Dean ED VINCENT S.

ALBANO : SURVEY OF 2012 SC

DECISIONS IN CIVIL LAW

SURVEY OF 2012 SC DECISIONS IN

CIVIL LAW

By: Dean ED VINCENT S. ALBANO

ARTICLE 8, NCC

Decisions of the SC, not NLRC form part of the legal system.

In International Management Services/Manilyn Pascual

v. Logarta, G.R. No. 163657, April 18, 2012, Peralta, J, the SC
had the occasion to say that although Art. 8, NCC recognizes
judicial decisions, applying or interpreting statutes as part of the
legal system of the country, such level of recognition is not
afforded to administrative decisions. (Phil. Bank of
Communications v. CIR, G.R. No. 112024, January 28, 1999,
302 SCRA 241. It does not apply to a decision of the NLRC.

MARRIAGE

Judgment declaring a spouse presumptively dead is immediately

final and executory; remedy is Rule 65, not Rule 45.

Q – Yolanda Granada and Cyrus Granada got married in 1991.

In 1994, Cyrus went to Taiwan to seek employment but since
then, he never communicated with Yolanda. After nine (9) years
of waiting, she filed a Petition to have Cyrus declared
presumptively dead which the RTC granted. The Republic of the
Philippines appealed from the decision contending that Yolanda
failed to prove earnest efforts to locate Cyrus and thus, failed to
prove well-founded belief that he was already dead. Yolanda
moved to dismiss the appeal contending that the Petition for
Declaration of Presumptive Death based under Art. 41, Family
Code was a summary judicial proceedings in which the
judgment is immediately final and executory and, thus, not
appealable. The CA granted the motion, hence, the Republic
filed a petition under Rule 45, where the basic issue is whether
the CA erred in dismissing the appeal on the ground that the
RTC decision is immediately final and executory hence, not
subject of ordinary appeal. Decide.

Answer: The CA is correct. The RTC decision is immediately

final and executory and not subject to ordinary appeal.

“A marriage contracted by any person during the subsistence of

a previous marriage shall be null and void, unless before the
celebration of the subsequent marriage, the prior spouse had
been absent for four consecutive years and the spouse present
has a well-founded belief that the absent spouse was already
dead. In case of disappearance where there is danger of death
under the circumstances set forth in the provisions of Article 391
of the Civil Code, an absence of only two years shall be
sufficient.

For the purpose of contracting the subsequent marriage under

the preceding paragraph the spouse present must institute a
summary proceeding as provided in this Code for the declaration
of presumptive death of the absentee, without prejudice to the
effect of reappearance of the absent spouse.

Clearly, a petition for declaration of presumptive death of an

absent spouse for the purpose of contracting a subsequent
marriage under Article 41 of the Family Code is a summary
proceeding “as provided for” under the Family Code.

Further, Title XI of the Family Code is entitled “Summary

Judicial Proceedings in the Family Law.” Subsumed thereunder
are Articles 238 and 247, which provide:

Art. 238. Until modified by the Supreme Court, the procedural

rules in this Title shall apply in all cases provided for in this
Code requiring summary court proceedings. Such cases shall be
decided in an expeditious manner without regard to technical
rules.

xxx xxx xxx

Art. 247. The judgment of the court shall be immediately final
and executory.

Further, Article 253 of the Family Code reads:

ART. 253. The foregoing rules in Chapters 2 and 3 hereof shall

likewise govern summary proceedings filed under Articles 41,
51, 69, 73, 96, 124 and 217, insofar as they are applicable.

Taken together, Articles 41, 238, 247 and 253 of the Family
Code provide that since a petition for declaration of presumptive
death is a summary proceeding, the judgment of the court
therein shall be immediately final and executory.

In Republic v. Bermudez-Lorino, 489 Phil. 761 (2005) the

Republic likewise appealed the CA’s affirmation of the RTC’s
grant of respondent’s Petition for Declaration of Presumptive
Death of her absent spouse. The Court therein held that it was an
error for the Republic to file a Notice of Appeal when the latter
elevated the matter to the CA, to wit:

In Summary Judicial Proceedings under the Family Code, there

is no reglementary period within which to perfect an appeal,
precisely because judgments rendered thereunder, by express
provision of Section 247, Family Code, supra, are “immediately
final and executory.”

xxx xxx xxx

But, if only to set the records straight and for the future guidance
of the bench and the bar, let it be stated that the RTC’s decision
dated November 7, 2001, was immediately final and executory
upon notice to the parties. It was erroneous for the OSG to file a
notice of appeal, and for the RTC to give due course thereto.
The Court of Appeals acquired no jurisdiction over the case, and
should have dismissed the appeal outright on that ground.

In Republic v. Bermudez-Lorino, It was opined that what the

OSG should have filed was a petition for certiorari under Rule
65, not a petition for review under Rule 45.

Petition for declaration of presumptive death is not a special

proceeding; but a summary one.

In the present case, the Republic argued that Bermudez-Lorino

has been superseded by the subsequent Decision of the Court in
Republic v. Jomoc, 497 Phil. 528 (2005).

In Jomoc, the RTC granted respondent’s Petition for Declaration

of Presumptive Death of her absent husband for the purpose of
remarriage. Petitioner Republic appealed the RTC Decision by
filing a Notice of Appeal. The trial court disapproved the Notice
of Appeal on the ground that, under
the Rules of Court, a record on appeal is required to be filed
when appealing special proceedings cases. The CA affirmed the
RTC ruling. In reversing the CA, it was clarified that while an
action for declaration of presumptive death or absence under
Rule 72, Section 1(m), expressly falls under the category of
special proceedings, a petition for declaration of presumptive
death under Article 41 of the Family Code is a summary
proceeding, as provided for by Article 238 of the same Code.
Since its purpose was to enable her to contract a subsequent
valid marriage, petitioner’s action was a summary proceeding
based on Article 41 of the Family Code, rather than a special
proceeding under Rule 72 of the Rules of Court. Considering
that this action was not a special proceeding, petitioner was not
required to file a record on appeal when it appealed the RTC
Decision to the CA.

Republic v. Jomoc did not supersede our ruling in Republic v.

Bermudez-Lorino. Jomoc did not expound on the characteristics
of a summary proceeding under the Family Code. In contrast,
the Court in Bermudez-Lorino expressly stated that its ruling on
the impropriety of an ordinary appeal as a vehicle for
questioning the trial court’s Decision in a summary proceeding
for declaration of presumptive death under Article 41 of the
Family Code was intended “to set the records straight and for
the future guidance of the bench and the bar.”

At any rate, four years after Jomoc, this Court settled the rule
regarding appeal of judgments rendered in summary
proceedings under the Family Code when it ruled in Republic v.
Tango, G.R. No. 161062, July 31, 2009, 594 SCRA 560:

This case presents an opportunity for us to settle the rule on

appeal of judgments rendered in summary proceedings under the
Family Code and accordingly, refine our previous decisions
thereon.

Article 238 of the Family Code, under Title XI: SUMMARY

JUDICIAL PROCEEDINGS IN THE FAMILY LAW,
establishes the rules that govern summary court proceedings in
the Family Code:

ART. 238. Until modified by the Supreme Court, the procedural

rules in this Title shall apply in all cases provided for in this
Code requiring summary court proceedings. Such cases shall be
decided in an expeditious manner without regard to technical
rules.

In turn, Article 253 of the Family Code specifies the cases

covered by the rules in chapters two and three of the same title.
It states:

ART. 253. The foregoing rules in Chapters 2 and 3 hereof shall

likewise govern summary proceedings filed under Articles 41,
51, 69, 73, 96, 124 and 217, insofar as they are applicable.
(Emphasis supplied.)

In plain text, Article 247 in Chapter 2 of the same title reads:

ART 247. The judgment of the court shall be immediately final

and executory.

By express provision of law, the judgment of the court in a

summary proceeding shall be immediately final and executory.
As a matter of course, it follows that no appeal can be had of the
trial court's judgment in a summary proceeding for the
declaration of presumptive death of an absent spouse under
Article 41 of the Family Code. It goes without saying, however,
that an aggrieved party may file a petition for certiorari to
question abuse of discretion amounting to lack of jurisdiction.
Such petition should be filed in the Court of Appeals in
accordance with the Doctrine of Hierarchy of Courts. To be
sure, even if the Court's original jurisdiction to issue a writ of
certiorari is concurrent with the RTCs and the Court of Appeals
in certain cases, such concurrence does not sanction an
unrestricted freedom of choice of court forum. From the
decision of the Court of Appeals, the losing party may then file a
petition for review on certiorari under Rule 45 of the Rules of
Court with the Supreme Court. This is because the errors which
the court may commit in the exercise of jurisdiction are merely
errors of judgment which are the proper subject of an appeal.

In sum, under Article 41 of the Family Code, the losing party in

a summary proceeding for the declaration of presumptive death
may file a petition for certiorari with the CA on the ground that,
in rendering judgment thereon, the trial court committed grave
abuse of discretion amounting to lack of jurisdiction. From the
decision of the CA, the aggrieved party may elevate the matter
to this Court via a petition for review on certiorari under Rule 45
of the Rules of Court.
Evidently then, the CA did not commit any error in dismissing
the Republic’s Notice of Appeal on the ground that the RTC
judgment on the Petition for Declaration of Presumptive Death
of respondent’s spouse was immediately final and executory
and, hence, not subject to ordinary appeal. (Rep. v. Yolanda C.
Granada, G.R. No. 187512, July 13, 2012, Sereno, J).

On whether the CA seriously erred in affirming the RTC’s grant

of the Petition for Declaration of Presumptive Death under
Article 41 of the Family Code based on the evidence that
respondent had presented

The Republic assailed the RTC’s grant of the Petition for

Declaration of Presumptive Death of the absent spouse of
respondent on the ground that she had not adduced the evidence
required to establish a well-founded belief that her absent spouse
was already dead, as expressly required by Article 41 of the
Family Code. Petitioner cites Republic v. Nolasco, G.R. No.
94053, March 17, 1993, 220 SCRA 20; United States v. Biasbas,
25 Phil. 71 (1913) and Republic v. Court of Appeals and Alegro,
513 Phil. 391 (2005) as authorities on the subject.

In Nolasco, petitioner Republic sought the reversal of the CA’s

affirmation of the RTC’s grant of a Petition for Declaration of
Presumptive Death of his absent spouse, a British subject who
left their home in the Philippines soon after giving birth to their
son while respondent was on board a vessel working as a
seafarer. The Republic sought the reversal of the ruling on the
ground that respondent was not able to establish his “well-
founded belief that the absentee is already dead,” as required by
Article 41 of the Family Code. In ruling thereon, the Court
recognized that this provision imposes more stringent
requirements than Article 83 of the Civil Code. The Civil Code
provision merely requires either that there be no news that the
absentee is still alive; or that the absentee is generally
considered to be dead and is believed to be so by the spouse
present, or is presumed dead under Articles 390 and 391 of the
Civil Code. In comparison, the Family Code provision
prescribes a “well-founded belief” that the absentee is already
dead before a petition for declaration of presumptive death can
be granted. The four requisites for the declaration of
presumptive death under the Family Code are as follows:

That the absent spouse has been missing for four consecutive
years, or two consecutive years if the disappearance occurred
where there is danger of death under the circumstances laid
down in Article 391, Civil Code;
That the present spouse wishes to remarry;
That the present spouse has a well-founded belief that the
absentee is dead; and
That the present spouse files a summary proceeding for the
declaration of presumptive death of the absentee.
In evaluating whether the present spouse has been able to prove
the existence of a “well-founded belief” that the absent spouse is
already dead, the Court in Nolasco cited United States v.
Biasbas, which it found to be instructive as to the diligence
required in searching for a missing spouse.

In Biasbas, the Court held that defendant Biasbas failed to

exercise due diligence in ascertaining the whereabouts of his
first wife, considering his admission that that he only had a
suspicion that she was dead, and that the only basis of that
suspicion was the fact of her absence.

Similarly, in Republic v. Court of Appeals and Alegro,

petitioner Republic sought the reversal of the CA ruling
affirming the RTC’s grant of the Petition for Declaration of
Presumptive Death of the absent spouse on the ground that the
respondent therein had not been able to prove a “well-founded
belief” that his spouse was already dead. The Court reversed the
CA, granted the Petition, and provided the following criteria for
determining the existence of a “well-founded belief” under
Article 41 of the Family Code:

For the purpose of contracting the subsequent marriage under

the preceding paragraph, the spouse present must institute a
summary proceeding as provided in this Code for the declaration
of presumptive death of the absentee, without prejudice to the
effect of reappearance of the absent spouse.

The spouse present is, thus, burdened to prove that his spouse
has been absent and that he has a well-founded belief that the
absent spouse is already dead before the present spouse may
contract a subsequent marriage. The law does not define what is
meant by a well-grounded belief. Cuello Callon writes that “es
menester que su creencia sea firme se funde en motivos
racionales.”

Belief is a state of the mind or condition prompting the doing of

an overt act. It may be proved by direct evidence or
circumstantial evidence which may tend, even in a slight degree,
to elucidate the inquiry or assist to a determination probably
founded in truth. Any fact or circumstance relating to the
character, habits, conditions, attachments, prosperity and objects
of life which usually control the conduct of men, and are the
motives of their actions, was, so far as it tends to explain or
characterize their disappearance or throw light on their
intentions, competence [sic] evidence on the ultimate question
of his death.

The belief of the present spouse must be the result of proper and
honest to goodness inquiries and efforts to ascertain the
whereabouts of the absent spouse and whether the absent spouse
is still alive or is already dead. Whether or not the spouse
present acted on a well-founded belief of death of the absent
spouse depends upon the inquiries to be drawn from a great
many circumstances occurring before and after the
disappearance of the absent spouse and the nature and extent of
the inquiries made by present spouse.

Applying the foregoing standards to the present case, the

Republic pointed out that respondent Yolanda did not initiate a
diligent search to locate her absent husband. While her brother
testified to having inquired about the whereabouts of Cyrus from
the latter’s relatives, these relatives were not presented to
corroborate Diosdado’s testimony. In short, respondent was not
diligent in her search for her husband. Petitioner argues that if
she were, she would have sought information from the
Taiwanese Consular Office or assistance from other government
agencies in Taiwan or the Philippines. She could have also
utilized mass media for this end, but she did not. Worse, she
failed to explain these omissions.

The SC held that the Republic’s arguments are well-taken, but

denied the Petition against the RTC ruling on the issue of
whether respondent was able to prove her “well-founded belief”
that her absent spouse was already dead prior to her filing of the
Petition to declare him presumptively dead is already final and
can no longer be modified or reversed. Indeed, “[n]othing is
more settled in law than that when a judgment becomes final
and executory, it becomes immutable and unalterable. The same
may no longer be modified in any respect, even if the
modification is meant to correct what is perceived to be an
erroneous conclusion of fact or law.” (Rep. v. Yolanda Granada,
G.R. No. 187512, June 13, 2012, Sereno, J).
ARTICLE 36

Annabelle Mendoza v. Rep., et al., G.R. No. 157649,

November 12, 2012, Bersamin, J, reiterates the basic rule in
declaration of nullity of marriage on the ground of psychological
incapacity that psychological incapacity must characterized by
its being grave, incurable and existing prior to the time of the
marriage. The totality of evidence rule to prove psychological
incapacity is sufficient. It refers to no less than mental, not
physical incapacity that causes a party to be incognitive of the
basic marital covenants that must concomitantly be assumed and
discharged by the parties to the marriage expressed in Article
68, F.C.

In the same vein, the SC in Rep. v. CA & Eduardo

Quintos, Jr., G.R. No. 159594, November 12, 2012, gossiping
with neighbors, leaving the house without the consent of the
spouse, refusal to do household chores, gambling are not pieces
of evidence of psychological incapacity. Proving that a spouse
failed to meet his or her responsibilities and duties as a married
person is not enough, it is essential that he or she must be shown
to be incapable of doing so due to same psychological illness. It
should refer to mental incapacity that causes a party to be truly
incognitive of the basic marital covenants under Art. 68, F.C.

PROPERTY RELATIONSHIP

To be presumed conjugal properties, there must be proof of

acquisition during the marriage.

Q – Antonio, a widow obtained a loan from A.G. Aguila &

Sons, Co. (Aguila) secured by a Deed of Real Estate Mortgage
over a property. She likewise executed a Deed of Absolute Sale
over the same property in favor of Gemma who registered the
same and obtained a title. Later on, Gemma obtained a loan
from FEBTC-BPI but failed to pay the loan, hence, the bank
foreclosed the mortgage over the said property. The bank was
the highest bidder and consolidated its ownership. In the
meantime, Antonia and her son filed a complaint for annulment
of the Deed of Sale in favor of Gemma contending that the same
is void as the property formed part of her conjugal partnership
with her husband who was already dead when the deed of sale
was executed. It was also alleged that the sale was simulated and
derogatory to her son’s hereditary right. The complaint was
amended to implead the bank which alleged that it was a
mortgagee in good faith. The RTC declared the sale to Gemma
void holding that it was a conjugal property of the husband and
wife, hence, the sale is void, but on appeal, the CA reversed the
decision, holding that the property was an exclusive property of
Antonia for failure to prove that the same was acquired during
their marriage. It further ruled that the bank was a mortgagee in
good faith and for value. Is the CA’s ruling correct? Why?

Answer: Yes. Pursuant to Article 160 of the Civil Code of the

Philippines, all property of the marriage is presumed to belong
to the conjugal partnership, unless it be proved that it pertains
exclusively to the husband or to the wife. Although it is not
necessary to prove that the property was acquired with funds of
the partnership, (Tan v. CA, G.R. No. 120594, June 10, 1997,
273 SCRA 229) proof of acquisition during the marriage is an
essential condition for the operation of the presumption in favor
of the conjugal partnership. (Manongsong v. Estimo, 452 Phil.
862 (2003). In the case of Francisco vs. Court of Appeals, 359
Phil. 519 (1998), it was ruled that:

“Article 160 of the New Civil Code provides that "all property
of the marriage is presumed to belong to the conjugal
partnership, unless it be proved that it pertains exclusively to the
husband or to the wife." However, the party who invokes this
presumption must first prove that the property in controversy
was acquired during the marriage. Proof of acquisition during
the coverture is a condition sine qua non for the operation of the
presumption in favor of the conjugal partnership. The party who
asserts this presumption must first prove said time element.
Needless to say, the presumption refers only to the property
acquired during the marriage and does not operate when there is
no showing as to when property alleged to be conjugal was
acquired. Moreover, this presumption in favor of conjugality is
rebuttable, but only with strong, clear and convincing evidence;
there must be a strict proof of exclusive ownership of one of the
spouses.”

As the parties invoking the presumption of conjugality under

Article 160 of the Civil Code, the Dela Peñas did not even come
close to proving that the subject property was acquired during
the marriage but it was only the bare and uncorroborated
assertion that the property was purchased when she was already
married. The record is bereft of any evidence from which the
actual date of acquisition of the realty can be ascertained.
Considering that the presumption of conjugality does not operate
if there is no showing of when the property alleged to be
conjugal was acquired, (Go v. Yamane, G.R. No. 160762, May
3, 2006, 489 SCRA 107), the CA cannot be faulted for ruling
that the realty in litigation was Antonia’s exclusive property.

