Final Digests

OBLIGATIONS AND CONTRACTS
Based on the lectures of Atty. Alabastro and annotated book of Justice Paras
ARTICLE 1106
By prescription, one acquires ownership and other real
rights through the lapse of time in the manner and
under the conditions laid down by law.
In the same way, rights and actions are lost by

prescription.
PRESCRIPTION
It is a mode of acquiring or losing ownership and other real rights through the lapse of time in the manner and under the conditions
laid down by law. The possession should be:
(a) In the concept of an owner
(b) Public
(c) Peaceful
(d) Uninterrupted
(e) Adverse
It is an extraordinary mode of acquiring ownership thus the period must be shown clearly.
2 KINDS OF PRESCRIPTION
One is acquisitive, that is, the acquisition of a right by the lapse of time as expounded in paragraph 1, Article 1106. Acquisitive
prescription is also known as adverse possession and usucapcion.
The other kind is extinctive prescription whereby rights and actions are lost by the lapse of time as defined in paragraph 2,
Article 1106 and Article 1139. Another name for extinctive prescription is litigation of action.
These two kinds of prescription should not be interchanged.
Classification of Prescription
As to whether rights are acquired or lost
1. Acquisitive prescription
a. Ordinary prescription
b. Extraordinary prescription
2. Extinctive prescription
As to the object or subject matter
1. Prescription of property
a. Real property
b. Personal rights
2. Prescription of rights
Distinctions between PRESCRIPTION AND LACHES
The defense of laches applies independently of prescription.
Laches is different from the statute of limitations. Prescription is concerned with the fact of delay, whereas laches is concerned with
the effect of delay.
1
Prescription is a matter of time; laches is principally a question of inequity of permitting a claim to be enforced, this inequity being
founded on the same change in the condition of the property or the relation of the parties. Prescription is statutory; laches is not.
Laches applies in equity, whereas prescription applies at law. Prescription is based on fixed time;
laches is not.
LACHES
Laches is the failure or neglect, for an unreasonable length of time, to do that which, by exercising due diligence, could or should
have been done earlier.
It is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it
either has abandoned it or declined to assert it.
2
PANGASINAN v. ALMAZORA
761 S 220 (MENDOZA)
PRINCIPLE: The law aids the vigilant, not those who slumber on their rights.
FACTS
The subject property is a parcel of land with an area of 572 square meters located in Brgy. Sto. Domingo, Biñan, Laguna. It was
registered in the name of Aquilina Martinez (Aquilina) under Transfer Certificate of Title (TCT) No. T-18729 by the Register of
Deeds of Laguna on July 29, 1939.
After the liberation of Manila from the Japanese military occupation in 1945, Aquilina and her maternal grandmother, Leoncia
Almendral (Leoncia), learned that their house on Zabala Street, Tondo, Manila, was ruined by the war. To rebuild their house, they
borrowed money from their relative, Conrado Almazora (Conrado). Thus, their house was reconstructed. In return, Leoncia
entrusted to Contrado the owner’s duplicate copy of TCT No. T-18729 covering the subject property in Biñan, Laguna.
Consequently, Conrado and his family remained in the said property.
Following the death of Aquilina on July 19, 1949, the title of the subject property was transferred to Aurora Morales-
Vivar (Aurora), as her sole heir. Accordingly, TCT No. T-35280 was issued in the name of Aurora after TCT No. T-18729 was
cancelled. On February 7, 1972, Conrado passed away.
Sometime in 1994, Aurora learned from Cristina Almazora (Cristina), the widowed spouse of Conrado, that the title of the subject
property had long been transferred in the name of Conrado and that the subject property had been sold to Fullway Development
Corporation (Fullway) by the heirs of Conrado in consideration of P4,000,000.00.
Aurora was shocked to learn that the subject property was already transferred to Conrado and sold for a meager amount. On
October 30, 1995, she sent a letter to the heirs of Conrado demanding the delivery of the payment they received for the sale of the
subject property; but it was unheeded.
On May 9, 1996, Aurora together with her husband, Arturo, filed a complaint for damages against Cristina and the other heirs of
Conrado (respondents) before the RTC. They contended that the owner’s duplicate copy of TCT No. T-18729 was only given to
Conrado for safekeeping. The complaint, however, admitted that the family of Conrado had been staying on, and using, the subject
property since 1912 with the permission and generosity of Aquilina and Leoncia.
Aurora asserted that, through the years, she repeatedly asked Conrado to return the owner’s copy of the title but the latter
procrastinated, giving all kinds of excuses, until he died in 1972; that thereafter, Aurora asked Cristina for the copy of the title but
the latter also ignored her request; that the subsequent sale of the subject property to Fullway was without Aurora’s authorization,
and, thus, the payment received by respondents for the sale of the subject property should be turned over to her; and that she
prayed for moral and exemplary damages.
On June 24, 1996, respondents filed their answer with compulsory counterclaim. They countered that the subject property was
properly transferred to Conrado under TCT No. 35282, and, thereafter, in the names of the heirs of Conrado under TCT No. T-
114352. Respondents averred that the imputation of fraud on the part of Conrado in the registration of the subject property was
baseless and this assertion of fraud was not transmissible from Conrado to his heirs, who merely acquired the property through
succession.
Respondents raised some special and affirmatives defenses, among others, that the complaint stated no cause of action and was
barred by prescription. A preliminary hearing for the said defenses was set by the RTC. In the Order, dated May 27, 1999, the RTC
ruled that the complaint stated a cause of action.
Respondents filed a petition for certiorari to assail the said interlocutory order of the RTC before the CA. In its Decision, dated
February 24, 1999, the CA denied the same and held that the complaint stated a cause of action, which was an action for damages
3
arising from fraud committed by Conrado, as trustee, against Aurora, as cestui que trust. The CA further held that the complaint, on
its face, did not show that the action had prescribed.
Meanwhile, the RTC continued the proceedings and set the case for trial on the merits. After the parties adduced their respective
pieces of evidence, the RTC required them to submit their memoranda. Only respondents filed a memorandum.
Petitioners challenge the findings of laches, prescription and lack of bad faith by the CA
ISSUE
I. Does Pangasinan’s (children of Aurora) action barred by laches?
II. Does the action of Pangasinan and Borromeo already prescribed?
RULING
I. Petitioners are barred by laches.
The four (4) elements of laches are as follows:
(1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation of which complaint is made
for which the complaint seeks a remedy;
(2) delay in asserting the complainant’s rights, the complainant having had knowledge or notice, of the defendant’s conduct and
having been afforded an opportunity to institute a suit;
(3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit;
and
(4) injury or prejudice to the defendant in the event relief is accorded to the complainant, or the suit is not held to be barred.
In the case at bench, the CA correctly held that all the elements of laches were present.
First, Aurora and her family entrusted to Conrado the owner’s duplicate of the certificate of title of the subject property in 1945. In
their complaint, petitioners even admitted that Conrado’s family had been staying in the subject property since 1912.
Second, it took five decades, from 1945 to 1996, before Aurora and petitioners decided to enforce their right thereon.
Third, respondents who lived all their lives in the disputed property apparently were not aware that Aurora would one day come out
and claim ownership thereon.
Fourth, there was no question that Almazora and Conrado’s heirs would be prejudiced in the event that the suit would be allowed
to prosper.
The contention of petitioners that they were not in delay in claiming their rights over the subject property is specious. For 50
years, Aurora and her heirs did not take any legal step to uphold their claim over the subject property, despite being
fully aware that Conrado and his family were occupying the same for a very long time . Even petitioner Consuelo Vivar-
Pangasinan testified that Conrado had been using the property for 30 years and that Aurora had never shown her any evidence of
ownership of the property.
In their complaint, Aurora claimed that she repeatedly reminded Conrado to return the copy of the title. This, however, is a self-
serving allegation without any evidentiary substantiation. The two belated demand letters, dated October 30, 1995 and March 5,
1996, sent by Aurora’s lawyer before the institution of the present action, are the only tangible assertions of their claim to the
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property. Indeed, not a scintilla of proof was presented by Aurora and her heirs to establish that, for 50 years, they actively
manifested to reclaim the title and possession of the subject property.
A person, endowed with properties and entitlements, but chose to lie quietly as decades passed by, watching his property wither
away, allowing innocent bystanders to pick the fruits of his unguarded trees, instead of safeguarding his rights through the
accessibly and necessary legal means, does not deserve the protection of equity. The law aids the vigilant, not those who slumber
on their rights.
II.
On the basis of prescription of actions, the pending petition must also be denied. Petitioners argue that prescription shall
not lie against their action because a registered land under Section 47 of P.D. No. 1529 cannot be acquired through
prescription. The argument is patently erroneous.
There are two kinds of prescription provided in the Civil Code. One is acquisitive, that is, the acquisition of a right by the lapse
of time as expounded in paragraph 1, Article 1106. Acquisitive prescription is also known as adverse possession and usucapcion.
The other kind is extinctive prescription whereby rights and actions are lost by the lapse of time as defined in paragraph 2,
Article 1106 and Article 1139. Another name for extinctive prescription is litigation of action. These two kinds of prescription should
not be interchanged.
In a plethora of cases, the Court has held that Section 47 of P.D. No. 1529 covers acquisitive prescription. A registered land
therein can never be acquired by adverse possession. In the case at bench, however, it was extinctive prescription, and not
acquisitive prescription, which barred the action of petitioners. As the CA correctly held, the action must fail, not because
respondents adversely occupied the property, but because petitioners failed to institute their suit within the prescriptive
period under Article 1144 of the Civil Code.
To determine the applicable period of extinctive prescription, the nature and circumstances of the case should be considered.
According to petitioners, the owner’s duplicate certificate of title was given to Conrado for safekeeping in 1945. Allegedly, Conrado
employed fraud and bad faith when he drafted the Adjudication and Absolute Sale of a Parcel of Registered Land 39 on January 9,
1949, and transferred the title of the land to his name with the issuance of TCT No. 35282 on June 17, 1965; and because of the
purported fraud committed by Conrado against petitioners, an implied constructive trust was created by operation of law, with
Conrado as trustee and Aurora as cestui que trust.
Constructive trusts are created by the construction of equity in order to satisfy the demands of justice and prevent unjust
enrichment. Article 1456 of the Civil Code provides that a person acquiring property through fraud becomes, by operation of law, a
trustee of an implied trust for the benefit of the real owner of the property. It is now well-settled that the prescriptive period to
recover property obtained by fraud or mistake, giving rise to an implied trust under Article 1456 of the Civil Code, is 10 years
pursuant to Article 1144. The prescriptive period to enforce the constructive trust shall be counted from the alleged fraudulent
registration or date of issuance of the certificate of title over the property. The ten-year prescriptive period applies only if there is an
actual need to reconvey the property as when the plaintiff is not in possession of the property.
In this case, the ten-year prescriptive period is squarely applicable because Conrado and his family, not petitioners,
were in possession of the property. The subject property was registered in the name of Conrado on June 17, 1965, and this
should be the starting point of the ten-year period. Petitioners, thus, had until June 17, 1975 to enforce the implied trust and assert
their claim over the land. As properly held by the CA, petitioners belatedly instituted their judicial claim over the land on May 9,
1996. Indeed, with the lapse of the prescriptive period to file an action, petitioners could no longer seek relief from the courts.
5
PHIL-AIR CONDITIONING CENTER

V. RCJ LINES,
G.R. No. 193821, [November 23, 2015]
FACTS
On various dates between March 5, 1990, and August 29, 1990, petitioner Phil-Air sold to respondent RCJ Lines four Carrier Paris
240 air-conditioning units for buses ( units). The units included compressors, condensers, evaporators, switches, wiring, circuit
boards, brackets, and fittings.
6
The total purchases amounted to P1,240,000.00 as shown on a sales invoice dated November 5, 1990. 5 RCJ Lines paid
P400,000.00, leaving a balance of P840,000.00.
RCJ Lines accepted the delivery of the units, which Phil-Air then installed after they were inspected by RCJ Lines president Rolando
Abadilla, Sr.
Phil-Air allegedly performed regular maintenance checks on the units pursuant to the one-year warranty on parts and labor. After
some months from installation, Phil-Air supposedly boosted the capacity of the units by upgrading them to the Carrier Paris
280 model. It also purportedly repaired the control switch panel of one of the units for an additional cost of P60,000.00.
RCJ Lines issued three post-dated checks in favor of Phil-Air to partly cover the unpaid balance FOR A TOTAL OF P 734, 994.00.
All the post-dated checks were dishonored when Phil-Air subsequently presented them for payment . Check No. 479759 was
returned because it was drawn against insufficient funds, while Check Nos. 479760 and 479761 were returned because payments
were stopped.
Before presenting the third check for payment, Phil-Air sent a demand letter 11 to Rolando Abadilla, Sr. on April 7, 1992, asking him
to fund the post-dated checks.
On July 17, 1996, Phil-Air demanded payment from Rolando Abadilla, Jr., for the total amount of P734,994.00 plus interest, and
attorney's fees equivalent to 25% of the amount due. Phil-Air warned that it would take court action if payment is not made within
five days from demand.
In view of the failure of RCJ Lines to pay the balance despite demand, Phil-Air filed on April 1, 1998 the complaint for sum of money
with prayer for the issuance of a writ of preliminary attachment.
Phil-Air sought to recover from RCJ Lines:
a) The total amount of P840,000.00 exclusive of interest for the unpaid delivered air-conditioning units;
b) The amount of P60,000.00 for the unpaid repair services;
c) The total interest in the amount of P756,000.00 (P840,000.00 x 12% x 7 years + P60,000.00 x 12% x 7 years);
d) The sum equivalent to 25% of the total amount due as attorney's fees, plus P3,000.00 per court appearance; and
e) Costs of the suit.
In its answer with compulsory counterclaim, RCJ Lines admitted that it purchased the units in the total amount of PI,240,000.00 and
that it had only paid P400,000.00. It refused to pay the balance because Phil-Air allegedly breached its warranty.
RCJ Lines averred that the units did not sufficiently cool the buses despite repeated repairs. Phil-Air purportedly represented that
the units were in accord with RCJ Lines' cooling requirements as shown in Phil-Air's price quotation dated August 4, 1989. The price
quotation provided that full payment should be made upon the units' complete installation. Complete installation, according to RCJ
Lines, is equivalent to being in operational condition.
As it turned out, the Carrier Paris 240 model was not suited to the 45 to 49-seater buses operated by RCJ Lines. The units,
according to RCJ Lines, were defective and did not attain full operational condition.
Further, RCJ Lines claimed that it was also entitled to be reimbursed for costs and damages occasioned by the enforcement of the
writ of attachment.
RCJ Lines thus urged the RTC to order Phil-Air to pay (1) the replacement costs of the units; (2) lost profits for nine days from April
22 to April 30, 1999, resulting from the attachment of its two buses amounting to P207,000.00; 19 and (3) P64,390.00 for the
counter-bond premium, moral damages, exemplary damages and attorney's fees.ch
ISSUE
Does the claim of Phil-Air barred by laches?
7
RULING
In general, there is no room to apply the concept of laches when the law provides the period within which to enforce a claim or file
an action in court. Phil-Air's complaint for sum of money is based on a written contract of sale. The ten-year prescriptive
period under Article 1144 of the Civil Code thus applies.
In the present case, both parties admit the existence and validity of the contract of sale. They recognize that the price
quotation dated August 4, 1989, contained the terms and conditions of the sale contract. They also agree that the price and
description of the units were indicated on the sales invoice dated November 5, 1990. The sales were in fact consummated on
various dates between March 5, 1990 and August 29, 1990, as proved by several delivery receipts.
The Court therefore can resolve whether Phil-Air's action to enforce the contract was timely filed even in the apparent absence of a
formal or notarized deed of sale.
More significantly, Rolando Abadilla, Jr., admitted under oath that the sale was in writing.
We note that Phil-Air filed the complaint with the RTC on April 1, 1998. Counting from the date of the sales invoice, or from
the date of the delivery receipts, or even from the date of the price quotation, it is clear that the complaint was filed
within the ten-year prescriptive period. Contrary to the CA's ruling, laches does not apply.
Laches is defined as the failure or neglect for an unreasonable and unexplained length of time, to do that which by exercising due
diligence, could or should have been done earlier; it is negligence or omission to assert a right within a reasonable time, warranting
a presumption that the party entitled to assert it either has abandoned it or declined to assert it. 42
While the CA correctly held that prescription and estoppel by laches are two different concepts, it failed to appreciate the marked
distinctions between the two concepts.
On the one hand, the question of laches is addressed to the sound discretion of the court. The court resolves whether the claimant
asserted its claim within a reasonable time and whether its failure to do so warrants the presumption that it either has
abandoned it or declined to assert it. The court determines the claimant's intent to assert its claim based on its past actions or lack
of action. After all, what is invoked in instances where a party raises laches as a defense is the equity jurisdiction of the court.
On the other hand, if the law gives the period within which to enforce a claim or file an action in court, the court confirms whether
the claim is asserted or the action is filed in court within the prescriptive period. The court determines the claimant's intent to
assert its claim by simply measuring the time elapsed from the proper reckoning point (e.g., the date of the written contract) to the
filing of the action or assertion of the claim.
In sum, where the law provides the period within which to assert a claim or file an action in court, the assertion of the claim or
the filing of the action in court at any time within the prescriptive period is generally deemed reasonable, and thus,
does not call for the application of laches. As we held in one case, unless reasons of inequitable proportions are adduced ,
any imputed delay within the prescriptive period is not delay in law that would bar relief.
In Agra, et al. v. Philippine National Bank , we held that "[l]aches is a recourse in equity [and] is applied only in the absence,
never in contravention, of statutory law. Thus, laches cannot, as a rule, abate a collection suit filed within the prescriptive
period mandated by the Civil Code."
Agra involved an action for collection of a sum of money arising from an unpaid loan. In resisting payment, the sureties invoked
laches and maintained that the creditor-bank with full knowledge of the deteriorating financial condition of the principal debtor did
not take steps to collect from the latter while still solvent. The sureties thus argued that the creditor-bank's action was barred by
laches.
We found that the sureties failed to prove all the elements of laches, namely:
(1) conduct on the part of the defendant or one under whom he claims, giving rise to the situation of which complaint is made
and for which the complainant seeks a remedy;
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(2) delay in asserting the complainant's right, the complainant having had knowledge or notice of defendant's conduct and
having been afforded an opportunity to institute a suit;
(3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his
claim; and
(4) injury or prejudice to the defendant in the event relief is accorded to the complainant, or the suit is not held barred.
Examining these elements, we found that only the first element was present. There was no delay ( second element) because the
creditor-bank filed the action within the ten-year prescriptive period. Since the claim was timely filed, the defendants did not lack
notice that the creditor-bank would assert its claim ( third element). Nor was the assertion of the right deemed injurious to the
defendants (fourth element); the creditor-bank could assert its claim at any time within the prescriptive period.
The same conclusion holds true in the present case; not all the elements of laches are present. To repeat, Phil-Air filed
the complaint with the RTC on April 1, 1998. The time elapsed from August 4, 1989 (the date of the price quotation, which is the
earliest possible reckoning point), is eight years and eight months, well within the ten-year prescriptive period. There was simply
no delay (second element of laches) where Phil-Air can be said to have negligently slept on its rights.
More significantly, there is no basis for laches as the facts of the present case do not give rise to an inequitable situation that calls
for the application of equity and the principle of laches.
Art. 1107. Persons who are capable of acquiring

property or rights by the other legal modes may acquire
the same by means of prescription.
Minors and other incapacitated persons may acquire
property or rights by prescription, either personally or
through their parents, guardians or legal representatives
1108
ARTICLE 1108
Prescription, both acquisitive and extinctive runs against:
(1) Minors and other incapacitated persons who have
parents, guardians or other legal representatives;
(2) Absentees who have administrators, either
appointed by them before their disappearance, or
appointed by the courts;
(3) Persons living abroad, who have managers or
administrators;
(4) Juridical persons, except the State and its
subdivisions.
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Persons who are disqualified from administering their

property have a right to claim damages from their legal
representatives whose negligence has been the cause of
prescription.
1109
1110
1111
1112 – RENUNCIATION OF PRESCRIPTION ALREADY OBTAINED
Art. 1112. Persons with capacity to alienate property may

renounce prescription already obtained, but not the right
to prescribe in the future.
Prescription is deemed to have been tacitly renounced
when the renunciation results from acts which imply the
abandonment of the right acquired.
CALTEX-PHILIPPINES V. AGUIRRE, ET. AL. 787 S 73

(REYES)
FACTS
M/V Dona Paz was an inter-island passenger vessel owned and operated by Sulpicio Lines, Inc. (Sulpicio) traversing its Leyte to
Manila route on the night of December 20, 1987, when it collided with M/T Vector, a commercial tanker owned and operated by
Vector Shipping Corporation, Inc., (Vector Shipping).
On that particular voyage, M/T Vector was chartered by Caltex (Philippines) Inc., et al. (petitioners) to transport petroleum
products.
10
The collision brought forth an inferno at sea with an estimate of about 4,000 casualties, and was described as the "world's worst
peace time maritime disaster." It precipitated the filing of numerous lawsuits, the instant case included.
In its Order dated March 28, 2001, the RTC of Catbalogan, motu proprio dismissed the complaint pursuant to Section 1, Rule 9 of
the 1997 Rules of Civil Procedure as the respondents' cause of action had already prescribed. In an unusual turn of events however,
the petitioners as defendants therein, who were not served with summons, filed a motion for reconsideration, alleging that they are
waiving their defense of prescription, among others. The RTC of Catbalogan, however, merely noted the petitioners' motion.
Following the Louisiana Court's order, the respondents filed a motion for intervention on May 6, 2002, and a complaint in
intervention on May 13, 2002 with the pending consolidated cases before the RTC of Manila. Also, co-defendants in the
consolidated cases, Sulpicio and Steamship were furnished with a copy of the respondents' motion to intervene.
In their Manifestation dated April 24, 2002, the petitioners unconditionally waived the defense of prescription of the respondents'
cause of action
The RTC of Manila ruled that the RTC of Catbalogan had already dismissed the case with finality; that a final and executory
prior judgment is a bar to the filing of the complaint in intervention of the respondents; and that the waivers of the defense of
prescription made by the petitioners, Sulpicio and Steamship are of no moment. The motion for reconsideration filed by
the petitioners, Sulpicio and Steamship was denied as well on August 30, 2002.
The Parties' Arguments
CALTEX contended that not all the elements of res judicata are present in this case which would warrant its application as the RTC
of Catbalogan did not acquire jurisdiction over their persons and that the judgment therein is not one on the merits.
It was also adduced that only the respondents were heard in the RTC of Catbalogan because when the petitioners filed their motion
for reconsideration, the order of dismissal was already final and executory.
CALTEX also bewailed that other complaints were accepted by the RTC of Manila in the consolidated cases despite prescription of
the cause of action and that the real issue of merit is whether the defense of prescription that has matured can be waived.
They explained that they were not able to file for the annulment of judgment or order of the RTC of Catbalogan since the
respondents precluded them from seeking such remedy by filing a motion for intervention in the consolidated cases before the RTC
of Manila
ISSUES
I. Whether the defense of prescription of Caltex Philippines that has matured can be waived if there is already a final
judgment?
II. Does Aguirre’s cause of action already prescribed?
RULING
No.
I. The petition lacks merit.
The petitioners (Sulpicio and Steamship) cannot be permitted to assert their right to waive the defense of prescription when they
had foregone (RENOUNCED) the same through their own omission. Caltex Philippines abandoned their right to waive the defense of
prescription when they failed to file their oppositions or an action to have the orders of the RTC of Catbalogan
annulled.
The petitioners posit that there is a conflict between a substantive law and procedural law in as much as waiver of prescription is
allowed under Article 1112 of the Civil Code, a substantive law even though the motu proprio dismissal of a claim that has
prescribed is mandated under Section 1, Rule 9 of the Rules of Court.
The Court has previously held that the right to prescription may be waived or renounced pursuant to Article 1112 of the
Civil Code:
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Art. 1112. Persons with capacity to alienate property may renounce prescription already obtained, but not the right to prescribe in
the future.
Prescription is deemed to have been tacitly renounced when the renunciation results from acts which imply the
abandonment of the right acquired.
In the instant case, not only once did the petitioners expressly renounce their defense of prescription. Nonetheless, the Court
cannot consider such waiver as basis in order to reverse the rulings of the courts below as the dismissal of the complaint had
become final and binding on both the petitioners and the respondents.
It is not contested that the petitioners were not served with summons by the RTC of Catbalogan prior to the motu proprio dismissal
of the respondents' complaint. It is basic that courts acquire jurisdiction over the persons of defendants or respondents, by a valid
service of summons or through their voluntary submission. Not having been served with summons, the petitioners were not initially
considered as under the jurisdiction of the court. However, the petitioners voluntarily submitted themselves under the jurisdiction of
the RTC of Catbalogan by filing their motion for reconsideration.
II.
Article 1106 of the Civil Code provides that "[b]y prescription, one acquires ownership and other real rights through the lapse of
time in the manner and under the conditions laid down by law. In the same way, rights and conditions are lost by prescription." The
first sentence refers to acquisitive prescription, which is a mode of "acquisition of ownership and other real rights through the lapse
of time in the manner and under the conditions provided by law." The second sentence pertains to extinctive prescription "whereby
rights and actions are lost by the lapse of time." 38 It is also called limitation of action. 39
This case involves the latter type of prescription, the purpose of which is to protect the diligent and vigilant, not the person who
sleeps on his rights, forgetting them and taking no trouble of exercising them one way or another to show that he truly has such
rights.
The rationale behind the prescription of actions is to suppress fraudulent and stale claims from springing up at great distances of
time when all the proper vouchers and evidence are lost or the facts have become obscure from the lapse of time or defective
memory or death or removal of witnesses.
There is no dispute that Aguirre’s cause of action against Caltex Philippines has prescribed under the Civil Code. In fact,
the same is evident on the complaint itself. The respondents brought their claim before a Philippine court only on March 6, 2001,
more than 13 years after the collision occurred. Article 1139 of the Civil Code states that actions prescribe by the mere lapse
of time fixed by law. Accordingly, the RTC of Catbalogan cannot be faulted for the motu proprio dismissal of the complaint filed
before it. It is settled that prescription may be considered by the courts motu proprio if the facts supporting the ground are
apparent from the pleadings or the evidence on record.
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1113 – OBJECT OF PRESCRIPTION
ARTICLE 1113
All things which are within the commerce of man are
susceptible of prescription, unless otherwise provided.
Property of the State or any of its subdivisions not

patrimonial in character shall not be the object of
prescription.
RE: PROPERTY OF THE STATE
REPUBLIC v. ESPINOSA
GR#171514 07/18/2012
FACTS
Respondent Domingo Espinosa (Espinosa) filed with the Municipal Trial Court (MTC) of Consolacion, Cebu an application for land
registration covering a parcel of land
Espinosa alleged that: (a) the property... is alienable and disposable; (b) he purchased the property from... his mother, Isabel
Espinosa (Isabel),... and the latter's other heirs had waived their rights thereto; and (c) he and his predecessor-in-interest had been
in possession of the property in the concept of an owner for more than thirty (30) years.
Espinosa submitted the blueprint of Advanced Survey Plan... to prove the identity of the land.
As proof that the property is alienable and disposable, he marked as evidence the annotation on the advance survey plan made by
Cynthia L. Ibañez, Chief... of the Map Projection Section
Espinosa also presented two (2) tax declarations
Petitioner opposed Espinosa's application, claiming that: (a) Section 48(b) of Commonwealth Act No. 141 otherwise known as the
"Public Land Act" (PLA) had not been complied with as Espinosa's predecessor-in-interest possessed the property only
after June 12, 1945; and (b) the... tax declarations do not prove that his possession and that of his predecessor-in interest are in
the character and for the length of time required by law.
The MTC rendered a Judgment granting Espinosa's petition for registration
According to... petitioner, that Espinosa and his predecessor-in-interest were supposedly in possession for more than thirty (30)
years is inconsequential absent proof that such possession began on June 12, 1945 or earlier.
Petitioner also claimed that Espinosa's failure to present the original tracing cloth of the survey plan or a sepia copy thereof is
fatal to his application.
13
petitioner argued that the submission of the original tracing cloth is mandatory in establishing the identity of the land subject of the
application.
Further, petitioner claimed that the annotation on the advance survey plan is not the evidence admissible to prove that the subject
land is alienable and disposable.
The CA dismissed petitioner's appeal and affirmed the MTC Decision
The lower courts were unanimous in holding that Espinosa's application is anchored on Section 14(1) of P.D. No. 1529 in relation to
Section 48(b) of the PLA and the grant thereof is warranted in view of evidence supposedly showing his compliance with the
requirements... thereof.
Petitioner entreats this Court to reverse and set aside the CA’s assailed decision and attributes the following errors: (a) Espinosa
failed to prove by competent evidence that the subject property is alienable and disposable; (b) jurisprudence dictates that a survey
plan identifies the property in preparation for a judicial proceeding but does not convert the property into alienable, much less,
private; (c) under Section 17 of P.D. No. 1529, the submission of the original tracing cloth plan is mandatory to determine the exact
metes and bounds of the property; and (d) a blueprint copy of the survey plan may be admitted as evidence of the identity and
location of the property only if it bears the approval of the Director of Lands.
Issue
Does Espinosa able to prove that the subject property is patrimonial?
RULING
The Court reversed the ruling of the lower courts.
Espinosa failed to prove that: (a) Isabel's possession of the property dated back to June 12, 1945 or earlier; and (b) the property is
alienable and disposable. On the other hand, applying Section 14(2) of P.O. No. 1529, Espinosa failed to prove that the
property is patrimonial.
I.
Being clear that it is Section 14(2) of P.D. No. 1529 that should apply, it follows that the subject property being supposedly
alienable and disposable will not suffice. As Section 14(2) categorically provides, only private properties may be acquired thru
prescription and under Articles 420 and 421 of the Civil Code, only those properties, which are not for public use, public service or
intended for the development of national wealth, are considered private. In Heirs of Mario Malabanan v. Republic, this Court held
that there must be an official declaration to that effect before the property may be rendered susceptible to
prescription:
Nonetheless, Article 422 of the Civil Code states that "property of public dominion, when no longer intended for public use or for
public service, shall form part of the patrimonial property of the State." It is this provision that controls how public dominion
property may be converted into patrimonial property susceptible to acquisition by prescription. After all, Article 420(2)
makes clear that those property "which belong to the State, without being for public use, and are intended for some public service
or for the development of the national wealth" are public dominion property. For as long as the property belongs to the State,
although already classified as alienable or disposable, it remains property of the public dominion if when it is "intended for some
public service or for the development of the national wealth."
Accordingly, there must be an express declaration by the State that the public dominion property is no longer intended for public
service or the development of the national wealth or that the property has been converted into patrimonial . Without such express
declaration, the property, even if classified as alienable or disposable, remains property of the public dominion, pursuant to Article
420(2), and thus incapable of acquisition by prescription.
14
It is only when such alienable and disposable lands are expressly declared by the State to be no longer intended for public service
or for the development of the national wealth that the period of acquisitive prescription can begin to run. Such declaration shall be
in the form of a law duly enacted by Congress or a Presidential Proclamation in cases where the President is duly authorized by law.
Thus, granting that Isabel and, later, Espinosa possessed and occupied the property for an aggregate period of thirty (30) years,
this does not operate to divest the State of its ownership. The property, albeit allegedly alienable and disposable, is not
patrimonial. As the property is not held by the State in its private capacity, acquisition of title thereto necessitates observance of
the provisions of Section 48(b) of the PLA in relation to Section 14(1) of P.D. No. 1529 or possession and occupation since June 12,
1945.
For prescription to run against the State, there must be proof that there was an official declaration that the subject
property is no longer earmarked for public service or the development of national wealth.
Moreover, such official declaration should have been issued at least ten (10) or thirty (30) years, as the case may be, prior to the
filing of the application for registration. The period of possession and occupation prior to the conversion of the property to
private or patrimonial shall not be considered in determining completion of the prescriptive period.
Indeed, while a piece of land is still reserved for public service or the development of national wealth, even if the same is alienable
and disposable, possession and occupation no matter how lengthy will not ripen to ownership or give rise to any title that would
defeat that of the State’s if such did not commence on June 12, 1945 or earlier.
II.
P.D. No. 1073, in effect, repealed R.A. No. 1942 such that applications under Section 48(b) of the PLA filed after the promulgation
of P.D. No. 1073 should allege and prove possession and occupation that dated back to June 12, 1945 or earlier.
In this case, the lower courts concluded that Espinosa complied with the requirements of Section 48(b) of the PLA in relation
to Section 14(1) of P.D. No. 1529 based on supposed evidence that he and his predecessor-in-interest had been in possession of
the property for at least thirty (30) years prior to the time he filed his application.
However, there is nothing on record showing that as of January 25, 1977 or prior to the effectivity of P.D. No. 1073,
he or Isabel had already acquired title by means of possession and occupation of the property for thirty (30) years .
On the contrary, the earliest tax declaration in Isabel’s name was for the year 1965 indicating that as of January 25, 1977, only
twelve (12) years had lapsed from the time she first came supposedly into possession.
HEIRS OF DELFIN v. NHA

810 S 478 (LEONEN)
FACTS
National Housing Authority occupied the property in Iligan allegedly owned by Delfin Spouses. They claimed that they were the
owners of a 28,800 square meter parcel of land in Townsite, Suarez, Iligan City (the "Iligan Property"). They allegedly bought
the property in 1951 from Felix Natingo and Carlos Carbonay, who, allegedly, had been in actual possession of the property since
time immemorial.
The Delfin Spouses had been declaring the Iligan Property in their names for tax purposes since 1952, and had been planting it
with mangoes, coconuts, corn, seasonal crops, and vegetables.
They farther alleged that, sometime in 1982, respondent National Housing Authority forcibly took possession of a 10,798
square meter portion of the property. Despite their repeated demands for compensation, the National Housing Authority failed
to pay the value of the property. The Delfin Spouses thus, filed their Complaint.
Heirs of Delfin argue that they and their predecessors-in-interests' open, continuous, exclusive, and notorious possession of the
Iligan Property for more than 30 years converted the property from public to private. They then posit that they acquired ownership
of the property through acquisitive prescription under Section 14(2) of Presidential Decree No. 1529.
15
Heirs of Delfin also assert that the Court of Appeals disregarded certifications and letters from government agencies, which support
their claims, particularly, their and their predecessors-in-interest's possession since June 12, 1945.
NHA counters, citing the Court of Appeals Decision, that Heirs of Delfin cannot rely on Section 14(2) of Presidential Decree No. 1529
because the property was not yet declared private land when Heirs of Delfin filed their Complaint.
ISSUE
Do the Heirs of Delfin and their predecessors-in-interests have been in possession of the Iligan Property for such duration and
under such circumstances as will enable them to claim ownership?
RULING
Petitioners are erroneously claiming title based on acquisitive prescription under Section 14(2) of Presidential Decree No. 1529. But
they can claim title through the Public Land Act.
For acquisitive prescription to set in pursuant to Section 14(2) of Presidential Decree No. 1529, two (2) requirements must be
satisfied:
first, the property is established to be private in character; and
second the applicable prescriptive period under existing laws had passed.
Property - such as land - is either of public dominion or private ownership.
"Land is considered of public dominion if it either: (a) is intended for public use; or (b) belongs to the State, without being for public
use, and is intended for some public service or for the development of the national wealth." Land that belongs to the state but
which is not or is no longer intended for public use, for some public service or for the development of the national wealth, is
patrimonial property; it is property owned by the State in its private capacity. Provinces, cities, and municipalities may also hold
patrimonial lands.
Private property "consists of all property belonging to private persons, either individually or collectively," as well as "the patrimonial
property of the State, provinces, cities, and municipalities."
Accordingly, only publicly owned lands which are patrimonial in character are susceptible to prescription under Section 14(2) of
Presidential Decree No. 1529. Consistent with this, Article 1113 of Civil Code demarcates properties of the state, which are not
patrimonial in character, as being not susceptible to prescription:
Art. 1113. All things which are within the commerce of men are susceptible of prescription, unless provided. Property of the State
or any of its subdivisions not patrimonial in character shall not be the object of prescription.
Contrary to petitioners' theory then, for prescription to be viable, the publicly-owned land must be patrimonial or private in
character at the onset. Possession for thirty (30) years does not convert it into patrimonial property.
For land of the public domain to be converted into patrimonial property, there must be an express declaration - "in
the form of a law duly enacted by Congress or a Presidential Proclamation in cases where the President is duly
authorized by law" - that "the public dominion property is no longer intended for public service or the development of the
national wealth or that the property has been converted into patrimonial."
Attached to the present Petition was a copy of a May 18, 1988 supplemental letter to the Director of the Land Management Bureau.
This referred to an executive order, which stated that petitioners' property was no longer needed for any public or quasi-public
purposes.
However, a mere indorsement of the executive secretary is not the law or presidential proclamation required for converting land of
the public domain into patrimonial property and rendering it susceptible to prescription. There then was no viable declaration
rendering the Iligan property to have been patrimonial property at the onset. Accordingly, regardless of the length of petitioners'
possession, no title could vest on them by way of prescription.
16
II.
While petitioners may not claim title by prescription, they may, nevertheless, claim title pursuant to Section 48 (b) of
Commonwealth Act No. 141 (the Public Land Act).
Section 48(b) of the Public Land Act therefore requires that two (2) requisites be satisfied before claims of title to public domain
lands may be confirmed:
first, that the land subject of the claim is agricultural land;
and second, open, continuous, notorious, and exclusive possession of the land since June 12, 1945.
By virtue of Proclamation No. 2143 (erroneously referred to by respondent as Proclamation No. 2151) certain parcels of land in
Barrio Suarez, Iligan City were reserved for slum-improvement and resettlement program purposes. The proclamation
characterized the covered area as "disposable parcel of public land":
Clearly then, petitioners acquired title over the Iligan Property pursuant to Section 48(b) of the Public Land Act.
First, there is no issue that the Iligan Property had already been declared to be alienable and disposable land. Respondent
has admitted this and Deputy Public Land Inspector Pio Lucero, Jr.'s letters to the Director of Land attest to this.
Second, although the Delfin Spouses' testimonial evidence and tax declarations showed that their possession went only as far back
as 1952, Deputy Public Land Inspector Pio Lucero, Jr.'s letters to the Director of Land nevertheless attest to a previous finding that
the property had already been occupied as early as June 1945.
Having shown that the requisites of Section 48(b) of the Public Land Act have been satisfied and having established their rights to
the Iligan Property, it follows that Heirs of Delfin must be compensated by NHA for its taking.
REMEMBER:
Under Commonwealth Act No. 141, a claimant may
acquire alienable and disposable public land upon
evidence of exclusive and notorious possession of the
land since June 12, 1945.
The period to acquire public land by acquisitive

prescription under Presidential Decree No. 1529 begins to
run only after the promulgation of a law or a
proclamation by the President stating that the land is no
longer intended for public use or the development of
national wealth.
17
REPUBLIC v. MALIJAN-JAVIER
860 2 443 (LEONEN)
FACTS
This case involves Laureana and Iden's application for registration of land title over a parcel situated in Barangay Tranca, Talisay,
Batangas filed in June 2009 before the Municipal Circuit Trial Court of Talisay-Laurel, Batangas. The land, regarded as Lot No. 1591,
Cad. 729, Talisay Cadastre, had an area of 9,629 square meters. The application of Laureana and Iden was docketed as Land
Registration Case No. 09-001 (LRA Record No. N-79691).
On September 10, 2009, Republic of the Philippines (Republic) filed an Opposition to the application based on the following
grounds:
(1) Ne[i]ther the applicants nor their predecessors-in-interest have been in open, continuous, exclusive and notorious possession
and occupation of the land in question in the concept of an owner since June 12, 1945 or earlier;
(2) The tax declarations relied upon by appellees do not constitute competent and sufficient evidence of a bona fide acquisition of
the land by the appellees; and
(3) The parcel of land applied for is a land of public domain and, as such, not subject to private appropriation. 9
In the subsequent hearings, Laureana and Iden presented testimonial and documentary evidence to establish their ownership
claim. Laureana testified along with Juana Mendoza Banawa (Banawa), Ben Hur Hernandez (Hernandez), Loida Maglinao
(Maglinao), and Glicerio R. Canarias (Canarias)
Laureana alleged that she was married to Cecilio Javier (Cecilio) and that Iden was their son. She claimed that she and Cecilio (the
Spouses Javier) purchased the property from Spouses Antonio Lumbres and Leonisa Manaig (the Spouses Lumbres) on October 10,
1985. A Deed of Absolute Sale was executed to facilitate the transaction. They had the property fenced and planted with coconut,
antipolo, and duhat. She also claimed that they had paid its property taxes since 1986.
RTC and CA ruled in favor of Malijan-Javier. Hence, Republic filed a petition for review.
Republic asserts that land registration applicants should strictly comply with the requirements in proving that the land is alienable
and disposable. It maintains that for failing to submit the required document ("a copy of the original classification approved by
the Department of Environment and Natural Resources (DENR) Secretary and certified as true copy by its legal custodian)
not just the CENRO certification, respondents’ application should have been denied.
It also insists that Banawa's testimony and the tax declarations are not sufficient to prove that respondents' and their predecessors-
in-interest's possession and occupation of the property were "open, continuous, exclusive, and notorious ... under a bona fide claim
of ownership, since June 12, 1945 or earlier.
ISSUE
18
Does the trial court and the Court of Appeals erred in granting Laureana Malijan-Javier and Iden Malijan-Javier's application for
registration of property?
RULING
Yes. A CENRO or PENRO certification is not enough to establish that a land is alienable and disposable. It should be "accompanied
by an official publication of the DENR Secretary's issuance declaring the land alienable and disposable.’ The certification issued by
the DENR Secretary is necessary since he or she is the official authorized to approve land classification, including the release of land
from public domain.
As thoroughly explained in Republic v. Spouses Go:
[A]n applicant has the burden of proving that the public land has been classified as alienable and disposable. To do this, the
applicant must show a positive act from the government declassifying the land from the public domain and converting it into an
alienable and disposable land. "[T]he exclusive prerogative to classify public lands under existing laws is vested in the Executive
Department."
In this case, although Malijan-javier were able to present a CENRO certification, a DENR-CENRO report with the testimony of the
DENR officer who made the report, and the survey plan showing that the property is already considered alienable and disposable,
these pieces of evidence are still not sufficient to prove that the land sought to be registered is alienable and disposable. Absent
the DENR Secretary's issuance declaring the land alienable and disposable, the land remains part of the public
domain.
Thus, even if respondents have shown, through their testimonial evidence, that they and their predecessors-in-interest have been in
open, continuous, exclusive, and notorious possession and occupation of the property since June 12, 1945, they still cannot register
the land for failing to establish that the land is alienable and disposable.
- ------
Land registration is governed by Section 14 of Presidential Decree No. 1529 or the Property Registration Decree, which states:
Section 14. Who may apply. — The following persons may file in the proper Court of First Instance an application for registration of
title to land, whether personally or through their duly authorized representatives:
(1) Those who by themselves or through their predecessors in-interest have been in open, continuous, exclusive and notorious
possession and occupation of alienable and disposable lands of the public domain under a bona fide claim of ownership since June
12, 1945, or earlier.
Applicants whose circumstances fall under Section 14(1) need to establish only the following:
[F]irst, that the subject land forms part of the disposable and alienable lands of the public domain;
second, that the applicant and his predecessors-in-interest have been in open, continuous, exclusive and notorious possession and
occupation of the [land];
and third, that it is under a bona fide claim ownership since June 12, 1945, or earlier.
REMEMBER:
To establish that the land sought to be registered is
19
alienable and disposable,
1. applicants must "present a copy of the

original classification approved by the
[Department of Environment and Natural
Resources] Secretary and
2. certified as a true copy by the legal

custodian of the official records.
20
1118– POSSESSION IN THE CONCEPT OF AN OWNER
ART. 1118. Possession has to be in the concept of an

owner, public, peaceful and uninterrupted.
CANLAS V. REPUBLIC,
G.R. NO. 200894, [NOVEMBER 10, 2014]
FACTS
On August 22, 2006, petitioner Luzviminda A. Canlas (Canlas) applied for the original registration of title, under Presidential Decree
No. 1529, of the 9,751-square-meter parcel of land located in Barrio Macamot, Municipality of Binangonan, Province of Rizal, and
technically described as Cadastral Lot No. 11566, Psu-04-006561.
There was no opposition to Canlas’ application. Respondent Republic of the Philippines (Republic) did not submit its comment or
opposition despite the opportunity given by the trial court. The case was then submitted for decision where RTC granted the
registration of title of the land to Canlas.
Republic appealed and seek to reverse the RTC’s ruling. CA grants Republic appeal on the ground that Canlas was not able to prove
open, continuous, exclusive, and notorious possession and occupation of the property.
Canlas argued that she has duly overcome the burden of proof by showing open, continuous, exclusive, adverse, and notorious
possession and occupation of the property. This is allegedly shown in the following acts of Canlas and her predecessors-in-interest
since the 1900’s: declaring the property in their names, paying taxes due on the property, having the property surveyed, and
allowing the excavation in the property for the retrieval and hauling of “pulang lupa” for the making of clay pots.
Canlas argued further that “residence” is not synonymous with “possession and occupation” as implied by the Court of Appeals.
Presidential Decree No. 1529 does not require the applicant to reside on the land being registered. The law also
does not require that a relative of the applicant be present to oversee the property.
ISSUE
Whether petitioner Luzviminda A. Canlas has proven open, continuous, exclusive, and notorious possession and occupation of the
land described in plan Psu-04-006561?
RULING
Yes.
In this case, neither the trial court nor the Court of Appeals clarified under which paragraph of Section 14 of Presidential Decree No.
1529 the land was being registered. However, petitioner’s allegations in the application filed on August 22, 2006 established
Section 14(1) of Presidential Decree No. 1529 as her legal basis.
An applicant for land registration or judicial confirmation of incomplete or imperfect title under Section 14(1) of Presidential Decree
No. 1529 must prove the following requisites:
“(1) that the subject land forms part of the disposable and alienable lands of the public domain, and
21
(2) that [the applicant has] been in open, continuous, exclusive and notorious possession and occupation of the same under a
bona fide claim of ownership since June 12, 1945, or earlier.”
Concomitantly, the burden to prove these requisites rests on the applicant.
With regard to the first requisite, it is undisputed that the land subject of registration is part of the alienable and
disposable lands of the public domain. The trial court found the Department of Environment and Natural Resources’ report
sufficient to prove the existence of the first requisite. The Court of Appeals’ decision was silent on this matter. Respondent failed to
make objections on the issue as well. Thus, we do not see any reason to deviate from the findings of the lower courts.
As to the second requisite, petitioner claims that she “by herself, and through [her] predecessors-in-interest, had since June 12,
1945 or earlier[,] been in open[,] continuous, exclusive and notorious possession of the . . . parcel of land.” However, the Court of
Appeals found that petitioner failed to prove with sufficient evidence her open, continuous, exclusive, and notorious possession and
occupation of the land. Likewise, respondent argued that petitioner’s allegations of possession and occupation were mere
conclusions and unsubstantiated.
Canlas has sufficiently overcome the burden of proof required in a judicial confirmation of incomplete or imperfect title to land.
Contrary to respondent’s arguments, the trial court specifically found that petitioner’s possession and occupation, through
her predecessors-in-interest, started earlier than June 12, 1945. The trial court found:
Applicant’s evidence shows that she complied with the notice requirements (Exhibits “A” to [“]M,” inclusive of submarkings) and she
was able to substantiate the allegations in her application (Exhibits “N” to “II,” inclusive of submarkings). In a nutshell, applicant
acquired the property by inheritance from Honorio and Gregorio S. Apran and she and her predecessors-in-interest
have been in its continuous possession since 1900 (Exhibits “Q” to “HH,” inclusive of submarkings). . . . The testimonies of
the applicant and her witnesses proved that the applicant through her predecessors-in-interest have been in open, continuous,
exclusive and notorious possession of an alienable and disposable parcel of land of the public domain under a bona fide claim of
ownership for more than 30 years . After considering the report and the evidence, we find that the applicant has sufficient title
proper for registration, and we render judgment confirming it.
Possession involves committing acts of dominion over a parcel of land in such a way that an owner would perform
over his or her property. In explaining the nature of the terms “possession and occupation” provided in law, this court has held
that:
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. Actual possession of a land consists in the
manifestation of acts of dominion over it of such a nature as a party would naturally exercise over his own property.
Moreover, to qualify as open, continuous, exclusive, and notorious possession and occupation, the possession must be of the
following character:
OCEN
Possession is open when it is patent, visible, apparent, notorious and not clandestine. It is continuous when uninterrupted,
unbroken and not intermittent or occasional; exclusive when the adverse possessor can show exclusive dominion over the land and
an appropriation of it to his own use and benefit; and notorious when it is so conspicuous that it is generally known and talked of
by the public or the people in the neighborhood.
In reversing the trial court’s decision, the Court of Appeals found that petitioner “failed to address the issue of whether she had . . .
an open, continuous, exclusive and notorious possession and occupation of the subject property. . . . [Petitioner] could have
advanced proofs or arguments to the contrary.”
22
Thus, she “had not shown ‘any acts of occupation, development, cultivation or maintenance over the property.’”
This court puts more premium on the findings of the trial court that petitioner has sufficiently shown acts of dominion
before 1945 and throughout the years. It is settled that the trial court’s appreciation of the evidence presented is entitled to
great respect since it is in a better position to evaluate the testimonies of witnesses.
Petitioner has sufficiently shown that she, through her predecessors-in-interest, have been in open, continuous,
exclusive, and notorious possession and occupation of the 9,751-square-meter parcel of land located in Barrio
Macamot, Municipality of Binangonan, Province of Rizal, since June 12, 1945 or earlier. Documentary evidence to prove
possession was presented and substantiated by the witnesses’ testimonies. There were sufficient pieces of evidence to show that
petitioner and her predecessors-in-interest exercised specific acts of ownership such as:
1. farming activities;
2. allowing the excavation of land for “pulang lupa” to make clay pots;
3. paying realty taxes;
4. declaring the property for tax purposes;
5. employing a caretaker;
6. causing corrections in entries in public documents with regard to the land;
7. and demanding unlawful occupants to vacate the premises.
- Does Article 1118, Civil Code apply to co-ownership
HEIRS of FELICIANO YAMBAO VS. HEIRS OF

