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January 2013 Philippine Supreme Court Decisions on Civil Law

Here are select January 2013 rulings of the Supreme Court of the Philippines on civil
Civil Code
Compromise Agreement; definition and nature; distinction between judicial and
extrajudicial. 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. Land Bank of the
Philippines vs. Heirs of Spouses Jorja Rigor Soriano and Magin Soriano; G.R. No.
178312. January 30, 2013
Contract; contract of suretyship; definition; nature of liability of surety; suretys liability is
direct, primary and absolute as well as joint and several. 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 (An Act Relative to
Recognizances, Stipulations, Bonds and Undertakings, and to Allow Certain
Corporations to be Accepted as Surety Thereon). We have 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. The Manila Insurance Company, Inc. vs.
Spouses Roberto and Aida Amurao; G.R. No. 179628. January 16, 2013
Contract; law between the parties; rules on interpretation; easement of right of way; just
compensation; attorneys fees; exception rather than the general rule. 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
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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
Where the right of way easement, as in this case, similarly involves transmission lines
which not only endangers life and limb but restricts as well the owners use of the land
traversed thereby, the ruling in Gutierrez remains doctrinal and should be applied. It has
been ruled that the owner should be compensated for the monetary equivalent of the
land if, as here, the easement is intended to perpetually or indefinitely deprive the owner
of his proprietary rights through the imposition of conditions that affect the ordinary use,
free enjoyment and disposal of the property or through restrictions and limitations that
are inconsistent with the exercise of the attributes of ownership, or when the
introduction of structures or objects which, by their nature, create or increase the
probability of injury, death upon or destruction of life and property found on the land is
necessary. Measured not by the takers gain but the owners loss, just compensation is
defined as the full and fair equivalent of the property taken from its owner by the
The determination of just compensation in eminent domain proceedings is a judicial
function and no statute, decree, or executive order can mandate that its own
determination shall prevail over the courts findings. Any valuation for just compensation
laid down in the statutes may serve only as a guiding principle or one of the factors in
determining just compensation, but it may not substitute the courts own judgment as to
what amount should be awarded and how to arrive at such amount. Hence, Section 3A
of R.A. No. 6395, as amended (An Act Revising the Charter of the National Power
Corporation), is not binding upon this Court.
For want of a statement of the rationale for the award in the body of the RTCs 14 March
2000 Decision, we are constrained, however, to disallow the grant of attorneys fees in
favor of the Spouses Cabahug in an amount equivalent to 5% of the just compensation
due as well as the legal interest thereon. Considered the exception rather than the
general rule, the award of attorneys fees is not due every time a party prevails in a suit
because of the policy that no premium should be set on the right to litigate. Jesus L.
Cabahug and Coronacion M. Cabahug vs. National Power Corporation; G.R. No.
186069. January 30, 2013
Contract; perfection of contracts; consent; offer and acceptance; contract of sale;
consensual in nature.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. The requisite acceptance of the offer is expressed in Article 1319
of the Civil Code which states:
ART. 1319. Consent is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract. The offer must be certain
and the acceptance absolute. A qualified acceptance constitutes a counter-offer.