Phrase “married to” is merely descriptive of the status of the

owner.

Not having established the time of acquisition of the

property, the Dela Peñas insist that the registration thereof in the
name of “Antonia R. Dela Peña, of legal age, Filipino, married
to Antegono A. Dela Peña” should have already sufficiently
established its conjugal nature. Confronted with the same issue
in the case Ruiz vs. Court of Appeals, 449 Phil. 419 (2003) it
was ruled however, that the phrase “married to” is merely
descriptive of the civil status of the wife and cannot be
interpreted to mean that the husband is also a registered owner.
Because it is likewise possible that the property was acquired
by the wife while she was still single and registered only after
her marriage, neither would registration thereof in said manner
constitute proof that the same was acquired during the marriage
and, for said reason, to be presumed conjugal in nature. “Since
there is no showing as to when the property in question was
acquired, the fact that the title is in the name of the wife alone is
determinative of its nature as paraphernal, i.e., belonging
exclusively to said spouse.” (Antonia dela Peña, et al. v. Gemma
Reneilyn Avila, et al., G.R. No. 187490, February 8, 2012,
Perez, J).

FAMILY HOME

Family home is exempt from attachment, levy or forced sale.

Q – In 1984, while Araceli and Ernesto de Mesa were not yet

married, they jointly acquired a parcel of land where a house
was constructed which they occupied as a family home when
they got married. In 1988, Araceli obtained a loan from
Clandino and mortgaged the property to secure the payment of
the obligation. She issued a check to pay the loan but it was
dishonored, hence, a BP22 case was filed against her where she
was acquitted but held her civilly liable. A writ of execution was
issued and the property was levied upon and sold to satisfy the
obligation. Claudio was the highest bidder and a title was issued
in his name but leased the property to Araceli and Ernesto but
for failure to pay the rents, a complaint for ejectment was filed.
In their answer, they contended that Claudion is not the owner
because the property being a family home cannot be levied upon
as it is exempt from execution. In the meantime, they filed a
complaint to declare the title of Claudio void alleging that the
property was their family home which is exempt from execution,
which was dismissed by the RTC which the CA affirmed
holding that the exemption of a family home from execution
attachment or forced sale is not automatic and should be raised
and prove prior to the execution, forced sale or attachment. The
spouses did not however, raise the same. Is the ruling of the
lower courts correct? Why?

Answer: Yes. In the earlier case of Ramos v. Pangilinan, G.R.

No. 185920, July 20, 2010, 625 SCRA 181, the rules relative to
exemption of family homes from execution were laid down,
thus:

“For the family home to be exempt from execution, distinction

must be made as to what law applies based on when it was
constituted and what requirements must be complied with by the
judgment debtor or his successors claiming such privilege.
Hence, two sets of rules are applicable.

If the family home was constructed before the effectivity of the

Family Code or before August 3, 1988, then it must have been
constituted either judicially or extra-judicially as provided under
Articles 225, 229-231 and 233 of the Civil Code. Judicial
constitution of the family home requires the filing of a verified
petition before the courts and the registration of the court’s order
with the Registry of Deeds of the area where the property is
located. Meanwhile, extrajudicial constitution is governed by
Articles 240 to 242 of the Civil Code and involves the execution
of a public instrument which must also be registered with the
Registry of Property. Failure to comply with either one of these
two modes of constitution will bar a judgment debtor from
availing of the privilege.

On the other hand, for family homes constructed after the

effectivity of the Family Code on August 3, 1988, there is no
need to constitute extrajudicially or judicially, and the
exemption is effective from the time it was constituted and lasts
as long as any of its beneficiaries under Art. 154 actually resides
therein. Moreover, the family home should belong to the
absolute community or conjugal partnership, or if exclusively by
one spouse, its constitution must have been with consent of the
other, and its value must not exceed certain amounts depending
upon the area where it is located. Further, the debts incurred for
which the exemption does not apply as provided under Art. 155
for which the family home is made answerable must have been
incurred after August 3, 1988.

In the earlier case of Kelley, Jr. v. Planters Products, Inc.,

G.R. No. 172263, July 9, 2005, 557 SCRA 499, the SC stressed
that:

Under the Family Code, there is no need to constitute the family

home judicially or extrajudicially. All family homes constructed
after the effectivity of the Family Code (August 3, 1988) are
constituted as such by operation of law. All existing family
residences as of August 3, 1988 are considered family homes
and are prospectively entitled to the benefits accorded to a
family home under the Family Code.

The foregoing rules on constitution of family homes, for

purposes of exemption from execution, could be summarized as
follows:

First, family residences constructed before the effectivity

of the Family Code or before August 3, 1988 must be
constituted as a family home either judicially or extrajudicially
in accordance with the provisions of the Civil Code in order to
be exempt from execution;

Second, family residences constructed after the effectivity

of the Family Code on August 3, 1988, are automatically
deemed to be family homes and thus exempt from execution
from the time it was constituted and lasts as long as any of its
beneficiaries actually resides therein;

Third, family residences which were not judicially or

extrajudicially constituted as a family home prior to the
effectivity of the Family Code, but were existing thereafter, are
considered as family homes by operation of law and are
prospectively entitled to the benefits accorded to a family home
under the Family Code.

Here, the subject property became a family residence

sometime in January 1987. There was no showing, however, that
the same was judicially or extrajudicially constituted as a family
home in accordance with the provisions of the Civil Code. Still,
when the Family Code took effect on August 3, 1988, the
subject property became a family home by operation of law and
was thus prospectively exempt from execution. The petitioners
were thus correct in asserting that the subject property was a
family home. (Sps. Araceli & Ernesto de Mesa v. Sps. Claudio
& Rufina Acero, et al., G.R. No. 185064, January 16, 2012,
Reyes, J).

The family home’s exemption from execution must be set up

and proved to the Sheriff before the sale of the property at public
auction.

Q – The spouses did not assert and prove that their house and lot
was a family home prior to the public auction conducted by the
sheriff. State the effect of such failure. Explain.

Answer: Their failure to invoke and prove that the house and lot
was a family home is a waiver of such defense or right. In
Honrado v. CA, 512 Phil. 657 (2005), it was said that at no other
time can the status of a residential house as a family home can
be set up and proved and its exemption from execution be
claimed but before the sale thereof at public auction:

While it is true that the family home is constituted on a

house and lot from the time it is occupied as a family residence
and is exempt from execution or forced sale under Article 153 of
the Family Code, such claim for exemption should be set up and
proved to the Sheriff before the sale of the property at public
auction. Failure to do so would estop the party from later
claiming the exemption. As the Court ruled in Gomez v.
Gealone:

Although the Rules of Court does not prescribe the period

within which to claim the exemption, the rule is, nevertheless,
well-settled that the right of exemption is a personal privilege
granted to the judgment debtor and as such, it must be claimed
not by the sheriff, but by the debtor himself at the time of the
levy or within a reasonable period thereafter;

“In the absence of express provision it has variously held

that claim (for exemption) must be made at the time of the levy
if the debtor is present, that it must be made within a reasonable
time, or promptly, or before the creditor has taken any step
involving further costs, or before advertisement of sale, or at any
time before sale, or within a reasonable time before the sale, or
before the sale has commenced, but as to the last there is
contrary authority.”

In the light of the facts above summarized, it is self-evident that

appellants did not assert their claim of exemption within a
reasonable time. Certainly, reasonable time, for purposes of the
law on exemption, does not mean a time after the expiration of
the one-year period provided for in Section 30 of Rule 39 of the
Rules of Court for judgment debtors to redeem the property sold
on execution, otherwise it would render nugatory final bills of
sale on execution and defeat the very purpose of execution – to
put an end to litigation. We said before, and We repeat it now,
that litigation must end and terminate sometime and somewhere,
and it is essential to an effective administration of justice that,
one a judgment has become final, the winning party be not,
through a mere subterfuge, deprived of the fruits of the verdict.
We now rule that claims for exemption from execution of
properties under Section 12 of Rule 39 of the Rules of Court
must be presented before its sale on execution by the Sheriff.”

In Sps. Versola v. Court of Appeals, 529 Phil. 377 (2006)

it was likewise said:

“Under the cited provision, a family home is deemed

constituted on a house and lot from the time it is occupied as a
family residence; there is no need to constituted the same
judicially or extrajudicially.

The settled rule is that the right to exemption or forced

sale under Article 153 of the Family Code is a personal privilege
granted to the judgment debtor and as such, it must be claimed
not by the sheriff, but by the debtor himself before the sale of
the property at public auction. It is not sufficient that the person
claiming exemption merely alleges that such property is a family
home. This claim for exemption must be set up and proved to
the Sheriff.”

Having failed to set up and prove to the sheriff the

supposed exemption of the subject property before the sale
thereof at public action, they now are barred from raising the
same. Failure to do so estop them from later claiming the said
exemption. (De Mesa v. Acero, et al., G.R. No. 185064, January
16, 2012, Reyes, J).
Family home as the symbol of love.

Indeed, the family home is a sacred symbol of family

love and is the repository of cherished memories that last during
one’s lifetime. (Cabang v. Basay, G.R. No. 180587, March 20,
2009, 582 SCRA 172). It is likewise without dispute that the
family home, from the time of its constitution and so long as any
of its beneficiaries resides therein, is generally exempt from
execution, forced sale or attachment. (Art. 153, F.C.).

The family home is a real right, which is gratuitous,

inalienable and free from attachment. It cannot be seized by
creditors except in certain special cases. (Josef v. Santos, G.R.
No. 165060, November 27, 2008, 572 SCRA 57). However, this
right can be waived or be barred by laches by the failure to set
up and prove the status of the property as a family home at the
time of the levy or a reasonable time thereafter.

In this case, it is undisputed that the petitioners allowed a

considerable time to lapse before claiming that the subject
property is a family home and its exemption from execution and
forced sale under the Family Code. The petitioners allowed the
subject property to be levied upon and the public sale to
proceed. One (1) year lapsed from the time the subject property
was sold until a Final Deed of Sale was issued to Claudio, and,
later, Araceli’s Torrens title was cancelled and a new one issued
under Claudio’s name, still, the petitioner remained silent. In
fact, it was only after the respondents filed a complaint for
unlawful detainer, or approximately four (4) years from the time
of the auction sale, that the petitioner claimed that the subject
property is a family home, thus, exempt from execution.

For all intents and purposes, the petitioners’ negligence or

omission to assert their right within a reasonable time gives rise
to the presumption that they have abandoned, waived or
declined to assert it. Since the exemption under Article 153 of
the Family Code is a personal right, it is incumbent upon the
petitioners to invoke and prove the same within the prescribed
period and it is not the sheriff’s duty to presume or raise the
status of the subject property as a family home.

The petitioners’ negligence or omission renders their

present assertion doubtful; it appears that it is a mere
afterthought and artifice that cannot be countenanced without
doing the respondents injustice and depriving the fruits of the
judgment award in their favor. Simple justice and fairness and
equitable considerations demand that Claudio’s title to the
property be respected. Equity dictates that the petitioners are
made to suffer the consequences of their unexplained
negligence.

PROOF OF FILIATION

Baptismal certificate standing alone cannot be a proof of

filiation.

Q – May a baptismal certificate be a proof of filiation? Explain.

Answer: As a rule, no, because being hearsay, it is not

conclusive proof of filiation.

Recently, there are two (2) cases expounding on the

probative value of a baptismal certificate. One is the case of the
Heirs of Pedro Cabais v. CA, G.R. No. 106314-15, October 8,
1999, 316 SCRA 338 where the SC ruled that:

A birth certificate, being a public document, offers prima facie

evidence of filiation and a high degree of proof is needed to
overthrow the presumption of truth contained in such public
document. This is pursuant to the rule that entries in official
records made in the performance of his duty by a public officer
are prima facie evidence of the facts therein stated. The
evidentiary nature of such document must, therefore, be
sustained in the absence of strong, complete and conclusive
proof of its falsity or nullity.

On the contrary, a baptismal certificate is a private document,

which, being hearsay, is not a conclusive proof of filiation. It
does not have the same probative value as a record of birth, an
official or public document. In US v. Evangelista, this Court
held that church registers of births, marriages, and deaths made
subsequent to the promulgation of General Orders No. 68 and
the passage of Act No. 190 are no longer public writings, nor are
they kept by duly authorized public officials. Thus, in this
jurisdiction, a certificate of baptism such as the one herein
controversy is no longer regarded with the same evidentiary
value as official records of birth. Moreover, on this score,
jurisprudence is consistent and uniform in ruling that the
canonical certificate of baptism is not sufficient to prove
recognition.
 A baptismal certificate has a limited evidentiary value as
proof of filiation inferior to that of a birth certificate. It does not
attest to the veracity of the statements regarding the kinsfolk of
the one baptized. This is especially true if the birth certificate is
not presented.

Another case is the Heirs of Ignacio Conti v. CA, G.R.

No. 118464, December 21, 1998, 300 SCRA 345, where the SC
said that the respondents were able to prove by preponderance of
evidence their being collateral relatives of the decedent using the
baptismal certificate as proof of filiation. This is so because,
aside from the baptismal certificate, there were testimonies of
witnesses pointing to the heir as the only sibling left by the
decedent, hence, the baptismal certificate acquired evidentiary
weight to prove filiation. There were in fact four (4) baptismal
certificates pointing to the heir and other sisters as having the
same set of parents.

In Conti, the Court affirmed the rulings of the trial court and the
CA to the effect that the Conti respondents were able to prove
by preponderance of evidence their being the collateral heirs of
deceased Lourdes Sampayo. The Conti petitioners disagreed,
arguing that baptismal certificates did not prove the filiation of
collateral relatives of the deceased. Agreeing with the CA, the
Court said:

Under Art. 172 of the Family Code, the filiation of legitimate

children shall be proved by any other means allowed by the
Rules of Court and special laws, in the absence of a record of
birth or a parent’s admission of such legitimate filiation in a
public or private document duly signed by the parent. Such other
proof of one’s filiation may be a baptismal certificate, a judicial
admission, a family Bible in which his name has been entered,
common reputation respecting his pedigree, admission by
silence, the testimonies of witnesses and other kinds of proof
admissible under Rule 130 of the Rules of Court. By analogy,
this method of proving filiation may also be utilized in the
instant case.

Public documents are the written official acts, or records of the

official act of the sovereign authority, official bodies and
tribunals, and public officers, whether of the Philippines, or a
foreign country. The baptismal certificates presented in
evidence by private respondents are public documents. Parish
priests continue to be the legal custodians of the parish records
and are authorized to issue true copies, in the form of
certificates, of the entries contained therein.

The admissibility of baptismal certificates offered by Lydia S.

Reyes, absent the testimony of the officiating priest or the
official recorder, was settled in People v. Ritter, citing U.S. v. de
Vera (28 Phil. 105 [1914], thus:

…. The entries made in the Registry Book may be considered as

entries made in the course of business under Section 43 of Rule
130, which is an exception to the hearsay rule. The baptisms
administered by the church are one of its transactions in the
exercise of ecclesiastical duties and recorded in the book of the
church during this course of its business.

Obviously, Conti did not treat a baptismal certificate, standing

alone, as sufficient to prove filiation; on the contrary, Conti
expressly held that a baptismal certificate had evidentiary value
to prove filiation if considered alongside other evidence of
filiation. As such, a baptismal certificate alone is not sufficient
to resolve a disputed filiation. (Makati Shangri-La Hotel &
Resort Inc. v. Harper, et al., G.R. No. 189998, August 26, 2012,
Bersamin, J).

Proof of filiation; support.

Q – In a complaint for support alleging that a child is an

illegitimate child of the alleged father, the bases were the record
of birth although unsigned by the alleged father and the
baptismal certificate identifying the alleged father, as the father
of the child without the signature of the alleged father. The RTC
granted the support based on those documents. Is the decision
correct? Why?

Answer: No, because the two (2) documents are not proofs of
filiation. Before a child may be entitled to support, he must be
recognized by the alleged father. “Time and again, this Court
has ruled that a high standard of proof is required to establish
paternity and filiation. An order for x x x support may create an
unwholesome situation or may be an irritant to the family or the
lives of the parties so that it must be issued only if paternity or
filiation is established by clear and convincing evidence.”

The Rules for establishing filiation are found in Articles

172 and 175 of the Family Code. One such proof is the record of
birth appearing in the civil register, Article 172(1) and any other
means allowed by the Rules of Court and special laws, (Art.
172(2)(2), Family Code.

“It is settled that “[a] certificate of live birth purportedly

identifying the putative father is not competent evidence of
paternity when there is no showing that the putative father had a
hand in the preparation of said certificate.” We also cannot lend
credence to Mirasol’s claim that Antonio supplied certain
information through Erlinda. Aside from Antonio’s denial in
having any participation in the preparation of the document as
well as the absence of his signature thereon, respondents did not
present Erlinda to confirm that Antonio indeed supplied certain
entries in Randy’s birth certificate. Besides, the several
unexplained discrepancies in Antonio’s personal circumstances
as reflected in the subject birth certificate are manifestations of
Antonio’s non-participation in its preparation. Most important, it
was Mirasol who signed as informant thereon which she
confirmed on the witness stand.”

“Neither does the testimony of Randy establish his

illegitimate filiation. That during their first encounter in 1994
Randy called Antonio “Papa” and kissed his hand while Antonio
hugged him and promised to support him; or that his Aunt Lelita
treated him as a relative and was good to him during his one-
week stay in her place, cannot be considered as indications of
Randy’s open and continuous possession of the status of an
illegitimate child under the second paragraph of Article 172(1).
“[T]o prove open and continuous possession of the status of an
illegitimate child, there must be evidence of the manifestation of
the permanent intention of the supposed father to consider the
child as his, by continuous and clear manifestations of parental
affection and care, which cannot be attributed to pure charity.
Such acts must be of such a nature that they reveal not only the
conviction of paternity, but also the apparent desire to have and
treat the child as such in all relations in society and in life, not
accidentally, but continuously.” Here, the single instance that
Antonio allegedly hugged Randy and promised to support him
cannot be considered as proof of continuous possession of the
status of a child. To emphasize, “[t]he father’s conduct towards
his son must be spontaneous and uninterrupted for this ground to
exist.” Here, except for that singular occasion in which they met,
there are no other acts of Antonio treating Randy as his son.
Neither can Antonio’s paternity be deduced from how his sister
Lelita treated Randy. To this Court, Lelita’s actuations could
have been done due to charity or some other reasons.”

Randy’s baptismal certificate is not a good proof of Antonio’s

paternity of Randy. Just like in a birth certificate, the lack of
participation of the supposed father in the preparation of a
baptismal certificate renders this document incompetent to prove
paternity. And “while a baptismal certificate may be considered
a public document, it can only serve as evidence of the
administration of the sacrament on the date specified but not the
veracity of the entries with respect to the child’s paternity. Thus,
x x x baptismal certificates are per se inadmissible in evidence
as proof of filiation and they cannot be admitted indirectly as
circumstantial evidence to prove the same.” (Antonio Perla v.
Mirasol Baring, et al., G.R. No. 172471, November 12, 2012,
Brion, J; See: Gotardo v. Buling, G.R. No. 165166, August 15,
2010, Brion, J).