HERMOGENES
GR# 194260 APRIL 13, 2016 (REYES)
FACTS
The subject of this case is a parcel of land located in Barangay Bangan, Botolan, Zambales, which was originally possessed by
Macaria De Ocampo (Macaria). Macaria's nephew, Hermogenes Yambao (Hermogenes ), acted as the administrator of the property
and paid realty taxes therefor. Hermogenes has eight children, namely: Ulpiano, Dominic, Teofilo, Feliciano, Asesclo, Delia,
Amelia, and Melinda, all surnamed Yambao.
After Hermogenes died, it was claimed that all of his heirs were free to pick and harvest from the fruit-bearing trees planted on the
subject property. Eleanor Yambao (Eleanor), Ulpiano's daughter, even constructed a house on the subject property. However,
sometime in 2005, the communal and mutual use of the subject property by the heirs of Hermogenes ceased when the heirs of
Feliciano, herein petitioners, prohibited them from entering the property. The heirs of Feliciano even ejected Eleanor from the
subject property.
This prompted the heirs of Hermogenes, herein respondents, to file with the RTC a complaint for partition, declaration of nullity of
title/documents, and damages against the heirs of Feliciano. The heirs of Hermogenes alleged that they and the heirs of Feliciano
are co-owners of the subject property, having inherited the right thereto from Hermogenes.
The heirs of Feliciano denied the allegations of the heirs of Hermogenes and claimed that their father, Feliciano, was in possession
of the subject property in the concept of owner since time immemorial. Accordingly, Feliciano was awarded a free patent thereon
for which Original Certificate of Title (OCT) No. P-10737 was issued. They also averred that the cause of action in the complaint
filed by the heirs of Hermogenes, which questioned the validity of OCT No. P-10737, prescribed after the lapse of one year from its
issuance on November 29, 1989.
RTC dismissed the complaint filed by Heirs of Hermogenes. CA reversed the ruling on the ground that the parties are
co-owners of the subject property, ruled that the RTC should have conducted the appropriate proceedings for partition
Hence, the heirs of Feliciano filed with the Court this petition for review alleging that the CA erred in ruling that there is co-
ownership between them and the heirs of Hermogenes. The heirs of Feliciano likewise averred that the CA also erred in ordering
the partition of the subject property since it amounts to a collateral attack on the validity of OCT No. P-1073
23
ISSUE
Whether possession as indicated in Article 1118 applies to co-ownership?
RULING
The petition of the Heirs of Feliciano (son of Hermogenes) against the Heirs of Hermogenes is denied.
The subject property is co-owned by the parties herein, having inherited the same from Hermogenes. Feliciano's free patent
application indicated that he merely tacked his possession of the subject property from Hermogenes, his father, who held the
property in peaceful, open, continuous, and adverse manner in the concept of an owner since 1944 . This is an implicit
recognition of the fact that Feliciano merely co-owns the subject property with the other heirs of Hermogenes .
Indeed, the heirs of Feliciano have not presented any evidence that would show that Hermogenes bequeathed (by a will) the
subject property solely to Feliciano.
A co-ownership is a form of trust, with each owner being a trustee for each other.
Mere actual possession by one will not give rise to the inference that the possession was adverse because a co-owner is, after all,
entitled to possession of the property.
Thus, as a rule, prescription does not run in favor of a co-heir or co-owner as long as he expressly or impliedly
recognizes the co-ownership; and he cannot acquire by prescription the share of the other co-owners, absent a clear
repudiation of the co-ownership.
An action to demand partition among co-owners is imprescriptible, and each co-owner may demand at any time the partition of the
common property.
Prescription may nevertheless run against a co-owner if there is adverse, open, continuous and exclusive possession of the co-
owned property by the other co-owner/s.
In order that a co-owners possession may be deemed adverse to the cestui que trust or other co-owners, the following requisites
must concur:
(1) that he has performed unequivocal acts of repudiation amounting to an ouster of the cestui que trust or other co-owners;
(2) that such positive acts of repudiation have been made known to the cestui que trust or other co-owners; and
(3) that the evidence thereon must be clear and convincing.
The issuance of the certificate of title would constitute an open and clear repudiation of any trust. In such a case, an action to
demand partition among co-owners prescribes in 10 years, the point of reference being the date of the issuance of certificate of title
over the property. But this rule applies only when the plaintiff is not in possession of the property,
since if a person claiming to be the owner thereof is in actual possession of the property, the right to demand
partition does not prescribe.
Although OCT No. P-10737 was registered in the name of Feliciano on November 29, 1989, the prescriptive period within which to
demand partition of the subject property, contrary to the claim of the heirs of Feliciano, did not begin to run. At that time, the heirs
of Hermogenes were still in possession of the property. It was only in 2005 that the heirs of Feliciano expressly prohibited the heirs
of Hermogenes from entering the property. Thus, as aptly ruled by the CA, the right of the heirs of Hermogenes to demand
the partition of the property had not yet prescribed. Accordingly, the RTC committed a reversible error when it dismissed the
complaint for partition that was filed by the heirs of Hermogenes.
24
II.
There is likewise no merit to the claim that the action for partition filed by the heirs of Hermogenes amounted to a collateral attack
on the validity of OCT No. P-10737. The complaint for partition filed by the heirs of Hermogenes seeks first, a declaration that they
are a co-owners of the subject property, and second, the conveyance of their lawful shares.
The heirs of Hermogenes do not attack the title of Feliciano; they alleged no fraud, mistake, or any other irregularity that would
justify a review of the registration decree in their favor. Their theory is that although the subject property was registered solely in
Feliciano's name, Heirs of Hermogenes are co-owners of the property and as such is entitled to the conveyance of their shares. On
the premise that they are co-owners, they can validly seek the partition of the property in co-ownership and the conveyance to
them of their respective shares.
Moreover, when Feliciano registered the subject property in his name, to the exclusion of the other heirs of Hermogenes, an implied
trust was created by force of law and he was considered a trustee of the undivided shares of the other heirs of Hermogenes in the
property. As trustees, the heirs of Feliciano cannot be permitted to repudiate the trust by relying on the registration. "A trustee
who obtains a Torrens title over a property held in trust for him by another cannot repudiate the trust by relying on
the registration.”
1119 – POSSESSION BY MERE TOLERANCE
ART. 1119. Possession through License or

Tolerance
Acts of possessory character executed in virtue of license
or by mere tolerance of the owner shall not be available
for the purposes of possession.
25
Concept of a Holder - it will not ripen to ownership by way of acquisitive prescription
Possession through license or tolerance of the owner
• License - positive act of the owner in favor of the holder of the thing.
• Possession by mere tolerance - passive acquiescence on the part of the owner to the acts being performed by another which
appear to be contrary as that of the owner, but such person recognizes ownership as that of the latter.
ABALOS v. HEIRS OF TORIO

662 S 540
FACTS
On July 24, 1996, herein respondents filed a Complaint for Recovery of Possession and Damages with the Municipal Trial Court
(MTC) of Binmaley, Pangasinan against Jaime Abalos (Jaime) and the spouses Felix and Consuelo Salazar.
Respondents contended that: they are the children and heirs of one Vicente Torio (Vicente) who died intestate on September 11,
1973; at the time of the death of Vicente, he left behind a parcel of land measuring 2,950 square meters, more or less, which is
located at San Isidro Norte, Binmaley, Pangasinan; during the lifetime of Vicente and through his tolerance, Jaime
and the Spouses Salazar were allowed to stay and build their respective houses on the subject parcel of land; even after
the death of Vicente, herein respondents allowed Jaime and the Spouses Salazar to remain on the disputed lot; however, in 1985,
respondents asked Jaime and the Spouses Salazar to vacate the subject lot, but they refused to heed the demand of respondents
forcing respondents to file the complaint.
Jaime and the Spouses Salazar filed their Answer with Counterclaim, denying the material allegations in the Complaint and asserting
in their Special and Affirmative Defenses that: respondents' cause of action is barred by acquisitive prescription; the court a quo has
no jurisdiction over the nature of the action and the persons of the defendants; the absolute and exclusive owners and possessors
of the disputed lot are the deceased predecessors of defendants; defendants and their predecessors-in-interest had been in actual,
continuous and peaceful possession of the subject lot as owners since time immemorial; defendants are faithfully and religiously
paying real property taxes on the disputed lot as evidenced by Real Property Tax Receipts; they have continuously introduced
improvements on the said land, such as houses, trees and other kinds of ornamental plants which are in existence up to the time of
the filing of their Answer.
ISSUE
Does Abalos’ possession is by mere tolerance of Heirs of Torio and their predecessors-in-interest? (Yes)
Corollarily, petitioners claim that the due execution and authenticity of the deed of sale upon which respondents' predecessors-in-
interest derived their ownership were not proven during trial.
RULING
The SC ruled in favor of the Heirs of Torio.
The character or nature of Abalos' possession of the subject parcel of land, is factual in nature but can still be reviewed by the
Court if the issue meets the exceptions.
Abalos (petitioner) claim that they have acquired ownership over the disputed lot through ordinary acquisitive prescription.
Acquisitive prescription of dominion and other real rights may be ordinary or extraordinary. Ordinary acquisitive prescription
requires possession in good faith and with just title for ten (10) years.Without good faith and just title, acquisitive prescription can
only be extraordinary in character which requires uninterrupted adverse possession for thirty (30) years.
26
Possession "in good faith" consists in the reasonable belief that the person from whom the thing is received has been the owner
thereof, and could transmit his ownership.There is "just title" when the adverse claimant came into possession of the property
through one of the modes recognized by law for the acquisition of ownership or other real rights, but the grantor was not the owner
or could not transmit any right.
In the instant case, it is clear that during their possession of the property in question, Abalos acknowledged
ownership thereof by the immediate predecessor-in-interest of Heirs of Torio.
In what way?
This is clearly shown by the Tax Declaration in the name of Jaime for the year 1984 wherein it contains a statement admitting that
Jaime's house was built on the land of Vicente, respondents' immediate predecessor-in-interest.
Petitioners never disputed such an acknowledgment.
Thus, having knowledge that they nor their predecessors-in-interest are not the owners of the disputed lot, petitioners' possession
could not be deemed as possession in good faith as to enable them to acquire the subject land by ordinary prescription.
In this respect, the Court agrees with the CA that Abalaos' possession of the lot in question was by mere tolerance of the
Heirs of Torio and their predecessors-in-interest. Acts of possessory character executed due to license or by mere tolerance of the
owner are inadequate for purposes of acquisitive prescription.
Possession, to constitute the foundation of a prescriptive right, must be en concepto de dueño, or, to use the common law
equivalent of the term, that possession should be adverse, if not, such possessory acts, no matter how long, do not
start the running of the period of prescription.
Moreover, the CA correctly held that even if the character of petitioners' possession of the subject property had become adverse, as
evidenced by their declaration of the same for tax purposes under the names of their predecessors-in-interest, their possession
still falls short of the required period of thirty (30) years in cases of extraordinary acquisitive prescription.
Records show that the earliest Tax Declaration in the name of Abalos was in 1974. Reckoned from such date, the thirty-year period
was completed in 2004. However, herein Heirs of Torio’s complaint was filed in 1996, effectively interrupting petitioners'
possession upon service of summons on them. Thus, Abalos’ possession also did not ripen into ownership, because they failed to
meet the required statutory period of extraordinary prescription.
This Court has held that the evidence relative to the possession upon which the alleged prescription is based, must be clear,
complete and conclusive in order to establish the prescription. In the present case, the Court finds no error on the part of the CA in
holding that Abalos failed to present competent evidence to prove their alleged good faith in neither possessing the subject lot nor
their adverse claim thereon. Instead, the records would show that petitioners' possession was by mere tolerance of
respondents and their predecessors-in-interest.
27
ART. 1120. Possession is interrupted for the purposes

of prescription, naturally or civilly
ART. 1121. Possession is naturally interrupted when

through any cause it should cease for more than one
year.
28
The old possession is not revived if a new possession

should be exercised by the same adverse claimant.
29
1122 to 1124 – NATURAL AND CIVIL INTERRUPTION
ART. 1122. If the natural interruption is for only one

year or less, the time elapsed shall be counted in favor
the prescription. Possession is interrupted for the
purposes of prescription, naturally or civilly.
Natural Interruption - possession is interrupted by any cause. Any cause which would bring about discontinuity or interruption of
one’s holding of a thing or enjoyment of a right.
Effect of Interruption: it will cease the running of the period of possession for purposes of prescription. It will cease by the time
of the occurrence of the natural interruption.
• If the period of interruption is less than one year, that period will be counted in favor of prescription.
ART. 1123. Civil interruption is produced by judicial

summons to the possessor.
By the filing of a complaint, generally, a person is given 15 days (except otherwise provided by law) to give an Answer.
Judicial Summons - a document issued by the Court informing the defendant that there is a complaint filed against him.
• Any cause other than judicial summons is considered natural interruption
ELEMENTS OF ACQUISITIVE PRESCRIPTION:
1. Possession
2. Things or rights or property in general
3. Possession of things or rights in good faith
4. Just title
5. Lapse of time (common to EAP-OAP)
30
In order to reap the benefits of prescription or acquisitive prescription, the time of possession must be uninterrupted. Meaning, it
must be CONTINOUS.
When it is interrupted?
TWO FORMS OF INTERRUPTION
Natural Interruption Civil Interruption
Art. 1121 Art. 1123

It can be interrupted by By the issuance or
any cause. Meaning if it is production of proper
not a judicial summon judicial summon, the
issued by the courts, it can possessor is considered to
constitute natural have been civilly
interruption. interrupted.
Example: One’s possession is civilly
PACHECO VS CA interrupted upon the
August 31, 1987 issuance of a proper
judicial summon.
31
PACHECO V. COURT OF APPEALS,

G.R. NO. L-48689, AUGUST 31, 1987
FACTS
Emiliano Pacheco owned a parcel of unregistered land covered by Tax Declaration No. 12490, later changed to Tax Declaration No.
3420 and then to Tax Declaration No. 6704, with an area of 4,698 square meters.
In 1939, Emiliano Pacheco sold to Rafael Pacheco some 1,170 square meters of the said land, which portion was then covered by
Tax Declaration No. 3431.
This portion was mortgaged by Rafael Pacheco to the Philippine National Bank, sold at public auction upon foreclosure of the
mortgage in 1959, and repurchased by Rafael Pacheco on April 20, 1960.
On September 7, 1964, Rafael Pacheco sold the said land to Ciriaco Pacheco, who thereafter sold a portion thereof to his co-
petitioner, Estrella Razo-Rey.
In a civil case entitled "Daniel Hernandez v. Emiliano Pacheco," a decision was rendered on October 10, 1963, in favor of the
plaintiff. To enforce it, certain properties, including the land in question, were levied upon and sold at public auction. Hernandez,
herein private respondent, was the purchaser. These properties were covered by new Tax Declarations Nos. 6522 and 5924, which
cancelled the earlier tax declarations covering the portions claimed by the herein petitioners.
On December 2, 1969, private respondent Hernandez filed a complaint against Pacheco, alleging that the lands the latter were
occupying and which they refused to vacate were part of the property covered by Tax Declaration No. 6704 which he had acquired
in the judgment sale.
This complaint was dismissed, the Court of First Instance declaring the petitioners as the lawful owners of the disputed property,
which they had acquired through prescription.
Upon appeal, the CA held that the Pacheco’s claim of acquisitive prescription was untenable because their possession of the
property in dispute was interrupted when the Philippine National Bank acquired it at the foreclosure sale in 1959 and held it for one
year before it was repurchased by Rafael Pacheco in 1960. The ten-year period for prescription had not been completed.
ISSUE
Does possession of the property in dispute interrupted when the Philippine National Bank acquired it at the foreclosure sale in 1959
and held it for one year before it was repurchased by Rafael Pacheco in 1960?
RULING
No. Natural interruption must occur within the prescriptive period or prior the 10-year acquisitive prescriptive period.
32
The respondent court held that as the land was acquired in the foreclosure proceedings by the PNB in 1959, the 10-year period
of acquisitive prescription was not completed. As a consequence of the cut-off caused by the take-over of the land by the
bank, Rafael Pacheco ceased to be the possessor of the property for more than one year and the period of
prescription was thus interrupted.
The applicable provision is Article 1121 of the Civil Code, reading as follows:
Art. 1121. Possession is naturally interrupted when through any cause it should cease for more than one year.
The old possession is not revived if a new possession should be exercised by the same adverse claimant.
Briefly stated then, the argument of the private respondents runs as follows: Rafael Pacheco repurchased the land in question from
the PNB on April 20, 1960. Since Ciriaco Pacheco derived his title from Rafael Pacheco, the latter’s possession from April 20, 1960
up to September 7, 1964, when the land was sold to the former, could be tacked to the possession taken over by Ciriaco Pacheco
when he bought the land. However, his total possession did not ripen into acquisitive title because the ten-year prescriptive period
was not completed.
Reckoned from April 20, 1960, when Rafael Pacheco repurchased the land from the Philippine National Bank, the period would have
been completed on April 20, 1970.
The trouble is that on December 2, 1969, before prescription could set in, the complaint for the recovery of the land was filed by
the private respondents, thus interrupting the running of the period.
This argument, however, has not taken into account an earlier possession, to wit, that of Rafael Pacheco also, but beginning 1939,
when he bought the land in question from Emiliano Pacheco.
It was clearly established that Rafael Pacheco started occupying the same since 1939 and that his possession was public, open,
peaceful, continuous, uninterrupted, adverse and in the concept of owner until and even beyond 1949. After ten years of such
possession, acquisitive prescriptive title was vested in Rafael Pacheco, pursuant to Article 1134 of the Civil Code. Consequently,
when he mortgaged the land to the PNB, he did so not as a mere possessor but as an owner by virtue of prescription
under Article 1134 of the Civil code. Article 1121 could no longer apply to him because the ten-year prescriptive period had
already been completed at the time.
It follows that when Rafael Pacheco sold the land to Ciriano Pacheco, the latter acquired the rights of the former as owner of the
property, and not as a mere possessor thereof, and so did the other petitioners who derived their title from Ciriaco Pacheco.
33
34
Take note, Article 1124 provides for the instances where judicial summons are deemed not to have been issued, and
shall not give rise to interruption. Illustrative case is the Heirs of Spouses Tayag v. Gabriel.
ARTICLE 124 JUDICIAL SUMMONS (CIVIL INTERRUPTION)
ART. 1124. Judicial summons shall be deemed not to

have been issued and shall not give rise to interruption:
(1) If it should be void for lack of legal solemnities;
(2) If the plaintiff should desist from the complaint or
should allow the proceedings to lapse;
(3) If the possessor should be absolved from the
complaint.
In all these cases, the period of the interruption shall be
counted for the prescription.
Take note, under Art 1124, even if there is an issuance or production of a judicial summon, it will not produce the effect of
interruption, such that the one who possesses a thing or who wants to enjoy the prescription, they will not be interrupted over their
possession of that thing or property.
Instances under the law:
 If the judicial summon is void for lack of legal solemnities.
Illustration:
You will learn in your CivPro that there are certain cases that you can only lodge before certain courts. We have what we call
jurisdiction. Jurisdiction is the power of a court to hear and decide a case.
For example, a case is lodged before a court that does not exercise jurisdiction over the subject matter to which the complaint is
filed. It means that: the court does not have the power to hear and decide that case on the ground of lack of jurisdiction.
Nevertheless, if the complaint is filed before the MTC, but in truth and in fact, that compliant is cognizable only by the RTC, and the
MTC issued the summon in order for the defendant to file his answer.
Question: Upon the issuance of those summons, will that have the effect of interruption of the running of the period for purposes of
the acquisitive prescription?
The answer is NO. Those judicial summons are VOID because they lack the proper legal formalities . Specifically, they are
issued by a court that does not have jurisdiction.
When we talk about legal formalities, we are not only talking about the form of the summon. It could also mean that the summon is
correct in terms of its form but it comes from a court which does not exercise jurisdiction over it. Thus, the judicial summon is void
and it does not have any legal effect. Necessarily, it will not give rise to interruption.
 If the plaintiff should desist from the complaint or should allow the proceedings to lapse
35
Illustration:
If there is a case filed but the plaintiff does not do anything, does not participate in the proceedings, this will allow the proceedings
just to move forward but without his or her participation.
Under the rules in your CivPro, you will learn that there is a right on the part of the defendant to have the complaint dismissed on
the ground of lack of interest or non-participation of the plaintiff.
Considering that there were summons issued in favor of the defendant in that case, but eventually, the plaintiff desisted or did not
participate in that action or allow the proceedings to lapse, meaning, later on it will be dismissed, will the summons issued in that
case have the effect of interruption? The answer is NO.
 If the possessor should be absolved from the complaint
Illustration:
For example, after the filing of the complaint, the plaintiff will withdraw the complaint. That absolution or withdrawal of the
complaint is a form that the possessor is absolved from the complaint. Despite the fact that summons have been issued, it will not
interrupt the running of the period for acquisitive prescription.
Take note, in all these cases, the period of interruption shall be counted in favor of one’s possession in order for him to avail the
benefits of prescription.
HEIRS OF SPOUSES TANYAG V. GABRIEL

G.R. No. 175763, [April 11, 2012]
Additional case
For civil interruption to take place, the possessor must

have received judicial summons.
Notice of Adverse Claim did not toll or interrupt the

running of the prescriptive period because there remains,
as yet, a necessity for a judicial determination of its
judicial validity.
FACTS
Subject of controversy are two adjacent parcels of land located at Ruhale, Barangay Calzada, Municipality of Taguig (now part of
Pasig City, Metro Manila). The first parcel (“Lot 1”) with an area of 686 square meters was originally declared in the name of
Jose Gabriel under Tax Declaration (TD) Nos. 1603 and 6425 issued for the years 1949 and 1966, while the second parcel (“Lot
2”) consisting of 147 square meters was originally declared in the name of Agueda Dinguinbayan under TD Nos. 6418 and
9676 issued for the years 1966 and 1967. For several years, these lands lined with bamboo plants remained undeveloped and
uninhabited.
Petitioners claimed that Lot 1 was owned by Benita Gabriel, sister of Jose Gabriel, as part of her inheritance as declared by her in a
1944 notarized instrument (“Affidavit of Sale”) whereby she sold the said property to spouses Gabriel Sulit and Cornelia Sanga.
36
Lot 1 allegedly came into the possession of Benita Gabriel’s own daughter, Florencia Gabriel Sulit, when her father-in-law Gabriel
Sulit gave it to her as part of inheritance of his son, Eliseo Sulit who was Florencia’s husband. Florencia Sulit sold the same lot to
Bienvenido S. Tanyag, father of petitioners, as evidenced by a notarized deed of sale dated October 14, 1964. Petitioners then took
possession of the property, paid the real estate taxes due on the land and declared the same for tax purposes, as shown by TD No.
11445 issued in 1969 in the name of Bienvenido’s wife, Araceli C. Tanyag; TD No. 11445 cancelled TD No. 6425 in the name of Jose
Gabriel. TD Nos. 3380 and 00486 also in the name of Araceli Tanyag were issued in the years 1974 and 1979. [7]
As to Lot 2, petitioners averred that it was sold by Agueda Dinguinbayan to Araceli Tanyag under Deed of Sale executed on October
22, 1968. Thereupon, petitioners took possession of said property and declared the same for tax purposes as shown by TD Nos.
11361, 3395, 120-014-00482, 120-00-014-20-002-000, C-014-00180 and D-014-00182 issued for the years 1969, 1974, 1979,
1985, 1991 and 1994. Petitioners claimed to have continuously, publicly, notoriously and adversely occupied both Lots 1 and 2
through their caretaker Juana Quinones; they fenced the premises and introduced improvements on the land.
On March 20, 2000, petitioners instituted Civil Case No. 67846 alleging that respondents never occupied the whole 686 square
meters of Lot 1 and fraudulently caused the inclusion of Lot 2 in TD No. 120-014-01013 such that Lot 1 consisting of 686 square
meters originally declared in the name of Jose Gabriel was increased to 1,763 square meters. They contended that the
issuance of OCT No. 1035 on October 28, 1998 over the subject land in the name of respondents heirs of Jose Gabriel was null and
void from the beginning.
On the other hand, respondents asserted that petitioners have no cause of action against them for they have not established their
ownership over the subject property covered by a Torrens title in respondents’ name.

(Sometime in 1979, Jose Gabriel, father of respondents, secured TD No. 120-014-01013 in his name over Lot 1 indicating therein an
increased area of 1,763 square meters.)
They further argued that OCT No. 1035 had become unassailable one year after its issuance and petitioners failed to establish that
it was irregularly or unlawfully procured.
Respondents’ evidence showed that the subject land was among those properties included in the Extrajudicial Settlement of Estate
of Jose P. Gabriel executed on October 5, 1988, covered by TD No. B-014-00643 (1985) in the name of Jose Gabriel. Respondents
declared the property in their name but the tax declarations (1989, 1991 and 1994) carried the notation that portions thereof (686
sq. ms.) are also declared in the name of Araceli Tanyag. On October 28, 1998, OCT No. 1035 was issued to respondents by the
Register of Deeds of Pasig, Metro Manila under Decree No. N-219177 pursuant to the Decision dated September 20, 1996 of the
Land Registration Court in LRC Case No. N-11260, covering Lot 1836 MCadm-590-D, Taguig Cadastral Mapping, Plan Ap-04-002253,
with an area of 1,560 square meters.
The trial court dismissed the complaint as well as the counterclaim, holding that petitioners failed to establish ownership of
the subject property and finding the respondents to be the declared owners and legal possessors.
It likewise ruled that petitioners were unable to prove by preponderance of evidence that respondents acquired title over the
property through fraud and deceit.
Petitioners appealed to the CA which affirmed the trial court’s ruling. The CA found that apart from the Affidavit executed by
Benita Gabriel in 1944 claiming that she inherited Lot 1 from their father, Mateo Gabriel, there is no evidence that
she, not Jose Gabriel, was the true owner thereof . It noted that just four years after Benita Gabriel’s sale of the subject
property to the Sulit spouses, Jose Gabriel declared the same under his name for tax purposes, paying the corresponding taxes.
The appellate court stressed that petitioners’ allegation of bad faith was not proven
ISSUE
I. Did these acts of Gabriel (respondent) effectively interrupt the possession of petitioners for purposes of
prescription?
(acts of declaring again the property for tax purposes in 1979 and obtaining a Torrens certificate of title in their name
in 1998)
II. Whether petitioners acquired the property through acquisitive prescription.
37
RULING
I.
It was only in 1979 that respondents began to assert a claim over the property by securing a tax declaration in the name of Jose
Gabriel albeit over a bigger area than that originally declared. In 1998, they finally obtained an original certificate of title covering
the entire 1,763 square meters which included Lot 1. Did these acts of respondents effectively interrupt the possession of
petitioners for purposes of prescription?
We answer in the negative. In the case of Heirs of Marcelina Azardon-Crisologo v. Rañon this Court citing Article 1123 of the Civil
Code held that civil interruption takes place with the service of judicial summons to the possessor and not by filing of
a mere Notice of Adverse Claim. Thus:
Article 1123 of the Civil Code is categorical. Civil interruption is produced by judicial summons to the possessor.
Moreover, even with the presence of judicial summons, Article 1124 sets limitations as to when such summons shall not be deemed
to have been issued and shall not give rise to interruption, to wit:
1) if it should be void for lack of legal solemnities;
2) if the plaintiff should desist from the complaint or should allow the proceedings to lapse; or
3) if the possessor should be absolved from the complaint.
Both Article 1123 and Article 1124 of the Civil Code underscore the judicial character of civil interruption. For civil interruption to
take place, the possessor must have received judicial summons. None appears in the case at bar.
The Notice of Adverse Claim which was filed by Heirs of Spouses of Tanyag in 1977 is nothing more than a notice of claim which did
not effectively interrupt Gabriel’s possession. Such a notice could not have produced civil interruption. We agree in the conclusion
of the RTC, which was affirmed by the Court of Appeals, that the execution of the Notice of Adverse Claim in 1977 did not toll or
interrupt the running of the prescriptive period because there remains, as yet, a necessity for a judicial determination of its judicial
validity. What existed was merely a notice. There was no compliance with Article 1123 of the Civil Code.
What is striking is that no action was, in fact, filed by petitioners against respondents. As a consequence, no judicial
summons was received by respondents. As aptly held by the Court of Appeals in its affirmance of the RTC’s ruling, the Notice
of Adverse Claim cannot take the place of judicial summons which produces the civil interruption provided for under the law. In the
instant case, petitioners were not able to interrupt respondents’ adverse possession since 1962. The period of acquisitive
prescription from 1962 continued to run in respondents’ favor despite the Notice of Adverse Claim.
From 1969 until the filing of this complaint by the petitioners in March 2000, the latter have been in continuous, public and adverse
possession of the subject land for 31 years.
Having possessed the property (adverse possession) for the period and in the character required by law as sufficient for
extraordinary acquisitive prescription, petitioners have indeed acquired ownership over the subject property. Such right
cannot be defeated by Gabriel ’ acts of declaring again the property for tax purposes in 1979 and obtaining a Torrens certificate of
title in their name in 1998.
This notwithstanding, we uphold petitioners’ right as owner only with respect to Lot 1 consisting of 686 square meters.
Lot 2
Petitioners failed to substantiate their claim over Lot 2 by virtue of a deed of sale from the original declared owner, Agueda
Dinguinbayan.
Respondents asserted that the 147 square meters covered by the tax declarations of Dinguinbayan being claimed by petitioners is
not the same lot included in OCT No. 1035.
Under Article 434 of the Civil Code, to successfully maintain an action to recover the ownership of a real property, the person who
claims a better right to it must prove two (2) things:
38
first, the identity of the land claimed; and second, his title thereto.
In regard to the first requisite, in an accion reinvindicatoria, the person who claims that he has a better right to the property must
first fix the identity of the land he is claiming by describing the location, area and boundaries thereof. In this case, petitioners failed
to identify Lot 2 by providing evidence of the metes and bounds thereof, so that the same may be compared with the technical
description contained in OCT No. 1035, which would have shown whether Lot 2 consisting of 147 square meters was erroneously
included in respondents’ title. The testimony of Agueda Dinguinbayan’s son would not suffice because said witness merely stated
the boundary owners as indicated in the 1966 and 1967 tax declarations of his mother. On his part, Arturo Tayag claimed that he
had the lots surveyed in the 1970s in preparation for the consolidation of the two parcels. However, no such plan was presented in
court.
II.
In this case, the CA was mistaken in concluding that petitioners have not acquired any right over the subject property simply
because they failed to establish Benita Gabriel’s title over said property. The appellate court ignored petitioners’ evidence of
possession that complies with the legal requirements of acquiring ownership by prescription.
Acquisitive prescription is a mode of acquiring ownership by a possessor through the requisite lapse of time. In order to ripen into
ownership, possession must be in the concept of an owner, public, peaceful and uninterrupted. Possession is open when it is
patent, visible, apparent, notorious and not clandestine. It is continuous when uninterrupted, unbroken and not intermittent or
occasional; exclusive when the adverse possessor can show exclusive dominion over the land and an appropriation of it to his own
use and benefit; and notorious when it is so conspicuous that it is generally known and talked of by the public or the people in the
neighborhood. The party who asserts ownership by adverse possession must prove the presence of the essential elements of
acquisitive prescription.
On the matter of prescription, the Civil Code provides:
Art. 1117. Acquisitive prescription of dominion and other real rights may be ordinary or extraordinary.
Ordinary acquisitive prescription requires possession of things in good faith and with just title for the time fixed by law.
Art. 1134. Ownership and other real rights over immovable property are acquired by ordinary prescription through possession of ten
years.
Art. 1137. Ownership and other real rights over immovables also prescribe through uninterrupted adverse possession thereof
for thirty years, without need of title or of good faith.
Petitioners’ adverse possession is reckoned from 1969 with the issuance of TD No. 1145 in the name of Araceli Tanyag, which tax
declaration cancelled TD No. 6425 in the name of Jose Gabriel. It is settled that tax receipts and declarations are prima facie proofs
of ownership or possession of the property for which such taxes have been paid. Coupled with proof of actual possession of
the property, they may become the basis of a claim for ownership. Petitioners’ caretaker, Juana Quinones, has since lived
in a nipa hut, planted vegetables and tended a piggery on the land. Aside from paying taxes due on the property, petitioners also
exercised other acts of ownership such as selling the 468-square meter portion to Sta. Barbara who had constructed thereon a
nine-door apartment building.
1126 – RECORDED TITLES AS TO 3RD PERSONS
ART. 1126. Against a title recorded in the Registry of

Property, ordinary prescription of ownership or real rights
shall not take place to the prejudice of a third person,
except in virtue of another title also recorded. The time
shall begin to run from the recording of the latter.
As to lands registered under the Land Registration Act,
39
the provisions of that special law shall govern.
SUPAPO vs. DE JESUS

756 s 211 (04/30/15)
FACTS
This case involved a certain parcel of land which was covered by a TCT under the name of Supapo, which was being claimed by the
respondent spouses De Jesus and Macario Bernardo. The respondents alleged that they have been in actual, public, peaceful and
uninterrupted possession of the subject property in the concept of an owner since 1992. The respondents contend that they built
their houses on the subject lot in good faith. Having possessed the subject lot for more than ten (10) years, they claim that they
can no longer be disturbed in their possession.
Spouses Supapo, on the other hand contend that there cause of action is imprescriptible since the subject property is registered and
titled under the Torrens system.
ISSUE
Do lands covered by a Torrens title cannot be acquired by prescription or adverse possession?
Yes
RULING
The respondents argue that the complaint for accion publiciana is dismissible for being filed out of time.
They invoke Article 555 of the Civil Code, which states: Art. 555. A possessor may lose his possession:
xxxx
(4) By the possession of another, subject to the provisions of Article 537, if the new possession has lasted longer than one
year. But the real right of possession is not lost till after the lapse of ten years. (Emphasis supplied.)
The respondents point out that the Spouses Supapo filed the complaint for accion publiciana on March 7, 2008 or more than ten
(10) years after the certificate to file action was issued on November 25, 1992. The respondents contend that the Spouses Supapo
may no longer recover possession of the subject property, the complaint having been filed beyond the period provided by law.
Further, while the respondents concede that the Spouses Supapo hold a TCT over the subject property, and assuming a Torrens
title is imprescriptible and indefeasible, they posit that the latter have lost their right to recover possession because of laches.
On their part, the Spouses Supapo admit that they filed the complaint for accion publiciana more than ten (10) years after the
certificate to file action was issued. Nonetheless, they argue that their cause of action is imprescriptible since the subject property is
registered and titled under the Torrens system.
We rule that the Spouses Supapo's position is legally correct.
At the core of this controversy is a parcel of land registered under the Torrens system. The Spouses Supapo acquired the TCT on
the subject lot in 1979. 46 Interestingly, the respondents do not challenge the existence, authenticity and genuineness of
the Supapo's TCT.47
In defense, the respondents rest their entire case on the fact that they have allegedly been in actual, public, peaceful and
uninterrupted possession of the subject property in the concept of an owner since 1992. The respondents contend that they built
their houses on the subject lot in good faith. Having possessed the subject lot for more than ten (10) years, they claim that they
can no longer be disturbed in their possession. 48
40
Under the undisputed facts of this case, we find that the respondents' contentions have no legal basis.
In a long line of cases, we have consistently ruled that lands covered by a title cannot be acquired by prescription or
adverse possession. We have also held that a claim of acquisitive prescription is baseless when the land involved is a registered
land because of Article 112649 of the Civil Code in relation to Act 496 [now, Section 47 of Presidential Decree (PD) No. 1529 50].51
The Spouses Supapo (as holders of the TCT) enjoy a panoply of benefits under the Torrens system. The most essential insofar as
the present case is concerned is Section 47 of PD No. 1529 which states:
Section 47. Registered land not subject to prescriptions. No title to registered land in derogation of the title of the registered owner
shall be acquired by prescription or adverse possession.
In addition to the imprescriptibility, the person who holds a Torrens Title over a land is also entitled to the possession thereof .52 The
right to possess and occupy the land is an attribute and a logical consequence of ownership.53 Corollary to this rule is the right of
the holder of the Torrens Title to eject any person illegally occupying their property. Again, this right is imprescriptible. 54
In Bishop v. CA,55 we held that even if it be supposed that the holders of the Torrens Title were aware of the other persons'
occupation of the property, regardless of the length of that possession, the lawful owners have a right to demand the return
of their property at any time as long as the possession was unauthorized or merely tolerated, if at all.56
Even if the defendant attacks the Torrens Title because of a purported sale or transfer of the property, we still rule in favor of the
holder of the Torrens Title if the defendant cannot adduce, in addition to the deed of sale, a duly-registered certificate of title
proving the alleged transfer or sale.
A case in point is Umpoc v. Mercado57 in which we gave greater probative weight to the plaintiffs TCT vis-a-vis the contested
unregistered deed of sale of the defendants. Unlike the defendants in Umpoc, however, the respondents did not adduce a single
evidence to refute the Spouses Supapo's TCT. With more reason therefore that we uphold the indefeasibility and imprescriptibility of
the Spouses Supapo's title.
By respecting the imprescriptibility and indefeasibility of the Spouses Supapo's TCT, this Court merely recognizes the value of the
Torrens System in ensuring the stability of real estate transactions and integrity of land registration .
We reiterate for the record the policy behind the Torrens System, viz.:
The Government has adopted the Torrens system due to its being the most effective measure to guarantee the integrity of land
titles and to protect their indefeasibility once the claim of ownership is established and recognized. If a person purchases a piece of
land on the assurance that the seller's title thereto is valid, he should not run the risk of being told later that his acquisition was
ineffectual after all, which will not only be unfair to him as the purchaser, but will also erode public confidence in the system and
will force land transactions to be attended by complicated and not necessarily conclusive investigations and proof of ownership. The
further consequence will be that land conflicts can be even more abrasive, if not even violent.
With respect to the respondents' defense 59 of laches, suffice it to say that the same is evidentiary in nature and cannot be
established by mere allegations in the pleadings. 60 In other words, the party alleging laches must adduce in court evidence proving
such allegation. This Court not being a trier of facts cannot rule on this issue; especially so since the lower courts did not pass upon
the same.
Thus, without solid evidentiary basis, laches cannot be a valid ground to deny the Spouses Supapo's petition. 61 On the contrary, the
facts as culled from the records show the clear intent of the Spouses Supapo to exercise their right over and recover
possession of the subject lot, viz.: (1) they brought the dispute to the appropriate Lupon; (2) they initiated the criminal
complaint for squatting; and (3) finally, they filed the action publiciana. To our mind, these acts negate the allegation of laches.
With these as premises, we cannot but rule that the Spouses Supapo's right to recover possession of the subject lot is not barred by
prescription.
41
Accion Publiciana and

the Jurisdiction of the
MeTC
Accion publiciana is an ordinary civil proceeding to determine the better right of possession of realty independent of title. It refers to
an ejectment suit filed after the expiration of one year from the accrual of the cause of action or from the unlawful withholding of
possession of the realty.34
In the present case, the Spouses Supapo filed an action for the recovery of possession of the subject lot but they based their
better right of possession on a claim of ownership.
This Court has held that the objective of the plaintiffs in accion publiciana is to recover possession only, not ownership. However,
where the parties raise the issue of ownership, the courts may pass upon the issue to determine who between the parties has the
right to possess the property.35
This adjudication is not a final determination of the issue of ownership; it is only for the purpose of resolving the issue of
possession, where the issue of ownership is inseparably linked to the issue of possession. The adjudication of the issue of
ownership, being provisional, is not a bar to an action between the same parties involving title to the property. The adjudication, in
short, is not conclusive on the issue of ownership.
Thus, while we will dissect the Spouses Supapo's claim of ownership over the subject property, we will only do so to determine if
they or the respondents should have the right of possession.
Having thus determined that the dispute involves possession over a real property, we now resolve which court has the jurisdiction
to hear the case.
Under Batas Pambansa Bilang 129,37 the jurisdiction of the RTC over actions involving title to or possession of real property is
plenary.38
RA No. 7691,39 however, divested the RTC of a portion of its jurisdiction and granted the Metropolitan Trial Courts, Municipal Trial
Courts and Municipal Circuit Trial Courts the exclusive and original jurisdiction to hear actions where the assessed value of the
property does not exceed Twenty Thousand Pesos (P20,000.00), or Fifty Thousand Pesos (P50,000.00), if the property is located in
Metro Manila.
Section 1 of RA No. 7691 states:
Section 1. Section 19 of Batas Pambansa Blg. 129, otherwise known as the "Judiciary Reorganization Act of 1980," is hereby
amended to read as follows:
Section. 19. Jurisdiction in civil cases. - Regional Trial Courts shall exercise exclusive original jurisdiction:
(2) In all civil actions which involve the title to, or possession of, real property, or any interest therein, where the assessed
value of the property involved exceeds Twenty thousand pesos (P20,000.00) or, for civil actions in Metro Manila,
where such value exceeds Fifty thousand pesos (P50,000.00) x x x. (Emphasis supplied.)
Section 3 of the same law provides:

Section. 3. Section 33 of the same law is hereby amended to read as follows:
Section. 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in Civil Cases .
- Metropolitan Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts shall exercise:
(3) Exclusive original jurisdiction in all civil actions which involve title to, or possession of, real property, or any interest therein
where the assessed value of the property or interest therein does not exceed Twenty thousand pesos (P20,000.00)
or, in civil actions in Metro Manila, where such assessed value does not exceed Fifty thousand pesos
(P50,000.00) exclusive of interest, damages of whatever kind, attorney's fees, litigation expenses and costs.
In view of these amendments, jurisdiction over actions involving title to or possession of real property is now determined by its
42
assessed value.40 The assessed value of real property is its fair market value multiplied by the assessment level. It is synonymous
to taxable value.41
In Quinagoran v. Court of Appeals, we explained:
[D]oes the RTC have jurisdiction over all cases of recovery of possession regardless of the value of the property involved?
The answer is no. The doctrine on which the RTC anchored its denial of petitioner's Motion to Dismiss, as affirmed by the CA — that
all cases of recovery of possession or accion publiciana lies with the regional trial courts regardless of the value of the property —
no longer holds true. As tilings now stand, a distinction must be made between those properties the assessed value of
which is below P20,000.00, if outside Metro Manila; and P50,000.00, if within.
In this regard, the complaint must allege the assessed value of the real property subject of the complaint or the interest thereon to
determine which court has jurisdiction over the action. This is required because the nature of the action and the court with original
and exclusive jurisdiction over the same is determined by the material allegations of the complaint, the type of relief prayed for by
the plaintiff, and the law in effect when the action is filed, irrespective of whether the plaintiffs are entitled to some or all of the
claims asserted therein. 44
In the present case, the Spouses Supapo alleged that the assessed value of the subject lot, located in Metro Manila, is
P39,980.00. This is proven by the tax declaration45 issued by the Office of the City Assessor of Caloocan. The respondents do not
deny the genuineness and authenticity of this tax declaration.
Given that the Spouses Supapo duly complied with the jurisdictional requirements, we hold that the MeTC of Caloocan properly
acquired jurisdiction over the complaint for accion publiciana.
LAUSA VS. QUILATON

767 S 399 (08/19/15)
FACTS
It involves Lot No. 557 in Cebu. The petitioners and the respondents are relatives residing in the same lot. Respondent Lopez
acquired a portion of Lot No. 557 due to Rodrigo’s default on his loan.
Lot No. 557 was part of the Banilad Friar Estate Lands, which had been bought by the government through Act No. 1120 for
distribution of its occupants. Martin Antonio was the initial beneficiary and assigned it to Alejandro Tugot which was the grandfather
of most of the respondents and petitioners.
Alejandro possessed the lot until his death, thus his children and grandchildren continued to reside in the lot. The present
controversy arose when the respondents claiming to be its registered owners, attempted to eject the petitioners. In 1994, Mauricia
donated Lot No. 557 to her four children thus
the TCT No. 571 was cancelled and was reissued as four TCT’s for the children. The children of Mauricia then performed several
acts of ownership on the property.
Rodrigo: Mortgaged his TCT to Lopez as security loan but defaulted leading to foreclosure and was sold to public auction to Lopez
issuing a new TCT.
Lausa posit that they have acquired ownership over Lot No. 557 by acquisitive prescription
ISSUE: Did CA erred in relying on fake title to deny prescription?
CA concluded that it cannot prescribe, for it was under the Torrens system. Still, the lot cannot be acquired through prescription but
for a different reason.
RULING
43
The Deed of Assignment between Antonio and Alejandro was cancelled three months after execution, thus it could have not vested
Antonio’s rights over Lot No. 557. Thus, it reverted to its original status as a subject of conditional sale between Bureau of
Lands and Antonio upon full payment.
• Under Act No. 1120 for the administration, temporary lease and sale of friar lands until full payment.
Three possible scenarios:
1. Antonio completed payment and it would be Registered under Antonio’s name. Land registered under the Torrens system cannot
be acquired through prescription.
2. If he failed, the title remains with the government. And as such, prescription will not run against the government (1107).
3. Another person could have bought the rights.
All these scenarios negate the possibility of prescription.
Effects of the Nullity of TCT No. 571

