FIRST DIVISION

G.R. No. 191636, January 16, 2017

PRUDENTIAL BANK (NOW BANK OF THE PHILIPPINE ISLANDS), Petitioner, v. RONALD

RAPANOT AND HOUSING & LAND USE REGULATORY BOARD, Respondents.

CAGUIOA, J:

Petitions for review on certiorari 

Facts: Golden Dragon is the developer of Wack-Wack Twin Towers Condominium.On May 9, 1995,
Rapanot paid Golden Dragon an amount as reservation fee for an unit in said condominium. On
September 13, 1995, the Bank extended a loan to Golden Dragon amounting to be utilized by the latter as
additional working capital. To secure the loan, Golden Dragon executed a Mortgage Agreement in favor
of the Bank, which had the effect of constituting a real estate mortgage over several condominium units
owned and registered under Golden Dragon's name. On May 21, 1996, Rapanot and Golden Dragon
entered into a Contract to Sell covering Unit 2308-B2. On April 23, 1997, Rapanot completed payment of
the full purchase price of said unit. Golden Dragon executed a Deed of Absolute Sale in favor of Rapanot
of the same date. Thereafter, Rapanot made several verbal demands for the delivery of Unit 2308-B2.
Golden Dragon sent a letter requesting for a substitution of collateral for the purpose of replacing Unit
2308-B2 with another unit with the same area. However, the Bank denied Golden Dragon's request due to
the latter's unpaid accounts. Because of this, Golden Dragon failed to comply with Rapanot's verbal
demands.

On April 27, 2001, Rapanot filed a Complaint with the Expanded National Capital Region Field Office of
the HLURB. The Arbiter rendered a decision in favor of Rapanot. The HLURB modified the ruling of the
Arbiter with regard to damages and directed Golden Dragon to pay the Bank all the damages the latter is
directed to pay. The CA dismissed the appeal. It held that with respect to the Bank's liability for damages,
since petitioner was negligent in its duty to investigate the status of the properties offered to it as
collateral, it cannot claim that it was a mortgagee in good faith.

Issues: (1) Whether the Mortgage Agreement is null and void as against Rapanot, and thus cannot be
enforced against him.

(2) Whether the bank is a mortgagee in good faith.

Held: The Court finds the Bank's assertions indefensible.

(1) First of all, under Presidential Decree No. 957 (PD 957), no mortgage on any condominium unit may
be constituted by a developer without prior written approval of the National Housing Authority, now
HLURB. PD 957 further requires developers to notify buyers of the loan value of their corresponding
mortgaged properties before the proceeds of the secured loan are released. In Far East Bank & Trust Co.
v. Marquez, the Court clarified the legal effect of a mortgage constituted in violation of the foregoing
provision, thus: The lot was mortgaged in violation of Section 18 of PD 957. Respondent, who was the
buyer of the property, was not notified of the mortgage before the release of the loan proceeds by
petitioner. Acts executed against the provisions of mandatory or prohibitory laws shall be void.
Hence, the mortgage over the lot is null and void insofar as private respondent is concerned.

Thus, the Mortgage Agreement cannot have the effect of curtailing Rapanot's right as buyer of Unit 2308-
B2, precisely because of the Bank's failure to comply with PD 957.
(2) Moreover, contrary to the Bank's assertions, it cannot be considered a mortgagee in good faith. The
Bank failed to ascertain whether Golden Dragon secured HLURB's prior written approval as required by
PD 957 before it accepted Golden Dragon's properties as collateral. It also failed to ascertain whether any
of the properties offered as collateral already had corresponding buyers at the time the Mortgage
Agreement was executed. The Bank cannot harp on the fact that the Mortgage Agreement was executed
before the Contract to Sell and Deed of Absolute Sale between Rapanot and Golden Dragon were
executed, such that no amount of verification could have revealed Rapanot's right over Unit 2308-B2. The
Court particularly notes that Rapanot made his initial payment for Unit 2308-B2 as early as May 9, 1995,
four (4) months prior to the execution of the Mortgage Agreement. Surely, the Bank could have easily
verified such fact if it had simply requested Golden Dragon to confirm if Unit 2308-B2 already had a
buyer, given that the nature of the latter's business inherently involves the sale of condominium units on a
commercial scale. It bears stressing that banks are required to exercise the highest degree of diligence in
the conduct of their affairs.  In loan transactions, banks have the particular obligation of ensuring that
clients comply with all the documentary requirements pertaining to the approval of their loan applications
and the subsequent release of their proceeds.

If only the Bank exercised the highest degree of diligence required by the nature of its business as a
financial institution, it would have discovered that (i) Golden Dragon did not comply with the approval
requirement imposed by Section 18 of PD 957, and (ii) that Rapanot already paid a reservation fee and
had made several installment payments in favor of Golden Dragon, with a view of acquiring Unit 2308-
B2.

The Bank's failure to exercise the diligence required of it constitutes negligence, and negates its assertion
that it is a mortgagee in good faith.
THIRD DIVISION

G.R. No. 192602, January 18, 2017

SPOUSES MAY S. VILLALUZ AND JOHNNY VILLALUZ, JR., Petitioners, v. LAND BANK OF

THE PHILIPPINES AND THE REGISTER OF DEEDS FOR DAVAO CITY, Respondents.

JARDELEZA, J.:

 Petition for review on certiorari

Facts: Sometime in 1996, Paula Agbisit (Agbisit), mother of petitioner May S. Villaluz (May), requested
the latter to provide her with collateral for a loan. At the time, Agbisit was the chairperson of Milflores
Cooperative and she needed P600,000 to P650,000 for the expansion of her backyard cut flowers
business. May convinced her husband, Johnny Villaluz (collectively, the Spouses Villaluz), to allow
Agbisit to use their land, located in Calinan, Davao City, as collateral. On March 25, 1996, the Spouses
Villaluz executed a Special Power of Attorney in favor of Agbisit authorizing her to, among others,
"negotiate for the sale, mortgage, or other forms of disposition a parcel of land" and "sign in our behalf all
documents relating to the sale, loan or mortgage, or other disposition of the aforementioned property." It
neither specified the conditions under which the special powers may be exercised nor stated the amounts
for which the subject land may be sold or mortgaged.

On June 19, 1996, Agbisit executed her own Special Power of Attorney, appointing Milflores
Cooperative as attorney-in-fact in obtaining a loan from and executing a real mortgage in favor of (Land
Bank). On June 21, 1996, Milflores Cooperative, in a representative capacity, executed a Real Estate
Mortgage in favor of Land Bank in consideration of the P3,000,000 loan to be extended by the latter. On
June 24, 1996, Milflores Cooperative also executed a Deed of Assignment of the Produce/Inventory as
additional collateral for the loan. Milflores Cooperative was unable to pay its obligations to Land Bank.
Thus, Land Bank filed a petition for extra-judicial foreclosure sale with the Office of the Clerk of Court
of Davao City. Sometime in August, 2003, the Spouses Villaluz learned that an auction sale covering
their land had been set on October 2, 2003. Land Bank won the auction sale as the sole bidder.

The Spouses Villaluz filed a complaint with the Regional Trial Court (RTC) of Davao City seeking the
annulment of the foreclosure sale. The sole question presented before the RTC was whether Agbisit could
have validly delegated her authority as attorney-in-fact to Milflores Cooperative. Citing Article 1892 of
the Civil Code, the RTC held that the delegation was valid since the Special Power of Attorney executed
by the Spouses Villaluz had no specific prohibition against Agbisit appointing a substitute. 

According to the CA, the rule is that an agent is allowed to appoint a sub-agent in the absence of an
express agreement to the contrary and that "a scrutiny of the Special Power of Attorney dated March 25,
1996 executed by appellants in favor of [Agbisit] contained no prohibition for the latter to appoint a sub-
agent." Therefore, Agbisit was allowed to appoint Milflores Cooperative as her sub-agent.

Issues: (1) Whether Agbisit's appointment of Milflores Cooperative was void.

(2) Whether the Real Estate Mortgage executed was void for want of consideration. 

(3) Whether the Special Power of Attorney they issued was mooted by the execution of the Deed of
Assignment of the Produce/Inventory by Milflores Cooperative in favor of Land Bank.

Held: The petition is denied for want of merit.

(1) The law creates a presumption that an agent has the power to appoint a substitute. The consequence of
the presumption is that, upon valid appointment of a substitute by the agent, there ipso jure arises an
agency relationship between the principal and the substitute, i.e., the substitute becomes the agent of the
principal. As a result, the principal is bound by the acts of the substitute as if these acts had been
performed by the principal's appointed agent. Concomitantly, the substitute assumes an agent's
ob1igations to act within the scope of authority, to act in accordance with the principal's instructions, and
to carry out the agency, among others. In order to make the presumption inoperative and relieve himself
from its effects, it is incumbent upon the principal to prohibit the agent from appointing a substitute.

Although the law presumes that the agent is authorized to appoint a substitute, it also imposes an
obligation upon the agent to exercise this power conscientiously. To protect the principal, Article 1892
allocates responsibility to the agent for the acts of the substitute when the agent was not expressly
authorized by the principal to appoint a substitute; and, if so authorized but a specific person is not
designated, the agent appoints a substitute who is notoriously incompetent or insolvent. In these instances,
the principal has a right of action against both the agent and the substitute if the latter commits acts
prejudicial to the principal.

In the present case, the Special Power of Attorney executed by the Spouses Villaluz contains no
restrictive language indicative of an intention to prohibit Agbisit from appointing a substitute or sub-
agent. Thus, we agree with the findings of the CA and the RTC that Agbisit's appointment of Milflores
Cooperative was valid.

(2) Article 1347 provides that "[a]ll things which are not outside the commerce of men, including future
things, may be the object of a contract." Under Articles 1461 and 1462, things having a potential
existence and "future goods," i.e., those that are yet to be manufactured, raised, or acquired, may be the
objects of contracts of sale. The narrow interpretation advocated by the Spouses Villaluz would create a
dissonance between Articles 1347, 1461, and 1462, on the one hand, and Article 1 409(3), on the other. A
literal interpretation of the phrase "did not exist at the time of the transaction" in Article 1409(3) would
essentially defeat the clear intent and purpose of Articles 1347, 1461, and 1462 to allow future things to
be the objects of contracts. To resolve this apparent conflict, Justice J.B.L. Reyes commented that the
phrase "did not exist" should be interpreted as "could not come into existence" because the object may
legally be a future thing. The cause of the disputed Real Estate Mortgage is the loan to be obtained by
Milflores Cooperative. This is clear from the terms of the mortgage document, which expressly provides
that it is being executed in "consideration of certain loans, advances, credit lines, and other credit facilities
or accommodations obtained from [Land Bank by Milflores Cooperative] x x x in the principal amount of
[P3,000,000]." The consideration is certainly not an impossible one because Land Bank was capable of
granting the P3,000,000 loan, as it in fact released one-third of the loan a couple of days later.

Although the validity of the Real Estate Mortgage is dependent upon the validity of the loan, what is
essential is that the loan contract intended to be secured is actually perfected, not at the time of the
execution of the mortgage contract vis-a-vis the loan contract. In loan transactions, it is customary for the
lender to require the borrower to execute the security contracts prior to initial drawdown. This is
understandable since a prudent lender would not want to release its funds without the security agreements
in place. On the other hand, the borrower would not be prejudiced by mere execution of the security
contract, because unless the loan proceeds are delivered, the obligations under the security contract will
not arise. In other words, the security contract-in this case, the Real Estate Mortgage-is conditioned upon
the release of the loan amount. This suspensive condition was satisfied when Land Bank released the first
tranche of the P3,000,000 loan to Milflores Cooperative on June 25, 1996, which consequently gave rise
to the Spouses Villaluz's obligations under the Real Estate Mortgage.
(3) The assignment was for the express purpose of "securing the payment of the Line/Loan, interest and
charges thereon." Nowhere in the deed can it be reasonably deduced that the collaterals assigned by
Milflores Cooperative were intended to substitute the payment of sum of money under the loan. It was an
accessory obligation to secure the principal loan obligation. The assignment, being intended to be a mere
security rather than a satisfaction of indebtedness, is not a dation in payment under Article 1245 and did
not extinguish the loan obligation. "Dation in payment extinguishes the obligation to the extent of the
value of the thing delivered, either as agreed upon by the parties or as may be proved, unless the parties
by agreement-express or implied, or by their silence-consider the thing as equivalent to the obligation, in
which case the obligation is totally extinguished." As stated in the second condition of the Deed of
Assignment, the "Assignment shall in no way release the ASSIGNOR from liability to pay the Line/Loan
and other obligations, except only up to the extent of any amount actually collected and paid to
ASSIGNEE by virtue of or under this Assignment." Clearly, the assignment was not intended to
substitute the payment of sums of money. It is the delivery of cash proceeds, not the execution of the
Deed of Assignment, that is considered as payment. Absent any proof of delivery of such proceeds to
Land Bank, the Spouses Villaluz's claim of payment is without basis. Neither could the assignment have
constituted payment by cession under Article 1255 for the plain and simple reason that there was only one
creditor, Land Bank. A1iicle 1255 contemplates the existence of two or more creditors and involves the
assignment of all the debtor's property.
SECOND DIVISION

G.R. No. 212375, January 25, 2017

KABISIG REAL WEALTH DEV., INC. AND FERNANDO C. TIO, Petitioners, v. YOUNG

CORPORATION BUILDERS, Respondent.

PERALTA, J.:

Petition for Review on certiorari

Facts: Sometime in April 2001, Kabisig Real Wealth Dev., Inc. (Kabisig), through Ferdinand
Tio (Tio), contracted the services of Young Builders Corporation (Young Builders) to supply labor, tools,
equipment, and materials for the renovation of its building in Cebu City. Young Builders then finished the
work in September 2001 and billed Kabisig. However, despite numerous demands, Kabisig failed to pay.
It contended that no written contract was ever entered into between the parties and it was never informed
of the estimated cost of the renovation. Thus, Young Builders filed an action for Collection of Sum of
Money against Kabisig.

On July 31, 2008, the RTC of Cebu City rendered a decision finding for Young Builders. The CA
affirmed the ruling of the RTC.

Issue: (1) Petitioner claimed that under the Civil Code, a contract is a meeting of minds, with respect to
the other, to give something or to render some service; since there is an absence of a written contract
between it and Young Builders, there is no contract between them.

(2) Whether or not Kabisig is liable to Young Builders for the damages.

Held: The Court dismisses the petition for lack of merit.

(1) Accordingly, for a contract to be valid, it must have the following essential elements: (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. Consent must exist, otherwise, the contract is non-existent. Consent is
manifested by the meeting of the offer and the acceptance of the thing and the cause, which are to
constitute the contract. By law, a contract of sale, is perfected at the moment there is a meeting of the
minds upon the thing that is the object of the contract and upon the price. Indeed, it is a consensual
contract which is perfected by mere consent. Through the testimonies of both Young Builders' and
Kabisig's witnesses, Tio commissioned the company of his friend, Nelson Yu, to supply labor, tools,
equipment, and materials for the renovation of Kabisig's building into a restaurant. While Tio argues that
the renovation was actually for the benefit of his partners, Fernando Congmon, Gold En Burst Foods Co.,
and Sunburst Fried Chicken, Inc., and therefore, they should be the ones who must shoulder the cost of
the renovation, said persons were never impleaded in the instant case. Moreover, all the documents
pertaining to the project, such as official receipts of payment for the building permit application, are
under the names of Kabisig and Tio.

It is settled that once perfected, a contract is generally binding in whatever form, whether written or oral,
it may have been entered into, provided the aforementioned essential requisites for its validity are present.
There is nothing in the law that requires a written contract for the agreement in question to be valid and
enforceable. Also, the Court notes that neither Kabisig nor Tio had objected to the renovation work, until
it was already time to settle the bill.
(2) For an injured party to recover actual damages, however, he is required to prove the actual amount of
loss with reasonable degree of certainty premised upon competent proof and on the best evidence
available. The burden of proof is on the party who would be defeated if no evidence would be presented
on either side. He must establish his case by a preponderance of evidence, which means that the evidence
adduced by one side is superior to that of the other. In other words, damages cannot be presumed and
courts, in making an award, must point out specific facts that could afford a basis for measuring
compensatory damages. A court cannot merely rely on speculations, conjectures, or guesswork as to the
fact and amount of damages as well as hearsay or uncorroborated testimony whose truth is suspect. A
party is entitled to adequate compensation only for such pecuniary loss actually suffered and duly proved.
Indeed, to recover actual damages, the amount of loss must not only be capable of proof but must actually
be proven with a reasonable degree of certainty, premised upon competent proof or best evidence
obtainable of its actual amount. Here, the evidence reveals that Young Builders failed to submit any
competent proof of the specific amount of actual damages being claimed. The documents submitted by
Young Builders either do not bear the name of Kabisig or Tio, their conformity, or signature, or do not
indicate in any way that the amount reflected on its face actually refers to the renovation project.