PROPERTY/LAND REGISTRATION

Possession and occupation distinguished.

Commonwealth Act No. 141, otherwise known as the Public

Land Act, governs the classification and disposition of lands of
the public domain. It is clear under Section 48(b) thereof, which
applies exclusively to agricultural lands of the public domain,
that possession is not enough. In order to emphasize the
necessity for actual possession and exclude fictional or
constructive possession, Section 48(b) speaks of possession and
occupation. As explained by this Court in Republic of the
Philippines v. Alconaba:

The law speaks of possession and occupation. Since these

words are separated by the conjunction and, the clear intention
of the law is not to make one synonymous with the other.
Possession is broader than occupation because it includes
constructive possession. When, therefore, the law adds the word
occupation, it seeks to delimit the all encompassing effect of
constructive possession. Taken together with the words open,
continuous, exclusive and notorious, the word occupation serves
to highlight the fact that for an applicant to qualify, his
possession must not be a mere fiction. (471 Phil. 607 (2004)).

It does not matter whether the applicant for registration has

been in possession and occupation only after June 12, 1945 for
the requirements for confirmation of title is deemed complied
with as his predecessors-in-interest’s possession and occupation
that date back to June 12, 1945 or earlier are tacked to his.
Thus, it is of great importance that there exists “well-nigh
incontrovertible” evidence that the applicant’s predecessors-in-
interest had been in possession and occupation of the property
sought to be registered since June 12, 1945. (Rep. v. Heirs of
Doroteo Montoja, G.R. No. 195137, June 23, 2012, Reyes, J).

PROPERTY

Quieting of title requires legal title or equitable title.

Q – When may an action for quieting of title prosper? Explain.

Answer: In order that an action for quieting of title may prosper,

it is essential that the plaintiff must have legal title or equitable
title to, or interest in, the property which is the subject matter of
the action. Legal title denotes registered ownership, while
equitable title means beneficial ownership. In the absence of
such legal or equitable title, or interest, there is no cloud to be
prevented or removed. (Mananquil, et al. v. Moico, G.R. No.
180076, November 21, 2012).

Accretion, to whom it belongs; dried up rivers belongs to the

State.

By law, accretion is the gradual and imperceptible deposit

made thru the effects of the current of the water belongs to the
owner of the land adjacent to the banks of rivers where it forms.
The drying up of the river is not accretion. Hence, the dried up
river bed belongs to the State as property of public dominion,
not to the riparian owner, unless the law vests the ownership to
some other person. (Rep. v. Santos III, et al., G.R. No. 160453,
November 12, 20012).

Oral partition is invalid.

The validity of an oral partition is already well-settled. It

is not required that the partition agreement be registered or
annotated in the title to be valid. After exercising acts of
ownership over their respective portions of the contested estate,
they are estopped from denying the existence of an oral
partition.
 In this case, none of the original co-owners disputed the
partition as it is only the present owners and successors-in-
interest who are insisting that no partition had taken place, as the
title was merely partially cancelled and many of the owners have
yet to secure their own separate titles. Estoppels has set in to bar
the present owners from denying an oral partition in view of the
acquiescence of their predecessors-in-interest as well as their
own acts of ownership over those portions they are occupying.

Regardless of whether a parol partition or agreement to

partition is valid or enforceable at law, equity will in proper
cases, where the parol partition has actually been consummated
by the taking of possession in severalty and the exercise of
ownership by the parties of their respective portions set off to
each other, recognize and enforce such parol partition and the
rights of the parties thereunder. (Hernandez v. Andal, 78 Phil.
196 (1947); Tan v. Lim, G.R. No. 128004, September 25, 1998,
296 SCRA 445; Notarte, et al. v. Notarte, G.R. No. 180614,
August 29, 2012).

SUCCESSION

Forgetfulness is not equivalent to being unsound mind.

Q – After the will was admitted to probate, petitioners appealed

and contended that the testator was “magulyan” or forgetful, so
much so that it effectively stripped her of her testamentary
capacity. She was likewise suffering from paranoia. Petitioners,
however, did not present medical evidence to show that she was
of unsound mind. There was no showing that she was one month
or less, before making the will, she was publicly known to be
insane. Is the admission of the will to probate correct? Explain.

Answer: Yes. The state of being forgetful does not necessarily

make a person mentally unsound so as to tender him unfit to
execute a will. (Torres & Lopez de Bueno v. Lopez, 48 Phil. 772
(1926); Sancho v. Abella, 728 Phil. 728 (1933)). Forgetfulness
is not equivalent to being of unsound mind. Besides, Article 799
of the New Civil Code states:

Art. 799. To be of sound mind, it is not necessary that the

testator be in full possession of all his reasoning faculties, or that
his mind be wholly unbroken, unimpaired, or unshattered by
disease, injury or other cause.
It shall be sufficient if the testator was able at the time of
making the will to know the nature of the estate to be disposed
of, the proper objects of his bounty, and the character of the
testamentary act.

The testimony of subscribing witnesses to a will

concerning the testator’s mental condition is entitled to great
weight where they are truthful and intelligent. More importantly,
a testator is presumed to be of sound mind at the time of the
execution of the will and the burden to prove otherwise lies on
the oppositor. Article 800 of the New Civil Code states:

Art. 800. The law presumes that every person is of sound mind,
in the absence of proof to the contrary.

The burden of proof that the testator was not of sound mind at
the time of making his disposition is on the person who opposes
the probate of the will; but if the testator, one month, or less,
before making his will was publicly known to be insane, the
person who maintains the validity of the will must prove that the
testator made it during a lucid interval.

The burden of proof to show that the testator was of

unsound mind at the time of the execution of the will lies in the
oppositors. In this case, they failed to discharge such burden,
hence, the admission of the will to probate is correct. (Baltazar,
et al. v. Laxa, G.R. No. 174489, April 11, 2012, Del Castillo, J).

OBLIGATIONS & CONTRACTS

RESCISSION

Rescission is the remedy for reparation of the damage done.

Q – After the death of their predecessor-in-interest, the heirs

became the co-owners of several parcels of land. Some of them
took possession of the properties hence, there was a complaint
for partition filed by one of the heirs as the other refused to
partition the properties. While the action was pending, one of
them donated a property belonging to the co-ownership to one of
her nephews, without approval of the court, hence, after learning
that there was a Donation Inter Vivos, they filed a Supplemental
Pleading praying that the donation be rescinded in accordance
with Article 1381(4) of the Civil Code. The donee opposed the
Supplemental Pleading contending that rescission under Article
1384(1), NCC applies only when there is already a prior judicial
decree on who between the contending parties actually owned
the properties under litigation. The RTC ordered the rescission
of the deed of donation as it was done without the knowledge
and approval of the other parties or plaintiffs or the Court. On
appeal, the CA reversed the judgment on the ground that before
an action for rescission may be filed there must first be a judicial
determination that the same actually belonged to the estate of the
donor. Hence, the petition raising such issue. Decide.

Answer: Rescission is a remedy granted by law to the

contracting parties and even to third persons, to secure the
reparation of damages caused to them by a contract, even if it
should be valid, by means of the restoration of things to their
condition at the moment prior to the celebration of said contract.
It is a remedy to make ineffective a contract, validly entered into
and therefore obligatory under normal conditions, by reason of
external causes resulting in a pecuniary prejudice to one of the
contracting parties or their creditors. Contracts which are
rescissible are valid contracts having all the essential requisites
of a contract, but by reason of injury or damage caused to either
of the parties therein or to third persons are considered defective
and, thus, may be rescinded.

The kinds of rescissible contracts, according to the reason for

their susceptibility to rescission, are the following: first, those
which are rescissible because of lesion or prejudice; (Art.
1381(1) & (2), NCC) second, those which are rescissible on
account of fraud or bad faith; (Arts. 1381 (3) & (4) & 1382,
NCC) and third, those which, by special provisions of law,
(Civil Code of the Philippines, Articles 1189, 1191, 1526, 1534,
1538, 1539, 1542, 1556, 1560, 1567 and 1659) are susceptible to
rescission.

Contracts which refer to things subject of litigation is rescissible

pursuant to Article 1381(4) of the Civil Code.

Contracts which are rescissible due to fraud or bad faith include

those which involve things under litigation, if they have been
entered into by the defendant without the knowledge and
approval of the litigants or of competent judicial authority. Thus,
Article 1381(4) of the Civil Code provides:

Art. 1381. The following contracts are rescissible: x x x x (4)

Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and
approval of the litigants or of competent judicial authority. The
rescission of a contract under Article 1381(4) of the Civil Code
only requires the concurrence of the following: first, the
defendant, during the pendency of the case, enters into a contract
which refers to the thing subject of litigation; and second, the
said contract was entered into without the knowledge and
approval of the litigants or of a competent judicial authority. As
long as the foregoing requisites concur, it becomes the duty of
the court to order the rescission of the said contract.

The reason for this is simple. Article 1381(4) seeks to remedy

the presence of bad faith among the parties to a case and/or any
fraudulent act which they may commit with respect to the thing
subject of litigation.

When a thing is the subject of a judicial controversy, it should

ultimately be bound by whatever disposition the court shall
render. The parties to the case are therefore expected, in
deference to the court’s exercise of jurisdiction over the case, to
refrain from doing acts which would dissipate or debase the
thing subject of the litigation or otherwise render the impending
decision therein ineffectual.

There is, then, a restriction on the disposition by the parties of

the thing that is the subject of the litigation. Article 1381(4) of
the Civil Code requires that any contract entered into by a
defendant in a case which refers to things under litigation should
be with the knowledge and approval of the litigants or of a
competent judicial authority.

Further, any disposition of the thing subject of litigation or any

act which tends to render inutile the court’s impending
disposition in such case, sans the knowledge and approval of the
litigants or of the court, is unmistakably and irrefutably
indicative of bad faith. Such acts undermine the authority of the
court to lay down the respective rights of the parties in a case
relative to the thing subject of litigation and bind them to such
determination.

The defendant in such a case is not absolutely proscribed from

entering into a contract which refer to things under litigation. If,
for instance, a defendant enters into a contract which conveys
the thing under litigation during the pendency of the case, the
conveyance would be valid, there being no definite disposition
yet coming from the court with respect to the thing subject of
litigation. After all, notwithstanding that the subject thereof is a
thing under litigation, such conveyance is but merely an exercise
of ownership.

This is true even if the defendant effected the conveyance

without the knowledge and approval of the litigants or of a
competent judicial authority. The absence of such knowledge or
approval would not precipitate the invalidity of an otherwise
valid contract. Nevertheless, such contract, though considered
valid, may be rescinded at the instance of the other litigants
pursuant to Article 1381(4) of the Civil Code.

Although the gratuitous conveyance of the said parcels of land

was valid, the donation inter vivos of the same being merely an
exercise of ownership, the seller’s failure to inform and seek the
approval of the petitioners or the RTC regarding the conveyance
gave the petitioners the right to have the said donation rescinded
pursuant to Article 1381(4) of the Civil Code.

Rescission under Article 1381(4) of the Civil Code is not

preconditioned upon the judicial determination as to the
ownership of the thing subject of litigation.

The assertion that rescission may only be had after the RTC had
finally determined that the parcels of land belonged to the estate
of Spouses Baylon does not intrinsically amiss. The petitioners’
right to institute the action for rescission pursuant to Article
1381(4) of the Civil Code is not preconditioned upon the RTC’s
determination as to the ownership of the said parcels of land.

The right to ask for the rescission of a contract under Article

1381(4) of the Civil Code is not contingent upon the final
determination of the ownership of the thing subject of litigation.
The primordial purpose of Article 1381(4) of the Civil Code is
to secure the possible effectivity of the impending judgment by a
court with respect to the thing subject of litigation. It seeks to
protect the binding effect of a court’s impending adjudication
vis-à-vis the thing subject of litigation regardless of which
among the contending claims therein would subsequently be
upheld. Accordingly, a definitive judicial determination with
respect to the thing subject of litigation is not a condition sine
qua non before the rescissory action contemplated under Article
1381(4) of the Civil Code may be instituted.
Moreover, conceding that the right to bring the rescissory action
pursuant to Article 1381(4) of the Civil Code is preconditioned
upon a judicial determination with regard to the thing subject
litigation, this would only bring about the very predicament that
the said provision of law seeks to obviate. Assuming arguendo
that a rescissory action under Article 1381(4) of the Civil Code
could only be instituted after the dispute with respect to the
thing subject of litigation is judicially determined, there is the
possibility that the same may had already been conveyed to third
persons acting in good faith, rendering any judicial
determination with regard to the thing subject of litigation
illusory. Surely, this paradoxical eventuality is not what the law
had envisioned. (Lilia Ada, et al. v. Florante Baylon, G.R. No.
182435, August 13, 2012, Reyes, J).

Effect of rescission

In cases involving rescission under the said provision, mutual

restitution is required. (Uniland Resources Dev. Corp. v.
Dragon, G.R. No. 149338, July 28, 2008, 560 SCRA 63). The
parties should be brought back to their original position prior to
the inception of the contract. (Uniland Resources Dev. Corp. v.
Dragon, G.R. No. 149338, July 28, 2008, 560 SCRA 63).
“Accordingly, when a decree of rescission is handed down, it is
the duty of the court to require both parties to surrender that
which they have respectively received and to place each other as
far as practicable in [their] original situation.” Pursuant to this,
Goldloop should return to GSIS the possession and control of
the property subject of their agreements while GSIS should
reimburse Goldloop whatever amount it had received from the
latter by reason of the MOA and the Addendum.

As discussed, both parties failed to comply with their respective

obligations under their agreements. Hence, relevant is the
provision of Article 1192 of the Civil Code which reads:

Art. 1192. In case both parties have committed a breach of the

obligation, the liability of the first infractor shall be equitably
tempered by the courts. If it cannot be determined which of the
parties first violated the contract, the same shall be deemed
extinguished, and each shall bear his own damages. (Goldloop
Properties, Inc. v. GSIS, G.R. No. 171076, August 1, 2012, Del
Castillo, J).

OBLIGATIONS AND CONTRACTS

Novation; there must be express declaration of extinguishment
or the two (2) contracts must be incompatible.

Q – In a suit for sum of money, with prayer for attachment, a

counter-bond was issued in consideration of the discharge of the
attachment. A compromise was entered into by the parties
without including the bonding company, but when the
defendants failed to comply there was a motion to order the
bonding company to pay according to the counter-bond. The
company contended that when the parties submitted a
compromise agreement without including it, there was novation
of the contract, hence, it is no longer, liable. Is the contention
correct? Why?

Answer: No, because the counter-bond provides that it shall pay

any judgment that may be secured by the plaintiff against the
defendants. In order for novation to extinguish an obligation,
there must be a showing that there is incompatibility between
the terms of the compromise agreement and the terms of the
counter-bond. Under Article 1292, NCC, in order that an
obligation may be extinguished by another which substitutes the
same, it is imperative that it be so declared in unequivocal terms,
or that the old and the new obligations be on every point
incompatible with each other.

Nothing in the compromise agreement indicates, or even hints

at, releasing the bonding company from its obligation to pay the
plaintiff after the latter has obtained a favorable judgment.
Clearly, there is no incompatibility between the compromise
agreement and the counter-bond. Neither can novation be
presumed. In Duñgo v. Lopena, 116 Phil 1305 (1962), it was
said that novation by presumption has never been favored. To be
sustained, it need be established that the old and new contracts
are incompatible in all points, or that the will to novate appears
by express agreement of the parties or in acts of similar import.

All things considered, the bonding company, as surety

under the terms of the counter-bond it issued, should be held
liable for the payment of the unpaid balance due to the judgment
creditor. (United Pulp & Paper Co., Inc. v. Acropolis Central
Guaranty Corp., G.R. No. 171750, January 25, 2012, Mendoza,
J).

A surety on a counter-bond given to secure the payment of a

judgment becomes liable for the payment of the amount due
upon: (1) demand made upon the surety; and (2) notice and
summary hearing on the same action. (Sec. 17, Rule 57, Rules of
Court).

It has been consistently held that the filing of a complaint

constitutes a judicial demand. Accordingly, the filing by UPPC
of the Motion to Order Surety to Pay Amount of Counter-Bond
was already a demand upon Acropolis, as surety, for the
payment of the amount due, pursuant to the terms of the bond.
In said bond, Acropolis bound itself in the sum of
₱42,844,353.14 to secure the payment of any judgment that
UPPC might recover against Unibox and Ortega.

The motion was filed and was set for hearing and the bonding
company was duly notified of the hearing hence, it was given
the opportunity to be heard. (United Pulp & Paper Co., Inc. v.
Acropolis Central Guaranty Corp., G.R. No. 171750, January
25, 2012, Mendoza, J).

FORMS OF CONTRACTS

Requirement under Art. 1358, NCC on form of contracts is only

for purposes of convenience.

Article 1358, NCC provides that acts and contracts which

have for their object the transmission of real rights over
immovable property or the sale of real property must appear in a
public document. If the law requires a document or other special
form, the contracting parties may compel each other to observe
that form once the contract has been perfected.

In Fule v. CA, G.R. No. 112212, March 2, 1998, it was

held that the requirement under Art. 1358, NCC is only for
convenience and registration of the instrument only adversely
affects third persons. Formal requirements are therefore, for the
benefit of third parties. (Art. 1357, NCC). Non-compliance
therewith does not adversely affect the validity of the contract
nor the contractual rights and obligations of the parties. (Zamora
v. Miranda, G.R. No. 162930, December 5, 2012, Peralta, J).

Rule: Receipt of payment partakes of the nature of evidence of

perfection of a contract. But if it is a forged document, hence,
void, there is no contract to speak of.
NOVATION

The principle of novation cannot be applied in a criminal case.

Q – There was a sale of a real property for P2M but it was found
out that instead of registering the same under the name of the
vendee, it was registered under another’s name. The vendee
demanded for the return of the P2M where the seller issued two
(2) checks which were dishonored when presented for payment.
Two (2) Estafa thru Falsification of Public Documents cases
were filed but before they could be filed in court, the respondent
issued another two (2) checks where she contended that there
was novation of her obligation when she issued those checks. Is
the contention correct? Why?

Answer: No. The principles of novation cannot apply to

extinguish criminal liability. Milla cites People v. Nery to
support his contention that his issuance of the checks prior to the
filing of the criminal complaint averted his incipient criminal
liability. However, it must be clarified that mere payment of an
obligation before the institution of a criminal complaint does
not, on its own, constitute novation that may prevent criminal
liability. The Court’s ruling in Nery in fact warned:

It may be observed in this regard that novation is not one of the

means recognized by the Penal Code whereby criminal liability
can be extinguished; hence, the role of novation may only be to
either prevent the rise of criminal liability or to cast doubt on the
true nature of the original petition, whether or not it was such
that its breach would not give rise to penal responsibility, as
when money loaned is made to appear as a deposit, or other
similar disguise is resorted to (Abeto vs. People, 90 Phil. 581;
Villareal, 27 Phil. 481).