Neither Mauricia nor Alejandro has title over Lot No. 557. A person only transmits rights that he possesses. When innocent
third persons, however purchase or acquire rights over the property relying on correctness of the certificate of title, courts cannot
disregard the rights they acquired and order the cancellation of the certificate.
In this case, the court ruled that Lopez was not a purchaser in good faith and thus, the TCTs were declared null.
The CA erred in relying on a fabricated title as basis to deny Alejandro's claim to acquisitive prescription
The CA, in reversing the RTC's decision recognizing Alejandro's ownership over Lot No. 571, held that Lot No. 557 could no longer
be acquired through prescription because it had already been brought under the Torrens system, in Registry Book No. A-3.
Registry Book No. A-3 refers to the registry book where OCT No. 251-253 is registered, as indicated in TCT No. 571. Thus, the CA
concluded that Lot No. 557 has been brought under the Torrens system because TCT No. 571 is already covered by the system. But
as TCT No. 571 is a fabricated title, the CA erred in relying on its contents to conclude that Lot No. 557 has already been brought
under the Torrens system.
Alejandro Tugot did not acquire Lot No. 557 through acquisitive prescription
We agree with the CA's conclusion that Lot No. 557 cannot be acquired through prescription, but for a different reason.
In the present case, the Deed of Assignment between Antonio and Alejandro was cancelled three months after it was executed. The
Deed, executed on September 13, 1915, was inscribed with the phrase: "Cancelled December 21, 1915. See letter # 12332."
Both the trial court and the CA found this inscription to be sufficient proof that the Deed of Assignment had been cancelled three
months after its execution. As a consequence, the Deed of Assignment could not have vested Antonio's rights over Lot No. 557 to
Alejandro.
Thus, Lot No. 557 reverted to its original status after the Deed of Assignment was cancelled. It remained subject to the
conditional sale5 between the government and Antonio; under the Certificate of Sale between the Bureau of Lands and Antonio, the
government should transfer title to Lot No. 557 to Antonio upon full payment of the lot's purchase price.
The nature of the contract of sale between Antonio and the government is in line with Section 15 of Act No. 1120, which provides
for the administration, temporary lease, and sale of friar lands that the government bought through sections 63 to 65 of "An Act
temporarily to provide for the administration of the affairs of civil government in the Philippine Islands, and for other purposes."
These friar lands included the Banilad Estate Friar Lands, from where Lot No. 557 originated.
Section 15 of Act No. 1120 that applied to Lot No. 557 provides:
Sec. 15. The Government hereby reserves the title to each and every parcel of land sold under the provisions of this
Act until the full payment of all installments or purchase money and interest by the purchaser has been made , and
any sale or encumbrance made by him shall be invalid as against the Government of the Philippine Islands and shall be in all
respects subordinate to its prior claim.
xxxx
44
According to jurisprudence, Section 15 of Act No. 1120 reserves to the government the naked title to the friar lands, until its
beneficiaries have fully paid their purchase price. Since the intent of Act No. 1120 was to transfer ownership of the friar lands to its
actual occupants, the equitable and beneficial title to the land passes to them the moment the first installment is paid and a
certificate of sale is issued. This right is subject to the resolutory condition that the sale may be rescinded if the agreed
price shall not be paid in full.
When the Certificate of Sale was executed, Antonio obligated himself to pay P9.00 as the final installment to purchase Lot No. 557.
His previous lease payments to the lot were applied as initial installments for the payment of the lot's purchase price of PI5.16.
Upon full payment of the installment and its annual 4% interest, the government was bound to transfer full ownership of Lot No.
557 to Antonio under Section 122 of Act No. 496.
While the records of the case do not show any documents or paper trail showing the actions of the parties to the Certificate of Sale
after the Deed of Assignment was cancelled, we can, with certainty, rule out the possibility that Alejandro acquired title to it
through prescription.
Three scenarios could have happened after the Deed of Assignment was cancelled - all of which forego the possibility of acquisitive
prescription.
First, Antonio could have completed payment of the purchase price of Lot No. 557. Upon full payment, the lot would have then
been registered in Antonio's name.
The Certificate of Sale between Antonio and the government requires registration under Section 122 of Act No. 496, or the Land
Registration Act of 1902, for the ownership over Lot No. 557 to be transferred to Antonio. Section 122 of Act No. 496 provides:
Section 122. Whenever public lands in the Philippine Islands belonging to the Government of the United States or to the
Government of the Philippine Islands are alienated, granted, or conveyed to persons or to public or private corporations, the same
shall be brought forthwith under the operation of this Act and shall become registered lands. It shall be the duty of the official
issuing the instrument of alienation, grant, or conveyance in behalf of the Government to cause such instrument, before its delivery
to the grantee, to be filed with the register of deeds for the province where the land lies and to be there registered like other deeds
and conveyances, whereupon a certificate shall be entered as in other cases of registered land, and an owner's duplicate certificate
issued to the grantee. The deed, grant, or instrument of conveyance from the Government to the grantee shall not
take effect as a conveyance or bind the land, but shall operate as a contract between the Government and the
grantee and as evidence of authority to the clerk or register of deeds to make registration. The act of registration
shall be the operative act to convey and affect the lands, and in all cases under this Act registration shall be made in
the office of the register of deeds for the province where the land lies. The fees for registration shall be paid by the
grantee. After due registration and issue of the certificate and owner's duplicate such land shall be registered land for all purposes
under this Act.
Thus, the government could have registered the title to Lot No. 557 in Antonio's name only after he had paid the purchase price in
full. Had Antonio eventually completed the payment of Lot No. 557's purchase price, it would have been registered under the
Torrens system, through Section 122 of Act No. 496.
Land registered under the Torrens system cannot be acquired through prescription. As early as 1902, Section 46 of Act No. 496
categorically declared that lands registered under the Torrens system cannot be acquired by prescription, viz:
Section 46. No title to registered land in derogation to that of the registered owner shall be acquired by prescription or adverse
possession.
Second, Antonio could have failed to complete payment of Lot No. 557's purchase price; thus, the naked title to Lot No. 557
remains with the government.
Under Act No. 1120, the Chief of the Bureau of Public Lands is required to register title to the friar lands acquired by the
government through Act No. 496. Section 6 of Act No. 1120, in particular, provides:
SECTION 6. The title, deeds and instruments of conveyance pertaining to the lands in each province, when executed and delivered
by said grantors to the Government and placed in the keeping of the Chief of the Bureau of Public Lands, as above provided, shall
be by him transmitted to the register of deeds of each province in which any part of said lands lies, for registration in accordance
with law. But before transmitting the title, deeds, and instruments of conveyance in this section mentioned to the register of deeds
45
of each province for registration, the Chief of the Bureau of Public Lands shall record all such deeds and instruments at length in
one or more books to be provided by him for that purpose and retained in the Bureau of Public Lands, when duly certified by him
shall be received in all courts of the Philippine Islands as sufficient evidence of the contents of the instrument so recorded whenever
it is not practicable to produce the originals in court.
The law on land registration at that time was Act No. 496, which established the Torrens system in the Philippines. As earlier
pointed out, a piece of land, once registered under the Torrens system, can no longer be the subject of acquisitive prescription.
No certificate of title pertaining to the government's transfer of ownership of Lot No. 557 was ever presented in
evidence. Assuming, however, that the Chief of the Bureau of Public Lands failed to register Lot No. 557, the lot could not have
been acquired by Alejandro through prescription, under the rule that prescription does not lie against the government.
Third, Antonio could have sold his rights to Lot No. 557 to another person. Assuming he did, only that person could have stepped
into his shoes, and could have either completed payment of the purchase price of Lot No. 557 and had it registered in his name; or,
he could have failed to pay the purchase price in full, in which case the naked title to the lot remains government property.
In all three scenarios, Alejandro could not have acquired ownership over Lot No. 557 through prescription.
Republic Act No. 9443 and the friar lands
The Court is not unaware of the enactment of Republic Act No. 9443, which confirms the validity of titles covering any portion of
the Banilad Friar Lands with Certificates of Sale and Assignment of Sale that do not contain the signature of the then Secretary of
the Interior and/or Chief of the Bureau of Public Lands. It does not apply to TCTs that have been fraudulently issued and registered.
Republic Act No. 9443, however, does not validate any of the parties' claims of ownership over Lot No. 557.
Mauricia's title, as earlier established, is fabricated; thus, her situation falls within the exception expressed under Section 1 of RA
No. 9443, viz:
This confirmation and declaration of validity shall in all respects be entitled to like effect and credit as a decree of registration,
binding the land and quieting the title thereto and shall be' conclusive upon and against all persons, including the national
government and all branches thereof; except when, in a given case involving a certificate of title or a reconstituted
certificate of title, there is a clear evidence that such certificate of title or reconstituted certificate of title was
obtained through fraud, in which case the solicitor general or his duly designated representative shall institute the necessary
judicial proceeding to cancel the certificate of title or reconstituted certificate of title as the case may be, obtained through such
fraud.
With respect to Alejandro, his claim to Lot No. 557 rests on the Deed of Assignment executed between him and Antonio, which had
been cancelled; hence, it cannot be confirmed through Republic Act No. 9443.
Effects of the nullity of TCT No. 571
After establishing that neither Mauricia nor Alejandro has title over Lot No. 557, we now resolve the validity of the TCTs that
originated from TCTNo. 571.
As a general rule, a person transmits only the rights that he possesses. When innocent third persons, however, purchase or
acquire rights over the property relying on the correctness of its certificate of title, courts cannot disregard the rights they acquired
and order the cancellation of the certificate. As the third paragraph of section 53 of Presidential Decree No. 1529, otherwise known
as the Property Registration Decree, provides:
Section 53.
In all cases of registration procured by fraud, the owner may pursue all his legal and equitable remedies against the parties to such
fraud without prejudice, however, to the rights of any innocent holder for value of a certificate of title . After the entry
of the decree of registration on the original petition or application, any subsequent registration procured by the presentation of a
forged duplicate certificate of title, or a forged deed or other instrument, shall be null and void.
46
Thus, innocent purchasers in good faith may safely rely on the correctness of the certificate of title issued therefor, and neither the
law nor the courts can oblige them to go behind the certificate and investigate again the true condition of the property. They are
only charged with notice of the liens and encumbrances on the property that are noted on the certificate.
Jurisprudence defines innocent purchaser for value as "one who buys the property of another, without notice that some other
person has a right or interest in such property and pays a full price for the same, at the time of such purchase or
before he has notice of the claims or interest of some other person in the property."
PD 1529 has expanded the definition of an innocent purchaser for value to include an innocent lessee, mortgagee, or other
encumbrancer for value.
Neither PD 1529 nor jurisprudence, however, has included an innocent donee to the definition, and for good reason. An innocent
purchaser for value pays for the full price of the property, while a donee receives the property out of the donor's liberality.
Additionally, what the law does not include, it excludes, and a donee is not included in the expansion of the term innocent
purchaser for value.
Applying these principles of law in the case at hand, we hold that the Deed of Donation Mauricia issued in favor of her children
immediately after getting a copy of TCT No. 571 could not have transferred ownership over Lot No. 557 to her children. Since TCT
No. 571 is a fabricated title, it does not indicate ownership over Lot No. 557; thus, the Deed of Donation involving TCT No. 571
could not have conveyed the ownership of Lot No. 557 to Mauricia's children.
Neither could her children claim the status of an innocent purchaser in good faith, as they received the property through donation.
The TCTs issued to Mauricia's children pursuant to the donation should thus be cancelled, as they do not signify ownership over Lot
No. 557.
We also note several circumstances that cast doubt over the ignorance of Mauricia's children regarding the fabricated nature of TCT
No. 571, viz: (1) the petitioners are their close relatives, who have been residing in Lot No. 557 as early as 1928; (2) their father,
Romualdo, signed and recognized a subdivision plan of Lot No. 557 that would divide the lot among all of Alejandro's heirs,
including the petitioners; (3) their mother executed the deed of donation as soon as she acquired a copy of TCT No. 571; (4) their
mother's nonpayment of taxes due Lot No. 557 since 1946; and (5) the payment of real property taxes only to facilitate the
subdivision of Lot No. 557 among them.
The CA erred in finding that the lot that the petitioners claim to own is Lot No. 357, and not Lot No. 557
The CA, in upholding the validity of Mauricia's title and ownership over Lot No. 557, pointed out that the lot that Alejandro claimed
to own was not Lot No. 557, but Lot No. 357.
The CA based this conclusion on several tax documents in the name of Alejandro Tugot, which indicate that the lot covered is Lot
No. 357, and not Lot No. 557.
In so doing, the CA overlooked several key pieces of evidence presented before the RTC, which had led the latter to conclude that
the designation of Lot No. 357 in Alejandro's tax declarations actually pertained to Lot No. 557 . These pieces of
evidence are as follows:ChanRoblesvirtualLawlibrary
First, the testimony of Mr. Antonio Abellana of the City of Cebu Assessor's Office established that he issued a Certification of
Correction to change Alejandro's tax declarations, which initially covered Lot No. 357, to Lot No. 557.
According to Abellana, Lot No. 357 is located in a barangay different from the address found in Alejandro's tax declaration. The
base map of Cebu locates Lot No. 357 to be in Barangay Day-as, almost five meters from Sikatuna Street, while the address in
Alejandro's erroneous tax declaration indicates that Lot No. 357 is located in Jakosalem Street.
Second, records of the Cebu City Assessor's Office show that Lot No. 357 is covered by another tax declaration with an address
corresponding to the city's base map. In this tax declaration, Lot No. 357 is owned by a certain Antonio Yap.
Third, the deed of donation4 of Lot No. 558, which adjoins Lot Nos. 557 and 559, recognized Alejandro Tugot as the owner of Lot
No. 557.
47
We find that these pieces of evidence sufficiently explain that the lot in Alejandro and Aurea's tax declarations actually covered Lot
No. 557, and its initial designation as Lot No. 357 was an error. The Assessor's Office of Cebu City, which had the responsibility of
classifying, appraising, and assessing real property in Cebu, had acknowledged this designation to be erroneous, and subsequently
made rectification. This acknowledgment is not only entitled to the presumption of regularity; it is also corroborated by the Deed of
Donation of an adjoining lot.
Additionally, we also found other pieces of evidence supporting the conclusion of the Cebu City Assessor's Office. The tax
declarations in Alejandro and (subsequently) Aurea's names indicate that they covered the same address as the Lot No. 557
described in the Deed of Assignment that Antonio executed in Alejandro's favor in 1915. The identity of the addresses in these two
documents show that what the petitioners intended to pay real property tax for, was the lot covered in the Deed of Assignment,
which was Lot No. 557. Thus, the tax declarations that placed Lot No. 357 under Alejandro's name actually pertained to the lot
covered by Lot No. 557; its designation as covered by Lot No. 357 was an error that the Cebu City Assessor's Office eventually
discovered and corrected.
In the same vein, the court-approved subdivision plan for Lot No. 557 indicated it to be found along Jakosalem Street, the address
of the lot covered by Alejandro and Aurea's tax declarations. The plan was commissioned for Alejandro and his children, including
Romualdo (Mauricia's husband and the father of her children), in 1960. That the address of Lot No. 557 in the subdivision plan is
identical to the address in Alejandro and Aurea's tax declarations establishes that what they actually claim to own is Lot No. 557,
and not Lot No. 357.
With this foundation established, we now resolve the issue of who among them have the better right over Lot No. 557.
The CA erred in finding that the petitioners failed to prove that TCT No. 571 is a fabricated title
In upholding the validity of Mauricia's TCT No. 571, the CA held that the petitioners failed to overcome the presumption of
regularity that attended its issuance. The CA emphasized that a copy of TCT No. 571 is currently with the Register of Deeds, and
that the documents that the petitioners presented do not prove their ownership over the lot.
The CA's conclusion, however, overlooked the evidence that the petitioners presented before the RTC to prove that TCT No. 571 is
a fabricated title. These pieces of evidence include the TCTs issued immediately before and after TCT No. 571; TCT No. 16534 (the
TCT from which TCT No. 571 allegedly originated); and several TCTs that contain the signature of the Acting Register of Deeds who
signed TCT No. 571. Taken together, all these pieces of evidence sufficiently prove, by preponderance of evidence, that TCT No.
571 is a fabricated title.
We cite with approval the RTC's factual observations and conclusions, viz:
First, the text of TCT No. 571 contains glaring discrepancies with TCT No. 16534, the title indicated in TCT No. 571 as its
precursor.
TCT No. 16534 covered a different area from TCT No. 571. TCT No. 16534 covered Lot 7005-E-2, which has an area of 3,311
square meters, while TCT No. 571 covers Lot No. 557 with an area of 525 square meters. Too, TCT No. 16534 was issued in
September 1957, or almost ten years after the title it supposedly gave rise to was issued in 1946.
Second, TCT No. 571 contains discrepancies when compared with TCT Nos. 570 and 572, the TCTs that were supposedly issued
before and after TCT No. 571. These discrepancies are as follows:
(i) TCT Nos. 570 and 572 had both been issued on February 26, 1947, almost a year after TCT No. 571 was issued on July 16,
1946. Since TCT No. 571 was an intervening title between TCT No. 570 and 572, then it should have also been issued on
February 26, 1947.
(ii) TCT No. 571 used an old form, Judicial Form No. 140-D, which was revised in June 1945 by Judicial Form No. 109. Since TCT
No. 571 shows that it was issued in 1946, then it should have used Judicial Form No. 109. Notably, both TCT Nos. 570 and 572
used the updated Judicial Form No. 109, as they were issued in 1947.
(iv TCT Nos. 570 and 572 were signed by Martina L. Arnoco as Register of Deeds, while TCT No. 571 was signed by Gervasio
) Lavilles as Acting Register of Deeds.
(v) There are distinct differences in Lavilles' signature as it appears in TCT No. 571, compared with his signatures in other TCTs,
such as TCT Nos. 525 and 526.
48
Additionally, we note that Mauricia's claim that she bought Lot No. 557 from Antonio is contradicted by the contents of TCT No.
16534.
For a new TCT to be issued, the owner's duplicate of the seller should have been surrendered to the Registry of Deeds, along with a
copy of the TCT's Deed of Sale. Thus, the seller's TCT would be cancelled, and the new TCT of the buyer would indicate the seller's
TCT as its TCT of origin.
The text of TCT No. 571 shows that it originated from TCT No. 16534. If indeed TCT No. 571 was issued to Mauricia because the
latter bought Lot No. 557 from Antonio, then TCT No. 16534 should have reflected this transaction.
However, instead of reflecting Antonio's title to Lot No. 557, TCT No. 16534 shows that it pertained to a different lot, and had
been issued ten years after the issuance of TCT No. 571 to a certain Crispina Lopez.
The original certificate of title from which TCT No. 571 and TCT No. 16534 originated are also different: TCT No. 571 originated
from Original Certificate of Title ( OCT) No. 251-253, while TCT No. 16534 originated fromOCTNo. 11375.
These discrepancies, taken together with its variations from the other titles issued around the same time and Mauricia Quilaton
failure to present proof of how she acquired the lot from Antonio, reasonably establish that TCT No. 571 is a fabricated title.
We now proceed to determine whether Alejandro was Lot No. 557's rightful owner.
Lopez is not an innocent purchaser for value of Lot 5 57-A
We now determine Lopez's claim that she is an innocent purchaser for value of Lot No. 557-A, and should thus be allowed to keep
her title over it.
The CA, in affirming Lopez's title over Lot No. 557-A, held that she was an innocent mortgagee for value. According to the CA, TCT
No. 130517 had no encumbrances and liens at the time it was mortgaged to Lopez, and this status extended to the time that TCT
No. 130517 was foreclosed to answer for Rodrigo's loan.
We cannot agree with the CA's conclusion.
As a general rule, a person dealing with registered land has a right to rely on the Torrens certificate of title and to dispense with the
need of further inquiring over the status of the lot.
Jurisprudence has established exceptions to the protection granted to an innocent purchaser for value, such as when the purchaser
has actual knowledge of facts and circumstances that would compel a reasonably cautious man to inquire into the status of the lot;
or of a defect or the lack of title in his vendor; or of sufficient facts to induce a reasonably prudent man to inquire into the status of
the title of the property in litigation.
The presence of anything that excites or arouses suspicion should then prompt the vendee to look beyond the certificate and
investigate the title of the vendor appearing on the face of the certificate. One who falls within the exception can neither be
denominated as innocent purchaser for value nor a purchaser in good faith, and hence does not merit the protection of the law.
In particular, the Court has consistently held that that a buyer of a piece of land that is in the actual possession of persons other
than the seller must be wary and should investigate the rights of those in possession. Without such inquiry, the buyer can hardly be
regarded as a buyer in good faith.
We find that Lopez knew of circumstances that should have prodded her to further investigate the Lot No. 557-A's status before she
executed a mortgage contract over it with Rodrigo.
In the pre-trial brief she submitted before the trial court, Lopez made the following admissions:
Only after these checking did an actual inspection of the properties took (sic) place, but on this occasion, unfortunately, none of
the plaintiffs, especially plaintiff Filadelfa T. Lausa, who is found lately to be residing nearby, furnished her the information of the
present claims.
49
She likewise made the same admission in an affidavit, viz:
6. The properties which were mortgaged were checked and no one at that time, even plaintiff Filadelfa T. Lausa who is just residing
nearby, disputed that the absolute owners thereof were the spouses Rodrigo and Ligaya Tugot.
While these admissions pertain to the petitioners' act of not telling Lopez of the status of Lot No. 557-A, it implies that she had
inspected the property, and accordingly found that Rodrigo did not reside in Lot No. 557-A.
Records of the case show that Filadelfa resided in Lot No. 557-A at the time Lopez executed the real estate mortgage with Rodrigo.
In August 1995, Rodrigo and his siblings filed an ejectment case against the petitioners Filadelfa Lausa and Anacleto Caduhay -
Filadelfa resides in Lot No. 557-A while Anacleto's in Lot 557-B. Notably, this ejectment case was filed five months after Lopez had
entered into the real estate mortgage contract. Thus, at the time Lopez inspected Lot No. 557, she would have found Filadelfa
residing in it, and not Rodrigo.
That Filadelfa - and not Rodrigo - resided in Lot No. 557-A should have prompted Lopez to make further inquiries over its status.
Further inquiries with the lot owners of surrounding property could have informed her of its actual status. Instead, she contented
herself with checking the copy of the title to Lot No. 557-A against the copy in the Registry of Deeds of Cebu, which she had done
prior to the actual inspection of Lot No. 557-A. The law cannot protect Lopez's rights to Lot 557-A given her complacency.
Further, the status of an innocent-purchaser for value or innocent mortgagor for value is established by the person claiming it,
an onus probandi that Lopez failed to meet.
In her memorandum, Lopez urged the Court to acknowledge her rights over Lot No. 557-A, arguing that the declaration of her
status as an innocent-purchaser and innocent mortgagor is a non-issue because it was never pleaded in her co-respondents'
amended complaint. She also pointed out that a valid title can emerge from a fabricated title, and essentially invoked the innocent
purchaser for value doctrine.
The amended complaint alleges that Lopez's status as current owner of Lot 557-A prejudices the rights of the petitioners, who are
its true owners. The circumstances regarding how Lopez acquired ownership over Lot No. 557-A had also been pleaded therein.
Verily, the amended complaint does not need to allege Lopez's status as an innocent purchaser or mortgagor in good faith precisely
because it was incumbent upon her to allege and prove this to defend her title to Lot No. 557-A. It merely needed to allege a cause
of action against Lopez, (which it did by alleging the circumstances surrounding Lopez's ownership of Lot No. 557-A) and that it
prejudices the petitioners' rights as its true owners.
Further, Lopez chose to ignore in her Memorandum the petitioners' contention that she knew that Filadelfa Lausa, and not Rodrigo,
resided in Lot No. 557-A. To reiterate, Lopez has the burden of proving her status as an innocent purchaser for value in order to
invoke its application. Failing in this, she cannot avail of the protection the law grants to innocent purchasers for value.
The CA erred in finding that the petitioners' claim of ownership over Lot No. 557 had been barred by prescription
and laches
The outcome of the present case dispenses with the need for a discussion regarding extinctive prescription and laches.
We note, however, that the CA erred in applying the principle of prescription and laches to the petitioners' cause of action involving
Lot No. 557.
An action for annulment of title or reconveyance based on fraud is imprescriptible where the plaintiff is in possession of the property
subject of the fraudulent acts. One who is in actual possession of a piece of land on a claim of ownership thereof may wait until his
possession is disturbed or his title is attacked before taking steps to vindicate his right.
The records of the case show that the petitioners resided in the property at the time they learned about TCT No. 571. Being in
possession of Lot No. 557, their claim for annulment of title had not expired. Their ownership of Lot No. 571, however, is a different
matter.
50
Effects of the Court's decision
Our decision in the present case does not settle the ownership of Lot No. 557. To recapitulate, our examination of the records and
the evidence presented by the petitioners and the respondents lead us to conclude that neither of them own Lot No. 557.
Despite the intent of Act No. 1120 and Republic Act No. 9443 to transfer ownership of the Banilad Friar Estate Lands to its
occupants, we cannot settle the ownership of Lot No. 557 in the present case.
Indeed, the petitioners and the respondents are the actual occupants of Lot No. 557, and they and their families (with the exception
of Rosita Lopez) have resided in the lot since 1915.
However, as we have discussed above, neither party had been able to establish their right of ownership, much less possession, of
Lot No. 557. The petitioners anchor their claim on acquisitive prescription, which does not lie against registered land or the
government. The respondents, on the other hand, presented spurious TCTs. Thus, no amount of liberal interpretation of Act No.
1120 or Republic Act No. 9443 could give either party the right over the lot.
Neither can we ignore the evidence showing that none of them could rightfully own Lot No. 557. The petitioners' cancelled deed of
assignment and tax declarations cannot establish their ownership over Lot No. 557; especially since the operation of pertinent laws
prevented the possibility of acquisitive prescription. The respondents' TCT No. 571, on the other hand, had several discrepancies
indicating that it was a fake.
The exercise of the Court's judicial power settles actual controversies between parties, through which the Court establishes their
legally enforceable and demandable rights. We determine the parties' rights based on the application of the law to the facts
established through the pieces of evidence submitted by the parties. The application of the law on the facts of the present case
establishes that neither party has a legally enforceable right over Lot No. 557.
Given this situation, we direct that the records of the case be transmitted to the Land Management Bureau 6 for further investigation
and appropriate action over Lot No. 557 of the Banilad Friar Estate Lands.
Additionally, we direct that a copy of the records of the case be transmitted to the Ombudsman, for further investigation regarding
how the fake TCTs covering Lot No. 557 ended up in the Registry of Deeds of Cebu City, and for the criminal and administrative
investigation of government officials liable for them.
51
1135 – POSSESSION BY MISTAKE OF AN AREA GREATER OR LESS THAN THAT EXPRESSED IN THE TITLE
ARTICLE 1135. In case the adverse claimant possess the

mistake an area greater, or less, than that expressed his
title, prescription shall be based on possession.
REPUBLIC v. CA
301 S 366
FACTS:
The land area owned by St. Jude Enterprise in Caloocan was 40,523 square meters. However in his TCT, the area covered 42,044
square meters. This expansion or increase in area of the first lot (since the original lot was subdivided into two) was confirmed by
the Land Registration Commission.
St Jude’s then sold the lots to Spouses Santos, Spouses Calaguian, and Lucy Madaya.
The Solicitor General moved for the cancellation of the TCT and annul the sales because of the said expansion of a total of 1,421
square meters.
The RTC dismissed the complaint. It found that the buyers of the land purchased the lots in good faith and since the titles were
registered under the Torrens system, such titles became absolute and irrevocable. Also, even if the Sol Gen proved the expansion of
the area, there was no proof of fraud when St. Jude submitted the subdivision plan to the LRC.
The CA affirmed the RTC. Thus, the petition for review.
52
RULING: The Supreme Court ruled that the government cannot acquire the 1,421 square meters back, because the persons who
acquired the land were already purchasers for value and in good faith. More importantly, the 42,044 square meters is the area of
the land which is indicated in the TCT. The court explained that the purpose of the Torrens system is to avoid conflicts in the
ownership of the land. The land area reflected in the TCT is presumed to be the area of the land. If there is an argument on
whether the area of the land should be the 42,044 or the 40,523, the very purpose of the Torrens system should be considered so
that people will not keep on baselessly question the validity of a title. Thus, since the Torrens title was enacted such that it would
avoid possible conflicts in the title, whatever the description of the land is in the Torrens title, it is presumed to be the description of
the land. That is why in case there is a difference or mistake of possession, in order to avoid conflict over lands
registered in the Torrens system, the area expressed in the title will be controlling. Furthermore, in this case, the court
said that the 40,523 square meters was a mere approximation, and thus not exact
53
1137 – PRESCRIPTION of OWNERSHIP and OTHER REAL RIGHTS
FUDALAN v. OCIAL
759 S 160 (MENDOZA)
FACTS
The subject of the said action was a parcel of land designated as Cad. Lot No. 56-A located at Tangnan, Panglao, Bohol, which was
a portion of Lot No. 56, Cad 705-D, Panglao Cadastre, in the name of Juana Fuderanan ( Juana).
In this case, there was a contention that the subject land was impossible to have been acquired by acquisitive prescription by
Fudalans.
Fudalan alleged therein that, although still declared in the name of the late Juana Fuderanan, the property was absolutely
owned by her parents, the late Spouses Eusebio Fucolan and Catalina Bolias, who acquired the property in 1935 and thereafter took
actual possession of the land. She averred that the possession was continuous, peaceful, open, public, adverse, and in the concept
of an owner which was never disturbed by any person until Spouses Ocial, through their Attorney-in-Fact, informed the Fudalans
and Baldomera that they had already bought the land from the Fuderanans. Stated otherwise, Fudalan claims that because they
have been in adverse possession for the requisite period, their possession has now ripened into ownership through acquisitive
prescription.
According to the Spouses Ocial, the Fudalans, without any lawful right or authorization, surreptitiously planted "ubi" on a portion of
Lot No. 56-A and they also claimed the landowner's share of the mango produce from Maximo Bolongaita who refused to give the
same and instead deposited the amount in a bank in Tagbilaran City; that in November 2001, the Fudalans illegally placed two "no-
trespassing" signs inside the questioned property;
This prompted to their filing of complaint in the barangay but no settlement was reached. Subsequently, Fudalans installed a
barbed wire with cement post without the necessary permit.
Their complaint that on March 13, 2001, the heirs of Juana executed the Extrajudicial Settlement Among Heirs with Simultaneous
Deed of Absolute Sale over Lot 56-A including two (2) fruit bearing mango trees in their favor as lawful vendees; that as the
new owners (Spouses Ocial) of the subject land, they caused the planting of thirty (30) gemelina seedlings, twenty (20) mahogany
seedlings, and two (2) mango seedlings, and in October 2001, they claimed the landowner's share of the mango produce from
Maximo Bolongaita who had been taking care of the two (2) fruit-bearing mango trees; that in October 2001, they caused the
placement of a "no-trespassing" sign on one of the mango trees; that they also caused the processing of the Deed of Extrajudicial
Settlement Among Heirs with Simultaneous Sale for the cancellation of Tax Declaration No. 93-009-00247 and the issuance of a
new tax declaration in their favor
ISSUE: WON the property was acquired by prescription (ordinary or extraordinary).
RULING: No. First, there was no proof aside from the bare allegation that Fudalan’s parents took actual possession of the land.
There was no showing of any just title with respect to the possessor over the parcel of land. No other evidence, documentary or
otherwise, showing that the title to the subject property was indeed transferred from Juana to Fudalan’s parents was presented.
In fact, she never denied that the tax declaration of the property was still in the name of Juana Fuderanan.
As such, for lack of "just title," she could not have acquired the disputed property by ordinary prescription through possession often
(10) years. Occupation or use alone, no matter how long, cannot confer title by prescription or adverse possession unless coupled
with the element of hostility towards the true owner, that is, possession under the claim of title.
*By the nature of a compromise agreement, it did not create or transmit ownership rights over the subject property.
Second, there was no showing that the land can be acquired by extraordinary prescription. In extraordinary prescription,
despite the absence of good faith or just title, a person may acquire it by lapse of the period provided for by law. In
case of real property, the lapse of 30 years is required. That period was not observed in this case and thus, the court said that it
could not have been acquired by way of extraordinary prescription.
54
It was only in 1994 that her husband, Flavio was named administrator; that it was also then that they started paying taxes; and
that it was also then that they started occupying the subject property. This observation of the trial court was contrary to her
assertion that they had been paying taxes and had been in possession of the land even before the said period. On this note, the
thirty-year period would only be completed in the year 2024. Also, the records would reveal that as early as November 2001,
her possession was effectively interrupted when Spouses Ocial filed a complaint before the barangay captain of Tangnan, Panglao,
Bohol, where conciliation proceedings were held although no settlement was reached.
ANDRES v. STA. LUCIA REALTY

768 S 56 (08/19/15)
Not all may demand for an easement of right-of-way.

Under the law, an easement of right-of-way may only be
demanded by the owner of an immovable property or by
any person who by virtue of a real right may cultivate or
use the same.
If the mode of acquisition is prescription, whether

ordinary or extraordinary, it must first be shown that
the land has already been converted to private
ownership prior to the requisite acquisitive
prescriptive period. Otherwise, Article 1113 of the Civil
Code, which provides that property of the State not
patrimonial in character shall not be the subject of
prescription, applies
FACTS
In this case, Andres filed a complaint which was an action to demand right of way, because the unregistered agricultural land in
Pag-asa, Binangonan, Rizal with a total area of more or less 10,500 square meters (subject property) which was allegedly owned by
them was being blocked by the land of Sta. Lucia from the Col. Guido Street, a public road.
A few years back, however, respondent acquired the lands surrounding the subject property, developed the same into a residential
subdivision known as the Binangonan Metropolis East, and built a concrete perimeter fence around it such that petitioners and Liza
were denied access from subject property to the nearest public road and vice versa.
Respondent denied knowledge of any property adjoining its subdivision owned by petitioners and Liza. At any rate, it pointed out
that petitioners and Liza failed to sufficiently allege in their complaint the existence of the requisites for the grant of an easement of
right-of-way.
In order to demand right of way, it must be proved that they owned the property. In this case, Andres argued that they already
acquired the property through acquisitive prescription (BOTH ORDINARY AND EXTRAORDINARY -50 YEARS NA DAW)
ISSUE: WON the property can be the subject of acquisitive prescription (both ordinary and extraordinary) or whether Andres can
demand a right-of-way?
RULING: Under Article 649 of the Civil Code, an easement of right-of-way may be demanded by the owner of an immovable or by
any person who by virtue of a real right may cultivate or use the same.
Here, petitioners argue that they are entitled to demand an easement of right-of-way from respondent because they are the owners
of the subject property intended to be the dominant estate. They contend that they have already acquired ownership of the subject
property through ordinary acquisitive prescription. This is considering that their possession became adverse as against the Blancos
(under whose names the subject property is declared for taxation) when Carlos formally registered his claim of ownership
with the DENR and sought to declare the subject property for taxation purposes in 1998 . And since more than 10
55
years had lapsed from that time without the Blancos doing anything to contest their continued possession of the subject property,
petitioners aver that ordinary acquisitive prescription had already set in their favor and against the Blancos .
In the alternative, petitioners assert that they have already become owners of the subject property through extraordinary
acquisitive prescription since (1) they have been in open, continuous and peaceful possession thereof for more than 50 years; (2)
the subject property, as depicted in the Survey Plan they caused to be prepared is alienable and disposable; (3) Carlos filed a claim
of ownership over the property with the DENR, the agency charged with the administration of alienable public land; and (4) Carlos'
manifestation of willingness to declare the property for taxation purposes not only had the effect of giving notice of his adverse
claim on the property but also strengthened his bona fide claim of ownership over the same.
It must be stressed at the outset that contrary to petitioners' allegations, there is no showing that Carlos (ascendant of andres,
liza, liwayway) filed a claim of ownership over the subject property with the DENR. His April 13, 1998 letter to the said
office which petitioners assert to be an application for the registration of such claim is actually just a request for the issuance of
certain documents and nothing more.
Moreover, while Carlos indeed attempted to declare the subject property for taxation purposes, his application, as previously
mentioned, was denied because a tax declaration was already issued to the Blancos.
Anent petitioners' invocation of ordinary acquisitive prescription, the Court notes that the same was raised for the first time on
appeal. Before the RTC, petitioners based their claim of ownership on extraordinary acquisitive prescription under Article 1137 of
the Civil Code such that the said court declared them owners of the subject property by virtue thereof in its May 22, 2006
Decision. Also with the CA, petitioners initially asserted ownership through extraordinary acquisitive prescription. It was only later in
their Motion for Reconsideration therein that they averred that their ownership could also be based on ordinary acquisitive
prescription. "Settled is the rule that points of law, theories, issues and arguments not brought to the attention of the lower court
need not be considered by a reviewing court, as they cannot be raised for the first time at that late stage. Basic considerations of
fairness and due process impel this rule."
Even if timely raised, such argument of petitioners, as well as with respect to extraordinary acquisitive prescription, fails.
"Prescription is one of the modes of acquiring ownership under the Civil Code."
There are two modes of prescription through which immovables may be acquired - ordinary acquisitive prescription which requires
possession in good faith and just title for 10 years and, extraordinary prescription wherein ownership and other real rights over
immovable property are acquired through uninterrupted adverse possession for 30 years without need of title or of good faith.
However, it was clarified in the Heirs of Mario Malabanan v. Republic of the Philippines , that only lands of the public domain
subsequently classified or declared as no longer intended for public use or for the development of national wealth,
or removed from the sphere of public dominion and are considered converted into patrimonial lands or lands of
private ownership, may be alienated or disposed through any of the modes of acquiring ownership under the Civil
Code.
And if the mode of acquisition is prescription, whether ordinary or extraordinary, it must first be shown that the land has already
been converted to private ownership prior to the requisite acquisitive prescriptive period. Otherwise, Article 1113 of the Civil Code,
which provides that property of the State not patrimonial in character shall not be the subject of prescription, applies.ralawread
Sifting through petitioners' allegations, it appears that the subject property is an unregistered public agricultural land. Thus, being a
land of the public domain, petitioners, in order to validly claim acquisition thereof through prescription, must first be able to show
that the State has -
expressly declared through either a law enacted by Congress or a proclamation issued by the President that the subject [property]
is no longer retained for public service or the development of the national wealth or that the property has been converted into
patrimonial.
Consequently, without an express declaration by the State, the land remains to be a property of public dominion and hence, not
susceptible to acquisition by virtue of prescription.
56
In the absence of such proof of declaration in this case, petitioners' claim of ownership over the subject property based on
prescription necessarily crumbles. Conversely, they cannot demand an easement of right-of-way from respondent for lack
of personality.
1138 – TACKING OF POSSESSION
ART. 1138. In the computation of time necessary for

prescription the following rules shall be observed:
(1) The present possessor may complete the period
necessary for prescription by tacking his possession to
that of his grantor or predecessor in interest;
(2) It is presumed that the present possessor who was
also the possessor at a previous time, has continued to
be in possession during the intervening time, unless
there is proof to the contrary;
(3) The first day shall be excluded and the last day
included
Take note, this period of computation is applicable only to acquisitive prescription.
Par. 1: principle of tacking of possession

Tacking or adding; meaning, you assume the period of your grantor or predecessor-in-interest.
Par. 2:
This means that it is continuous even during the intervening time, unless there is proof to the contrary.
How the contrary is be proven? There must be a showing of interruption, whether natural or civil.
Par. 3:
The first day shall be excluded and the last day included.
57
SOUTH CITY HOMES, INC. V. REPUBLIC,

G.R. NO. 76564, [MAY 25, 1990]
Petitioner has failed to establish its title to the disputed lot, whatever its nature. The possession of the said lot was not and could
not have been transferred to the petitioner when it acquired Lots Nos. 2381 and 2386-A because these two lots did not include the
third lot.
Tacking of possession is allowed only when there is a

privity of contract or relationship between the previous
and present possessors. In the absence of such privity,
the possession of the new occupant should be counted
only from the time it actually began and cannot be
lengthened by connecting it with the possession of the
former possessors
FACTS
The subject of this dispute is a strip of land between two lots owned by South City Homes, Inc. It has an area of 613 square meters
and is situated in Calabuso, Biñan, Laguna.
It was discovered only in 1983 after a survey conducted by the Bureau of Lands and is now identified as Lot No. 5005 of the
Binan Estate.
Registration thereof in the name of the petitioner was decreed in 1984 by the trial court pursuant to the Property Registration Law.
On appeal, the order was reversed by a special division of the respondent court, with two members dissenting. The petitioner is
now before us, claiming that the reversal was erroneous.
South City Homes, Inc. argues that Lot No. 5005 should be registered in its name for either of two reasons. The first is that the
disputed strip of land really formed part of Lots 2381 and 2386-A but was omitted therefrom only because of the inaccuracies of the
old system of cadastral surveys.
The second is that it had acquired the property by prescription through uninterrupted possession thereof in concept of owner, by
itself and its predecessors-in-interest, for more than forty years.
The Republic contends that prescription is also not applicable because the petitioner has not established the requisite possession of
the lot, as to manner and length, to justify judicial confirmation of title in its name.
ISSUE
Does South City Homes may complete the period necessary for prescription by tacking his possession to that of the previous owners
of the two lots he owned?
RULING
I. No.
By the testimony of the two witnesses, the petitioner obviously meant to tack the possession of the two lots by the previous
owners to its own possession.
58
There was no need for this because the petitioner acquired ownership of Lot No. 2381 by assignment and Lot No. 2386-A by
purchase; and such ownership includes the right of possession. The petitioner is not claiming prescriptive rights to these two
lots, which had previously been registered in the name of the transferors. The lot it is claiming by prescription is Lot No. 5005,
which it did not acquire from the owner of the other two lots, or from any previous private registered owner of the lot, as there was
none.
Neither of the owners of Lots Nos. 2381 or 2386-A, in their respective deeds, transferred Lot No. 5005 to the petitioner; as already
explained, Lot No. 5005 was not part of either of the two lots. The petitioner merely occupied the disputed strip of land
believing it to be included in the two lots it had acquired from Koo Jun Eng and the Garcia spouses. However, even if it be conceded
that the previous owners of the other two lots possessed the disputed lot, their possession cannot be tacked to the possession of
the petitioner. The simple reason is that the possession of the said lot was not and could not have been transferred to
the petitioner when it acquired Lots Nos. 2381 and 2386-A because these two lots did not include the third lot.
Article 1138 of the Civil Code provides that —
(1) The present possessor may complete the period necessary for prescription by tacking his possession to that of his grantor or
predecessor- in interest.
However, tacking of possession is allowed only when there is a privity of contract or relationship between the
previous and present possessors. In the absence of such privity, the possession of the new occupant should be counted only
from the time it actually began and cannot be lengthened by connecting it with the possession of the former possessors. Thus it has
been held:
A deed, in itself, creates no privity as to land outside its calls . Nor is privity created by the bare taking of possession of land
previously occupied by the grantor. It is therefore the rule, although sharply limited, that a deed does not of itself create privity
between the grantor and the grantee as to land not described in the deed but occupied by the grantor in connection
therewith, although the grantee enters into possession of the land not described and uses it in connection with that conveyed.
Where a grantor conveys a specific piece of property, the grantee may not tack onto the period of his holding of an additional piece
of property the period of his grantor's occupancy thereof to make up the statutory period. His grantor has not conveyed such
property or his interest therein, and there is no privity.
It is said, in Hanlon v. Ten Hove supra, that this rule is not harsh, the court using the following language: "If A purchases and by
adverse possession obtains title to an adjoining 40 acres, it would hardly be contended that a conveyance by him of the 40
acquired by deed would carry with it title to the 40 acquired by adverse possession. So if A acquires by deed a 40 acres and obtains
an adjoining strip 2 rods wide or some interest in it, his conveyance of the 40 acquired by deed does not carry with it his interest in
the adjoining strip. If the sole defense here was that of adverse possession, we would be obliged to hold that it had not been made
out.
It should also be noted that, according to Article 1135 of the Civil Code:
In case the adverse claimant possesses by mistake an area greater, or less, than that expressed in his title, prescription shall be
based on the possession.
This possession, following the above quoted rulings, should be limited only to that of the successor-in-interest; and in the case of
the herein petitioner, it should begin from 1981 when it acquired the two adjacent lots and occupied as well the lot in question
thinking it to be part of the other two.
It follows that when the application for registration of the lot in the name of the petitioner was filed in 1983, the applicant had been
in possession of the property for less than three years. This was far too short of the prescriptive period required for acquisition of
immovable property, which is ten years if the possession is in good faith and thirty years if in bad faith, or if the land is public.
59
The weakness of the petitioner's position prevents this Court from affirming the claim to the lot in question either as part of the two
other lots or by virtue of acquisitive prescription. And having made this ruling, we find it unnecessary to determine whether the land
is patrimonial in nature or part of the public domain.
II.
According to the respondent court, the fact that the canal had been filled up did not change its nature as a canal; it was still a canal
although it had dried up. We do not think so. A canal without water is not a canal. The status of a canal is not perpetual.
Consequently, the above provision is not applicable and cannot defeat the petitioner's claim to the disputed property either as part
of two other lots or as a separate lot.
As we have already rejected the contention that the third lot was part of the other two lots, the petitioner must fall back on its claim
of acquisitive prescription over it as a separate lot.
Its submission is that its possession of the lot dates back to "time immemorial," by which tired phrase it is intended to convey the
idea that the start of such possession can no longer be recollected. Indeed, it can be. The petitioner's possession does not in fact
go back to "time immemorial," but only to the recent remembered past.
The petitioner presented only two witnesses whose testimony regarding its supposed possession of Lot No. 5005 is essentially
hearsay and inherently inadequate.
The testimony falls short of establishing the manner and length of possession required by law to vest prescriptive title in the
petitioner to Lot No. 5005. For one thing, as the Solicitor General points out in his Comment, the claim of adverse ownership to the
strip of land between their respective lots was not exclusive but shared by the predecessors-in-interest of the petitioner. For
another, and more importantly, the length of possession claimed by the petitioner is not sufficient to vest prescriptive title in it.
LIMCOMA MULTI-PURPOSE COOPERATIVE V.