Notwithstanding the absence of sufficient proof, Young Builders still deserves to be recompensed for
actually completing the work. In the absence of competent proof on the amount of actual damages, the
courts allow the party to receive temperate damages. Temperate or moderate damages, which are more
than nominal but less than compensatory damages, may be recovered when the court finds that some
pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with
certainty.

To determine the compensation due and to avoid unjust enrichment from resulting out of a fulfilled
contract, the principle of quantum meruit may be used. Under this principle, a contractor is allowed to
recover the reasonable value of the services rendered despite the lack of a written contract. The measure
of recovery under the principle should relate to the reasonable value of the services performed. The
principle prevents undue enrichment based on the equitable postulate that it is unjust for a person to retain
any benefit without paying for it. Being predicated on equity, said principle should only be applied if no
express contract was entered into, and no specific statutory provision was applicable.

The principle of quantum meruit justifies the payment of the reasonable value of the services rendered
and should apply in the absence of an express agreement on the fees. It is notable that the issue revolves
around the parties' inability to agree on the fees that Young Builders should receive. Considering the
absence of an agreement, and in view of the completion of the renovation, the Court has to apply the
principle of quantum meruit in determining how much is due to Young Builders. Under the established
circumstances, the total amount of P2,400,000.00 which the CA awarded is deemed to be a reasonable
compensation under the principle of quantum meruit since the renovation of Kabisig's building had
already been completed in 2001.
FIRST DIVISION

G.R. No. 214303, January 30, 2017

DELFIN C. GONZALEZ, JR., Petitioner, v. MAGDALENO M. PEÑA, ALABANG COUNTRY

CLUB, INC., AND MS. ARSENIA VERA, Respondents.

SERENO, C.J.:

Petition for Review on Certiorari

Facts: In its Decision dated 28 May 1999, the RTC of Bago City adjudged petitioner liable to respondent
Magdaleno M. Peña for the payment of the agency's fees and damages amounting to P28.5 million.
Petitioner appealed the Decision, while Peña moved for execution pending appeal of this ruling. The grant
of that motion resulted in the sale to Peña of petitioner's ACCI shares on 16 October 2000. Through a
private sale on 2 May 2001, he was able to sell and transfer the subject shares to respondent Arsenia Vera.
The Supreme Court issued a Decision in Urban Bank, Inc. v. Peña, which vacated with finality the
Decision of the RTC of Sago City dated 28 May 1999. Considering that the Decision of the RTC of Bago
City had been completely vacated and declared null and void, this Court held that the concomitant
execution pending appeal was likewise null and without effect. Thus, the SC held that Urban Bank and its
officers and directors, including petitioner herein, were entitled to the full restoration of their ownership
and possession of all properties that were executed pending appeal, such as the subject shares. 

Thereafter, petitioner moved for execution, seeking restoration of his actual ACCI shares. The ACCI
countered that the club shares petitioner was claiming could no longer be returned to him, because they
had already been transferred by Peña to Vera. The RTC concluded that Peña's private sale of the shares to
Vera on 2 May 2001 was valid, given that the latter was an innocent purchaser for value. As such, Vera
could not be charged with knowledge of the controversy involving the ACCI shares. Considering the
validity of the sale, the trial court held that the actual restitution of the property to petitioner was no
longer possible. The RTC refused to restore to Urban Bank, Eric L. Lee, and Delfin C. Gonzales, Jr. the
actual ownership of their respective club shares on the pretext that these had already been transferred to
third parties.

Petitioner now points out with the Supreme Court that Peña obtained the property at a public auction that
has been declared void by this Court. He then asserts that Vera, as successor-in-interest, has no right over
those shares. He further claims that the trial court erred in concluding that the actual restitution of the club
shares to him was impossible, since the transfer of the property could have simply been recorded in the
club's stock and transfer books.

Issue: Whether or not the RTC faithfully complied with our directive to restore to Urban Bank and the
latter's officers their properties illegally obtained by Peña.

Held: The Court grant the petition for being meritorious.

Indeed, the RTC did not comply with our ruling in Urban Bank when it refused to restore to petitioner the
actual ownership of his club shares on the mere pretext that these had already been sold by Peña to his
successor-in-interest.

There is no factual dispute that Peña acquired the ACCI shares of petitioner by virtue of a winning bid in
an execution sale that had already been declared by this Court, with finality, as null and void. In no
uncertain terms, we declared that the "concomitant execution pending appeal is likewise without
any effect. Consequently, all levies, garnishment and sales executed pending appeal are declared
null and void, with the concomitant duty of restitution.” Void transactions do not produce any legal or
binding effect, and any contract directly resulting from that illegality is likewise void and inexistent.
Therefore, Peña could not have been a valid transferee of the property. As a consequence, his successor-
in-interest, Vera, could not have validly acquired those shares. The RTC thus erred in refusing to restore
the actual ACCI shares to petitioner on the basis of their void transfer to Vera. Neither was the RTC
correct in its characterization of the actual restitution of the ACCI shares to petitioner as "impossible."
For the obligation to be considered impossible under Article 1266 of the Civil Code, its physical or legal
impossibility must first be proven. Here, the RTC did not make any finding on whether or not it was
physically impossible to effect the actual restitution of the property. On the other hand, petitioner
correctly points out that since the shares are movable by nature, the same can be transferred back to
Gonzalez, Jr. by recording the transaction in the stock and transfer book of the club.

As regards legal impossibility, the RTC appears to have jumped to the conclusion that because of the
perfected sale of the shares to Vera, petitioner can no longer claim actual restitution of the property.
However, Article 1505 of the Civil Code instructs that "x x x where goods are sold by a person who is not
the owner thereof, and who does not sell them under authority or with the consent of the owner, the buyer
acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct
precluded from denying the seller's authority to sell. x x x."

The Court itself settled that Peña acquired the properties by virtue of a null and void execution sale. In
effect, his buyers acquired no better title to the goods than he had. Therefore, the RTC erred in
appreciating the existence of legal impossibility in this case on the mere pretext that the properties had
already been transferred to third parties. By virtue of Article 1505, the true owners of the goods are
definitely not legally precluded from claiming the ownership of their actual properties.

All told, given the encompassing and overarching declaration of this Court nullifying the acquisition by
Peña of the properties of Urban Bank and its directors, and considering that actual restitution of the
movable properties is neither physically nor legally impossible, this Court finds that the refusal of the
RTC to restore the actual shares on the mere pretext that these had been transferred by Peña to third
persons as utterly devoid of basis. Consequently, pursuant to our final ruling in Urban Bank, petitioner
must be restored as owner of the actual ACCI shares, and not just be paid the full value of the property.
SECOND DIVISION

G.R. No. 200009, January 23, 2017

SPRING HOMES SUBDIVISION CO., INC., SPOUSES PEDRO L. LUMBRES AND REBECCA
T. ROARING, Petitioners, v. SPOUSES PEDRO TABLADA, JR. AND ZENAIDA
TABLADA, Respondent.

PERALTA, J.:

Petition for review on certiorari

Facts: On October 12, 1992, petitioners, Spouses Pedro L. Lumbres and Rebecca T. Roaring, (Spouses
Lumbres) entered into a Joint Venture Agreement with Spring Homes Subdivision Co., for the
development of several parcels of land. The Spouses Lumbres transferred the titles to the parcels of land
in the name of Spring Homes. On January 9, 1995, Spring Homes entered into a Contract to Sell with
respondents, Spouses Pedro Tablada, Jr. and Zenaida Tablada, (Spouses Tablada) for the sale of a parcel
of land located at Lot No. 8, Block 3, Spring Homes Subdivision. On March 20, 1995, the Spouses
Lumbres filed with the RTC of Calamba City a complaint for specific performance for its alleged failure
to comply with the terms of the Joint Venture Agreement. Unaware of the pending action, the Spouses
Tablada began constructing their house on the subject lot and thereafter occupied the same. On January
16, 1996, Spring Homes executed a Deed of Absolute Sale in favor of the Spouses Tablada, who paid
Spring Homes a total of more than the purchase price as indicated in the Deed of Absolute Sale. The title
over the subject property, however, remained with Spring Homes for its failure to cause the cancellation
of the TCT and the issuance of a new one in favor of the Spouses Tablada, who only received a
photocopy of said title.

Subsequently, the Spouses Tablada discovered that the subject property was mortgaged as a security for a
loan in the amount of over P4,000,000.00 with Premiere Development Bank as mortgagee and Spring
Homes as mortgagor. In fact, since the loan remained unpaid, extrajudicial proceedings were instituted.
Meanwhile, without waiting for trial on the  specific performance and sum of money complaint, the
Spouses Lumbres and Spring Homes entered into a Compromise Agreement, approved by the Calamba
RTC on October 28, 1999, wherein Spring Homes conveyed the subject property to the Spouses Lumbres.
By virtue of said agreement, the Spouses Lumbres were authorized to collect Spring Homes' account
receivables arising from the conditional sales of several properties, as well as to cancel said sales, in the
event of default in the payment by the subdivision lot buyers. The Spouses Lumbres started collecting
deficiency payments from the subdivision lot buyers. Specifically, they sent demand letters to the Spouses
Tablada for the payment of an alleged outstanding balance of the purchase price of the subject property in
the amount of P230,000.00. When no payment was received, the Spouses Lumbres caused the
cancellation of the Contract to Sell previously executed by Spring Homes in favor of the Spouses
Tablada. On December 22, 2000, the Spouses Lumbres and Spring Homes executed a Deed of Absolute
Sale over the subject property, and as a result, a new title was issued in the name of the Spouses Lumbres.

The Spouses Tablada filed a complaint for Nullification of Title against Spring Homes and the Spouses
Lumbres praying for the nullification of the second Deed of Absolute Sale executed in favor of the
Spouses Lumbres, as well as the title issued as a consequence thereof, the declaration of the validity of
the first Deed of Absolute Sale executed in their favor, and the issuance of a new title in their name.

The RTC rendered its Decision dismissing the Spouses Tablada's action for lack of jurisdiction over the
person of Spring Homes, an indispensable party. According to the trial court, their failure to cause the
service of summons upon Spring Homes was fatal for Spring Homes was an indispensable party without
whom no complete determination of the case may be reached. In the instant case, the Spouses Tablada
prayed that the Deed of Absolute Sale executed by Spring Homes in favor of the Spouses Lumbres be
declared null and void and that Spring Homes be ordered to deliver the owner's duplicate certificate of
title covering the subject lot. Thus, without jurisdiction over Spring Homes, the case could not properly
proceed.

The CA reversed and set aside the RTC Decision finding that Spring Homes is not an indispensable party.
It held that Spring Homes may be the vendor of the subject property but the title over the same had
already been issued in the name of the Spouses Lumbres. So any action for nullification of the said title
causes prejudice and involves only said spouses, the registered owners thereof. Thus, the trial court may
very well grant the relief prayed for by the Spouses Lumbres. In support thereof, the appellate court cited
the ruling in Seno, et. al. v. Mangubat, et. al. wherein it was held that in the annulment of sale, where the
action was dismissed against defendants who, before the filing of said action, had sold their interests in
the subject land to their co-defendant, the said dismissal against the former, who are only necessary
parties, will not bar the action from proceeding against the latter as the remaining defendant, having been
vested with absolute title over the subject property.

The CA ruled that based on the records, the first sale between Spring Homes and the Spouses Tablada
must still be upheld as valid, contrary to the contention of the Spouses Lumbres that the same was not
validly consummated due to the Spouses Tablada's failure to pay the full purchase price of P409,500.00.
The appellate court further stressed that at the time when the Spouses Tablada entered into a contract of
sale with Spring Homes, the title over the subject property was already registered in the name of Spring
Homes. Thus, the Deed of Absolute Sale between Spring Homes and the Spouses Tablada was valid and
with sufficient consideration.

In the end, the CA upheld the ruling of the Court in Spouses Lumbres v. Spouses Tablada that
notwithstanding the fact that the Spouses Lumbres, as the second buyer, registered their Deed of Absolute
Sale, in contrast to the Spouses Tablada who were not able to register their Deed of Absolute Sale
precisely because of Spring Home's failure to deliver the owner's copy of the TCT, the Spouses Tablada's
right could not be deemed defeated as the Spouses Lumbres were in bad faith for even before their
registration of their title, they were already informed that the subject property was already previously sold
to the Spouses Tablada, who had already constructed their house thereon.

Issues: (1) Whether Spring Homes is an indispensable party.

(2) Whether the first Deed of Sale executed by the Spouses Tablada is void for having no valuable
consideration. They argue that out of the P409,500.00 purchase price under the Contract to Sell, the
Spouses Tablada merely paid P179,500.00, failing to pay the rest in the amount of P230,000.00 despite
demands.

(3) Who has a better right over the property.

Held: The petition is bereft of merit.

(1) By virtue of the second Deed of Absolute Sale between Spring Homes and the Spouses Lumbres, the
Spouses Lumbres became the absolute and registered owner of the subject property herein. As such, they
possess that certain interest in the property without which, the courts cannot proceed for settled is the
doctrine that registered owners of parcels of land whose title is sought to be nullified should be impleaded
as an indispensable party. Spring Homes, however, which has already sold its interests in the subject land,
is no longer regarded as an indispensable party, but is, at best, considered to be a necessary party whose
presence is necessary to adjudicate the whole controversy, but whose interests are so far separable that a
final decree can be made in- its absence without affecting it. This is because when Spring Homes sold the
property in question to the Spouses Lumbres, it practically transferred all its interests therein to the said
Spouses. In fact, a new title was already issued in the names of the Spouses Lumbres. As such, Spring
Homes no longer stands to be directly benefited or injured by the judgment in the instant suit regardless
of whether the new title registered in the names of the Spouses Lumbres is cancelled in favor of the
Spouses Tablada or not. Thus, contrary to the ruling of the RTC, the failure to summon Spring Homes
does not deprive it of jurisdiction over the instant case for Spring Homes is not an indispensable party.

(2)  It is clear from the first Deed of Absolute Sale that the consideration for the subject property is
P157,500.00. In fact, the same amount was indicated as the purchase price in the second Deed of
Absolute Sale between Spring Homes and the Spouses Lumbres.  Thus, while the Spouses Lumbres
would like Us to believe that based on the Contract to Sell, the total selling price of the subject property is
P409,500.00, the contract itself, as well as the surrounding circumstances following its execution, negate
their argument. As appropriately found by the Court, said amount actually pertains to the sum of: (1) the
cost of the land area of the lot at 105 square meters priced at P1,500 per square meter; and (2) the cost of
the house to be constructed on the land at 42 square meters priced at P6,000 per square meter. But it
would be a grave injustice to hold the Spouses Tablada liable for more than the cost of the land area when
it was duly proven that they used their own funds in the construction of the house. As shown by the
records, the Spouses Tablada was forced to use their own money since their PAG-IBIG loan application
did not materialize, not through their own fault, but because Spring Homes failed, despite repeated
demands, to deliver to them the owner's duplicate copy of the subject property's title required by the loan
application. In reality, therefore, what Spring Homes really sold to the Spouses Tablada was only the lot
in the amount of P157,500.00, since the house was constructed thereon using the Spouses Tablada's own
money. In fact, nowhere in the Contract to Sell was it stated that the subject property includes any
improvement thereon or that the same even exists. Moreover, as previously mentioned, in both the first
and second Deeds of Absolute Sale, it was indicated that the amount of the property subject of the sale is
only P157,500.00. There is, therefore, no factual or legal basis for the Spouses Lumbres to claim that
since the Spouses Tablada still had an outstanding balance of P230,000.00 from the total purchase price,
the sale between Spring Homes and the Spouses Tablada was void, and consequently, they were
authorized to unilaterally cancel such sale, and thereafter execute another one transferring the subject
property in their names. As correctly held by the Court in Spouses Lumbres v. Spouses Tablada, the first
Deed of Sale executed in favor of the Spouses Tablada is valid and with sufficient consideration.

(3)  In view of this validity of the sale subject of the first Deed of Absolute Sale between Spring Homes
and the Spouses Tablada, the Court shall now determine who, as between the two spouses herein,
properly acquired ownership over the subject property.

The principle of primus tempore, potior jure (first in time, stronger in right) gains greater significance in
case of a double sale of immovable property. Thus, the Court has consistently ruled that ownership of an
immovable property which is the subject of a double sale shall be transferred: (1) to the person acquiring
it who in good faith first recorded it in the Registry of Property; (2) in default thereof, to the person who
in good faith was first in possession; and (3) in default thereof, to the person who presents the oldest title,
provided there is good faith. The requirement of the law then is two-fold: acquisition in good faith and
registration in good faith. Good faith must concur with the registration that is, the registrant must have no
knowledge of the defect or lack of title of his vendor or must not have been aware of facts which should
have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects
in the title of his vendor. If it is shown that a buyer was in bad faith, the alleged registration they have
made amounted to no registration at all.