Even in Civil Law the acceptance of partial payments, without

further change in the original relation between the complainant
and the accused, cannot produce novation. For the latter to exist,
there must be proof of intent to extinguish the original
relationship, and such intent cannot be inferred from the mere
acceptance of payments on account of what is totally due. Much
less can it be said that the acceptance of partial satisfaction can
effect the nullification of a criminal liability that is fully
matured, and already in the process of enforcement. Thus, this
Court has ruled that the offended party’s acceptance of a
promissory note for all or part of the amount misapplied does
not obliterate the criminal offense (Camus vs. Court of Appeals,
48 Off. Gaz. 3898).

Further, in Quinto v. People, the Court exhaustively

explained the concept of novation in relation to incipient
criminal liability, viz:

Novation is never presumed, and the animus novandi, whether

totally or partially, must appear by express agreement of the
parties, or by their acts that are too clear and unequivocal to be
mistaken.

The extinguishment of the old obligation by the new one is a

necessary element of novation which may be effected either
expressly or impliedly. The term “expressly” means that the
contracting parties incontrovertibly disclose that their object in
executing the new contract is to extinguish the old one. Upon the
other hand, no specific form is required for an implied novation,
and all that is prescribed by law would be an incompatibility
between the two contracts. While there is really no hard and fast
rule to determine what might constitute to be a sufficient change
that can bring about novation, the touchstone for contrariety,
however, would be an irreconcilable incompatibility between the
old and the new obligations.

There are two ways which could indicate, in fine, the presence
of novation and thereby produce the effect of extinguishing an
obligation by another which substitutes the same. The first is
when novation has been explicitly stated and declared in
unequivocal terms. The second is when the old and the new
obligations are incompatible on every point. The test of
incompatibility is whether or not the two obligations can stand
together, each one having its independent existence. If they
cannot, they are incompatible and the latter obligation novates
the first. Corollarily, changes that breed incompatibility must be
essential in nature and not merely accidental. The
incompatibility must take place in any of the essential elements
of the obligation, such as its object, cause or principal conditions
thereof; otherwise, the change would be merely modificatory in
nature and insufficient to extinguish the original obligation.

The changes alluded to by petitioner consists only in the manner

of payment. There was really no substitution of debtors since
private complainant merely acquiesced to the payment but did
not give her consent to enter into a new contract. The appellate
court observed:

xxx xxx xxx

The acceptance by complainant of partial payment tendered by
the buyer, Leonor Camacho, does not evince the intention of the
complainant to have their agreement novated. It was simply
necessitated by the fact that, at that time, Camacho had
substantial accounts payable to complainant, and because of the
fact that appellant made herself scarce to complainant. (TSN,
April 15, 1981, 31-32) Thus, to obviate the situation where
complainant would end up with nothing, she was forced to
receive the tender of Camacho. Moreover, it is to be noted that
the aforesaid payment was for the purchase, not of the jewelry
subject of this case, but of some other jewelry subject of a
previous transaction. (Ibid. June 8, 1981, 10-11)

xxx xxx xxx

Art. 315 of the Revised Penal Code defines estafa and penalizes
any person who shall defraud another by “misappropriating or
converting, to the prejudice of another, money, goods, or any
other personal property received by the offender in trust or on
commission, or for administration, or under any other obligation
involving the duty to make delivery of or to return the same,
even though such obligation be totally or partially guaranteed by
a bond; or by denying having received such money, goods, or
other property. It is axiomatic that the gravamen of the offense is
the appropriation or conversion of money or property received
to the prejudice of the owner. The terms “convert” and
“misappropriate” have been held to connote “an act of using or
disposing of another’s property as if it were one’s own or
devoting it to a purpose or use different from that agreed upon.”
The phrase, “to misappropriate to one’s own use” has been said
to include “not only conversion to one’s personal advantage, but
also every attempt to dispose of the property of another without
right. Verily, the sale of the pieces of jewelry on installments
(sic) in contravention of the explicit terms of the authority
granted to her in Exhibit “A” (supra) is deemed to be one of
conversion. Thus, neither the theory of “delay in the fulfillment
of commission” nor that of novation posed by petitioner, can
avoid the incipient criminal liability. In People vs. Nery, this
Court held:

xxx xxx xxx

The criminal liability for estafa already committed is then not
affected by the subsequent novation of contract, for it is a public
offense which must be prosecuted and punished by the State in
its own conation.

In the case at bar, the acceptance by MPI of the Equitable

PCI checks tendered by Milla could not have novated the
original transaction, as the checks were only intended to secure
the return of the P2 million the former had already given him.
Even then, these checks bounced and were thus unable to satisfy
his liability. Moreover, the estafa involved here was not for
simple misappropriation or conversion, but was committed
through Milla’s falsification of public documents, the liability
for which cannot be extinguished by mere novation. (Milla v.
People, et al., G.R. No. 188726, January 25, 2012, Sereno, J).

Respondent’s obligation consists of payment of a sum of money.

In order to extinguish said obligation, payment should be made
to the proper person as set forth in Article 1240 of the Civil
Code, to wit:

Article 1240. Payment shall be made to the person in whose

favor the obligation has been constituted, or his successor in
interest, or any person authorized to receive it.

The Court explained in Cambroon v. City of Butuan, cited in

Republic v. De Guzman, to whom payment should be made in
order to extinguish an obligation:

Payment made by the debtor to the person of the creditor or to

one authorized by him or by the law to receive it extinguishes
the obligation. When payment is made to the wrong party,
however, the obligation is not extinguished as to the creditor
who is without fault or negligence even if the debtor acted in
utmost good faith and by mistake as to the person of the creditor
or through error induced by fraud of a third person.

In general, a payment in order to be effective to discharge an

obligation, must be made to the proper person. Thus, payment
must be made to the obligee himself or to an agent having
authority, express or implied, to receive the particular payment.
Payment made to one having apparent authority to receive the
money will, as a rule, be treated as though actual authority had
been given for its receipt. Likewise, if payment is made to one
who by law is authorized to act for the creditor, it will work a
discharge. The receipt of money due on a judgment by an officer
authorized by law to accept it will, therefore, satisfy the debt.
Admittedly, payment of the remaining balance of P200,000.00
was not made to the creditors themselves. Rather, it was
allegedly made to a certain Losloso. Respondent claims that
Losloso was the authorized agent of petitioners, but the latter
dispute it.

Losloso’s authority to receive payment was embodied in

petitioners’ letter39 addressed to respondent, dated August 7,
1997, where they informed respondent of the amounts they
advanced for the payment of the 1997 real estate taxes. In said
letter, petitioners reminded respondent of her remaining balance,
together with the amount of taxes paid. Taking into
consideration the busy schedule of respondent, petitioners
advised the latter to leave the payment to a certain “Dori” who
admittedly is Losloso, or to her trusted helper. This is an express
authority given to Losloso to receive payment. Moreover, as
correctly held by the CA:

Furthermore, that Adoracion Losloso was indeed an agent of the

appellant spouses is borne out by the following admissions of
plaintiff-appellant Atty. Miniano dela Cruz, to wit:

Q: You would agree with me that you have authorized this

Doiry Losloso to receive payment of whatever balance is due
you coming from Ana Marie Concepcion, that is correct?

A: In one or two times but not total authority, sir.

Q: Yes, but you have authorized her to receive payment?

A: One or two times, yes x x x. (TSN, June 28, 1999, pp.16-

17)40

Thus, as shown in the receipt signed by petitioners’ agent and

pursuant to the authority granted by petitioners to Losloso,
payment made to the latter is deemed payment to petitioners.
We find no reason to depart from the RTC 38 Cembrano v. City
of Butuan, supra note 36, at 511-512; at 790-791. And the CA
conclusion that payment had already been made and that it
extinguished respondent's obligations. (Sps. Dela Cruz v. Ana
Marie Concepcion, G.R. No. 172825, October 11, 2012, Peralta,
J).

For novation to extinguish another it must be so declared in an

unequivocal temrs; or there must be incompatability in every
point.

Q – In a case there was a contract for the construction of a

building. There was a surety undertaking executed by a third
person to ensure the compliance with the terms of the contract.
The parties however entered into a MOA revising the work
schedule originally agreed upon because of the various
subcontracting agreement made by the contractor. The MOA
provided that all other terms and conditions of the original
building contract not inconsistent with the MOA shall remain in
full force and effect. The surety contended that it was relieved of
its undertaking due to the new MOA. Is the contention correct?
Why?

Answer: No, because there was no new contract that

extinguished the old one. There is nothing in the MOA that
expressly extinguished the old obligation of the surety. In fact, it
provides that all the terms and conditions of the old contract
shall be in full force and effect.

Furthermore, in order that the obligation may be

extinguished by another which substitutes the same, it is
imperative that it be so declared in unequivocal terms, or that the
old and new obligation be in every point incompatible with each
other. (Art. 1293, NCC). Novation of a contract is never
presumed. In the absence of an express agreement, novation
takes place only when the old and the new obligations are
incompatible on every point. (Security Bank & Trust Co., Inc. v.
Cuenca, 396 Phil. 108 (2000)).

Undoubtedly, a surety is released from its obligation

when there is a material alteration of the principal contract in
connection with which the bond is given, such as a change
which imposes a new obligation on the promising party, or
which takes away some obligation already imposed, or one
which changes the legal effect of the original contract and not
merely its form. (Stronghold Ins. Co., Inc. v. Tokyu
Construction Co., Ltd., G.R. No. 158820-21, June 5, 1990, 588
SCRA 410; Phil. Charter Ins. Corp. v. Petroleum Distributors &
Services Corp., G.R. No. 180898, April 18, 2012, Mendoza, J).

CONTRACTS

Perfection; elements of contracts; affixing of signature on a

letter is considered as express conformity.

Q – What is the effect if a party to a contract of sale affixes his

signature on a letter proposing the same? Explain.

Answer: There is express conformity to the terms and conditions

of the contract by the act of affixing his signature on the letter.
There was a meeting of the minds as to the object and
consideration of the contract.

Three elements are needed to create a perfected contract:

(1) the consent of the contracting parties; (2) an object certain
which is the subject matter of the contract; and (3) the cause of
the obligation which is established. Under the law on sales, a
contract of sale is perfected when the seller, obligates himself,
for a price certain, to deliver and to transfer ownership of a thing
or right to the buyer, over which the latter agrees. From that
moment, the parties may demand reciprocal performance.
(Starbright Sales Ent. Inc. v. Phil. Realty Corporation, G.R. No.
177936, January 16, 2012, Abad, J).

Provision in contract of lease granting the lessee exclusive right

to renew; valid; principle of mutuality of contracts.

Q – The parties entered into a lease contract over a parcel of

land granting unto the lessee the exclusive option to renew the
contract subject to the condition that it should comply with a 60-
day notice of the intention to exercise the option to renew the
contract which the lessee did. The lessor refused to renew the
contract, hence, a complaint to compel the lessor to renew it was
filed. The lessor argued that the renewal of the contract cannot
be made to depend upon the sole will of the lessee, otherwise,
the same would be void for being a potestative condition. Will
the action prosper? Why?

Answer: Yes, because of the principle of mutuality of contracts.

In Allied Banking Corporation v. Court of Appeals, 348 Phil.

382 (1998), it was ruled that Article 1308 of the Civil Code
expresses what is known in law as the principle of mutuality of
contracts. It provides that "the contract must bind both the
contracting parties; its validity or compliance cannot be left to
the will of one of them." This binding effect of a contract on
both parties is based on the principle that the obligations arising
from contracts have the force of law between the contracting
parties, and there must be mutuality between them based
essentially on their equality under which it is repugnant to have
one party bound by the contract while leaving the other free
therefrom. The ultimate purpose is to render void a contract
containing a condition which makes its fulfillment dependent
solely upon the uncontrolled will of one of the contracting
parties.

An express agreement which gives the lessee the sole option to

renew the lease is frequent and subject to statutory restrictions,
valid and binding on the parties. This option, which is provided
in the same lease agreement, is fundamentally part of the
consideration in the contract and is no different from any other
provision of the lease carrying an undertaking on the part of the
lessor to act conditioned on the performance by the lessee. It is
a purely executory contract and at most confers a right to obtain
a renewal if there is compliance with the conditions on which
the right is made to depend. The right of renewal constitutes a
part of the lessee's interest in the land and forms a substantial
and integral part of the agreement.

The fact that such option is binding only on the lessor and can
be exercised only by the lessee does not render it void for lack
of mutuality. After all, the lessor is free to give or not to give
the option to the lessee. And while the lessee has a right to elect
whether to continue with the lease or not, once he exercises his
option to continue and the lessor accepts, both parties are
thereafter bound by the new lease agreement. Their rights and
obligations become mutually fixed, and the lessee is entitled to
retain possession of the property for the duration of the new
lease, and the lessor may hold him liable for the rent therefor.
The lessee cannot thereafter escape liability even if he should
subsequently decide to abandon the premises. Mutuality obtains
in such a contract and equality exists between the lessor and the
lessee since they remain with the same faculties in respect to
fulfillment. (MIAA v. Ding Velayo Sports Center, Inc., G.R.
No. 161718, December 14, 2011).

Q – It was contended that the terms of the lease contract merely

provided for a procedural basis for a negotiation for renewal of
the lease and the terms thereof. It contended that there must be
renegotiation of the terms thereof. Is the contention correct?
Why?

Answer: No, otherwise, it would violate the principle of

mutuality of contracts. As said in Allied Banking v. CA, that if
we were to adopt the contrary theory that the terms and
conditions to be embodied in the renewed contract were still
subject to mutual agreement by and between the parties, then the
option - which is an integral part of the consideration for the
contract - would be rendered worthless. For then, the lessor
could easily defeat the lessee's right of renewal by simply
imposing unreasonable and onerous conditions to prevent the
parties from reaching an agreement, as in the case at bar. As in
a statute, no word, clause, sentence, provision or part of a
contract shall be considered surplusage or superfluous,
meaningless, void, insignificant or nugatory, if that can be
reasonably avoided. To this end, a construction which will
render every word operative is to be preferred over that which
would make some words idle and nugatory. (MIAA v. Ding
Velayo Sports Center, Inc., G.R. No. 161718, December 14,
2011).

Q – State the effect if the lessee exercises the option to renew

the contract but there are no new terms and conditions of the
new lease contract. Explain.

Answer: In case the lessee chooses to renew the lease but there
are no specified terms and conditions for the new contract of
lease, the same terms and conditions as the original contract of
lease shall continue to govern, as the following survey of cases
in Allied Banking would show:

In Ledesma v. Javellana this Court was confronted with a

similar problem. In that case the lessee was given the sole
option to renew the lease, but the contract failed to specify the
terms and conditions that would govern the new contract. When
the lease expired, the lessee demanded an extension under the
same terms and conditions. The lessor expressed conformity to
the renewal of the contract but refused to accede to the claim of
the lessee that the renewal should be under the same terms and
conditions as the original contract. In sustaining the lessee, this
Court made the following pronouncement:

x x x [i]n the case of Hicks v. Manila Hotel Company, a similar

issue was resolved by this Court. It was held that 'such a clause
relates to the very contract in which it is placed, and does not
permit the defendant upon the renewal of the contract in which
the clause is found, to insist upon different terms than those
embraced in the contract to be renewed'; and that 'a stipulation to
renew always relates to the contract in which it is found and the
rights granted thereunder, unless it expressly provides for
variations in the terms of the contract to be renewed.'

The same principle is upheld in American Law regarding the

renewal of lease contracts. In 50 Am. Jur. 2d, Sec. 1159, at p.
45, where it was said: 'The rule is well-established that a
general covenant to renew or extend a lease which makes no
provision as to the terms of a renewal or extension implies a
renewal or extension upon the same terms as provided in the
original lease.'

In the lease contract under consideration, there is no provision to

indicate that the renewal will be subject to new terms and
conditions that the parties may yet agree upon. It is to renewal
provisions of lease contracts of the kind presently considered
that the principles stated above squarely apply. We do not agree
with the contention of the appellants that if it was intended by
the parties to renew the contract under the same terms and
conditions stipulated in the contract of lease, such should have
expressly so stated in the contract itself. The same argument
could easily be interposed by the appellee who could likewise
contend that if the intention was to renew the contract of lease
under such new terms and conditions that the parties may agree
upon, the contract should have so specified. Between the two
assertions, there is more logic in the latter.

The settled rule is that in case of uncertainty as to the meaning

of a provision granting extension to a contract of lease, the
tenant is the one favored and not the landlord. 'As a general
rule, in construing provisions relating to renewals or
extensions, where there is any uncertainty, the tenant is favored,
and not the landlord, because the latter, having the power of
stipulating in his own favor, has neglected to do so; and also
upon the principle that every man's grant is to be taken most
strongly against himself (50 Am Jur. 2d, Sec. 1162, p. 48; see
also 51 C.J.S. 599).'

In sum, the renewed contract of lease of the subject

property between petitioner and respondent shall be based on the
same terms and conditions as the original contract of lease.
(MIAA v. Ding Velayo Sports Center, Inc., supra.).

SALES
Q – What is the effect if the price in a foreclosure sale is
inadequate? Explain.

Answer: The sale is valid. Unlike in an ordinary sale,

inadequacy of the price at a forced sale is immaterial and does
not nullify a sale since, in a forced sale, a low price is more
beneficial to the mortgage debtor for it makes redemption of the
property easier. (New Sampaguita Builders Construction, Inc. v.
PNB, 479 Phil. 453 (2004)).

In the case of The National Loan and Investment Board v.

Meneses, 67 Phil. 498 (1939), the SC had the occasion to say
that:

As to the inadequacy of the price of the sale, this court has

repeatedly held that the fact that a property is sold at public
auction for a price lower than its alleged value, is not of itself
sufficient to annul said sale, where there has been strict
compliance with all the requisites marked out by law to obtain
the highest possible price, and where there is no showing that a
better price is obtainable. (Government of the Philippines vs. De
Asis, G. R. No. 45483, April 12, 1939; Guerrero vs. Guerrero,
57 Phil., 442; La Urbana vs. Belando, 54 Phil., 930; Bank of the
Philippine Islands v . Green, 52 Phil., 491; Hulst v. PR Builders,
Inc., G.R. No. 156364, September 3, 2007, 532 SCRA 747;
Bank of PI v. Reyes, G.R. No. 182769, February 1, 2012).

Note:

In Cometa v. Court of Appeals, and in Rosales v. Court of

Appeals, 405 Phil. 638 (2001), the SC declared that a sale price
which is equivalent to more or less twelve percent (12%) of the
value of the property is shockingly low, unconscionable and
grossly inadequate, thus, warranting a nullification of the
foreclosure sale. In both cases, it was declared that where the
inadequacy of the price is purely shocking to the conscience,
such that the mind revolts at it and such that a reasonable man
would neither directly nor indirectly be likely to consent to it,
the sale shall be declared null and void. On the other hand, in
Cortes v. Intermediate Appellate Court, 256 Phil. 979 (1998)
and in Ponce De Leon v. Rehabilitation Finance Corporation,
146 Phil. 862 (1970), the SC upheld the validity of foreclosure
sales in which the property subject thereof were sold at 11% and
17%, respectively, of their value. (BPI v. Reyes, G.R. No.
182769, February 1, 2012).
CONTRACT TO SELL

Maceda Law; actual cancellation of contract is after lapse of 30

days from receipt of notarized notice of cancellation and refund
of the cash surrender value.