REPUBLIC,
G.R. NO. 167652, [JULY 10,2007]
FACTS
On September 24, 2001, petitioner Limcoma Multi-Purpose Cooperative filed with the RTC an application for registration and
confirmation of title over a parcel of land designated as Lot 972-A No. Csd-04-015172-D (subject lot), Cad 426, Rosario Cadastre,
consisting of 646 square meters under the Property Registration Decree.
The subject lot was originally part of Lot 972 and, subsequently, segregated as Lot 972-A. Petitioner alleged that it is the owner in
fee simple of the subject lot and the improvements thereon, and that it has been in the open, exclusive, peaceful, and continuous
possession thereof for more than 30 years, reckoned from the time of possession of its predecessors-in-interest.
The CA reversed RTC’s ruling and ruled that petitioner failed to (1) demonstrate the open, continuous, exclusive, and notorious
possession since June 12, 1945 or earlier, required by the Property Registration Decree and the Public Land Act; and (2) overcome
the presumption that the subject lot is public and alienable land.
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On the other hand, petitioner maintains that it has occupied the subject lot since 1938, by virtue of its predecessors-in-interest’s
possession, and that it has duly established the character of the land as public and alienable. LIMCOMA submits that, at any rate,
Lot 972, including the subject lot, was converted into private property through the Spouses Andres and Trinidad’s exclusive and
continuous possession of more than 30 years, from 1938 to 1982, thereby making it susceptible to prescription.
ISSUE
May LINCOMA be permitted to tack possession of the subject lot to that of the Spouses Andres and Trinidad, and Venustiano?
RULING
Yes. Anent the holding of the appellate court that the Spouses Andres’ and Trinidad’s possession of the subject lot did not redound
to petitioner’s benefit, such does not find support in law.
Article 1138 of the Civil Code provides:
Art. 1138. In the computation of time necessary for prescription, the following rules shall be observed:
(1) The present possessor may complete the period necessary for prescription by tacking his possession to that of his grantor or
predecessor-in-interest.
While the supposed donation of the subject lot by the Spouses Andres and Trinidad to Venustiano was not evidenced by a written
instrument, the relationship between them is not in dispute, i.e., the former were the progenitors of the latter. Even if the
donation was void, the tacking of possession must be allowed, considering the undisputed relationship between the
Spouses Andres and Trinidad, and Venustiano (son of the spouses).
To emphasize, Venustiano is a compulsory heir of the Spouses Andres and Trinidad. Intestate succession is another means by
which ownership and other real rights over property are transmitted. Effectively, upon his parents’ death, ownership and real rights
over the subject lot, including the right of possession, were vested in Venustiano. Consequently, upon his sale of the subject lot
to LINCOMA, he transmitted his rights thereto. Therefore, LINCOMA must be permitted to tack possession of the subject lot to
that of the Spouses Andres and Trinidad, and Venustiano.
In any event, there appears to be no legal impediment to petitioner’s registrable right over the subject lot. We find that petitioner
has consolidated ownership thereof through ordinary acquisitive prescription, specifically, good faith possession for 10 years.
Prescription is a mode of acquiring ownership. We have had occasion to rule in numerous instances that open, exclusive, and
continuous possession for at least 30 years of alienable public land ipso jure converts the same to private property. 42 The
conversion works to summon into operation Section 14(2) of the Property Registration Decree which, in turn, authorizes the
acquisition of private lands through prescription.
In the case at bar, petitioner proved that its predecessors-in-interest, the Spouses Andres and Trinidad, occupied and possessed the
subject lot in the concept of owner for more than 30 years, 44 years to be exact. Prescinding therefrom, the subject lot had already
been converted to private property by 1968. Accordingly, when the petitioner bought the lot from the Spouses Venustiano and
Arsenia in 1991, under the belief, in good faith, that they were the transferees of the original owners, it only needed to complete
the 10-year possession requirement for ordinary acquisitive prescription.
Spouses Venustiano and Arsenia represented to petitioner that the subject lot was donated to Venustiano by his parents in 1982.
This donation, even if void, serves as basis of the petitioner’s good faith, absent a showing that it knew of a defect in its title or
mode of acquisition. Good faith remains notwithstanding petitioner’s mistaken belief that the donation was valid. Article 526,
paragraph 3 of the Civil Code specifically provides that "mistake upon a doubtful or difficult question of law may be the basis of
good faith."
61
It stands to reason, therefore, that the petitioner has acquired registrable title over the subject lot anchored on its predecessors-in-
interest’s possession traced back to 1938, and its own possession of 10 years, reckoned from 1991 to the filing of the application
for registration in 2001.
NENITA QUALITY FOODS CORP. V. GALABO,

G.R. NO. 174191, [JANUARY 30, 2013]
This involves a forcible entry case between Nenita Quality Foods and Heirs of Galabo on the parcel of land occupied and cultivated
by the latter.
FACTS
The dispute in the case relates to the possession of a parcel of land described as Lot No. 102, PSD-40060, the former Arakaki
Plantation in Marapangi, Toril, Davao City with an area of six thousand seventy-four square meters (6,074 sq. m.).
The respondents are the heirs of Donato Galabo. Donato and the respondents assumed that Lot No. 722 included Lot No. 102, per
the original survey of 1916 to 1920. Allegedly, the resurvey did not include Lot No. 102; thus, when Donato acquired Transfer
Certificate of Title No. T-21496 for Lot No. 722 on April 26, 1953, Lot No. 102 was not included. The respondents, however,
continue to possess, occupy and cultivate Lot No. 102.
When NQFC opened its business in Marapangi, Toril, Davao City in the late 1950s, it allegedly offered to buy Lot No. 102. Donato
declined and to ward off further offers, put up "Not For Sale" and "No Trespassing" signs on the property. In the 1970s, Crisostomo
fenced off the entire perimeter of Lot No. 102 and built his house on it.
On August 19, 1994, the respondents received a letter from Santos Nantin demanding that they vacate Lot No. 102. Santos claimed
ownership of this lot per the Deed of Transfer of Rights (Deed of Transfer) dated July 10, 1972, which the respondents and their
mother allegedly executed in Santos favor.
ISSUE
Whether Nenita Quality Foods Corp. can invoke the principle of tacking of possession, that is, when it bought Lot No. 102 from
Santos on December 29, 2000, its possession is, by operation of law, tacked to that of Santos and even earlier, or at the time
Donato acquired Lot No. 102 in 1948.
RULING
NQFCs reliance on this principle is misplaced. True, the law allows a present possessor to tack his possession to that of his
predecessor-in-interest to be deemed in possession of the property for the period required by law. Possession in this regard,
however, pertains to possession de jure and the tacking is made for the purpose of completing the time required for acquiring or
losing ownership through prescription. We reiterate possession in forcible entry suits refers to nothing more than physical
possession, not legal possession.
The CA brushed aside NQFCs argument on the respondents’ failure to perfect their title over Lot No. 102. It held that the issue in
this case is not of possession de jure, let alone ownership or title, but of possession de facto. We agree with the CA; the
discussions above are clear on this point.
 On the reliance on the BOL letters and Certification and the CAs alleged disregard of NQFCs evidence.
To prove prior physical possession of Lot No. 102, NQFC presented the Deed of Transfer, Santos OCT P-4035, the Deed of Absolute
Sale, and the Order of the Bureau of Lands approving Santos free patent application. In presenting these pieces of evidence, NQFC
is apparently mistaken as it may have equated possession that is at issue as an attribute of ownership to actual possession. The
latter type of possession is, however, different from and has different legal implications than the former. While these documents
62
may bear weight and are material in contests over ownership of Lot No. 102, they do not per se show NQFCs actual possession of
this property.
We agree that ownership carries the right of possession, but the possession contemplated by the concept of ownership is not
exactly the same as the possession in issue in a forcible entry case.
Possession in forcible entry suits refers only to possession de facto, or actual or material possession, and not
possession flowing out of ownership; these are different legal concepts for which the law provides different remedies for recovery of
possession.
As we explained in Pajuyo v. Court of Appeals, and again in the more recent cases of Gonzaga v. Court of Appeals , De Grano v.
Lacaba, and Lagazo v. Soriano, the word "possession" in forcible entry suits refers to nothing more than prior physical possession or
possession de facto, not possession de jure or legal possession in the sense contemplated in civil law. Title is not the issue, and the
absence of it "is not a ground for the courts to withhold relief from the parties in an ejectment case."
Thus, in a forcible entry case, "a party who can prove prior possession can recover such possession even against the owner
himself.” Whatever may be the character of his possession, if he has in his favor prior possession in time, he has the security that
entitles him to remain on the property until a person with a better right lawfully ejects him." He cannot be ejected by force, violence
or terror -- not even by its owners.
For these reasons, an action for forcible entry is summary in nature aimed only at providing an expeditious means of protecting
actual possession.
Ejectment suits are intended to "prevent breach of x x x peace and criminal disorder and to compel the party out of possession to
respect and resort to the law alone to obtain what he claims is his."
Thus, lest the purpose of these summary proceedings be defeated, any discussion or issue of ownership is avoided unless it is
necessary to resolve the issue of de facto possession.
We agree with the respondents that instead of squarely addressing the issue of possession and presenting evidence showing that
NQFC or Santos had been in actual possession of Lot No. 102, the former merely narrated how it acquired ownership of Lot No. 102
and presented documents to this effect. Its allegation that Santos occupied Lot No. 102 in 1972 is uncorroborated. Even the tax
declarations under Santos name are hardly of weight; "tax declarations and realty tax payments are not conclusive proof of
possession. They are merely good indicia of possession in the concept of owner" but not necessarily of the actual possession
required in forcible entry cases.
ART. 1139
ART 1139. Actions prescribe by the mere lapse of time

fixed by law.
(Pacific Banking v. CA, 1995)
(Spouses Edralin v. Philippine Veterans Bank, March 9, 2011)
(Antonio v. Morales, 2007)
63
The rationale behind the prescription of actions is to prevent fraudulent and stale claims from springing up at great distances of
time, thus surprising the parties or their representatives when the facts have become obscure from the lapse of time or the
defective memory or death or removal of the witnesses
ART. 1141. Real actions over immovables prescribe after

thirty years. This provision is without prejudice to what is
established for the acquisition of ownership and other real
rights by prescription
TUAZON v. TUAZON GR NO 200115, AUGUST 1, 2018
FACTS:
Tuazon filed an accion reinvindicatoria. Alleging that they were the prior and actual lawful possessor and bonafide claimants of a
parcel of land identified as Lot No 165, TC 308 situated at No 83-18 th street, East Bajac, Olongapo City from 1968 up to the present.
They also averred that Lydia Tuazon and Anunciacion Tuazon unlawfully occupied and withheld physical possession of a portion of
Lot no 165 containing an area of more or less 73 square meters property and that despite repeated demands to vacate the
premises, of which the last demand was made on Dec.1998, respondents refused to do so, forcing petitioners to refer the matter to
the barangay for resolution. The parties failed to amicably settle the matter which led to the issuance of a certification to file on Feb
18, 1999. However, respondents denied the allegations, the alleged that Lydia and her three sisters, now deceased, owned the
subject subject parcel of land in common having purchased it using their own funds sometime in 1965.
ISSUE: Whether or not the petitioner’s cause of action has prescribed.
RULING
Article 1141 of the Civil Code explicitly states that real actions over immovable prescribe after 30 years, without prejudice to what is
established for the acquisition of ownership and other real rights by prescription. Since the action before us is one of accion
publiciana, which seeks recovery of the real right of possession, Article 1141 must be read in relation to established rules on
prescription governing the real right of possession. Article 555 (4) of the Civil Code provides that “real right of possession is not lost
till after the lapse of ten years.” It is for this reason that we have time and again ruled that the remedy of accion publiciana is no
longer available after the lapse of 10 years from dispossession.
(Spouses Padilla v. Velasco, 2009)
1142 – MORTGAGE ACTION
64
Art. 1142. A mortgage action prescribes after ten years.
MAYBANK PHILIPPINES v. TARROSA 772 S 670

(10/14/15)
SUMMARY
This case involves a mortgage loan by Tarrosa Spouses from Maybank Philippines. The loan was secured by a real estate mortgage.
On the first loan, they have paid it. Then on the second loan (March 11, 1984), the spouses tarrosa failed to settle the loan upon
maturity. Subseqeuently, a final demand letter dated March 4, 1998 was issued by Maybank to them (which they received on April
1998) but they only offer to settle the loan on a lesser amount. Maybank refused leading the bank to commenced extrajudicial
foreclosure proceedings June 25, 1998. The property was sold in a public auction.
Sps. Tarrosa proceeded to file a complaint on September 7, 1998,for declaration of nullity and invalidity of the foreclosure of real
estate and of public auction sale proceedings and damages with prayer for preliminary injunction against Maybank. One of their
contentions was that Maybank's right to foreclose had prescribed or is barred by laches.
Maybank and PPI countered that Sps. Tarrosa's positive acknowledgment and admission of their indebtedness controverts the
defense of prescription.
FACTS
Spouses Oscar and Nenita Tarrosa (Sps. Tarrosa) obtained from then PNB-Republic Bank, now petitioner Maybank Philippines, Inc.
(Maybank), a loan in the amount of P91,000.00. The loan was secured by a Real Estate Mortgage dated January 5, 1981 (real
estate mortgage) over a 500-square meter parcel of land situated in San Carlos City, Negros Occidental (subject property), covered
by TCT No. T-5649, and the improvements thereon.
After paying the said loan, or sometime in March 1983, Sps. Tarrosa obtained another loan from Maybank in the amount of
P60,000.00 (second loan), payable on March 11, 1984. However, Sps. Tarrosa failed to settle the second loan upon maturity.
Sometime in April 1998, Sps. Tarrosa received a Final Demand Letter dated March 4, 1998 (final demand letter) from Maybank
requiring them to settle their outstanding loan in the aggregate amount of P564,579.91, inclusive of principal, interests, and penalty
charges. They offered to pay a lesser amount, which Maybank refused. Thereafter, or on June 25, 1998, Maybank commenced
extrajudicial foreclosure proceedings before the office of Ex-Officio Provincial Sheriff Ildefonso Villanueva, Jr. (Sheriff Villanueva).
The subject property was eventually sold in a public auction sale held on July 29, 1998 for a total bid price of P600,000.00, to the
highest bidder, Philmay Property, Inc. (PPI), which was thereafter issued a Certificate of Sale dated July 30, 1998.
On September 7, 1998, Sps. Tarrosa filed a complaint for declaration of nullity and invalidity of the foreclosure of real estate and of
public auction sale proceedings and damages with prayer for preliminary injunction against Maybank, PPI, Sheriff Villanueva, and
the Registry of Deeds of San Carlos City, Negros Occidental (RD-San Carlos), before the RTC, docketed as Civil Case No. 98-10451.
They averred, inter alia, that: (a) the second loan was a clean or unsecured loan; ( b) after receiving the final demand letter, they
tried to pay the second loan, including the agreed interests and charges, but Maybank unjustly refused their offers of payment; and
(c) Maybank's right to foreclose had prescribed or is barred by laches.
On the other hand, Maybank and PPI countered that: (a) the second loan was secured by the same real estate mortgage under a
continuing security provision therein; (b) when the loan became past due, Sps. Tarrosa promised to pay and negotiated for a
restructuring of their loan, but failed to pay despite demands; and ( c) Sps. Tarrosa's positive acknowledgment and admission of
their indebtedness controverts the defense of prescription.
ISSUE
Does Maybank's right to foreclose the real estate mortgage over the subject property barred by prescription?
RULING
65
No. In the absence of showing that demand is unnecessary for the loan obligation to become due and demandable, Maybank's right
to foreclose the real estate mortgage accrued only after the lapse of the period indicated in its final demand letter for Sps. Tarrosa
to pay, i.e., after the lapse of five (5) days from receipt of the final demand letter dated March 4, 1998. Thus, the foreclosure
proceedings had been initiated within the prescriptive period making it legal and valid.
An action to enforce a right arising from a mortgage should be enforced within ten (10) years from the time the
right of action accrues, i.e., when the mortgagor defaults in the payment of his obligation to the mortgagee;
otherwise, it will be barred by prescription and the mortgagee will lose his rights under the mortgage.
However, mere delinquency in payment does not necessarily mean delay in the legal concept. To be in default is
different from mere delay in the grammatical sense, because it involves the beginning of a special condition or status which has its
own peculiar effects or results.
In order that the debtor may be in default, it is necessary that:

(a) the obligation be demandable and already liquidated;
(b) the debtor delays performance; and
(c) the creditor requires the performance judicially or extrajudicially, unless demand is not necessary - i.e., when there is an
express stipulation to that effect; where the law so provides; when the period is the controlling motive or the principal
inducement for the creation of the obligation; and where demand would be useless.
Moreover, it is not sufficient that the law or obligation fixes a date for performance; it must further state expressly that after the
period lapses, default will commence. Thus, it is only when demand to pay is unnecessary in case of the aforementioned
circumstances, or when required, such demand is made and subsequently refused that the mortgagor can be
considered in default and the mortgagee obtains the right to file an action to collect the debt or foreclose the
mortgage.
In the present case, both the CA and the RTC reckoned the accrual of Maybank's cause of action to foreclose the real estate
mortgage over the subject property from the maturity of the second loan on May 11, 1984. The CA further held that demand was
unnecessary for the accrual of the cause of action in light of paragraph 5 of the real estate mortgage , which pertinently provides:
5. In the event that the Mortgagor herein should fail or refuse to pay any of the sums of money secured by this mortgage, or any
part thereof, in accordance with the terms and conditions herein set forth, or should he/it fail to perform any of the conditions
stipulated herein, then and in any such case, the Mortgagee shall have the right, at its election to foreclose this mortgage.
However, this provision merely articulated Maybank's right to elect foreclosure upon Sps. Tarrosa's failure or refusal to comply with
the obligation secured, which is one of the rights duly accorded to mortgagees in a similar situation.
In no way did it affect the general parameters of default, particularly the need of prior demand under Article 1169 of the Civil
Code, considering that it did not expressly declare: (a) that demand shall not be necessary in order that the mortgagor may be in
default; or
(b) that default shall commence upon mere failure to pay on the maturity date of the loan.
Hence, the CA erred in construing the above provision as one through which the parties had dispensed with demand as a
condition sine qua non for the accrual of Maybank's right to foreclose the real estate mortgage over the subject property, and
thereby, mistakenly reckoned such right from the maturity date of the loan on March 11, 1984. In the absence of showing that
demand is unnecessary for the loan obligation to become due and demandable, Maybank's right to foreclose the real estate
mortgage accrued only after the lapse of the period indicated in its final demand letter for Sps. Tarrosa to pay, i.e., after the lapse
of five (5) days from receipt of the final demand letter dated March 4, 1998.
Consequently, both the CA and the RTC committed reversible error in declaring that Maybank's right to foreclose the real estate
mortgage had already prescribed.
Thus, considering that the existence of the loan had been admitted, the default on the part of the debtors-mortgagors had been
duly established, and the foreclosure proceedings had been initiated within the prescriptive period as afore-discussed, the Court
finds no reason to nullify the extrajudicial foreclosure sale of the subject property.
66
OTHER PERIODS FIXED BY LAW
ART. 1142. A mortgage action prescribes after ten

years.
IMPRESCRIPTIBLE ACTIONS
ART. 1143. The following rights, among others specified

elsewhere in this Code, are not extinguished by
prescription:
(1) To demand a right of way, regulated in article 649;
(2) To bring an action to abate a public or private
nuisance
WHAT ARE THE PERIODS FIXED BY LAW?
ART. 1144. The following actions must be brought within ten years from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
ART. 1145. The following actions must be commenced within six years:
(1) Upon an oral contract;
(2) Upon a quasi-contract.
ART. 1146. The following actions must be instituted within four years:
(1) Upon an injury to the rights of the plaintiff;
(2) Upon a quasi-delict;
ACCRUAL OF THE RIGHT OF ACTION
The right of action accrues when there exists a cause of action, which consists of 3 elements, namely:
a. A right in favor the plaintiff by whatever means and under whatever law it arises or is created;
b. An obligation on the part of the defendant to respect such right; and
c. An act or omission on the part of such defendant violative of the right of the plaintiff
(Espanol v. Board of Administrators, Philippine Veterans Administration, GR No 44616, June 29, 1985)
67
1144 – ACTIONS THAT PRESCRIBE WITHIN 10 YEARS

ART. 1144. The following actions must be brought within
ten years from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
68
BENTIR v. LEANDA (Leyte Gulf Traders, Inc)

GR#128991 APRIL 12, 2000
FACTS
On May 15, 1992, respondent Leyte Gulf Traders, Inc. (herein referred to as respondent corporation) filed a complaint for
reformation of instrument, specific performance, annulment of conditional sale and damages with prayer for writ of injunction
against petitioners Yolanda Rosello-Bentir and the spouses Samuel and Charito Pormida.
Respondent corporation alleged that it entered into a contract of lease of a parcel of land with petitioner Bentir for a period of
twenty (20) years starting May 5, 1968. According to respondent corporation, the lease was extended for another four (4) years
or until May 31, 1992. On May 5, 1989, petitioner Bentir sold the leased premises to petitioner spouses Samuel Pormada and
Charito Pormada. Respondent corporation questioned the sale alleging that it had a right of first refusal. Rebuffed, it filed Civil Case
No. 92-05-88 seeking the reformation of the expired contract of lease on the ground that its lawyer inadvertently omitted to
incorporate in the contract of lease executed in 1968, the verbal agreement or understanding between the parties that in the event
petitioner Bentir leases or sells the lot after the expiration of the lease, respondent corporation has the right to equal the highest
offer.
Petitioners filed their answer alleging that the inadvertence of the lawyer who prepared the lease contract is not a ground for
reformation. They further contended that respondent corporation is guilty of laches for not bringing the case for reformation of the
lease contract within the prescriptive period of ten (10) years from its execution.
Respondent corporation then filed its reply and on November 18, 1992, filed a motion to admit amended complaint. Said motion
was granted by the lower court.cräläwvirtualibräry
Thereafter, petitioners filed a motion to dismiss reiterating that the complaint should be dismissed on the ground of prescription.
On December 15, 1995, the trial court through Judge Pedro S. Espina issued an order dismissing the complaint premised on its
finding that the action for reformation had already prescribed
The RTC ruled in favor of the respondent and CA upheld the ruling. Hence this petition.
ISSUE
Does the complaint for reformation filed by respondent Leyte Gulf Traders, Inc. already prescribed and in the negative, whether or
not it is entitled to the remedy of reformation sought.
RULING. Yes.
Reformation of an instrument is that remedy in equity by means of which a written instrument is made or construed so as to
express or conform to the real intention of the parties when some error or mistake has been committed. 1 It is predicated on the
equitable maxim that equity treats as done that which ought to be done. The rationale of the doctrine is that it would be unjust and
unequitable to allow the enforcement of a written instrument which does not reflect or disclose the real meeting of the minds of the
parties. However, an action for reformation must be brought within the period prescribed by law, otherwise, it will be barred by the
mere lapse of time.
The remedy of reformation of an instrument is grounded on the principle of equity where, in order to express the true intention of
the contracting parties, an instrument already executed is allowed by law to be reformed. The right of reformation is
necessarily an invasion or limitation of the parol evidence rule since, when a writing is reformed, the result is that an oral
agreement is by court decree made legally effective.
69
Consequently, the courts, as the agencies authorized by law to exercise the power to reform an instrument, must necessarily
exercise that power sparingly and with great caution and zealous care.
Moreover, the remedy, being an extraordinary one, must be subject to limitations as may be provided by law. Our law and
jurisprudence set such limitations, among which is laches. A suit for reformation of an instrument may be barred by lapse of time.
The prescriptive period for actions based upon a written contract and for reformation of an instrument is ten (10) years under
Article 1144 of the Civil Code. Prescription is intended to suppress stale and fraudulent claims arising from transactions like the one
at bar which facts had become so obscure from the lapse of time or defective memory.
In the case at bar, respondent corporation had ten (10) years from 1968, the time when the contract of lease was executed, to file
an action for reformation. Sadly, it did so only on May 15, 1992 or twenty-four (24) years after the cause of action accrued, hence,
its cause of action has become stale, hence, time-barred.
In holding that the action for reformation has not prescribed, the Court of Appeals upheld the ruling of the Regional Trial Court that
the 10-year prescriptive period should be reckoned not from the execution of the contract of lease in 1968, but from the date of the
alleged 4-year extension of the lease contract after it expired in 1988 . Consequently, when the action for reformation of instrument
was filed in 1992 it was within ten (10) years from the extended period of the lease. Private respondent theorized, and the Court of
Appeals agreed, that the extended period of lease was an "implied new lease" within the contemplation of Article 1670 of the Civil
Code, under which provision, the other terms of the original contract were deemed revived in the implied new lease.
We do not agree. First, if, according to respondent corporation, there was an agreement between the parties to extend the lease
contract for four (4) years after the original contract expired in 1988, then Art. 1670 would not apply as this provision speaks of an
implied new lease (tacita reconduccion) where at the end of the contract, the lessee continues to enjoy the thing leased "with the
acquiescence of the lessor", so that the duration of the lease is "not for the period of the original contract, but for the time
established in Article 1682 and 1687." In other words, if the extended period of lease was expressly agreed upon by the parties,
then the term should be exactly what the parties stipulated, not more, not less.
Second, even if the supposed 4-year extended lease be considered as an implied new lease under Art. 1670, "the other terms of the
original contract" contemplated in said provision are only those terms which are germane to the lessees right of continued
enjoyment of the property leased. The prescriptive period of ten (10) years provided for in Art. 1144 applies by operation of law,
not by the will of the parties. Therefore, the right of action for reformation accrued from the date of execution of the contract of
lease in 1968.
Even if we were to assume for the sake of argument that the instant action for reformation is not time-barred, respondent
corporations action will still not prosper. Under Section 1, Rule 64 of the New Rules of Court, an action for the reformation of an
instrument is instituted as a special civil action for declaratory relief. Since the purpose of an action for declaratory relief is to secure
an authoritative statement of the rights and obligations of the parties for their guidance in the enforcement thereof, or compliance
therewith, and not to settle issues arising from an alleged breach thereof, it may be entertained only before the breach or violation
of the law or contract to which it refers.
Here, respondent corporation brought the present action for reformation after an alleged breach or violation of the contract was
already committed by petitioner Bentir. Consequently, the remedy of reformation no longer lies.
70
REPUBLIC v. BAÑEZ
772 S 297 (10/14/2015)
FACTS
In 1976, Antonio V. Bañez, Luisita Bañez Valera, and Nena Bañez Hojilla (collectively, respondents) offered for sale a parcel of land
(subject property), with an area of 20,000 sq m in Barangay Calaba, Bangued, Abra to Cellophil Resources Corporation (CRC).
Pursuant to the offer to sell on 7 December 1981, respondents executed a Letter Agreement irrevocably giving CRC the option to
purchase the subject property, which CRC accepted.
CRC constructed staff houses and introduced improvements on the subject property. As respondents would be staying abroad for a
time, they executed a Special Power of Attorney (SPA) in favor of Edgardo B. Hojilla (Hojilla).
Republic of the Philippines, represented by Privatization and Management Office (PMO), filed a complaint for specific performance,
recovery of possession, and damages against respondents Antonio V. Banez, Luisita Bañez Valera, Nena Bañez Hojilla and Edgardo
B. Hojilla, Jr., to :
1. To take all steps necessary to cause a portion of the lot covered by Tax Declaration No. 40185 in the name of Urbano Bañez
which is the subject of our "Offer to Sell" to Cellophil Resources Corporation containing an area xxx to be brought under the
operation of Republic Act No. 496, as amended, and to cause the issuance in our name of the corresponding original certificate of
title.
2. To do all acts and things and to execute all papers and documents of whatever nature or kind required for the accomplishments
of the aforesaid purpose.
However, CRC stopped its operation. The Development Bank of the Philippines and National Development Company took over CRC’s
operation and turned over CRC’s equity to Asset Privatization Trust (APT), which is a government agency created by virtue of
Proclamation No. 50, as amended. The APT’s function is to take title to and possession of, provisionally manage and dispose of
nonperforming assets of government financial institutions. Upon the expiration of APT’s term on 31 December 2000, the
government issued Executive Order (E.O.) No. 323, which created the Privatization and Management Office (PMO). By virtue of E.O.
No. 323, the powers, functions, and duties of APT were transferred to the PMO. Thus, the original party, CRC, is now represented
by the Republic of the Philippines through the PMO (hereinafter referred to as petitioner), the successor of the defunct APT.
As alleged by petitioner, respondents declared afterwards the subject property as Urbano Bañez property, rented out to third
parties the staff houses petitioner constructed, and ordered its guards to prohibit the petitioner from entering the compound , which
impelled petitioner to file a complaint for specific performance, recovery of possession, and damages against respondents, including
Hojilla, on 10 April 2000. Among others, the complaint prayed for respondents to surrender and deliver the title of the subject
property, and execute a deed of absolute sale in favor of petitioner upon full payment. It mentioned three letters sent to
respondents on 29 May 1991, 24 October 1991, and 6 July 1999.
71
ISSUE
Does the Republic’a action based on the written contract filed beyond the prescriptive period?
RULING
No. Receipt of the Letters
Time and time again, this Court has reiterated it is not a trier of facts and parties may raise only questions of law. The jurisdiction
of the Court is limited to reviewing errors of law and findings of fact of the Court of Appeals are conclusive because it is not the
Court’s function to review, examine, and evaluate or weigh the evidence all over again. The rule, however, is not without
exceptions.
In the case at bar, the findings of the RTC and the Court of Appeals are contradictory: the RTC did not make any finding on the
receipt of the demand letters by Hojilla, while the Court of Appeals resolved that assuming arguendo that the letters were demand
letters contemplated under Article 1155 of the Civil Code, the same are unavailing because the letters do not bear any proof of
service of receipt by respondents.
A perusal of the records reveals that only the 24 October 1991 letter has no proof of receipt. The demand letters dated 29 May
199131 and 6 July 1999 contain proofs of receipt.
Thus, the core issue of whether or not the action has prescribed.
An action based on a written contract must be brought within ten (10) years from the time the right of action accrued. Accordingly,
a cause of action on a written contract accrues only when an actual breach or violation thereof occurs
A cause of action has three elements, to wit: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises
or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right; and (3) an act or
omission on the part of such defendant violative of the right of the plaintiff or constituting a breach of the obligation of the
defendant to the plaintiff.
By the contract between the herein parties, the cause of action accrued at the point when the reasonable time within
which to present the title lapsed. The parties did not determine the date when the respondents must present the title and other
documents to the petitioner. The parties only agreed that the respondents must present the same within a "reasonable time ."
Reasonable time means "so much time as is necessary under the circumstances for a reasonably prudent and diligent man to do,
conveniently, what the contract or duty requires that should be done, having a regard for the rights and possibility of loss, if any, to
the other party." Such reasonable time was determined by the respondents through the letter dated 15 August 1984 . The
respondents acknowledged their obligation to deliver the title and asked for a new period to do so. It states:
The preparation of the advance survey plan, technical description and Engineer’s Certificate pursuant to Land Administrative Order
No. 10-4 has been submitted to the Regional Land Office, and approved by the Regional Director.
Atty. Valera is now in the process of preparing the petition papers of the Calaba property for submission to the local court.
xxxx
The Bañez heirs will only claim for the full payment of the property upon presentation of a clean title and execution of a Deed of
Sale signed by the heirs.
The accrual of the cause of action to demand the titling of the land cannot be earlier than 15 August 1984. So that,
the petitioner can sue on the contract until 15 August 1994.
Prior to the expiration of the aforesaid period, the petitioner sent a demand letter to Hojilla dated 29 May 1991. A few months
thereafter, petitioner sent another demand letter to Hojilla dated 24 October 1991. The prescriptive period was interrupted on
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29 May 1991.The consequence is stated in Article 1155 of the Civil Code. It states, "[t]he prescription of actions is interrupted
when they are filed before the court, when there is a written extrajudicial demand by the creditors, and when there is any written
acknowledgment of the debt by the debtor." Following the law, the new ten-year period for the filing of a case by the
petitioner should be counted from 29 May 1991, ending on 29 May 2001. The complaint at bar was filed on 10 April
2000, well within the required period.
Notably, before the expiration of the new prescriptive period, the petitioner again sent a new demand letter on 6 July 1999,
which again caused the same to run anew, which will expire on 6 July 2009. The complaint filed on 10 April 2000 was
timely.
The Contract and True Intent of the Parties
Based on the stipulation in the Contract, the parties agreed that payment shall be made only upon presentation of the title and
other documents of the subject property to petitioner. Paragraph 8 of the Contract reads:
8. An absolute deed of sale containing the above provisions and standard warranties on conveyances of real property shall be
executed by the co-owners in favor of CRC or its assignee/s and the same delivered to the latter together with the original
certificate of title upon payment of the purchase price less the advances made by CRC in accordance with Paragraphs 2 and 3
above; provided, that payment shall be made by CRC only upon presentation by the co-owners to CRC of
certificate/s and/or clearances, with corresponding receipts, issued by the appropriate government office/s or
agency/ies to the effect that capital gains tax, real estate taxes on the Property and local transfer tax and other
taxes, fees or charges due on the transaction and/or on the Property have been paid .38 (Emphasis and underscoring
ours)
The true intent of the parties is further enunciated in Hojilla's letter to petitioner dated 15 August 1984, which stated, "[t]he Baiiez
heirs will only claim for the full payment of the property upon presentation of a clean title and execution of a Deed of Sale signed by
the heirs."
To rule in favor of respondents despite their failure to perform their obligations is the height of injustice. Respondents cannot
benefit from their own inaction and failure to comply with their obligations in the Contract and let the petitioner suffer from
respondents' own default.
II. We rule in favor of the petitioner.
We deem material, for the resolution of the issues in this case, the letters that were exchanged by the parties.
We shall discuss each letter in seriatim.
Hojilla’s letter dated 15 August 1984
In Hojilla’s letter to petitioner dated 15 August 1984, Hojilla updated petitioner of the status of the subject property’s title, in this
wise:
The preparation of the advance survey plan, technical description and Engineer’s Certificate pursuant to Land Administrative Order
No. 10- 4 has been submitted to the Regional Land Office, and approved by the Regional Director.
Atty. Valera is now in the process of preparing the petition papers of the Calaba property for submission to the local court.
There is no other logical conclusion but that the 15 August 1984 letter is an acknowledgment of respondents’ commitment under
the Contract. The letter served to update petitioner of the status of the subject property’s title, an obligation agreed upon by the
parties in the Contract. It would be specious to argue that respondents did not acknowledge the existence of the Contract and yet,
send correspondence to petitioner updating it of the status of the application for title on the subject property. Therefore, the letter
dated 15 August 1984 served as a written acknowledgment of debt or obligation of respondents.
73
In Philippine National Railways v. NLRC , it was stated that a written acknowledgment of debt or obligation effectively interrupts the
running of the prescriptive period and sets the same running anew. Hence, because Hojilla’s letter dated 15 August 1984 served as
a written acknowledgement of the respondents’ debt or obligation, it interrupted the running of the prescriptive period and set the
same running anew with a new expiry period of 15 August 1994.
Petitioner’s letters dated 29 May

1991 and 24 October 1991
With regard to the letters petitioner sent to Hojilla dated 29 May 1991 and 24 October 1991, the RTC ruled that these letters were
insufficient under the law to interrupt the prescriptive period because these were not demand letters. We lift the pertinent portion
from the letter dated 29 May 1991, which demanded respondents to return the properties and to unlock the gates:
Under the agreement to purchase the lot, APT-CRC shall pay the whole of the purchase price thereof when the certificate of title
and other documents enumerated therein are presented to it. Clearly, the consummation of the sale is within your control.
In view of the foregoing, demand is hereby made upon you and your principals, the heirs of Urbano Bañez, to return
the properties withdrawn and to unlock the gates leading to the staffhouses (sic), within fifteen (15) days from
receipt thereof, otherwise we will be constrained to institute the necessary action to protect the interest of APT-
CRC.15
In the same vein, the letter dated 24 October 1991 demanded respondents to discontinue the construction, repair, demolition, and
occupancy of several staff houses. A pertinent portion of the 24 October 1991 letter reads:
Considering that these action (sic) are unauthorized, they constitute violations of the irrevocable option to purchase dated
December 7, 1981, which remains valid, binding and effective to this day. Demand is hereby made upon you to discontinue
such unauthorized acts and vacate the premises within fifteen (15) days from receipt hereof.
We do not agree with the lower courts. Clearly, the 29 May 1991 and 24 October 1991 letters demanded respondents to return the
properties, discontinue the construction, repair, demolition and occupancy of several staff houses, and unlock the gates, which is to
enforce respondents’ obligations pursuant to paragraph 7 of the Contract which reads:
7. The co-owners hereby confirm their agreement and permission to CRC’s entry into, construction of building and improvements,
and occupancy of, any portion of the Property, and hereby accordingly waive any right of action they may have against CRC
respecting such entry, construction, or occupancy by the latter of any Portion of the Property.
The letters dated 29 May 1991 and 24 October 1991 are deemed demand letters as contemplated under Article 1155 . They are
demand letters to enforce respondents’ obligation under the Contract, which is to cede possession to petitioner. The letters
interrupted the running of the prescriptive period which commenced to run anew.
Petitioner’s letter dated 6 July 1999
Compared to the letters dated 29 May and 24 October 1991, which demanded Hojilla to surrender possession of the subject
property, this time, in petitioner’s letter to Hojilla dated 6 July 1999, petitioner demanded Hojilla to produce the title of the subject
property. However, despite the fact that the letter was a clear demand of the nature contemplated by law that would interrupt the
prescriptive period, the Court of Appeals found that (1) the letter did not effectively interrupt the prescriptive period because the
complaint had long prescribed; (2) the letter was addressed to the wrong party; and, finally, (3) the letter did not bear any proof of
service or receipt.
We do not agree.
Hojilla’s SPA
We refer to the SPA, which granted the authority of Hojilla.
74
When respondents went abroad pending the performance of their obligations in the Contract, they authorized Hojilla to register the
subject property— a single obligation in the whole range of obligations in the Contract. The SPA appeared to have left no
representative to fulfill respondents’ obligations in the Contract on their behalf except for Hojilla’s authority to register the subject
property. The pertinent portion of the SPA reads:
1. To take all steps necessary to cause a portion of the lot covered by Tax Declaration No. 40185 in the name of
Urbano Bañez which is the subject of our "Offer to Sell" to Cellophil Resources Corporation containing an area xxx
to be brought under the operation of Republic Act No. 496, as amended, and to cause the issuance in our name of
the corresponding original certificate of title.
2. To do all acts and things and to execute all papers and documents of whatever nature or kind required for the accomplishments
of the aforesaid purpose.
HEREBY GRANTING AND GIVING unto our said attorney full power and authority whatsoever requisite or necessary or proper to be
done in or about the premises as fully to all intents and purposes as we might or could lawfully do if personally present (with power
of substitution and revocation), and hereby ratifying and confirming all that our said attorney shall do or cause to be done under
and by virtue of these presents.
This was read simply by the lower courts as limiting Hojilla’s authority to the registration of the subject property under the name of
his principal, and all the necessary acts for such purpose. It observed that nowhere in the SPA was Hojilla authorized as
administrator or agent of respondents with respect to the execution of the Contract.
In the case at bar, the reliefs prayed for by petitioner include the execution of the Contract such as delivery of the subject title,
recovery of possession of the subject property, execution of the deed of sale or transfer of absolute ownership upon full payment of
the balance, and damages for alleged violation of respondents of the Contract for non-delivery of the title and refusal to vacate the
subject property. Indeed, following the reading of the lower courts of the scope of Hojilla’s authority, Hojilla is neither the proper
party to execute the Contract nor the proper party to receive the demand letters on behalf of respondents.
This strict construction of the tenor of the SPA will render the obligatory force of the Contract ineffective. Construction is not a tool
to prejudice or commit fraud or to obstruct, but to attain justice. Ea Est Accipienda Interpretatio Quae Vitio Caret . To favor the
lower court’s interpretation of the scope of Hojilla’s power is to defeat the juridical tie of the Contract—the vinculum juris of the
parties. As no one was authorized to represent respondents in the Contract, then petitioner cannot enforce the Contract, as it were.
This is an absurd interpretation of the SPA. It renders the Contract ineffective for lack of a party to execute the Contract.
Contrary to the findings of the lower court, the present case is a case of an express agency, where, Hojilla, the agent, binds himself
to represent another, the principal, who are herein respondents, with the latter’s express consent or authority. In a contract of
agency, the agent acts for and in behalf of the principal on matters within the scope of the authority conferred upon him, such that,
the acts of the agent have the same legal effect as if they were personally done by the principal. Because there is an express
authority granted upon Hojilla to represent the respondents as evidenced by the SPA, Hojilla’s actions bind the respondents.
As agent, the representations and guarantees of Hojilla are considered representations and guarantees of the principal. This is the
principle of agency by promissory estoppel. We refer to the evidence on record. It was Hojilla who administered and/or managed
the subject property. Based on Hojilla’s letter dated 15 August 1984 to petitioner, Hojilla made the representation that besides
being the attorney-in-fact of the respondents with limited authority to register the property, he was also their agent with regard to
respondents’ other obligations related to the Contract. The pertinent portion of the 15 August 1984 letter of Hojilla to petitioner
reads:
Regarding our loan with the National Electrification Administration (NEA), Hon. Mel Mathay who is helping the Bañez heirs has
initiated negotiations with NEA for Abreco to purchase our lot in front of the Provincial Jail to offset our loan with NEA.
Also, one glaring fact that cannot escape us is Hojilla’s representation and guarantee that petitioner’s obligation will only arise upon
presentation of a clean title and execution of a Deed of Sale signed by the respondents’ heirs, which reads, "[t]he Bañez heirs
will only claim for the full payment of the property upon presentation of a clean title and execution of a Deed of Sale
signed by the heirs."
75
If Hojilla knew that he had no authority to execute the Contract and receive the letters on behalf of respondents, he should have
opposed petitioner’s demand letters. However, having received the several demand letters from petitioner, Hojilla continuously
represented himself as the duly authorized agent of respondents, authorized not only to administer and/or manage the subject
property, but also authorized to register the subject property and represent the respondents with regard to the latter’s obligations in
the Contract. Hojilla also assured petitioner that petitioner’s obligation to pay will arise only upon presentation of the title.
Clearly, the respondents are estopped by the acts and representations of their agent. Falling squarely in the case at bar is our
pronouncement in Philippine National Bank v. IAC (First Civil Cases Div.) , "[h]aving given that assurance, [Hojilla] may not turn
around and do the exact opposite of what [he] said [he] would do. One may not take inconsistent positions. A party may not go
back on his own acts and representations to the prejudice of the other party who relied upon them."
Assuming further that Hojilla exceeded his authority, the respondents are still solidarily liable because they allowed Hojilla to act as
though he had full powers by impliedly ratifying Hojilla’s actions—through action by omission. This is the import of the principle of
agency by estoppel or the doctrine of apparent authority.
In an agency by estoppel or apparent authority, "[t]he principal is bound by the acts of his agent with the apparent authority which
he knowingly permits the agent to assume, or which he holds the agent out to the public as possessing."
The respondents’ acquiescence of Hojilla’s acts was made when they failed to repudiate the latter’s acts. They knowingly permitted
Hojilla to represent them and petitioners were clearly misled into believing Hojilla’s authority. Thus, the respondents are now
estopped from repudiating Hojilla’s authority, and Hojilla’s actions are binding upon the respondents.
76
GATMAYTAN V. MISIBIS LAND, INC.,

G.R. No. 222166, [June 10, 2020]
FACTS
On December 9, 1991, Gatmaytan purchased from Oscar and Cidra Garcia (Spouses Garcia) a parcel of land (disputed lot) in
Misibis, Cagraray Island, Albay with an area of 6.4868 hectares, covered by Transfer Certificate of Title (TCT) No. T-77703 issued in
the latter's name. They paid the taxes arising from the transaction.
On April 6, 1992, Petitioners, armed with the original owner's duplicate copy of TCT No. T-77703, attempted to register the
corresponding Deed of Absolute Sale dated December 9, 1991 (1991 DOAS) with the Register of Deeds of Albay (RD). They were
successful in having the 1991 DOAS duly annotated on TCT No. T-77703, but they were not able to cause the transfer of the
Torrens title in their name since they lacked the Department of Agrarian Reform (DAR) clearance necessary to do so.
In 2010, when Petitioners resumed processing the transfer of the Torrens title to their names, they discovered that the disputed lot
had been consolidated by Misibis Land, Inc. (MLI) with other adjoining lots in Misibis, and sub-divided into smaller lots covered by
several new Torrens titles
Upon further investigation, Petitioners learned that TCT No. T-77703 had been stamped "cancelled", and replaced by subsequent
Torrens titles.
With this discovery, Petitioners immediately caused, on September 1, 2010, the annotation of their Affidavit of Adverse Claim on
MLI's Torrens titles.
On December 10, 2014, Petitioners filed a complaint before the RTC (Complaint) against Spouses Garcia, DAA Realty and MLI, as
well as Philippine National Bank (PNB) to whom the disputed lot had been mortgaged.
In their Complaint, Petitioners stated their causes of action, as follows:
FIRST CAUSE OF ACTION : (For: Declaration of Plaintiffs' Ownership and Nullity of the [1996 DOAS,] [2005 DOAS] and [the April
21, 2005 MLI-PNB Mortgage])
FIRST ALTERNATIVE CAUSE OF ACTION : (Re: Declaration of Nullity Based on Double Sale (sic) of [the 1996 DOAS] and TCT Nos.
T-97059 and T-138212 and Any and All Transfers and Dealings Thereafter)
SECOND ALTERNATIVE CAUSE OF ACTION: (For: Quieting of Title)
SECOND CAUSE OF ACTION: (For: Accounting and Remittance, if any, of [a]ll [of MLI's] Income and Profits vis-a-vis the [disputed
lot])
THIRD CAUSE OF ACTION:(For: Exemplary Damages)
FOURTH CAUSE OF ACTION: (For: Moral Damages)
FIFTH CAUSE OF ACTION: (For Attorney's Fees and Litigation Expenses)
Based on these causes of action, Petitioners prayed for the following reliefs:
1. The declaration of Petitioners as true and rightful owners of the disputed lot;
2. The nullification of the 1996 DOAS and all subsequent transactions involving the disputed lot for being void ab initio;[18]
77
3. The cancellation of TCT Nos. T-97059 and T-138212 respectively issued in the name of DAA Realty and MLI, and the
subsequent issuance of a Torrens title in Petitioners' name;[19]
4. A full and complete accounting and remittance of all profits and income derived by MLI from the use of the disputed lot; [20] and
5. The payment of moral and exemplary damages, and attorney's fees at the rate of Php500,000.00 each.
MLI further argued in its Answer that Petitioners' cause of action is already barred by prescription since an action for
reconveyance of real property based on an implied constructive trust arising from fraud prescribes ten (10) years
after the issuance of title in favor of the defrauder. Here, MLI stressed that the Complaint was filed in 2014, or more than
ten (10) years after the issuance of DAA
Realty's Torrens title in 1996.
Petitioners mainly argue that their Complaint should be allowed to proceed since it is an action "primarily for [the] declaration of
nullity of the [1996 DOAS]," and alternatively, for quieting of title.
ISSUE
Whether Petitioners' Complaint is barred by prescription.
RULING
The Court grants the Petition. Petitioners' action should be characterized primarily as one for reconveyance based on a void
contract, and thus, imprescriptible. In essence, Petitioners assert that the 1996 DOAS is void and inexistent, as: (i) the
purported sellers were no longer the owners of the disputed lot at the time of execution; (ii) the signature of one of the sellers
therein had been forged; and (iii) the buyer-corporation was legally inexistent at the time of execution.
What is then the applicable period in Petitioners' action for reconveyance? Being based on the allegation of nullity of the
1996 DOAS in favor of DAA Realty, said action should be deemed imprescriptible.
In this connection, it should again be stressed that limiting the characterization of Petitioners' action for reconveyance to one solely
based on an implied constructive trust, as was done by the RTC is a grievous error. To do so is to unwarrantedly view the
Complaint solely through the assertions made by MLI in its Motion for Preliminary Hearing — and not through the allegations of the
Complaint, which, as discussed, are deemed hypothetically admitted.
Since the allegations in the Complaint point to the nullity of the 1996 DOAS — which is the underlying transaction from which MLI
derives its alleged right of ownership over the disputed lot — such issue should have been resolved by the RTC instead of ordering
the Complaint's outright dismissal. The mere issuance of a Torrens title in favor of DAA Realty, which the Complaint alleges as void,
cannot, by itself, without the requisite determination of the factual circumstances surrounding it, be accorded any probative weight
to justify the dismissal of the Complaint given that in addition to the invalidity of said Torrens title, Petitioners also made allegations
relating to the nullity of the underlying sale, which is the substantive basis for its issuance.
--------
Section 2, Rule 8 of the Rules of Court permits the assertion of alternative causes of action, thus:
SEC. 2. Alternative causes of action or defenses. — A party may set forth two or more statements of a claim or defense alternatively
or hypothetically, either in one cause of action or defense or in separate causes of action or defenses. When two or more
statements are made in the alternative and one of them if made independently would be sufficient, the pleading is
not made insufficient by the insufficiency of one or more of the alternative statements.
Section 2, Rule 8 allows parties to plead as many separate claims as they may have, provided that no rules regarding venue and
joinder of parties are violated. A complaint which contains two or more alternative causes of action cannot be dismissed
where one of them clearly states a sufficient cause of action against the defendant. This is hornbook law.
In determining the sufficiency of the Complaint and whether it should be allowed to proceed to trial, analysis of each alternative
cause of action alleged is necessary, as the sufficiency of one precludes its outright dismissal.
78
Reconveyance based on the nullity of