Prepared by: Harold B. Lacaba


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 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
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 counteroffer. 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. (Emphasis supplied)
A contract of sale is consensual in nature and is perfected upon mere meeting of the
minds. When there is merely an offer by one party without acceptance of the other,
there is no contract. When the contract of sale is not perfected, it cannot, as an
independent source of obligation, serve as a binding juridical relation between the
parties. Heirs of Fausto C. Ignacio vs. Home Bankers Savings and Trust Co., et
al.; G.R. No. 177783. January 23, 2013
Damages; moral damages; requisites; granted when rights of individuals are violated;
exemplary damages; actual damages; nature; in the absence of proof, temperate
damages may be awarded; attorneys fees; exception rather than the general
rule. 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,
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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
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. In Quisumbing v. Manila
Electric Company, this Court treated the immediate disconnection of electricity without
notice as a form of deprivation of property without due process of law, which entitles the
subscriber aggrieved to moral damages. We stressed:
More seriously, the action of the defendant in maliciously disconnecting the electric
service constitutes a breach of public policy. For public utilities, broad as their powers
are, have a clear duty to see to it that they do not violate nor transgress the rights of the
consumers. Any act on their part that militates against the ordinary norms of justice and
fair play is considered an infraction that gives rise to an action for damages. Such is the
case at bar.
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.
Actual or compensatory damages cannot be presumed, but must be duly proved with a
reasonable degree of certainty. The award is dependent upon competent proof of the
damage suffered and the actual amount thereof. The award must be based on the
evidence presented, not on the personal knowledge of the court; and certainly not on
flimsy, remote, speculative and unsubstantial proof.
Nonetheless, in the absence of competent proof on the amount of actual damages
suffered, a party is entitled to temperate damages. Temperate or moderate damages,
which are more than nominal but less than compensatory damages, may be recovered
when the court finds that some pecuniary loss has been suffered but its amount cannot,
from the nature of the case, be proved with certainty. The amount thereof is usually left
to the discretion of the courts but the same should be reasonable, bearing in mind that
temperate damages should be more than nominal but less than compensatory.
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An award of attorneys fees has always been the exception rather than the rule.
Attorneys fees are not awarded every time a party prevails in a suit. The policy of the
Court is that no premium should be placed on the right to litigate. The trial court must
make express findings of fact and law that bring the suit within the exception. What this
demands is that factual, legal or equitable justifications for the award must be set forth
not only in the fallo but also in the text of the decision, or else, the award should be
thrown out for being speculative and conjectural. Manila Electric Company (MERALCO)
vs. Atty. P.M. Castillo, doing business under the trade name and style of Permanent
Light Manufacturing Enterprises, et al.; G.R. No. 182976. January 14, 2013
Damages; moral damages; when awarded. The Court has awarded moral damages in
termination cases when bad faith, malice or fraud attend the employees dismissal or
where the act oppresses labor, or where it was done in a manner contrary to morals,
good customs or public policy. General Milling Corporation vs. Violeta L. Viajar; G.R.
No. 181738. January 30, 2013
Effectivity of laws; generally, no retroactive effect; exception, when law is procedural. As
a general rule, laws shall have no retroactive effect. However, exceptions exist, and one
such exception concerns a law that is procedural in nature. The reason is that a
remedial statute or a statute relating to remedies or modes of procedure does not create
new rights or take away vested rights but only operates in furtherance of the remedy or
the confirmation of already existing rights. A statute or rule regulating the procedure of
the courts will be construed as applicable to actions pending and undetermined at the
time of its passage. All procedural laws are retroactive in that sense and to that extent.
The retroactive application is not violative of any right of a person who may feel
adversely affected, for, verily, no vested right generally attaches to or arises from
procedural laws. Spouses Augusto G. Dacudao and Ofelia R. Dacudao vs. Secretary of
Justice Raul M. Gonzales of the Department of Justice; G.R. No. 188056. January 8,
Ejectment; unlawful detainer; estoppel against tenants; conclusive presumption;
foreclosure of mortgage; title to land remains in the mortgagor until expiration of
redemption period; inchoate character of purchasers right. [T]he 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 partys 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.
[I]n 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
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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.
The conclusive presumption found in Section 2 (b), Rule 131 of the Rules of Court,
known as estoppelagainst tenants, provides as follows:
Sec. 2. Conclusive presumptions. The following are instances of conclusive
(b) The tenant is not permitted to deny the title of his landlord at the time of the
commencement of the relation of landlord and tenant between them. (Emphasis
It is clear from the abovequoted provision that what a tenant is estopped from denying is
the title of his landlord at the time of the commencement of the landlord-tenant relation.
If the title asserted is one that is alleged to have been acquired subsequent to the
commencement of that relation, the presumption will not apply. Hence, the tenant may
show that the landlords title has expired or been conveyed to another or himself; and
he is not estopped to deny a claim for rent, if he has been ousted or evicted by title
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 masters deed. Indeed, the rule has always
been that it is only upon the expiration of the redemption period, without the judgment
debtor having made use of his right of redemption, that the ownership of the land sold
becomes consolidated in the purchaser.
Stated differently, under Act. No. 3135 (An Act to Regulate the Sale of Property Under
Special Powers Inserted in or Annexed to Real Estate Mortgages), the purchaser in a
foreclosure sale has, during the redemption period, only an inchoate right and not the
absolute right to the property with all the accompanying incidents. He only becomes an
absolute owner of the property if it is not redeemed during the redemption
period. Juanita
Ermitao vs.Lailanie M. Paglas; G.R. No. 174436. January 23, 2013
Interest; 12% interest rate doctrine in Eastern Shipping Lines vs. CA. [T]he 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. [T]he payment of 12% interest from the finality of judgment
is in order pursuant to Eastern Shippings Lines, Inc. where the Court held that:
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When an obligation, not constituting a loan or forbearance of money, is breached, an

interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run
only from the date the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The actual base for
the computation of legal interest shall, in any case, be on the amount finally adjudged.
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.
Spouses Ricardo and Elena Golez vs. Spouses Carlos and Amelita Navarro; G.R. No.
192532. January 30, 2013
Legal Compensation; mode of extinguishing obligations; difference with conventional
compensation; requisites. 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. 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.
Mondragon Personal Sales, Inc. vs. Victoriano S. Sola, Jr.; G.R. No. 174882. January
21, 2013

Prepared by: Harold B. Lacaba


Marriage; essential and formal requisites; marriage license; certification of non-issuance

by civil registrar; diligent search requirement compared to presumption of regularity in
performance of official duties; effect of absence of marriage license. As the marriage of
Gloria and Syed was solemnized on January 9, 1993, Executive Order No. 209, or the
Family Code of the Philippines, is the applicable law. The pertinent provisions that
would apply to this particular case are Articles 3, 4 and 35(3), which read as follows:
Art. 3. The formal requisites of marriage are:
(1) Authority of the solemnizing officer;
(2) A valid marriage license except in the cases provided for in Chapter 2 of this Title;
(3) A marriage ceremony which takes place with the appearance of the contracting
parties before the solemnizing officer and their personal declaration that they take each
other as husband and wife in the presence of not less than two witnesses of legal age.
Art. 4. The absence of any of the essential or formal requisites shall render the marriage
void ab initio, except as stated in Article 35(2).
A defect in any of the essential requisites shall render the marriage voidable as provided
in Article 45.
An irregularity in the formal requisites shall not affect the validity of the marriage but the
party or parties responsible for the irregularity shall be civilly, criminally and
administratively liable.
Art. 35. The following marriages shall be void from the beginning:
(3) Those solemnized without a license, except those covered by the preceding
Under Sec. 3(m), Rule 131 of the Rules of Court, it is a disputable presumption that an
official duty has been regularly performed, absent contradiction or other evidence to the
contrary. We held, The presumption of regularity of official acts may be rebutted by
affirmative evidence of irregularity or failure to perform a duty. No such affirmative
evidence was shown that the Municipal Civil Registrar was lax in performing her duty of
checking the records of their office, thus the presumption must stand. In fact, proof does
exist of a diligent search having been conducted, as Marriage License No. 996967 was
indeed located and submitted to the court. The fact that the names in said license do
not correspond to those of Gloria and Syed does not overturn the presumption that the
registrar conducted a diligent search of the records of her office.