Q – There was a contract to sell over a subdivision property.

Later on, the buyer demolished the house and constructed
another one. There was failure of the buyer to pay the
amortizations, hence, the seller sent a notarized notice of
delinquency and cancellation of the contract. Then, it filed a
complaint for ejectment, but it was dismissed due to the finding
that the title was already transferred to the buyer. Later on, it
filed a complaint for Cancellation of Title & Reconveyance with
Damages. The trial court declared the tile cancelled but ordered
the refund of the total monthly installments and the value of the
house less the cost of the original house. Is the ruling ordering
the refund of the total amount of installments correct? Why?

Answer: No. It should be only to the extent of 50%. Under the

Maceda Law, the actual cancellation of a contract to sell takes
place after 30 days from receipt by the buyer of the notarized
notice of cancellation, and upon full payment of the cash
surrender value to the buyer. In other words, before a contract to
sell can be validly and effectively cancelled, the seller has (1) to
send a notarized notice of cancellation to the buyer and (2) to
refund the cash surrender value. Until and unless the seller
complies with these twin mandatory requirements, the contract
to sell between the parties remains valid and subsisting. Thus,
the buyer has the right to continue occupying the property
subject of the contract to sell, and may “still reinstate the
contract by updating the account during the grace period and
before the actual cancellation” of the contract.

In this case, the seller complied only with the first condition by
sending a notarized notice of cancellation to the buyers. It failed,
however, to refund the cash surrender value to them. Thus, the
Contract to Sell remains valid and subsisting and supposedly,
the buyers have the right to continue occupying the subject
property.

Since the buyers paid at least two years of installment, they are
entitled to receive the cash surrender value of the payments they
had made which, under Section 3(b) of the Maceda Law, is
equivalent to 50% of the total payments made. (Communities
Cagayan, Inc. v. Sps. Nanol, et al., G.R. No. 176791, November
14, 2012).

Respondent-spouses are entitled to reimbursement of the

improvements made on the property.

Q – Petitioner posited that Article 448 of the Civil Code does

not apply and that the buyers are not entitled to reimbursement
of the value of the improvements made on the property because
they were builders in bad faith. The contention is based on the
fact that there was only a contract to sell, hence, the seller
retained the ownership, hence, the buyer is a builder in bad faith,
hence, the judgment ordering the seller to reimburse the value of
the house is not correct. It contended that Art. 448, NCC is not
applicable. Is the contention correct? Why?

Answer: No. As a general rule, Article 448 on builders in good

faith does not apply where there is a contractual relation
between the parties, such as a contract to sell. But for failure to
prove bad faith there is a presumption of good faith, thus Article
448, NCC applies.

Article 448 of the Civil Code applies when the builder believes
that he is the owner of the land or that by some title he has the
right to build thereon, (Rosales v. Castelfort, 509 Phil. 137
(2005)), or that, at least, he has a claim of title thereto.
Concededly, this is not present in the instant case. The subject
property is covered by a Contract to Sell hence ownership still
remains with the seller. Nevertheless, there were already
instances where the Court applied Article 448 even if the
builders do not have a claim of title over the property. Thus:

This Court has ruled that this provision covers only cases in
which the builders, sowers or planters believe themselves to be
owners of the land or, at least, to have a claim of title thereto. It
does not apply when the interest is merely that of a holder, such
as a mere tenant, agent or usufructuary. From these
pronouncements, good faith is identified by the belief that the
land is owned; or that – by some title – one has the right to
build, plant, or sow thereon.

However, in some special cases, the Court has used Article 448
by recognizing good faith beyond this limited definition. Thus,
in Del Campo v. Abesia, this provision was applied to one
whose house – despite having been built at the time he was still
co-owner – overlapped with the land of another. This article was
also applied to cases wherein a builder had constructed
improvements with the consent of the owner. The Court ruled
that the law deemed the builder to be in good faith. In Sarmiento
v. Agana, the builders were found to be in good faith despite
their reliance on the consent of another, whom they had
mistakenly believed to be the owner of the land. (Sps. Macasaet
v. Sps. Macasaet, 482 Phil. 853 (2004)).

The Court likewise applied Article 448 in Spouses Macasaet v.

Spouses Macasaet notwithstanding the fact that the builders
therein knew they were not the owners of the land. In said case,
the parents who owned the land allowed their son and his wife to
build their residence and business thereon. As found by the
Court, their occupation was not by mere tolerance but “upon the
invitation of and with the complete approval of (their parents),
who desired that their children would occupy the premises. It
arose from familial love and a desire for family solidarity x x x.”
Soon after, conflict between the parties arose. The parents
demanded their son and his wife to vacate the premises. The
Court thus ruled that as owners of the property, the parents have
the right to possession over it. However, they must reimburse
their son and his wife for the improvements they had introduced
on the property because they were considered builders in good
faith even if they knew for a fact that they did not own the
property, thus:

Based on the aforecited special cases, Article 448 applies to the

present factual milieu. The established facts of this case show
that respondents fully consented to the improvements introduced
by petitioners. In fact, because the children occupied the lots
upon their invitation, the parents certainly knew and approved of
the construction of the improvements introduced thereon. Thus,
petitioners may be deemed to have been in good faith when they
built the structures on those lots.

The instant case is factually similar to Javier v. Javier. In that

case, this Court deemed the son to be in good faith for building
the improvement (the house) with the knowledge and consent of
his father, to whom belonged the land upon which it was built.
Thus, Article 448 was applied.

In fine, the Court applied Article 448 by construing good faith

beyond its limited definition. Macasaet ruling applies in this
case. First, good faith is presumed on the part of the respondent-
spouses. Second, petitioner failed to rebut this presumption.
Third, no evidence was presented to show that petitioner
opposed or objected to the improvements introduced by the
respondent-spouses. Consequently, we can validly presume that
petitioner consented to the improvements being constructed.
This presumption is bolstered by the fact that as the subdivision
developer, petitioner must have given the respondent-spouses
permits to commence and undertake the construction. Under
Article 453 of the Civil Code, “it is understood that there is bad
faith on the part of the landowner whenever the act was done
with his knowledge and without opposition on his part.”
(Communities Cagayan, Inc. v. Sps. Nanol, et al., G.R. No.
176791, November 14, 2012).

Petitioner has two options under Article 448 and pursuant to the
ruling in Tuatis v. Escol.

The seller (the owner of the land) has two options under Article
448: (1) he may appropriate the improvements for himself after
reimbursing the buyer (the builder in good faith) the necessary
and useful expenses under Articles 54667 and 54868 of the Civil
Code; or (2) he may sell the land to the buyer, unless its value is
considerably more than that of the improvements, in which case,
the buyer shall pay reasonable rent. (Communities Cagayan, Inc.
v. Sps. Nanol, et al., G.R. No. 176791, November 14, 2012).

In the absence of vitiation of consent, sale is valid.

Q – The Roman Catholic Church sold a 32-square meter lot

located in Naga City to Regino Pante, and sold a bigger lot to
Spouses Nestor and Fidela Rubi which included the smaller lot.
When the Rubi spouses asserted ownership over the lot, and
constructed a fence over the lot blocking the Pante’s access from
their family home, a complaint was filed to annul the sale
between the Church and the Spouses Rubi insofar as the 32
square meter lot is concerned. The Church filed an answer with
a counterclaim seeking annulment of the sale to Pante on the
ground that its consent was obtained by fraud and in bad faith
since he misrepresented that he had been an actual occupant of
the lot sold to him when in fact, he was not. It contended that it
is the policy of the Church to sell only to actual occupants,
hence, the contract is voidable. The Rubi spouses were not
likewise residents of the lot sold to them. Rule on the
contention. Explain.
Answer. The contention is not correct. The actual occupancy or
residency of a buyer over the land does not appear to be a
necessary qualification that the Church requires before it could
sell its land. Had this been indeed its policy, then neither of the
parties would qualify as buyers of the 32-square meter lot, as
none of them actually occupied or resided on the lot.

Before the sale, there was a series of conferences with the

occupants of the lots. The buyer was not an occupant of the lot,
yet he was allowed to purchase and it was approved, hence,
there could have been no deliberate, willful or fraudulent act
committed.

In the absence of any vitiation of consent, the contract between

the Church and Pante stands valid and existing. Any delay by
Pante in paying the full price could not nullify the contract, since
(as correctly observed by the CA) it was a contract of sale. By
its terms, the contract did not provide a stipulation that the
Church retained ownership until full payment of the price. The
right to repurchase given to the Church in case Pante fails to pay
within the grace period provided would have been unnecessary
had ownership not already passed to Pante. (Roman Catholic
Church v. Pante, G.R. No. 174118, April 11, 2012, Brion, J).

Execution of public instrument of sale is equivalent to delivery;

exception.

Q – In a case, the lower court ordered the rescission of a contract

of sale for failure to deliver the title. It was argued on appeal that
the obligation to deliver the thing sold was complied with by the
seller when she executed the public instrument of sale in favor
of the buyer invoking Articles 1495 & 1498 & 1496, NCC.
Citing Chua v. CA, 449 Phil. 25 (2003), she claimed that there is
a distinction between transferring a certificate of title in the
buyer’s name, on one hand, and transferring ownership over the
property sold, on the other. The latter can be accomplished by
the seller’s execution of an instrument of sale in a public
document. The recording of the sale with the Registry of Deeds
and the transfer of the certificate of title in the buyer’s name are
necessary only to bind third parties to the transfer of ownership.
Furthermore, the property was in the possession of another
person. Is the contention correct? Why?

Answer: No, because of the continued possession of a third

person. When the sale of real property is made in a public
instrument, the execution thereof is equivalent to the delivery of
the thing object of the contract, if from the deed the contrary
does not appear or cannot clearly be inferred.

In other words, there is symbolic delivery of the property

subject of the sale by the execution of the public instrument,
unless from the express terms of the instrument, or by clear
inference therefrom, this was not the intention of the parties.
Such would be the case, for instance, x x x where the vendor has
no control over the thing sold at the moment of the sale, and,
therefore, its material delivery could not have been made. (Phil.
Suburban Dev. Corp. v. The Auditor General, 159 Phil. 998
(1975)).

Stated differently, as a general rule, the execution of a

public instrument amounts to a constructive delivery of the thing
subject of a contract of sale. However, exceptions exist, among
which is when mere presumptive and not conclusive delivery is
created in cases where the buyer fails to take material possession
of the subject of sale. A person who does not have actual
possession of the thing sold cannot transfer constructive
possession by the execution and delivery of a public instrument.
(Villamar v. Mangaoil, G.R. No. 188661, April 11, 2012, Reyes,
J).

Partial payment to seller to settle the mortgage implies ejectment

of mortgagee.

Q – In a contract of sale, one of the terms and conditions was

that, the partial payment shall be used to pay the mortgagees.
The contract did not expressly state that the seller shall eject the
mortgagor. But despite payment, the mortgagees were still in
possession. There was an action for rescission for failure to
deliver the title and possession of the property. The seller
contended that there was delivery when she executed the public
instrument of sale hence, rescission is not proper. She cited
Chua v. CA, 449 Phil. 25 (2003) as there was no express
provision to eject the occupants/mortgagee, citing also Power
Commercial & Industrial Corp. CA, 340 Phil. 705 (1997)). Is the
contention correct? Why?

Answer: No, because while the failure to eject the squatters from
the property cannot be made a ground for rescission if the
ejectment is not stipulated, the undertaking is necessarily
implied from the provision that the partial payment shall be used
to pay the mortgagee. Cessation of the subject property is
logically expected from the seller/mortgagor upon the payment
of the amount due.

The law obliges the seller to transfer the ownership of and to

deliver a determinate thing to the buyer, who shall in turn pay
therefor a price certain in money or its equivalent. (Art. 1458,
NCC). In addition thereto, Article 1495 of the NCC binds the
seller to warrant the thing which is the object of the sale. On the
other hand, Article 1498 of the same code provides that when
the sale is made through a public instrument, the execution
thereof shall be equivalent to the delivery of the thing which is
the object of the contract, if from the deed, the contrary does not
appear or cannot clearly be inferred.

In Chua v. Court of Appeals, it was ruled that “when the

deed of absolute sale is signed by the parties and notarized, then
delivery of the real property is deemed made by the seller to the
buyer.” The transfer of the certificate of title in the name of the
buyer is not necessary to confer ownership upon him. (Villamar
v. Mangaoil, G.R. No. 188661, April 11, 2012).

Written notice to prospective redemption is mandatory.

Q – The owner of a real property offered the sale to the

adjoining owners and one of them agreed to the sale to take
place after the harvest season. But he later sold the same to
another. The heirs of one of the adjoining owners learned about
the sale a day after it was sold and conveyed their intention to
redeem the property but the seller answered, saying that there
was already a contract of sale executed with the buyer and that
they never tendered the redemption amount. A complaint for
legal redemption was filed but it was opposed on the ground that
he complied with the requirement of notice under Article 1623,
NCC but they failed to exercise the right of redemption. There
was likewise no need to comply with the written notice
requirement since they already knew of the sale. Is the
contention correct? Why?

Answer: No, because of the lack of written notice to the

prospective redemption. (Art. 1623, NCC). Such written notice
is mandatory.

Without a written notice, the period of thirty days within which

the right of legal pre-emption may be exercised, does not start.

The indispensability of a written notice had long been discussed

in the early case of Conejero v. Court of Appeals, 123 Phil. 695
(1966) where the SC said that such notice is indispensable, and
that, in view of the terms in which Article of the Philippine Civil
Code is couched, mere knowledge of the sale, acquired in some
other manner by the redemptioner, does not satisfy the statute.
The written notice was obviously exacted by the Code to remove
all uncertainty as to the sale, its terms and its validity, and to
quiet any doubts that the alienation is not definitive. The statute
not having provided for any alternative, the method of
notification prescribed remains exclusive.

This is the same ruling in Verdad v. Court of Appeals, 326 Phil.

601 (1996), where the SC said that the written notice of sale is
mandatory. This Court has long established the rule that
notwithstanding actual knowledge of a co-owner, the latter is
still entitled to a written notice from the selling co-owner in
order to remove all uncertainties about the sale, its terms and
conditions, as well as its efficacy and status. (Barcellano v.
Banas, et al., G.R. No. 165287, September 14, 2011, Perez, J).

Lately, in Gosiengfiao Guillen v. the Court of Appeals, G.R. No.

159755, June 18, 2009, 589 SCRA 399, the Court again
emphasized the mandatory character of a written notice in legal
redemption and said:

“Petitioner-heirs have not lost their right to redeem, for in the

absence of a written notification of the sale by the vendors, the
30-day period has not even begun to run.” These premises and
conclusion leave no doubt about the thrust of Mariano: The right
of the petitioner-heirs to exercise their right of legal redemption
exists, and the running of the period for its exercise has not even
been triggered because they have not been notified in writing of
the fact of sale.

The petitioner argues that the only purpose behind Art. 1623 of
the New Civil Code is to ensure that the owner of the adjoining
land is actually notified of the intention of the owner to sell his
property. To advance their argument, they cited Destrito v.
Court of Appeals as cited in Alonzo v. Intermediate Appellate
Court, 234 Phil. 267 (1987) where it was pronounced that
written notice is no longer necessary in case of actual notice of
the sale of property.
The Alonzo case does not apply to this case. There, it was
pronounced that the disregard of the mandatory written rule was
an exception due to the peculiar circumstance of the case. In this
case, there was a complaint for redemption, hence, the co-heirs
were informed of such sale. Thus, the 30-day period started to
run and eventually expired.

The co-heirs in this case were undeniably informed of the sales

although no notice in writing was given them. And there is no
doubt either that the 30-day period began and ended during the
14 years between the sales in question and the filing of the
complaint for redemption in 1977, without the co-heirs
exercising their right of redemption. These are the justifications
for this exception.

The Court clarified that it did not abandon Conejero and Buttle.

Without the “peculiar circumstances” in the present case,

Alonzo cannot find application. The impossibility in Alonzo of
the parties’ not knowing about the sale of a portion of the
property they were actually occupying is not present in this case.
The strict letter of the law must apply. That a departure from
the strict letter should only be for extraordinary reasons is clear
from the second sentence of Art. 1623 that “The deed of sale
shall not be recorded in the Registry of Property, unless
accompanied by an affidavit of the vendor that he has given
written notice thereof to all possible redemptioners.”

ASSIGNMENT OF CREDIT

Q – There was a complaint for sum of money filed by the

Serfinos against the spouses Cortez. To settle the case, they
executed a compromise agreement and the latter bound
themselves “to pay in full the judgment debt out of her
retirement benefits.” But the retirement benefits were deposited
with the account of their daughter at FEBTC and subsequently
withdrawn. There was a complaint for damages impleading the
bank for allowing the withdrawal of the amount deposited.

The spouses Serfino’s claim for damages against FEBTC is

premised on their claim of ownership of the deposit with
FEBTC. The deposit consisted of Magdalena’s retirement
benefits, which the spouses Serfino claimed to have been
assigned to them under the compromise judgment. That the
retirement benefits were deposited in Grace’s savings account
with FEBTC supposedly did not divest them of ownership of the
amount, as “the money already belonged to the spouses Serfino
having been absolutely assigned to them and constructively
delivered by virtue of the public instrument.” By virtue of the
assignment of credit, the spouses Serfino claim ownership of the
deposit, and they posited that FEBTC was duty bound to protect
their right by preventing the withdrawal of the deposit since the
bank had been notified of the assignment and of their claim. Is
the contention correct? Why?

Answer: No, because there was no assignment of credit. “An

assignment of credit is an agreement by virtue of which the
owner of a credit, known as the assignor, by a legal cause, such
as sale, dation in payment, exchange or donation, and without
the consent of the debtor, transfers his credit and accessory
rights to another, known as the assignee, who acquires the power
to enforce it to the same extent as the assignor could enforce it
against the debtor. It may be in the form of sale, but at times it
may constitute a dation in payment, such as when a debtor, in
order to obtain a release from his debt, assigns to his creditor a
credit he has against a third person.” As a dation in payment, the
assignment of credit operates as a mode of extinguishing the
obligation; the delivery and transmission of ownership of a thing
(in this case, the credit due from a third person) by the debtor to
the creditor is accepted as the equivalent of the performance of
the obligation. (Aquintey v. Tibong, G.R. No. 166704,
December 20, 2006, 511 SCRA 414).

The terms of the compromise judgment, however, did not

convey an intent to equate the assignment of Magdalena’s
retirement benefits (the credit) as the equivalent of the payment
of the debt due the spouses Serfino (the obligation). There was
actually no assignment of credit; if at all, the compromise
judgment merely identified the fund from which payment for the
judgment debt would be sourced.