Here, the first buyers of the subject property, the Spouses Tablada, were able to take said property into
possession but failed to register the same because of Spring Homes' unjustified failure to deliver the
owner's copy of the title whereas the second buyers, the Spouses Lumbres, were able to register the
property in their names. But while said the Spouses Lumbres successfully caused the transfer of the title
in their names, the same was done in bad faith. As correctly observed by the Court in Spouses Lumbres v.
Spouses Tablada, the Spouses Lumbres cannot claim good faith since at the time of the execution of their
Compromise Agreement with Spring Homes, they were indisputably and reasonably informed that the
subject lot was previously sold to the Spouses Tablada. They were also already aware that the Spouses
Tablada had constructed a house thereon and were in physical possession thereof. They cannot, therefore,
be permitted to freely claim good faith on their part for the simple reason that the First Deed of Absolute
Sale between Spring Homes and the Spouses Tablada was not annotated at the back of the subject
property's title. It is beyond the Court's imagination how spouses Lumbres can feign ignorance to the first
sale when the records clearly reveal that they even made numerous demands on the Spouses Tablada to
pay, albeit erroneously, an alleged balance of the purchase price.

Indeed, knowledge gained by the first buyer of the second sale cannot defeat the first buyer's rights except
only as provided by law, as in cases where the second buyer first registers in good faith the second sale
ahead of the first. Such knowledge of the first buyer does bar her from availing of her rights under the
law, among them, first her purchase as against the second buyer. But conversely, knowledge gained by
the second buyer of the first sale defeats his rights even if he is first to register the second sale, since such
knowledge taints his prior registration with bad faith. Accordingly, in order for the Spouses Lumbres to
obtain priority over the Spouses Tablada, the law requires a continuing good faith and innocence or lack
of knowledge of the first sale that would enable their contract to ripen into full ownership through prior
registration. But from the very beginning, the Spouses Lumbres had already known of the fact that the
subject property had previously been sold to the Spouses Tablada, by virtue of a valid Deed of Absolute
Sale. In fact, the Spouses Tablada were already in possession of said property and had even constructed a
house thereon. Clearly then, the Spouses Lumbres were in bad faith the moment they entered into the
second Deed of Absolute Sale and thereafter registered the subject property in their names. For this
reason, the Court cannot, therefore, consider them as the true and valid owners of the disputed property
and permit them to retain title thereto.

SECOND DIVISION
G.R. No. 219509, January 18, 2017

ILOILO JAR CORPORATION, Petitioner, v. COMGLASCO CORPORATION/AGUILA

GLASS, Respondent.

MENDOZA, J.:

Petition for review on certiorari

Facts: On August 16, 2000, petitioner Iloilo Jar Corporation (Iloilo Jar), as lessor, and respondent
Comglasco Corporation/Aguila Glass (Comglasco), as lessee, entered into a lease contract over a portion
of a warehouse building located on a parcel of land in La Paz District, Iloilo City. The term of the lease
was for a period of three (3) years or until August 15, 2003. On December 1, 2001, Comglasco requested
for the pre-termination of the lease effective on the same date. Iloilo Jar, however, rejected the request on
the ground that the pre-termination of the lease contract was not stipulated therein. Despite the denial of
the request for pre-termination, Comglasco still removed all its stock, merchandise and equipment from
the leased premises on January 15, 2002. From the time of the withdrawal of the equipment, and
notwithstanding several demand letters, Comglasco no longer paid all rentals accruing from the said date.

Iloilo Jar filed a civil action for breach of contract and damages before the RTC on October 10, 2003. On
June 28, 2004, Comglasco filed its Answer and raised an affirmative defense, arguing that by virtue of
Article 1267 of the Civil Code (Article 1267), it was released from its obligation from the lease contract.
It explained that the consideration thereof had become so difficult due to the global and regional
economic crisis that had plagued the economy. Likewise, Comglasco admitted that it had removed its
stocks and merchandise but it did not refuse to pay the rentals because the lease contract was already
deemed terminated. Further, it averred that though it received the demand letters, it did not amount to a
refusal to pay the rent because the lease contract had been pre-terminated in the first place.

The RTC ruled that Comglasco's answer admitted the material allegations of the complaint and that its
affirmative defense was unavailing because Article 1267 was inapplicable to lease contracts. The CA
reversed the RTC.

Issue: Whether or not by virtue of Article 1267, COMGLASCO was released from the lease contract.
Iloilo Jar insisted that Comglasco cannot rely on Article 1267 because it does not apply to lease contracts,
which involves an obligation to give, and not an obligation to do.

Held: The petition is impressed with merit.

To evade responsibility, Comglasco explained that by virtue of Article 1267, it was released from the
lease contract. It cited the existing global and regional economic crisis for its inability to comply with its
obligation. Comglasco's position fails to impress because Article 1267 applies only to obligations to do
and not to obligations to give. Thus, in Philippine National Construction Corporation v. Court of
Appeals, the Court expounded:

Petitioner cannot, however, successfully take refuge in the said article, since it is applicable
only to obligations "to do," and not to obligations "to give." An obligation "to do" includes all
kinds of work or service; while an obligation "to give" is a prestation which consists in the
delivery of a movable or an immovable thing in order to create a real right, or for the use of the
recipient, or for its simple possession, or in order to return it to its owner.
 The obligation to pay rentals or deliver the thing in a contract of lease falls within the
prestation "to give";

The principle of rebus sic stantibus neither fits in with the facts of the case. Under this theory, the parties
stipulate in the light of certain prevailing conditions, and once these conditions cease to exist, the contract
also ceases to exist. xxx

This article, which enunciates the doctrine of unforeseen events, is not, however, an absolute application
of the principle of rebus sic stantibus, which would endanger the security of contractual relations. The
parties to the contract must be presumed to have assumed the risks of unfavorable developments. It is
therefore only in absolutely exceptional changes of circumstances that equity demands assistance
for the debtor. 

Considering that Comglasco's obligation of paying rent is not an obligation to do, it could not rightfully
invoke Article 1267 of the Civil Code. Even so, its position is still without merit as financial struggles due
to an economic crisis is not enough reason for the courts to grant reprieve from contractual obligations.
In COMGLASCO Corporation/Aguila Glass v. Santos Car Check Center Corporation,31 the Court ruled
that the economic crisis which may have caused therein petitioner's financial problems is not an absolute
exceptional change of circumstances that equity demands assistance for the debtor. It is noteworthy that
Comglasco was also the petitioner in the above-mentioned case, where it also involved Article 1267 to
pre-terminate the lease contract.

Thus, the RTC was correct in ordering Comglasco to pay the unpaid rentals because the affirmative
defense raised by it was insufficient to free it from its obligations under the lease contract. In addition,
Iloilo Jar is entitled to attorney's fees because it incurred expenses to protect its interest. The trial court,
however, erred in awarding exemplary damages and litigation expenses.
SECOND DIVISION

G.R. No. 175949, January 30, 2017

UNITED ALLOY PHILIPPINES CORPORATION, SPOUSES DAVID C. CHUA AND LUTEN

CHUA, Petitioners, v. UNITED COCONUT PLANTERS BANK, Respondent.

PERALTA, J.:

Petition for review on certiorari

Facts: On December 18, 2000, herein petitioner corporation, United Alloy Philippines
Corporation (UNIALLOY) applied for and was granted a credit accommodation by herein respondent
United Coconut Planters Bank (UCPB) as evidenced by a Credit Agreement. Part of UNIALLOY's
obligation under the Credit Agreement was secured by a Surety Agreement. As part of the consideration
for the credit accommodation, UNIALLOY and UCPB also entered into a "lease-purchase" contract
wherein the former assured the latter that it will purchase several real properties which UCPB co-owns
with the Development Bank of the Philippines. UNIALLOY failed to pay its loan obligations. As a result,
UCPB filed against UNIALLOY, the spouses Chua, Yang and Van Der Sluis an action for Sum of Money
with the RTC of Makati City. Consequently, UCPB also unilaterally rescinded its lease-purchase contract
with UNIALLOY. The RTC of CDO issued an Order of Execution directing UNIALLOY to tum over to
UCPB the property subject of their lease-purchase agreement.

The CA promulgated a resolution granting UNIALLOY's prayer for the issuance of a writ of preliminary
injunction. UCPB questioned the above CA Resolution by filing a petition for certiorari with the
Supreme Court. The SC denied such petition. On March 15, 2002, UNIALLOY filed with the RTC of
Makati an omnibus motion praying for the suspension of the proceedings of the collection case in the said
court on the ground of pendency of the certiorari petition it filed with this Court. On June 17, 2003, the
RTC of Makati rendered Judgment in the collection case in favor of UCPB. The CA affirmed the ruling.

Issue: Whether or not herein petitioners, together with their co-defendants Van Der Sluis and Yang, are
liable to pay respondent the amounts awarded by the RTC of Makati City in its June 17, 2003 Decision.

Held: The Court ruled in the affirmative.

As ruled upon by both the RTC and the CA, UNIALLOY failed to pay its obligations under the above
promissory notes and that herein petitioner Spouses Chua, together with their co-defendants Van Der
Sluis and Yang freely executed a Surety Agreement whereby they bound themselves jointly and severally
with UNIALLOY, to pay the latter's loan obligations with UCPB. Pertinent portions of the said Surety
Agreement. Petitioners do not deny their liability under the abovequoted Surety Agreement.

As correctly held by both the RTC and the CA, Article 1159 of the Civil Code expressly provides that
"[o]bligations arising from contracts have the force of law between the contracting parties and should be
complied with in good faith." The RTC as well as the CA found nothing which would justify or excuse
petitioners from non-compliance with their obligations under the contract they have entered into. Thus, it
becomes apparent that petitioners are merely attempting to evade or, at least, delay the inevitable
performance of their obligation to pay under the Surety Agreement and the subject promissory notes
which were executed in respondent's favor.
The Court notes, however, that the interest rates imposed on the subject promissory notes were made
subject to review and adjustment at the sole discretion and under the exclusive will of UCPB. Moreover,
aside from the Consolidated Statement of Account attached to the demand letters addressed to petitioner
spouses Chua and their co-defendants, no other competent evidence was shown to prove the total amount
of interest due on the above promissory notes. In fact, based on the attached Consolidated Statement of
Account, UCPB has already imposed a 24% interest rate on the total amount due on respondents' peso
obligation for a short period of six months. Settled is the rule that any contract which appears to be
heavily weighed in favor of one of the parties so as to lead to an unconscionable result is void. Any
stipulation regarding the validity or compliance of the contract which is left solely to the will of one of the
parties, is likewise, invalid.

Moreover, courts have the authority to strike down or to modify provisions in promissory notes that grant
the lenders unrestrained power to increase interest rates, penalties and other charges at the latter's sole
discretion and without giving prior notice to and securing the consent of the borrowers. This unilateral
authority is anathema to the mutuality of contracts and enable lenders to take undue advantage of
borrowers. Although the Usury Law has been effectively repealed, courts may still reduce iniquitous or
unconscionable rates charged for the use of money. Furthermore, excessive interests, penalties and other
charges not revealed in disclosure statements issued by banks, even if stipulated in the promissory notes,
cannot be given effect under the Truth in Lending Act.
SECOND DIVISION

G.R. No. 211175, January 18, 2017

ATTY. REYES G. GEROMO, FLORENCIO BUENTIPO, JR., ERNALDO YAMBOT AND

LYDIA BUSTAMANTE, Petitioners, v. LA PAZ HOUSING AND DEVELOPMENT
CORPORATION AND GOVERNMENT SERVICE INSURANCE SYSTEM, Respondents.

MENDOZA, J.:

Petition for Review on Certiorari

Facts: Petitioners Atty. Reyes G. Geromo (Geromo), Florencio Buentipo, Jr. (Buentipo), Ernaldo Yambot
(Yambot), and Lydia Bustamante (Bustamante) acquired individual housing units of Adelina 1-A
Subdivision (Adelina) in San Pedro, Laguna from La Paz, through GSIS financing, as evidenced by their
deeds of conditional sale. After more than two (2) years of occupation, cracks started to appear on the
floor and walls of their houses. The petitioners, through the President of the Adelina 1-A Homeowners
Association, requested La Paz, being the owner/developer, to take remedial action. They collectively
decided to construct a riprap/retaining wall along the old creek believing that water could be seeping
underneath the soil and weakening the foundation of their houses. The petitioners claimed that despite the
retaining wall, the condition of their housing units worsened as the years passed. When they asked La Paz
to shoulder the repairs, it denied their request, explaining that the structural defects could have been
caused by the 1990 earthquake and the renovations/improvements introduced to the units that overloaded
the foundation of the original structures.

The MGB and DENR found that there was "differential settlement of the area where the affected units
were constructed. Geromo filed a complaint for breach of contract with damages against La Paz and GSIS
before the HLURB. On May 3, 2003, Buentipo, Yambot and Bustamante filed a similar complaint against
La Paz and GSIS.  They all asserted that La Paz was liable for implied warranty against hidden defects
and that it was negligent in building their houses on unstable land. Later on, the said complaints were
consolidated.

The HLURB Arbiter found La Paz liable for the structural damage on the petitioners' housing units,
explaining that the damage was caused by its failure to properly fill and compact the soil on which the
houses were built and to maintain a three (3) meter easement from the edge of the creek as required by
law. As to GSIS, the HLURB ruled that there was no cogent reason to find it liable for the structural
defects as it merely facilitated the financing of the affected units. The HLURB Board of
Commissioners set aside the Arbiter's decision, explaining that there was no concrete evidence presented
to prove that the houses of the petitioners were indeed damaged by the failure of La Paz to comply with
the building standards or easement requirements.

The OP rendered a decision dismissing the appeal for lack of merit. The CA affirmed the ruling of the OP
and found that the petitioners had no cause of action against La Paz for breach of warranty against hidden
defects as their contracts were merely contracts to sell, the titles not having been legally passed on to the
petitioners. It likewise ruled that La Paz could not be held liable for damages as there was not enough
evidence on record to prove that it acted fraudulently and maliciously against the petitioners.

Issues: (1) Whether La Paz should be held liable for the structural defects on its implied warranty against
hidden defects.
(2) Whether petitioners are entitled to damages.

Held: The Court finds merit in the petition.

(1) Under the Civil Code, the vendor shall be answerable for warranty against hidden defects on the thing
sold under the following circumstances:

Art. 1561. The vendor shall be responsible for warranty against the hidden defects which the
thing sold may have, should they render it unfit for the use for which it is intended, or should they
diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he
would not have acquired it or would have given a lower price for it; but said vendor shall not be
answerable for patent defects or those which may be visible, or for those which are not visible if
the vendee is an expert who, by reason of this trade or profession, should have known them.
(Emphasis supplied)

Art. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing
sold, even though he was not aware thereof. This provision shall not apply if the contrary has
been stipulated and the vendor was not aware of the hidden faults or defects in the thing sold.

For the implied warranty against hidden defects to be applicable, the following conditions must be
met:

a. Defect is Important or Serious

i. The thing sold is unfit for the use which it is intended

ii. Diminishes its fitness for such use or to such an extent that the buyer would not have
acquired it had he been aware thereof

b. Defect is Hidden

c. Defect Exists at the time of the sale

d. Buyer gives Notice of the defect to the seller within reasonable time

Here, the petitioners observed big cracks on the walls and floors of their dwellings within two years from
the time they purchased the units. The damage in their respective houses was substantial and serious.
They reported the condition of their houses to La Paz, but the latter did not present a concrete plan of
action to remedy their predicament. They also brought up the issue of water seeping through their houses
during heavy rainfall, but again La Paz failed to properly address their concerns. The structural cracks and
water seepage were evident indications that the soil underneath the said structures could be unstable.
Verily, the condition of the soil would not be in the checklist that a potential buyer would normally
inquire about from the developer considering that it is the latter's prime obligation to ensure suitability
and stability of the ground.

Furthermore, on June 11, 2002, HLURB Director Belen G. Ceniza, after confirming the cracks on the
walls and floors of their houses, requested MGB-DENR and the Office of the Municipal Mayor to
conduct a geological/geohazard assessment and thorough investigation on the entire Adelina
subdivision. Thus, in its August 8, 2002 Letter-Report, MGB reported that there was evident ground
settlement in the area of the Litlit Creek where the houses of the petitioners were located, probably
"caused by hydrocompaction of the backfill and or alluvial deposits xxx." The Engineering Department of
San Pedro Municipality, on the other hand, confirmed the settlement affecting at least six (6) houses
along Block 2, Pearl St., including that of Geromo, resulting in various structural damage. Records reveal
that a portion of Pearl Street itself had sunk, cracking the concrete pavement of the road. For several
years, the petitioners had to endure the conditions of their homes while La Paz remained silent on their
constant follow-ups. Eventually, they had to leave their own dwellings due to safety concerns.