the 1996 DOAS in favor of DAA
Realty
An action for reconveyance is a legal remedy granted to a rightful owner of land wrongfully or erroneously registered in the
name of another to compel the latter to reconvey the land to him. In reconveyance, the decree of registration is respected as
incontrovertible. What is sought instead is the transfer of the property, which has been wrongfully or erroneously registered in
another person's name, to its rightful and legal owner, or to one with a better right.
In Uy v. Court of Appeals, the Court expounded on the statutory basis of reconveyance, the two kinds of actions for
reconveyance (as distinguished by their underlying basis), and the prescriptive periods applicable to each, thus:
An action for reconveyance is based on Section 53, paragraph 3 of Presidential Decree (PD) No. 1529, which provides:
fraud without prejudice, however, to the rights of any innocent holder for value of a certificate of title.
In Caro v. Court of Appeals , we said that this provision should be read in conjunction with Article 1456 of the Civil Code, which
provides:
Article 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of
an implied trust for the benefit of the person from whom the property comes .
The law creates the obligation of the trustee to reconvey the property and its title in favor of the true owner . Correlating Section 53,
paragraph 3 of PD No. 1529 and Article 1456 of the Civil Code with Article 1144 (2) of the Civil Code, the prescriptive period for
the reconveyance of fraudulently registered real property is ten (10) years reckoned from the date of the issuance
of the certificate of title.
This ten-year prescriptive period begins to run from the date the adverse party repudiates the implied trust, which
repudiation takes place when the adverse party registers the land.
An exception to this rule is when the party seeking reconveyance based on implied or constructive trust is in actual, continuous and
peaceful possession of the property involved. Prescription does not commence to run against him because the action
would be in the nature of a suit for quieting of title, an action that is imprescriptible.
The foregoing cases on the prescriptibility of actions for reconveyance apply when the action is based on fraud, or when the
contract used as basis for the action is voidable.
Under Article 1390 of the Civil Code, a contract is voidable when the consent of one of the contracting parties is vitiated by
mistake, violence, intimidation, undue influence or fraud.
When the consent is totally absent and not merely vitiated, the contract is void. An action for reconveyance may
also be based on a void contract. When the action for reconveyance is based on a void contract, as when there was
no consent on the part of the alleged vendor, the action is imprescriptible. The property may be reconveyed to the true
owner, notwithstanding the TCTs already issued in another's name. The issuance of a certificate of title in the latter's favor could
not vest upon him or her ownership of the property; neither could it validate the purchase thereof which is null and void.
Registration does not vest title; it is merely the evidence of such title. Our land registration laws do not give the holder any better
title than what he actually has. Being null and void, the sale produces no legal effects whatsoever.
Whether an action for reconveyance prescribes or not is therefore determined by the nature of the action, that is,
whether it is founded on a claim of the existence of an implied or constructive trust, or one based on the existence
of a void or inexistent contract.
79
This is evident in several of our past decisions. In Casipit v. Court of Appeals, we rejected the claim of imprescriptibility and applied
the 10-year prescription where the action filed was based on fraud:
There is no dispute that an action for reconveyance based on a void contract is imprescriptible x x x. However, We simply cannot
apply this principle to the present case because the action filed by petitioner before the trial court was 1) for reconveyance based
on fraud since the ownership of private respondents over the questioned property was allegedly established on "false assertions,
misrepresentations and deceptive allegations" x x x; and 2) for rescission of the "Kasulatan ng Pagmamana at Paghahati x x x." x x
x
On the other hand, in Daclag v. Macahilig, we rejected the claim of petitioners that prescription is applicable because the action was
based on fraud. We ruled that the action was not subject to prescription because it was, in fact, based on a deed of
sale that was null and void. Thus:
However, a review of the factual antecedents of the case shows that respondents' action for reconveyance was not even subject to
prescription.
The deed of sale executed by Maxima in favor of petitioners was null and void, since Maxima was not the owner of the land she
sold to petitioners, and the one-half northern portion of such land was owned by respondents. Being an absolute nullity, the deed is
subject to attack anytime, in accordance with Article 1410 of the Civil Code that an action to declare the inexistence of a void
contract does not prescribe. x x x An action for reconveyance based on a void contract is imprescriptible. As long as the
land wrongfully registered under the Torrens system is still in the name of the person who caused such registration,
an action in personam will lie to compel him to reconvey the property to the real owner. x x x
In Santos v. Heirs of Dominga Lustre, the complaint alleged that the deed of sale was simulated by forging the
signature of the original registered owner. We ruled in favor of imprescriptibility applying the doctrine that the
action for reconveyance on the ground that the certificate of title was obtained by means of a fictitious deed of sale
is virtually an action for the declaration of its nullity, which does not prescribe .[49] (Emphasis and underscoring supplied;
italics and citations omitted)
Proceeding from the foregoing, Petitioners' action should be characterized primarily as one for reconveyance based on a void
contract, and thus, imprescriptible. This is evident from the following allegations of the Complaint with respect to the 1996 DOAS:
1.8 This feigned second sale by the Spouses [Garcia] purportedly to DAA Realty was downright void, ineffective and fraudulent in
that:
(a) By virtue of [Petitioners'] prior purchase, the Spouses [Garcia] had no more title, hence could not validly sell the subject
property to DAA Realty.
(b) On its face, the purported signature of [Cidra Garcia] in the [1996 DOAS] appears even to the naked eye, to be forged and/or
falsified for which [DAA Realty and MLI] as beneficiaries are prima facie presumed to be the forgers.
(c) Per its SEC Articles of Incorporation x x x DAA Realty appears to have been incorporated only on [January 22, 1999], or three
(3) years after its purported second purchase of the subject property on [February 21, 1996].
(d) On top of all ( sic), based on [Petitioners'] clear and subsisting annotation as early as [April 6, 1992] under Entry No. 4145 of
their prior purchase on both the original RD Albay and Spouses [Garcia's] Owner's copy of TCT No. T-77703, [DAA Realty] and MLI,
being real estate companies reposed with a higher degree of prudence, due care and utmost diligence, very well knew or ought to
have known, directly or indirectly as to put them on due notice or inquiry, about [Petitioners'] prior purchase thereof from Spouses
[Garcia].
(e) This is especially so since the Spouses [Garcia's] Owner's Copy of TCT No. T-77703 was, at all time to date, in the actual
possession and control of [Petitioners] upon their purchase from [Spouses Garcia]. That said, x x x DAA Realty and MLI could not
have possibly obtained a new TCT in DAA Realty's name without possessing and surrendering the Owner's copy of the Spouses
80
[Garcia's] TCT No. T-77703 to the RD Albay. The Spouses [Garcia's] failure to surrender their Owner's Copy of TCT No. [T-]77703
makes MLI and DAA Realty purchaser[s] in bad faith vis-a-vis [Petitioners].
In essence, Petitioners assert that the 1996 DOAS is void and inexistent, as: (i) the purported sellers were no longer the owners of
the disputed lot at the time of execution; (ii) the signature of one of the sellers therein had been forged; and (iii) the buyer-
corporation was legally inexistent at the time of execution.
Here, recovery of ownership is not restricted to the mere fact that a Torrens title had been issued in favor of DAA Realty, and later,
MLI. The above allegations show that the recovery of ownership is predicated on the nullification of the underlying mode of transfer
of title of the disputed lot — the issuance of the Torrens titles to DAA Realty and then to MLI being merely the result of the 1996
DOAS sought to be nullified.
While the Complaint admittedly alleged fraud on the part of DAA Realty and MLI, this allegation of fraud was essential in attacking
the Torrens titles resulting from the underlying transactions in question — the 1996 DOAS in favor of DAA Realty, and subsequently,
the 2005 DOAS in favor of MLI.
Here, Petitioners allege in their Complaint that the owner's duplicate title of Spouses Garcia was surrendered to them upon the
execution of the 1991 DOAS, and that because such owner's duplicate title never left their possession, DAA Realty's Torrens title
was necessarily issued in violation of Section 53 of PD 1529 which sets forth the requirements for registration of voluntary
instruments affecting registered land, thus:
SEC. 53. Presentation of owner's duplicate upon entry of new certificate . – No voluntary instrument shall be registered by
the Register of Deeds, unless the owner's duplicate certificate is presented with such instrument , except in cases
expressly provided for in this Decree or upon order of the court, for cause shown.
The production of the owner's duplicate certificate, whenever any voluntary instrument is presented for registration, shall be
conclusive authority from the registered owner to the Register of Deeds to enter a new certificate or to make a memorandum of
registration in accordance with such instrument, and the new certificate or memorandum shall be binding upon the registered
owner and upon all persons claiming under him, in favor of every purchaser for value and in good faith.
fraud without prejudice, however, to the rights of any innocent holder for value of a certificate of title. After the entry of the decree
of registration on the original petition or application, any subsequent registration procured by the presentation of a forged duplicate
certificate of title, or a forged deed or other instrument, shall be null and void.
In addition, both DAA Realty and MLI may be deemed to have been constructively notified of the 1991 DOAS in favor of Petitioners,
as it was duly annotated on Spouses Garcia's TCT No. T-77703. Hence, contrary to MLI's assertions, it may not be considered an
innocent purchaser for value in this case.
It must be noted that MLI filed a Motion for Preliminary Hearing on Affirmative Defenses (Motion for Preliminary Hearing) invoking
the defenses of prescription and lack of jurisdiction for failure of Petitioners to allege in their Complaint the assessed value of the
disputed lot. In asserting these affirmative defenses, MLI hypothetically admitted the material allegations in Petitioners' Complaint,
pursuant to Section 5, Rule 6 of the Rules of Court, thus:
SEC. 5. Defenses. — Defenses may either be negative or affirmative.
(a) A negative defense is the specific denial of the material fact or facts alleged in the pleading of the claimant essential to his cause
or causes of action.
(b) An affirmative defense is an allegation of a new matter which, while hypothetically admitting the material
allegations in the pleading of the claimant, would nevertheless prevent or bar recovery by him. The affirmative
defenses include fraud, statute of limitations, release, payment, illegality, statute of frauds, estoppel, former recovery, discharge in
bankruptcy, and any other matter by way of confession and avoidance.
Hence, the material allegations in Petitioners' Complaint, including the possession by Petitioners of the owner's
duplicate title of Spouses Garcia's TCT No. T-77703 and the annotation of the 1991 DOAS in both original and
owner's duplicate title covering the disputed lot, are deemed hypothetically admitted.
81
Since the nullity of DAA Realty's Torrens title may be anchored on the non-presentation of Spouses Garcia's owner's duplicate title,
and MLI may not be considered an innocent purchaser for value, then Petitioners' allegation for reconveyance based on the nullity
of the 1996 DOAS and the Torrens titles resulting therefrom was sufficiently made.
Moreover, Petitioners' action for reconveyance can also be viewed from the law on sales. Petitioners alleged that a prior
sale had been consummated in their favor. It must be noted that the copy of the 1991 DOAS forming part of the records shows that
it is a public document. That the 1991 DOAS is a public document is further confirmed by the fact that Petitioners were successful in
having the 1991 DOAS duly annotated on TCT No. T-77703, and that the only reason they were unable to cause the transfer of the
Torrens title in their name was because they lacked the DAR clearance necessary to do so. According to Article 1498 of the Civil
Code, the execution of this public document may partake constructive delivery of the property so as to constitute
the Petitioners as full owners thereof. In turn, the validity of this sale, documented through the 1991 DOAS, was
hypothetically admitted by MLI through its Motion for Preliminary Hearing. In other words, the second sale to DAA Realty,
documented through the 1996 DOAS, may be considered void, since Spouses Garcia would no longer be the owners of the disputed
lot at such time. As early as 1991, Petitioners may be considered full owners of the property covered by TCT No. T-77703. This
means that DAA Realty could not have acquired anything in 1996. It follows that MLI purchased nothing from DAA
Realty in 2005. Clearly, Petitioners have alleged a sufficient cause of action in this regard.
What is then the applicable period in Petitioners' action for reconveyance? Being based on the allegation of nullity of the
1996 DOAS in favor of DAA Realty, said action should be deemed imprescriptible.
In this connection, it should again be stressed that limiting the characterization of Petitioners' action for reconveyance to one solely
based on an implied constructive trust, as was done by the RTC is a grievous error. To do so is to unwarrantedly view the
Complaint solely through the assertions made by MLI in its Motion for Preliminary Hearing — and not through the allegations of the
Complaint, which, as discussed, are deemed hypothetically admitted.
Since the allegations in the Complaint point to the nullity of the 1996 DOAS — which is the underlying transaction from which MLI
derives its alleged right of ownership over the disputed lot — such issue should have been resolved by the RTC instead of ordering
the Complaint's outright dismissal. The mere issuance of a Torrens title in favor of DAA Realty, which the Complaint alleges as void,
cannot, by itself, without the requisite determination of the factual circumstances surrounding it, be accorded any probative weight
to justify the dismissal of the Complaint given that in addition to the invalidity of said Torrens title, Petitioners also made allegations
relating to the nullity of the underlying sale, which is the substantive basis for its issuance.
Quieting of Title
Under Article 476 of the Civil Code, an action for quieting of title may be filed "[w]henever there is a cloud on title to real property
or any interest therein, by reason of any instrument, record, claim, encumbrance or proceeding which is apparently valid or
effective but is in truth and in fact invalid, ineffective, voidable, or unenforceable, and may be prejudicial to said title." This action
may be brought by one who has legal or equitable title to, or interest in the real property which is the subject matter of the action,
whether or not such party is in possession. As a general rule, an action for quieting of title, being a real action, prescribes thirty
(30) years after accrual. However, by way of exception, an action to quiet title involving property in the possession of the plaintiff is
imprescriptible.
For an action for quieting of title to prosper:
(i) the plaintiff or complainant must have a legal or an equitable title to or interest in the real property subject of the
action; and
(ii) the deed, claim, encumbrance, or proceeding claimed to be casting cloud on his title must be shown to be in fact
invalid or inoperative despite its prima facie appearance of validity or legal efficacy.
Here, Petitioners claim to have equitable title over the disputed lot based on the 1991 DOAS registered with the RD and annotated
on the original and owner's duplicate of Spouses Garcia's TCT No. T-77703. In addition, they allege that the 1996 DOAS purportedly
executed between Spouses Garcia and DAA Realty, and all transactions subsequent thereto, cast a cloud of doubt on such equitable
title. Hence, the two requisites to sustain an action for quieting of title have been met.
82
As stated, an action for quieting of title involving property not in the possession of the plaintiff prescribes thirty (30)
years after the cause of action accrues, which, in this case, appears to have taken place on February 22, 1996, upon issuance
of DAA Realty's Torrens title. Hence, Petitioners' action for quieting of title has not prescribed, as the Complaint was filed only
eighteen (18) years thereafter, on December 10, 2014.
The outright dismissal of the

Complaint is unwarranted
Instead of conducting a full-blown hearing as necessitated by the nature of the allegations in the Complaint, the RTC erroneously
dismissed the Complaint on the ground of prescription. The relevant portions of the First RTC Order read:
[B]ased upon the allegations of [Petitioners] in the [C]omplaint an implied or constructive trusts ( sic) has been created in favor of
[Petitioners] when [DAA Realty] and [MLI] acquired the [disputed lot] allegedly by fraud. This conclusion is consistent with the
ruling of the Supreme Court in Estate of the late Mercedes Jacob vs. Court of Appeals.
[MLI] proceeded [to state] that unfortunately for [Petitioners], at the time they filed their [C]omplaint on [December] 10, 2014,
their cause of action for reconveyance based on an implied trust has already prescribed, as more than ten (10) years had lapsed
already from the time of the issuance of title to [DAA Realty] on February 22, 1996.
In ruling that Petitioners' action had already prescribed, it is clear that the RTC treated the Complaint as an action for reconveyance
based solely on implied constructive trust. This is clearly grievous error, if not grave abuse of discretion, as the Complaint
clearly alleged Petitioners' other causes of action.
In any case, even if the Complaint were to be treated, for the sake of argument, as an action for reconveyance based solely on an
implied constructive trust, the Complaint should still be allowed to proceed, having been timely filed.
Under Article 1456 of the Civil Code, "[i]f property is acquired through mistake or fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the benefit of the person from whom the property comes." The law thus creates the
obligation of the trustee to reconvey the property and its title in favor of the true owner. An action for reconveyance of property
based on an implied constructive trust prescribes in ten (10) years, in accordance with Article 1144(2) of the Civil Code, which
states that that an action involving an obligation created by law must be brought within ten (10) years from the time the right of
action accrues.
However, in cases where fraud is specifically alleged to have been attendant in the trustee's registration of the subject property in
his/her own name, the prescriptive period is ten (10) years counted from the true owner's discovery of the fraud.
When is the fraud deemed discovered in the context of registered property? Adille v. Court of Appeals[65] (Adille) lends guidance:
It is true that registration under the Torrens system is constructive notice of title, but it has likewise been our holding that the
Torrens title does not furnish a shield for fraud.
x x x Accordingly, we hold that the right of the private respondents commenced from the time they actually discovered the
petitioner's act of defraudation. x x x[66]
The Court's ruling in Adille, reiterated in Samonte v. Court of Appeals[ and Government Service Insurance System v. Santiago , is in
congruence with Section 53 of PD 1529, which states that in all cases of registration procured by fraud, the owner may pursue all
his legal and equitable remedies against the parties to such fraud and that registration procured by the presentation of a
forged deed or other instrument shall be null and void.
Among the allegations hypothetically admitted by MLI are those concerning DAA Realty's failure to present Spouses Garcia's owner's
duplicate copy of TCT No. T-77703 upon issuance of TCT No. T-97059 in its name, as required by Section 53 of PD 1529.
83
In Levin v. Bass[69] (Levin) the Court en banc unanimously held that failure to comply with the registration requirements of the
Torrens system averts the registration process, and prevents the underlying transaction from affecting the land
subject of the registration, hence:
Under the Torrens system the act of registration is the operative act to convey and affect the land. [Does] the entry in the day book
of a deed of sale which was presented and filed together with the owner's duplicate certificate of title with the office of the
Registrar of Deeds and full payment of registration fees constitute a complete act of registration which operates to convey and
affect the land? In voluntary registration, such as a sale, mortgage, lease and the like, if the owner's duplicate
certificate be not surrendered and presented or if no payment of registration fees be made within [fifteen (15)]
days, entry in the day book of the deed of sale does not operate to convey and affect the land sold.
Levin thus teaches that a Torrens title issued without prior presentation and cancellation of the existing owner's
duplicate title does not bind the property to which it pertains. The title so issued does not produce the effects of a Torrens
title contemplated under PD 1529, including the effects of constructive notice. It is literally a scrap of paper.
On this basis, coupled with the fact that they were always in possession of the owner's duplicate copy of TCT No. T-77703,
Petitioners cannot be deemed to have been constructively notified of the issuance of DAA Realty's TCT No. T-97059.
The ten (10)-year prescriptive period thus referred to in Article 1144(2) of the Civil Code must be reckoned not from
the issuance of DAA Realty's Torrens title, but rather, from Petitioners' actual discovery of the fraud in 2010. The
Complaint, having been filed barely four (4) years after, or on December 10, 2014, was therefore timely filed.
1145 – ACTIONS THAT MUST BE COMMENCED WITHIN SIX YEARS
ART. 1145. The following actions must be commenced

within six years:
(1) Upon an oral contract;
(2) Upon a quasi-contract.
AINZA v. PADUA
GR#1165420 JUNE 30, 2005
FACTS
In her complaint for partition of real property, annulment of titles with damages, Concepcion Ainza (Concepcion) alleged that
respondent-spouses Eugenia (Eugenia) and Antonio Padua (Antonio) owned a 216.40 sq. m. lot with an unfinished residential house
located at No. 85-A Durian corner Pajo Sts., Barangay Quirino 2-C, Project 2, Quezon City, covered by Transfer Certificate of Title
No. 271935. Sometime in April 1987, she bought one-half of an undivided portion of the property from her daughter, Eugenia and
the latter’s husband, Antonio, for One Hundred Thousand Pesos (P100,000.00).
84
No Deed of Absolute Sale was executed to evidence the transaction, but cash payment was received by the respondents, and
ownership was transferred to Concepcion through physical delivery to her attorney-in-fact and daughter, Natividad Tuliao
(Natividad). Concepcion authorized Natividad and the latter’s husband, Ceferino Tuliao (Ceferino) to occupy the premises, and make
improvements on the unfinished building.
Concepcion alleged that without her consent, respondents caused the subdivision of the property into three portions and registered
it in their names under TCT Nos. N-155122, N-155123 and N-155124 in violation of the restrictions annotated at the back of the
title.
On the other hand, Antonio averred that he bought the property in 1980 and introduced improvements thereon. Between 1989 and
1990, he and his wife, Eugenia, allowed Natividad and Ceferino to occupy the premises temporarily. In 1994, they caused the
subdivision of the property and three (3) separate titles were issued.
Thereafter, Antonio requested Natividad to vacate the premises but the latter refused and claimed that Concepcion owned the
property. Antonio thus filed an ejectment suit on April 1, 1999. Concepcion, represented by Natividad, also filed on May 4, 1999 a
civil case for partition of real property and annulment of titles with damages.
Antonio claimed that his wife, Eugenia, admitted that Concepcion offered to buy one third (1/3) of the property who gave her small
amounts over several years which totaled P100,000.00 by 1987 and for which she signed a receipt.
ISSUE
Whether Antonio’s action to annul the sale to Concepcion based on the oral contract has been prescribed?
RULING: Yes.
The contract of sale between Eugenia and Concepcion being an oral contract, the action to annul the same must be
commenced within six years from the time the right of action accrued.
Eugenia sold the property in April 1987 hence Antonio should have asked the courts to annul the sale on or before April 1993.
No action was commenced by Antonio to annul the sale, hence his right to seek its annulment was extinguished by prescription.
Even assuming that the ten (10)-year prescriptive period under Art. 173 should apply, Antonio is still barred from instituting an
action to annul the sale because since April 1987, more than ten (10) years had already lapsed without any such action being filed.
In sum, the sale of the conjugal property by Eugenia without the consent of her husband is voidable. It is binding unless
annulled. Antonio failed to exercise his right to ask for the annulment within the prescribed period, hence, he is now barred
from questioning the validity of the sale between his wife and Concepcion
II.
A contract of sale is perfected by mere consent, upon a meeting of the minds on the offer and the acceptance thereof based on
subject matter, price and terms of payment.7
In this case, there was a perfected contract of sale between Eugenia and Concepcion. The records show that Eugenia offered to sell
a portion of the property to Concepcion, who accepted the offer and agreed to pay P100,000.00 as consideration. The contract of
sale was consummated when both parties fully complied with their respective obligations. Eugenia delivered the property to
Concepcion, who in turn, paid Eugenia the price of One Hundred Thousand Pesos (P100,000.00), as evidenced by the receipt.
The verbal contract of sale between Eugenia and Concepcion did not violate the provisions of the Statute of Frauds
that a contract for the sale of real property shall be unenforceable unless the contract or some note or memorandum of the sale is
in writing and subscribed by the party charged or his agent. When a verbal contract has been completed, executed or
partially consummated, as in this case, its enforceability will not be barred by the Statute of Frauds, which applies
only to an executory agreement. Thus, where one party has performed his obligation, oral evidence will be admitted to prove
the agreement.
85
In the instant case, the oral contract of sale between Eugenia and Concepcion was evidenced by a receipt signed by Eugenia.
Antonio also stated that his wife admitted to him that she sold the property to Concepcion.
It is undisputed that the subject property was conjugal and sold by Eugenia in April 1987 or prior to the effectivity of the
Family Code on August 3, 1988, Article 254 of which repealed Title V, Book I of the Civil Code provisions on the property relations
between husband and wife. However, Article 256 thereof limited its retroactive effect only to cases where it would not prejudice or
impair vested or acquired rights in accordance with the Civil Code or other laws. In the case at bar, vested rights of Concepcion will
be impaired or prejudiced by the application of the Family Code; hence, the provisions of the Civil Code should be applied.
In Felipe v. Heirs of Aldon, et al. the legal effect of a sale of conjugal properties by the wife without the consent of the husband was
clarified, to wit:
The legal ground which deserves attention is the legal effect of a sale of lands belonging to the conjugal partnership made by the
wife without the consent of the husband.
It is useful at this point to re-state some elementary rules: The husband is the administrator of the conjugal partnership. (Art. 165,
Civil Code) Subject to certain exceptions, the husband cannot alienate or encumber any real property of the conjugal partnership
without the wife’s consent. (Art. 166, Idem.) And the wife cannot bind the conjugal partnership without the husband’s consent,
except in cases provided by law. (Art. 172, Idem.).
In the instant case, Gimena, the wife, sold lands belonging to the conjugal partnership without the consent of the husband and the
sale is not covered by the phrase "except in cases provided by law." The Court of Appeals described the sale as "invalid" –
a term which is imprecise when used in relation to contracts because the Civil Code uses specific names in designating defective
contracts, namely: rescissible (Arts. 1380 et seq.), voidable (Arts. 1390 et seq.), unenforceable (Arts. 1403, et seq.), and void or
inexistent (Arts. 1409 et seq.).
The sale made by Gimena is certainly a defective contract but of what category? The answer: it is a voidable
contract.
According to Art. 1390 of the Civil Code, among the voidable contracts are "[T]hose where one of the parties is incapable of
giving consent to the contract." (Par. 1.) In the instant case Gimena had no capacity to give consent to the contract of sale. The
capacity to give consent belonged not even to the husband alone but to both spouses.
The view that the contract made by Gimena is a voidable contract is supported by the legal provision that contracts
entered by the husband without the consent of the wife when such consent is required, are annullable at her
instance during the marriage and within ten years from the transaction questioned. (Art. 173, Civil Code).
Gimena’s contract is not rescissible for in such a contract all the essential elements are untainted but Gimena’s consent was tainted.
Neither can the contract be classified as unenforceable because it does not fit any of those described in Art. 1403 of the Civil Code.
And finally, the contract cannot be void or inexistent because it is not one of those mentioned in Art. 1409 of the Civil Code. By
process of elimination, it must perforce be a voidable contract.
The voidable contract of Gimena was subject to annulment by her husband only during the marriage because he was the victim
who had an interest in the contract. Gimena, who was the party responsible for the defect, could not ask for its annulment. Their
children could not likewise seek the annulment of the contract while the marriage subsisted because they merely had an inchoate
right to the lands sold.
The consent of both Eugenia and Antonio is necessary for the sale of the conjugal property to be valid. Antonio’s consent cannot be
presumed. Except for the self-serving testimony of petitioner Natividad, there is no evidence that Antonio participated or consented
to the sale of the conjugal property. Eugenia alone is incapable of giving consent to the contract. Therefore, in the absence of
Antonio’s consent, the disposition made by Eugenia is voidable.
86
1146 – ACTIONS THAT MUST BE FILED WITHIN FOUR YEARS

ART. 1146. The following actions must be instituted
within four years:
(2) Upon a quasi-delict;
MONTERO v. TIMES TRANSPORTATION

753 S 250 (03/16/15)
FACTS
Respondent Times Transportation Co., Inc., (TTCI) is a company engaged in the business of land transportation for passengers
and goods serving the Ilocos Region to Metro Manila route. TTCI employed the herein 21 petitioners as bus drivers,
conductors, mechanics, welders, security guards and utility personnel.
Sometime in 1995, the rank-and-file employees of TTCI formed a union named as Times Employees Union (TEU) which was later
certified as the sole and exclusive bargaining unit within TTCI.

In March 1997, members of TEU went on strike; but when former Labor Secretary Leonardo A. Quisimbing assumed jurisdiction
over the labor dispute and certified the same for compulsory arbitration, a return-to-work Order dated March 10, 1997 was issued
which ended the strike and enjoined the parties from committing any other act that may intensify the situation.

On August 23, 1997, TTCI Board of Directors approved a resolution confirming the authority given to respondent Santiago Rondaris
(Santiago), TTCI President and Chairman of the Board of Directors, to gradually dispose the assets of the TTCI as a result of its
unabated increase of the cost of operations and losses for the last two years. TTCI also adopted a company-wide
retrenchment program, which will take effect on October 1, 1997, where Santiago was given the authority to determine the number
of excess employees who would be the subject of retrenchment.

The sale of 25 buses of TTCI, as well as the Certificates of Public Convenience for the operation of the buses, were likewise
approved and subsequently transferred to respondent Mencorp Transport Systems, Inc., (MENCORP) by virtue of a Deed of Sale
dated December 12, 1997. Thereafter, several union members received notices that they were being retrenched effective 30 days
from September 16, 1997.

For a second time, on October 17, 1997, TEU declared a strike against TTCI, but the latter merely reiterated the earlier return-to-
work order of the Labor Secretary. For disregarding the said return-to-work order, Santiago issued two notices of termination dated
October 26, 1997 terminating some 106 workers and a revised list dated November 24, 1997 increasing the number of dismissed
employees to 119, for participating in the illegal strike.

On December 4, 1997, Santiago served to the Department of Labor and Employment Regional Office I a notice that TTCI would be
closing its operations due to heavy business losses.

On May 14, 1998, petitioners Estrañero, Pajarillo, Padre, Avila, Avila, Jr., Tupasi, Cuenta, Dulay, Yago, and Aganon filed several
complaints against TTCI and MENCORP before the NLRC. The complaints were thereafter consolidated under the case entitled
87
“Malana v. TTCI” docketed as NLRC RAB-I-01-1007. However, this case was withdrawn on March 4, 1999 upon motion by the
TEU’s counsel which was given due course on March 22, 1999. 17

Four years later, several complaints for unfair labor practice, illegal dismissal with money claims, damages and attorney’s fees
were filed against TTCI, Santiago, MENCORP and its General Manager Virginia Mendoza, including the latter’s husband Reynaldo
Mendoza (collectively called the respondents), before the LA from June to July 2002. Accordingly, these complaints were
consolidated.

In response, TTCI asserted that the petitioners’ cause of action had already been barred by prescription because the complaints
were filed only in June 2002 or after almost five years from the date of their dismissal. MENCORP, on the other hand,
raised the defense of lack of employer-employee relationship since it never engaged the services of the petitioners when TTCI sold
to them its buses and the Certificates of Public Convenience.

On June 9, 2005, the LA rendered a Decision dismissing the petitioners’ claim for unfair labor practice and money claims on the
ground of prescription. However, with regard to the issue of illegal dismissal, only the complaints of Montero, Ravina, Cabello,
Genaro, Madera, Gaano, Arsenio Donato and Estilong were dismissed for having been barred by prescription.
The LA found that petitioners Estrañero, Pajarillo, Aganon, Padre, Dulay, Cuenta, Canaria, Yago, Avila and Avila, Jr. were illegally
dismissed and were awarded their separation pay and backwages. According to the LA, the complaints of these 10 petitioners were
timely filed in June 2002 because the eight-month period during which their cases were pending should be excluded from the four-
year prescriptive period.

Disagreeing with the LA decision, all parties interposed an appeal before the NLRC. However, said appeals have both been denied
for non-perfection, particularly for failure of the petitioners to verify their appeal, and for failure of the respondent to post the
required cash or surety bond. In a Decision dated March 31, 2008, the NLRC vacated and set aside the findings of the LA, upon
finding that the petitioners’ complaints had already been barred by prescription.
Aggrieved by the foregoing disquisition of NLRC, the petitioners moved for reconsideration 31 but it was denied by the CA. Hence, the
present petition for review on certiorari.33
ISSUE
I. Did the petitioners’ complaints for illegal dismissal have already prescribed. Yes.
II. Whether the period during which the petitioners’ cases were pending and subsequently dismissed due to voluntary
withdrawal should be excluded from the period of prescription. No.
RULING. The petition is bereft of merit.
Nevertheless, the Court has thoroughly reviewed the records in this case and finds that the NLRC did not commit any grave abuse
of its discretion amounting to lack or in excess of jurisdiction in rendering its decision in favor of the respondents. The CA acted in
accord with the evidence on record and case law when it dismissed the petition and affirmed the assailed decision and resolution of
the NLRC.

In the case at bar, October 26, 1997 and November 24, 1997 appear on record to be the dates when the petitioners’
employment were terminated by TTCI. The antecedent facts that gave rise to the petitioners’ dismissal from employment are not
disputed in this case. There is no question about the fact that the petitioners’ complaints for unfair labor practice and
money claims have already prescribed. The petitioners however argue that their complaints for illegal dismissal were duly filed
within the four-year prescriptive period since the period during which their cases were pending should be deducted from the period
of prescription.
II.
On the other hand, the respondents insist that said complaints have already prescribed. Hence, the pivotal question in resolving the
issues hinges on the resolution of whether the period during which the petitioners’ cases were pending should be excluded from the
period of prescription.

88
Settled is the rule that when one is arbitrarily and unjustly deprived of his job or means of livelihood, the action instituted to contest
the legality of one’s dismissal from employment constitutes, in essence, an action predicated upon an injury to the rights of
the plaintiff, as contemplated under Article 1146 of the New Civil Code, which must be brought within four years.

The petitioners contend that the period when they filed a labor case on May 14, 1998 but withdrawn on March 22, 1999 should be
excluded from the computation of the four-year prescriptive period for illegal dismissal cases.
However, the Court had already ruled that the prescriptive period continues even after the withdrawal of the case as
though no action has been filed at all.
The applicability of Article 1155 of the Civil Code in labor cases was upheld in the case of Intercontinental Broadcasting Corporation
v. Panganiban where the Court held that “although the commencement of a civil action stops the running of the statute of
prescription or limitations, its dismissal or voluntary abandonment by plaintiff leaves the parties in exactly the same position as
though no action had been commenced at all.”

In like manner, while the filing of the complaint for illegal dismissal before the LA interrupted the running of the prescriptive period,
its voluntary withdrawal left the petitioners in exactly the same position as though no complaint had been filed at all . The
withdrawal of their complaint effectively erased the tolling of the reglementary period.

A prudent review of the antecedents of the claim reveals that it has in fact prescribed due to the petitioners’ withdrawal of
their labor case docketed as NLRC RAB-I-01-1007.
Hence, while the filing of the said case could have interrupted the running of the four-year prescriptive period, the voluntary
withdrawal of the petitioners effectively cancelled the tolling of the prescriptive period within which to file their
illegal dismissal case, leaving them in exactly the same position as though no labor case had been filed at all.
The running of the four-year prescriptive period not having been interrupted by the filing of NLRC RAB-I-01-1007, the petitioners’
cause of action had already prescribed in four years after their cessation of employment on October 26, 1997 and
November 24, 1997.
Consequently, when the petitioners filed their complaint for illegal dismissal, separation pay, retirement benefits, and damages in
2002, their claim, clearly, had already been barred by prescription.

Sadly, the petitioners have no one but themselves to blame for their own predicament. By their own allegations in their respective
complaints, they have barred their remedy and extinguished their right of action. Although the Constitution is committed to the
policy of social justice and the protection of the working class, it does not necessary follow that every labor dispute will be
automatically decided in favor of labor. The management also has its own rights. Out of concern for the less privileged in life, this
Court, has more often than not inclined, to uphold the cause of the worker in his conflict with the employer. Such leaning, however,
does not blind the Court to the rule that justice is in every case for the deserving, to be dispensed in the light of the established
facts and applicable law and doctrine.
Article 1147. The following actions must be filed within

one year:
1. Forcible entry and detainer
2. For defamation (n)
SPOUSES MUNOZ V. CA
(1992)
FACTS
89
A complaint for unlawful detainer was filed by Nicolas P. Garcia (herein respondent) on August 15, 1988 before the Municipal Circuit
Trial Court, Masantol-Macabebe, Masantol, Pampanga.
The complainant alleged that he is a co-owner of an agricultural land identified as Lot No. 2790 of Subdivision Plan, Cad. 378-D,
Macabebe, Cadastre, situated in the Barrio of Caduang Tete (Saplad David) of the same municipality; that he and his co-owners
acquired the lot by succession from their deceased father, Pedro B. Garcia who died on April 6, 1939; that the said lot is tenanted
by Loreto Garcia; that the defendants (herein petitioners) constructed their houses on a portion of the lot without the knowledge
and consent of the owners; that he sent letters of demand on June 6, 1988 asking the defendants to remove their houses from the
lot within fifteen (15) days from receipt of the letters and that despite the demands made by him, the defendants refused to vacate
their houses.
the defendants denied the allegations of Nicolas Garcia and alleged that the tenant, Loreto Garcia is already deemed the owner of
the land pursuant to P.D. 27.
The answering defendants also invoked the following alternative defenses, among others: (1) lack of jurisdiction on the part of the
Municipal Trial Court, the case being an accion publiciana which is exclusively cognizable by the Regional Trial Court; (2) no prior
conciliation before the Lupong Tagapayapa; (3) misjoinder of parties since defendants occupy lots distinct from each other; (4) that
the differently lots they are occupying form part of the shore of a navigable river and partly the shoulder of a public road, hence, of
public ownership; (5) that they are farmworkers of the lot, and are entitled to security of tenure on the land pursuant to Section 6
of RA 6657 and that they had erected their houses and had continuously resided on the premises in issue since 1976 or for a period
of twelve years before the filing of the complaint.
The complaint which the private respondent filed before the municipal court was an accion publiciana and not one for unlawful
detainer as he had captioned it. An accion publiciana is exclusively cognizable by the Regional Trial Court and not by the Municipal
Court.
For his part, the private respondent alleged that the action which he filed before the municipal court was an action for unlawful
detainer. The demand to vacate dated June 6, 1988 which was served upon the petitioners was well within the one (1) year period
required by the rules for the filing of the summary action for unlawful detainer the jurisdiction of which belongs to the municipal
trial court.
ISSUE
Whether or not the complaint filed by the private respondent before the Municipal Circuit Trial Court was for the summary
proceeding of forcible entry or unlawful detainer or an accion publiciana.
RULING
In forcible entry, the possession of the land by the defendant is unlawful from the beginning as he acquires possession thereof by
[F-I-T-S-S] force, intimidation, threat, strategy or stealth; while in unlawful detainer, the possession of the defendant is
inceptively (AT THE BEGINNING) lawful but it becomes illegal by reason of the termination of his right to the possession of the
property under his contract with the plaintiff (Dikit v. Icasiano, 89 Phil. 44).
Example: contract of lease (renter and owner)
In forcible entry, the law does not require a previous demand for the defendant to vacate the premises; but in unlawful
detainer, the plaintiff must first make such demand, which is jurisdictional in nature (Sec. 2; Medel v. Militante, 41 Phil. 44).
In forcible entry, the plaintiff must prove that he was in prior physical possession of the premises until he was deprived thereof by
the defendant; in unlawful detainer, the plaintiff need not have been in prior physical possession (Maddamu v. Judge, 74 Phil.
230; Aguilar v. Cabrera, 74 Phil. 666; Banayos v. Susana Realty, Inc., L-30336, June 30, 1976; Pharma Industries, Inc. v.
Pajarillaga, Et Al., L-53788, Oct. 17, 1980).
In forcible entry, the one-year period is generally counted from the date of actual entry on the land; in unlawful detainer, from
the date of last demand (Sarona, Et. Al. v. Villegas, Et Al., L-22984, Mar. 27, 1968) or last letter of demand (DBP v. Canonoy, L-
90
29422, Sept. 30, 1970; Calibayan v. Pascual, L-22645, Sept. 18, 1967; Racaza v. Susana Realty, Inc., L-20330, Dec. 22, 1966).
(Regalado, Florenz D., Remedial Law Compendium, Vol. 1, 5th Revised Edition, pp. 503-504)
Forcible entry- when does the force, intimidation, threat, strategy or stealth discovered? That is the time where the one you
reckoned the one year period.
Unlawful detainer- one year period is reckoned from the date of the demand because there is a necessity to demand because
without it, it will be presumed that they have agreed.
II.
The complaint subject of this case was captioned as "unlawful detainer." However, the private respondent alleged therein that from
the start, the possession of the petitioner was unlawful as it was stated that the defendants have constructed their houses on the
questioned premises stealthily, that is, without the knowledge and consent of his co-owners. This allegation clearly
characterized the complaint as one for forcible entry and not for unlawful detainer.chanrobles.com : virtual law library
The questions to be resolved in an action for forcible entry are: First, who had actual possession over the piece of real
property? Second, was the possessor ousted therefrom within one year from the filing of the complaint by force,
threat, strategy or stealth ? And lastly, does the plaintiff ask for the restoration of his possession ? (Dizon v. Concina, Et
Al., G.R. No. L-23756, December 27, 1969).
There was no mention in the complaint nor in the position paper of the private respondent that he or his co-owners were in prior
possession of the property. There was an allegation that the property "is presently tenanted" but did not state when the tenant
started to possess the property. While it is true that possession of the tenant is possession of the owner, the complaint failed to
state that Loreta Garcia was in prior possession of the property at the time of entry by the petitioners. And, while the complaint
stated that the petitioners obtained possession of the premises through stealth, it failed to aver when this entry was
accomplished or when the private respondent learned of such entry. The failure of the private respondent to allege the
time when unlawful deprivation took place is fatal because this will determine the start of the counting of the one year period for
the filing of the summary action of forcible entry. When the complaint fails to aver facts constitutive of forcible entry or
unlawful detainer, as where it does not state how entry was effected or how and when dispossession started, the
action should either be accion publiciana or reinvindicatoria in the Court of First Instance (now Regional Trial Court)
(Sarona Et. Al., v. Villegas, Et Al., supra).
The respondent appellate court erred in holding that this case is one for unlawful detainer. It failed to consider the basic distinction
that in forcible entry, possession is illegal at the inception while in unlawful detainer, possession is legal until demand is made to
recover such possession or until the possessor does or fails to do an act which makes his continued possession of the premises
illegal. The fact that a demand was made by the private respondent for the petitioners to vacate the subject premises cannot
change the nature of the latter’s possession of the property and convert the former’s action from forcible entry to one for unlawful
detainer. The respondent appellate court likewise erred in applying in this case the doctrine that — "a person who occupies the land
of another at the latter’s tolerance or permission, without any contract between them, is necessarily bound by the implied promise
that he will vacate upon demand, failing which, a summary action for ejectment is proper remedy against them" — because, as We
have said here, the possession by defendants was illegal at the inception as alleged in the complaint, hence, there
was no tolerance. As explained in Sarona v. Villegas, G.R. No. L-22984, March 27, 1968, 22 SCRA 1257:chanrobles virtual
lawlibrary
"But will this rule as to tolerance hold true in a case where there was forcible entry at the start, but the lawful possessor did not
attempt to oust the intruder for over one year, and only thereafter filed forcible entry suit following demand to vacate?
"A close assessment of the law and the concept of the word ‘tolerance’ confirms our view heretofore expressed that such
tolerance must be present right from the start of possession sought to be recovered, to categorize a cause of action
as one of unlawful detainer — not of forcible entry. Indeed, to hold otherwise would espouse a dangerous doctrine. And for two
reasons. First. Forcible entry into the land is an open challenge to the right of the possessor. Violation of that right authorizes the
speedy redress — in the inferior court — provided for in the rules. If one year from the forcible entry is allowed to lapse before suit
is filed, then the remedy ceases to be speedy; and the possessor is deemed to have waived his right to seek relief in the inferior
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court. Second, if a forcible entry action in the inferior court is allowed after the lapse of a number of years, then the result may well
be that no action for forcible entry can really prescribe. No matter how long such defendant is in physical possession, plaintiff will
merely make a demand, bring suit in the inferior court — upon a plea of tolerance to prevent prescription to set in — and summarily
throw him out of the land. Such a conclusion is unreasonable. Especially if we bear in mind the postulates that proceedings of
forcible entry and unlawful detainer are summary in nature, and that the one year time bar to suit is but in pursuance of the
summary nature of the action.
"It is well to remember that after the lapse of the one year period, suit must be started in the Court of First Instance in an accion
publiciana.
It is also the contention of petitioners that private respondents’ claim of ownership had no basis. He should have at least,
introduced muniments of title to show the extent and character of his possession. Moreover, mere allegations of ownership does
not ipso facto entitle a person to possession of the property claimed.
The main issue in an action for forcible entry and detainer is one of priority of possession. If the plaintiff can prove prior possession
in himself, he may recover such possession even from the owner. This rule however has no application in this case. It is true that
the private respondent in this case claimed that he is one of the co-owners of the lot in question. However, he has not presented
any evidence in support of such claim of ownership by virtue of which he is entitled to its possession. Moreover, he had not shown
nor claimed in his complaint that he was in prior possession of the property. On the contrary, it is the petitioners who claimed
possession of the property for more than twelve years.
If the private respondent is indeed the owner of the premises and that possession thereof was deprived from him for more than
twelve years, he should present his claim before the Regional Trial Court in an accion publiciana or an accion reinvindicatoria and
not before the Municipal Trial Court in a summary proceeding of unlawful detainer or forcible entry. For even if he is the owners
possession of the property cannot be wrested from another who had been in possession thereof for more than twelve (12) years
through a summary action for ejectment.
"Although admittedly petitioner may validly claim ownership based on the muniments of title it presented, such evidence does not
responsibly address the issue of prior actual possession raised in a forcible entry case. It must be stated that regardless of actual
condition of the title to the property, the party in peaceable quiet possession shall not be turned out by a strong hand, violence or
terror. Thus, a party who can prove prior possession can recover such possession even against the owner himself. Whatever may
be the character of his prior possession, if he has in his favor priority in time, he has the security that entitles him to remain on the
property until he is lawfully ejected by a person having a better right by accion publiciana or accion reinvindicatoria. (German
Management and Services Inc. v. CA, 76216-17, September 14, 1988, 177 SCRA 495, 499).
1155 – INTERRUPTION OF PRESCRIPTION OF ACTIONS
ART. 1155. The prescription of actions is interrupted

when they are filed before the court, when there is a
written extrajudicial demand by the creditors, and when
there is any written acknowledgment of the debt by the
debtor.
Overseas Bank of Manila v. Geraldez,

G.R. No. L-46541, [December 28, 1979]
FACTS
Valenton and Juan, on February 16, 1966 obtained from Overseas Bank of Manila a credit accommodation of P150,000, which was
secured by a chattel mortgage, and that six written extrajudicial demands dated
February 9,
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March 1 and 27, 1968,

November 13 and
December 8, 1975 and
February 7 and
August 27, 1976 were made upon the debtors but they refused to pay on the ground that their obligation was assumed by a third
party. The bank alleged that the supposed assumption of obligation was made without its consent.
In dismissing the complaint the trial court reasoned out that, because the bank’s cause of action accrued on February 16, 1966 (the
date of the manager’s check for P150,000 issued by the plaintiff bank to the Republic Bank) and as the complaint was filed on
October 22, 1976 or more than ten years from the accrual of the cause of action, the complaint was barred by the statute of
limitations.
As to the interruption of the ten-year period by the written extrajudicial demands, the trial court held that a demand letter tolls
the prescriptive period only for the period of time indicated in the letter within which payment should be made and prescription
commences to run again after the expiration of that period and no payment is made.
The trial court observed that, because in the demand letters no period of payment was indicated, that would mean that payment
should be made within one day and, therefore, the six demand letters interrupted the prescriptive period for six days only. (The trial
court noted that the seventh demand letter dated August 27, 1976 was sent when the ten-year prescriptive period had allegedly
expired.).
The lower court ruled that the action, which should have been filed within ten years expiring on February 15, 1976, was extended
for six days only or up to February 21, 1976, and consequently, according to its ratiocination, the action was filed out of time on
October 22, 1976..
ISSUE
The issue is as to the effect of the bank’s demand letters on the prescriptive period or whether the action had already prescribed.
RULING
We hold that the lower court erred in holding that each of the demand letters suspended the prescriptive period for one day only.
The interruption of the prescriptive period by written extrajudicial demand means that the said period would commence anew
from the receipt of the demand. That is the correct meaning of interruption as distinguished from mere suspension or tolling of
the prescriptive period.
An action upon a written contract must be brought within ten years from the time the right of action accrues (Art. 1144[1], Civil
Code). "The prescription of actions is interrupted when they are filed before the court, when there is a written extrajudicial demand
by the creditors, and when there is any written acknowledgment of the debt by the debtor" (Art. 1155, Ibid, applied in Gonzalo
Puyat & Sons, Inc. v. City of Manila, 117 Phil. 985, 993; Philippine National Bank v. Fernandez, L-20086, July 10, 1967, 20 SCRA
645, 648; Harden v. Harden, L-22174, July 21, 1967, 20 SCRA 706, 711).
Interruption of the prescription of actions by means of a written extrajudicial demand by the creditor is a rule of
civil law origin. Article 1973 of the old Civil Code, from which article 1155 was taken, provides that "la prescripcion de las
acciones se interrumpe por su ejercicio ante los Tribunales, por reclamacion extrajudicial del acreedor y por cualquier acto de
reconocimiento de la deuda por el deudor." Article 1155 specifies that the extrajudicial demand and the acknowledgment
should be in writing.
A written extrajudicial demand wipes out the period that has already elapsed and starts anew the prescriptive period. Giorgi says:
"La interrupcion difiere de la suspension porque borra el tiempo transcurrido anteriormente y obliga a la prescripcion a comenzar de
nuevo" (9 Teoria de las Obligaciones, 2nd Ed., p. 222). "La interrupcion . . . quita toda eficacia al tiempo pasado y abre camino a un
computo totalmente nuevo, que parte del ultimo momento del acto interruptivo, precisamente, como si en aquel momento y no
antes hubiese nacido el credito" (8 Giorgi, ibid pp. 390-2).
The same view is entertained by Manresa who, in speaking of interruption of prescription by means of a judicial action, says: "La
interrupcion de la prescripcion extintiva se produce eficazmente desde luego con la presentacion o interposicion de la demanda o
93
con cualquier otro acto en que sea ejercitada la accion que hubiera de ser prescrita en otro caso, y en su virtud habra de empezar a
contarse de nueuo el termino cuando cesen los efectos de dicho ejercicio, ya por abandono o desistimiento voluntario del actor, ya
por caducidad de la instancia, ya por sentencia recaida en el juicio, sin que pueda acumularse en ningun caso el tiempo anterior a la
interrupcion al que transcurriere despus de ella." (12 Codigo Civil, 5th Ed., p. 955. See 32 Codigo Civil, Quintus Mucius Scaevola,
Vol. II, p. 991 re "El comienzo de un nuevo plazo." )
Under article 1973, it was held that if the action for the collection of a sum of money accrued on August 31, 1897 and there were
written extrajudicial demands by the creditor in 1906, 1907 and 1910, the fifteen-year period for enforcing that kind of personal
action had not elapsed when the action was filed on July 18, 1913 (Marella v. Agoncillo, 44 Phil. 844, 854-5). chanrobles law library
That same view as to the meaning of interruption was adopted in Florendo v. Organo, 90 Phil. 483, 488, where it ruled that the
interruption of the ten-year prescriptive period through a judicial demand means that " the full period of prescription commenced to
run anew upon the cessation of the suspension."
"When prescription is interrupted by a judicial demand, the full time for the prescription must be reckoned from the cessation of
the interruption" (Spring v. Barr, 120 So. 256 cited in 54 C.J.S. 293, note 27). That rule was followed in Nator and Talon v. CIR, 114
Phil. 661, Sagucio v. Bulos, 115 Phil. 786 and Fulton Insurance Co. v. Manila Railroad Company, L-24263, November 18, 1967, 21
SCRA 974, 981.
In the aforecited case of Spring us. Barr, which was decided under the Civil Code of Louisiana, the one-year prescriptive period was
interrupted by the filing of an action in July, 1923. The action was terminated on March 2, 1926 after the plaintiff was nonsuited.
On June 10, 1926, the plaintiff renewed the action. It was held that the first case interrupted the one-year period and after its
termination, the one-year period started to run again from March 2. The second suit, filed on June 10, 1926, was filed on time.
In the Florendo case, a judgment for support against the husband and in favor of the wife was rendered by this Court on March 4,
1935 (Organo v. Florendo, 61 Phil. 1028, unpublished). In 1943, in an action for divorce filed by the husband against the wife, the
latter filed a counterclaim for the payment of the unpaid installments of support decreed in the 1935 judgment. Those installments
dated as far back as February 1, 1932, having been fixed in an earlier judgment dated September 8, 1909.
It was held that each monthly installment prescribed in ten years but the prescriptive period was interrupted by the filing of the
action which culminated in the 1935 judgment already mentioned. The ten-year period commenced to run anew from March 4,
1935 when the said judgment was rendered on 1943, when the counterclaim for support was filed in the divorce suit, the said ten-
year period had not yet completely run out. Hence, the counterclaim for support was not barred by prescription.
Interruption of the prescriptive period as meaning renewal of the original term seems to be the basis of the ruling in Ramos v.
Condez, L-22072, August 30, 1967, 20 SCRA 1146, 1151. In that case the cause of action accrued on June 25, 1952. There was a
written acknowledgment by the vendors on November 10, 1956 of the validity of the deed of sale.
It was held that the vendees’ action against the vendors on the basis of the said deed of sale, which action was filed on May 22,
1963, had not prescribed because the ten-year prescriptive period was interrupted on November 10, 1956. (See Mina v. Court of
Appeals, 97 Phil. 590, 593; Herrera v. Auditor General, 102 Phil. 875; Collector of Internal Revenue v. Solano, 104 Phil. 1050 and
Talens v. M. Chuakay & Co., 104 Phil. 1047 as to renewal of obligation by means of written acknowledgment.).
In national Marketing Corporation v. Marquez, L-25553, January 31, 1969, 26 SCRA 722, it appears that Gabino Marquez executed
on June 24, 1950 a promissory note wherein he bound himself to pay to the Namarco P12,000 in installments within the one-year
period starting on June 24, 1951 and ending on June 25, 1952. After making partial payments on July 7, 1951 and February 23,
1952, Marquez defaulted.chanroblesvirtualawlibrary
His total obligation, including interest, as of October 31, 1964, amounted to P19,990.91. Written demands for the payment of the
obligation were made upon Marquez and his surety on March 22, 1956, February 16, 1963, June 10, September 18 and October 13,
1964. Marquez did not make any further payment.
The Namarco sued Marquez and his surety on December 16, 1964. They contended that the action had prescribed because the ten-
year period for suing on the note expired on June 25, 1962. That contention was not sustained. It was held that the prescriptive
period was interrupted by the written demands, copies of which were furnished the surety.
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VIRTUCIO vs. ALEGARBES