Only when Magdalena has received and turned over to the

spouses Serfino the portion of her retirement benefits
corresponding to the debt due would the debt be deemed paid.
(Serfino v. FEBTC, et al., G.R. No. 171845, October 10, 2012,
Brion, J).

Note:
In Aquitey v. Tibong, the issue raised was whether the
obligation to pay the loan was extinguished by the execution of
the deeds of assignment. The Court ruled in the affirmative,
given that, in the deeds involved, the debtor assigned to the
creditor her credits “to make good” the balance of her
obligation; the parties agreed to relieve the debtor of her
obligation to pay the balance of her account, and for the creditor
to collect the same from the debtors. The Court concluded that
the debtor’s obligation to pay the balance of her accounts with
the creditor was extinguished, pro tanto, by the deeds of
assignment of credit executed by the respondent in favor of the
petitioner. In the present case, the judgment debt was not
extinguished by the mere designation in the compromise
judgment of Magdalena’s retirement benefits as the fund from
which payment shall be sourced. That the compromise
agreement authorizes recourse in case of default on other
executable properties of the spouses Cortez, to satisfy the
judgment debt, supports the conclusion that there was no
assignment of Magdalena’s credit with the GSIS that would
have extinguished the obligation.

The compromise judgment in this case also did not give the
supposed assignees, the spouses Serfino, the power to enforce
Magdalena’s credit against the GSIS. In fact, the spouses
Serfino are prohibited from enforcing their claim until after the
lapse of one (1) week from Magdalena’s receipt of

her retirement benefits.

An assignment of credit not only entitles the assignee to the

credit itself, but also gives him the power to enforce it as against
the debtor of the assignor. Since no valid assignment of credit
took place, the spouses Serfino cannot validly claim ownership
of the retirement benefits that were deposited with FEBTC.
Without ownership rights over the amount, they suffered no
pecuniary loss that has to be compensated by actual damages.
The grant of actual damages presupposes that the claimant
suffered a duly proven pecuniary loss. (Art. 2199, NCC; supra.).

LEASE

Prohibition against subleasing of land does not include the

building constructed by the lessee.

Q – In a lease contract over a parcel of land, the agreement was

that the lessee shall establish a sports center and parking area to
ease the parking congestion at the Domestic Airport. There was
an exclusive option to renew the contract of lease granted to the
lessee, but the lessor refused to renew on the ground that it
violated the prohibition against subleasing of the premises. Is the
contention correct? Why?

Answer: No, because the prohibition against subleasing the

premises refers only to the subject property, the land. Being the
builder of the improvements on the subject property, said
improvements are owned by it until the turn over to the lessor at
the end of the contract. The lessee was not leasing the
improvements from the lessor, thus; then it is not subleasing the
same to third persons. (MIAA v. Ding Velayo Sports Center,
Inc., supra.)

When there is implied renewal of a contract of lease.

Q – The contract of lease between the parties commenced on

January 1, 1997 and expired on December 31, 1997. The lessor
did not give a notice to vacate the premises upon the expiration
of the lease and the lessee continued to possess the same for
more than 15 days without objection from the lessor. The notice
to vacate was given only on August 5, 1998. What is the effect
of the inaction of the lessor? Explain.

Answer: By the inaction of the lessor, there can be no inference

that it intended to discontinue the lease contract (Bowe v. CA,
G.R. No. 95771, March 19, 1993, 220 SCRA 158). There was an
impliedly renewed contract. An implied new lease or tacita
reconcluccion will set in when the following requisites are found
to exist: (a) the term of the original contract of lease has expired;
(b) the lessor has not given the lessee a notice to vacate; (c) the
lessee continued enjoying the thing leased for fifteen days with
the acquiescence of the lessor. (Paterno v. CA, 339 Phil. 154
(1997); Samelo v. Manotok Services, Inc., G.R. No. 170509,
June 27, 2012, Brion, J).

Q – In case of an impliedly renewed contract, what is the period

of the contract? Explain.

Answer: Since the rent is paid on a monthly basis, the period of

lease is considered to be from month to month, in accordance
with Article 1687 of the Civil Code. “A lease from month to
month is considered to be one with a definite period which
expires at the end of each month upon a demand to vacate by the
lessor.” (Arquelda v. Phil. Veterans Bank, 385 Phil. 1200
(2000)). When the lessor sent a notice to vacate to the lessee on
August 5, 1998, the tacita reconduccion was aborted, and the
contract is deemed to have expired at the end of that month. “A
notice to vacate constitutes an express act on the part of the
lessor that it no longer consents to the continued occupation by
the lessee of its property. (Tagbilaran Integrated Sellers Assn. v.
CA, 486 Phil. 386 (2004)). After such notice, the lessee’s right
to continue in possession ceases and her possession becomes
one of detainer. (Lim v. CA, G.R. Nos. 84154-55, July 20, 2010;
Samelo v. Manotok Services, Inc., G.R. No. 170509, June 27,
2012, Brion, J).

Q – May the lessee question the title of the lessor? Why?

Answer: No. The Rules of Court protects the lessor, from being
questioned by the lessee, regarding its title or better right of
possession over the subject premises. Section 2(b), Rule 131 of
the Rules of Court states that the tenant is not permitted to deny
the title of his landlord at the time of the commencement of the
relation of landlord and tenant between them. Article 1436 of
the Civil Code likewise states that a lessee or a bailee is
estopped from asserting title to the thing leased or received, as
against the lessor or bailor.

These provisions bar the lessee from contesting the lessor’s title
over the subject premises. “The juridical relationship between a
lessor and a lessee carries with it a recognition of the lessor's
title. As lessee, he is estopped from denying the landlord's title,
or to assert a better title not only in herself, but also in some
third person while she remains in possession of the subject
premises and until she surrenders possession to the landlord.
This estoppel applies even though the lessor had no title at the
time the relation of the lessor and the lessee was created, and
may be asserted not only by the original lessor, but also by those
who succeed to his title.” (Century Savings Bank v. Samonte,
G.R. No. 176212, October 20, 2010, 634 SCRA 261). Once a
contact of lease is shown to exist between the parties, the lessee
cannot by any proof, however strong, overturn the conclusive
presumption that the lessor has a valid title to or a better right of
possession to the subject premises than the lessee. (Samelo v.
Manotok Services, Inc., G.R. No. 170509, June 27, 2012, Brion,
J).
Note:

The Court thus explained in Tamio v. Ticson:

Indeed, the relation of lessor and lessee does not depend on the
former’s title but on the agreement between the parties, followed
by the possession of the premises by the lessee under such
agreement. As long as the latter remains in undisturbed
possession, it is immaterial whether the lessor has a valid title –
or any title at all – at the time the relationship was entered into.

LEASE/RESCISSION

In a complaint for ejectment, the lessor may simultaneously

eject the lessee and demand for rescission of the contracts.

Q – General Milling Corporation is the owner of a property

which was leased to Cebu Autometic Motors, Inc. It was
stipulated that it shall be used as garage and repair shop for
vehicles, but allegedly, it was subleased without the consent of
the lessor. The lessor contended that the lessee violated the
contract by subleasing and for failure to deliver the required
advance rental and deposit. This was denied by the lessee. The
lessor sent a letter to the lessee terminating the contract and
demanding the vacation of the premises and settlement of
unpaid accounts. Later, it filed a complaint for unlawful detainer
alleging that it terminated the contract for violation of the terms
of the same and continued to do so despite repeated demands
and reminders for compliance that the lessee refused to vacate
the premises. The MTC rendered a judgment ordering the lessee
to vacate, but the RTC reversed the judgment holding that the
lessor failed to comply with the requisite demand under Rule 70,
Sec. 2. The CA ruled that the claim of failure to comply with
Sec. 2, Rule 70 is belated, hence, it cannot be entertained
anymore. Before the SC, it was contended that there was no
proper demand since the letter merely stated that the lessor
expected the lessee to vacate the premises and pay the unsettled
accounts. The letter did not demand compliance with the terms
of the contract, hence, the lessee cannot be considered in default
and the lessor had no cause to terminate the lease. It contended
that since the lessor never sent a proper demand letter, it cannot
be considered in delay invoking Article 1169, NCC. Rule on the
contention of the lessee. Explain.

Answer: The lessee is correct. The lessor did not send the proper
demand letter.

The lessee, in invoking Article 1169, apparently overlooked that

what is involved is not a mere mora or delay in the performance
of a generic obligation to give or to do that would eventually
lead to the remedy of rescission or specific performance. What
is involved in the case is a contract of lease and the twin
remedies of rescission and judicial ejectment after either the
failure to pay rent or to comply with the conditions of the lease.
This situation calls for the application, not of Article 1169 of
the Civil Code but, of Article 1673 in relation to Section 2, Rule
70 of the Rules of Court. Article 1673 states that the lessor may
judicially eject the lessee for any violation of any of the
conditions agreed upon in the contract.

Based on this provision, a lessor may judicially eject (and

thereby likewise rescind the contract of lease) the lessee if the
latter violates any of the conditions agreed upon in the lease
contract. Implemented in accordance with Section 2, Rule 70,
the lessor is not required to first bring an action for rescission,
but may ask the court to do so and simultaneously seek the
ejecment of the lessee in a single action for unlawful detainer.
(Abaya Investments Corp. v. Merit Phils., Inc., G.R. No.
176324, April 14, 2008, 551 SCRA 646). Section 2, Rule 70 of
the Rules of Court provides that unless otherwise stipulated,
such action by the lessor shall be commenced only after demand
to pay or comply with the conditions of the lease and to vacate is
made upon the lessee, or by serving written notice of such
demand upon the person found on the premises, or by posting
such notice on the premises if no person be found thereon, and
the lessee fails to comply therewith after fifteen (15) days in the
case of land or five (5) days in the case of buildings. (Cebu
Autometic Motors, Inc., et al. v. General Milling Corp., G.R.
No. 151168, August 25, 2012, Brion, J).

Nature of demand

The demand letter states “We expect you to vacate the

premises, settle all your unpaid accounts on or before the end of
June, 1999.”

This is not the demand required by Sec. 2, Rule 70.

Section 2, Rule 70, on its face, involves two demands that may
be made in the same demand letter, namely, (1) the demand for
payment of the amounts due the lessor, or the compliance with
the conditions of the lease, and (2) the demand to vacate the
premises. These demands, of course, are not intended to be
complied with at the same time; otherwise, the provision
becomes contradictory as it is pointless to demand payment or
compliance if the demand to vacate is already absolute and must
be heeded at the same time as the demand to pay or to comply. It
is only after the demands for payment or compliance are made
on the lessee and subsequently rejected or ignored that the basis
for the unlawful detainer action arises.

The twin aspects of the demand letter can best be understood

when Section 2, Rule 70 is read and understood as the specific
implementing procedural rule to carry out the results that Article
1673 mandates – the rescission of the contract of lease and the
judicial ejectment of the lessee. The judicial rescission of a
contract of lease is essentially governed by Article 1659 of the
Civil Code, grounded on the breach of the parties’ statutory
obligations: in the case of the lessee, for its failure to pay the
rent or to use the property under lease for the purpose it was
intended. Article 1673, read with Section 2, Rule 70 of the
Rules, does away with the need for an independent judicial
action to rescind prior to ejectment by combining these remedies
in an unlawful detainer action.

The law of contracts (essentially, Articles 1191 of the Civil

Code for judicial rescission and Article 1659 for the judicial
rescission of lease agreements) firmly establishes that the failure
to pay or to comply with the contractual term does not, by itself,
give rise to a cause of action for rescission; the cause of action
only accrues after the lessee has been in default for its failure to
heed the demand to pay or to comply. With the contract
judicially rescinded, the demand to vacate finds full legal basis.

Article 1673, implemented pursuant to Section 2, Rule 70, does

away with a separate judicial action for rescission, and allows
under a single complaint the judicial ejectment of the lessee after
extrajudicial rescission has taken place. These combined
remedies account for the separate aspects of the demand letter:
the demand to pay rentals or to comply with the terms of the
lease, and to vacate. The tenant's refusal to heed the demand to
vacate, coming after the demand to pay or to comply similarly
went unheeded, renders unlawful the continued possession of
the leased premises; hence, the unlawful detainer action. (Zobel
v. Abreu, 52 O.G. 3592; Dio v. Concepcion).
In Dio v. Concepcion, it was ruled that:

Under Article 1673 of the Civil Code, the lessor may judicially
eject the lessee for, among other causes: (1) lack of payment of
the price stipulated; or (2) violation of any of the conditions
agreed upon in the contract. Previous to the institution of such
action, the lessor must make a demand upon the lessee to pay or
comply with the conditions of the lease and to vacate the
premises. It is the owner’s demand for the tenant to vacate the
premises and the tenant’s refusal to do so which makes unlawful
the withholding of possession. (Casilan v. Tomasi, 10 SCRA
261 (1964)). Such refusal violates the owner’s right of
possession giving rise to an action for unlawful detainer.

An extrajudicial rescission gave rise to the demand to vacate

that, upon being refused, rendered the possession illegal and laid
the lessee open to ejectment. The rescission, an extrajudicial
one, was triggered by the lessee’s refusal to pay the rent or to
comply with the terms of the lease. The Court put it in plainer
terms in Arquelada v. Philippine Veterans Bank, G.R. No.
139137, March 31, 2000, where it said:

As contemplated in Section 2, the demand required is the

demand to pay or comply with the conditions of the lease and
not merely a demand to vacate. Consequently, both demands -
either to pay rent or adhere to the terms of the lease and vacate
are necessary to make the lessee a deforciant in order that an
ejectment suit may be filed. It is the lessor's demand for the
lessee to vacate the premises and the tenant's refusal to do so
which makes unlawful the withholding of the possession. Such
refusal violates the lessor's right of possession giving rise to an
action for unlawful detainer. However, prior to the institution of
such action, a demand from the lessor to pay or comply with the
conditions of the lease and to vacate the premises is required
under the aforequoted rule. Thus, mere failure to pay the rents
due or violation of the terms of the lease does not automatically
render a person's possession unlawful. Furthermore, the giving
of such demands must be alleged in the complaint, otherwise the
MTC cannot acquire jurisdiction over the case. [Emphasis
supplied.]

The letter merely informed recipient lessee that lessor had

terminated the lease based on the cited violations of the terms of
the lease, and on the basis of this termination, required lessee to
vacate the premises by the end of the month.

The lessor did not fully comply with the requirements of Section
2, Rule 70. Technically, no extrajudicial rescission effectively
took place as a result of the cited violations until the demand to
pay or comply was duly served and was rejected or disregarded
by the lessee. This aspect of the demand letter – missing in the
demand letter and whose rejection would have triggered the
demand to vacate – gave the lessor no effective cause of action
to judicially demand the lessee’s ejectment. (Cebu Autometic
Motors, Inc., et al. v. General Milling Corp., G.R. No. 151168,
August 25, 2012, Brion, J).

AGENCY

Agent acted beyond scope of authority; principal not bound.

Q – Unimarine Shipping Lines, Inc. & Keppel Cebu Shipyard

entered into a dry docking and ship repair contract on the
former’s vessel M/V Pacific Fortune for P3.8M. A surety bond
was issued by Country Bankers Insurance Corp. through its
agent with an extension of the same upon its expiration. When
the check for the first installment of its payment was dishonored,
there were demands for payment, but Unimarine did not pay
together with the sureties; hence, the complaint for sum of
money with damages. CBIC contended that the surety bond
issued by its agent was done in excess of its authority as such
bond is stamped at the upper right portion of the face of the
bond that it could only be issued in favor of the DPWH and the
endorsement was not reported to it. The RTC held CBIC liable
solidarily with Unimarine. It did not take into consideration that
the bond was issued in excess of the agent’s authority, rather, it
ruled that the agent acted within the apparent scope of his
authority. The CA affirmed the RTC decision on appeal. CBIC
contended that Cebu Shipyard should have investigated the
extent of the agent’s authority. Is the decision of the lower
courts correct? Why?

Answer: No, because the SPA clearly stated the limits of the
agent’s authority which provides that in case of surety bonds, it
can only be issued in favor of the DPWH, NPC and other
government agencies. Unimarine is not a government agency.

Under Articles 1898 and 1910, an agent’s act, even if done

beyond the scope of his authority, may bind the principal if he
ratifies them, whether expressly or tacitly. It must be stressed
though that only the principal, and not the agent, can ratify the
unauthorized acts, which the principal must have knowledge of.
(Manila Memoral Park Cemetery, Inc. v. Linsangan, G.R. No.
151319, November 22, 2004, 443 SCRA 377). Expounding on
the concept and doctrine of ratification in agency, the Court
said:

Ratification in agency is the adoption or confirmation by one

person of an act performed on his behalf by another without
authority. The substance of the doctrine is confirmation after
conduct, amounting to a substitute for a prior authority.
Ordinarily, the principal must have full knowledge at the time
of ratification of all the material facts and circumstances relating
to the unauthorized act of the person who assumed to act as
agent. Thus, if material facts were suppressed or unknown,
there can be no valid ratification and this regardless of the
purpose or lack thereof in concealing such facts and regardless
of the parties between whom the question of ratification may
arise. Nevertheless, this principle does not apply if the
principal’s ignorance of the material facts and circumstances
was willful, or that the principal chooses to act in ignorance of
the facts. However, in the absence of circumstances putting a
reasonably prudent man on inquiry, ratification cannot be
implied as against the principal who is ignorant of the facts.

In this case, there was no ratification. Article 1911, on the other

hand, is based on the principle of estoppel, which is necessary
for the protection of third persons. It states that the principal is
solidarily liable with the agent even when the latter has
exceeded his authority, if the principal allowed him to act as
though he had full powers. However, for an agency by estoppel
to exist, the following must be established:

The principal manifested a representation of the agent’s

authority or knowingly allowed the agent to assume such
authority;
The third person, in good faith, relied upon such representation;
and
Relying upon such representation, such third person has changed
his position to his detriment. (Litonjua, Jr. v. Eternit Corp., G.R.
No. 144805, June 8, 2006, 490 SCRA 264).
In Litonjua, Jr. v. Eternit Corp., it was said that “an agency by
estoppel, which is similar to the doctrine of apparent authority,
requires proof of reliance upon the representations, and that, in
turn, needs proof that the representations predated the action
taken in reliance.”

Negligence of CBIC.

CBIC was not negligent as it not only clearly stated the limits of
its agents’ powers in their contracts, it even stamped its surety
bonds with the restrictions, in order to alert the concerned
parties. Moreover, its company procedures, such as reporting
requirements, show that it has designed a system to monitor the
insurance contracts issued by its agents. CBIC cannot be faulted
for Quinain’s deliberate failure to notify it of his transactions
with Unimarine.

It is apparent that Unimarine had been negligent or less than

prudent in its dealings with the agent. In Manila Memorial Park
Cemetery, Inc. v. Linsangan, the Court held:

It is a settled rule that persons dealing with an agent are bound at

their peril, if they would hold the principal liable, to ascertain
not only the fact of agency but also the nature and extent of
authority, and in case either is controverted, the burden of proof
is upon them to establish it. The basis for agency is
representation and a person dealing with an agent is put upon
inquiry and must discover upon his peril the authority of the
agent. If he does not make such an inquiry, he is chargeable
with knowledge of the agent’s authority and his ignorance of
that authority will not be any excuse.

