It is more in keeping with the objective of
rendering substantial justice if we brush aside technical rules rather than strictly apply its
literal reading. There [being] no objective reason to further delay this case by insisting on
a technicality when the controversy could now be resolved." Moreover, "there is no need
to remand this case to the Labor Arbiter for further proceedings, as the facts are clear and
complete on the basis of which a decision can be made." Based on the foregoing, we find
no reason to deprive herein respondent of the accrued salary differential, merit increases
and productivity bonuses due her since 2001. WHEREFORE, the Petition is DENIED for
lack of merit.
DAMAGES:
72.

(attorneys fees)
Philippine National Construction Corporation vs. APAC Marketing
Corportion
G.R. No. 190957

June 5, 2013

FACTS:
Respondent APAC Marketing Corp. filed a complaint against petitioner Philippine
National Construction Corporation (PNCC) for collection of sum of money with damages
arising from a simple purchase transaction for the delivery of crushed basalt rock to
PNCC. The RTC of Quezon City rendered a decision in favor of PNCC ordering the
ordering respondent to pay attorneys fees. The CA affirmed the ruling of RTC. On 29

Page 181 of 193

July 2009, herein petitioner filed a Motion for Reconsideration, which raised the lone
issue of the propriety of the award of attorneys fees in favor of respondent. In said
motion, petitioner fully agreed with the CA Decision imposing 6% legal interest per
annum on the principal obligation and absolving Rogelio Espiritu and Rolando Macasaet
from any liability, as members of the board of directors of PNCC. However, the petitioner
the awarding attorneys fees in favor of respondent.
ISSUE/S:
W/N awarding of attorneys fees was proper?
HELD:
No. The Supreme Court agreed with the petitioners contention that the RTC has
no finding that would fall under any of the exceptions under Article 2208 of the Civil
code. Article 2208 of the civil code states the policy that should guide the courts when
awarding attorneys fees. According to the law, as a general rule, parties may stipulate the
recovery of attorneys fees. In the absence of such stipulation, the article exclusively
enumerates the instances when the fees may be recovered.
Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation,
other than judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiff's plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled
workers;
(8) In actions for indemnity under workmen's compensation and employer's liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney's fees and
expenses of litigation should be recovered.
In all cases, the attorney's fees and expenses of litigation must be reasonable.
Award of attorneys fees under Article 2208 demands factual, legal, and equitable
justification to avoid speculation and conjecture surrounding the grant thereof. Due to the
special nature of the award of attorneys fees, a rigid standard is imposed on the courts
before these fees could be granted. Hence, it is imperative that they clearly and distinctly

Page 182 of 193

set forth in their decisions the basis for the award thereof. It is not enough that they
merely state the amount of the grant in the dispositive portion of their decisions.
The award of attorneys fees is an exception rather than the general rule; thus,
there must be compelling legal reason to bring the case within the exceptions provided
under Article 2208 of the Civil Code to justify the award.

DAMAGES:
73.

(attorneys fees)
Camilo A. Esguerra vs. United Philippines Lines Inc. and Belships
Management (Singapore) PTE. LTD.
G.R. No. 199932

July 3, 2013

FACTS:
The petitioner, Camilo Esguerra, was hired by the Philippine registered manning
agency, in behalf of its principal Belships Management (Singapore) PTE. LTD., to work
as a fitter for a period of nine months or until July 2008 on board the vessel M/V Jaco
Triumph. This agreement was subject to a one month extension upon mutual agreement

Page 183 of 193

of the parties. On August 21, 2008, petitioner was working on the vessel and welding
wedges inside. While welding, a manhole cover accidentally fell on his head, which
resulted to medically repatriating him to the Philippines. Petitioner was claiming that he
is entitled to the maximum permanent disability compensation plus moral and exemplary
damages pursuant to the Philippine Seafarers Union/ International Transport Workers
Federation Total Crew Cost Agreement, which was in his employment contract.
ISSUE/S:
W/N petitioner is entitled to the moral and exemplary damages pursuant to the
Philippine Seafarers Union/ International Transport Workers Federation Total Crew Cost
Agreement incorporated in his employment contract?
HELD:
No. The Supreme Court held that the respondents gave the proper and sufficient
medical treatment to the petitioner. Such support cannot constitute negligence on the part
of the respondent. However, the Court stated that the petitioner is entitled to attorneys
fees, which was covered under workmens compensation and employers liability laws.
According to Article 2208 (8) of the Civil Code, the award of attorneys fees is justified
in actions for indemnity under workmens compensation and employers liability laws.

DAMAGES:
74.

