OBLIGATIONS

GONZALES vs. PCIB

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

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

HERNANDEZ-NIEVERA ET AL vs. HERNANDEZ ET AL

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

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

DALTON vs. FGR REALTY and DEVELOPMENT CORPORATION ET AL

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

fulfilment of the obligation. The consignation shall be ineffectual if it is

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

LEE ET AL vs. BANGKOK BANK PUBLIC COMPANY, LIMITED

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

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

COMMISSIONER OF CUSTOMS vs. AGFHA INC.

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

Philippine currency, computed at the exchange rate prevailing at the time of

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

10

MARQUES and MAXILITE TECHNOLOGIES INC. vs. FEBTC

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

11

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

12

LOTTO RESTAURANT CORPORATION, REPRESENTED BY SUAT KIM GO

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

13

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

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

14

15

COUNTRY BANKERS INSURANCE CORPORATION vs. ANTONIO LAGMAN

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

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

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

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

17

JESUS M. MONTEMAYOR vs. VICENTE D. MILLORA

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

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

HELD:
Yes. For legal compensation to take place, the requirements set forth in
Articles 1278 and 1279 of the Civil Code, quoted below, must be present.
ARTICLE 1278. Compensation shall take place when two persons, in their own
right, are creditors and debtors of each other.
ARTICLE 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the
latter has been stated;
(3) That the two debts be due;
18

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the debtor.
"A debt is liquidated when its existence and amount are determined. It is not
necessary that it be admitted by the debtor. Nor is it necessary that the credit
appear in a final judgment in order that it can be considered as liquidated; it
is enough that its exact amount is known. And a debt is considered
liquidated, not only when it is expressed already in definite figures which do
not require verification, but also when the determination of the exact amount
depends only on a simple arithmetical operation x xx."
When the defendant, who has an unliquidated claim, sets it up by way of
counterclaim, and a judgment is rendered liquidating such claim, it can be
compensated against the plaintiffs claim from the moment it is liquidated by
judgment. We have restated this in Solinap v. Hon. Del Rosario where we held
that compensation takes place only if both obligations are liquidated.
In the instant case, both obligations are liquidated. Vicente has the obligation
to pay his debt due to Jesus in the amount of P300,000.00 with interest at the
rate of 12% per annum counted from the filing of the instant complaint on
August 17, 1993 until fully paid. Jesus, on the other hand, has the obligation
to pay attorneys fees which the RTC had already determined to be equivalent
to whatever amount recoverable from Vicente. The said attorneys fees were
awarded by the RTC on the counterclaim of Vicente on the basis of "quantum
meruit" for the legal services he previously rendered to Jesus.

19

PILIPINO TELEPHONE CORPORATION vs. RADIOMARINE NETWORK

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

ISSUE:
Whether Smartnet can rescind the contract to sell

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

20

by rescissions consequences when it returned to Smartnet on December 19,

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

21

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

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

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

PHILIPPINE REALTY AND HOLDINGS CORPORATION vs. LEY

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

be impossible for it to finish the construction of the Tektite Building. In their

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

escalation agreement whether written or verbal has lifted, through

novation, the prohibition contained in the Tektite Building Agreement.

MILA A. REYES vs. VICTORIA T. TUPARAN

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

offered to conditionally buy petitioners real properties for P4,200,000.00

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

27

The subject Deed of Conditional Sale with Assumption of Mortgage entered

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

GREGORIO R. VIGILAR, SECRETARY OF THE DEPARTMENT OF PUBLIC

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

respondent Arnulfo D. Aquino, the owner of A.D. Aquino Construction and

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

29

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

30

ASIAN TERMINALS, INC. vs. MALAYAN INSURANCE CO., INC.

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

ISSUE:

Whether or not Malayan Insurance Co., Inc. has a right of sobrogation

nothwithstanding its failure to present the insurance contract or policy?