Prepared by: Harold B. Lacaba


In the case of Cario v. Cario, following the case of Republic, it was held that the
certification of the Local Civil Registrar that their office had no record of a marriage
license was adequate to prove the non-issuance of said license. The case
of Cario further held that the presumed validity of the marriage of the parties had been
overcome, and that it became the burden of the party alleging a valid marriage to prove
that the marriage was valid, and that the required marriage license had been secured.
Article 4 of the Family Code is clear when it says, The absence of any of the essential
or formal requisites shall render the marriage void ab initio, except as stated in Article
35(2). Article 35(3) of the Family Code also provides that a marriage solemnized
without a license is void from the beginning, except those exempt from the license
requirement under Articles 27 to 34, Chapter 2, Title I of the same Code. Syed Azhar
Abbas vs. Gloria Goo Abbas; G.R. No. 183896. January 30, 2013
Marriage; psychological incapacity; definition; burden of proof; sexual infidelity and
abandonment do not necessarily constitute psychological incapacity; psychological
fitness as a wife not equated with professional relationship; doubts are resolved in favor
of marriage. Article 36 of the Family Code governs psychological incapacity as a ground
for declaration of nullity of marriage. It provides that [a] marriage contracted by any
party who, at the time of the celebration, was psychologically incapacitated to comply
with the essential marital obligations of marriage, shall likewise be void even if such
incapacity becomes manifest only after its solemnization. In interpreting this provision,
we have repeatedly stressed that psychological incapacity contemplates downright
incapacity or inability to take cognizance of and to assume the basic marital
obligations; not merely the refusal, neglect or difficulty, much less ill will, on the part of
the errant spouse. The plaintiff bears the burden of proving the juridical antecedence
(i.e., the existence at the time of the celebration of marriage), gravity and incurability of
the condition of the errant spouse.
In any event, sexual infidelity and abandonment of the conjugal dwelling, even if true, do
not necessarily constitute psychological incapacity; these are simply grounds for legal
separation. To constitute psychological incapacity, it must be shown that the
unfaithfulness and abandonment are manifestations of a disordered personality that
completely prevented the erring spouse from discharging the essential marital
Aside from the time element involved, a wifes psychological fitness as a spouse cannot
simply be equated with her professional/work relationship; workplace obligations and
responsibilities are poles apart from their marital counterparts. While both spring from
human relationship, their relatedness and relevance to one another should be fully
established for them to be compared or to serve as measures of comparison with one
Once again, we stress that marriage is an inviolable social institution protected by the
State. Any doubt should be resolved in favor of its existence its existence and
continuation and against its dissolution and nullity. It cannot be dissolved at the whim of
the parties nor by transgressions made by one party to the other during the
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marriage. Republic of the Philippines vs. Cesar Encelan; G.R. No. 170022. January 9,
Possession; de jure vs. de facto nature of possession; elements of forcible
entry. Ownership carries the right of possession, but the possession contemplated by
the concept of ownership is not exactly the same as the possession in issue in a forcible
entry case. Possession in forcible entry suits refers only to possession de facto, or
actual or material possession, and not possession flowing out of ownership;these are
different legal concepts for which the law provides different remedies for recovery of
possession. As the court explained in Pajuyo v. Court of Appeals, and again in the more
recent cases of Gonzaga v. Court of Appeals, De Grano v. Lacaba, and Lagazo v.
Soriano, the word possession in forcible entry suits refers to nothing more than prior
physical possession or possession de facto, not possession de jure or legal possession
in the sense contemplated in civil law. Title is not the issue, and its absence is not a
ground for the courts to withhold relief from the parties in an ejectment case. Thus, in a
forcible entry case, a party who can prove prior possession can recover such
possession even against the owner himself.
Whatever may be the character of his possession, if he has in his favor prior possession
in time, he has the security that entitles him to remain on the property until a person with
a better right lawfully ejects him. He cannot be ejected by force, violence or terror
not even by its owners. For these reasons, an action for forcible entry is summary in
nature aimed only at providing an expeditious means of protecting actual possession.
Ejectment suits are intended to prevent breach of x x x peace and criminal disorder and
to compel the party out of possession to respect and resort to the law alone to obtain
what he claims is his. Thus, lest the purpose of these summary proceedings be
defeated, any discussion or issue of ownership is avoided unless it is necessary to
resolve the issue of de facto possession.
Under Section 1, Rule 70 of the Rules of Court, for a forcible entry suit to prosper, the
plaintiff must allege and prove: (1) prior physical possession of the property; and (2)
unlawful deprivation of it by the defendant through force, intimidation, strategy, threat or
stealth. As in any civil case, the burden of proof lies with the complainants (the
respondents in this case) who must establish their case by preponderance of
evidence. Nenita Quality Foods Corporation vs. Crisostomo Galabo, et al.; G.R. No.
174191. January 30, 2013
Quasi-contracts; definition; requisites of solutio indebiti. 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. The Civil Code provides an
enumeration of quasi-contracts, but the list is not exhaustive and merely provides
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
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when there was no right to demand it. Metropolitan Bank & Trust Company vs. Absolute
Management Corporation; G.R. No. 170498. January 9, 2013
Torts; abuse of rights; elements; award of damages. While the Court mindfully notes
that damages may be recoverable due to an abuse of right under Article 21 in
conjunction with Article 19 of the Civil Code of the Philippines, the following elements
must, however, obtain: (1) there is a legal right or duty; (2) exercised in bad faith; and
(3) for the sole intent of prejudicing or injuring another. Records reveal that none of
these elements exists in the case at bar and thus, no damages on account of abuse of
right may he recovered. Eleazar S. Padillo vs. Rural Bank of Nabunturan, Inc., et
al.; G.R. No. 199338. January 21, 2013
Torts; proximate cause; vicarious liability is not applicable in the absence of employeremployee or principal-agent relationship; contracts; requisites of stipulation pour autrui;
Lease; act of parking a vehicle in a garage upon payment of a fixed amount, is a lease;
obligations of lessor; contracts of adhesion; actual damages must be proved with
reasonable degree of certainty. 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.
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 latters negligence cannot be imputed against BSP
but should be attributed to AIB, the true employer of Pea and Gaddi. In the case
of Soliman, Jr. v. Tuazon, the Court enunciated thus:
It is settled that where the security agency, as here, recruits, hires and assigns the work
of its watchmen or security guards, the agency is the employer of such guards and
watchmen. Liability for illegal or harmful acts committed by the security guards attaches
to the employer agency, and not to the clients or customers of such agency. As a
general rule, a client or customer of a security agency has no hand in selecting who
among the pool of security guards or watchmen employed by the agency shall be
assigned to it; the duty to observe the diligence of a good father of a family in the
selection of the guards cannot, in the ordinary course of events, be demanded from the
client whose premises or property are instructions or directions to the security guards
assigned to it, does not, by itself, render the client responsible as an employer of the
security guards concerned and liable for their wrongful acts or omissions. Those
instructions or directions are ordinarily no more than requests commonly envisaged in
the contract for services entered into with the security agency.
Nor can it be said that a principal-agent relationship existed between BSP and the
security guards Pea and Gaddi as to make the former liable for the latters complained
act. Article 1868 of the Civil Code states that [b]y the contract of agency, a person
binds himself to render some service or to do something in representation or on behalf
of another, with the consent or authority of the latter. The basis for agency therefore is
Prepared by: Harold B. Lacaba