(last clear chance; contributory negligence)

Allied Banking Corp. vs BPI
G.R. No. 188363 February 27, 2013

FACTS:
On 10 October 2002, a check in the amount of 1 Million (payable to Mateo Mgt.
Group International) was presented for deposit in Allied Banks Kawit branch. The check,
post dated on 9 October 2003, was drawn against the account of Silva w/ BPI. Upon
receipt, Allied sent tge check for clearing to BPI through Phil Clearing House Corp. The
same was cleared and Allied credited Mateo Mgt. w/ 1 million. Subsequently, Mateo

Page 184 of 193

Mgt.'s account was closed and all the funds in it were withdrawn. Silva then discovered
the debit on his account. BPI responding to Silva's complaint credited his account w/ the
said sum. BPI returned a photocopy of the check to Allied as it was post dated; Allied
refused to accept the same. The charge slip was tossed from Allied to BPI several times
until BPI requested that PCHC take custody of the check. Allied filed a complaint before
the arbitration committee arguing that BPI should bear the value of the check for its
negligence in failing to return the check to Allied w/ in the reglementary period according
to Clearing House Rules and Regulations. In its answer, BPI charged Allied w/ gross
negligence for accepting the post dated check which was the proximate cause of the loss.
The Arbitration committee ruled in favor of Allied and ordered BPI to pay
500,000. The CA set aside the RTC judgment ruling that a 60-40 sharing of the loss
should be applied since contributory negligence is attributed to Allied in accepting what
was clearly a post dated check.
ISSUES:
(1) whether the doctrine of last clear chance applies in this case; and
(2) whether the 60-40 apportionment of loss ordered by the CA was justified.
HELD 1:
As well established by the records, both petitioner and respondent were
admittedly negligent in the encashment of a check post-dated one year from its
presentment.
The doctrine of last clear chance, stated broadly, is that the negligence of the
plaintiff does not preclude a recovery for the negligence of the defendant where it appears
that the defendant, by exercising reasonable care and prudence, might have avoided
injurious consequences to the plaintiff notwithstanding the plaintiffs negligence.22 The
doctrine necessarily assumes negligence on the part of the defendant and contributory
negligence on the part of the plaintiff, and does not apply except upon that assumption.23
Stated differently, the antecedent negligence of the plaintiff does not preclude him from
recovering damages caused by the supervening negligence of the defendant, who had the
last fair chance to prevent the impending harm by the exercise of due diligence.24
Moreover, in situations where the doctrine has been applied, it was defendants failure to
exercise such ordinary care, having the last clear chance to avoid loss or injury, which
was the proximate cause of the occurrence of such loss or injury.
In this case, the evidence clearly shows that the proximate cause of the
unwarranted encashment of the subject check was the negligence of respondent who
cleared a post-dated check sent to it thru the PCHC clearing facility without observing its
own verification procedure. As correctly found by the PCHC and upheld by the RTC, if
only respondent exercised ordinary care in the clearing process, it could have easily
noticed the glaring defect upon seeing the date written on the face of the check "Oct. 9,
2003". Respondent could have then promptly returned the check and with the check thus
dishonored, petitioner would have not credited the amount thereof to the payees account.

Page 185 of 193

Thus, notwithstanding the antecedent negligence of the petitioner in accepting the postdated check for deposit, it can seek reimbursement from respondent the amount credited
to the payees account covering the check.
What petitioner omitted to mention is that in the cited case of Philippine Bank of
Commerce v. Court of Appeals,26 while the Court found petitioner bank as the culpable
party under the doctrine of last clear chance since it had, thru its teller, the last
opportunity to avert the injury incurred by its client simply by faithfully observing its
own validation procedure, it nevertheless ruled that the plaintiff depositor (private
respondent) must share in the loss on account of its contributory negligence. Thus: The
foregoing notwithstanding, it cannot be denied that, indeed, private respondent was
likewise negligent in not checking its monthly statements of account. Had it done so, the
company would have been alerted to the series of frauds being committed against RMC
by its secretary. The damage would definitely not have ballooned to such an amount if
only RMC, particularly Romeo Lipana, had exercised even a little vigilance in their
financial affairs. This omission by RMC amounts to contributory negligence which shall
mitigate the damages that may be awarded to the private respondent under Article 2179
of the New Civil Code, to wit: "x x x. 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 defendant's lack of due care, the plaintiff may recover damages, but the courts shall
mitigate the damages to be awarded."
HELD 2:
The demands of substantial justice are satisfied by allocating the damage on a 6040 ratio. Thus, 40% of the damage awarded by the respondent appellate court, except the
award of P25,000.00 attorneys fees, shall be borne by private respondent RMC; only the
balance of 60% needs to be paid by the petitioners. The award of attorneys fees shall be
borne exclusively by the petitioners.
Considering the comparative negligence of the two (2) banks, we rule that the
demands of substantial justice are satisfied by allocating the loss of P2,413,215.16 and
the costs of the arbitration proceedings in the amount of P7,250.00 and the costs of
litigation on a 60-40 ratio. Conformably with this ruling, no interests and attorneys fees
can be awarded to either of the parties.
Apportionment of damages between parties who are both negligent was followed
in subsequent cases involving banking transactions notwithstanding the courts finding
that one of them had the last clear opportunity to avoid the occurrence of the loss.
WHEREFORE, the petition for review on certiorari is DENIED. The Decision
dated March 19, 2009 of the Court of Appeals in CA-G.R. SP No. 97604 is
hereby AFFIRMED.