HELD:

31

Non-presentation of the insurance contract or policy is not fatal. In Delsan

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

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

Similarly, in this case, the presentation of the insurance contract or

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

32

PHILIPPINE NATIONAL RAILWAYS vs. KANLAON CONSTRUCTION

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

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

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

the unexpended balance of which, free of other obligations, is sufficient to

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

Thus, the Administrative Code of 1987 expressly prohibits the entering

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

34

PHILIPPINE SAVINGS BANK vs. SPOUSES ALFREDO M. CASTILLO AND

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

35

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

36

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

of the subject property or exercised acts of dominion over it despite her

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

CARABEO VS. SPS NORBERTO AND DINGCO

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

38

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

CATINDIG VS. VDA. DE MENESES

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

Respondent alleged that in September 1975, petitioner who is the first

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

Catindig claimed that he bought from respondent and her children in

January 1978, as evidenced by a Deed of Absolute Sale. Catindig further
39

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

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

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

REYES VS. TUPARAN

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

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

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

SPOUSES FERNANDO and EDRALIN vs.PHILIPPINE VETERANS BANK

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

42

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

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

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

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

ISSUE: Whether the consolidation of ownership of the extrajudicially

foreclosed property through a Deed of Sale is in accordance with law

HELD: Pactum commissorium is "a stipulation empowering the creditor to

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

The second element is missing to characterize the Deed of Sale as a form of

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

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

HERNANDEZ-NIEVERA ET AL VS. HERNANDEZ ET AL

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

and recreation complex in Caloocan City. In its Asset Pool Formation

Agreement, PMRDC conveyed to HIGC the constituent assets of the two
projects, whereas LBP agreed to act as trustee of the resulting Asset Pool for
a consideration.

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

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

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

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

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

amount is broad enough to cover the exchange contemplated in the DAC

between the properties and the corresponding corporate shares in PMRDC,
with the latter replacing the cash equivalent of the option money initially
agreed to be paid by PMRDC under the MOA. x x x

Thus, it becomes clear that Demetrios special power of attorney to sell is

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

LUZON DEVELOPMENT BANK VS. ENRIQUEZ

46

G.R. No. 168646 January 12, 2011

FACTS: Petitioner DELTA, a domestic corporation engaged in the business of
developing and selling real estate properties, is owned by Ricardo De Leon,
owner of a parcel of land which corresponds to Lot 4 of Delta Homes I. De
Leon and his spouse obtained a P4 million loan from the LDB for the purpose
of developing Delta Homes I. The spouses executed a REM on several of their
properties, including Lot 4.
Subsequently, this REM was amended by
increasing the amount of the secured loan fromP4 million to P8 million.
Petitioner executed a Contract to Sell with respondent Angeles Catherine
Enriquez (Enriquez) over the house and lot in Lot 4 for the purchase price of
P614,950.00. nriquez made a downpayment of P114,950.00.

When petitioner defaulted on its loan obligation, the LDB

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

47

prospective seller without further remedies by the prospective buyer.

does not, by itself, transfer ownership to the buyer.

It

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

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

The purpose of registration is to protect the buyers from any future

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

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

48

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

VICTORIA CLARAVALL, ASSISTED BY HER HUSBAND, LORETO

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

8. That considering that the defendant failed to repurchase the dwelling

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

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

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

51

CASIMIRO DEVELOPMENT CORPORATION, PETITIONER, VS. RENATO L.

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

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

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

53

ARMANDO BARCELLANO vs. DOLORES BAAS, represented by her

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

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

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

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

55

LEASE
INTERNATIONAL FREEPORT TRADERS VS. DANZAS
INTERCONTINENTAL INC.
G.R. No. 181833 , January 26, 2011
FACTS:
Petitioner IFTI ordered a shipment of Toblerone chocolates and assorted
confectioneries from Jacobs Suchard Tobler Ltd. of Switzerland (Jacobs)
through its Philippine agent, Colombo Merchants Phils., Inc., under the
delivery term F.O.B. Ex-Works. To ship the goods, Jacobs dealt with Danmar
which issued to Jacobs negotiable house bills of lading signed by its agent,
respondent Danzas. The shipment was to be delivered at the Clark Special
Economic Zone with Manila as the port of discharge. Danmar contracted
Orient Overseas Container Line (OOCL) to ship the goods from Switzerland.
OOCL issued a non-negotiable master bill of lading, stating that the freight
was prepaid with Danmar as the shipper and Danzas as the consignee and
party to be notified.