Based on the said findings, the Court is of the considered view that the petitioners were justified in
abandoning their dwellings as they were living therein under unsafe conditions. With the houses uncared
for, it was no surprise that, by the time the case was filed in 2004, they were in a worse condition. La Paz
remained unconcerned even after receiving incident reports of structural issues from homeowners and
despite constant follow-ups from them for many years. In fact, the petitioners took it upon themselves to
build a riprap/retaining wall due to La Paz's indifference.

One of the purposes of P.D. No. 957, also known as The Subdivision and Condominium Buyers'
Protective Decree, is to discourage and prevent unscrupulous owners, developers, agents, and sellers from
reneging on their obligations and representations to the detriment of innocent purchasers. Considering the
nature of the damage sustained by the structures, even without the findings of the local governmental
agency and the MGB-DENR, La Paz is still liable under the doctrine of res ipsa loquitur.

(2) Due to the indifference and negligence of La Paz, it should compensate the petitioners for the
damages they sustained. On actual damages, the standing rule is that to be entitled to them, there must be
pleading and proof of actual damages suffered. In this regard, the petitioners failed to prove with concrete
evidence the amount of the actual damages they suffered. For this reason, the Court does not have any
basis for such an award.

Nevertheless, temperate or moderate damages may be recovered when some pecuniary loss has been
suffered but its amount cannot, from the nature of the case, be proved with certainty. The amount thereof
is usually left to the discretion of the courts but the same should be reasonable, bearing in mind that
temperate damages should be more than nominal but less than compensatory.In this case, the petitioners
suffered some form of pecuniary loss due to the impairment of the structural integrity of their dwellings.
In view of the circumstances obtaining, an award of temperate damages amounting to P200,000.00 is just
and reasonable.

The petitioners are also entitled to moral and exemplary damages. 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 indeed suffered damages and that the injury causing the same 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. Moral damages may be awarded when the breach of contract was
attended with bad faith, or is guilty of gross negligence amounting to bad faith. Obviously, the uncaring
attitude of La Paz amounted to bad faith. For said reason, the Court finds it proper to award moral
damages in the amount of P150,000.00.

Petitioners are also entitled to exemplary damages which are awarded when a wrongful act is
accompanied by bad faith or when the guilty party acted in a wanton, fraudulent, reckless, oppressive, or
malevolent manner" under Article 2232 of the Civil Code. The indifference of La Paz in addressing the
petitioners' concerns and its subsequent failure to take remedial measures constituted bad faith.
Considering that the award of moral and exemplary damages is proper in this case, attorney's fees and
cost of the suit may also be recovered as provided under Article 2208 of the Civil Code.

SECOND DIVISION

G.R. No. 193068, February 01, 2017

DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner, v. STA. INES MELALE FOREST

PRODUCTS CORPORATION, RODOLFO CUENCA, MANUEL TINIO, CUENCA
INVESTMENT CORPORATION AND UNIVERSAL HOLDINGS
CORPORATION, Respondents. 

LEONEN, J.:

Petition for review on certiorari

Facts: Sometime in 1977, National Galleon Shipping Corporation (Galleon, was organized to operate a
liner service between the Philippines and its trading partners." Galleon's major stockholders were
respondents (Sta. Ines), (Cuenca Investment), (Universal Holdings), Galleon's President Rodolfo M.
Cuenca (Cuenca), (Tinio), and the Philippine National Construction Corporation (PNCC). Galleon
experienced financial difficulties and had to take out several loans from different sources such as foreign
financial institutions, its shareholders (Sta. Ines, Cuenca Investment, Universal Holdings, Cuenca, and
Tinio), and other entities "with whom it had ongoing commercial relationships." DBP guaranteed
Galleon's foreign loans. In return, Galleon and its stockholders Sta. Ines, Cuenca Investment, Universal
Holdings, Cuenca, and Tinio, executed a Deed of Undertaking12 on October 10, 1979 and obligated
themselves to guarantee DBP's potential liabilities. To secure DBP's guarantee, Galleon undertook to
secure a first mortgage on its five new vessels and two second-hand vessels. However, despite the loans
extended to it, "[Galleon's] financial condition did not improve."

Cuenca also wrote then President Ferdinand Marcos and asked for assistance. On July 21, 1981, President
Marcos issued Letter of Instructions No. 11551 addressed to the NDC, DBP, and the Maritime Industry
Authority. On August 10, 1981, pursuant to Letter of Instructions No. 1155, Galleon's stockholders,
represented by Cuenca, and NDC, through its then Chairman of the Board of Directors, Roberto V.
Ongpin (Ongpin) entered into a Memorandum of Agreement, where NDC and Galleon undertook to
prepare and sign a share purchase agreement covering 100% of Galleon's equity for. The purchase price
was to be paid after five years from the execution of the share purchase agreement. The share purchase
agreement also provided for the release of Sta. Ines, Cuenca, Tinio and Construction Development
Corporation of the Philippines from the personal counter-guarantees they issued in DBP's favor under the
Deed of Undertaking. Acting as Galleon's guarantor, DBP paid off Galleon's debts to its foreign bank
creditor and, on January 25, 1982, pursuant to the Deed of Undertaking, Galleon executed a mortgage
contract over seven of its vessels in favor of DBP. NDC took over Galleon's operations "even prior to the
signing of a share purchase agreement.”

However, despite NDC's takeover, the share purchase agreement was never formally executed. On
February 10, 1982, or barely seven months from the issuance of Letter of Instructions No. 1155, President
Marcos issued Letter of Instructions No. 1195. respondents Sta. Ines, Cuenca, Tinio, Cuenca Investment
and Universal Holdings filed a complaint. In their Complaint, Sta. Ines, Cuenca, Tinio, Cuenca
Investment, and Universal Holdings alleged that NDC, "without paying a single centavo, took over the
complete, total, and absolute ownership, management, control, and operation of defendant [Galleon] and
all its assets, even prior to the formality of signing a share purchase agreement, which was held in
abeyance because the defendant NDC was verifying and confirming the amounts paid by plaintiffs to
Galleon, and certain liabilities of Galleon to plaintiffs. Sta. Ines, Cuenca, Tinio, Cuenca Investment, and
Universal Holdings also alleged that NDC tried to delay 'the formal signing of the share purchase
agreement in order to interrupt the running of the 5-year period to pay ... the purchase of the shares and
the execution of the negotiable promissory notes to secure payment. As for DBP, Sta. Ines, Cuenca,
Tinio, Cuenca Investment, and Universal Holdings claimed that "DBP can no longer go after [them] for
any deficiency judgment since NDC had been subrogated in their place as borrowers, hence the Deed of
Undertaking between Sta. Ines, Cuenca Investment, Universal Holdings, Cuenca, and Tinio and DBP had
been extinguished and novated."

On September 16, 2003, the Regional Trial Court upheld the validity of Letter of Instructions No. 1155
and the Memorandum of Agreement executed by NDC and Galleon's stockholders, pursuant to Letter of
Instructions No. 1155. As regards NDC's argument that Sta. Ines, Cuenca, Tinio, Cuenca Investment, and
Universal Holdings had no basis to compel it to pay Galleon's shares of stocks because no share purchase
agreement was executed, the Regional Trial Court held that the NDC was in estoppel since it prevented
the execution of the share purchase agreement and had admitted to being Galleon's owner. The Regional
Trial Court also ruled that Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings' liability
to DBP under the Deed of Undertaking had been extinguished due to novation, with NDC replacing them
and PNCC as debtors.

The Court of Appeals ruled that NDC is estopped from claiming that there was no agreement between it
and Cuenca since the agreement had already been partially executed after NDC took over the control and
management of Galleon. The Court of Appeals also rejected NDC's argument that it should not be held
liable for the payment of Galleon's shares.54 The Court of Appeals held that NDC "voluntarily prevented
the execution of a share purchase agreement when it reneged on its various obligations under the
Memorandum of Agreement." The Court of Appeals likewise affirmed the Regional Trial Court's ruling
that novation took place when NDC agreed to be substituted in place of Sta. Ines, Cuenca, Tinio, Cuenca
Investment, and Universal Holdings in the counter-guarantees they issued in favor of DBP.

Issues: (1) Whether the Memorandum of Agreement obligates NDC to purchase Galleon's shares of
stocks and pay the advances made by respondents in Galleon's favor.

(2) Whether the Memorandum of Agreement novated the Deed of Undertaking executed between DBP
and respondents.

(3) Whether the attorney's fees and moral and exemplary damages awarded to Sta. Ines, Cuenca, Tinio,
Cuenca Investment, and Universal Holdings is valid.

Held: The petition is without merit. The Court affirmed the ruling of the CA.

A condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfilment and a debtor
loses the right to make use of the period when a condition is violated, making the obligation
immediately demandable.

(1) NDC and the respondents undertook to prepare and sign a share purchase agreement over 100% of
respondents' shares in Galleon not more than sixty days after the signing of the Memorandum of
Agreement. The execution of a share purchase agreement was a condition precedent to the transfer of
Galleon's shares to NDC. However, the Court of Appeals found that the NDC prevented its execution by
deliberately delaying its review of Galleon's financial accounts:

From the foregoing, it is evident that the period for the payment of the purchase price is entirely
dependent on the execution of a share purchase agreement by the parties. The evidence on record,
however, show that the defendant-appellant NDC itself voluntarily prevented the execution of a
share purchase agreement when it reneged on its various obligations under the Memorandum of
Agreement. The evidence on record show that the share purchase agreement was not formally
executed because then Minister Roberto Ongpin claimed that the accounts of defendant Galleon
had to be reviewed and cleared up before the share purchase agreement is signed. While
defendant Galleon made its financial records available to defendant-appellant NDC for their
review, the latter never made any serious effort to review the financial accounts of the defendant
Galleon, hence, effectively preventing the execution of the share purchase agreement.
Consequently, the condition for the running of the period for the payment of the purchase price of
the shares of stocks in defendant Galleon by the defendant-appellant NDC, i.e., the execution of
the Share Purchase Agreement, was deemed fulfilled as it was the defendant-appellant NDC itself
which prevented it from happening. Under Article 1186 of the Civil Code, a "condition shall be
deemed fulfilled when the obligor voluntarily prevents its fulfilment." This applies in the instant
case.

The Regional Trial Court likewise found that respondent Cuenca, as Galleon's representative, initiated
moves for the preparation and execution of the share purchase agreement and NDC's takeover of
Galleon. Nonetheless, despite Cuenca's efforts, the share purchase agreement was never formally
executed:

Assuming that the share purchase agreement was a condition for the effectivity of the
Memorandum of Agreement (dated 10 August 1981), said condition is deemed fulfilled by virtue
of Art. 1186 of the Civil Code, which provides that "the condition shall be deemed fulfilled when
the obligor voluntarily prevents its fulfillment." Plaintiff Cuenca, as representative of the former
shareholders of defendant Galleon, in order to clear up the accounts preparatory to the execution
of the share purchase agreement, created a team to prepare a statement of defendant Galleon's
outstanding accounts which statement of account was intended to be included as part of the
annexes of the said share purchase agreement. Another team with representatives from both
parties, that is, the former stockholders of defendant Galleon and defendant NDC, had to be
created for a smoother turnover. However, despite said efforts done by plaintiff Cuenca the share
purchase agreement was not formally executed.

The Court uphold the Court of Appeals' finding that the failure to execute the share purchase agreement
was brought about by NDC's delay in reviewing the financial accounts submitted by Galleon's
stockholders. The Memorandum of Agreement was executed on August 10, 1981, giving the parties no
more than sixty days or up to October 9, 1981, to prepare and sign the share purchase agreement.
However, it was only on April 26, 1982, or more than eight months after the Memorandum of Agreement
was signed, did NDC's General Director submit his recommendation on Galleon's outstanding account.
Even then, there was no clear intention to execute a share purchase agreement as compliance with the
Memorandum of Agreement. Article 1186 of the Civil Code is categorical that a "condition shall be
deemed fulfilled when the obligor voluntarily prevents its fulfilment." Considering NDC's delay, the
execution of the share purchase agreement should be considered fulfilled with NDC as the new owner of
100% of Galleon's shares of stocks.
The due execution of the share purchase agreement is further bolstered by Article 1198(4) of the Civil
Code, which states that the debtor loses the right to make use of the period when a condition is violated,
making the obligation immediately demandable. Article 1198. The debtor shall lose every right to make
use of the period:

(1) When after the obligation has been contracted, he becomes insolvent, unless he gives a
guaranty or security for the debt;

(2) When he does not furnish to the creditor the guaranties or securities which he has
promised;

(3) When by his own acts he has impaired said guaranties or securities after their
establishment, and when through a fortuitous event they disappear, unless he immediately
gives new ones equally satisfactory;

(4) When the debtor violates any undertaking, in consideration of which the creditor agreed
to the period;

(5) When the debtor attempts to abscond.

(2) Novation is a mode of extinguishing an obligation by "changing its object or principal conditions,
substituting the person of the debtor or subrogating a third person in the rights of the creditor." While
novation, "which consists in substituting a new debtor in the place of the original one may be made even
without the knowledge or against the will of the latter, it must be with the consent of the creditor." The
Court of Appeals erred when it ruled that DBP was privy to the Memorandum of Agreement since
Ongpin was concurrently Governor of DBP and chairman of NDC Board of Directors at the time the
Memorandum of Agreement was signed.

The general rule is that, "in the absence of an authority from the board of directors, no person, not even
the officers of the corporation, can validly bind the corporation." A corporation is a juridical person,
separate and distinct from its stockholders and members, having "powers, attributes and properties
expressly authorized by law or incident to its existence.” Section 23 of the Corporation Code provides
that "the corporate powers of all corporations shall be exercised, all business conducted and all property
of such corporations shall be controlled and held by the board of directors."

Aside from Ongpin being the concurrent head of DBP and NDC at the time the Memorandum of
Agreement was executed, there was no proof presented that Ongpin was duly authorized by the DBP to
give consent to the substitution by NDC as a co-guarantor of Galleon's debts. Ongpin is not DBP,
therefore, it is wrong to assume that DBP impliedly gave its consent to the substitution simply by virtue
of the personality of its Governor.

Novation is never presumed. The animus novandi, whether partial or total, "must appear by express
agreement of the parties, or by their acts which are too clear and unequivocal to be mistaken." There was
no such animus novandi in the case at bar between DBP and respondents, thus, respondents have not been
discharged as Galleon's co-guarantors under the Deed of Undertaking and they remain liable to DBP.

(3) On the issue of attorney's fees and moral and exemplary damages awarded to Sta. Ines, Cuenca, Tinio,
Cuenca Investment, and Universal Holdings, the Court of Appeals upheld the findings of the Regional
Trial Court for being just, reasonable, and supported by the evidence on record. We see no reason to
disturb the findings of the lower courts. However, on the issue of compensatory interest as damages,
where the Regional Trial Court imposed an interest rate of six percent (6%) per annum on the advances
made and the payment due for the shares of stock, the Court of Appeals modified the Regional Trial
Court's ruling insofar as the interest rate to be imposed was concerned. The Court of Appeals ruled that
the advances made by Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings and the
payment due them for the Galleon shares of stocks were loans or forbearances of money that should earn
interest of 12% from the date the case was filed. Furthermore, the Court of Appeals held that these
amounts should likewise earn an additional 12% interest per annum from finality until its satisfaction.

THIRD DIVISION

G.R. No. 196444, February 15, 2017

DASMARIÑAS T. ARCAINA AND MAGNANI T. BANTA, Petitioners, v. NOEMI L. INGRAM,

REPRESENTED BY MA. NENETTE L. ARCHINUE, Respondent.

JARDELEZA, J.:

Petition for Review on Certiorari

Facts: Arcaina is the owner of a property located at Salvacion, Sto. Domingo, Albay. Sometime in 2004,
her attorney-in-fact, Banta, entered into a contract with Ingram for the sale of the property. Banta showed
Ingram and the latter's attorney-in-fact, respondent Ma. Nenette L. Archinue (Archinue), the metes and
bounds of the properly and represented that Lot No. 3230 has an area of more or less 6,200 square meters
(sq. m.). The contract price was P1,860,000.00 with Ingram making installment payments for the property
froni May 5, 2004 to February 10, 2005 totaling P1,715,000.00. Banta and Ingram thereafter executed a
Memorandum of Agreement acknowledging the previous payments and that Ingram still had an
obligation to pay the remaining balance in the amount of P145,000.00. They also separately executed
deeds of absolute sale over the property in Ingram's favor. 