Page 186 of 193

DAMAGES: (award of damages; modification)

75.

People vs. Ramil Rarugal alias Amay Bisaya

G.R. No. 188603

January 16, 2013

FACTS:
On the night of October 19, 1998 at around 9:45 pm, while victim Arnel Florendo
was cycling along Sampaguita St., Brgy. Capari, Novaliches, QC, herein appellant
stabbed Florendo. After being stabbed twice on the chest, the victim went home and
under labored breathing, told his brother Renato that it was appellant who stabbed him.
Florendo died 7 days later in the hospital due to a cut or puncture in his lungs caused by

Page 187 of 193

the stabbing. On May 29, 2006 the RTC of Quezon City found appellant guilty beyond
reasonable doubt of the crime of murder as defined under Article 248 of the Revised
Penal Code and was ordered to pay for actual damages, civil indemnity, as well as, moral
damages in the amounts of P28,124.00, P50,000 and P50,000 respectively. Upon appeal,
the CA affirmed with modification the RTC decision on the amount of damages, wherein,
herein appellant was ordered to pay the heirs of the victim the amount of P27,896 as
actual damages and P25,000 as exemplary damages.
ISSUE/S:
W/N the modification of the award actual and exemplary damages was proper?
HELD:
Yes. The award of damages, according to the Supreme Court, when death occurs
due to a crime, the following may be recovered: 1) civil indemnity ex delicto for the
death of the victim; 2) actual or compensatory damages; 3) moral damages; 4) exemplary
damages; 5) attorneys fees and expenses of litigation; and 6) interest, in proper cases.
The SC agreed with the CA that the heirs of the victim were able to prove the actual
damages based on the receipts they submitted. Moreover, the award of exemplary
damages was also held proper in this case relative to the civil aspect, an aggravating
circumstance, whether ordinary or qualifying, should entitle the offended party to an
award of exemplary damages within the unbridled meaning of Article 2230 of the NCC.
However, it was increased by the SC to P30,000 and the award of civil indemnity to
P75,000 in order to conform to recent jurisprudence. Lastly, the SC sustained the RTC
award of moral damages in the amount of P50,000 even in the absence of proof of mental
and emotional suffering of the victims heirs. As borne out by human nature and
experience, a violent death invariably and necessarily brings about emotional pain and
anguish on the part of the victims family. Plus, 6% legal rate per annum from date of
finality of the Decision until fully paid.

DAMAGES: (moral damages)

76.

People vs. Benjamin Peteluna and Abundio Binondo

G.R. No. 187048

January 23, 2013

FACTS:
On April 30, 1996, Romeo Pialago, then 16 years old and Pablo Estomo, herein
murder victim, watched a cockfight during the Fiesta of Barangay Lamak, Barili, Cebu.
On their way home at about 5:00pm, Pablo followed by Peteluna and Binondo, herein
suspects respectively, followed by Romeo behind them, walked along the road of Sitio
Liki in Cebu. Romeo who knew herein appellants because they used to pass by his house,
noticed the two whispering to each other. He saw the appellants place their arms around