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

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

MeTC favored Danzas, on appeal however, the RTC dismissed the

complaint. The CA reversed the RTC ruling . Hence, this petition.
56

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

Generally, contracts undergo three distinct stages: (1) preparation or

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

57

SANTOS VS. NATIONAL STATISTICS OFFICE

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

Respondent alleged that petitioner misrepresented himself as still the

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

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

HELD:
A tenant in proper cases such as this, may show that the landlords title has
been conveyed to another. In order to do this, the tenant must essentially
assert that title to the leased premises already belongs to a third person who
58

need not be a party to the ejectment case. xxx From the above discussion, it
is not difficult to see that the question of possession is so intertwined with the
question of ownership to the effect that the question of possession cannot be
resolved without resolving the question of ownership.

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

However, we note that petitioner, as plaintiff in the complaint for unlawful

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

59

SIME DARBY PILIPINAS, INC., VS. GOODYEAR PHILIPPINES, INC. and

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

Sime Darby executed a Memorandum of Agreement with Goodyear, whereby

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

Sime Darby then notified Macgraphics of the assignment. Macgraphics

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

Due to Macgraphics refusal to honor the Deed of Assignment, Goodyear

demanding partial rescission of the Deed of Assignment and the refund of the

60

pro-rata value of Sime Darbys leasehold rights over the billboard. Sime
Darby refused to accede to the demand for partial rescission.

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

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

In an assignment of a lease, there is a novation by the substitution of the

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

A review of the lease contract between Sime Darby and Macgraphics

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

In sum, it is clear that by its failure to secure the consent of Macgraphics to

the assignment of lease, Sime Darby failed to perform what was incumbent
upon it under the Deed of Assignment. The rescission of the Deed of
Assignment pursuant to Article 1191 of the New Civil Code is, thus, justified.

61

EMILIANA G. PEA, AMELIA C. MAR vs. SPOUSES ARMANDO

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

On August 15, 1995, the respondents wrote a demand letter to each of

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

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

62

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

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

63

ESTATE OF PASTOR M. SAMSON, represented by his heir ROLANDO B.

SAMSON vs.MERCEDES R. SUSANO and NORBERTO R. SUSANO
G.R. No. 179024

May 30, 2011

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

64

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

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

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

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

It has been repeatedly held that occupancy and cultivation of an agricultural

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

65

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

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

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

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

The Makati City Police Anti-Carnapping Unit investigated Hotel Security

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

67

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

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

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

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

Art. 1962. A deposit is constituted from the moment a person

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

Art. 1998. The deposit of effects made by travelers in hotels

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

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

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

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

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

70

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

For and in consideration of the Bank agreeing to extend to the Borrower a

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

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

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

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

73

UNION BANK OF THE PHILIPPINES vs. ALAIN JUNIAT

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

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

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

Also, there is nothing in the Agreement dated May 9, 1992 to indicate

that the motorized sewing machines, snap machines and boilers were ceded
to Nonwoven as payment for the Wingyans and Winwoods obligation. It
bears stressing that there can be no transfer of ownership if the delivery of
the property to the creditor is by way of security. In fact, in case of doubt as
to whether a transaction is one of pledge or dacion en pago, the presumption
is that it is a pledge as this involves a lesser transmission of rights and
interests.