679 S 412
FACTS
Respondent Jose Alegarbes (Alegarbes) filed Homestead Application No. V-33203 (E-V-49150) for a 24-hectare tract of unsurveyed
land situated in Bañas, Lantawan, Basilan in 1949. His application was approved on January 23, 1952.
In 1955, however, the land was subdivided into three (3) lots – Lot Nos. 138,139 and 140, Pls-19 - as a consequence of a public
land subdivision. Lot 139 was allocated to Ulpiano Custodio (Custodio), who filed Homestead Application No. 18-4493 (E-18-2958).
Lot 140 was allocated to petitioner Jesus Virtucio (Virtucio), who filed Homestead Application No. 18-4421 (E-18-2924).
Alegarbes opposed the homestead applications filed by Custodio and Virtucio, claiming that his approved application covered the
whole area, including Lot Nos. 139 and 140.
On October 30, 1961, the Director of Lands rendered a decision denying Alegarbes' protest and amending the latter's application to
exclude Lots 139 and 140. Only Lot 138 was given due course. The applications of Custodio and Virtucio for Lots 139 and 140,
respectively, were likewise given due course.
Alegarbes then appealed to the Secretary of Agriculture and Natural Resources, who dismissed his appeal on July 28, 1967. He then
sought relief from the Office of the President (OP), which, however, affirmed the dismissal order of the Secretary of Agriculture and
Natural Resources in a decision, dated October 25, 1974. Alegarbes moved for a reconsideration, but the motion was subsequently
denied.
On May 11, 1989, an order of execution was issued by the Lands Management Bureau of the Department of Environment and
Natural Resources to enforce the decision of the OP. It ordered Alegarbes and all those acting in his behalf to vacate the subject lot,
but he refused.
On September 26, 1997, Virtucio then filed a complaint for "Recovery of Possession and Ownership with Preliminary Injunction"
before the RTC.
In his Answer, Alegarbes claimed that the decision of the Bureau of Lands was void ab initio considering that the Acting Director of
Lands acted without jurisdiction and in violation of the provisions of the Public Land Act. Alegarbes argued that the said decision
conferred no rights and imposed no duties and left the parties in the same position as they were before its issuance. He further
alleged that the patent issued in favor of Virtucio was procured through fraud and deceit, thus, void ab initio.
Alegarbes further argued, by way of special and/or affirmative defenses, that the approval of his homestead application on January
23, 1952 by the Bureau of Lands had already attained finality and could not be reversed, modified or set aside. His possession of
Lot Nos. 138, 139 and 140 had been open, continuous, peaceful and uninterrupted in the concept of an owner for more than 30
years and had acquired such lots by acquisitive prescription.
In his Amended and Supplemental Answer, Alegarbes also averred that his now deceased brother, Alejandro Alegarbes, and the
latter's family helped him develop Lot 140 in 1955. Alejandro and his family, as well as Alegarbes' wife and children, had been
permanently occupying the said lot and, introducing permanent improvements thereon since 1960.
ISSUE
Whether or not Alegarbes acquired ownership over the subject property by acquisitive prescription.
RULING
95
Here, the main issue is the alleged acquisition of ownership by Alegarbes through acquisitive prescription and the character and
length of possession of a party over a parcel of land subject of controversy is a factual issue.
On Acquisitive Prescription
Virtucio insists that the period of acquisitive prescription was interrupted on October 30, 1961 (or in 1954 when Alegarbes filed the
protest) when the Director of Lands rendered a decision giving due course to his homestead application and that of Ulpiano
Custodio.
Virtucio further claims that since 1954, several extrajudicial demands were also made upon Alegarbes demanding that
he vacate said lot. Those demands constitute the "extrajudicial demand" contemplated in Article 1155, thus, tolling the period of
acquisitive prescription.
Article 1106 of the New Civil Code, in relation to its Article 712, provides that prescription is a mode of acquiring ownership through
the lapse of time in the manner and under the conditions laid down by law. Under the same law, it states that acquisitive
prescription may either be ordinary or extraordinary.
Ordinary acquisitive prescription requires possession of things in good faith and with just title for a period of ten years, while
extraordinary acquisitive prescription requires uninterrupted adverse possession of thirty years, without need of title or of good
faith.
There are two kinds of prescription provided in the Civil Code. One is acquisitive, that is, the acquisition of a right by the lapse of
time as expounded in par. 1, Article 1106. Other names for acquisitive prescription are adverse possession and usucapcion. The
other kind is extinctive prescription whereby rights and actions are lost by the lapse of time as defined in Article 1106 and par. 2,
Article 1139. Another name for extinctive prescription is litigation of action. These two kinds of prescription should not be
interchanged.
Article 1155 of the New Civil Code refers to the interruption of prescription of actions. Interruption of acquisitive prescription, on the
other hand, is found in Articles 1120-1125 of the same Code. Thus, Virtucio's reliance on Article 1155 for purposes of tolling the
period of acquisitive prescription is misplaced. The only kinds of interruption that effectively toll the period of acquisitive
prescription are natural and civil interruption.
Civil interruption takes place with the service of judicial summons to the possessor. When no action is filed, then there is no
occasion to issue a judicial summons against the respondents. The period of acquisitive prescription continues to run.
In this case, Virtucio claims that the protest filed by Alegarbes against his homestead application interrupted the thirty (30)-year
period of acquisitive prescription. The law, as well as jurisprudence, however, dictates that only a judicial summons can effectively
toll the said period.
In the case of Heirs of Marcelina Azardon-Crisologo v. Rañon, the Court ruled that a mere Notice of Adverse Claim did not constitute
an effective interruption of possession. In the case of Heirs of Bienvenido and Araceli Tanyag v. Gabriel, which also cited the Rañon
Case, the Court stated that the acts of declaring again the property for tax purposes and obtaining a Torrens certificate of title in
one's name cannot defeat another's right of ownership acquired through acquisitive prescription.
In the same vein, a protest filed before an administrative agency and even the decision resulting from it cannot effectively toll the
running of the period of acquisitive prescription. In such an instance, no civil interruption can take place. Only in cases filed before
the courts may judicial summons be issued and, thus, interrupt possession. Records show that it was only in 1997 when
Virtucio filed a case before the RTC. The CA was, therefore, correct in ruling that Alegarbes became ipso jure owner of Lot 140
entitling him to retain possession of it because he was in open, continuous and exclusive possession for over thirty (30) years of
alienable public land.
Virtucio emphasizes that the CA erred in disregarding the decisions of the administrative agencies which amended Alegarbes'
homestead application excluding Lot 140 and gave due course to his own application for the said lot, which decisions were affirmed
by the RTC.
96
Well-settled is the rule that factual findings of the lower courts are entitled to great weight and respect on appeal and, in fact, are
accorded finality when supported by substantial evidence on the record.29 It appears, however, that the conclusion made by the
RTC was not substantially supported. Even the RTC itself noted in its decision:
The approval of a Homestead Application merely authorizes the applicant to take possession of the land so that he could comply
with the requirements prescribed by law before a final patent could be issued in his favor" what divests the government of title to
the land is the issuance of a patent and its subsequent registration with the Register of Deeds.
A perusal of the records would reveal that there was no issuance of any patent in favor of either parties. This simply
means that the land subject of the controversy remains to be in the name of the State. Hence, neither Virtucio nor
Alegarbes can claim ownership. There was, therefore, no substantial and legal basis for the RTC to declare that Virtucio was entitled
to possession and ownership of Lot 140.
It can be argued that the lower court had the decisions of the administrative agencies, which ultimately attained finality, as legal
bases in ruling that Virtucio had the right of possession and ownership. In fact, the Department of Environment and Natural
Resources (DENR) even issued the Order of Execution31 on May 11, 1989 ordering Alegarbes to vacate Lot 140 and place Virtucio
in peaceful possession of it. The CA, however, was correct in finding that:
But appellant had earlier put in issue the matter of ownership of Lot 140 which he claims by virtue of adverse possession. On this
issue, the cited decisions are impertinent. Even if the decision to approve appellee's homestead application over Lot 140 had
become final, appellant could still acquire the said lot by acquisitive prescription.
In the case of Heirs of Gamos v. Heirs of Frando, the Court ruled that the mere application for a patent, coupled with the
fact of exclusive, open, continuous and notorious possession for the required period, is sufficient to vest in the
applicant the grant applied for. It likewise cited the cases of Susi v. Razon and Pineda v. CA, where the Court ruled that the
possession of a parcel of agricultural land of the public domain for the prescribed period of 30 years ipso jure converts the lot into
private property.
In this case, Alegarbes had applied for homestead patent as early as 1949. He had been in exclusive, open, continuous and
notorious possession of Lot 140 for at least 30 years. By the time the DENR issued its order of execution in 1989, Alegarbes had Lot
140 in his possession for more than 30 years. Even more so when Virtucio filed the complaint before the RTC in 1997, Alegarbes
was already in possession of the subject property for fortyeight (48) years.
The CA correctly observed that the RTC erred in disregarding the evidence before it and relying entirely upon the decisions of the
Director of Lands, the Secretary of Agriculture and Natural Resources and the OP, which never touched the issue of whether
Alegarbes' open, continuous and exclusive possession of over thirty (30) years of alienable land had ipso jure segregated Lot 140
from the mass of public land and beyond the jurisdiction of these agencies.
When the CA ruled that the RTC was correct in relying on the abovementioned decisions, it merely recognized the primary
jurisdiction of these administrative agencies. It was of the view that the RTC was not correct in the other aspects of the case. Thus,
it declared Alegarbes as owner ipso jure of Lot 140 and entitled to retain possession of it. There is no reason for the
Court to disturb these findings of the CA as they were supported by substantial evidence, hence, are conclusive and binding upon
this Court.
On the CA Decision involving a similar case
Virtucio insists that the CA gravely erred in disregarding its decision in Custodio v. Alegarbes, CA-G.R. CV 26286, for Recovery of
Possession and Ownership, which involved the same factual circumstances and ruled against Alegarbes.
It must be noted that the subject property in the said case was Lot 139 allocated to Custodio and that Virtucio was not a party to
that case. The latter cannot enjoy whatever benefits said favorable judgment may have had just because it involved similar factual
circumstances. The Court also found from the records that the period of acquisitive prescription in that case was effectively
interrupted by Custodio's filing of a complaint, which is wanting in this case.
97
Moreover, it is settled that a decision of the CA does not establish judicial precedent. 40 "The principle of stare decisis enjoins
adherence by lower courts to doctrinal rules established by this Court in its final decisions. It is based on the principle that once a
question of law has been examined and decided, it should be deemed settled and closed to further argument. "
The Court agrees with the position of Alegarbes that by Virtucio's insistence that it was erroneous for the CA to disregard its earlier
decision in CA-G.R. CV 26286, he, in effect, calls upon this Court to adhere to that decision by invoking the stare decisis principle,
which is not legally possible ~ because only final decisions of this Court are considered precedents.
In view of the foregoing, the Court need not dwell on the complaint of Virtucio with regard to the deletion of the award of
attorney's fees in his favor. It is ludicrous for theCA to order Alegarbes to pay attorney's fees, as a measure of damages, and costs,
after finding him to have acquired ownership over the property by acquisitive prescription.
WHEN THE ACTION IS FILED BEFORE THE COURT
1. Action is filed in a competent court

2. Its dismissal or voluntary abandonment by plaintiff leaves the parties in exactly the same position as though
no action had been commenced at all. (as if there was no interruption from the moment the very beginning)
(WHEN THE ACTION IS FILED IN A COMPETENT COURT OF JURISDICTION)
INTERCONTINENTAL BROADCASTING
CORPORATION, v. IRENEO PANGANIBAN
(February 6, 2007)
FACTS
Ireneo Panganiban (respondent) was employed as Assistant General Manager of the Intercontinental Broadcasting Corporation
(petitioner) from May 1986 until his preventive suspension on August 26, 1988. Respondent resigned from his employment on
September 2, 1988.
On April 12, 1989, respondent filed with the Regional Trial Court of Quezon City, Branch 93, Civil Case No. Q-89-2244
against the members of the Board of Administrators (BOA) of petitioner alleging, among others, non-payment of his unpaid
commissions.
A motion to dismiss was filed by Joselito Santiago, one of the defendants, on the ground of lack of jurisdiction, as respondent's
claim was a labor money claim, but this was denied by the RTC per Orders dated October 19, 1990 and November 23, 1990.
DISMISSAL
Thus, Santiago filed a petition for certiorari with the CA, docketed as CA-G.R. SP No. 23821, and in a Decision dated October 29,
1991, the CA granted Santiago's petition for lack of jurisdiction and set aside the RTC's Orders dated October 19, 1990 and
November 23, 1990.
Thereafter, respondent was elected by the BOA as Vice-President for Marketing in July 1992. He resigned in April 1993.
On July 24, 1996, respondent filed against petitioner a complaint for illegal dismissal, separation pay, retirement benefits, unpaid
commissions, and damages.
In a Decision dated September 23, 1997, the Labor Arbiter (LA) ordered respondent's reinstatement with full backwages, and the
payment of his unpaid commission in the amount of ₱2,521,769.77, damages and attorney's fees.
98
Petitioner appealed to the National Labor Relations Commission (NLRC) but due to petitioner's failure to post a bond, the appeal
was dismissed on February 26, 1998, in a Decision that was deemed final and executory.
Petitioner filed a motion for reconsideration of the NLRC's dismissal, which was denied per Resolution dated March 25 Petitioner,
however, refused to accept the CA's conclusion, arguing that the filing of Civil Case No. Q-89-2244 on April 12, 1989 before
the RTC did not interrupt the running of the prescriptive period due to the fact that the RTC was not a proper
judicial forum for the collection of respondent's claim for unpaid commissions. Petitioner also refuted the CA's finding
that it (petitioner) acknowledged respondent's claim through the letter sent by Pio S. Kaimo, Jr., Audit Group Head, addressed to
IBC Gen. Manager Ceferino M. Basilio, stating that the amount provided in said letter was different from respondent's claim.
ISSUE
Does the consequent dismissal of the Civil Case No. Q-89-2244 due to the lack of jurisdiction interrupted the running of the three-
year prescriptive period within which to file his money claim?
RULING
No. while the filing of Civil Case No. Q-89-2244 could have interrupted the running of the three-year prescriptive period, its
consequent dismissal by the CA in CA-G.R. SP No. 23821 due to lack of jurisdiction effectively canceled the tolling of
the prescriptive period within which to file his money claim , leaving respondent in exactly the same position as though no
civil case had been filed at all. The running of the three-year prescriptive period not having been interrupted by the filing of Civil
Case No. Q-89-2244, respondent's cause of action had already prescribed on September 2, 1991, three years after his cessation of
employment on September 2, 1988. Consequently, when respondent filed his complaint for illegal dismissal, separation pay,
retirement benefits, and damages in July 24, 1996, his claim, clearly, had already been barred by prescription.
With regard to the CA's perceived acknowledgment of respondent's claim by petitioner, the letter dated January 21, 1993
sent by Pio S. Kaimo, Jr., Audit Group Head, addressed to IBC Gen. Manager Ceferino M. Basilio is, indeed, a written
acknowledgment of its indebtedness to respondent. But it should be pointed out that whatever acknowledgment made by petitioner
pertains only to the amount recognized therein or ₱105,573.88, and not the entire ₱2,521,769.77 being claimed by respondent.
-------------------------------
The CA held that respondent's claim was filed within the three-year prescriptive period under Article 291 of the Labor Code, for the
following reasons:
x x x A circumspect review of the antecedents of the claim reveals that it has not in fact prescribed due to the filing of Civil Case
No. Q-89-2244 and the express acknowledgments of the claims of respondent Panganiban by petitioners IBC, et al. The chronology
of events show the following:
1. Date of resignation of Panganiban – September 2, 1988.

2. Date of filing of Civil Case No. Q-89-2244 – April 12, 1989
From September 2, 1988 up to April 12, 1989, a period of 5 months and 10 days have elapsed. Prescription of action has
been interrupted as of April 12, 1989.
3. Date of dismissal of petition in CA-G.R. SP No. 23821 – October 21, 1991.
Prescription of action started to run again starting October 21, 1991.
4. Express acknowledgment of debt by petitioners in a letter sent by Pio S. Kaimo, Jr., Audit Group Head addressed to IBC
Gen. Manager Ceferino M. Basilio (Annex A of Motion for Reconsideration) – January 21, 1993.
From date of dismissal of CA-G.R. SP No. 23821 up to the date of express acknowledgment of debt, only a period of 1 year
and 3 months has passed by.13
The CA ruled that respondent's money claim had not yet prescribed, as it was interrupted in two instances: first, by the filing of Civil
Case No. Q-89-2244 by respondent with the RTC; and second, by the express acknowledgment of the debt by petitioners.
The applicable law in this case is Article 291 of the Labor Code which provides that "all money claims arising from employer-
employee relations accruing during the effectivity of this Code shall be filed within three (3) years from the time the cause
99
of action accrued; otherwise they shall be forever barred." The term "money claims" covers all money claims arising from an
employer-employee relation.
Corollarily, Article 217 of the Labor Code provides for the jurisdiction of labor courts, which includes money claims arising from
employer-employee relations, to wit:
ART. 217. Jurisdiction of Labor Arbiters and the Commission.-- (a) Except as otherwise provided under this Code the Labor Arbiter
shall have original and exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the submission of the case by
the parties for decision without extension, even in the absence of stenographic notes, the following cases involving all workers,
whether agricultural or non-agricultural:
3. If accompanied with a claim for reinstatement, those cases that workers may file involving wages, rates of pay, hours of work
and other terms and conditions of employment;
4. Claims for actual, moral, exemplary and other forms of damages arising from employer-employee relations;
6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other claims, arising from
employer-employee relations, including those of persons in domestic or household service, involving an amount exceeding five
thousand pesos (₱5,000.00) regardless of whether accompanied with a claim for reinstatement.
Like other causes of action, the prescriptive period for money claims is subject to interruption, and in the absence of an
equivalent Labor Code provision for determining whether the said period may be interrupted, Article 1155 of the
Civil Code may be applied, to wit:
ART. 1155. The prescription of actions is interrupted when they are filed before the Court, when there is a written extrajudicial
demand by the creditors, and when there is any written acknowledgment of the debt by the debtor
Thus, the prescription of an action is interrupted by (a) the filing of an action, (b) a written extrajudicial demand by the creditor,
and (c) a written acknowledgment of the debt by the debtor. On this point, the Court ruled that although the commencement
of a civil action stops the running of the statute of prescription or limitations, its dismissal or voluntary
abandonment by plaintiff leaves the parties in exactly the same position as though no action had been commenced
at all.
Hence, while the filing of Civil Case No. Q-89-2244 could have interrupted the running of the three-year prescriptive period, its
consequent dismissal by the CA in CA-G.R. SP No. 23821 due to lack of jurisdiction effectively canceled the tolling of
the prescriptive period within which to file his money claim , leaving respondent in exactly the same position as though no
civil case had been filed at all. The running of the three-year prescriptive period not having been interrupted by the filing of Civil
Case No. Q-89-2244, respondent's cause of action had already prescribed on September 2, 1991, three years after his cessation of
employment on September 2, 1988. Consequently, when respondent filed his complaint for illegal dismissal, separation pay,
retirement benefits, and damages in July 24, 1996, his claim, clearly, had already been barred by prescription.
With regard to the CA's perceived acknowledgment of respondent's claim by petitioner, the letter dated January 21, 1993
sent by Pio S. Kaimo, Jr., Audit Group Head, addressed to IBC Gen. Manager Ceferino M. Basilio is, indeed, a written
acknowledgment of its indebtedness to respondent. But it should be pointed out that whatever acknowledgment made by petitioner
pertains only to the amount recognized therein or ₱105,573.88, and not the entire ₱2,521,769.77 being claimed by respondent. The
letter states:
Find attached Cash Voucher #28649 in the amount of ₱105,573.88 payable to Mr. Tex Panganiban. This is a replacement of Cash
Voucher Nos. 17496 amounting to ₱53,668.05 and 19749 in the amount of ₱51,905.83 representing commissions earned for the
period February 1-15 and July 16-30, 1988.
100
OBLIGATIONS
1159 – AUTONOMY OF WILL

Article 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied
with in good faith.
UNITED ALLOY v. UCPB 816 S 70 (PERALTA)
FACTS
On December 18, 2000, herein petitioner corporation, United Alloy Philippines Corporation (UNIALLOY) applied for and was granted
a credit accommodation by herein respondent United Coconut Planters Bank ( UCPB) in the amount of PhP50,000,000.00, as
evidenced by a Credit Agreemet. Part of UNIALLOY's obligation under the Credit Agreement was secured by a Surety
Agreement, dated December 18, 2000, executed by UNIALLOY Chairman, Jakob Van Der Sluis (Van Der Sluis), UNIALLOY
President, David Chua and his spouse, Luten Chua (Spouses Chua), and one Yang Kim Eng (Yang). Six (6) Promissory Notes,
[5]
were later executed by UNIALLOY in UCPB's favor.
In addition, as part of the consideration for the credit accommodation, UNIALLOY and UCPB also entered into a "lease-purchase"
contract wherein the former assured the latter that it will purchase several real properties which UCPB co-owns with the
Development Bank of the Philippines.
Subsequently, UNIALLOY failed to pay its loan obligations. As a result, UCPB filed against UNIALLOY, the spouses Chua, Yang and
Van Der Sluis an action for Sum of Money with Prayer for Preliminary Attachment on August 27, 2001. The collection case was filed
with the Regional Trial Court of Makati City (RTC of Makati) and docketed as Civil Case No. 01-1332. Consequently, UCPB also
unilaterally rescinded its lease-purchase contract with UNIALLOY.
On the other hand, on even date, UNIALLOY filed against UCPB, UCPB Vice-President Robert Chua and Van Der Sluis a complaint
for Annulment and/or Reformation of Contract with Damages, with Prayer for a Writ of Preliminary Injunction or Temporary
Restraining Order. Claiming that it holds office and conducts its business operations in Tagoloan, Misamis Oriental, UNIALLOY filed
the case with the Regional Trial Court of Cagayan De Oro City (RTC of CDO) and was docketed as Civil Case No. 2001-219.
UNIALLOY contended that Van Der Sluis, in cahoots with UCPB Vice-President Robert Chua, committed fraud, manipulation and
misrepresentation to obtain the subject loan for their own benefit. UNIALLOY prayed, among others, that three (3) of the six (6)
Promissory Notes it executed be annulled or reformed or that it be released from liability thereon.
On September 12, 2001, UNIALLOY filed an Urgent Motion to Dismiss the collection case (Civil Case No. 01-1332) filed by UCPB on
the ground of litis pendentia and forum shopping. UNIALLOY contended that its complaint for annulment of contract (Civil Case No.
2001-219) and the collection case filed by UCPB involves the same parties and causes of action. On October 31, 2001, the RTC of
Makati issued an Order denying UNIALLOY's motion to dismiss.
In the meantime, UCPB and its co-defendants also filed a Motion to Dismiss UNIALLOY's complaint for annulment of contract on the
grounds of improper venue, forum shopping, litis pendentia, and harassment or nuisance suit. On September 13, 2001, the RTC of
CDO issued an Order dismissing UNIALLOY's complaint for annulment of contract.
ISSUE
Whether or not herein petitioners, together with their co-defendants Van Der Sluis and Yang, are liable to pay respondent the
amounts awarded by the RTC of Makati City in its June 17, 2003 Decision.
RULING
The Court rules in the affirmative.
As ruled upon by both the RTC and the CA, UNIALLOY failed to pay its obligations under the above promissory notes and that
101
herein petitioner Spouses Chua, together with their co-defendants Van Der Sluis and Yang freely executed a Surety Agreement
whereby they bound themselves jointly and severally with UNIALLOY, to pay the latter's loan obligations with UCPB. Pertinent
portions of the said Surety Agreement are reproduced hereunder, to wit:
ARTICLE I
LIABILITIES OF SURETIES
Section 1.01. The SURETIES, jointly and severally with the PRINCIPAL, hereby unconditionally and irrevocably guarantee the full
and complete payment when due, whether at stated maturity, by acceleration or otherwise, of all sums payable by
the PRINCIPAL under the Credit Agreement, the Note/s and other related documents or instruments referred to therein
(hereinafter referred to collectively as the "Loan Documents") the terms and conditions of which are hereby deemed incorporated
by reference.
The liability of the SURETIES shall not be limited to the aggregate principal amount of FIFTY MILLION PESOS
(P50,000,000.00), Philippine Currency, or its foreign currency equivalent, but shall include such interest, fees, penalties
and other charges due thereon, as well as any and all renewals, extensions, restructurings or conversions of
the Accommodation or any portion thereof, as may appear in the books and records of account of the BANK.
Such extension/s, renewal/s, restructuring/s, or conversion/s of the Accommodation or any portion thereof, including any
increase in the principal amount thereof, or the imposable interest rates and other bank charges, shall be binding upon
the SURETIES under the terms of this SURETY AGREEMENT, without need of any further notice to or consent or conformity of
the SURETIES, all of which are hereby expressly waived.
Section 1.02. This SURETY AGREEMENT is a guarantee of payment and not merely of collection and is intended to be a perfect
and continuing indemnity in favor of the BANK for the amounts and to the extent stated above. For this purpose,
the SURETIES hereby commit that for as long as this SURETY AGREEMENT is in effect, the SURETIES shall not sell, lease,
transfer, assign or encumber any of its present and future properties without the written consent of the BANK, which consent will
not be unreasonably withheld.
The liability of the SURETIES shall be absolute, irrevocable, unconditional, direct, immediate and not contingent upon the pursuit
by the BANK of whatever remedies it may have against the PRINCIPAL or the other sureties for the Accommodation, and shall be
performed by the SURETIES strictly in accordance with the terms hereof and under any and all circumstances, including the
existence of any claim, set-off, defense or other rights which the SURETIES or any person or entity may have at any time against
the BANK for any reason whatsoever, whether or not related to this SURETY AGREEMENT, the Loan Documents or under such
other documents executed in relation thereto, or contemplated hereunder.
ARTICLE II
TERM
Section 2.01. This SURETY AGREEMENT shall remain in full force and effect until payment in full of all amount for which
the PRINCIPAL is or may be liable as set forth in ARTICLE I hereof, regardless of the absence of any further or other assent or
conformity of, or notice to the SURETIES, or any circumstance, or provision of law which might otherwise constitute a defense or
discharge of the SURETIES, all of which are hereby expressly waived.
ARTICLE III
DEFAULT
102
Section 3.01. If the BANK shall declare the obligation of the PRINCIPAL to be due and payable because of the happening of any
of the event of default as defined in the Credit Agreement, the SURETIES, upon receipt of written notice from the BANK, shall
forthwith pay to the BANK the full amount of the said obligations, without need of demand, protest or notice of any kind, other
than the notice provided herein, all of which are likewise expressly waived by the SURETIES.
In this connection, the BANK is hereby given full power and authority to apply whatever moneys or things of value belonging to
the SURETIES which may be in the possession or control of the BANK in payment of the obligations mentioned above.
ARTICLE IV
BINDING EFFECT
Section 4.01. This SURETY AGREEMENT shall except upon the other SURETIES, if any whose liability(ies) is/are extinguished by
way of compromise or otherwise be binding upon the SURETIES, their heirs and successors in interest and shall inure to the
benefit of and be enforceable by the BANK, its assigns and successors in interest. For this purpose, the SURETIES have agreed,
as they hereby agree, that an extinguishment of liability(ies) of any of the SURETIES shall not be an obstacle to the BANK from
demanding payment from the other SURETIES, if any, so long as the Accommodation has not been fully collected.
Petitioners do not deny their liability under the abovequoted Surety Agreement.
As correctly held by both the RTC and the CA, Article 1159 of the Civil Code expressly provides that "[o]bligations arising from
contracts have the force of law between the contracting parties and should be complied with in good faith." The RTC as well as the
CA found nothing which would justify or excuse petitioners from non-compliance with their obligations under the contract they have
entered into. Thus, it becomes apparent that petitioners are merely attempting to evade or, at least, delay the inevitable
performance of their obligation to pay under the Surety Agreement and the subject promissory notes which were executed in
respondent's favor.
The Court notes, however, that the interest rates imposed on the subject promissory notes were made subject to review and
adjustment at the sole discretion and under the exclusive will of UCPB. Moreover, aside from the Consolidated Statement of Account
attached to the demand letters addressed to petitioner spouses Chua and their co-defendants, no other competent evidence was
shown to prove the total amount of interest due on the above promissory notes. In fact, based on the attached Consolidated
Statement of Account, UCPB has already imposed a 24% interest rate on the total amount due on respondents' peso obligation for
a short period of six months. Settled is the rule that any contract which appears to be heavily weighed in favor of one
of the parties so as to lead to an unconscionable result is void. Any stipulation regarding the validity or compliance of the
contract which is left solely to the will of one of the parties, is likewise, invalid.
Moreover, courts have the authority to strike down or to modify provisions in promissory notes that grant the lenders unrestrained
power to increase interest rates, penalties and other charges at the latter's sole discretion and without giving prior notice to and
securing the consent of the borrowers. This unilateral authority is anathema to the mutuality of contracts and enable
lenders to take undue advantage of borrowers. Although the Usury Law has been effectively repealed, courts may still reduce
iniquitous or unconscionable rates charged for the use of money. Furthermore, excessive interests, penalties and other charges not
revealed in disclosure statements issued by banks, even if stipulated in the promissory notes, cannot be given effect under the
Truth in Lending Act.
The Court, thus, finds it proper to modify the interest rates imposed on respondents' obligation. Pursuant to the ruling in Nacar v.
Gallery Frames, et. al., the sums of US$435,494.44 and PhP26,940,950.80 due to UCPB shall earn interest at the rate of 12% per
annum from the date of default, on August, 1, 2001, until June 30, 2013 and thereafter, at the rate of 6% per annum, from July 1,
2013 until finality of this Decision. The total amount owing to UCPB as set forth in this Decision shall further earn legal interest at
the rate of 6% per annum from its finality until full payment thereof, this interim period being deemed to be by then an equivalent
to a forbearance of credit.
Finally, pursuant to the parties' Credit Agreement as well as the subject Promissory Notes, respondents are also liable to pay a
penalty charge at the rate of 1% per month or 12% per annum.
103
1160 – QUASI-CONTRACTS
Article 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter I. Title XVII of this Book.
Solutio indebiti
Domestic Petroleum Retailer Corp. v. Manila International Airport Authority

[March 27, 2019]
FACTS
On December 23, 2008, [petitioner DPRC] filed a Complaint [5] for "Collection of Sums of Money" against [respondent MIAA] before
the [RTC,] averring that: on June 4, 1998, [petitioner DPRC] and [respondent MIAA] entered into a Contract of Lease whereby the
former leased from the latter a 1,631.12-square meter parcel of land and a 630.88-square meter building both located at
Domestic Road, Pasay City[.]
[Petitioner DPRC] was obliged to pay monthly rentals of P75,357.74 for the land and P33,310.46 for the building; [petitioner DPRC]
faithfully complied with its obligation to pay the monthly rentals since the start of the lease contract[.]
[O]n April 2, 1998, [respondent MIAA] passed Resolution No. 98-30 which took effect on June 1, 1998 increasing the rentals
paid by its concessionaires and lessees[.] [Respondent MIAA] issued Administrative Order No. 1[,] Series of 1998
reflecting the new schedule of fees, charges, and rates[.] [Petitioner] DPRC initially refused to pay the increased rentals which was
decreed without prior notice and hearing[.]
[O]n November 19, 1998, [respondent MIAA] demanded its payment of P655,031.13 as rental in arrears which was based on the
increase prescribed in Resolution No. 98-30 with 2% interest compounded monthly[.] [Respondent MIAA] also demanded payment
of P628,895.43 after recomputing and deducting the amount of P26,135.70 from the original amount of P655,031.13[.]
[O]n December 8, 1998, [petitioner DPRC] protested in writing to [respondent MIAA] the increased rentals and the computation[.]
[H]owever, it also signified its intention to comply in good faith with the terms and conditions of the lease contract by paying the
amount charged[.] [O]n December 11, 1998, [petitioner DPRC] paid [respondent MIAA] P628,895.43 which was based on the new
rates[.]
[On December 1, 2004, the First (1 st) Division of the Court promulgated its Decision in the case of Manila International Airport
Authority v. Airspan Corporation, et al .,[6] docketed as G.R. No. 157581. In the said case, the Court nullified Resolution Nos. 98-
30 and 99-11 issued by respondent MIAA for non-observance of the notice and hearing requirements for the fixing rates
required by the Administrative Code.]
[O]n December 21, 2005, [petitioner DPRC] advised [respondent] MIAA of its intention to stop paying the increased rental rate, and
on January 1, 2006, it stopped paying the increased rental rate[,] but continued paying the original rental rate prescribed in the
lease contract[.] [Petitioner DPRC's] decision to stop paying the increased rental rate was based on the [Court's] Decision dated
December 1, 2004 in the case of Manila International Airport Authority vs. Air span Corporation, et al . x x x [Petitioner DPRC] paid
[respondent] MIAA a total amount of P9,593,179.87, which is in excess of the stipulated monthly rentals from December 11, 1998
up to December 5, 2005[.]
104
[O]n June 22, 2006, [respondent] MIAA required the payment of P645,216.21 allegedly representing the balance of the rentals from
January up to June 2006[.] [O]n July 27, 2006, [petitioner DPRC] sent its reply to [respondent] MIAA denying the unpaid obligation,
reiterating that the rental could no longer be computed based on the nullified Resolution No. 98-30, and demanding for the refund
of its overpayment in the amount of P9,593,179.87[.] [Respondent] MIAA ignored its demand[,] prompting [petitioner DPRC] to
send a final written demand dated November 5, 2008[.] [The latter] was constrained to file [the Complaint for Collection of Sums of
Money.]
ISSUE
whether the CA was correct in amending the RTC's Decision, modifying the amount of respondent MIAA's liability from the full
amount of P9,593,179.87 to just P3,839,643.05 plus legal interest at 12% per annum computed from the time of extra-judicial
demand on July 27, 2006, on the basis of the application of the six-year prescriptive period governing the quasi-contract of solutio
indebiti
RULING
The Court finds merit in the instant Petition.
The CA posited the view that the quasi-contract of solutio indebiti applies as to the instant case because petitioner "DPRC's payment
of the increased rental to [respondent MIAA], who was found to have no authority to increase fees, charges and rates without the
approval of the DOTC Secretary, due to a mistake in the interpretation and imposition of Administrative Order No. 98-30, which was
later found to be invalid for lack of the required prior notice and public hearing, gives rise to the application of the principle
of solutio indebiti under Articles 2154, 2155 and 2156 of the Civil Code in this case." [16]
Article 2154 of the Civil Code explains the concept of the quasi-contract of solutio indebiti:
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 quasi-contract of solutio indebiti harks back to the ancient principle that no one shall enrich himself unjustly at the
expense of another.[17]
In order to establish the application of solutio indebiti in a given situation, two conditions must concur: (1) a payment is made
when there exists no binding relation between the payor who has no duty to pay, and the person who received the payment,
and (2) the payment is made through mistake, and not through liberality or some other cause. [18] In the instant case, the Court
finds that the essential requisites of solutio indebiti are not present.
There exists a binding relation between petitioner

DPRC and respondent MIAA.
First and foremost, it is undisputed by all parties that respondent MIAA and petitioner DPRC are mutually bound to each other
under a Contract of Lease, which both parties entered on June 4, 1998, covering the 1,631.12-square-meter parcel of land and a
105
630.88-square-meter building both located at Domestic Road, Pasay City. Hence, with respondent MIAA and petitioner DPRC having
the juridical relationship of a lessor-lessee, it cannot be said that in the instant case, the overpayment of monthly rentals was made
when there existed no binding juridical tie or relation between the pay or, i.e., petitioner DPRC, and the person who received the
payment, i.e., respondent MIAA. In fact, respondent MIAA itself acknowledged in its Comment that there was a "pre-existing
contractual relation" between itself and petitioner DPRC.[19]
The Court's Decision in National Commercial Bank of Saudi Arabia v. Court of Appeals[20] is instructive.
In the said case, therein petitioner National Commercial Bank of Saudi Arabia (NCBSA) filed a case against therein respondent
Philippine Banking Corporation (PBC) to recover the duplication in the payment of the proceeds of a letter of credit, under which
NCBSA obliged itself to pay PBC subject to compliance with certain conditions provided in the letter of credit.
Assailing the lower court's decision granting NCBSA's complaint for recovery of money, therein respondent PBC argued that
"[therein petitioner] NCBSA's complaint is 'based on the quasi-contract of solutio indebiti,'' hence, it prescribes in six years and,
therefore, when NCBSA filed its complaint nine years after the cause of action arose, it had prescribed." [21]
In denying the aforesaid argument and upholding NCBSA's claim of refund against PBC due to double payment, the Court held that,
since solutio indebiti applies only where no binding relation exists between the payor and the person who received the
payment, solutio indebiti was not applicable because the parties therein were bound by a contract, i.e., a letter of credit. As
such, the cause of action against PBC was deemed to be based on the violation of a contract instead of a quasi-
contract:
Technicality aside, en passant, on the merits of PBC's Motion for Reconsideration of the trial court's decision, the trial court did not
err in brushing aside its main defense of prescription — that NCBSA's complaint is "based on the quasi-contract of solutio indebiti"
hence, it prescribes in six years and, therefore, when NCBSA filed its complaint nine years after the cause of action arose, it had
prescribed.
Solutio indebiti applies where: (1) a payment is made when there exists no binding relation between the payor, who has no duty to
pay, and the person who received the payment, and (2) the payment is made through mistake, and not through liberality or some
other cause. In the case at bar, PBC and NCBSA were bound by their contract, the letter of credit, under which NCBSA
obliged itself to pay PBC, subject to compliance by the latter with certain conditions provided therein. As such, the
cause of action was based on a contract, and the prescriptive period is ten, not six years.[22]
Similarly, in Genova v. De Castro ,[23] despite holding that the therein petitioner is entitled to a refund of what he had previously paid
to the therein respondent, the Court held that solutio indebiti was not applicable because the first element was not present,
considering that petitioner therein made payments to respondent therein pursuant to an underlying agreement to repurchase
property that governed the relation of the parties therein. [24]
Applying the foregoing to the instant case, akin to National Commercial Bank of Saudi Arabia v. Court of Appeals , the Court finds
that the cause of action of petitioner DPRC is based on the violation of a contractual stipulation in the parties'
Contract of Lease, and not due to the existence of a quasi-contract.
106
As admitted by respondent MIAA in its Comment, the overpayment made by petitioner DPRC is rooted in Section 2.06 of
the Contract of Lease, which provided that petitioner DPRC's monthly rentals shall be subject to price escalation on the condition
that respondent MIAA will issue a valid Administrative Order calling for the price escalation and that petitioner DPRC will be given
prior notice of such price escalation.
Hence, by filing its Complaint, petitioner DPRC invoked the Contract of Lease and alleged that respondent MIAA violated the
aforementioned contractual stipulation, considering that the latter imposed a price escalation of monthly rentals despite reneging on
its contractual obligation to first issue a valid Administrative Order and give petitioner DPRC prior notice.
No less than the CA in the assailed Decision held that, pursuant to the agreement of the parties in their Contract of Lease, "an
Administrative Order must be issued by [respondent] MIAA and [petitioner] DPRC should be notified of the said increase in rental
and other charges thirty (30) days before their imposition." [25] The CA agreed with the RTC that there exists a valid cause of action
against respondent MIAA because "the requirements provided in x x x the lease contract itself were not satisfied in this case."[26]
In arguing in its Comment that petitioner DPRC's cause of action is not based on a contract, respondent MIAA asserts that
"[petitioner] DPRC's cause of action for refund is not based on contract (since there is no provision in the Contract that [petitioner]
DPRC can rely upon for refund) but on quasi-contract since [respondent MIAA] allegedly does not have the right to hold on the
excess amounts."[27]
Respondent MIAA's supposition that there is no provision in the Contract of Lease that petitioner DPRC can rely upon to ask for a
refund is completely mistaken. To reiterate, respondent MIAA readily admits that according to the Contract of Lease, petitioner
DPRC's monthly rentals shall be subject to price escalation only when respondent MIAA issues a valid Administrative Order calling
for price escalation and when petitioner DPRC is given prior notice. By still imposing a price escalation despite the non-observance
of both requirements, both the RTC and CA found that respondent MIAA violated the Contract of Lease.
Just because the Contract of Lease in itself may be silent as to petitioner DPRC's entitlement to a refund does not mean that such
claim for refund is not provided for in the contract and cannot be asserted by petitioner DPRC.
It must be stressed that applicable laws form part of, and are read into, contracts without need for any express reference thereto.
[28]
Specifically on lease contracts, Article 1659 [29] of the Civil Code, in relation to Article 1657, [30]states that the aggrieved party in
a contract of lease may ask for indemnification when the other party fails to comply with his/her obligations, one of
which is to ask from the lessee the price of the lease only according to the terms stipulated.
Hence, with these provisions of law read into the parties' Contract of Lease, respondent MIAA's argument that there is no provision
in the Contract of Lease that petitioner DPRC can rely on to claim for refund of overpayment of monthly rentals is erroneous.
In the instant case, there was no payment by mistake.
Furthermore, it cannot be said that petitioner DPRC's payments in monthly rentals from December 11, 1998 up to December 5,
2005 in observance with the subsequently nullified Resolution No. 98-30 were made due to mistake on the part of petitioner DPRC.
107
For the concept of solutio indebiti to apply, the undue payment must have been made by reason of either an essential mistake of
fact[31] or a mistake in the construction or application of a doubtful or difficult question of law. [32]Mistake entails an error,
misconception, or misunderstanding.[33]
In the instant case, petitioner DPRC made the overpayments in monthly rentals from December 11, 1998 to December 5, 2005 not
due to any mistake, error, or omission as to any factual matter surrounding the payment of rentals. Nor did petitioner DPRC make
the overpayments due to any mistaken construction or application of a doubtful question of law.
Instead, petitioner DPRC deliberately made the payments in accordance with respondent MIAA's Resolution No. 98-30, albeit under
protest. It must be recalled that after the issuance of Resolution No. 98-30, on December 8, 1998, petitioner DPRC protested in
writing to respondent MIAA, alleging that Resolution No. 98-30 was invalidly issued. However, petitioner DPRC also signified its
intention to comply in good faith with the terms and conditions of the lease contract by paying the amount charged in accordance
with Resolution No. 98-30 despite registering its objection to its validity.
Solutio indebiti applies when payment was made on the erroneous belief of facts or law that such payment is due. [34]In the case at
hand, petitioner DPRC's overpayment of rentals from 1998 to 2005 was not made by sheer inadvertence of the facts or the
misconstruction and misapplication of the law. Petitioner DPRC did not make payment because it mistakenly and inadvertently
believed that the increase in rentals instituted by the subsequently voided Resolution No. 98-30 was indeed due and demandable.
From the very beginning, petitioner DPRC was consistent in its belief that the increased rentals were not due as Resolution No. 98-
30 was, in its view, void.
However, petitioner DPRC still made payment despite its objection, not due to any mistaken belief, but for the sole reason that prior
to the Court's Decision in Manila International Airport Authority v. Airspan Corporation, et al ., Resolution No. 98-30 was still
presumed to be legal, having the force of law in the absence of any judicial declaration to the contrary . Hence, without any judicial
declaration on the nullity of Resolution No. 98-30 at that time, petitioner DPRC had no alternative but to make the subject
payments, though under protest. Therefore, it is not correct to say that the subject payments made by petitioner DPRC were made
by mistake or inadvertence.
Therefore, with the absence of the two essential requisites of solutio indebiti in the instant case, petitioner DPRC's cause of action is
not based on the quasi-contract of solutio indebiti.
Petitioner DPRC's claim against respondent MIAA for full

refund of the overpayment of rentals has not prescribed.
Considering that petitioner DPRC's cause of action is not based on a quasi-contract and is instead founded on the enforcement
of a contract, the CA erred in applying Article 1145(2) of the Civil Code in the instant case.
Instead of the prescriptive period of six years for quasi-contracts, it is Article 1144 [35] of the Civil Code that finds application in the
instant case. This Article provides that an action based on a written contract must be brought within 10 years from the time the
right of action accrues.
108
Aside from erroneously applying the six-year prescriptive period governing quasi-contracts, the CA likewise erred in stating that the
applicable prescriptive period is reckoned from the date of petitioner DPRC's first overpayment on December 11, 1998.
In Español v. Board of Administrators, Philippine Veterans Administration ,[36] as to when the right of action of a party who claims
payment from the government due to the nullification of an administrative policy or issuance accrues, the Court held that the
claimant has a cause of action for payment against the government only from the time that the Court declared
invalid the questioned administrative policy. This is so because it is at that point when the presumption of legality
of the questioned administrative policy had been rebutted and thus it can be said with certainty that the
government infringed on the right of the claimant:
The contention of appellant PVA that the action of appellee Maria U. Español to compel the restoration of her monthly pension and
that of her children, effective from the date of cancellation on November 1, 1951, has already prescribed, inasmuch as the same
was filed more than 10 years from the date of cancellation, is without merit.
xxxx
The right of action accrues when there exists a cause of action, which consists of 3 elements, namely: a) a right in favor of the
plaintiff by whatever means and under whatever law it arises or is created; b) an obligation on the part of defendant to respect
such right; and c) an act or omission on the part of such defendant violative of the right of the plaintiff (Cole vs. Vda. de Gregorio,
116 SCRA 670 [1982]; Mathay vs. Consolidated Bank & Trust Co., 58 SCRA 559 [1974]; Vda. de Enriquez vs. De la Cruz, 54 SCRA 1
[1973]). It is only when the last element occurs or takes place that it can be said in law that a cause of action has arisen (Cole vs.
Vda. de Gregorio, supra).
The appellee cannot be said to have a cause of action, in compelling appellant to continue paying her monthly pension on
November 1,1951, because appellant's act of cancellation, being pursuant to an administrative policy, cannot be considered a
violation of appellee's right to receive her monthly pension.
It is elementary rule in administrative law that administrative regulations and policies enacted by administrative bodies to interpret
the law which they are entrusted to enforce, have the force of law, are entitled to great respect (Sierra Madre Trust vs. Secretary of
Agriculture and Natural Resources, 121 SCRA 384 [1983]; Asturias Sugar Central Inc. vs. Commissioner of Customs, 29 SCRA 617
[1969]; Antique Sawmill Inc. vs. Zayco, et al., 17 SCRA 316 [1966]), and have in their favor a presumption of legality. Thus,
appellant's act of cancelling appellee's monthly pension being presumed legal and valid, cannot be taken as a violation of appellee's
right to receive her monthly pension under R.A. No. 65.
In the case of Del Mar vs. The Philippine Veterans Administration (51 SCRA 340 [1973]), this Court did not consider prescription in
favor of PVA, even though the action of Del Mar was filed on June 20, 1964 or more than 10 years from the cancellation of his
monthly pension in March, 1950; because the action of Del Mar was basically to declare the questioned administrative policy invalid,
which action does not prescribe.
It is only when this Court declared invalid the questioned administrative policy in the case of Del Mar vs. The Philippine Veterans
Administration, supra, promulgated on June 27, 1973, can the appellee be said to have a cause of action to compel appellant to
109
resume her monthly pension; because it is at that point in time, when the presumption of legality of the questioned administrative
policy had been rebutted and thus it can be said with certainty that appellant's act was in violation of appellee's right to receive her
monthly pension.[37]
Therefore, considering that the Court's Decision in Manila International Airport Authority v. Airspan Corporation, et al . invalidating
Resolution No. 98-30 was promulgated only on December 1, 2004, the right of action of petitioner DPRC for the refund of the
overpaid rentals accrued only on the said date. Hence, the filing of petitioner DPRC's Complaint for sum of money on
December 23, 2008 was well within the prescriptive period.
Therefore, regardless of whether the prescriptive period to be applied in the instant case is the one pertaining to actions arising
from quasi-contracts, i.e., six years, or from contracts, i.e., 10 years, considering that the prescriptive period started to run only on
December 1, 2004, petitioner DPRC's claim for a complete refund of all the overpaid rentals has not prescribed.
More so, it is likewise undisputed that on July 27, 2006, petitioner DPRC sent respondent MIAA a written demandfor the refund
of P9,593,179.87, which covers the overpayment of monthly rentals made by petitioner DPRC since December 11, 1998.
According to Article 1155 of the Civil Code, the prescription of actions is interrupted when a written extrajudicial demand
is made. And so, when written extrajudicial demand for refund of overpayments was made by petitioner DPRC on July 27, 2006,
not only was the prescriptive period to file an action suspended; jurisprudence holds that "[t]he interruption of the prescriptive
period by written extrajudicial demand means that the said period would commence anew from the receipt of the demand[,] x x
x written extrajudicial demand wipes out the period that has already elapsed and starts anew the prescriptive
period."
Hence, after petitioner DPRC made its written extrajudicial demand on July 27, 2006, it actually had until July 27, 2016 to file an
action for the full recovery of the overpayment of monthly rentals. Accordingly, at the time of the institution of the Complaint for
Collection of Sums of Money by petitioner DPRC on December 23, 2008, no claim for refund of overpaid monthly rentals had
prescribed.
For the aforementioned reasons, the Court holds that the CA erred in issuing the assailed Decision and Resolution insofar as it
modified the amount of respondent MIAA's liability. The Court finds that petitioner DPRC is entitled to the full amount of
P9,593,179.87 plus legal interest at 12% per annum computed from the time of extrajudicial demand on July 27, 2006.
1162 – QUASI-DELICTS
Dela Cruz v. Octaviano