Page 188 of 193

Pablos shoulder, after which they struck Pablo with stones each of which was as big as a
size of a fist. Pablo pleaded to them to stop but they did not. When Pablo fell to the
ground, Benjamin smashed his head with a stone as big as Pablos head. Afterwards, they
dragged the body downhill towards the farm of one Efren Torion. Romeo did not know
what happened next as he ran to seek help. Pablo died of cerebral hemorrhage due to
laceration and contusion of the head.
The RTC of Cebu found suspects guilty of the crime of murder punishable by
reclusion perpetua, and held them liable to the heirs of Pablo in the amount of P100,000
as indemnity. On appeal, the CA affirmed the judgment with modification on the damages
in the amount of P50,000, as civil indemnity, and P25,000, as exemplary damages, to be
paid by the appellants solidarily.
ISSUE/S:
W/N the heirs of Pablo are entitled to moral damages as well?
HELD:
Yes. The heirs of Pablo are entitled not only to receive civil indemnity, exemplary
damages but also moral damages. The Supreme Court affirmed the award by the CA of
P50,000 as civil indemnity but increased the amount of exemplary damages from
P25,000 to P30,000 to conform to existing jurisprudence. In addition, the victims heirs
shall also be entitled to moral damages. According to the SC, even in the absence of proof
that his heirs suffered mentally and emotionally, a violent death invariably and
necessarily brings about emotional pain and anguish on the part of the victims family.
Hence, the award of moral damages was proper, plus 6% interest on all the monetary
awards for damages to be reckoned from the date of finality of the judgment until fully
paid.

DAMAGES: (moral damages)

77.

People vs. Arnel Nocum,* Rey Johnny Ramos, Carlos Jun Posadas,
Pandao Poling Pangandag (all at large), Reynaldo Mallari
G.R. No. 179041

April 1, 2013

FACTS:
An Information was filed charging Mallari and co-accused Arnel Nocum
(Nocum), Rey Johnny Ramos (Ramos), Carlos Jun Posadas (Posadas) and Pandao Poling
Pangandag alias Rex Pangandag (Pangandag) with violation of Republic Act (RA) No.
6539, otherwise known as the Anti-Carnapping Act of 1972, as amended by RA 7659 and
Homicide under Revised Penal Code. On December 15, 2003, the RTC of Muntnlupa
City rendered its Decision finding Mallari guilty beyond reasonable doubt of carnapping

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with homicide. The trial court ruled that the testimony of Mahilac that Mallari
participated in the theft of the FX taxi and the killing of its driver, Medel, cannot be
negated by Mallaris denial and uncorroborated alibi. It also found that the commission of
the crime was a result of a planned operation with Mallari and all the accused doing their
assigned tasks to ensure the consummation of their common criminal objective. The CA
affirmed the decision of the lower court and awarded damages to the heirs.
ISSUE/S:
W/N damages may be awarded to the heirs of the victim Medel?
HELD:
Yes. For the killing of Medel, the Supreme Court awarded to his heirs the amount
of P50,000 as civil indemnity pursuant to prevailing jurisprudence. Said heirs are also
entitled to an award of moral damages in the sum of P50,000, as in all cases of murder
and homicide, without need of allegation and proof other than the death of the victim.
The Court cannot, however, award actual damages due to the absence of receipts to
substantiate the expenses incurred for Medels funeral.
The rule is that only duly receipted expenses can be the basis of actual damages.
"Nonetheless, under Article 2224 of the Civil Code, temperate damages may be
recovered as it cannot be denied that the heirs of the victim suffered pecuniary loss
although the exact amount was not proved." We therefore award the sum of P25,000 as
temperate damages in lieu of actual damages to the heirs of Medel. "In addition, and in
conformity with current policy, we also impose on all the monetary awards for damages
an interest at the legal rate of 6% from date of finality of this Decision until fully paid."

DAMAGES: (exemplary damages)

78.

People vs. Jonathan Uto Veloso y Rama

G.R. No. 188849

February 13, 2013

FACTS:
Appellant Jonathan Veloso was convicted of two counts of rape committed against
a 12 year old minor (AAA). The information was filed by the victims mother (BBB). On
April 4, 2000, at around 12:00pm, appellant went looking for BBBs brother. He went to
BBBs house asking her to accompany him to her brothers house. Since she was busy,
she declined. Appellant then insisted that AAA accompany him instead, to which BBB
consented. Thus, AAA together with her cousin (CCC) left the house with appellant.
Instead of taking a padyak or a trike, appellant opted to take a boat. While in the middle