74

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

75

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

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

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

76

JOE ROS vs. PHILIPPINE NATIONAL BANK Laoag Branch

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

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

HELD:
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The Civil Code was the applicable law at the time of the mortgage. The
subject property is thus considered part of the conjugal partnership of gains.
Art. 166 provides: Unless the wife has been declared a non compos mentis
or a spendthrift, or is under civil interdiction or is confined in a leprosarium,
the husband cannot alienate or encumber any real property of the conjugal
partnership without the wifes consent. If she refuses unreasonably to give
her consent, the court may compel her to grant the same. Furthermore, Art.
173 provides: The wife may, during the marriage, and within ten years from
the transaction questioned, ask the courts for the annulment of any contract
of the husband entered into without her consent, when such consent is
required, or any act or contract of the husband which tends to defraud her or
impair her interest in the conjugal partnership property. Should the wife fail to
exercise this right, she or her heirs after the dissolution of the marriage may
demand the value of the property fraudulently alienated by the husband.
There is no doubt that the subject property was acquired during Ros and
Aguetes marriage. Ros and Aguete were married on 16 January 1954, while
the subject property was acquired in 1968. There is also no doubt that Ros
encumbered the subject property when he mortgaged it for P115,000.00 on
23 October 1974. PNB Laoag does not doubt that Aguete, as evidenced by
her signature, consented to Ros mortgage to PNB of the subject property. On
the other hand, Aguete denies ever having consented to the loan and also
denies affixing her signature to the mortgage and loan documents. The
husband cannot alienate or encumber any conjugal real property without the
consent, express or implied, of the wife. Should the husband do so, then the
contract is voidable.
Article 173 of the Civil Code allows Aguete to question Ros encumbrance of
the subject property. However, the same article does not guarantee that the
courts will declare the annulment of the contract. Annulment will be declared
only upon a finding that the wife did not give her consent. In the present
case, we follow the conclusion of the appellate court and rule that Aguete
gave her consent to Ros encumbrance of the subject property. The
documents disavowed by Aguete are acknowledged before a notary public,
hence they are public documents. Every instrument duly acknowledged and
certified as provided by law may be presented in evidence without further
proof, the certificate of acknowledgment being prima facie evidence of the
execution of the instrument or document involved. The execution of a
document that has been ratified before a notary public cannot be disproved
by the mere denial of the alleged signer. PNB was correct when it stated that
petitioners omission to present other positive evidence to substantiate their
claim of forgery was fatal to petitioners cause. Petitioners did not present
any corroborating witness, such as a handwriting expert, who could
authoritatively declare that Aguetes signatures were really forged. A
notarized document carries the evidentiary weight conferred upon it with
respect to its due execution, and it has in its favor the presumption of
regularity which may only be rebutted by evidence so clear, strong and
convincing as to exclude all controversy as to the falsity of the certificate.
Absent such, the presumption must be upheld. The burden of proof to
overcome the presumption of due execution of a notarial document lies on
the one contesting the same. Furthermore, an allegation of forgery must be
proved by clear and convincing evidence, and whoever alleges it has the
burden of proving the same. Ros himself cannot bring action against PNB, for
no one can come before the courts with unclean hands.1avvphi1 In their
78

memorandum before the trial court, petitioners themselves admitted that Ros
forged Aguetes signatures.

RURAL BANK OF TOBOSCO, INC. (UCPB SAVINGS BANK), vs. JEAN

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

79

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

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

SPOUSES WILFREDO PALADA vs. SOLIDBANK CORPORATION and

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

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

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

UNION BANK OF THE PHILIPPINES, vs. ALAIN* JUNIAT, WINWOOD

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

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

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

84

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

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

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

85

We have consistently held in previous cases that unlike in an ordinary sale,

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

86

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

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

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

ISSUE: Whether or not petitioner Loadmaster can be legally considered as an

Agent of respondent Glodel.

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

87

Accordingly, there can be no contract of agency between the

parties. Loadmasters never represented Glodel. Neither was it ever
authorized to make such representation. It is a settled rule that the basis for
agency is representation, that is, the agent acts for and on behalf of the
principal on matters within the scope of his authority and said acts have the
same legal effect as if they were personally executed by the principal. On the
part of the principal, there must be an actual intention to appoint or an
intention naturally inferable from his words or actions, while on the part of
the agent, there must be an intention to accept the appointment and act on
it. Such mutual intent is not obtaining in this case.

88

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

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

is already barred by prescription.

JUAN VS. YAP, SR.