representation, which element is absent in the instant case. Records show that BSP
merely hired the services of AIB, which, in turn, assigned security guards, solely for the
protection of its properties and premises. Nowhere can it be inferred in the Guard
Service Contract that AIB was appointed as an agent of BSP. Instead, what the parties
intended was a pure principal-client relationship whereby for a consideration, AIB
rendered its security services to BSP.
[I]n order that a third person benefited by the second paragraph of Article 1311, referred
to as a stipulation pour autrui, may demand its fulfillment, the following requisites must
concur: (1) There is a stipulation in favor of a third person; (2) The stipulation is a part,
not the whole, of the contract; (3) The contracting parties clearly and deliberately
conferred a favor to the third person the favor is not merely incidental; (4) The favor is
unconditional and uncompensated; (5) The third person communicated his or her
acceptance of the favor before its revocation; and (6) The contracting parties do not
represent, or are not authorized, by the third party.
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.
Article 1654 of the Civil Code provides that [t]he 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 [t]he 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.
[C]ontracts of adhesion are not void per se. It is binding as any other ordinary contract
and a party who enters into it is free to reject the stipulations in its entirety. If the terms
thereof are accepted without objection, as in this case, where plaintiffs-appellants have
been leasing BSPs parking space for more or less 20 years, then the contract serves
as the law between them.
It is axiomatic that actual damages must be proved with reasonable degree of certainty
and a party is entitled only to such compensation for the pecuniary loss that was duly
proven. Thus, absent any competent proof of the amount of damages sustained, the CA
properly deleted the said awards.Spouses Benjamin C. Mamaril and Sonia P. Mamaril
vs. The Boy Scout of the Philippines, et al.; G.R. No. 179382. January 14, 2013

Prepared by: Harold B. Lacaba


Special laws
Usury Law; CB Circular No. 905; suspension of ceilings for interest rates does not
authorize excessive and unconscionable interest rates; effect of void stipulation of
usurious interest. The power of the Central Bank to effectively suspend the Usury Law
pursuant to P.D. No. 1684 (Amending Further Act No. 2655, as amended, Otherwise
Known As The Usury Law) 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 (Amendment of Books I to IV of the Manual of Regulations for Banks
and Other Financial Intermediaries) 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.
[B]y 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.
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. As held in Castro v. Tan:
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
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. Advocates for
Truth in Lending, Inc. vs. Bangko Sentral Monetary Board, Represented by its
Prepared by: Harold B. Lacaba

Chairman, Governor Armando M. Tatangco, Jr., etc.; G.R. No. 192986. January 15,

Prepared by: Harold B. Lacaba


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