July 26, 2017
FACTS
Around 9:00 p.m. on April 1, 1999, respondent Captain Renato Octaviano, a military dentist assigned at the Office of the Chief
Dental Service, Armed Forces of the Philippines, Camp Aguinaldo, Quezon City, respondent Wilma Octaviano, Renato's mother and
Janet Octaviano, Renato's sister, rode a tricycle driven by Eduardo Y. Padilla. Respondent Wilma and Janet were inside the sidecar
of the vehicle, while Renato rode at the back of the tricycle driver. They then proceeded to Naga Road towards the direction of CAA
and BF Homes. Renato was asking his mother for a change to complete his P10.00 bill when he looked at the road and saw a light
from an oncoming car which was going too fast. The car, driven by petitioner, hit the back portion of the tricycle where Renato was
riding. The force of the impact caused the tricycle to turn around and land on the pavement near the gutter. Thus, Renato was
110
thrown from the tricycle and landed on the gutter about two meters away. Renato felt severe pain in his lower extremities and went
momentarily unconscious and when he regained consciousness, he heard his sister shouting for help. A man came followed by
other people. The first man who answered Janet's call for help shouted to another man at a distance saying: " Ikaw, dalhin mo yung
sasakyan mo dito. Ikaw ang nakabangga sa kanila. Dalhin mo sila sa ospital ." They pulled Renato out of the gutter and carried him
to the car. Petitioner brought them to his house and alighted thereat for two to three minutes and then he brought the passengers
to a clinic. Renato insisted on being brought to a hospital because he realized the severity of his injuries. Thus, Renato, his mother,
and Janet were brought to Perpetual Help Medical Center where Renato's leg was amputated from below the knee on that same
night. After his treatment at Perpetual Help Medical Center, Renato was brought to the AFP Medical Center at V. Luna General
Hospital and stayed there for nine months for rehabilitation. Shortly before his discharge at V. Luna, he suffered bone infection. He
was brought to Fort Bonifacio Hospital where he was operated on thrice for bone infection. Thereafter, he was treated at the same
hospital for six months. In the year 2000, he had a prosthesics attached to his leg at V. Luna at his own expense. Renato spent a
total of P623,268.00 for his medical bills and prosthetics.
Petitioner insists that he was not negligent and that the driver of the tricycle was the one at fault. He also argues that the
investigation report relied upon by the CA should not have been used in determining what actually transpired because the traffic
investigator was not presented as a witness and petitioner was not able to confront or cross-examine him regarding the report.
Petitioner further denies that he was drunk when the incident happened and that the CA erred in appreciating the mere opinions of
the witnesses that he appeared drunk at that time.
ISSUE
RULING
The concept of negligence has been thoroughly discussed by this Court in Romulo Abrogar, et al. v. Cosmos Bottling Company, et
al., thus:
Negligence is 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 other person suffers injury . Under Article 1173 of the Civil Code, it
consists of the "omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances
of the person, of the time and of the place.”The Civil Code makes liability for negligence clear under Article 2176, and Article 20.
To determine the existence of negligence, the following time-honored test has been set in Picart v. Smith:
The test by which to determine the existence of negligence in a particular case may be stated as follows: Did the 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, then he is guilty of negligence. The law here in effect adopts the standard supposed to be supplied by the
imaginary conduct of the discreet paterfamilias of the Roman law. The existence of negligence in a given case is not determined by
reference to the personal judgment of the actor in the situation before him. The law considers what would be reckless,
blameworthy, or negligent in the man of ordinary intelligence and prudence and determines liability by that.
The question as to what would constitute the conduct of a prudent man in a given situation must of course be always determined in
the light of human experience and in view of the facts involved in the particular case. Abstract speculation cannot here be of much
value but this much can be profitably said: Reasonable men govern their conduct by the circumstances which are before them or
known to them. They are not, and are not supposed to be, omniscient of the future. Hence, they can be expected to take care only
when there is something before them to suggest or warn of danger. Could a prudent man, in the case under consideration, foresee
harm as a result of the course actually pursued? If so, it was the duty of the actor to take precautions to guard against that harm.
Reasonable foresight of harm, followed by the ignoring of the suggestion born of this prevision, is always necessary before
negligence can be held to exist. Stated in these terms, the proper criterion for determining the existence of negligence in a given
111
case is this: Conduct is said to be negligent when a prudent man in the position of the tortfeasor would have foreseen that an effect
harmful to another was sufficiently probable to warrant his foregoing the conduct or guarding against its consequences.
In order for liability from negligence to arise, there must be not only proof of damage and negligence, but also proof that the
damage was the consequence of the negligence. The Court has said in Vda. de Gregorio v. Go Chong Bing:
x x x Negligence as a source of obligation both under the civil law and in American cases was carefully considered and it was held:
We agree with counsel for appellant that under the Civil Code, as under the generally accepted doctrine in the United States, the
plaintiff in an action such as that under consideration, in order to establish his right to a recovery, must establish by competent
evidence:
(1) Damages to the plaintiff.
(2) Negligence by act or omission of which defendant personally or some person for whose acts it must respond,
was guilty.
(3) The connection of cause and effect between the negligence and the damage."
In this case, the RTC found no reason to conclude that petitioner was negligent. The CA, however, found the contrary. This Court
must then ascertain whose evidence was preponderant, for Section 1, [15] Rule 133 of the Rules of Court mandates that in civil cases,
like this one, the party having the burden of proof must establish his case by a preponderance of evidence. Burden of proof is the
duty of a party to present evidence on the facts in issue necessary to establish his claim or defense by the amount of evidence
required by law.[16] It is basic that whoever alleges a fact has the burden of proving it because a mere allegation is not evidence.
[17]
Generally, the party who denies has no burden to prove. [18] In civil cases, the burden of proof is on the party who would be
defeated if no evidence is given on either side. [19] The burden of proof is on the plaintiff if the defendant denies the factual
allegations of the complaint in the manner required by the Rules of Court, but it may rest on the defendant if he admits expressly or
impliedly the essential allegations but raises affirmative defense or defenses, which if proved, will exculpate him from liability.
By preponderance of evidence, according to Raymundo v. Lunaria:
x x x is meant that the evidence as a whole adduced by one side is superior to that of the other. It refers to the weight, credit and
value of the aggregate evidence on either side and is usually considered to be synonymous with the term "greater weight of
evidence" or "greater weight of the credible evidence." It is evidence which is more convincing to the court as worthy of belief than
that which is offered in opposition thereto.
In addition, according to United Airlines, Inc. v. Court of Appeals , the plaintiff must rely on the strength of his own evidence and not
upon the weakness of the defendant's.
After reviewing the records of the case, this Court affirms the findings of the CA. In ruling that petitioner was negligent, the CA
correctly appreciated the pieces of evidence presented by the respondents, thus:
First, with regard to the damage or injury, there is no question that the plaintiffs suffered damage due to the incident on April
1, 1999. Plaintiff Renato Octaviano's right leg was crushed by the impact of the Honda Civic driven by defendant Dela Cruz against
the tricycle where the Octavianos were riding and as a result thereof, Renato's right leg was amputated . Plaintiff Wilma Octaviano
suffered traumatic injuries/hematoma on different parts of her body as borne by the evidence submitted to the trial court. The
damages or injuries were duly proved by preponderant evidence.
Second, with regard to the wrongful act or omission imputable to the negligence of defendant Al Dela Cruz, We hold
that the trial court missed the glaring fact that defendant Dela Cruz was guilty of negligence.
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The police report prepared by the traffic investigator SPO2 Vicente Soriano detailed what happened on the night of April 1, 1999, to
wit:
On the Spot Investigation conducted by the undersigned, showed that Vehicle 2 while moving ahead and upon arriving in front of
said motor shop, Vehicle 2 avoided hitting another tricycle which vehicle (Tricycle) was standing while waiting for a would-be
passenger. Said Veh-2 driver swerved the car to the left and it was at this instance when said Veh-1 was sideswiped by said Veh-2.
Weather Condition: Fair

Road condition: Concrete and Dry
Driver's Condition: Veh-1, Normal; Veh-2 Positive for Alcoholic Breath (AB)"
For a clearer understanding of the said police report, Vehicle-1 referred to by Soriano is the tricycle where plaintiffs were riding, and
Vehicle-2 is the Honda Civic driven by Dela Cruz.
Was the statement in the police report that Al Dela Cruz was positive for alcoholic breath substantiated/corroborated?
Yes. Two witnesses testified that Dela Cruz appeared to be drunk on that fateful night. Joey Lacuesta and Antonio Fernandez were
there on the spot when the incident happened. They were the first ones to assist the victim Renato Octaviano who was slumped
unconscious in the gutter. Lacuesta was the one who boarded the injured Renato into the front seat of the car and he noticed that
the driver was drunk:
More importantly, the law prohibits drunk driving. Republic Act No. 4136, Chapter IV, Article V, Section 53 known as Land
Transportation and Traffic Code provides that no person shall drive a motor vehicle while under the influence of liquor or narcotic
drug. It is established by plaintiffs evidence that defendant Dela Cruz drove the Honda Civic while under the influence of alcohol
thus proving his negligence.
With regard to the third requisite, that there be a direct relation of cause and effect between the damage or injury and the fault
or negligence is clearly present in the case at bar. Had defendant Dela Cruz exercised caution, his Honda Civic would not have
collided with the tricycle and plaintiffs leg would not be crushed necessitating its amputation. The cause of the injury or damage to
the plaintiffs leg is the negligent act of defendant Dela Cruz.
The last requisite is that there be no pre-existing contractual relation between the parties. It is undeniable that defendant and
plaintiffs had no prior contractual relation, that they were strangers to each other before the incident happened. Thus, the four
requisites that must concur under Article 2176 are clearly established in the present case. Plaintiffs are entitled to claim damages. [23]
Petitioner argues that the CA erred in relying on the police report without petitioner having the chance to cross-examine the police
officer who prepared the same. Be that as it may, the contents of the said police report are corroborated by the testimonies of the
other witnesses presented before the court. The said contents of the police report are more believable than the version of petitioner
of what transpired. As correctly observed by the CA:
Dela Cruz narrated in his testimony that he saw a parked Elf van on the opposite road and the tricycle also on the opposite road
going to the opposite direction. He claims that he flashed his low beam and high beam to warn the tricycle, the tricycle stopped
momentarily and then picked up speed " umarangkada" and that was why the two vehicles collided. However, he admitted that the
point of impact of the two vehicles was " lagpas lang konti" from the front of the parked Elf. He could not stop. He did not know
what to do. He slowed down. He did not stop but continued driving. If it were true that as far as about 100-120 meters away he
already saw the parked Elf van and the tricycle, he could have slowed down or stopped to give way to the tricycle to avoid collision.
In fact, if the collision point was right ahead of the front of the parked Elf van, it means that the tricycle was already past the
parked Elf and it was Dela Cruz who forced his way into the two-way road. More evident is that the tricycle was hit at the back
113
portion meaning it was already turning after passing the parked Elf. Had Dela Cruz slowed down or stopped a short while to let the
tricycle pass clear of the van, then the incident would not have happened. The reasonable foresight required of a cautious driver
was not exercised by defendant Dela Cruz.[24]
As to the denial of petitioner that he was drunk at the time of the accident, whether or not he was in a state of inebriation is
inconsequential given the above findings. His being sober does not and will not erase the fact that he was still negligent
and that the proximate cause of the collision was due to his said negligence. Proximate cause is "that which, in natural
and continuous sequence, unbroken by any new cause, produces an event, and without which the event would not have
occurred."[25] As such, petitioner is wrong when he claims that the proximate cause of the accident was the fault of the tricycle
driver.
Neither is it correct to impute contributory negligence on the part of the tricycle driver and respondent Renato when the latter
had violated a municipal ordinance that limits the number of passengers for each tricycle for hire to three persons including the
driver. 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. [26] To hold a person as having
contributed to his injuries, it must be shown that he performed an act that brought about his injuries in disregard of warning or
signs of an impending danger to health and body. [27] To prove contributory negligence, it is still necessary to establish a causal
link, although not proximate, between the negligence of the party and the succeeding injury . In a legal sense,
negligence is contributory only when it contributes proximately to the injury, and not simply a condition for its occurrence. [28] In this
case, the causal link between the alleged negligence of the tricycle driver and respondent Renato was not established. This court
has appreciated that negligence per se, arising from the mere violation of a traffic statute, need not be sufficient in itself in
establishing liability for damages.[29] Also, noteworthy is the ruling of the CA as to the matter, thus:
The trial court absolved defendants of liability because of the failure of the plaintiffs to present the tricycle driver and thus
concluding that plaintiffs suppressed evidence adverse to them. This is error on the part of the trial court. The non-presentation of
the tricycle driver as a witness does not affect the claim of the plaintiffs-appellants against herein defendants-appellees. Even
granting that the tricycle driver was presented in court and was proved negligent, his negligence cannot cancel out the negligence
of defendant Dela Cruz, because their liabilities arose from different sources. The obligation or liability of the tricycle driver
arose out of the contract of carriage between him and petitioners whereas defendant Dela Cruz is liable under
Article 2176 of the Civil Code or under quasi-delicts. There is ample evidence to show that defendant Dela Cruz was
negligent within the purview of Article 2176 of the Civil Code, hence, he cannot escape liability.
This Court further agrees with the CA that the respondents are entitled to the award of moral and exemplary damages. Moral
damages, x x x, may be awarded to compensate one for manifold injuries such as physical suffering, mental anguish, serious
anxiety, besmirched reputation, wounded feelings and social humiliation. These damages must be understood to be in the concept
of grants, not punitive or corrective in nature, calculated to compensate the claimant for the injury suffered. Although incapable of
exactness and no proof of pecuniary loss is necessary in order that moral damages may be awarded, the amount of indemnity
being left to the discretion of the court, it is imperative, nevertheless, that (1) injury must have been suffered by the claimant, and
(2) such injury must have sprung from any of the cases expressed in Article 2219 [31] and Article 2220[32] of the Civil Code, x x
x[33] Also known as "punitive" or "vindictive" damages, exemplary or corrective damages are intended to serve as a deterrent to
serious wrongdoings, and as a vindication of undue sufferings and wanton invasion of the rights of an injured or a punishment for
those guilty of outrageous conduct. These terms are generally, but not always, used interchangeably. In common law, there is
preference in the use of exemplary damages when the award is to account for injury to feelings and for the sense of indignity and
humiliation suffered by a person as a result of an injury that has been maliciously and wantonly inflicted, [34] the theory being that
there should be compensation for the hurt caused by the highly reprehensible conduct of the defendant - associated with such
circumstances as willfulness, wantonness, malice, gross negligence or recklessness, oppression, insult or fraud or gross fraud [35] -
that intensifies the injury. The terms punitive or vindictive damages are often used to refer to those species of damages that may
114
be awarded against a person to punish him for his outrageous conduct. In either case, these damages are intended in good
measure to deter the wrongdoer and others like him from similar conduct in the future. [36]
In awarding the above, the CA correctly ruled that:
It is extant in the records that defendants did not overturn or disprove the plaintiffs' claim for actual damages such as the hospital
bills/expenses which were duly supported by documentary evidence (receipts). It was also duly proven that defendant Al Dela Cruz
acted with gross disregard for the suffering of his victims when he refused to board them in his car and only did so when forced by
the by-standers who assisted the victims, when he drove to his house first before driving to a clinic then to [the] hospital when it
was obvious that Renato Octaviano's wound was severe and needed immediate professional attention. These insensitivity of
defendant caused suffering to the plaintiffs that must be compensated. [37]
Visayan Electric Co., Inc. v. Alfeche

[November 29, 2017]
FACTS
On the night of January 6, 1998, a fire broke out at 11th Street, South Poblacion, San Fernando, Cebu , which burned down the
house and store of respondent Emilio and his son, respondent Gilbert (the Alfeches), [6] and the adjacent watch repair shop owned
by respondent Manugas.[7] It was alleged that the cause of the fire was the constant abrasion of VECO's electric wire with M.
Lhuillier's signboard.[8]
The next day, the Alfeches and Manugas reported the incident to the police [9] and to the Sangguniang Bayan of San Fernando.
[10]
Upon Emilio, Gilbert, and Manugas' request for site inspection, the Sangguniang Bayan of San Fernando eventually passed
Resolution No. 12 requesting VECO to inspect the area and to repair faulty wires. The Alfeches and Manugas sent a letter to the
management of VECO asking for financial assistance, which VECO denied. VECO asserted that the fire was due, not to its fault, but
to that of M. Lhuillier.[11]
As their initial claim for financial assistance was not satisfied, the Alfeches and Manugas filed a Complaint for Damages against
VECO and M. Lhuillier before the Regional Trial Court of Cebu City.[12]
During pre-trial, M. Lhuillier admitted that it was the owner of the signboard at its branch in San Fernando, Cebu. M. Lhuillier and
VECO admitted that a fire destroyed the Alfeches' and Manugas' properties on January 6, 1998. [13]
The Alfeches and Manugas presented testimonial, documentary, and object evidence. They presented as witnesses Emilio,
Manugas, Mignonette Alfeche (Mignonette), and Rodolfo Rabor (Rabor). [14]
Emilio testified that between 9:00 p.m. and 10:00 p.m. of January 6, 1998, he was awakened as their house was burning. [15] He
went out and saw a cut wire swinging and burning at the top of his roof, about three (3) to four (4) meters away. [16] He explained
that his house was also used by his son, Gilbert, as a store for various merchandise such as food, beverages, and feeds. His house
adjoined an M. Lhuillier pawnshop, which had a big signboard. [17]Emilio presented a module simulating how the fire broke out in
relation to the location of the electric posts and his house. [18] He alleged that VECO posts were transferred to their current location
because of a roadwidening project. This transfer caused the sagging wire of VECO to constantly touch M. Lhuillier's signboard,
which, in turn, led to the breaking and burning of the wire. [19] The burning cut wire went swinging on top of and landed on Emilio's
roof; thus, it caused the fire that burned his house. [20]
Mignonette, the wife of Gilbert, corroborated Emilio's testimony that the fire came from the burning end of the electric wire near M.
Lhuillier's signage. She presented pictures showing the location of their store and an electric post near M. Lhuillier's signage. [21]
Rabor testified that while in the highway on his way home, he noticed a spark in the electric line near M. Lhuillier's signboard. He
ran towards Emilio's house to warn the Alfeches, but before getting there, the wire had dropped on the roof and caused a fire. [22]
115
Manugas attested that he owned the shop composed of "a small booth with a roof and glass window" [23] beside Emilio's house. This
shop was burned along with his tools, watches, and other equipment. He identified the police blotter stating the extent of the
damage.[24]
VECO countered with testimonies of the following persons, in addition to other documentary and object evidence: Engr. Benedicto
Banaag (Engr. Banaag), Engr. Simeon Lauronal (Engr. Lauronal), Candelario L. Melencion (Melencion), Engr. Felipe Constantino
(Engr. Constantino), Engr. Edwin Chavez (Engr. Chavez), and Engr. Miguel Ornopia (Engr. Ornopia).
Engr. Banaag, an electrical engineer and a lawyer who had been working with VECO for 35 years, [25] testified that VECO sent two
(2) superintendents and a general foreman to inspect the site. [26] The inspectors found that the cause of the incident was the
constant rubbing of the wires of VECO with M. Lhuillier's signage. [27] He also stated that M. Lhuillier's signage "was placed long after
VECO installed their poles,"[28] the relocation of which was made after the fire broke out. [29] He claimed that their wirings and
installations are in full compliance with the National Building Code and the Philippine Electrical Code, which allowed them to install
their poles one half (1/2) meter inside the road-right-of-way and at least three (3) meters away from any structure. [30] According to
him, it was M. Lhuillier which violated the National Building Code by placing their signage near their pole, thereby causing the
abrasion and the fire.[31]
The Municipal Engineer of San Fernando, Cebu, Engr. Lauronal, averred that there was a road-widening project, which started in
September 1997, and an accompanying construction of the drainage system, which commenced on October 6, 1997, in the
Alfeches' and Manugas' area. [32] Their team asked the mayor to seek the relocation of VECO's posts as these would be affected by
the drainage construction. VECO relocated its posts and consequently, its wires moved closer to the signage of M. Lhuillier with a
distance of only eight (8) inches between them. He also mentioned that the old location of VECO posts left a hole in the middle of
the drainage
ISSUE
Whether VECO or M. Lhuillier was negligent to have engendered the confluence of proximity, abrasion, and short circuiting.
RULING
Despite the Regional Trial Court's and the Court of Appeals' divergence on the liabilities of VECO and M. Lhuillier, they are
consistent in finding that the immediate cause of the fire was the short circuiting of VECO's wires. This short circuiting, in
turn, happened because VECO's wires had been abraded or stripped of their insulation by their constant rubbing with M. Lhuillier's
signage. The Regional Trial Court and the Court of Appeals are consistent in this regard.
The Regional Trial Court's statement that "there could have been no short circuit which caused the fire" had M. Lhuillier installed its
signage in a way that it would not touch VECO's secondary lines accepts as truth how the confluence of proximity, abrasion, and
short circuiting led to the fire. For its part, the Court of Appeals stated:
The constant abrasion led to the failure of the insulation thereby causing a short circuit which eventually led to the breaking and the
burning of the wire. The burned and cut wire which fell on the roof of plaintiff-appellees' house was proven to be the main cause of
the fire. These flow[s] of events reveal that the negligent act of defendant-appellee VECO in transferring its pole without providing
the necessary precautionary and safety measure was the natural and probable result of the fire which caused damage to plaintiffs-
appellees.
This Court's inquiry proceeds from settled truth as to the immediate, factual cause of the fire. What is in dispute is whether VECO
or M. Lhuillier was negligent to have engendered the confluence of proximity, abrasion, and short circuiting.

VECO attempts to altogether skirt any imputation of negligence by painting a scenario of impossibility. It claims that its wires could
not have caused the fire by touching M. Lhuillier's signage as its posts were not transferred until after the fire occurred.
VECO's position is negated not only by the entire corpus of evidence but, more basically, by common sense.
116
To reiterate, the Regional Trial Court and the Court of Appeals are consistent in holding that proximity, abrasion, and short
circuiting led to the fire. Common sense dictates that the wires and signage could never have rubbed against each
other, or the wires abraded and short circuited, had they not been in close proximity. Common sense also shows that
they could not have been in close proximity had not either the wires or the signage moved closer to the other. The testimonies of
Solon and Camuta were definite that when M. Lhuillier's signage was installed in 1995, it was free from any obstacle. No allegation
was made, let alone proof presented, that the signage had been relocated in the interim. In contrast, a plethora of evidence
attests to the relocation of VECO's posts and wires. Heeding VECO's position demands not only this Court's disregard of the
preponderant evidence against VECO but also this Court's acceptance of the absurdity and the impossibility that VECO's posts and
wires must have moved closer to M. Lhuillier's signage by some unseen, even supernatural, force.
Thus, the Court of Appeals was correct in ruling that VECO's negligence was the proximate cause of the injury suffered by
respondents Emilio, Gilbert, and Manugas. All the elements for liability for a quasi delict under Article 2176 of the Civil Code
have been shown to be attendant on VECO's part. The elements of a quasi-delict are:
(1) the damages suffered by the plaintiff;
(2) the fault or negligence of the defendant or some other person for whose act he must respond; and
(3) the connection of cause and effect between the fault or negligence and the damages incurred.
On the first element, it is undisputed that the Alfeches and Manugas suffered damage because of the fire. What has hitherto
remained unresolved is which between VECO and M. Lhuillier is liable to indemnify them.
Fault is "a voluntary act or omission which causes damage to the right of another giving rise to an obligation on the part of
[another]." On the other hand, "[n]egligence is the failure to observe for the protection of the interest of another person that
degree of care, precaution and vigilance which the circumstances justly demand."
Second element
Between VECO and M. Lhuillier, it is VECO which this Court finds to have been negligent.
M. Lhuillier was not negligent in installing its signage. It installed its signage in 1995 well before the road-widening and drainage
projects commenced and ahead of VECO's relocation of its posts. Solon and Camuta both emphasized that the signage was installed
free of any obstacle. Other than VECO's evasive accusations, there is no proof to the contrary.
It was VECO that was negligent. It is apparent that it transferred its posts and wires without regard for the hazards that the
transfer entailed, particularly with respect to the installations which had previously been distant from the wires and posts but which
had since come into close proximity.
VECO is a public utility tasked with distributing electricity to consumers. It is its duty to ensure that its posts are properly and safely
installed. As the holder of a public franchise, it is to be presumed that it has the necessary resources and expertise to enable a safe
and effective installation of its facilities. By installing its posts and wires haphazardly, without regard to how its wires could come in
contact with a previously installed signage, VECO failed to act in keeping with the diligence required of it.
Third element
Proximate cause is defined as "that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause,
produces the injury and without which the result would not have occurred."
VECO's negligence was the proximate cause of the damage suffered by the Alfeches and Manugas. It is settled that the
confluence of proximity, abrasion, and short-circuiting led to the fire. The first of these-proximity arose because of VECO's
relocation of posts and wires. Installed in such a manner that its wires constantly touched M. Lhuillier's signage, this "led to the
failure of the insulation thereby causing a short circuit which eventually led to the breaking and burning of the wire." It was this
117
burning wire that fell on the Alfeches' residence's roof and burned down their house and store, as well as Manugas' adjacent shop.
VECO would have this Court sustain a flimsy excuse for evading liability. Attempting to break the all too apparent causal connection
between its negligence and the injury suffered by the plaintiffs, it would insist on absurdities that strain common sense and vainly
attempt to discredit even its own witness. This Court finds no merit in VECO's pretenses and sustains the Court of Appeals decision.
Imperial v. Heirs of Spouses Bayaban

[October 3, 2018]
FACTS
ISSUE
RULING
VDM Trading Inc. and Sps. Domingo v. Carungcong

February 06, 2019
FACTS
ISSUE
RULING
Heirs of Mendoza v. ES Trucking and Forwarders

[February 17, 2020]
FACTS
ISSUE
RULING
DISTINGUISH THE TYPES OF CULPA:
Cancio, Jr. v. Isip

[November 12, 2002]
Facts
Petitioner, assisted by a private prosecutor, filed three cases of Violation of B.P. No. 22 and three cases of Estafa, against
respondent for allegedly issuing the following checks without sufficient funds, to wit: 1) Interbank Check No. 25001151 in the
amount of P80,000.00; 2) Interbank Check No. 25001152 in the amount of P 80,000.00; and 3) Interbank Check No. 25001157 in
the amount of P30,000.00.[4]
The Office of the Provincial Prosecutor dismissed Criminal Case No. 13356, for Violation of B.P. No. 22 covering check no. 25001151
on the ground that the check was deposited with the drawee bank after 90 days from the date of the check. The two other cases
for Violation of B.P. No. 22 (Criminal Case No. 13359 and 13360) were filed with and subsequently dismissed by the Municipal Trial
Court of Guagua, Pampanga, Branch 1, on the ground of \"failure to prosecute.\"[5]
Meanwhile, the three cases for Estafa were filed with the Regional Trial Court of Pampanga, Branch 49, and docketed as Criminal
118
Case Nos. G-3611 to G-3613. On October 21, 1997, after failing to present its second witness, the prosecution moved to dismiss the
estafa cases against respondent. The prosecution likewise reserved its right to file a separate civil action arising from the said
criminal cases. On the same date, the trial court granted the motions of the prosecution. Thus-
Upon motion of the prosecution for the dismissal of these cases without prejudice to the refiling of the civil aspect thereof and there
being no comment from the defense, let these cases be dismissed without prejudice to the refiling of the civil aspect of the cases .
SO ORDER[ED].[6]
On December 15, 1997, petitioner filed the instant case for collection of sum of money, seeking to recover the amount of the
checks subject of the estafa cases. On February 18, 1998, respondent filed a motion to dismiss the complaint contending that
petitioner's action is barred by the doctrine of res judicata. Respondent further prayed that petitioner should be held in contempt of
court for forum-shopping.[7]
On March 20, 1998, the trial court found in favor of respondent and dismissed the complaint. The court held that the dismissal of
the criminal cases against respondent on the ground of lack of interest or failure to prosecute is an adjudication on the merits which
amounted to res judicata on the civil case for collection. It further held that the filing of said civil case amounted to forum-shopping.
On June 1, 1998, the trial court denied petitioner's motion for reconsideration. Hence, the instant petition.
Issue
whether the dismissal of the estafa cases against respondent bars the institution of a civil action for collection of the value of the
checks subject of the estafa cases.
Ruling
An act or omission causing damage to another may give rise to two separate civil liabilities on the part of the offender, i.e.,
(1) civil liability ex delicto, under Article 100 of the Revised Penal Code;[9] and
(2) independent civil liabilities, such as those
(a) not arising from an act or omission complained of as felony [e.g. culpa contractual or obligations arising from law
under Article 31[10] of the Civil Code,[11] intentional torts under Articles 32[12] and 34,[13] and culpa aquiliana under Article
2176[14] of the Civil Code]; or
(b) where the injured party is granted a right to file an action independent and distinct from the criminal action
[Article 33,[15] Civil Code].[16]
Either of these two possible liabilities may be enforced against the offender subject, however, to the caveat under Article 2177 of
the Civil Code that the offended party \"cannot recover damages twice for the same act or omission\" or under both causes.[17]
The modes of enforcement of the foregoing civil liabilities are provided for in the Revised Rules of Criminal Procedure. Though the
assailed order of the trial court was issued on March 20, 1998, the said Rules, which took effect on December 1, 2000, must be
given retroactive effect in the instant case considering that statutes regulating the procedure of the court are construed as
applicable to actions pending and undetermined at the time of their passage.[18]
Section 1, Rule 111, of the Revised Rules of Criminal Procedure provides:
SECTION 1. Institution of criminal and civil actions. - (a) When a criminal action is instituted, the civil action for the recovery of civil
liability arising from the offense charged shall be deemed instituted with the criminal action unless the offended party waives the
civil action, reserves the right to institute it separately or institutes the civil action prior to the criminal action.
The reservation of the right to institute separately the civil action shall be made before the prosecution starts presenting its
evidence and under circumstances affording the offended party a reasonable opportunity to make such reservation.
119
x x x x x x x x x
Where the civil action has been filed separately and trial thereof has not yet commenced, it may be consolidated with the criminal
action upon application with the court trying the latter case. If the application is granted, the trial of both actions shall proceed in
accordance with section 2 of this Rule governing consolidation of the civil and criminal actions.
Under the 1985 Rules on Criminal Procedure, as amended in 1988 and under the present Rules, the civil liability ex-delicto is
deemed instituted with the criminal action, but the offended party is given the option to file a separate civil action before the
prosecution starts to present evidence.[19]
Anent the independent civil actions under Articles 31, 32, 33, 34 and 2176 of the Civil Code, the old rules considered them impliedly
instituted with the civil liability ex-delicto in the criminal action, unless the offended party waives the civil action, reserves his right
to institute it separately, or institutes the civil action prior to the criminal action. Under the present Rules, however, the independent
civil actions may be filed separately and prosecuted independently even without any reservation in the criminal action. The failure to
make a reservation in the criminal action is not a waiver of the right to file a separate and independent civil action based on these
articles of the Civil Code.[20]
In the case at bar, a reading of the complaint filed by petitioner show that his cause of action is based on culpa contractual, an
independent civil action. Pertinent portion of the complaint reads:
x x x x x x x x x
2. That plaintiff is the owner/proprietor to CANCIO'S MONEY EXCHANGE with office address at Guagua, Pampanga;
3. That on several occasions, particularly on February 27, 1993 to April 17 1993, inclusive, defendant drew, issued and made in
favor of the plaintiff the following checks:
CHECK NO. DATE AMOUNT
1. Interbank Check No. 25001151 March 10, 1993 P80,000.00
2. Interbank Check No. 25001152 March 27, 1993 P80,000.00
3. Interbank Check No. 25001157 May 17, 1993 P30,000.00

in exchange of cash with the assurance that the said checks will be honored for payment on their maturity dates, copy of the
aforementioned checks are hereto attached and marked.
4. That when the said checks were presented to the drawee bank for encashment, the same were all dishonored for reason of
DRAWN AGAINST INSUFFICIENT FUNDS (DAIF);
5. That several demands were made upon the defendant to make good the checks but she failed and refused and still fails and
refuses without justifiable reason to pay plaintiff;
6. That for failure of the defendant without any justifiable reason to pay plaintiff the value of the checks, the latter was forced to
hire the services of undersigned counsel and agreed to pay the amount of P30,000.00 as attorney's fees and P1,000.00 per
appearance in court;
7. That for failure of the defendant without any justifiable reason to pay plaintiff and forcing the plaintiff to litigate, the latter will
incur litigation expenses in the amount of P20,000.00.
IN VIEW OF THE FOREGOING, it is prayed of this Court that after due notice and hearing a judgment be rendered ordering
defendant to pay plaintiff as follows:
a. the principal sum of P190,000.00 plus the legal interest;
b. attorney's fees of P30,000.00 plus P1,000.00 per court appearance;
120
c. litigation expenses in the amount of P20,000.00
PLAINTIFF prays for other reliefs just and equitable under the premises.
x x x x x x x x x.[21]
Evidently, petitioner sought to enforce respondent's obligation to make good the value of the checks in exchange for the cash he
delivered to respondent. In other words, petitioner's cause of action is the respondent's breach of the contractual obligation. It
matters not that petitioner claims his cause of action to be one based on delict.[22] The nature of a cause of action is determined
by the facts alleged in the complaint as constituting the cause of action. The purpose of an action or suit and the law to
govern it is to be determined not by the claim of the party filing the action, made in his argument or brief, but rather by the
complaint itself, its allegations and prayer for relief.[23]
Neither does it matter that the civil action reserved in the October 21, 1997 order of the trial court was the civil action ex delicto.
To reiterate, an independent civil action arising from contracts, as in the instant case, may be filed separately and
prosecuted independently even without any reservation in the criminal action. Under Article 31 of the Civil Code
\"[w]hen the civil action is based on an obligation not arising from the act or omission complained of as a felony , [e.g. culpa
contractual] such civil action may proceed independently of the criminal proceedings and regardless of the result of the latter.\"
Thus, in Vitola, et al. v. Insular Bank of Asia and America,[24] the Court, applying Article 31 of the Civil Code, held that a civil case
seeking to recover the value of the goods subject of a Letter of Credit-Trust Receipt is a civil action ex contractu and not ex delicto.
As such, it is distinct and independent from the estafa case filed against the offender and may proceed regardless of the result of
the criminal proceedings.
One of the elements of res judicata is identity of causes of action.[25] In the instant case, it must be stressed that the action
filed by petitioner is an independent civil action, which remains separate and distinct from any criminal prosecution based on the
same act.[26] Not being deemed instituted in the criminal action based on culpa criminal, a ruling on the culpability of the offender
will have no bearing on said independent civil action based on an entirely different cause of action, i.e., culpa contractual.
In the same vein, the filing of the collection case after the dismissal of the estafa cases against respondent did not
amount to forum-shopping. The essence of forum-shopping is the filing of multiple suits involving the same parties for the same
cause of action, either simultaneously or successively, to secure a favorable judgment. Although the cases filed by petitioner arose
from the same act or omission of respondent, they are, however, based on different causes of action. The criminal cases for estafa
are based on culpa criminal while the civil action for collection is anchored on culpa contractual. Moreover, there can be no
forum-shopping in the instant case because the law expressly allows the filing of a separate civil action which can proceed
independently of the criminal action.[27]
Clearly, therefore, the trial court erred in dismissing petitioner's complaint for collection of the value of the checks issued by
respondent. Being an independent civil action which is separate and distinct from any criminal prosecution and which require no
prior reservation for its institution, the doctrine of res judicata and forum-shopping will not operate to bar the same.
L.G. Foods Corp. v. Pagapong-Agraviador

[September 26, 2006]
FACTS
On February 26, 1996, Charles Vallereja, a 7-year old son of the spouses Florentino Vallejera and Theresa Vallejera, was hit by a
Ford Fiera van owned by the petitioners and driven at the time by their employee, Vincent Norman Yeneza y Ferrer. Charles died as
a result of the accident. +
In time, an Information for Reckless Imprudence Resulting to Homicide was filed against the driver before the Municipal Trial Court
in Cities (MTCC), Bacolod City, docketed as Criminal Case No. 67787, entitled People of the Philippines v. Vincent Norman Yeneza.
121
Unfortunately, before the trial could be concluded, the accused driver committed suicide, evidently bothered by conscience and
remorse . On account thereof, the MTCC, in its order of September 30, 1998, dismissed the criminal case.
On June 23, 1999, in the RTC of Bacolod City, the spouses Vallejera filed a complaint[3] for damages against the petitioners as
employers of the deceased driver, basically alleging that as such employers, they failed to exercise due diligence in the selection
and supervision of their employees. Thereat docketed as Civil Case No. 99-10845, the complaint was raffled to Branch 43 of the
court.
In their Answer with Compulsory Counterclaim ,[4] the petitioners as defendants denied liability for the death of the Vallejeras' 7-
year old son, claiming that they had exercised the required due diligence in the selection and supervision of their employees,
including the deceased driver. They thus prayed in their Answer for the dismissal of the complaint for lack of cause of action on the
part of the Vallejera couple.
During pre-trial, the defendant petitioners insisted that their dismissal prayer be resolved. Hence, the trial court required them to
file within ten days a memorandum of authorities supportive of their position.
Instead, however, of the required memorandum of authorities, the defendant petitioners filed a Motion to Dismiss, principally
arguing that the complaint is basically a "claim for subsidiary liability against an employer" under the provision of Article 103[5] of
the Revised Penal Code. Prescinding therefrom, they contend that there must first be a judgment of conviction against their driver
as a condition sine qua non to hold them liable. Ergo, since the driver died during the pendency of the criminal action, the sine qua
non condition for their subsidiary liability was not fulfilled, hence the of lack of cause of action on the part of the plaintiffs. They
further argue that since the plaintiffs did not make a reservation to institute a separate action for damages when the criminal case
was filed, the damage suit in question is thereby deemed instituted with the criminal action. which was already dismissed.
In an Order dated September 4, 2001,[6] the trial court denied the motion to dismiss for lack of merit and set the case for pre-trial.
With their motion for reconsideration having been denied by the same court in its subsequent order[7] of September 26, 2001, the
petitioners then went on certiorari to the CA in CA-G.R. SP No. 67600 , imputing grave abuse of discretion on the part of the trial
judge in refusing to dismiss the basic complaint for damages in Civil Case No. 99-10845.
In the herein assailed decision[8] dated April 25, 2003, the CA denied the petition and upheld the trial court. Partly says the CA in
its challenged issuance:
xxx xxx xxx
It is clear that the complaint neither represents nor implies that the responsibility charged was the petitioner's subsidiary liability
under Art. 103, Revised Penal Code. As pointed out [by the trial court] in the Order of September 4, 2001, the complaint does not
even allege the basic elements for such a liability, like the conviction of the accused employee and his insolvency. Truly enough, a
civil action to enforce subsidiary liability separate and distinct from the criminal action is even unnecessary.
xxx xxx xxx
122
Specifically, Civil Case No. 99-10845 exacts responsibility for fault or negligence under Art. 2176, Civil Code, which is
entirely separate and distinct from the civil liability arising from negligence under the Revised Penal Code. Verily, therefore, the
liability under Art. 2180, Civil Code, is direct and immediate, and not conditioned upon prior recourse against the negligent
employee or prior showing of the latter's insolvency. (Underscoring in the original.)
In time, the petitioners moved for a reconsideration but their motion was denied by the CA in its resolution[9] of July 10, 2003.
Hence, the petitioners' present recourse on their submission that the appellate court committed reversible error in upholding the
trial court's denial of their motion to dismiss.
ISSUE
Whether the spouses Vallejeras' cause of action in Civil Case No. 99-10845 is founded on Article 103 of the Revised Penal Code,
RULING
It thus behooves us to examine the allegations of the complaint for damages in Civil Case No. 99-10845. That complaint
alleged, inter alia, as follows:
3. That defendant [LG Food Corporation] is the registered owner of a Ford Fiera Van with Plate No. NMS 881 and employer
sometime February of 1996 of one Vincent Norman Yeneza y Ferrer, a salesman of said corporation;
4. That sometime February 26, 1996 at around 2:00 P.M. at Rosario St., Bacolod City, the minor son of said plaintiffs [now
respondents], Charles Vallejera, 7 years old, was hit and bumped by above-described vehicle then driven by said employee, Vincent
Norman Yeneza y Ferrer;
5. That the mishap was due to the gross fault and negligence of defendant's employee, who drove said vehicle, recklessly,
negligently and at a high speed without regard to traffic condition and safety of other road users and likewise to the fault and
negligence of the owner employer, herein defendants LG Food Corporation who failed to exercise due diligence in the selection and
supervision of his employee, Vincent Norman Yeneza y Ferrer;
6. That as a result of said incident, plaintiffs' son suffered multiple body injuries which led to his untimely demise on that very day;
7. That a criminal case was filed against the defendant's employee, docketed as Criminal Case No. 67787, (earlier filed as Crim.
Case No. 96-17570 before RTC) before MTC-Branch III, entitled "People v. Yeneza" for "Reckless Imprudence resulting to
Homicide," but the same was dismissed because pending litigation, then remorse-stricken [accused] committed suicide;
8. That the injuries and complications as well as the resultant death suffered by the late minor Charles Vallejera were due to the
negligence and imprudence of defendant's employee;
9. That defendant LG Foods Corporation is civilly liable for the negligence/imprudence of its employee since it failed
to exercise the necessary diligence required of a good father of the family in the selection and supervision of his
employee, Vincent Norman Yeneza y Ferrer which diligence if exercised, would have prevented said incident .
(Bracketed words and emphasis ours.)
123
Nothing in the foregoing allegations suggests, even remotely, that the herein petitioners are being made to account for their
subsidiary liability under Article 103 of the Revised Penal Code. As correctly pointed out by the trial court in its order of September
4, 2001 denying the petitioners' Motion to Dismiss, the complaint did not even aver the basic elements for the subsidiary liability of
an employer under Article 103 of the Revised Penal Code, such as the prior conviction of the driver in the criminal case filed against
him nor his insolvency.
Admittedly, the complaint did not explicitly state that plaintiff Vallejeras were suing the defendant petitioners for damages based
on quasi-delict. Clear it is, however, from the allegations of the complaint that quasi-delict was their choice of remedy against the
petitioners. To stress, the plaintiff spouses alleged in their complaint gross fault and negligence on the part of the driver and the
failure of the petitioners, as employers, to exercise due diligence in the selection and supervision of their employees. The spouses
further alleged that the petitioners are civilly liable for the negligence/imprudence of their driver since they failed to exercise the
necessary diligence required of a good father of the family in the selection and supervision of their employees, which diligence, if
exercised, could have prevented the vehicular accident that resulted to the death of their 7-year old son.
Section 2, Rule 2, of the 1997 Rules of Civil Procedure defines cause of action as the "act or omission by which a party
violates the right of another." Such act or omission gives rise to an obligation which may come from law, contracts, quasi contracts,
delicts or quasi-delicts.
Corollarily, an act or omission causing damage to another may give rise to two separate civil liabilities on the part of the offender,
i.e., 1) civil liability ex delicto;[12] and 2) independent civil liabilities, such as those (a) not arising from an act or omission
complained of as felony (e.g., culpa contractual or obligations arising from law;[13] the intentional torts;[14] and culpa
aquiliana[15]); or (b) where the injured party is granted a right to file an action independent and distinct from the criminal action.
[16] Either of these two possible liabilities may be enforced against the offender.
Stated otherwise, victims of negligence or their heirs have a choice between an action to enforce the civil liability arising from culpa
criminal under Article 100 of the Revised Penal Code, and an action for quasi-delict (culpa aquiliana) under Articles 2176 to 2194 of
the Civil Code. If, as here, the action chosen is for quasi-delict, the plaintiff may hold the employer liable for the negligent act of its
employee, subject to the employer's defense of exercise of the diligence of a good father of the family. On the other hand, if the
action chosen is for culpa criminal, the plaintiff can hold the employer subsidiarily liable only upon proof of prior conviction of its
employee.
Article 1161[19] of the Civil Code provides that civil obligation arising from criminal offenses shall be governed by penal laws
subject to the provision of Article 2177[20] and of the pertinent provision of Chapter 2, Preliminary Title on Human Relation, and of
Title XVIII of this Book, regulating damages. Plainly, Article 2177 provides for the alternative remedies the plaintiff may choose from
in case the obligation has the possibility of arising indirectly from the delict/crime or directly from quasi-delict/tort. The choice is
with the plaintiff who makes known his cause of action in his initiatory pleading or complaint , and not with the defendant who can
not ask for the dismissal of the plaintiff's cause of action or lack of it based on the defendant's perception that the plaintiff should
have opted to file a claim under Article 103 of the Revised Penal Code.
Under Article 2180 of the Civil Code, 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.
124
Here, the complaint sufficiently alleged that the death of the couple's minor son was caused by the negligent act of the petitioners'
driver; and that the petitioners themselves were civilly liable for the negligence of their driver for failing "to exercise the necessary
diligence required of a good father of the family in the selection and supervision of [their] employee, the driver, which diligence, if
exercised, would have prevented said accident."
Had the respondent spouses elected to sue the petitioners based on Article 103 of the Revised Penal Code, they would have alleged
that the guilt of the driver had been proven beyond reasonable doubt; that such accused driver is insolvent; that it is the subsidiary
liability of the defendant petitioners as employers to pay for the damage done by their employee (driver) based on the principle that
every person criminally liable is also civilly liable.[23] Since there was no conviction in the criminal case against the driver,
precisely because death intervened prior to the termination of the criminal proceedings, the spouses' recourse was,
therefore, to sue the petitioners for their direct and primary liability based on quasi-delict.
Besides, it is worthy to note that the petitioners, in their Answer with Compulsory Counter-Claim ,[24] repeatedly made mention of
Article 2180 of the Civil Code and anchored their defense on their allegation that "they had exercised due diligence in the selection
and supervision of [their] employees." The Court views this defense as an admission that indeed the petitioners acknowledged the
private respondents' cause of action as one for quasi-delict under Article 2180 of the Civil Code.
All told, Civil Case No. 99-10845 is a negligence suit brought under Article 2176 - Civil Code to recover damages primarily from
the petitioners as employers responsible for their negligent driver pursuant to Article 2180 of the Civil Code. The obligation
imposed by Article 2176 is demandable not only for one's own acts or omissions, but also for those of persons for whom one is
responsible. Thus, the employer is liable for damages caused by his employees and household helpers acting within the scope of
their assigned tasks, even though the former is not engaged in any business or industry.
Citing Maniago v. CA,[25] petitioner would argue that Civil Case No. 99-10845 should have been dismissed for failure of the
respondent spouses to make a reservation to institute a separate civil action for damages when the criminal case against the driver
was filed.
The argument is specious.
To start with, the petitioners' reliance on Maniago is obviously misplaced. There, the civil case was filed while the criminal case
against the employee was still pending. Here, the criminal case against the employee driver was prematurely terminated due to his
death. Precisely, Civil Case No. 99-10845 was filed by the respondent spouses because no remedy can be obtained by them against
the petitioners with the dismissal of the criminal case against their driver during the pendency thereof.
The circumstance that no reservation to institute a separate civil action for damages was made when the criminal case was filed is
of no moment for the simple reason that the criminal case was dismissed without any pronouncement having been made therein. In
reality, therefor, it is as if there was no criminal case to speak of in the first place. And for the petitioners to insist for the conviction
of their driver as a condition sine qua non to hold them liable for damages is to ask for the impossible.
Lim v. Kou Co Ping