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

91

is a wrongful holding of property and hence, a threatened unjust enrichment

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

QUASI-DELICTS
VALLACAR TRANSIT, INC. vs. JOCELYN CATUBIG
G.R. No. 175512 May 30, 2011
FACTS:
Petitioner is engaged in the business of transportation and the franchise
owner of a Ceres Bulilit bus with Plate No. T-0604-1348. Quirino C. Cabanilla
(Cabanilla) is employed as a regular bus driver of petitioner. Respondents
husband, Quintin Catubig, Jr. (Catubig), was on his way home from
Dumaguete City riding in tandem on a motorcycle with his employee, Teddy
Emperado (Emperado). Catubig was the one driving the motorcycle. While
approaching a curve at kilometers 59 and 60, Catubig tried to overtake a slow
moving ten-wheeler cargo truck by crossing-over to the opposite lane, which
was then being traversed by the Ceres Bulilit bus driven by Cabanilla, headed
for the opposite direction. When the two vehicles collided, Catubig and
Emperado were thrown from the motorcycle. Catubig died on the spot where
he was thrown, while Emperado died while being rushed to the hospital.
Cabanilla was charged with reckless imprudence resulting in double
homicide. After preliminary investigation, the MCTC issued a Resolution
dismissing the criminal charge against Cabanilla. It found that Cabanilla was
not criminally liable for the deaths of Catubig and Emperado, because there
was no negligence, not even contributory, on Cabanillas part.
Thereafter, respondent filed before the RTC a Complaint for Damages against
petitioner, seeking actual, moral, and exemplary damages, in the total
amount of P484,000.00, for the death of her husband, Catubig, based on
Article 2180, in relation to Article 2176, of the Civil Code. Respondent alleged
92

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

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

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

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

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

PHILIPPINE NATIONAL BANK vs. F.F. CRUZ and CO., INC

G.R. No. 173259
July 25, 2011
FACTS:
Respondent F.F. Cruz & Co., Inc. (hereinafter FFCCI) opened savings/current
or so-called combo account No. 0219-830-146 and dollar savings account No.
0219-0502-458-6 with [petitioner Philippine National Bank] (hereinafter PNB)
at its Timog Avenue Branch. Its President Felipe Cruz (or Felipe) and
Secretary-Treasurer Angelita A. Cruz (or Angelita) were the named signatories
for the said accounts.
The said signatories on separate but coeval dates left for and returned from
the Unites States of America, Felipe on March 18, 1995 until June 10, 1995
while Angelita followed him on March 29, 1995 and returned ahead on May 9,
1995.
While they were thus out of the country, applications for cashiers and
managers checks bearing Felipes signature were presented to and both
approved by the PNB. The first was on March 27, 1995 for P9,950,000.00
94

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

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

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

95

RCJ BUS LINES, INCORPORATED vs. STANDARD INSURANCE COMPANY,

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

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

97

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

98

JOSE MARQUES and MAXILITE TECHNOLOGIES, INC.

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

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

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

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

Judgment is rendered dismissing this case insofar as the spouses Moises

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

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

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

respondents satisfaction, respondent filed a letter-complaint with the Office

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

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

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

In fine, an award of moral damages calls for the presentation of 1)

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

104

OCEAN BUILDERS CONSTRUCTION CORP. vs. SPOUSES ANTONIO AND

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

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

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

105

petitioners to provide adequate medical assistance to the employees under

Art. 161 of the Labor Code, failing which a breach is committed.