Upon learning of the actual area of the property, Banta allegedly insisted that the difference of 5,800 sq.
m. remains unsold. This was opposed by Ingram who claims that she owns the whole lot by virtue of the
sale. Thus, Archinue, on behalf of Ingram, instituted the recovery case against petitioners before the
MCTC. Ingram maintained that she is ready to pay the balance of P145,000.00 as soon as petitioners
recognize her ownership of the whole property. After all, the sale contemplated the entire property as in
fact the boundaries of the lot were clearly stated in the deeds of sale. In their Answer with Counterclaim,
petitioners denied that the sale contemplates the entire property and contended that the parties agreed that
only 6,200 sq. m. shall be sold at the rate of P300.00 per sq. m.

The MCTC declared that the survey showed that the property was 12,000 sq. m. or more than what was
stated in the deeds of sale. For Ingram to be awarded the excess 5,800 sq. m. portion of the property, she
should have presented evidence that she paid for the surplus area consistent with Article 1540 of the Civil
Code. Since Ingram failed to show that she paid for the value of the excess land area, the MCTC held that
she cannot claim ownership and possession of the whole property.

The RTC reversed the MCTC and concluded that the area of Lot No. 3230 as shown by the boundaries
indicated in the deeds of sale is only 6,200 sq. m. more or less. Having sold Lot No. 3230 to Ingram,
Arcaina must vacate it. In addition, the RTC held that Article 1542, which covers sale of real estate in
lump sum, applies in this case. The CA also agreed with the RTC that the sale was made for a lump
sum and not on a per-square-meter basis. The parties merely agreed on the purchase price of
P1,860,000.00 for the 6,200 sq. m. lot, with the deed of sale providing for the specific boundaries of the
property.

Petitioners pleaded that under Article 1543 of the Civil Code, Ingram should have filed the action within
six months from the delivery of the property. The CA denied petitioners' motion for reconsideration and
ruled that Article 1543 does not apply because Ingram had no intention of rescinding the sale. In fact, she
instituted the action to recover the excess portion of the land that petitioners claimed to be unsold. Thus,
insofar as Ingram is concerned, that portion remained undelivered.

Issue: Whether the property subject in the case at bar, Lot No. 3230, was sold for a lump sum.

Held: The Court granted the petition and ruled in the affirmative.

In sales involving real estate, the parties may choose between two types of pricing agreement: a unit
price contract wherein the purchase price is determined by way of reference to a stated rate per unit area
(e.g., P1,000.00 per sq. m.) or a lump sum contract which states a full purchase price for an immovable
the area of which may be declared based on an estimate or where both the area and boundaries are stated
(e.g., P1 million for 1,000 sq. m., etc.). Here, the Deed of Sale executed by Banta on March 21, 2005 and
the Deed of Sale executed by Arcaina on April 13, 2005 both show that the property was conveyed to
Ingram at the predetermined price of P1,860,000.00. There was no indication that it was bought on a per-
square-meter basis.

Thus, Article 1542 of the Civil Code governs the sale. The provision teaches that where both the area and
the boundaries of the immovable are declared in a sale of real estate for a lump sum, the area covered
within the boundaries of the immovable prevails over the stated area. The vendor is obliged to deliver all
that is included within the boundaries regardless of whether the actual area is more than what was
specified in the contract of sale; and he/she shall do so without a corresponding increase in the contract
price. This is particularly true when the stated area is qualified to be approximate only, such as when the
words "more or less" were used.

The deeds of sale in this case provide both the boundaries and the estimated area of the property. The land
is bounded on the North East by Lot No. 3184, on the South East by seashore, on the South West by Lot
No. 3914 and on the North West by a road.  It has an area of more or less 6,200 sq. m. The uniform
allegations of petitioners and Ingram, however, reveal that the actual area within the boundaries of the
property amounts to more or less 12,000 sq. m., with a difference of 5,800 sq. m. from what was stated in
the deeds of sale. With Article 1542 in mind, the RTC and the CA ordered petitioners to deliver the
excess area to Ingram. They are mistaken.

In a lump sum contract, a vendor is generally obligated to deliver all the land covered within the
boundaries, regardless of whether the real area should be greater or smaller than that recited in the
deed. However, in case there is conflict between the area actually covered by the boundaries and the
estimated area stated in the contract of sale, he/she shall do so only when the excess or deficiency
between the former and the latter is reasonable. Applying Del Prado to the case before us, we find that
the difference of 5,800 sq. m. is too substantial to be considered reasonable. We note that only 6,200 sq.
m. was agreed upon between petitioners and Ingram. Declaring Ingram as the owner of the whole 12,000
sq. m. on the premise that this is the actual area included in the boundaries would be ordering the delivery
of almost twice the area stated in the deeds of sale. Surely, Article 1542 does not contemplate such an
unfair situation to befall a vendor-that he/she would be compelled to deliver double the amount that
he/she originally sold without a corresponding increase in price. In Asiain v. Jalandoni, we explained that
"[a] vendee of a land when it is sold in gross or with the description 'more or less' does not thereby ipso
facto take all risk of quantity in the land. The use of 'more or less' or similar words in designating quantity
covers only a reasonable excess or deficiency." Therefore, we rule that Ingram is entitled only to 6,200 sq.
m. of the property. An area of 5,800 sq. m. more than the area intended to be sold is not a reasonable
excess that can be deemed included in the sale.

The contract of sale is the law between Ingram and petitioners; it must be complied with in good faith.
Petitioners have already performed their obligation by delivering the 6,200 sq. m. property. Since Ingram
has yet to fulfill her end of the bargain, she must pay petitioners the remaining balance of the contract
price amounting to P145,000.00.

THIRD DIVISION

G.R. No. 187543, February 08, 2017

WERR CORPORATION INTERNATIONAL, Petitioner, v. HIGHLANDS PRIME,

INC., Respondent.

JARDELEZA, J.:

Petition for review on certiorari

Facts: Highlands Prime, Inc. (HPI) and Werr Corporation International (Werr) are domestic corporations
engaged in property development and construction, respectively. For the construction of 54 residential
units contained in three clusters of five-storey condominium structures, known as "The Horizon-
Westridge Project," in Tagaytay, Batangas, the project owner, HPI, issued a Notice of Award/Notice to
Proceed to its chosen contractor, Werr, on July 22, 2005. Thereafter, the parties executed a General
Building Agreement (Agreement) on November 17, 2005. Under the Agreement, Werr had the obligation
to complete the project within 210 calendar days from receipt of the Notice of Award/Notice to Proceed
on July 22, 2005, or until February 19, 2006. For the completion of the project, HPI undertook to pay
Werr a lump sum contract price of P271,797,900.00 inclusive of applicable taxes, supply and
transportation of materials, and labor. It was agreed that this contract price shall be subject to the
following payment scheme: (1) HPI shall pay 20% of the contract price upon the execution of the
agreement and the presentation of the necessary bonds and insurance required under the contract, and
shall pay the balance on installments progress billing subject to recoupment of downpayment and
retention money.

Upon HPI's payment of the stipulated 20% downpayment in the amount of P54,359,580.00, Werr
commenced with the construction of the project. The contract price was paid and the retention money was
deducted, both in the progress billings. The project, however, was not completed on the initial completion
date of February 19, 2006, which led HPI to grant several extensions and a final extension until October
15, 2006.  The project was not completed on the last extension given. Thus, HPI terminated its contract
with Werr on November 28, 2006, which the latter accepted on November 30, 2006.  No progress billing
was adduced for the period October 28, 2006 until the termination of the contract. On October 3, 2007,
Werr demanded from HPI payment of the balance of the contract price as reflected in its financial status
report which showed a conditional net payable amount of P36,078,652.90. On January 24, 2007, HPI
informed Werr that based on their records, the amount due to the latter as of December 31, 2006 is
P14,834,926.71. This amount was confirmed by Werr. Not having received any payment, Werr filed a
Complaint21 for arbitration against HPI before the CIAC to recover the P14,834,926.71 representing the
balance of its retention money.

The CIAC rendered its Decision on August 11, 2008 where it granted Werr's claim for the balance of the
retention money. The CIAC ruled that Werr incurred only 9.327 days of delay. Citing Article 1376 of the
Civil Code and considering the failure of the Agreement to state otherwise, it applied the industry practice
in the construction industry that liquidated damages do not accrue after achieving substantial compliance.
It held that delay should be counted from October 27, 2006 until the projected date of substantial
completion. Since the last admitted accomplishment is 93.18% on October 27, 2006, the period it will
take Werr to perform the remaining 1.82% is the period of delay. Since the liquidated damages did not
exhaust the balance of the retention money, the CIAC likewise denied the claim for actual damages. The
CA affirmed the CIAC.

Issue: Whether the industry practice of computing liquidated  damages only up to substantial completion 
of the project applies in the computation of liquidated damages. Consequently, whether delay should be
computed until termination of the contract or until substantial completion of the project.

Held: The Court deny the petition.

The pertinent provision on liquidated damages is found in clause 41.5 of the Agreement, viz.:

41.5. Considering the importance of the timely completion of the WORKS on

the OWNER'S commitments to its clients, the CONTRACTOR agrees to pay the OWNER
liquidated damages in the amount of 1/10th of 1% of the amount of the Contract price for every
day of delay (inclusive of Sundays and holidays)

Werr, as contractor, urges us to apply the construction industry practice that liquidated damages do not
accrue after the date of substantial completion of the project, as evidenced in CIAP Document No. 102,
which provides that: in case of substantial completion (completion of 95% of the work), No liquidated
damages for delay beyond the Completion Time shall accrue after the date of substantial completion of
the Work. We reject this claim of Werr and find that while this industry practice may supplement the
Agreement, Werr cannot benefit from it. At the outset, we do not agree with the CA that industry practice
be rejected because liquidated damages is provided in the Agreement, autonomy of contracts prevails, and
industry practice is completely set aside. Contracting parties are free to stipulate as to the terms and
conditions of the contract for as long as they are not contrary to law, morals, good customs, public order
or public policy. Corollary to this rule is that laws are deemed written in every contract.
Deemed incorporated into every contract are the general provisions on obligations and interpretation of
contracts found in the Civil Code. The Civil Code provides:

Art. 1234. If the obligation has been substantially performed in good faith, the obligor may
recover as though there had been a strict and complete fulfillment, less damages suffered by the
obligee.

Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of the
ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily
established.
In previous cases, we applied these provisions in construction agreements to determine whether the
project owner is entitled to liquidated damages. We held that substantial completion of the project equates
to achievement of 95% project completion which excuses the contractor from the payment of liquidated
damages. Considering the foregoing, it was error for the CA to immediately dismiss the application of
industry practice on the sole ground that there is an existing agreement as to liquidated damages. As
expressly stated under Articles 1234 and 1376, and in jurisprudence, the construction industry's prevailing
practice may supplement any ambiguities or omissions in the stipulations of the contract. Notably, CIAP
Document No. 102, by itself, was intended to have suppletory effect on private construction contracts.
This is evident in CIAP Board Resolution No. 1-98. As the standard conditions for contract for private
construction adopted and promulgated by the CIAP, CIAP Document No. 102 applies suppletorily to
private construction contracts to remedy the conflict in the internal documents of, or to fill in the
omissions in, the construction agreement. In this case, clause 41.5 of the Agreement is undoubtedly a
valid stipulation. However, while clause 41.5 requires payment of liquidated damages if there is delay, it
is silent as to the period until when liquidated damages shall run. The Agreement does not state that
liquidated damages is due until termination of the project; neither does it completely reject that it is only
due until substantial completion of the project. This omission in the Agreement may be supplemented by
the provisions of the Civil Code, industry practice, and the CIAP Document No. 102. Hence, the industry
practice that substantial compliance excuses the contractor from payment of liquidated damages applies to
the Agreement.

Nonetheless, we find that Werr cannot benefit from the effects of substantial compliance. Here, there is
no dispute that Werr failed to prove that it completed 95% of the project before or at the time of the
termination of the contract. As found by CIAC, it failed to present evidence as to what accomplishment it
achieved from the time of the last billing until the termination of the contract. What was admitted as
accomplishment at the last billing is 93.18%. For this reason, even if we adopt the rule that no liquidated
damages shall run after the date of substantial completion of the project, Werr cannot claim benefit for it
failed to meet the condition precedent, i.e., the contractor has successfully proven that it actually achieved
95% completion rate.
FIRST DIVISION

G.R. No. 212690 (Formerly UDK-15080), February 20, 2017

SPOUSES ROMEO PAJARES AND IDA T. PAJARES, Petitioners, v. REMARKABLE

LAUNDRY AND DRY CLEANING, REPRESENTED BY ARCHEMEDES G. SOLIS, Respondent.

DEL CASTILLO, J.:

Petition for Review on Certiorari

Facts: On September 3, 2012, Remarkable Laundry and Dry Cleaning (respondent) filed a Complaint for
"Breach of Contract and Damages" against spouses Romeo and Ida Pajares (petitioners) before the RTC
of Cebu City.  Respondent alleged that it entered into a Remarkable Dealer Outlet Contract with
petitioners whereby the latter, acting as a dealer outlet, shall accept and receive items or materials for
laundry which are then picked up and processed by the former in its main plant or laundry outlet; that
petitioners violated Article IV (Standard Required Quota & Penalties) of said contract, which required
them to produce at least 200 kilos of laundry items each week, when, on April 30, 2012, they ceased
dealer outlet operations on account of lack of personnel; that respondent made written demands upon
petitioners for the payment of penalties imposed and provided for in the contract, but the latter failed to
pay; and, that petitioners' violation constitutes breach of contract.

On February 19, 2013, the RTC issued an Order dismissing the case for lack of jurisdiction because the
total amount of damages is P280,000.00. Respondent filed its Motion for Reconsideration arguing that
the case is for breach of contract, or one whose subject is incapable of pecuniary estimation, jurisdiction
thus falls with the RTC. The RTC stood its ground. The CA reversed the RTC and held that a case for
breach of contract is a cause of action either for specific performance or rescission of contracts. An action
for rescission of contract, as a counterpart of an action for specific performance, is incapable of pecuniary
estimation, and therefore falls under the jurisdiction of the RTC.

Issue: Whether the case at bar is for the recovery of a sum of money in the form of damages.

Held: The Court grants the Petition. The RTC was correct in categorizing Civil Case No. CEB-39025 as
an action for damages seeking to recover an amount below its jurisdictional limit.
 (1) Respondent's complaint denominated as one for ''Breach of Contract &  Damages" is neither
an action for  specific performance nor a complaint for rescission of contract.

In ruling that respondent's Complaint is incapable of pecuniary estimation and that the RTC has
jurisdiction, the CA comported itself with the following ratiocination:

A case for breach of contract [sic] is a cause of action either for specific performance or rescission of
contracts. An action for rescission of contract, as a counterpart of an action for specific performance, is
incapable of pecuniary estimation, and therefore falls under the jurisdiction of the RTC. without,
however, determining whether, from the four corners of the Complaint, respondent actually intended to
initiate an action for specific performance or an action for rescission of contract. Specific performance is
''[t]he remedy of requiring exact performance of a contract in the specific form in which it was made, or
according to the precise terms agreed upon. [It is t]he actual accomplishment of a contract by a party
bound to fulfill it."  Rescission of contract under Article 1191 of the Civil Code, on the other hand, is a
remedy available to the obligee when the obligor cannot comply with what is incumbent upon him. It is
predicated on a breach of faith by the other party who violates the reciprocity between them. Rescission
may also refer to a remedy granted by law to the contracting parties and sometimes even to third persons
in order to secure reparation of damages caused them by a valid contract, by means of restoration of
things to their condition in which they were prior to the celebration of the contract.

In a line of cases, this Court held that – In determining whether an action is one the subject matter of
which is not capable of pecuniary estimation this Court has adopted the criterion of first ascertaining the
nature of the principal action or remedy sought. If it is primarily for the recovery of a sum of money, the
claim is considered capable of pecuniary estimation, and whether jurisdiction is in the municipal trial
courts or in the courts of first instance would depend on the amount of the claim. However, where the
basic issue is something other than the right to recover a sum of money, where the money claim is purely
incidental to, or a consequence of, the principal relief sought, this Court has considered such actions as
cases where the subject of the litigation may not be estimated in terms of money, and are cognizable
exclusively by courts of first instance (now Regional Trial Courts).

An analysis of the factual and material allegations in the Complaint shows that there is nothing therein
which would support a conclusion that respondent's Complaint is one for specific performance or
rescission of contract. It should be recalled that the principal obligation of petitioners under the
Remarkable Laundry Dealership Contract is to act as respondent's dealer outlet. Respondent, however,
neither asked the RTC to compel petitioners to perform such obligation as contemplated in said contract
nor sought the rescission thereof. The Complaint's body, heading, and relief are bereft of such allegation.
In fact, neither phrase appeared on or was used in the Complaint when, for purposes of clarity,
respondent's counsels, who are presumed to be learned in law, could and should have used any of those
phrases to indicate the proper designation of the Complaint. To the contrary, respondent's counsels
designated the Complaint as one for "Breach of Contract & Damages," which is a misnomer and
inaccurate. This erroneous notion was reiterated in respondent's Memorandum wherein it was stated that
"the main action of CEB 39025 is one for a breach of contract." There is no such thing as an "action for
breach of contract." Rather, "breach of contract is a cause of action, but not the action or relief
itself" Breach of contract may be the cause of action in a complaint for specific performance or rescission
of contract, both of which are incapable of pecuniary estimation and, therefore, cognizable by the RTC.
However, as will be discussed below, breach of contract may also be the cause of action in a complaint
for damages.