In the same case, this Court added:

The ignorance of a person dealing with an agent as to the scope

of the latter’s authority is no excuse to such person and the fault
cannot be thrown upon the principal. A person dealing with an
agent assumes the risk of lack of authority in the agent. He
cannot charge the principal by relying upon the agent’s
assumption of authority that proves to be unfounded. The
principal, on the other hand, may act on the presumption that
third persons dealing with his agent will not be negligent in
failing to ascertain the extent of his authority as well as the
existence of his agency.

Unimarine undoubtedly failed to establish that it even bothered

to inquire if the agent was authorized to agree to terms beyond
the limits indicated in his special power of attorney. As the
Court held in Litonjua, Jr. v. Eternit Corp.:

“A person dealing with a known agent is not authorized, under

any circumstances, blindly to trust the agents statements as to
the extent of his powers; such person must not act negligently
but must use reasonable diligence and prudence to ascertain
whether the agent acts within the scope of his authority. The
settled rule is that, persons dealing with an assumed agent are
bound at their peril, and if they would hold the principal liable,
to ascertain not only the fact of agency but also the nature and
extent of authority, and in case either is controverted, the burden
of proof is upon them to prove it. In this case, the petitioners
failed to discharge their burden; hence, petitioners are not
entitled to damages from respondent EC.”

In view of the foregoing CBIC cannot be made liable.

(Country Bankers Insurance Corp. v. Keppel Cebu Shipyard, et
al., G.R. No. 166044, June 18, 2012, De Castro, J).

Agency coupled with interest cannot be revoked.

Q – The owners of a parcel of land executed a SPA authorizing

another person to obtain a loan with the titles as security with an
agreement that they would have an equal share in the proceeds
of the loan. The loan was granted but the owners of the
properties revoked the SPA. Is the act valid? Why?

Answer: No, because the agency is one that is couple with

interest. SPA executed was one of agency coupled with interest.
This is because their bilateral contract depends upon the agency.
(Rep. v. Judge Evangelista, 504 Phil. 115 (2005). Hence, it
cannot be revoked at the sole will of the principal. (same case;
Ching v. Bantolo, et al., G.R. No. 177086, December 5, 2012).

SURETY

When there is surety.

Q – When does surety arise and state its effect? Explain.

Answer: Suretyship arises upon the solidary binding of a person

deemed the surety with the principal debtor for the purpose of
fulfilling an obligation. A surety is considered in law as being
the same party as the debtor in relation to whatever is adjudged
touching the obligation of the latter, and their liabilities are
interwoven as to be inseparable. (Secuity Pacific Assurance
Corp. v. Hon. Tria-Infante, 505 Phil. 609 (2005)). Therefore, as
surety, it becomes liable for the debt o duty of the debtor
although it possesses no direct or personal interest over the
obligations of the latter, nor does it receive any benefit
therefrom.

So even if the principal enters into a MOA with the other

party without informing the surety, it would not extinguish the
obligation of the surety especially if the terms and conditions of
the originally contract are still in full force. (Phil. Charter Ins.
Corp. v. Petroleum Distributors Service Corp., G.R. No. 180898,
April 18, 2012, Mendoza, J).

Q – What are the two (2) types of relationship in a surety

agreement? Explain.

Answer: A surety agreement has two types of relationship: (1)

the principal relationship between the oblige and the obligor;
and (2) the accessory the surety relationship between the
principal and the surety. The oblige accepts the surety’s solidary
undertaking to pay if the obligor does not pay. Such acceptance,
however, does not change in any material way the obligee’s
relationship with the principal obligor. Neither does it make the
surety an active party in the principal obligor-obligee
relationship. It follows, therefore, that the acceptance does not
give the surety the right to intervene in the principal contract.
The surety’s ole arises only upon the obligor’s default, at which
time, it can be directly held liable by the obligee for payment as
a solidary obligor. (Phil. Charter Ins. Corp. v. Petroleum
Distributors & Service Corp., G.R. No. 180898, April 18, 2012).

MORTGAGE

Stipulation prohibiting mortgagor from selling property without

mortgagee’s consent is void.

Q – Lourdes Galas, the registered owner of a real property

obtained a loan from Yolanda Villar secured by a mortgage over
the said property. There was a second mortgage in favor of
Pablo Garcia. Thereafter Galas sold the said property to Villar
who obtained a title over the same. Garcia filed a petition for
foreclosure of the mortgage against Villar, claiming that when
the property was sold to her Galas was relieved of her
contractual obligation and the characters of creditor and debtor
were merged in Villar. Villar contended that the sale was void as
it was done without her consent. Is the contention correct?
Explain.

Answer: No. The sale is valid. While it is true that the

annotation of the first mortgage to Villar on the title contained a
restriction on further encumbrances, without the consent of the
first mortgagee, this restriction was nowhere to be found in the
Deed of Real Estate Mortgage. As the Deed became the basis for
the annotation on the title, its terms and conditions take
precedence over the standard, stamped annotation placed in the
title. If it were the intention of the parties to impose such
restriction, they would have and should have stipulated in the
Deed of Mortgage. Neither did the Deed proscribe the sale or
alienation of the subject property during the life of the mortgage.
If there was such a stipulation, it would be void since Article
2130, NCC provides that a stipulation forbidding the owner
from alienating the immovable mortgage shall be void. (Pablo
Garcia v. Yolanda VIllar, G.R. No. 158891, June 27, 2012, De
Castro, J).

Pactum commissorium

Q – It was contended by Garcia that the stipulation appointing

Villar as the mortgagor’s attorney-in-fact, to sell the property in
case of default in the payment of the loan was a violation of the
prohibition on pactum commissorium under Art. 2088, NCC
which provides that the creditor cannot appropriate the things
given by way of pledge or mortgage, or dispose of them. Any
stipulation to the contrary is null and void. Is the contention
correct? Why?

Answer: No, as there was no automatic appropriation of the

thing mortgaged. Instead, it was sold to her.

The following are the elements of pactum commissorium:

(1) There should be a property mortgaged by way of security

for the payment of the principal obligation; and
(2) There should be a stipulation for automatic appropriation
by the creditor of the thing mortgaged in case of non-payment of
the principal obligation within the stipulated period. (DBP v.
CA, 348 Phil. 15 (1998)).
Villar’s purchased of the subject property did not violate the
prohibition on pactum commissorium. The power of attorney
provision did not provide that the ownership over the subject
property would automatically pass to Villar upon Galas’s failure
to pay the loan on time. What it granted was the mere
appointment of Villar as attorney-in-fact, with authority to sell
or otherwise dispose of the subject property, and to apply the
proceeds to the payment of the loan. This provision is customary
in mortgage contracts, and is in conformity with Article 2087 of
the Civil Code, which reads:

Art. 2087. It is also of the essence of these contracts that when

the principal obligation becomes due, the things in which the
pledge or mortgage consists may be alienated for the payment to
the creditor.

Galas’ decision to eventually sell the subject property to

Villar for an additional P1,500,000.00 was well within the scope
of her rights as the owner of the subject property. The subject
property was transferred to Villar by virtue of another and
separate contract, which is the Deed of Sale. Garcia never
alleged that the transfer of the subject property to Villar was
automatic upon Galas’s failure to discharge her debt, or that the
sale was simulated to cover up such automatic transfer. (Garcia
v. Villar, G.R. No. 158891, June 27, 2012, Del Castillo, J).

Q – In filing the complaint for foreclosure of the mortgage,

Garcia contended that when Villar purchased the property, she
undertook to pay the second mortgage. Is the contention correct?
Explain.

Answer: No. Under the law, the mortgage directly and

immediately subjects the property upon which it is imposed,
whoever the possessor may be, to the fulfillment of the
obligation for whose security it was foreclosed. (Art. 2126,
NCC).

Simply put, a mortgage is a real right, which follows the

property, even after subsequent transfers by the mortgagor. A
registered mortgage lien is considered unseparable from the
property inasmuch as it is a right in rem. (PNB v. RBL ENt.,
Inc., G.R. No. 149569, May 28, 2004, 430 SCRA 299).

The sale or transfer of the mortgaged property cannot

affect or release the mortgage; thus the purchaser or transferee is
necessarily bound to acknowledge and respect the encumbrance.
(Ganzon v. Inserto, 208 Phil. 630 (1983)). In fact, under Article
2129 of the Civil Code, the mortgage on the property may still
be foreclosed despite the transfer,viz:

Art. 2129. The creditor may claim from a third person in

possession of the mortgaged property, the payment of the part of
the credit secured by the property which said third person
possesses, in terms and with the formalities which the law
establishes.

While the court agree with Garcia that since the second
mortgage, of which he is the mortgagee, has not yet been
discharged, it was found that said mortgage subsists and is still
enforceable. However, Villar, in buying the subject property
with notice that it was mortgaged, only undertook to pay such
mortgage or allow the subject property to be sold upon failure of
the mortgage creditor to obtain payment from the principal
debtor once the debt matures. Villar did not obligate herself to
replace the debtor in the principal obligation, and could not do
so in law without the creditor’s consent. Article 1293 of the
Civil Code provides:

Article 2193. Novation which consists in substituting a new

debtor in the place of the original one, may be made even
without the knowledge or against the will of the latter, but not
without the consent of the creditor. Payment by the new debtor
gives him the rights mentioned in Articles 1236 and 1237.

Therefore, the obligation to pay the mortgage

indebtedness remains with the original debtors Galas and Pingol.
(Rodriguez v. Reyes, supra.). The case of E.C. McCullough &
Co. v. Veloso and Serna, 46 Phil. 1 (1924), is square on this
point:

The effects of a transfer of a mortgaged property to a third

person are well determined by the Civil Code. According to
Article 1879 (now Art. 2129) of this Code, the creditor may
demand of the third person in possession of the property
mortgaged payment of such part of the debt, as is secured by the
property in his possession, in the manner and form established
by the law. The Mortgage Law in force at the promulgation of
the Civil Code and referred to in the latter, provided, among
other things, that the debtor should not pay the debt upon its
maturity after judicial or notarial demand, for payment has been
made by the creditor upon him. (Art. 135 of the Mortgage Law
of the Philippines of 1889). According to this, the obligation of
the new possessor to pay the debt originated only from the right
of the creditor to demand payment of him, it being necessary
that a demand for payment should have previously been made
upon the debtor and the latter should have failed to pay. And
even if these requirements were complied with, still the third
possessor might abandon the property mortgaged, and in that
case it is considered to be in the possession of the debtor. (Art.
136 of the same law). This clearly shows that the spirit of the
Civil Code is to let the obligation of the debtor to pay the debt
stand although property mortgaged to secure the payment of said
debt may have been transferred to a third person. While the
Mortgage Law of 1893 eliminated these provisions, it contained
nothing indicating any change in the spirit of the law in this
respect. Article 129 of this law, which provides the substitution
of the debtor by the third person in possession of the property,
for the purposes of the giving of notice, does not show this
change and has reference to a case where the action is directed
only against the property burdened with the mortgage.

This pronouncement was reiterated in Rodriguez v.

Reyes, wherein the Court, even before quoting the same above
portion in E.C. McCullough & Co. v. Veloso and Serna, held:

We find the stand of petitioners-appellants to be unmeritorious

and untenable. The maxim “caveat emptor” applies only to
execution sales, and this was not one such. The mere fact that
the purchaser of an immovable has notice that the acquired
realty is encumbered with a mortgage does not render him liable
for the payment of the debt guaranteed by the mortgage, in the
absence of stipulation or condition that he is to assume payment
of the mortgage debt. The reason is plain: the mortgage is
merely an encumbrance on the property, entitling the mortgagee
to have the property foreclosed, i.e., sold, in case the principal
obligor does not pay the mortgage debt, and apply the proceeds
of the sale to the satisfaction of his credit. Mortgage is merely an
accessory undertaking for the convenience and security of the
mortgage creditor, and exists independently of the obligation to
pay the debt secured by it. The mortgagee, if he is so minded,
can waive the mortgage security and proceed to collect the
principal debt by personal action against the original mortgagor.

Hence, Garcia has no cause of action against Villar in the

absence of evidence to show that the second mortgage executed
in favor of Garcia has been violated by his debtors, Galas and
Pingol, i.e., specifically that Garcia has made a demand on said
debtors for the payment of the obligation secured by the second
mortgage and they have failed to pay. (Garcia v. Villar, G.R.
No. 158891, June 27, 2012).

INTEREST

6% interest to be paid if not a forebearance of money.

Q – There was a contract for professional services as campaign

manager. There was an offer to pay P200,000.00 plus legal
interest which was not specified. What interest should be paid?
Explain.

Answer: It shall earn interest of 6% per annum to be computed

from the time of extrajudicial demand for payment until the
finality of the decision. As ruled in Eastern Shipping, after a
judgment has become final and executory, the rate of legal
interest, whether the obligation was in the form of a loan or
forbearance of money or otherwise, shall be 12% per annum
from such finality until its satisfaction. Thus, from the date the
liability for the principal obligation has become final and
executory, an annul interest of 12% shall be imposed until its
final satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit. (Tan v. Benolirao, G.R.
No. 153820, October 16, 2009, 604 SCRA 36; Manzano v.
Lazaro, G.R. No. 173320, April 11, 2012, Peralta, J).

LRC

Action for reversion distinguished from declaration of nullity of

patent.

Heirs of Ambrocio Kionisala v. Heirs of Honorio Dacut

distinguishes an action for reversion from an action for
declaration of nullity of free patents and certificates of title as
follows:

“An ordinary civil action for declaration of nullity of free

patents and certificates of title is not the same as an action for
reversion. The difference between them lies in

the allegations as to the character of ownership of the realty

whose title is sought to be nullified. In an action for reversion,
the pertinent allegations in the complaint would admit State
ownership of the disputed land. Hence in Gabila v. Barriga
where the plaintiff in his complaint admits that he has no right to
demand the cancellation or amendment of the defendant’s title
because even if the title were cancelled or amended the
ownership of the land embraced therein or of the portion
affected by the

amendment would revert to the public domain, we ruled that the

action was for reversion and that the only person or entity
entitled to relief would be the Director of Lands.

On the other hand, a cause of action for declaration of nullity of

free patent and certificate of title would require allegations of
the plaintiff’s ownership of the contested lot prior to the
issuance of such free patent and certificate of title as well as the
defendant’s fraud or mistake, as the case may be, in successfully
obtaining these documents of title over the parcel of land
claimed by plaintiff. In such a case, the nullity arises strictly not
from the fraud or deceit but from the fact that the land is beyond
the jurisdiction of the Bureau of Lands to bestow and whatever
patent or certificate of title obtained therefor is consequently
void ab initio. The real party in interest is not the State but the
plaintiff who alleges a pre-existing right of ownership over the
parcel of land in question even before the grant of title to the
defendant. x x x[.]” (G.R. No. 165815, April 27, 2007, 552
SCRA 644; Soquitlo v. Tortola, G.R. No. 192450, July 23,
2012, Reyes, J).

MORTGAGE/SALE

Creditor/Mortgagee can recover deficiency in extrajudicial

foreclosure.

Q – May the mortgagee recover the deficiency or unpaid balance

on the principal obligation in case of deficiency? Explain.

Answer: Yes. It is a well-entrenched rule that a creditor is not

precluded from recovery any unpaid balance on the principal
obligation if the extrajudicial foreclosure sale of the property
subject of the real estate mortgage results in a deficiency, to wit:

“It is settled that if “the proceeds of the sale are

insufficient to cover the debt in an extrajudicial foreclosure of
mortgage, the mortgagee is entitled to claim the deficiency from
the debtor. While Act No. 3135, as amended, does not discuss
the mortgagee’s right to recover the deficiency, neither does it
contain any provision expressly or impliedly prohibiting
recovery. If the legislature had intended to deny the creditor the
right to sue for any deficiency resulting from the foreclosure of a
security given to guarantee an obligation, the law would
expressly so provide. Absent such from taking action to recover
any unpaid balance on the principal obligation simply because
he chose to extrajudicially foreclose the real estate mortgage.”
(BPI Family Savings Bank v. Avenido, G.R. No. 17586,
December 7, 2012; BPI v. Reyes, G.R. No. 182769, February 1,
2012).

QUASI-DELICTS

Employer’s vicarious liability for negligent act of employee.

Q – There was a vehicular accident resulting in the death of a

motorcycle rider. Based on the evidence presented at the trial, at
the time of impact “the van was overtaking another vehicle
without due regard for the safety of others, bumped a Toyota car
and the motorcycle traveling in the right lane going to
Polomolok, South Cotabato.” The lower court noted that the
damage to the van was located at the bumper, evincing a frontal
collision, while the damage to the sedan was on the left side
door and window, evincing that the van sideswiped the sedan.
Likewise, the court found that the van encroached on the sedan
and motorcycle’s lane, in the process hitting the motorcycle,
causing the injuries and subsequent death of the motorcycle
rider.

The owner of the van denied that the van was overtaking
a jeepney at the time of the accident. She claimed that the left
tire of a car burst, causing it to sideswipe the van, hence, the left
tire of the van burst and the driver lost control of the same.
Then, it swerved to the left towards the motorcycle, there was an
impact resulting in the death of the rider. The lower court held
the owner of the van liable for damages. On appeal, the CA
affirmed the decision. Is the van owner liable? Why?

Answer: Yes. The van ended up on the other side of the road
opposite the lane it was originally traversing. The van’s forward
momentum was going towards the opposite side. If indeed the
van stayed on its proper lane when the sedan’s tire blew out and
lost control, the sedan would have bumped into the van on the
latter’s lane and the van would have ended up on the side of the
road with the sedan. Likewise, if the van had stayed on its lane,
and the impact of the sedan propelled it forward, the van would
have hit the jeepney in front of it, not Mumar’s motorcycle,
which was on the opposite lane to the right of the sedan. The
only plausible explanation is it was the van, while trying to
overtake the jeepney in front of it at a fast speed, that bumped
into the sedan and subsequently, Mumar’s motorcycle.

Under Article 2180 of the Civil Code, employers are liable for
the damages caused by their employees acting within the scope
of their assigned tasks. Whenever an employee’s negligence
causes damage or injury to another, there instantly arises a
presumption that the employer failed to exercise the due
diligence of a good father of the family in the selection or
supervision of its employees. (Phil-Hawk Corp. v. Lee, G.R. No.
166869, February 16, 2010, 612 SCRA 576; Macalinao v. Ong,
514 Phil. 127 (2005)). The liability of the employer is direct or
immediate. It is not conditioned upon prior recourse against the
negligent employee and a prior showing of insolvency of such
employee. (LG Foods Corp. v. Judge Pagapong-Agravador,
G.R. No. 158995, September 26, 2006, 503 SCRA 170).

Moreover, under Article 2184 of the Civil Code, if the causative

factor was the driver’s negligence, the owner of the vehicle who
was present is likewise held liable if he could have prevented the
mishap by the exercise of due diligence.