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of the river, appellant threatened to hit CCC with a paddle if he would not jump off the
boat. Immediately after CCC jumped off, appellant steered the boat towards the riverbank
and made AAA lie in the water lily and grass covered banks. There he proceeded to
violate her, all the while threatening to drown her. After raping AAA twice, appellant
boxed AAA on her face, lips, stomach and thighs. Appellant then kicked AAA on the
stomach, slapped and smashed her face to the ground, and choked her until she became
unconscious.
The RTC found herein appellant guilty beyond reasonable doubt of the crime of
rape and sentenced him to imprisonment plus payment of moral and exemplary damages,
civil indemnity and costs. Upon appeal, the CA affirmed the conviction and the awards
except award of exemplary damages.
ISSUE/S:
W/N the exclusion of the award of exemplary damages by the CA was proper?
HELD:
No. The Supreme Court did not agree with the CAs deletion of exemplary
damages citing the case of People v. Alfredo. In that case, the Court explained the nature
of exemplary damages. Exemplary damages, also known as punitive or vindictive
damages, are intended to serve as a deterrent to serious wrong doings, and as a
vindication of undue sufferings and wanton invasion of the rights of an injured or a
punishment for those guilty of outrageous conduct. In common law, exemplary damages
account for injury to feelings and for the sense of indignity and humiliation suffered by a
person as a result of an injury that has been maliciously and wantonly inflicted, the theory
being that there should be compensation for the hurt caused by the highly reprehensible
conduct of the defendant--associated with such circumstances as willfulness, wantonness,
malice, gross negligence or recklessness, oppression, insult or fraud or gross fraud-- that
intensifies the injury. This type of damages is directed to a person to punish him for his
outrageous conduct. This is intended in good measure to deter the wrongdoer and others
like him from doing the same thing again in the future.
Furthermore, being corrective in nature, exemplary damages can be awarded not
only in the presence of an aggravating circumstance but also where the circumstances of
the case show the highly reprehensible or outrageous conduct of the offender. In much the
same way as Article 2233 of the Civil Code prescribes an instance when exemplary
damages may be awarded, Article 2229 of the Civil Code, the main provision, lays down
the very basis of the award: to set a public example or correction for the public good.
Hence, appeal was dismissed and appellant was ordered to pay for each count of rape,
civil indemnity, moral damages, exemplary damages and interest at 6% legal rate per
annum from date of finality of the SC decision.

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DAMAGES: (exemplary damages)

79.

People vs. Rey Monticalvo y Magno

G.R. No. 193507

January 30, 2013

FACTS:
This case is an appeal from the CA decision affirming in toto the RTC Branch 19
of Cataman, Northern Samar, finding herein appellant guilty beyond reasonable doubt of
the crime of rape of a demented person committed against AAA, a 12 year old girl. The
facts of the case are as follows, AAA is a mental retardate and at the time was exactly 12
years and 11 months old. She and appellant who was then 17 years old are neighbors. In
the afternoon of December 9, 2002, the victim and her friend Analiza were in front of the
sari-sari store of AAAs mother, BBB, while appellant was inside the fence of their house
adjacent to the said store. Shortly thereafter, appellant invited AAA to go with him to the

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kiln at the back of their house. AAA acceded and went ahead. Analiza followed without
the appellant noticing her and hid under a papaya tree. From there she saw appellant
undress AAA by removing the latters shorts and panty. Appellant, however, glanced and
saw Analiza. Frightened, Analiza ran away and went back to the sari-sari store of BBB
without telling BBB what she saw. When AAA arrived at their house at around 7:30 pm,
BBB asked her why she came late and there learned the horrifying story of such sexual
intercourse at the back of their house. AAA herself testified in court against herein
appellant. The SC considered the minority of appellant herein at the time of the
commission and by virtue of the promulgation of RA 9344 otherwise known as Juvenile
Justice and Welfare Act of 2006 on May 200, 2006 remanded the case to the lower court
for appropriate disposition in accordance with Section 51 of RA 9344 which is the
confinement of convicted children in agricultural camps and other training facilities. It
was noted that RA 9344 is retroactive and may apply to convicts whether they are already
of age at the time of their conviction, provided, were still minors at the time of the
commission of the offense.
ISSUE/S:
W/N RA 9344 will affect the award of damages of a convicted minor?
HELD:
No. The civil liability resulting from the commission of the offense is not affected
by the appropriate disposition measures and shall be enforced in accordance with law.
The SC affirmed both the civil indemnity and moral damages of P50,000 each
respectively awarded by the lower courts in favor of AAA. Civil indemnity, according to
the Court, is actually in the nature of actual or compensatory damages. It is mandatory
upon the finding of fact of rape. Case law also requires automatic award of moral
damages to a rape victim without need of proof because from the nature of the crime, it
can be assumed that she has suffered moral injuries entitling her to such award. Such
award is separate and distinct from civil indemnity. Moreover, exemplary damages are
awarded to set a public example and to protect hapless individuals from sexual
molestation. The Court affirmed the award of exemplary damages only that it was
increased from P25,000 to P30,000 to conform to recent jurisprudence.

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