(2) A complaint primarily seeking to enforce the accessory obligation contained in the penal
clause is actually an action for damages capable of pecuniary estimation.
Neither can we sustain respondent's contention that its Complaint is incapable of pecuniary estimation
since it primarily seeks to enforce the penal clause contained in Article IV of the Remarkable Dealer
Outlet Contract. Petitioners' responsibility under the above penal clause involves the payment of
liquidated damages because under Article 2226 of the Civil Code the amount the parties stipulated to pay
in case of breach are liquidated damages. "It is attached to an obligation in order to ensure performance
and has a double function:(1) to provide for liquidated damages, and (2) to strengthen the coercive force
of the obligation by the threat of greater responsibility in the event of breach."

Concomitantly, what respondent primarily seeks in its Complaint is to recover aforesaid liquidated
damages (which it termed as "incidental and consequential damages") premised on the alleged breach of
contract committed by the petitioners when they unilaterally ceased business operations. Breach of
contract may also be the cause of action in a complaint for damages filed pursuant to Article 1170 of the
Civil Code. It provides: Art. 1170. 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. 

In sum, after juxtaposing Article IV of the Remarkable Dealer Outlet Contract vis-à-vis the prayer sought
in respondent's Complaint, this Court is convinced that said Complaint is one for damages. True, breach
of contract may give rise to a complaint for specific performance or rescission of contract. In which case,
the subject matter is incapable of pecuniary estimation and, therefore, jurisdiction is lodged with the RTC.
However, breach of contract may also be the cause of action in a complaint for damages. Thus, it is not
correct to immediately conclude, as the CA erroneously did, that since the cause of action is breach of
contract, the case would only either be specific performance or rescission of contract because it may
happen, as in this case, that the complaint is one for damages.
G.R. No. 212038, February 08, 2017

SPOUSES JESUS FERNANDO AND ELIZABETH S. FERNANDO, Petitioners, v. NORTHWEST

AIRLINES, INC., Respondent.

PERALTA, J.:

Petitions for review on certiorari

Facts: The spouses Jesus and Elizabeth S. Fernando (Fernandos) are frequent flyers of Northwest
Airlines, Inc. and are holders of Elite Platinum World Perks Card, the highest category given to frequent
flyers of the carrier. They are known in the musical instruments and sports equipments industry in the
Philippines being the owners of JB Music and JB Sports with outlets all over the country. They likewise
own the five (5) star Hotel Elizabeth in Baguio City and Cebu City, and the chain of Fersal Hotels and
Apartelles in the country. The Fernandos initiated the filing of the instant case which arose from two (2)
separate incidents: first, when Jesus Fernando arrived at Los Angeles (LA) Airport on December 20,
2001; second, when the Fernandos were to depart from the LA Airport on January 29, 2002. On April 30,
2002, a complaint for damages was instituted by the Fernandos against Northwest before the RTC,
Branch 97, Quezon City. The RTC ruled in their favor. The CA affirmed the ruling.

Hence, this petition. In their petition, the Fernandos contended that it was the personal misconduct, gross
negligence and the rude and abusive attitude of Northwest employees Linda Puntawongdaycha and Linda
Tang which subjected them to indignities, humiliation and embarrassment. The attitude of the aforesaid
employees was wanton and malevolent allegedly amounting to fraud and bad faith. According to the
Fernandos, if only Linda Puntawongdaycha had taken the time to verify the validity of the ticket in the
computer, she would have not given the wrong information to the Immigration Officer because the
August 2001 return ticket remained unused and valid for a period of one (1) year, or until August 2002.
The wrong information given by Linda Puntawongdaycha aroused doubts and suspicions on Jesus
Fernando's travel plans. The latter was then subjected to two (2) hours of questioning which allegedly
humiliated him. He was even suspected of being an "illegal alien". The negligence of Linda
Puntawongdaycha was allegedly so gross and reckless amounting to malice or bad faith.

As to the second incident, the Fernandos belied the accusation of Northwest that they did not present any
tickets. They presented their electronic tickets which were attached to their boarding passes. If they had
no tickets, the personnel at the check-in counter would have not issued them their boarding passes and
baggage claim stubs. That's why they could not understand why the coupon-type ticket was still
demanded by Northwest

Issues: (1) whether or not there was breach of contract of carriage and whether it was done In a wanton,
malevolent or reckless manner amounting to bad faith.

(2) Whether or not Northwest is liable for the payment of damages and attorney's fees and whether it is
liable to pay more than that awarded by the RTC.

Held: The Court find merit in the petition of the Spouses Jesus and Elizabeth Fernando.

(1) A contract of carriage is defined as one whereby a certain person or association of persons obligate
themselves to transport persons, things, or goods from one place to another for a fixed price. Under
Article 1732 of the Civil Code, this "persons, corporations, firms, or associations engaged in the business
of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering
their services to the public" is called a common carrier. Undoubtedly, a contract of carriage existed
between Northwest and the Fernandos. They voluntarily and freely gave their consent to an agreement
whose object was the transportation of the Fernandos from LA to Manila, and whose cause or
consideration was the fare paid by the Fernandos to Northwest. When Northwest confirmed the
reservations of the Fernandos, it bound itself to transport the Fernandos on their flight on 29 January
2002. We note that the witness of Northwest admitted on cross-examination that based on the documents
submitted by the Fernandos, they were confirmed passengers on the January 29, 2002 flight.

In an action based on a breach of contract of carriage, the aggrieved party does not have to prove that the
common carrier was at fault or was negligent. All that he has to prove is the existence of the contract and
the fact of its non-performance by the carrier. As the aggrieved party, the Fernandos only had to prove the
existence of the contract and the fact of its non-performance by Northwest, as carrier, in order to be
awarded compensatory and actual damages. Therefore, having proven the existence of a contract of
carriage between Northwest and the Fernandos, and the fact of non-performance by Northwest of its
obligation as a common carrier, it is clear that Northwest breached its contract of carriage with the
Fernandos. Thus, Northwest opened itself to claims for compensatory, actual, moral and exemplary
damages, attorney's fees and costs of suit. Moreover, Article 1733 of the New Civil Code provides that
common carriers, from the nature of their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by
them, according to all the circumstances of each case. Also, Article 1755 of the same Code states that a
common carrier is bound to carry the passengers safely as far as human care and foresight can provide,
using the utmost diligence of very cautious persons, with due regard for all the circumstances.

We, thus, sustain the findings of the CA and the RTC that Northwest committed a breach of contract "in
failing to provide the spouses with the proper assistance to avoid any inconvenience" and that the
actuations of Northwest in both subject incidents "fall short of the utmost diligence of a very cautious
person expected of it". Both ruled that considering that the Fernandos are not just ordinary passengers but,
in fact, frequent flyers of Northwest, the latter should have been more courteous and accommodating to
their needs so that the delay and inconveniences they suffered could have been avoided. Northwest was
remiss in its duty to provide the proper and adequate assistance to them. Nonetheless, We are not in
accord with the common finding of the CA and the RTC when both ruled out bad faith on the part of
Northwest. While We agree that the discrepancy between the date of actual travel and the date appearing
on the tickets of the Fernandos called for some verification, however, the Northwest personnel failed to
exercise the utmost diligence in assisting the Fernandos. The actuations of Northwest personnel in both
subject incidents are constitutive of bad faith.
On the first incident, Jesus Fernando even gave the Northwest personnel the number of his Elite Platinum
World Perks Card for the latter to access the ticket control record with the airline's computer for her to see
that the ticket is still valid. But Linda Puntawongdaycha refused to check the validity of the ticket in the
computer. As a result, the Immigration Officer brought Jesus Fernando to the interrogation room of the
INS where he was interrogated for more than two (2) hours. When he was finally cleared by the
Immigration Officer, he was granted only a twelve (12)-day stay in the United States (US), instead of the
usual six (6) months. As in fact, the RTC awarded actual or compensatory damages because of the
testimony of Jesus Fernando that he had to go back to Manila and then return again to LA, USA, two (2)
days after requiring him to purchase another round trip ticket from Northwest in the amount of $2,000.00
which was not disputed by Northwest. In ignoring Jesus Fernando's pleas to check the validity of the
tickets in the computer, the Northwest personnel exhibited an indifferent attitude without due regard for
the inconvenience and anxiety Jesus Fernando might have experienced.

Passengers do not contract merely for transportation. They have a right to be treated by the carrier's
employees with kindness, respect, courtesy and due consideration. They are entitled to be protected
against personal misconduct, injurious language, indignities and abuses from such employees. So it is,
that any rule or discourteous conduct on the part of employees towards a passenger gives the latter an
action for damages against the carrier. In requiring compliance with the standard of extraordinary
diligence, a Standard which is, in fact, that of the highest possible degree of diligence, from common
carriers and in creating a presumption of negligence against them, the law seeks to compel them to
control their employees, to tame their reckless instincts and to force them to take adequate care of human
beings and their property. Notably, after the incident, the Fernandos proceeded to a Northwest Ticket
counter to verify the status of the ticket and they were assured that the ticked remained unused and
perfectly valid. And, to avoid any future problems that may be encountered on the validity of the ticket, a
new ticket was issued to Jesus Fernando. The failure to promptly verify the validity of the ticket connotes
bad faith on the part of Northwest. Bad faith does not simply connote bad judgment or negligence. It
imports a dishonest purpose or some moral obliquity and conscious doing of a wrong. It means breach of
a known duty through some motive, interest or ill will that partakes of the nature of fraud. A finding of
bad faith entitles the offended party to moral damages.

As to the second incident, there was likewise fraud or bad faith on the part of Northwest when it did not
allow the Fernandos to board their flight for Manila on January 29, 2002, in spite of confirmed tickets.
We need to stress that they have confirmed bookings on Northwest Airlines NW Flight No. 001 for
Narita, Japan and NW 029 for Manila. They checked in with their luggage at LA Airport and were given
their respective boarding passes for business class seats and claim stubs for six (6) pieces of luggage.
With boarding passes and electronic tickets, apparently, they were allowed entry to the departure area;
and, they eventually joined the long queue of business class passengers along with their business
associates. However, in the presence of the other passengers, Northwest personnel Linda Tang pulled the
Fernandos out of the queue and asked for paper tickets (coupon type). Elizabeth Fernando explained to
Linda Tang that the matter could be sorted out by simply verifying their electronic tickets in her computer
and all she had to do was click and punch in their Elite Platinum World Perks Card number. Again, the
Northwest personnel refused to do so; she, instead, told them to pay for new tickets so they could board
the plane. Hence, the Fernandos rushed to the Northwest Airline Ticket counter to clarify the matter. They
were assisted by Northwest personnel Jeanne Meyer who retrieved their control number from her
computer and was able to ascertain that the Fernandos' electronic tickets were valid, and they were
confirmed passengers on both NW Flight No. 001 for Narita Japan and NW 029 for Manila on that day.

(2) Under Article 2220 of the Civil Code of the Philippines, an award of moral damages, in breaches of
contract, is in order upon a showing that the defendant acted fraudulently or in bad faith. Clearly, in this
case, the Femandos are entitled to an award of moral damages. The purpose of awarding moral damages
is to enable the injured party to obtain means, diversion or amusement that will serve to alleviate the
moral suffering he has undergone by reason of defendant's culpable action. We note that even if both the
CA and the RTC ruled out bad faith on the part of Northwest, the award of "some moral damages" was
recognized. Both courts believed that considering that the Fernandos are good clients of Northwest for
almost ten (10) years being Elite Platinum World Perks Card holders, and are known in their business
circle, they should have been given by Northwest the corresponding special treatment. They own hotels
and a chain of apartelles in the country, and a parking garage building in Indiana, USA. From this
perspective, We adopt the said view. We, thus, increase the award of moral damages to the Fernandos in
the amount of P3,000,000.00. Exemplary damages, which are awarded by way of example or correction
for the public good, may be recovered in contractual obligations, if defendant acted in wanton, fraudulent,
reckless, oppressive, or malevolent manner. They are designed by our civil law to permit the courts to
reshape behavior that is socially deleterious in its consequence by creating negative incentives or
deterrents against such behavior. Hence, given the facts and circumstances of this case, We hold
Northwest liable for the payment of exemplary damages in the amount of P2,000,000.00.

Time and again, we have declared that a contract of carriage, in this case, air transport, is primarily
intended to serve the traveling public and thus, imbued with public interest. The law governing common
carriers consequently imposes an exacting standard of conduct. A contract to transport passengers is quite
different in kind and degree from any other contractual relation because of the relation which an air-
carrier sustains with the public. Its business is mainly with the travelling public. It invites people to avail
of the comforts and advantages it offers. The contract of air carriage, therefore, generates a relation
attended with a public duty. Neglect or malfeasance of the carrier's employees, naturally, could give
ground for an action for damages.

As to the payment of attorney's fees, We sustain the award thereof on the ground that the Fernandos were
ultimately compelled to litigate and incurred expenses to protect their rights and interests, and because the
Fernandos are entitled to an award for exemplary damages. Pursuant to Article 2208 of the Civil Code,
attorney's fees may be awarded when exemplary damages are awarded, or a party is compelled to litigate
or incur expenses to protect his interest, or where the defendant acted in gross and evident bad faith in
refusing to satisfy the plaintiff's plainly valid, just and demandable claim.
THIRD DIVISION

G.R. No. 194272, February 15, 2017

SPOUSES AMADO O. IBAÑEZ AND ESTHER R. IBAÑEZ, Petitioners, v. JAMES HARPER AS

REPRESENTATIVE OF THE HEIRS OF FRANCISCO MUÑOZ, SR., THE REGISTER OF
DEEDS OF MANILA AND THE SHERIFF OF MANILA, Respondent.

JARDELEZA, J.:

Petition for Review on Certiorari

Facts: Sometime in October 1996, spouses Amado and Esther Ibañez (spouses Ibañez) borrowed from
Francisco E. Muñoz, Sr. (Francisco), Consuelo Estrada (Consuelo) and Ma. Consuelo E. Muñoz (Ma.
Consuelo) the amount of P1,300,000, payable in three months, with interest at the rate of 3% a month. On
October 14, 1996, the spouses Ibañez issued a promissory note binding themselves jointly and severally
to pay Ma. Consuelo and Consuelo the loan amount with interest. As security, on October 17, 1996, the
spouses Ibañez executed a Deed of Real Estate Mortgage in favor of Ma. Consuelo and Consuelo over a
parcel of land and its improvements. It further stipulated that Ma. Consuelo and Consuelo shall have the
right to immediately foreclose the mortgage upon the happening of the following events: (1) filing by the
mortgagor of any petition for insolvency or suspension of payment; and/or (2) failure of the mortgagor to
perform or comply with any covenant, agreement, term or condition of the mortgage. On September 23,
1997, alleging that the conditions of the mortgage have been violated since November 17, 1996 and that
all check payments were dishonored by the drawee, Ma. Consuelo and Consuelo applied for foreclosure
of the real estate mortgage.

On December 8, 1997, the spouses Ibañez filed in the RTC of Manila a complaint. The Complaint alleged
that there is no reason to proceed with the foreclosure because the real estate mortgage was novated. They
prayed that the public auction of the property be enjoined and that Francisco, Ma. Consuelo and Consuelo
be held liable for actual and compensatory, moral and exemplary damages, as well as attorney's fees and
costs of suit. On December 12, 1997, the spouses Ibañez filed an Amended Complaint. They alleged that
the public auction was conducted, with Francisco, Ma. Consuelo and Consuelo as the highest bidders. On
December 16, 1997, the RTC issued a status quo order. On June 11, 2002, the parties filed a motion for
approval of Amended Compromise Agreement.

On February 28, 2006, Atty. Bermejo, representing himself as collaborating counsel for Francisco, Ma.
Consuelo and Consuelo, filed a motion to lift the status quo order. Atty. Bermejo alleged that the spouses
Ibañez failed to comply with their obligation under the Amended Compromise Agreement. Consequently,
and following the terms of the Amended Compromise Agreement, the RTC's status quo order must be
lifted and a certificate of sale over the subject property be immediately issued. On March 24, 2006, the
RTC granted Atty. Bermejo's motion. It found that the spouses Ibañez have yet to pay the amount due, in
violation of the terms of the Amended Compromise Agreement.