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

106

ROSALIA N. ESPINO vs. SPOUSES SHARON SAMPANI BULUT and

CELEBI BULUT,
G.R. No. 183811

May 30, 2011

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

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

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

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

The Court deleted the award of moral and exemplary damages and attorneys
fees for lack of factual and legal basis. There is nothing in the records that
supports an award of moral damages. In order that moral damages may be
awarded, there must be pleading and proof of moral suffering, mental
anguish, fright and the like. While respondents alleged sleepless nights and
mental anguish in their petition for relief, they failed to prove them during the
trial. Mere allegations do not suffice. They must be substantiated.
Furthermore, the trial court made no reference to any testimony of the
respondents on their alleged physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation, and similar injury as would entitle them to moral damages.
Likewise, since respondents failed to satisfactorily establish their claim for
moral damages, respondents are also not entitled to exemplary damages.
Article 2234 of the Civil Code provides:
ART. 2234. While the amount of the exemplary damages need not be proved,
the plaintiff must show that he is entitled to moral, temperate or
compensatory damages before the court may consider the question of
whether or not exemplary damages should be awarded.
As to the award of attorneys fees, Article 2208 of the Civil Code provides:
ART. 2208. In the absence of stipulation, attorneys fees and expenses of
litigation, other than judicial costs, cannot be recovered, except:
1.
When exemplary damages are awarded;
2.
When the defendants act or omission has compelled the plaintiff to
litigate with third persons or to incur expenses to protect his interest;
3.
In criminal cases of malicious prosecution against the plaintiff;
4.
In case of a clearly unfounded civil action or proceeding against the
plaintiff;
5.
Where the defendant acted in gross and evident bad faith in refusing to
satisfy the plaintiffs plainly valid, just and demandable claim;
6.
In actions for legal support;
7.
In actions for the recovery of wages of household helpers, laborers and
skilled workers;
8.
In actions for indemnity under workmens compensation and
employers liability laws;
9.
In a separate civil action to recover civil liability arising from a crime;
10. When at least double judicial costs are awarded;
11. In any other case where the court deems it just and equitable that
attorneys fees and expenses of litigation should be recovered.
In all cases, the attorneys fees and expenses of litigation must be
reasonable. An award of attorneys fees is an exception and there must be
some compelling legal reason to bring the case within the exception and
justify the award. In this case, none of the exceptions applies. Moreover, we
already deleted the trial courts award of exemplary damages which might
have served as its basis for awarding attorneys fees.
108

109

DELA TORRE v. THE HONORABLE COURT OF APPEALS, CRISOSTOMO

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

110

On November 22, 1984, TSL, this time represented by Roland per

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

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

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

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Article 837 specifically applies to cases involving collision which is a

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

THE HEIRS OF THE LATE RUBEN REINOSO, SR., vs.COURT OF

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

ISSUE:
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Whether or not the respondent is guilty of negligence.

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

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

113

EMERITA M. DE GUZMAN vs. ANTONIO M. TUMOLVA

G.R. No. 188072
October 19, 2011

FACTS:
Petitioner Emerita De Guzman (De Guzman), represented by her attorneys-infact,
Lourdes Rivera and Dhonna Chan, and respondent Antonio Tumolva, doing
business
under the name and style A.M. Tumolva Engineering Works (the Contractor),
entered into a Construction Agreement (Agreement) for the construction of
an
orphanage located in Brgy. PulongBunga, Purok 4, Silang, Cavite, for a
contract
price of P 15,982,150.39. Incorporated in the Agreement was the plan and
specifications of the perimeter fence. The Contractor, however, made
deviations
from the agreed plan with respect to the perimeter fence of the orphanage.
After the completion of the project, De Guzman issued a Certificate of
Acceptance. For his part, the Contractor issued a quitclaim acknowledging the
termination of the contract and the full compliance therewith by De Guzman.
During typhoon "Milenyo," a portion of the perimeter fence collapsed and
other
portions tilted. In her Letter dated, De Guzman, demanded the repair of the
fence. In response, the Contractor claimed that the destruction of the fence
was
an act of God and expressed willingness to discuss the matter to avoid
unnecessary litigation. De Guzman, however, reiterated her demand for the
restoration of the wall without additional cost on her part, or in the
alternative, for the Contractor to make an offer of a certain amount by way of
compensation for the damages she sustained. Her demand was not heeded.
De Guzman then filed a Request for Arbitration of the dispute before the
Construction Industry Arbitration Commission (CIAC). The CIAC issued the
Award
in favor of De Guzman. On appeal to the Cour of Appeals, the CA modified the
Award rendered by CIAC, deleting the award of actual, moral and exemplary
damages, but awarding temperate damages in the amount of P 100,000.00
for
reconstructing the collapsed and damaged perimeter fence.
ISSUE:
Whether not the Contractor is liable for the actual, temperate and moral
damages that she suffered from the collapse of the perimeter fence because
of
a
typhoon.
HELD:
1. Actual damages:
Article 2199 of the New Civil Code defines actual or compensatory damages
as
follows:
114

Art. 2199. Except as provided by law or by stipulation, one is entitled to an

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

115