Petitioner failed to show that she exercised the level of diligence

required in supervising her driver in order to prevent the
accident. She admitted that de Castro had only been her driver
for one year and she had no knowledge of his driving experience
or record of previous accidents. She also admitted that it was de
Castro who maintained the vehicle and would even remind her
“to pay the installment of the car.” (Serra v. Mumar, G.R. No.
193861, March 14, 2012)

Employer is liable vicariously for the negligent act of employee.

Q – A complaint for damages was filed against the registered

owner of a passenger jeep due to an accident resulting in the
death of a mother and daughter when they were ran over by said
vehicle driven by a certain Allan. The registered owner of the
vehicle contended that he is not liable since the jeep was stolen
and in fact, he filed a complaint for carnapping against the driver
of the vehicle who happened to be the brother of the official
driver. The alleged co-accused testified that when he asked them
to ride in the jeep, he was already driving the same. The criminal
case was dismissed for insufficiency of evidence. He was held
liable, but he contended on appeal that he cannot considering
that the one driving the vehicle was not doing so within the
scope of his assigned tasks as he was merely a conductor. He
insisted that the jeep was stolen and that the liability of the
registered owner as to third persons as well as the doctrine of res
ipsa loquitor should not apply since the vehicle was illicitly
taken from a well secured area. Rule on the contention. Explain.

Answer: The contention is not correct. The evidence on the

stealing of the vehicle was not proven. It brought more questions
than clear cut answers. The brother of Allan was the official
driver. Since the key was not returned to the owner after its use,
it is presumed that the driver had been entrusted to him, hence,
given absolute discretion as to its use including the discretion to
allow his brother to use it. The doctrine of res ipsa loquitor then
applies.

Under the doctrine of res ipsa loquitur, “[w]here the thing that
caused the injury complained of is shown to be under the
management of the defendant or his servants; and the accident,
in the ordinary course of things, would not happen if those who
had management or control used proper care, it affords
reasonable evidence – in the absence of a sufficient, reasonable
and logical explanation by defendant – that the accident arose
from or was caused by the defendant’s want of care.” (Tan v.
Jam Transit, Inc., G.R. No. 183198, November 25, 2009, 605
SCRA 659). Res ipsa loquitur is “merely evidentiary, a mode of
proof, or a mere procedural convenience, since it furnishes a
substitute for, and relieves a plaintiff of, the burden of producing
a specific proof of negligence.” It “recognizes that parties may
establish prima facie negligence without direct proof, thus, it
allows the principle to substitute for specific proof of
negligence. It permits the plaintiff to present along with proof
of the accident, enough of the attending circumstances to invoke
the doctrine, create an inference or presumption of negligence
and thereby place on the defendant the burden of proving that
there was no negligence on his part.” (Macalinao v. Ong, 514
Phil. 127 (2005)). The doctrine is based partly on “the theory
that the defendant in charge of the instrumentality which causes
the injury either knows the cause of the accident or has the best
opportunity of ascertaining it while the plaintiff has no such
knowledge, and is therefore compelled to allege negligence in
general terms.” (Macalinao v. Ong, supra.).
The requisites of the doctrine of res ipsa loquitur as established
by jurisprudence are as follows:

1) the accident is of a kind which does not ordinarily occur

unless someone is negligent;
2) the cause of the injury was under the exclusive control of
the person in charge and
3) the injury suffered must not have been due to any voluntary
action or contribution on the part of the person injured.
The above requisites are all present in this case. First, no person
just walking along the road would suddenly be sideswiped
and run over by an on-rushing vehicle unless the one in charge
of the said vehicle had been negligent. Second, the jeep which
caused the injury was under the exclusive control as its owner.
When the owner entrusted the ignition key to Rodrigo, he had
the power to instruct him with regard to the specific restrictions
of the jeep’s use, including who or who may not drive it. As he
is aware that the jeep may run without the ignition key, he also
has the responsibility to park it safely and securely and to
instruct his driver to observe the same precaution. Lastly, there
was no showing that the death of the victims was due to any
voluntary action or contribution on their part.

The aforementioned requisites having been met, there now

arises a presumption of negligence against owner which he
could have overcome by evidence that he exercised due care and
diligence in preventing strangers from using his jeep.
Unfortunately, he failed to do so. (Oscar del Carmen, Jr. V.
Geronimo Bacoy, et al., G.R. No. 173870, April 25, 2010, Del
Castillo, J).

The operator on record of a vehicle is primarily responsible to

third persons for the deaths or injuries consequent to its
operation, regardless of whether the employee drove the
registered owner’s vehicle in connection with his employment.

Q – The owner of the vehicle contended that Allan drove the

jeep in his private capacity and thus, an employer’s vicarious
liability for the employee’s fault under Article 2180 of the Civil
Code cannot apply to him. Is the contention correct? Why?

Answer: No. The contention is no longer novel. In Aguilar Sr.

v. Commercial Savings Bank, 412 Phil. 834 (2001), where the
car of the bank caused the death of a victim while being driven
by its assistant vice president. The bank was made liable for
damages for the accident as said provision should defer to the
settled doctrine concerning accidents involving registered motor
vehicles, i.e., that the registered owner of any vehicle, even if
not used for public service, would primarily be responsible to
the public or to third persons for injuries caused the latter while
the vehicle was being driven on the highways or streets. (St.
Mary’s Academy v. Carpetanos, 426 Phil. 878 (2002); Aguilar
v. Commercial Savings Bank, 412 Phil. 834 (2001); Erezo v.
Jepte, 102 Phil. 103 (1957)). The court had already ratiocinated
that:

The main aim of motor vehicle registration is to identify the

owner so that if any accident happens, or that any damage or
injury is caused by the vehicle on the public highways,
responsibility therefor can be fixed on a definite individual, the
registered owner. Instances are numerous where vehicles
running on public highways caused accidents or injuries to
pedestrians or other vehicles without positive identification of
the owner or drivers, or with very scant means of identification.
It is to forestall these circumstances, so inconvenient or
prejudicial to the public, that the motor vehicle registration is
primarily ordained, in the interest of the determination of
persons responsible for damages or injuries caused on public
highways. (Erezo v. Jepte, 102 Phil. 103 (1957)).

Absent the circumstance of unauthorized use (Doquillo v. Bayot,

67 Phil. 121 (1939)) or that the subject vehicle was stolen
(Duavit v. CA, 255 Phil. 470 (1989)) which are valid defenses
available to a registered owner, the vehicle owner cannot escape
liability for quasi-delict resulting from his jeep’s use. (Oscar Del
Carmen, Jr. V. Geronimo Bacoy, et al., G.R. No. 173870, April
25, 2012).

Liability of hotel for the death of a guest.

Q – A hotel guest of Makati Shangri-La Hotel & Resort, Inc.

was murdered inside his room. When sued for damages, it
contended that it was the guest’s fault for having allowed other
people to enter his room, hence, his own negligence was the
proximate cause of his own death as the hotel is not an insurer of
the safety of its guests. The evidence shows that the
management practice before the murder had been to deploy one
security or roving guard every three or four floors of the
building which its witness admitted to be inadequate considering
the L-shape configuration of the hotel that rendered the hallways
not visible from one or the other end and that despite his
recommendation, the management did not approve it because
the hotel was not doing well at that time as it was only half-
booked. Is the contention of the defendant-hotel correct? Why?

Answer: No. The hotel business is imbued with public interest.

Catering to the public, hotelkeepers are bound to provide not
only lodging for their guests but also security to the persons and
belongings of their guests. The twin duty constitutes the essence
of the business. (YHT Realty Corp. v. CA, G.R. No. 126780,
February 17, 2005, 451 SCRA 638). Applying by analogy
Article 2000, Article 2001, and Article 2002 of the Civil Code
(all of which concerned the hotelkeepers’ degree of care and
responsibility as to the personal effects of their guests), it was
held that there is much greater reason to apply the same if not
greater degree of care and responsibility when the lives and
personal safety of their guests are involved. Otherwise, the
hotelkeepers would simply stand idly by as strangers have
unrestricted access to all the hotel rooms on the pretense of
being visitors of the guests, without being held liable should
anything untoward befall the unwary guests. That would be
absurd, something that no good law would ever envision.
(Makati Shang-ri La Hotel & Resort, Inc. v. Harper, et al., G.R.
No. 189998, August 29, 2012, Bersamin, J).

Q – In its defense, it averred that it is equipped with adequate

security system like keycards or wingcards for opening the guest
room; two CCTV monitoring cameras on each floor of the hotel;
roving guards with handled radios the number of which
depended upon the occupancy rate of the hotel. It contended that
the proximate cause of the death of the guest was his own
negligence in inviting to his room the two (2) still unidentified
suspects. The plaintiffs contended on the other hand that it was
in a better situation to protect the guest than the injured person
and to foresee and prevent the happening of the injurious
occurrence. Whose contention is correct? Explain.

Answer: The contention of the plaintiffs is correct. Negligence is

defined as the omission to do something which a reasonable
man, guided by those considerations which ordinarily regulate
the conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man would not do.
The Supreme Court likewise ruled that negligence is want of
care required by the circumstances. It is a relative or
comparative, not an absolute, term and its application depends
upon the situation of the parties and the degree of care and
vigilance which the circumstances reasonably require. In
determining whether or not there is negligence on the part of the
parties in a given situation, jurisprudence has laid down the
following test: Did defendant, in doing the alleged negligent
act, use that reasonable care and caution which an ordinarily
prudent person would have used in the same situation? If not,
the person is guilty of negligence. The law, in effect, adopts the
standard supposed to be supplied by the imaginary conduct of
the discreet pater familias of the Roman law.

The test of negligence is objective. We measure the act or

omission of the tortfeasor with a perspective as that of an
ordinary reasonable person who is similarly situated. The test is
whether or not defendant-appellant, under the attendant
circumstances, used that reasonable care and caution which an
ordinary reasonable person would have used in the same
situation.

The negligence of the defendant is evidenced by the

failure to provide adequate security considering the
configuration of the hotel which is L-shape. This prevents a
guard posted on a floor from seeing from one end to another.
This was even admitted by its witness, the Chief of the Security
Department who recommended more adequate security in each
of the hotel floors, but there was failure of the management to
act upon. This recommendation gave rise to the presumption that
the crime was foreseeable. Such inaction constitutes negligence
or want of reasonable care demanded of it in that particular
situation.

The failure to observe for the protection of the interests of

another person that degree of care, precaution and vigilance,
which the circumstances justly demand, whereby such person
suffers injury.

Application of the premises liability rule.

Negligence is want of care required by the circumstances. It is a

relative or comparative, not an absolute term, and its application
depends upon the situation of the parties, and the degree of care
and vigilance which the circumstances reasonably impose.
Where the danger is great, a high degree of care is necessary.
Moreover, in applying the premises liability rule in the instant
case as it is applied in some jurisdictions in the United States, it
is enough that guests are injured while inside the hotel premises
to make the hotelkeeper liable. With great caution should the
liability of the hotelkeeper be enforced when a guest died inside
the hotel premises.

Makati Shangri-La Hotel, to stress, is a five-star hotel. The

“reasonable care” that it must exercise for the safety and comfort
of its guests should be commensurate with the grade and quality
of the accommodation it offers. If there is such a thing as “five-
star hotel security”, the guests at Makati Shangri-La surely
deserve just that!

When one registers as a guest of a hotel, he makes the

establishment the guardian of his life and his personal
belongings during his stay. It is a standard procedure of the
management of the hotel to screen visitors who call on their
guests at their rooms. The murder of Harper could have been
avoided had the security guards of the Shangri-La Hotel in
Makati dutifully observed this standard procedure.” (Shangri-La
Hotel & Resort, Inc. v. Harper, et al., G.R. No. 189998, August
29, 2012, Bersamin, J).

Negligence of bank in releasing proceeds of check before the

15-day period of clearing; liable.

Q – A check in the amount of US$300,000.00 was deposited

with an account at the PNB to accommodate a friend. Before it
was deposited, they were informed that it normally takes 15
days before it is cleared. Five (5) days later, the foreign bank
sent an advice to PNB that the proceeds had been temporarily
credited to PNB’s account, hence, the amount was released
immediately. But later on the foreign bank sent a message to
PNB that the check was dishonored due to insufficient funds.
The account holder asked that the funds be refunded to her but
there was failure of the owner of the check to do so. PNB
demanded for the refund of the amount but since there was
failure to do so, a complaint for sum of money was filed. It was
contended that if not refunded, there would be solutio indebiti.
Can PNB recover? Why?

Answer: No, because the proximate cause was its own

negligence in the release of the funds before the lapse of the 15-
day clearing contrary to established banking rules and practice.
The payment of the amounts of checks without previously
clearing them with the drawee bank especially so where the
drawee bank is a foreign bank and the amounts involved were
large is contrary to normal or ordinary banking practice. (Banco
Atlantico v. Audito General, 171 Phil. 298 (1978)). Also, in
Associated Bank v. Tan, 487 Phil. 512 (2004), wherein the bank
allowed the withdrawal of the value of a check prior to its
clearing, it was said that “before the check shall have been
cleared for deposit, the collecting bank can only ‘assume’ at its
own risk x x x that the check would be cleared and paid out.”
The delay in the receipt by PNB of the message notifying it of
the dishonor of the subject check is of no moment, because had
PNB waited for the expiration of the clearing period and had
never released during that time the proceeds of the check, it
would have already been duly notified of its dishonor. Clearly,
PNB’s disregard of its preventive and protective measure against
the possibility of being victimized by bad checks had brought
upon itself the injury of losing a significant amount of money.

It bears stressing that “the diligence required of banks is more

than that of a Roman pater familias or a good father of a family.
The highest degree of diligence is expected.” (PNB v.
Chowking Food Cop., G.R. No. 177526, July 4, 2008, 557
SCRA 318). PNB miserably failed to do its duty of exercising
extraordinary diligence and reasonable business prudence. The
disregard of its own banking policy amounts to gross
negligence, which the law defines as “negligence characterized
by the want of even slight care, acting or omitting to act in a
situation where there is duty to act, not inadvertently but
wilfully and intentionally with a conscious indifference to
consequences in so far as other persons may be affected.” With
regard to collection or encashment of checks, suffice it to say
that the law imposes on the collecting bank the duty to scrutinize
diligently the checks deposited with it for the purpose of
determining their genuineness and regularity. “The collecting
bank, being primarily engaged in banking, holds itself out to the
public as the expert on this field, and the law thus holds it to a
high standard of conduct.” (Metropolitan Bank v. Phil. Bank of
Communications, G.R. Nos. 141088 & 141429, October 18,
2007). A bank is expected to be an expert in banking
procedures and it has the necessary means to ascertain whether a
check, local or foreign, is sufficiently funded.

Incidentally, PNB obliged the spouses Cheah to return

the withdrawn money under the principle of solutio indebiti,
which is laid down in Article 2154 of the Civil Code:

Art. 2154. If something is received when there is no right to

demand it, and it was unduly delivered through mistake, the
obligation to return it arises.

“The indispensable requisites of the juridical relation known as

solutio indebiti, are, (a) that he who paid was not under
obligation to do so; and (b) that the payment was made by
reason of an essential mistake of fact.

PNB cannot recover the proceeds of the check under the

principle it invokes. In the first place, the gross negligence of
PNB, can never be equated with a mere mistake of fact, which
must be something excusable and which requires the exercise of
prudence. No recovery is due if the mistake done is one of gross
negligence. (PNB v. Chong, et al., G.R. No. 170865; Sps.
Chong, et al. v. PNB, G.R. No. 170892, April 25, 2012).

The spouses Cheah are guilty of contributory negligence and are

bound to share the loss with the bank

“Contributory negligence is conduct on the part of the

injured party, contributing as a legal cause to the harm he has
suffered, which falls below the standard to which he is required
to conform for his own protection.” (Valenzuela v. CA, 323
Phil. 374 (1996)).

Account holder is credulousness blameworthy. She failed to

observe caution in giving her full trust in accommodating a
complete stranger and this led her and her husband to be
swindled. Considering that the owner of the check was not
personally known to her and the amount of the foreign check to
be encashed was $300,000.00, a higher degree of care is
expected of her which she, however, failed to exercise under the
circumstances. Another circumstance which should have goaded
her to be more circumspect in her dealings was when a bank
officer called her up to inform that the Bank of America check
has already been cleared way earlier than the 15-day clearing
period. The fact that the check was cleared after only eight
banking days from the time it was deposited or contrary to what
was told her that clearing takes 15 days should have already put
Ofelia on guard. She should have first verified the regularity of
such hasty clearance considering that if something goes wrong
with the transaction, it is she and her husband who would be put
at risk and not the accommodated party. However, she chose to
ignore the same and instead actively participated in immediately
withdrawing the proceeds of the check. (PNB case).

DAMAGES

In the absence of a positive duty there could be no breach; no

liability for damages.

Q – The spouses Serfino invoke American common law that

imposes a duty upon a bank receiving a notice of adverse claim
to the fund in a depositor’s account to freeze the account for a
reasonable length of time, sufficient to allow the adverse
claimant to institute legal proceedings to enforce his right to the
fund. In other words, the bank has a duty not to release the
deposits unreasonably early after a third party makes known his
adverse claim to the bank deposit. Acknowledging that no such
duty is imposed by law in this jurisdiction, the spouses Serfino
asked the Court to adopt this foreign rule. Is the contention
correct? Why?

Answer: No. To adopt the foreign rule, however, goes beyond

the power of the Court to promulgate rules governing pleading,
practice and procedure in all courts. (Art. VIII, Sec. 5(5),
Constitution)). The rule reflects a matter of policy that is better
addressed by the other branches of government, particularly, the
Bangko Sentral ng Pilipinas, which is the agency that supervises
the operations and activities of banks, and which has the power
to issue “rules of conduct or the establishment of standards of
operation for uniform application to all institutions or functions
covered.” (Sec. 4.1, A 8791, The General Banking Act of 2000).
To adopt this rule will have significant implications on the
banking industry and practices, as the American experience has
shown. Recognizing that the rule imposing duty on banks to
freeze the deposit upon notice of adverse claim adopts a policy
adverse to the bank and its functions, and opens it to liability to
both the depositor and the adverse claimant, many American
states have since adopted adverse claim statutes that shifted or,
at least, equalized the burden. Essentially, these statutes do not
impose a duty on banks to freeze the deposit upon a mere notice
of adverse claim; they first require either a court order or an
indemnity bond.

In the absence of a law or a rule binding on the Court, it has no

option but to uphold the existing policy that recognizes the
fiduciary nature of banking. It likewise rejects the adoption of a
judicially-imposed rule giving third parties with unverified
claims against the deposit of another a better right over the
deposit. As current laws provide, the bank’s contractual relations
are with its depositor, not with the third party; (Gendler v.
Sibley State Bank, 62 F. Supp. 805 (1945) “a bank is under
obligation to treat the accounts of its depositors with meticulous
care and always to have in mind the fiduciary nature of its
relationship with them.” (Prudential Bank v. Lim, G.R. No.
136371, November 11, 2005, 511 SCRA 100). In the absence of
any positive duty of the bank to an adverse claimant, there could
be no breach that entitles the latter to moral damages. (Serfino v.
FEBTC, et al., G.R. No. 171845, October 10, 2012, Brion, J).