On July 31, 2006, the spouses Ibañez filed a Motion to Adopt/Consider the Judicial Compromise
Agreement dated June 17, 2002 Designated as "Hatol" as the Final and Executory Decision. The motion
prayed that since all the stipulations in the Amended Compromise Agreement have been complied with to
the entire satisfaction of all the contending parties, the Compromise Agreement should be considered and
adopted as the trial court's decision on the merits. The motion was signed by Amado Ibañez with the
conformity of Consuelo, signing for herself and Ma. Consuelo, Atty. Anave and the Branch Clerk of
Court were notified of the hearing. The RTC granted the motion. In its motion for reconsideration, Atty.
Bermejo argued that the trial court erred in holding that all the stipulations in the Hatol have been
complied with to the satisfaction of all the parties. According to James, the spouses Ibañez made it appear
that only Ma. Consuela and Consuela remained as parties after Francisco's death. Since James, as
Francisco's representative, was excluded from the Deed of Assignment, the Amended Compromise
Agreement could not have been completely complied with. However, the RTC stood its ground.

The CA ruled that the Amended Complaint and the Hatol identified Francisco, Ma. Consuelo and
Consuelo as the creditors and the parties who were supposed to receive the proceeds of the Amended
Compromise Agreement. Since the Deed of Assignment was executed only in favor of Ma. Consuelo and
Consuelo, the loan obligation of the spouses Ibañez to Francisco remained unsettled. The heirs of
Francisco thus retain the right to invoke paragraph 2.5 of the Compromise Agreement which provides for
the lifting of the trial court's status quo order.

Issue: Whether all the provisions of the Amended Compromise Agreement have been complied with.

Held: The spouses Ibañez argued that the CA erred in reversing the August 11, 2006 and February 20,
2007 Orders of the trial court. They claim that since the Hatol, rendered by the RTC based on the
Amended Compromise Agreement, is already final, executory and, in fact, partially executed, Harper
cannot anymore file a petition for certiorari to assail them.

A compromise agreement is a contract whereby the parties, make reciprocal concessions to avoid a
litigation or put an end to one already commenced. In a compromise, the parties adjust their difficulties in
the manner they have agreed upon, disregarding the possible gain in litigation and keeping in mind that
such gain is balanced by the danger of losing. It encompasses the objects stated, although it may include
other objects by necessary implication. It is binding on the contractual parties, being expressly
acknowledged as a juridical agreement between them, and has the effect and authority of res judicata.

Here, the spouses Ibañez agreed to pay Francisco, Ma. Consuela and Consuela the total amount of
P3,000,000, with the initial payment of P2,000,000 to be sourced from the proceeds of a GSIS loan and
secured by the spouses Ibañez while the remaining balance of P1,000,000 to be paid one year from the
date of the Amended Compromise Agreement. As correctly identified by the CA, the Amended
Compromise Agreement clearly refers to the spouses Ibañez as plaintiffs and Francisco, Consuela and
Ma. Consuela as the defendants they covenanted to pay. There is nothing in the Hatol, and the Amended
Compromise Agreement it is based on, which shows a declaration that the obligation created was
solidary.

In any case, solidary obligations cannot be inferred lightly. They must be positively and clearly
expressed. Articles 1207 and 1208 of the Civil Code provide:
Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same
obligation docs not imply that each one of the former has a right to demand, or that each one of the
latter is bound to render, entire compliance with the prestations. There is a solidary liability only
when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity.

Art. 1208. If from the law, or the nature or the wording of the obligations to which the preceding article
refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many
equal shares as there arc creditors or debtors, the credits or debts being considered distinct from
one another, subject to the Rules of Court governing the multiplicity of suits. (Emphasis supplied.)

In this case, given that solidarity could not be inferred from the agreement, the presumption under the law
applies—the obligation is joint.

As defined in Article 1208, a joint obligation is one where there is a concurrence of several creditors, or
of several debtors, or of several debtors, or of several creditors and debtors, by virtue of which each of
the creditors has a right to demand, and each of the debtors is bound to render compliance with his
proportionate part of the prestation which constitutes the object of the obligation. Each debtor answers
only for a part of the whole liability and to each obligee belongs only a part of the correlative rights as
it is only in solidary obligations that payment made to any one of the solidary creditors extinguishes the
entire obligation. This means that Francisco, Ma. Consuelo and Consuelo are each entitled to equal shares
in the P3,000,000 agreed upon in the Amended Compromise Agreement and that payment to Consuelo
and Ma. Consuelo will not have the effect of discharging the obligation with respect to Francisco.

The spouses Ibañez assigned the proceeds of the GSIS loan and executed a real estate mortgage over the
Puerto Azul property only in Ma. Consuelo and Consuelo's favour. By doing so, they did not discharge
their obligation in accordance with the terms of the Amended Compromise Agreement and left their loan
obligation to Francisco unsettled. Thus, and as correctly held by the CA, it was gravely erroneous for the
trial court to rule that all the stipulations in the Hatol have been complied with. Under the circumstances,
the obligations to Francisco, and consequently, his heirs, have clearly not been complied with.
SECOND DIVISION

G.R. No. 205578, March 1, 2017

GEORGIA OSMEÑA-JALANDONI, Petitioner vs CARMEN A. ENCOMIENDA, Respondent

PERALTA, J.:

Petition for review on certiorari

Facts: Encomienda narrated that she met petitioner Georgia Osmeña-Jalandoni in Cebu on October 24,
1995, when the former was purchasing a condominium unit and the latter was the real estate broker. On
March 2, 1997, Jalandoni called Encomienda to ask if she could borrow money for the search and rescue
operation of her children in Manila, who were allegedly taken by their father, Luis Jalandoni.
Encomienda then went to Jalandoni's house and handed ₱l00,000.00 in a sealed envelope to the latter's
security guard. While in Manila, Jalandoni again borrowed money. On April 1, 1997, Jalandoni borrowed
₱l Million from Encomienda and promised that she would pay the same when her money in the bank
matured. Thereafter, Encomienda went to Manila to attend the hearing of Jalandoni's habeas corpus case
before the CA where ₱100,000.00 more was requested. On May 26, 1997, Jalandoni asked if Encomienda
could lend her an additional ₱900,000.00. Encomienda still acceded. All in all, Encomienda spent around
₱3,245,836.02 and $6,638.20 for Jalandoni.. Encomienda then gave Jalandoni six (6) weeks to settle her
debts. Despite several demands, no payment was made. Jalandoni insisted that the amounts given were
not in the form of loans. Jalandoni claimed that there was never a discussion or even just an allusion
about a loan. She confirmed that Encomienda would indeed deposit money in her bank account and pay
her bills in Cebu. But when asked, Encomienda would tell her that she just wanted to extend some help
and that it was not a loan. The RTC of Cebu City dismissed Encomienda's complaint. The CA reversed
the RTC.

Hence, this petition. Jalandoni insists that she never borrowed any amount of money from Encomienda.
During the entire time that Encomienda was sending hermoney and paying her bills, there was not one
reference to a loan. Jalandoni also contends that the amounts she received from Encomienda were mostly
provided and paid without her prior knowledge and thus she could not have consented to any loan
agreement. She relies on the trial court's finding that Encomienda's claims were not supported by any
documentary evidence.

Issue:  Whether or not Encomienda is entitled to be reimbursed for the amounts she defrayed for
Jalandoni.
Held: The Court dismisses the complaint and held that Encomienda is entitled to reimbursements.

It must be stressed that the trial court merely found that no documentary evidence was offered showing
Jalandoni's authorization or undertaking to pay the expenses. But the second paragraph of Article 1236 of
the Civil Code provides: Whoever pays for another may demand from the debtor what he has paid, except
that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as
the payment has been beneficial to the debtor.8

Clearly, Jalandoni greatly benefited from the purportedly unauthorized payments. Thus, even if she
asseverates that Encomienda's payment of her household bills was without her knowledge or against her
will, she cannot deny the fact that the same still inured to her benefit and Encomienda must therefore be
consequently reimbursed for it. Also, when Jalandoni learned about the payments, she did nothing to
express her objection to or repudiation of the same, within a reasonable time. Even when she claimed that
she was prepared with her own money, she still accepted the financial assistance and actually made use of
it. While she asserts to have been upset because of Encomienda's supposedly intrusive actions, she failed
to protest and, in fact, repeatedly accepted money from her and further allowed her to pay her driver,
security guard, househelp, and bills for her cellular phone, cable television, pager, gasoline, food, and
other utilities. She cannot, therefore, deny the benefits she reaped from said acts now that the time for
restitution has come. The debtor who knows that another has paid his obligation for him and who does not
repudiate it at any time, must corollarily pay the amount advanced by such third person.

The RTC likewise harped on the fact that if Encomienda really intended the amounts to be a loan, nonnal
human behavior would have prompted at least a handwritten acknowledgment or a promissory note the
moment she parted with her money for the purpose of granting a loan. This would be particularly true if
the loan obtained was part of a business dealing and not one extended to a close friend who suddenly
needed monetary aid. In fact, in case of loans between friends and relatives, the absence of
acknowledgment receipts or promissory notes is more natural and real. In a similar case, the Court upheld
the CA' s pronouncement that the existence of a contract of loan cannot be denied merely because it was
not reduced in writing. Surely, there can be a verbal loan. Contracts are binding between the parties,
whether oral or written. The law is explicit that contracts shall be obligatory in whatever form they may
have been entered into, provided all the essential requisites for their validity are present. A simple loan
or mutuum exists when a person receives a loan of money or any other fungible thing and acquires its
ownership. He is bound to pay to the creditor the equal amount of the same kind and quality. Jalandoni
posits that the more logical reason behind the disbursements would be what Encomiendacandidly told the
trial court, that her acts were plainly an "unselfish display of Christian help" and done out of "genuine
concern for Georgia's children." However, the "display of Christian help" is not inconsistent with
theexistence of a loan. Encomienda immediately offered a helping hand when a friend asked for it. But
this does not mean that she had already waived herright to collect in the future. Indeed, when Encomienda
felt that Jalandoni was beginning to avoid her, that was when she realized that she had to protect her right
to demand payment. The fact that Encomienda kept the receipts even for the smallest amounts she had
advanced, repeatedly sent demand letters, and immediately filed the instant case when Jalandoni
stubbornly refused to heed her demands sufficiently disproves the latter’s belief that all the sums of
money she received were merely given out of charity.

The principle of unjust enrichment finds application in this case. Unjust enrichment exists when a person
unfairly retains a benefit to the loss of another, or when a person retains money or property of another
against the fundamental principles of justice, equity, and good conscience. There is unjust enrichment
under Article 22 of the Civil Code when (1) a person is unjustly benefited, and (2) such benefit is derived
at the expense of or with damages to another. The principle of unjust enrichment essentially contemplates
payment when there is no duty to pay, and the person who receives the payment has no right to receive
it. The CA is then correct when it ruled that allowing Jalandoni to keep the amounts received from
Encomienda will certainly cause an unjust enrichment on Jalandoni' s part and to Encomienda's damage
and prejudice.

THIRD DIVISION

G.R. No. 225562, March 08, 2017

WILLIAM C. LOUH, JR. AND IRENE L. LOUH, Petitioners, v. BANK OF THE PHILIPPINE

ISLANDS, Respondent.

REYES, J.:

Petition for review on certiorari

Facts: Bank of the Philippine Islands (BPI), issued a credit card in William's name, with Irene as the
extension card holder. Pursuant to the terms and conditions of the cards' issuance, 3.5% finance charge
and 6% late payment charge shall be imposed monthly upon unpaid credit availments. The Spouses Louh
made purchases from the use of the credit cards and paid regularly based on the amounts indicated in the
Statement of Accounts (SOAs). However, they were remiss in their obligations starting October 14,
2009. As of August 15, 2010, their account was unsettled prompting BPI to send written demand letters.
Despite repeated verbal and written demands, the Spouses Louh failed to pay BPI. On August 4, 2011,
BPI filed before the RTC of Makati City a complaint for collection of a sum of money.

On November 29, 2012, the RTC rendered a Decision, the fallo of which ordered the Spouses Louh to
solidarily pay BPI (1) P533,836.27 plus 12% finance and 12% late payment annual charges starting from
August 7, 2010 until full payment, and (2) 25% of the amount due as attorney's fees, plus P1,000.00 per
court hearing and P8,064.00 as filing or docket fees; and (3) costs of suit. The RTC explained that BPI
had adduced preponderant evidence proving that the Spouses Louh had in fact availed of credit
accommodations from the use of the cards. However, the RTC found the 3.5% finance and 6% late
payment monthly charges imposed by BPI as iniquitous and unconscionable. Hence, both charges were
reduced to 1% monthly. Anent the award of attorney's fees equivalent to 25% of the amount due, the RTC
found the same to be within the terms of the parties' agreement.

In affirming in toto the RTC's judgment, the CA found that BPI had offered ample evidence, to wit: (1)
delivery receipts pertaining to the credit cards and the terms and conditions governing the use thereof
signed by the Spouses Louh; (2) computer-generated authentic copies of the SOAs; and (3) demand
letters sent by BPI, which the Spouses Louh received but ignored. As to the award of attorney's fees, the
CA ruled that the terms governing the use of the cards explicitly stated that should the account be referred
to a collection agency, then 25% of the amount due shall be charged as attorney's fees.
Issue: Whether the amount of P533,836.27 demanded by BPI included unconscionable charges since
their credit limit was only P326,000.00.

Held: The Court affirms the herein assailed decision and resolution, but modifies the principal amount
and attorney's fees awarded by the RTC and the CA.

The Court finds excessive the principal amount and attorneys fees awarded by the RTC and CA. A
modification of the reckoning date relative to the computation of the charges is in order too.

In Macalinao, where BPI charged the credit cardholder of 3.25% interest and 6% penalty per month, and
25% of the total amount due as attorney's fees, the Court unequivocally declared that:

This is not the first time that this Court has considered the interest rate of 36% per annum
as excessive and unconscionable. We held in Chua vs. Timan:
The stipulated interest rates of 7% and 5% per month imposed on respondents' loans must
be equitably reduced to 1% per month or 12% per annum. We need not unsettle the
principle we had affirmed in a plethora of cases that stipulated interest rates of 3% per
month and higher are excessive, iniquitous, unconscionable and exorbitant. Such
stipulations are void for being contrary to morals, if not against the law. While C.B.
Circular No. 905-82, which took effect on January 1, 1983, effectively removed the
ceiling on interest rates for both secured and unsecured loans, regardless of maturity,
nothing in the said circular could possibly be read as granting carte blanche authority to
lenders to raise interest rates to levels which would either enslave their borrowers or lead
to a hemorrhaging of their assets. x x x
Since the stipulation on the interest rate is void, it is as if there was no express
contract thereon. Hence, courts may reduce the interest rate as reason and equity
demand.

The same is true with respect to the penalty charge. x x x Pertinently, Article 1229 of the
Civil Code states:
Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has
been partly or irregularly complied with by the debtor. Even if there has been no
perfom1ance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable.

In the case at bench, BPI imposed a cumulative annual interest of 114%, plus 25% of the amount due as
attorney's fees. Inevitably, the RTC and the CA aptly reduced the charges imposed by BPI upon the
Spouses Louh. Note that incorporated in the amount of P533,836.27 demanded by BPI as the Spouses
Louh's obligation as of August 7, 2010 were the higher rates of finance and late payment charges, which
the courts a quo had properly directed to be reduced.

In the SOA dated October 14, 2009, the principal amount indicated was P113,756.83. In accordance
with Macalinao, the finance and late payment charges to be imposed on the principal amount of
P113,756.83 are reduced to 12% each per annum, reckoned from October 14, 2009, the date when the
Spouses Louh became initially remiss in the payment of their obligation to BPI, until full payment.

Anent BPI's litigation expenses, the Court retains the RTC and CA's disquisition awarding P8,064.00 as
filing or docket fees, and costs of suit. However, the Court reduces the attorney's fees to five percent (5%)
of the total amount due from the Spouses Louh pursuant to MCMP and Article 2227 of the New Civil
Code.
SECOND DIVISION

G.R. No. 202088, March 8, 2017

MANUEL L. BAUTISTA, SPOUSES ANGEL SAHAGUN and CARMELITA BAUTISTA, and

ANIANO L. BAUTISTA, Petitioners vs MARGARITO L. BAUTISTA, Respondent

PERALTA, J.:
Petition for review on certiorari 

Facts: The Bautista siblings - Margarito, Manuel L. Bautista, Carmelita Bautista

Sahagun (Carmelita), Aniano L. Bautista (Aniano), Florencia Bautista de Villa (Florencia), and Ester
Bautista Cabrera (Ester) - established a lending business through a common fund from the proceeds of
the sale of a parcel of coconut land they inherited from their mother Consorcia Lantin
Bautista. Margarito, Florencia, and Ester managed the business with Reginald Sahagun, Carmelita's son,
as credit investigator. Senen Cabrera, Ester's husband, prepared the documents for mortgage and reported
the status of the lending business to the Bautista siblings. Through the said lending business, the siblings
acquired several real properties in San Pablo City.

On March 2, 1998, Amelia V. Mendoza (Amelia) obtained a loan in the amount of P690,000.00 from

Florencia, and secured the same with a real estate mortgage over a parcel of land she owned situated in
San Pablo City. They later extended the mortgage through a Kasulatan ng Pagdaragdag ng Sanla, for an
additional loan of ₱l15,000.00 on April 6, 1998. On May 13, 1998, Amelia and Florencia renewed the
mortgage for ₱l,085,000.00 and cancelled the previous loan of ₱690,000.00 through a "Cancellation and
Discharge of Mortgage." Subsequently, on April 12, 1999, Amelia and Florencia executed
another Kasulatan ng Pagdaragdag ng Sanla in the amount of ₱57,500.00. On November 28, 2002,
Amelia allegedly sold the subject property to Margarito through a Kasulatan ng Bilihang Tuluyan for
₱500,000.00 and, likewise, cancelled the ₱l,085,000.00 loan through another "Cancellation and Discharge
of Mortgage.

Florencia filed a petition for the issuance of a second owner's duplicate of TCT before the RTC of San
Pablo City, Branch 29. She alleged that she was the mortgagee of the subject property, and that she could
not locate, despite diligent search, the owner's duplicate title in her possession, which she misplaced
sometime in September 2002. Florencia also executed a Special Power of Attorney in favor of Margarito
to represent her in the proceedings. The RTC granted the petition and TCT No. T-59882 was later issued
in the name of Margarito. On January 12, 2004, petitioners registered an Adverse Claim over the Sta.
Monica property, which was annotated on TCT No. T-59882. Petitioners subsequently instituted a
complaint for partition.

Petitioners averred that Margarito and the others refused to heed their oral and written demands for the
partition of the properties they co-owned, which included the Sta. Monica property. Petitioners presented
copies of their bank transactions with Far East Bank to support their claim of co-ownership over the
same. They also presented an undated, unnotarized, and without the name of the vendee Kasulatan ng
Bilihang Tuluyan (blank Kasulatan ), which Amelia purportedly executed and signed disposing the
subject property in favor of the Bautista siblings. Margarito asseverated that he exclusively owns the
property in controversy since he used his personal funds in purchasing the land. Margarito presented TCT
No. T-59882 covering the Sta. Monica property.

The RTC ruled in favor of the petitioners and declared, among other things, that the Sta. Monica property
was commonly owned by the siblings. The CA concluded that petitioners failed to establish that they are
coowners of the Sta. Monica property. It held that the TCT under Margarito's name was an indefeasible
and incontrovertible title to the property and has more probative weight than the
blank Kasulatan adduced by the petitioners. Consequently, petitioners' action for partition and accounting
cannot be acted upon because they failed to prove that they are co-owners of the Sta. Monica property.

Issue: Whether the Court of Appeals erred when it failed to appreciate the fact that there was a
compromise decision based on an agreement by all the parties which included property where some of the
titles are already in the names of the siblings concerned.

Held: The petition is impressed with merit. The CA held that Margarito presented pieces of evidence,
including a deed of sale between Amelia and Margarito. However, as found by the RTC and based on the
List of Exhibits, aside from his bare allegations and testimony, Margarito neither identified nor presented
the deed of sale during trial nor formally offered the same as his evidence.  It is elementary that he who
alleges a fact has the burden of proving it and a mere allegation is not evidence. It appears that Margarito's
evidence of exclusive ownership are the certificate of title, the tax declarations pertaining thereto, his
bank deposits, and other mortgage contracts involving different mortgagors. Despite all these, Margarito
failed to prove that Amelia conveyed the Sta. Monica property exclusively in his name. It is also quite
intriguing why he did not even bother to present the testimony of Amelia or of Florencia, who could have
enlightened the court about their transactions. In addition, We find it incredible that a property, which
secured a loan roughly over a million pesos, would be sold for considerably less than that amount or for
only ₱550,000.00.

As for the TCT No. T-59882 in the name of Margarito, like in the case at bar, although a certificate of
title is the best proof of ownership of a piece of land, the mere issuance of the same in the name of any
person does not foreclose the possibility that the real property may be under co-ownership with persons
not named in the certificate or that the registrant may only be a trustee or that other parties may have
acquired interest subsequent to the issuance of the certificate of title. The principle that a trustee who puts
a certificate of registration in his name cannot repudiate the trust by relying on the registration is one of
the well-known limitations upon a title.

There is an implied trust when a property is sold and the legal estate is granted to one party but the price
is paid by another for the purpose of having the beneficial interest of the property. This is sometimes
referred to as a purchase money resulting trust, the elements of which are: (a) an actual payment of
money, property or services, or an equivalent, constituting valuable consideration; and (b) such
consideration must be furnished by the alleged beneficiary of a resulting trust.
A trust, which derives its strength from the confidence one reposes on another especially between
families, does not lose that character simply because of what appears in a legal document. From the
foregoing, this Court finds that an implied resulting trust existed among the parties. The pieces of
evidence presented demonstrate their intention to acquire the Sta. Monica property in the course of their
business, just like the other properties that were also the subjects of the partition case and the compromise
agreement they entered into. Although the Sta. Monica property was titled under the name of Margarito,
the surrounding circumstances as to its acquisition speak of the intent that the equitable or beneficial
ownership of the property should belong to the Bautista siblings.

Inevitably, the RTC's Order of partition of the Sta. Monica property was erroneously set aside by the CA
and this Court is convinced that petitioners satisfactorily established that they are co-owners of the
property and are entitled to the reliefs prayed for.

THIRD DIVISION

G.R. No. 211504, March 8, 2017

FEDERAL BUILDERS, INC., Petitioner v. POWER FACTORS, INC., Respondent

BERSAMIN, J.:

Petition for review on certiorari

Facts: Federal was the general contractor of the Bullion Mall under a construction agreement with
Bullion Investment and Development Corporation (BIDC). In 2004, Federal engaged respondent Power
Factors Inc. (Power) as its subcontractor for the electric works at the Bullion Mall and the Precinct
Building. On February 19, 2008, Power sent a demand letter to Federal claiming the unpaid amount of
₱ll,444,658.97 for work done by Power for the Bullion Mall and the Precinct Building. Federal replied
that its outstanding balance under the original contract only amounted to ₱1,641,513.94, and that the
demand for payment for work done by Power after June 21, 2005 should be addressed directly to BIDC.
Nonetheless, Power made several demands on Federal to no avail.

On October 29, 2009, Power filed a request for arbitration in the CIAC invoking the arbitration clause of
the Contract of Service which shall be settled by the Construction Industry Arbitration Commission
(CIAC). On November 20, 2009, Atty. Vivencio Albano, the counsel of Federal, submitted a letter to the
CIAC manifesting that Federal agreed to arbitration and sought an extension of 15 days to file its answer,
which request the CIAC granted. On February 8, 2010, the CIAC issued an order setting the case for
hearing, and directing that Federal's motion to dismiss be resolved after the reception of evidence of the
parties. Federal did not thereafter participate in the proceedings until the CIAC rendered the Final Award.

The CA affirmed the CIAC's decision with modification as to the amounts due to Power. The CA
explained that the CIAC Revised Rules of Procedure stated that the agreement to arbitrate need not be
signed by the parties; that the consent to submit to voluntary arbitration was not necessary in view of the
arbitration clause contained in the Contract of Service; and that Federal's contention that its former
counsel's act of manifesting its consent to the arbitration stipulated in the draft Contract of Service did not
bind it was inconsequential on the issue of jurisdiction.
Issue: Federal contends there was no mutual consent and no meeting of the minds between it and Power
as to the operation and binding effect of the arbitration clause because they had rejected the draft service
contract.

Held: The contention of Federal deserves no consideration.

Under Article 1318 of the Civil Code, a valid contract should have the following essential elements,
namely: (a) consent of the contracting parties; (b) object certain that is the subject matter of the contract;
and (c) cause or consideration. Moreover, a contract does not need to be in writing in order to be
obligatory and effective unless the law specifically requires so.

Pursuant to Article 13561 and Article 13571 of the Civil Code, contracts shall be obligatory in whatever
form they may have been entered into, provided that all the essential requisites for their validity are
present. Indeed, there was a contract between Federal and Power even if the Contract of Service was
unsigned. Such contract was obligatory and binding between them by virtue of all the essential elements
for a valid contract being present.

It clearly appears that the works promised to be done by Power were already executed albeit still
incomplete; that Federal paid Power ₱l ,000,000.00 representing the originally proposed downpayment,
and the latter accepted the payment; and that the subject of their dispute concerned only the amounts still
due to Power. The records further show that Federal admitted having drafted the Contract of Services
containing the following clause on submission to arbitration, to wit:

15. ARBITRATION COMMITTEE -All disputes, controversies or differences, which may arise
between the Parties herein, out of or in relation to or in connection with this Agreement, or for
breach thereof shall be settled by the Construction Industry Arbitration Commission (CIAC)
which shall have original and exclusive jurisdiction over the aforementioned disputes.

With the parties having no issues on the provisions or parts of the Contract of Service other than that
pertaining to the downpayment that Federal was supposed to pay, Federal could not validly insist on the
lack of a contract in order to defeat the jurisdiction of the CIAC. As earlier pointed out, the CIAC Revised
Rules specifically allows any written mode of communication to show the parties' intent or agreement to
submit to arbitration their present or future disputes arising from or connected with their contract.

The CIAC and the CA both found that the parties had disagreed on the amount of the downpayment.  On
its part, Power indicated after receiving and reviewing the draft of the Contract of Service that it wanted
30% as the downpayment. Even so, Power did not modify anything else in the draft, and returned the
draft to Federal after signing it. It was Federal that did not sign the draft because it was not amenable to
the amount as modified by Power. It is notable that the arbitration clause written in the draft of Federal
was unchallenged by the parties until their dispute arose.

Moreover, Federal asserted the original contract to support its claim against Power. If Federal would
insist that the remaining amount due to Power was only ₱l,641,513.94 based on the original contract,21 it
was really inconsistent for Federal to rely on the draft when it is beneficial to its side, and to reject its
efficacy and existence just to relieve itself from the CIAC's unfavorable decision.

The agreement contemplated in the CIAC Revised Rules to vest jurisdiction of the CIAC over the parties'
dispute is not necessarily an arbitration clause to be contained only in a signed and finalized construction
contract. The agreement could also be in a separate agreement, or any other form of written
communication, as long as their intent to submit their dispute to arbitration is clear. The fact that a
contract was signed by both parties has nothing to do with the jurisdiction of the CIAC, and this is the
explanation why the CIAC Revised Rules itself expressly provides that the written communication or
agreement need not be signed by the parties.

FIRST DIVISION

G.R. No. 206037, March 13, 2017

PHILIPPINE NATIONAL BANK, Petitioner vs. LILIBETH S. CHAN, Respondent

DEL CASTILLO, J.:

Petition for Review on Certiorari

Facts: Respondent Lilibeth S. Chan owns a three-story commercial building located in Paco, Manila. On
May 10, 2000, she leased said commercial building to petitioner PNB for a period of five years. When the
lease expired, PNB continued to occupy the property on a month-to-month basis with a monthly rental of
₱116,788.44. PNB vacated the premises on March 23, 2006. Respondent obtained a ₱l,500,000.00 loan
from PNB which was secured by a Real Estate Mortgage constituted over the leased property. In addition,
respondent executed a Deed of Assignment7 over the rental payments in favor of PNB. The amount of the
respondent's loan was subsequently increased to ₱7,500,000.00. Consequently, PNB and the respondent
executed an "Amendment to the Real Estate Mortgage by Substitution of Collateral" on March 31, 2004,
where the mortgage over the leased property was released and substituted by a mortgage over a parcel of
land located in Paco, Manila.

On August 26, 2005, respondent filed a Complaint for Unlawful Detainer before the MeTC Manila
against PNB, alleging that the latter failed to pay its monthly rentals from October 2004 until
August 2005. In its defense, PNB claimed that it applied the rental proceeds from October 2004 to
January 15, 2005 as payment for respondent's outstanding loan which became due and demandable in
October 2004. As for the monthly rentals from January 16, 2005 to February 2006, PNB explained that it
received a demand letter from a certain Lamberto Chua (Chua) who claimed to be the new owner of the
leased property and requested that the rentals be paid directly to him, reckoned from January 15, 2005
until PNB decides to vacate the premises or a new lease contract with Chua is executed. PNB thus
deposited the rentals in a separate non-drawing savings account for the benefit of the rightful party.

The MeTC ordered PNB to pay respondent accrued rentals. The RTC affirmed the MeTC. It found that
respondent's obligation to PNB "has already been paid, notwithstanding the belated claim of [the latter]
that there remains a deficiency." The CA pointed out that PNB' s entitlement to the rental proceeds in the
amount of ₱1,348,643.92 is dependent on whether there is a deficiency in payment after the foreclosure
sale.35 It, however, found no sufficient evidence on record that the amount of respondent's liability as of
October 31, 2006 is indeed ₱18,016,300.71, as PNB claims. As regards the payment of legal interest, the
CA noted that PNB merely opened a non-drawing savings account wherein it deposited the monthly
rentals from January 16, 2005 to February 2006. Such deposit of the rentals in a savings account,
however, is not the consignation contemplated by law. Thus, the CA found PNB liable to pay the 6%
legal interest rate prescribed under Article 2209 of the Civil Code for having defaulted in the payment of
its monthly rentals to the respondent

Issues: (1) Whether whether PNB properly consigned the disputed rental payments in the amount of
₱l,348,643.92 with the Office of the Clerk of Court of the MeTC of Manila.

(2) Whether PNB incurred delay in the payment of rentals to the respondent, making it liable to pay legal
interest to the latter.

Held: The Court deny the petition for lack of merit.

(1) "Consignation is the act of depositing the thing due with the court or judicial authorities whenever the
creditor cannot accept or refuses to accept payment. [ I]t generally requires a prior tender of payment."

Under Article 1256 of the Civil Code, consignation alone is sufficient even without a prior tender of
payment a) when the creditor is absent or unknown or does not appear at the place of payment; b) when
he is incapacitated to receive the payment at the time it is due; c) when, without just cause, he refuses to
give a receipt; d) when two or more persons claim the same right to collect; and e) when the title of the
obligation has been lost.

For consignation to be valid, the debtor must comply with the following requirements under the law:

(1) there was a debt due;

(2) valid prior tender of payment, unless the consignation was made because of some legal cause
provided in Article 1256;

(3) previous notice of the consignation has been given to the persons interested in the
performance of the obligation;

(4) the amount or thing due was placed at the disposal of the court; and,

(5) after the consignation had been made, the persons interested were notified thereof.

"Failure in any of the requirements is enough ground to render a consignation ineffective."

In the present case, the records show that: first, PNB had the obligation to pay respondent a monthly
rental of ₱l16,788.44, amounting to ₱l,348,643.92, from January 16, 2005 to March 23,
2006; second, PNB had the option to pay the monthly rentals to respondent or to apply the same as
payment for respondent's loan with the bank, but PNB did neither; third, PNB instead opened a non-
drawing savings account at its Paco Branch under Account No. 202- 565327-3, where it deposited the
subject monthly rentals, due to the claim of Chua of the same right to collect the rent; and fourth, PNB
consigned the amount of Pl,348,643.92 with the Office of the Clerk of Court of the MeTC of Manila on
May 31, 2006.
Note that PNB's deposit of the subject monthly rentals in a non-drawing savings account is not the
consignation contemplated by law, precisely because it does not place the same at the disposal of the
court. Consignation is necessarily judicial; it is not allowed in venues other than the courts.
Consequently, PNB's obligation to pay rent for the period of January 16, 2005 up to March 23, 2006
remained subsisting, as the deposit of the rentals cannot be considered to have the effect of payment.

It is important to point out that PNB's obligation to pay the subject monthly rentals had already fallen due
and demandable before PNB consigned the rental proceeds with the MeTC on May 31, 2006. Although it
is true that consignment has a retroactive effect, such payment is deemed to have been made only at the
time of the deposit of the thing in court or when it was placed at the disposal of the judicial authority.
Based on these premises, PNB's payment of the monthly rentals can only be considered to have been
made not earlier than May 31, 2006.

(2) Given its belated consignment of the rental proceeds in court, PNB clearly defaulted in the payment
of monthly rentals to the respondent for the period January 16, 2005 up to March 23, 2006, when it finally
vacated the leased property, As such, it is liable to pay interest in accordance with Article 2209 of the
Civil Code.1âwphi1Article 2209 provides that if the debtor incurs delay in the performance of an
obligation consisting of the payment of a sum of money, he shall be liable to pay the interest agreed upon,
and in the absence of stipulation, the legal interest at 6% per annum. There being no stipulated interest in
this case, PNB is liable to pay legal interest at 6% per annum, from January 16, 2005 up to May 30, 2006.