[August 23, 2012]
125
FACTS
In February 1999, FR Cement Corporation (FRCC), owner/operator of a cement manufacturing plant, issued several withdrawal
authorities9 for the account of cement dealers and traders, Fil-Cement Center and Tigerbilt. These withdrawal authorities state the
number of bags that the dealer/trader paid for and can withdraw from the plant. Each withdrawal authority contained a provision
that it is valid for six months from its date of issuance, unless revoked by FRCC Marketing Department.
Fil-Cement Center and Tigerbilt, through their administrative manager, Gail Borja (Borja), sold the withdrawal authorities covering
50,000 bags of cement to Co for the amount of ₱ 3.15 million or ₱ 63.00 per bag. 10 On February 15, 1999, Co sold these withdrawal
authorities to Lim allegedly at the price of ₱ 64.00 per bag or a total of ₱ 3.2 million. 11
Using the withdrawal authorities, Lim withdrew the cement bags from FRCC on a staggered basis. She successfully withdrew 2,800
bags of cement, and sold back some of the withdrawal authorities, covering 10,000 bags, to Co.
Sometime in April 1999, FRCC did not allow Lim to withdraw the remaining 37,200 bags covered by the withdrawal authorities. Lim
clarified the matter with Co and Borja, who explained that the plant implemented a price increase and would only release the goods
once Lim pays for the price difference or agrees to receive a lesser quantity of cement. Lim objected and maintained that the
withdrawal authorities she bought were not subject to price fluctuations. Lim sought legal recourse after her demands for Co to
resolve the problem with the plant or for the return of her money had failed.
ISSUE
on whether the two cases herein involve different kinds of civil obligations such that they can proceed independently of each other.
RULING
A single act or omission that causes damage to an offended party may give rise to two separate civil liabilities on the part of the
offender51 - (1) civil liability ex delicto, that is, civil liability arising from the criminal offense under Article 100 of the Revised Penal
Code,52 and (2) independent civil liability, that is, civil liability that may be pursued independently of the criminal proceedings. The
independent civil liability may be based on "an obligation not arising from the act or omission complained of as a felony," as
provided in Article 31 of the Civil Code (such as for breach of contract or for tort ). It may also be based on an act or omission that
may constitute felony but, nevertheless, treated independently from the criminal action by specific provision of Article 33 of the Civil
Code ("in cases of defamation, fraud and physical injuries").
The civil liability arising from the offense or ex delicto is based on the acts or omissions that constitute the criminal offense; hence,
its trial is inherently intertwined with the criminal action. For this reason, the civil liability ex delicto is impliedly instituted with the
criminal offense. If the action for the civil liability ex delicto is instituted prior to or subsequent to the filing of the criminal action, its
proceedings are suspended until the final outcome of the criminal action. The civil liability based on delict is extinguished when the
court hearing the criminal action declares that "the act or omission from which the civil liability may arise did not exist."
On the other hand, the independent civil liabilities are separate from the criminal action and may be pursued independently, as
provided in Articles 31 and 33 of the Civil Code, which state that:
ART. 31. When the civil action is based on an obligation not arising from the act or omission complained of as a
felony, such civil action may proceed independently of the criminal proceedings and regardless of the result of the
latter.
ART. 33. In cases of defamation, fraud, and physical injuries a civil action for damages, entirely separate and
distinct from the criminal action, may be brought by the injured party. Such civil action shall proceed independently
of the criminal prosecution, and shall require only a preponderance of evidence.
126
Because of the distinct and independent nature of the two kinds of civil liabilities, jurisprudence holds that the offended party may
pursue the two types of civil liabilities simultaneously or cumulatively, without offending the rules on forum shopping, litis
pendentia, or res judicata. As explained in Cancio, Jr. v. Isip:
One of the elements of res judicata is identity of causes of action. In the instant case, it must be stressed that the action filed by
petitioner is an independent civil action, which remains separate and distinct from any criminal prosecution based on the same act.
Not being deemed instituted in the criminal action based on culpa criminal, a ruling on the culpability of the offender will have no
bearing on said independent civil action based on an entirely different cause of action, i.e., culpa contractual.
In the same vein, the filing of the collection case after the dismissal of the estafa cases against the offender did not amount to
forum-shopping. The essence of forum shopping is the filing of multiple suits involving the same parties for the same cause of
action, either simultaneously or successively, to secure a favorable judgment. Although the cases filed by [the offended party] arose
from the same act or omission of [the offender], they are, however, based on different causes of action. The criminal cases for
estafa are based on culpa criminal while the civil action for collection is anchored on culpa contractual. Moreover,
there can be no forum-shopping in the instant case because the law expressly allows the filing of a separate civil action which can
proceed independently of the criminal action.
Since civil liabilities arising from felonies and those arising from other sources of obligations are authorized by law to proceed
independently of each other, the resolution of the present issue hinges on whether the two cases herein involve different kinds of
civil obligations such that they can proceed independently of each other. The answer is in the affirmative.
The first action is clearly a civil action ex delicto, it having been instituted together with the criminal action.
On the other hand, the second action, judging by the allegations contained in the complaint, is a civil action arising from a
contractual obligation and for tortious conduct (abuse of rights). In her civil complaint, Lim basically alleges that she entered into a
sale contract with Co under the following terms: that she bought 37,200 bags of cement at the rate of ₱ 64.00 per bag from Co;
that, after full payment, Co delivered to her the withdrawal authorities issued by FRCC corresponding to these bags of cement; that
these withdrawal authorities will be honored by FRCC for six months from the dates written thereon. Lim then maintains that the
defendants breached their contractual obligations to her under the sale contract and under the withdrawal authorities; that Co and
his co-defendants wanted her to pay more for each bag of cement, contrary to their agreement to fix the price at ₱ 64.00 per bag
and to the wording of the withdrawal authorities; that FRCC did not honor the terms of the withdrawal authorities it issued; and
that Co did not comply with his obligation under the sale contract to deliver the 37,200 bags of cement to Lim. From the foregoing
allegations, it is evident that Lim seeks to enforce the defendants’ contractual obligations, given that she has already performed her
obligations. She prays that the defendants either honor their part of the contract or pay for the damages that their breach has
caused her.
Lim also includes allegations that the actions of the defendants were committed in such manner as to cause damage to Lim without
regard for morals, good customs and public policy. These allegations, if proven, would constitute tortious conduct (abuse of rights
under the Human Relations provisions of the Civil Code).
Thus, Civil Case No. 05-112396 involves only the obligations arising from contract and from tort, whereas the appeal in the estafa
case involves only the civil obligations of Co arising from the offense charged. They present different causes of action, which under
the law, are considered "separate, distinct, and independent" from each other. Both cases can proceed to their final adjudication,
subject to the prohibition on double recovery under Article 2177 of the Civil Code.
Keihin-Everett Forwarding Co., Inc. v. Tokio Marine Malayan Insurance Co.,

Inc., [January 28, 2019]
FACTS
ISSUE
127
RULING
1164 – RIGHT OF CREDITOR TO THE FRUITS; ACQUISITION OF REAL

RIGHT
PNB v. MARAÑON
FACTS
The controversy at bar involves a 152-square meter parcel of land located at Cuadra-Smith Streets, Downtown, Bacolod
(subject lot) erected with a building leased by various tenants. The subject lot was among the properties mortgaged by Spouses
Rodolfo and Emilie Montealegre (Spouses Montealegre) to PNB as a security for a loan. In their transactions with PNB, Spouses
Montealegre used Transfer Certificate of Title (TCT) No. T-156512 over the subject lot purportedly registered in the name of
Emilie Montealegre (Emilie).
When Spouses Montealegre failed to pay the loan, PNB initiated foreclosure proceedings on the mortgaged properties, including the
subject lot. In the auction sale held on August 16, 1991, PNB emerged as the highest bidder. It was issued the corresponding
Certificate of Sale dated December 17, 19917 which was subsequently registered on February 4, 1992.
Before the expiration of the redemption period or on July 29, 1992, Spouses Marañon filed before the RTC a complaint for
Annulment of Title, Reconveyance and Damages against Spouses Montealegre, PNB, the Register of Deeds of Bacolod City and the
Ex-Officio Provincial Sheriff of Negros Occidental. The complaint, docketed as Civil Case No. 7213, lleged that Spouses Marañon are
the true registered owners of the subject lot by virtue of TCT No. T-129577 which was illegally cancelled by TCT o. T-156512 under
the name of Emilie who used a falsified Deed of Sale bearing the forged signatures of Spouse Marañon 10 to effect the transfer
of title to the property in her name.
In its Answer, PNB averred that it is a mortgagee in good faith and for value and that its mortgage lien on the property was
registered thus valid and binding against the whole world.
As reflected in the Pre-trial Order dated March 12, 1996, the parties stipulated, among others, that the period for legal redemption
of the subject lot has already expired.
While the trial proceedings were ongoing, Paterio Tolete (Tolete), one of the tenants of the building erected on the subject lot
deposited his rental payments with the Clerk of Court of Bacolod City which, as of October 24, 2002, amounted to P144,000.00.
On June 2, 2006, the RTC rendered its Decision in favor of the respondents after finding, based on the expert testimony of Colonel
Rodolfo Castillo, Head of the Forensic Technology Section of Bacolod City Philippine National Police, that the signatures of Spouses
Marañon in the Deed of Sale presented by Spouses Montealegre before the Register of Deeds to cause the cancellation of TCT No.
T-129577 were forged. Hence, the RTC concluded the sale to be null and void and as such it did not transfer any right or title in
law. PNB was adjudged to be a mortgagee in good faith whose lien on the subject lot must be respected.
ISSUE
Can PNB acquire the rent of the building despite the judgment that Spouses Maranon and not Spouses Montealegre were the
rightful owners of the subject lot.
RULING
128
Further, it must be remembered that what reached the CA on certiorari were RTC resolutions issued long after the finality of the
Decision dated June 2, 2006. The RTC Orders dated September 8, 2006 and December 6, 2006 were implements of the
pronouncement that Spouses Marañon are still the rightful owners of the subject lot, a matter that has been settled with finality as
well. This notwithstanding, the Court agrees with the ultimate outcome of the CA’s assailed resolutions.
Rent is a civil fruit that belongs to the owner of the property producing it by right of accession. The rightful recipient of the
disputed rent in this case should thus be the owner of the subject lot at the time the rent accrued. It is beyond question that
Spouses Marañon never lost ownership over the subject lot. This is the precise consequence of the final and executory judgment in
Civil Case No. 7213 rendered by the RTC on June 3, 2006 whereby the title to the subject lot was reconveyed to them and the
cloud thereon consisting of Emilie’s fraudulently obtained title was removed. Ideally, the present dispute can be simply resolved on
the basis of such pronouncement. However, the application of related legal principles ought to be clarified in order to settle the
intervening right of PNB as a mortgagee in good faith.
The protection afforded to PNB as a mortgagee in good faith refers to the right to have its mortgage lien carried over and
annotated on the new certificate of title issued to Spouses Marañon as so adjudged by the RTC. Thereafter, to enforce such lien
thru foreclosure proceedings in case of nonpayment of the secured debt, as PNB did so pursue. The principle, however, is not the
singular rule that governs real estate mortgages and foreclosures attended by fraudulent transfers to the mortgagor.
Rent, as an accessory, follow the principal. In fact, when the principal property is mortgaged, the mortgage shall include all
natural or civil fruits and improvements found thereon when the secured obligation becomes due as provided in Article 2127 of the
Civil Code, viz:
Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits, and the rents or income not yet
received when the obligation becomes due, and to the amount of the indemnity granted or owing to the proprietor from the
insurers of the property mortgaged, or in virtue of expropriation for public use, with the declarations, amplifications and limitations
established by law, whether the estate remains in the possession of the mortgagor, or it passes into the hands of a third person.
Consequently, in case of non-payment of the secured debt, foreclosure proceedings shall cover not only the hypothecated property
but all its accessions and accessories as well. This was illustrated in the early case of Cu Unjieng e Hijos v. Mabalacat Sugar
Co. where the Court held:
That a mortgage constituted on a sugar central includes not only the land on which it is built but also the buildings, machinery, and
accessories installed at the time the mortgage was constituted as well as the buildings, machinery and accessories belonging to the
mortgagor, installed after the constitution thereof.
Applying such pronouncement in the subsequent case of Spouses Paderes v. Court of Appeals , the Court declared that the
improvements constructed by the mortgagor on the subject lot are covered by the real estate mortgage contract with the
mortgagee bank and thus included in the foreclosure proceedings instituted by the latter.
However, the rule is not without qualifications. In Castro, Jr. v. CA the Court explained that Article 2127 is predicated on the
presumption that the ownership of accessions and accessories also belongs to the mortgagor as the owner of the
principal. After all, it is an indispensable requisite of a valid real estate mortgage that the mortgagor be the absolute owner of
the encumbered property, thus:
129
[A]ll improvements subsequently introduced or owned by the mortgagor on the encumbered property are deemed to form part of
the mortgage. That the improvements are to be considered so incorporated only if so owned by the mortgagor is a rule that can
hardly be debated since a contract of security, whether, real or personal, needs as an indispensable element thereof the ownership
by the pledgor or mortgagor of the property pledged or mortgaged.
Otherwise stated, absent an adverse claimant or any evidence to the contrary, all accessories and accessions accruing
or attached to the mortgaged property are included in the mortgage contract and may thus also be foreclosed
together with the principal property in case of non-payment of the debt secured.
Corollary, any evidence sufficiently overthrowing the presumption that the mortgagor owns the mortgaged property precludes the
application of Article 2127. Otherwise stated, the provision is irrelevant and inapplicable to mortgages and their resultant
foreclosures if the mortgagor is later on found or declared to be not the true owner of the property, as in the instant case.
It is beyond question that PNB’s mortgagors, Spouses Montealegre, are not the true owners of the subject lot much less of the
building which produced the disputed rent. The foreclosure proceedings on August 16, 1991 caused by PNB could not have, thus,
included the building found on the subject lot and the rent it yields. PNB’s lien as a mortgagee in good faith pertains to the subject
lot alone because the rule that improvements shall follow the principal in a mortgage under Article 2127 of the Civil Code does not
apply under the premises. Accordingly, since the building was not foreclosed, it remains a property of Spouses Marañon; it is not
affected by non-redemption and is excluded from any consolidation of title made by PNB over the subject lot. Thus, PNB’s claim for
the rent paid by Tolete has no basis.
It must be remembered that there is technically no juridical tie created by a valid mortgage contract that binds PNB to the subject
lot because its mortgagor was not the true owner. But by virtue of the mortgagee in good faith principle, the law allows PNB
to enforce its lien. We cannot, however, extend such principle so as to create a juridical tie between PNB and the improvements
attached to the subject lot despite clear and undeniable evidence showing that no such juridical tie exists.
Lastly, it is worthy to note that the effects of the foreclosure of the subject lot is in fact still contentious considering that as a
purchaser in the public sale, PNB was only substituted to and acquired the right, title, interest and claim of the mortgagor to the
property as of the time of the levy. There being already a final judgment reconveying the subject lot to Spouses Maraflon and
declaring as null and void Emilie's purported claim of ownership, the legal consequences of the foreclosure sale, expiration of
the redemption period and even the consolidation of the subject lot's title in PNB's name shall be subjected to such final judgment.
This is the clear import of the ruling in Unionbank of the Philippines v. Court of Appeals:
This is because as purchaser at a public auction, UNIONBANK is only substituted to and acquires the right, title, interest and claim
of the judgment debtors or mortgagors to the property at the time of levy. Perforce, the judgment in the main action for
reconveyance will not be rendered ineffectual by the consolidation of ownership and the issuance of title in the name of
UNIONBANK.
Nonetheless, since the present recourse stemmed from a mere motion claiming ownership of rent and not from a main action for
annulment of the foreclosure sale or of its succeeding incidents, the Court cannot proceed to make a ruling on the bearing of the
CA's Decision dated June 18, 2008 to PNB's standing as a purchaser in the public auction. Such matter will have to be threshed out
in the proper forum.
130
All told, albeit the dispositive portions of the assailed CA decision and resolution are differently premised, they ought to be upheld
as they convey the similar conclusion that Spouses Marafion are the rightful owners of the rent earned by the building on the
subject lot.
MAGDALINO VS. BRAGAT (PERALTA)

757 S 131 (4/22/15)
FACTS
Azur Pastrano and his wife Profitiza Ebaning (Spouses Pastrano) were the original owners of Lot No. 19986 (subject property),
located at Tabion, Cagayan de Oro City. Its Original Certificate of Title (OCT) No. P-2035, consisting of 1,015 sq. m. was issued on
November 18, 1980.1 The OCT was in the name of Azur Pastrano. 2
Before the issuance of the OCT, however, the Spouses Pastrano, on November 18, 1968, sold the lot to Eustaquio P. Ledesma, Jr.
(Ledesma), as evidenced by a Deed of Definite Sale of Unregistered Coconut and Residential Land.
The petitioners, the spouses Magdalino and Cleofe Badilla (Spouses Badilla) claimed that in 1970, Ledesma sold to them, "on
installment" basis, a portion amounting to 200 sq. m. of Lot No. 19986 (subject property). The sale was not reduced in writing,
however, but possession of the portion sold was transferred to the Badillas, which portion the Badillas claim was designated as Lot
No. 19986-B.
On April 18, 1978, the spouses Florito Bragat and Fe Bragat (Spouses Bragat) bought 991 sq. m. of the property from Ledesma and
his wife, via a Deed of Absolute Sale of a Residential Lot. Two (2) tax declarations were allegedly issued as a result of the sale: one
designated a lot as Lot No. 19986-A with an area of 642 sq. m., while another designated the other lot as Lot No. 19986-B withan
area of 349 sq. m.
On May 5, 1984, the Spouses Pastrano executed another Deed of Absolute Sale of Registered Land in favor of herein petitioner Fe
Bragat (Bragat), covered by OCT No. P-2035 and with an area of 1,015 sq. m. On the same date, Azur Pastrano executed an
Affidavit of Loss reporting the loss of the owner's duplicate copy of OCT No. P-2035.
It was Bragat, however, who petitioned the court for the issuance of a new owner's duplicate copy of OCT No. P-2035. Thus, on
July 24, 1987, the RTC ordered the issuance of a new owner's copy of OCT No. P-2035.
On October 2, 1987, the Spouses Pastrano executed yet another Deed of Sale of Registered Land in favor of Bragat, which land is
again covered by OCT No. P-2035 with an area of 1,015 sq. m. As a result, OCT No. P-2035 was canceled and TCT No. T-47759
was issued in the name of Bragat.
On March 7, 1991, Bragat, through her counsel, made a written demand to vacate against the Spouses Badilla. In response, the
Spouses Badilla, also through their counsel's letter, refused the demand and raised the earlier sale made by the Spouses Pastrano
to Ledesma and the subsequent sale by Ledesma to the Badillas.
Hence, the parties filed their respective complaints within days of each other.
131
Bragat filed her Complaint for Recovery of Posession and Damages against the spouses Magdalino and Cleofe Badilla on June 5,
1992, alleging therein that she is the absolute owner of Lot No. 19986, covered by TCT No. T-47759. She claimed to have
purchased the property, first, from Eustaquio Ledesma, Jr., but later, when she found out that Ledesma was "unauthorized" to sell,
she again allegedly made another purchase of the same property from Azur Pastrano, on May 5, 1984. This led to the cancellation
of Pastrano's OCT No. P-2035 and the issuance of Bragat's TCT No. T-47759. Thus, she prays for the Spouses Badilla to be ordered
to vacate the around 149-square-meter portion that they occupy in the property.
Just six days later, on June 11, 1992, the Spouses Badilla filed their own Complaint for Quieting of Title, Declaration of Nullity of
TCT No. T-47759 and Damages against Bragat, claiming that the Spouses Badilla are the lawful owners and possessors of Lot No.
19986-B (a portion of Lot No. 19986), having acquired it in 1970 from Ledesma. The latter, on his part, allegedly bought the bigger
Lot No. 19986 from Pastrano earlier on November 18, 1968. The Spouses Badilla alleged that they took possession of and built a
house on the property upon their purchase thereof from Ledesma and has since remained in possession. However, they claimed
that Pastrano was subsequently able to obtain a free patent and a title, OCT No. P-2035, over Lot No. 19986. According to the
Badillas, Pastrano made a sale to Bragat on October 2, 1987, but such sale is not valid since Pastrano was no longer the owner of
the property on that date. Consequently, the Spouses Badilla prayed that TCT No. T-47759 issued to Bragat pursuant to that sale
be declared null and void.
After Answers were filed for both complaints, the two cases were consolidated and heard by one court, Branch 25 of the RTC of
Cagayan de Oro City, as they involved exactly the same parties and subject lot.
After trial, the RTC found for Bragat, noting that the sketch map shows the 152-square-meter portion occupied by the Spouses
Badilla is within the titled property of Bragat. It also found Bragat's title as valid for what it saw as the result of a purchase in good
faith and for value. In contrast, the trial court observed a lack of evidence of the Spouses Badilla. The latter allegedly presented
handwritten and typewritten receipts which were purportedly signed by Ledesma, dated March 5, 1989, March 1, 1991 and March
23, 1991 acknowledging Ledesma's receipt of certain amounts, but the court claimed that it found no evidence of (Ledesma's)
absolute ownership on these dates. The court noted that Ledesma had sold previously to the Spouses Bragat via a Deed of Absolute
Sale of Residential Land dated April 18, 1978. Hence, in the trial court's view, on March 5, 1989, March 1, 1991 and March 23,
1991, Ledesma no longer owned the land and transferred nothing to the Badillas.
Petitioners Spouses Badilla contend that ownership of the 200-sq.-m. portion was transferred to them when they purchased the
same and possession was delivered to them by Ledesma in 1970. They also contend that when OCT No. P-2035 was actually issued
in 1980, it was first delivered by Pastrano to Ledesma and the latter delivered the same to them (the Badillas). Thus, Bragat
allegedly falsely claimed the "loss" of the title when she petitioned the court for a new duplicate original, because such title was not
lost but had been with the Badillas all along. Another fraud that Bragat allegedly committed was the Deed of Sale dated October 2,
1987, in which Profitiza Pastrano signed (in marital consent) although she had been dead since March 30, 1985.
In her Comment, Bragat claims that the sale of October 2, 1987 was only a "re-execution" of the sale of May 5, 1984, in order to
avoid tax surcharges. Further, she alleges that the Badillas' documentary evidence were all executed only after she had the property
titled to her name.
ISSUE
The issue is one of ownership of the subject property.
RULING
It is not disputed that the spouses Azur and Profitiza Pastrano had previously sold on November 18, 1968,via a Deed of Definite
Sale of Unregistered Coconut and Residential Land, the property to Eustaquio Ledesma. Therefore, as early as such date, it is
established that the Pastranos no longer had ownership over the property.
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Then, as Ledesma subsequently sold, in 1970, a portion of the property to the petitioner Spouses Badilla, who immediately took
delivery and possession, ownership of this portion had also been transferred to the said spouses. Although that sale appears to
be merely verbal, and payment therefor was to be made on installment, it is a partially consummated sale, with the
Badillas paying the initial purchase price and Ledesma surrendering possession. That the parties intended for ownership
to be transferred may be inferred from their lack of any agreement stipulating that ownership of the property is reserved by the
seller and shall not pass to the buyer until the latter has fully paid the purchase price. The fact is, Ledesma even delivered to the
Badillas the owner's duplicate copy of OCT No. P-2035. The Civil Code states that ownership of the thing sold is transferred to the
vendee upon the actual or constructive delivery of the same. And the thing is understood as delivered when it is placed in the
control and possession of the vendee. Payment of the purchase price is not essential to the transfer of ownership as long as the
property sold has been delivered ; and such delivery (traditio) operated to divest the vendor of title to the property which may not
be regained or recovered until and unless the contract is resolved or rescinded in accordance with law.
The same is true even if the sale is a verbal one, because it is held that when a verbal contract has been completed, executed or
partially consummated, its enforceability will not be barred by the Statute of Frauds, which applies only to an executory
agreement. Thus, where a party has performed his obligation, oral evidence will be admitted to prove the agreement. And, where it
was proven that one party had delivered the thing sold to another, then the contract was partially executed and the Statute of
Frauds does not apply.
Therefore, with the Spouses Badilla owning and occupying the said 152-square-meter portion since 1970, it may be concluded that
TCT No. T-47759 (which canceled OCT No. P-2035) covering the said portion has been wrongfully issued.
In addition, TCT No. T-47759 was issued to Fe Bragat on the strength of a Deed of Sale of Registered Land dated October 2,
1987. This deed of sale, however, is void for being simulated, since both the vendor (Pastrano) and the vendee (Bragat) knew at
the time of its execution of the vendor's lack of ownership over Lot No. 19986, the property being sold. At that time, it was not
Pastrano but Ledesma who was absolute owner of the property by virtue of the latter's earlier purchase of Lot No. 19986 from the
Spouses Pastrano on November 18, 1968, via a Deed of Definite Sale of Unregistered Coconut and Residential Land. Bragat herself
knew this, as she and her husband themselves first bought the property from Ledesma through a Deed of Absolute Sale of
Residential Land dated April 18, 1978.
In fact, it is from this sale in 1978 that Fe Bragat derives title on the property and not from the Deeds of Sale dated May 5, 1984
and October 2, 1987 executed between her as vendee and Pastrano as vendor. Pastrano could no longer sell any part of the
property to Bragat on such later dates since he had already sold the same as early as November 18, 1968 to Ledesma. Well-settled
is the rule that no one can give what one does not have - nemodat quod non habet –and, accordingly, one can sell only what one
owns or is authorized to sell, and the buyer acquires no better title than the seller. Thus, the sales made on the dates May 5, 1984
and October 2, 1987 are void for being simulated and for lack of a subject matter. On these sales, Bragat cannot claim good faith
as she herself knew of Pastrano's lack of ownership.
It needs emphasis, however, that Bragat's property bought from Ledesma in 1978 does not include the 152-sq.-m. portion that was
already bought by the Badillas.
Therefore, Fe Bragat is entitled to a new transfer certificate of title issued in her name, but on the basis of the Deed of Absolute
Sale dated April 18, 1978, and excluding the 152 sq. m. in area that the Spouses Badilla have already bought and have been
occupying since 1970, but which are currently covered by Bragat's existing title, TCT No. T-47759. Hence, Bragat's TCT No. T-
47759 (which canceled OCT No. P-2035), covering 1,015 sq. m., should be declared void and cancelled and, in its place, two (2)
new ones should be issued: (1) in the name of the spouses Magdalino and Cleofe Badilla, covering the 152 sq. m. that they are
occupying, and (2) in the name of Fe Bragat, covering the remaining 863 sq. m. The metes and bounds of these two lots are to be
based on the survey plans already submitted by appointed commissioners to the lower court during trial, which are: the
Commissioner's Relocation Survey Report (Exhibit "N") signed by Engr. Benigno B. Manlangit, et al., as well as the accompanying
Relocation Sketch Plan (Exhibit "N-2")46 prepared by the same commissioner.
133
This ruling is compelled by the involvement in this case of not just one instance of double sales but a series of such sales made by
two different vendors. First, it is admitted that Pastrano sold the property to Ledesma in 1968; then, Pastrano sold it again to
Bragat in 1984 and 1987. But Ledesma, too, sold part of the property to the Spouses Badilla in 1970 and then the entire lot to the
Spouses Bragat in 1978. In such a situation of multiple sales, Article 1544 of the Civil Code relates that ownership shall belong to
the person acquiring the property who, in good faith, first recorded such acquisition . Presently, however, it cannot be said that
Bragat's recording of her 1987 purchase was in good faith because that sale was simulated and Bragat was aware of other persons
who have an interest on the property. That the 1987 sale is void is further revealed by evidence to show that one of its signatories,
Profitiza Pastrano was already dead when it was executed. Bragat herself also admitted that she knew of the Spouses Badillas'
occupation prior to her purchase. In that case, the same Article 1544 of the Civil Code provides that when neither buyer registered,
in good faith, the sale of the properties with the register of deeds, the one who took prior possession of the properties shall be the
lawful owner thereof. Such prior possessors, at least with respect to the 152-sq.-m. portion, are indisputably the Spouses Badilla.
1166 – ACCESSIONS AND ACCESSORIES

DELOS REYES v. MUNICIPALITY of KALIBO, AKLAN
856 S 408 (PERALTA)
FACTS
Lot No. 2076 of the Kalibo Cadastre, with a total area of 101,897 square meters ( sq.m.), was covered by Original Certificate of
Title (OCT) No. 24435 RO-831, and registered in the name of Ana O. Peralta. Upon her demise, her property passed on to her
brother, Jose Peralta, who caused registration of the same in his name under Transfer Certificate of Title ( TCT) No. T-5547, issued
on January 13, 1975. Jose later had the property divided into Lots 2076-A and 2076-B, and sold the latter portion. Lot 2076-A, on
the other hand, remained in Jose's name and was registered under TCT No. 6166 on November 17, 1975.

In the meantime, allegedly through accretion, land was added to Lot No. 2076. Said area was first occupied by and declared for
taxation purposes (Tax Declaration No. 6466) in the name of Ambrocio Ignacio in 1945. He was the Peraltas' tenant, but he later
executed a Quitclaim of Real Property in Jose's favor for the amount of P70.44 on March 14, 1955. When Jose died, Lot 2076-A,
together with the supposed area of accretion, was transferred to his son, Juanito Peralta. While TCT T-13140 was issued for Lot
2076-A on September 1, 1983, the area of accretion was apportioned and registered under Tax Declaration Nos. 21162-A, 21163-A,
21164-A, and 21165-A in the names of siblings Juanito, Javier Peralta, Josephine delos Reyes, and Julius Peralta. Subsequently,
Juanito likewise died.

On the other hand, the Municipality of Kalibo, through its then Mayor Diego Luces and the members of its Sangguniang Bayan,
sought to convert more or less four (4) hectares of said area of accretion into a garbage dumpsite. On November 10, 1992, Juanito,
in his capacity as his siblings' representative, opposed said project in a letter. For failure to get a favorable response from the
mayor's office, he wrote a formal protest to the Secretary of the Department of Environment and Natural Resources ( DENR) on
October 2, 1997.

Despite the Peraltas' opposition, the Municipality of Kalibo continued the project under the justification that the contested property
is actually part of the public domain. Moreover, the DENR's Environmental Compliance Certificate ( ECC) showed that the project
would not harm the dumpsite's neighboring areas, including the water systems. Thus, the municipality built a retaining wall on the
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property facing the Aklan river in 1996. More of the structures were built on the area from 1997 to 1998. Later, the area was
enclosed with a perimeter fence.

On January 26, 1998, the Peraltas filed a Complaint [ for quieting of title over the two (2) portions of accretion declared in their
names for taxation purposes.
ISSUE
whether or not the CA committed an error when it reversed the RTC, which declared the subject parcels of land as accretion and
not part of the public domain.
RULING
The Court rules in the negative.

In order that an action for quieting of title may prosper, the plaintiff must have legal or equitable title to, or interest in, the property
which is the subject matter of the action. While legal title denotes registered ownership, 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. Likewise, the plaintiff must
show that the deed, claim, encumbrance, or proceeding that purportedly casts a cloud on their title is in fact invalid or inoperative
despite its prima facie appearance of validity or legal efficacy.

It must be noted that the Peraltas, the petitioners in the instant case, are not even registered owners of the area adjacent to the
increment claimed, much less of the subject parcels of land. Only the late Juanito became the registered owner of Lot 2076-A, the
lot next to the supposed accretion. Assuming that the petitioners are Juanito's rightful successors, they still did not register the
subject increment under their names. It is settled that an accretion does not automatically become registered land just because the
lot that receives such accretion is covered by a Torrens Title. Ownership of a piece of land is one thing; registration under the
Torrens system of that ownership is another. Ownership over the accretion received by the land adjoining a river is governed by the
Civil Code; imprescriptibility of registered land is provided in the registration law. Registration under the Land Registration and
Cadastral Act does not vest or give title to the land, but merely confirms and, thereafter, protects the title already possessed by the
owner, making it imprescriptible by occupation of third parties. But to obtain this protection, the land must be placed under the
operation of the registration laws, wherein certain judicial procedures have been provided.

If at all, whatever rights the Peraltas derived from their predecessors-in-interest respecting the area in question came only from the
quitclaim of real property executed by Ignacio in Jose's favor in 1955. There is no concrete evidence showing any right of title on
Ignacio's part for him to be able to legally and validly cede the property to Jose . What the quitclaim merely proves is that Ignacio
had forfeited any claim or interest over the accretion in Jose's favor. It is settled that equitable title is defined as a title derived
through a valid contract or relation, and based on recognized equitable principles, or the right in the party, to whom it belongs, to
have the legal title transferred to him. In order that a plaintiff may draw to himself an equitable title, he must show that the one
from whom he derives his right had himself a right to transfer. Considering the aforementioned facts, the plaintiffs have neither
legal nor equitable title over the contested property.

Moreover, even the character of the land subject of the quitclaim is highly questionable. Ignacio, who was purportedly the first
occupant of the area in 1945 and who was also in the best position to describe the lot, stated that "the said parcel of swampy land
is an integral expansion or continuity of the said Cadastral Lot No. 2076, formed by a change of the shoreline of the Visayan Sea,
which shoreline has receded towards the North, thus, leaving the swampy or parcel of land described in the immediately preceding
paragraph which accrues to the owner of said right of said Cadastral Lot No. 2076 (Torrens Title No. 24435), Jose O. Peralta by
right of lawful accretion or accession."

Article 457 of the Civil Code of the Philippines, under which the Peraltas claim ownership over the disputed parcels of land,
provides:

Art. 457. To the owners of lands adjoining the banks of rivers belong the accretion which they gradually receive from the effects of
the current of the waters.

135
Accretion is the process whereby the soil is deposited along the banks of rivers. The deposit of soil, to be considered accretion,
must be: (a) gradual and imperceptible; (b) made through the effects of the current of the water; and (c) taking place on land
adjacent to the banks of rivers.

Here, Ignacio characterized the land in question as swampy and its increase in size as the effect of the change of the shoreline of
the Visayan Sea, and not through the gradual deposits of soil coming from the river or the sea. Also, Baltazar Gerardo, the Officer-
in-Charge of the Community Environment and Natural Resources Office of the Bureau of Lands, found upon inspection in 1987 that
the subject area was predominantly composed of sand rather than soil. One of the plaintiffs, Javier, also testified that in 1974 or
1976, the Visayan Sea was around one (1) kilometer from the land in question, and in 2003, the distance already became around
three (3) kilometers, giving the impression that the increment was actually the result of additional area of sand deposits left by the
sea when it had receded, and not by gradual deposits of soil or sediment caused by the action of water. In addition, the DENR has
remained firm and consistent in classifying the area as land of the public domain for being part of either the Visayan Sea of the
Sooc Riverbed and is reached by tide water. Further, the Sheriffs Report dated July 13, 1998 shows that when he conducted an
ocular inspection of the area, part of it was reached by the tide. At around 11:30 a.m., he was able to measure the deepest portion
of the high tide at around nineteen (19) inches, and its wideness at five (5) meters near the concrete wall.

Indeed, by reason of their special knowledge and expertise over matters falling under their jurisdiction, administrative agencies, like
the DENR, are in a better position to pass judgment on the same, and their findings of fact are generally accorded great respect, if
not finality, by the courts. Such findings must be respected as long as they are supported by substantial evidence, even if such
evidence is not overwhelming or even preponderant. Hence, the questionable character of the land, which could most probably be
part of the public domain, indeed bars Jose from validly transferring the increment to any of his successors.

Indubitably, the plaintiffs are merely successors who derived their alleged right of ownership from tax declarations. But neither can
they validly rely on said tax declarations and the supposed actual, open, continuous, exclusive, and notorious possession of the
property by their predecessors-in-interest. Any person who claims ownership by virtue of tax declarations must also
prove that he has been in actual possession of the property. Thus, proof that the property involved had been declared for
taxation purposes for a certain period of time, does not constitute proof of possession, nor is it proof of ownership, in the absence
of the claimant's actual possession of said property. In the case at bar, the Peraltas failed to adequately prove their possession and
that of their predecessors-in-interest.

Verily, in civil cases, the party having the burden of proof must do so with a preponderance of evidence, with plaintiff having to rely
on the strength of his own evidence and not upon the defendant's weakness. Preponderance of evidence is the weight, credit,
and value of the aggregate evidence on either side and is usually considered to be synonymous with the term "greater weight of
evidence" or "greater weight of credible evidence." Succinctly put, it only requires that evidence be greater or more convincing than
the opposing evidence. Since the Peraltas must first establish their legal or equitable title to or interest in the property in order for
their action for quieting of title may prosper, failure to do so would mean lack of cause of action on their part to pursue said
remedy.

136
1167 – FAILURE TO PERFORM POSITIVE PERSONAL OBLIGATIONS
Pascua v. G&G Real TV Corporation,

October 15, 2012
FACTS
On October 15, 1999, an Agreement was entered into between petitioner and respondent for the construction of a
four-storey commercial building and two-storey kitchen with dining hall. Under said Agreement, petitioner undertook
to provide all materials and adequate labor, technical expertise and supervision for the said construction, while
respondent obligated itself to pay the amount of Eleven Million One Hundred Thousand Pesos (P11,100,000.00).
During the course of the construction project, respondent required petitioner to undertake several additional works and change
order works which were not covered by the original agreement. Since respondent required petitioner to prioritize the change order
and additional works, the construction of the four-storey building had to be temporarily halted.
Sometime in 2000, petitioner was able to finish the construction of the four-storey building and two-storey kitchen with dining hall,
albeit behind the scheduled turnover date.
The parties then proceeded to punch list the minor repair works on the project. However, after completing all punch listing
requirements, respondent refused to settle its outstanding obligation to petitioner. Hence, petitioner filed a Complaint for Sum of
Money with Damages before the Regional Trial Court of Pasig City.
Petitioner insists that respondent should pay the remaining balance on the contract price. It asserts that the testimonies and
documentary evidence presented before the trial court sufficiently prove that it was respondent's additional works and change
orders which caused the delay in the completion of the proposed project.

For its part, respondent anchors its non-payment of the remaining balance primarily on the defects and delays incurred by
petitioner in the completion of the construction project. It argues that it was petitioner's undertaking of two new other contracts for
repair works that caused the delay in the completion of the subject project.
ISSUE
Whether or not petitioner is entitled to the payment of the outstanding balance of the contract price.
RULING
Yes.
A close perusal of the records would show that there is no reason for this Court to deviate from the factual findings of the trial
court. It was unnecessary for the appellate court to depart from the factual findings of the trial court as the same is supported by
the evidence on record.
Here, the trial court correctly found that respondent's additional works and change order works caused the delay in the construction
of the subject project. Based on testimonial and documentary evidence gathered by the trial court, it found that -

During the course of the construction project, defendant required plaintiff to undertake several additional works and change order
works. Defendant, through Dra. Germar, ordered the construction of a roof deck, installation of aluminum windows, insulation,
narra parquet, additional lights, doors, confort rooms and air conditioning unit, etc., all of which were not covered by the original
137
agreement. Said works were done in the same area covered by the Agreement. Because defendant told plaintiff to
prioritize the change order and additional works, plaintiff had to stop the construction of the four-
storey building. The access to the roof deck was only 1.5 meters, hence, plaintiff had to stop the construction of the building in
order to allow the materials to pass through.7

Time and again, this Court has also ruled that factual findings of trial courts are entitled to great weight and respect on appeal,
especially when established by unrebutted testimonial and documentary evidence,8 as in this case.
Withal, there is no more need for the appellate court to deviate from its original decision as its factual findings were already
supported by testimonies and evidence on record. As stated in its original decision, it held that the evidence on record categorically
showed that the alluded delay in the completion of the subject project were traceable to the series of additional works and change
order works required by respondent which were not part of the original agreement. Hence, in reversing its own decision, the
appellate court completely disregarded the testimonial and documentary evidence adduced below, and engaged in piecemeal
evaluation of the case by arriving at a decision which is supported by hearsay evidence.
All told, we are not persuaded with respondent's bare claim that petitioner caused the delay in the completion of the project . On the
contrary, testimonial and documentary proof strongly show that the delay was caused by the additional works and
change order works required by respondent which were not part of the original Agreement.
Apropos, Dieparine, Jr. v. Court of Appeals states that "a construction contract necessarily involves reciprocal obligations, as
it imposes upon the contractor the obligation to build the structure subject of the contract, and upon the owner the obligation to
pay for the project upon its completion.
Pursuant to the aforementioned contractual obligations, petitioner completed the construction of the four-storey commercial
building and two-storey kitchen with dining hall. Thus, this Court finds no legal basis for respondent to not comply with its
obligation to pay the balance of the contract price due the petitioner.
What's more, in Heirs of Ramon Gaite v. The Plaza, Inc., this Court held that "under the principle of quantum meruit, a
contractor is allowed to recover the reasonable value of the thing or service rendered in order to avoid unjust enrichment. Quantum
meruit means that in an action for work and labor, payment shall be made in such amount as the plaintiff reasonably deserves.
To deny payment for a building almost completed and already occupied would be to permit unjust enrichment at the
expense of the contractor."
As in this case, petitioner already completed the construction of the project. Hence, it would be the height of injustice to
allow respondent to enjoy the fruits of petitioner's labor without paying the contract price.
BF Corp. v. Werdenberg International Corp.

December 9, 2015
138
FACTS
Petitioner2 find respondent3 entered into a Construction Agreement, under which petitioner would construct for respondent a
three-story building housing a meat processing plant and a showroom office in Yakal Street, Makati City. The parties agreed on a
contract price of Php 43,800,000.00 and a completion and delivery date of April 7, 1995.4
Due to several delays, however, petitioner turned over the building only on August 15, 1995.
Respondent did not accept the building, asserting it had many deficiencies. Respondent paid petitioner only Php 38,088,445.00.6
Thus, petitioner filed a complaint for sum of money against respondent before the Pasig Regional Trial Court (RTC) for the
balance of Php 4,771,221.59. 7 In addition, petitioner prayed for the payment of Php 141,944.93 representing expenses incurred due
to work on respondent's changes or additional orders, and for a judgment that the liquidated damages claimed by respondent in the
amount of Php 3,066,000.00 was without basis.8
PETITIONER’S CONTENTIONS
To recall, petitioner originally claimed it was entitled to a 113 day extension of the contracted delivery date because of various
delays that moved the regular construction date from November 26, 1004 to March 24, 1995. These various delays were broken
down as follows:
 Removal of layers of unforeseen concrete slabs, which took 30-40 days;

 Rectification of the extra soft condition of the soil, which took 14 days;
 Revision of the building plan, which affected the petitioner's conduct of work for a month, or 30 days;
 One month "stop work order" from the City Hall of Makati due to lack of construction permit, or 30 days.
Petitioner argues that respondent concealed the existence of the concrete slabs and the condition of the soil, which necessitated
additional work, expense, and use of sophisticated equipment. 44
The building plan also had to be revised in an attempt to avoid the necessity of submitting an ECC as a measure to facilitate the
approval of the application for a building permit.
At the same time, however, the revised building plan was needed as supporting document to the application for a building permit,
such that without it, the application was put on hold.45
The revision also called for a 180-degree reorientation of the building floor plan, which stalled the progress of construction for a
month because petitioner had to rely on and await mere verbal instructions from respondent's representatives. 46 When the revised
building plan was finally submitted to petitioner in January 1995, 47 the building permit application was further delayed because the
city hall officials questioned the provisions on the parking area. 48
Thus, due to the lack of building permit, the city hall issued and served a "stop work order" in the construction premises on
February 20, 1995. This caused work to stop for a month, or until March 23, 1995, when the building permit was finally secured.
Petitioner also claimed it was entitled to a 130-day extension corresponding to various additional works and change orders from
April 7, 1995 to August 14, 1995. The total number of days for extension, therefore, was 243 days. Petitioner settled for 130 days
instead.
RESPONDENT’S CONTENTIONS
139
In reply to petitioner's request for extension, respondent initially granted 34 days, which were broken down as follows:
 7 days for the removal of concrete slabs

 7 days for the delay in the construction permit
 14 days for the construction of shear walls
 6 days for holidays
According to respondent, it granted only 7 days for the removal of concrete slabs because the delay was caused by the frequent
breakdown of petitioner's equipment. Respondent also granted only 7 days for the delay in the construction permit because it did
not prevent petitioner from continuing with the construction. As for the construction of shear walls, a part of the additional works
which petitioner claimed took 30-40 days to finish, respondent granted only 14 days because the work was gradual. The rest of the
additional works and change orders were categorized by respondent as either linear activities that can be executed simultaneously
with the main work or repeat jobs due to petitioner's poor workmanship and thus, did not merit any extension. On re-evaluation,
respondent granted an additional 26 day extension, for a total extension of 60 days.
We stress at the outset that in its decision, the CA found petitioner entitled to extensions of 35 days for the removal of concrete
slabs, and 7 days for the work stoppage brought by a boundary dispute with Sinclair Paints. The CA then upheld respondent's total
grant of a 60 day extension. The computation, however does not add up. Petitioner would be entitled to a 42 day extension for the
concrete slabs and the boundary dispute alone, leaving an additional extension of 18 days for other causes of delay. While the CA
found petitioner not entitled to any extension for the supposed delay in the building permit, it ignored the extensions of 14 days for
the construction of the shear walls, and 6 days for the holidays which respondent already granted in favor of petitioner. These
would have totalled to an additional extension of 20 days. In effect, the CA's computation would not jibe with that of the
respondent's.
ISSUE
Whether respondent is entitled to liquidated damages and how much it is entitled to.
RULING
Main ruling: Respondent is entitled to the expenses for the repainting job.
Petitioner wrote respondent a letter of turnover dated August 16, 1995. 114 On August 18, 1995, respondent replied, detailing its
comments on the turnover list. 115 A recurring comment was the need to either re-paint or to complete the painting job. Respondent
rejected the turnover until such time that petitioner would have "favorably remedied [respondent's] complaints on the defects xxx
and generally on workmanship of the building." 116 Petitioner acknowledged these defects in a letter dated October 11, 1995 and
informed respondent that it will proceed with repainting. 117 Clearly, the defects in the painting job were covered by the guarantee of
petitioner.
The bid proposal of petitioner stipulates the following:
All works shall be under our guarantee for a period of one (1) year. Any defects that may arise due to poor workmanship and
inferior quality of material supplied from the date of acceptance and guarantee period shall be repaired and replaced by us
without any cost to the Owner.
Section 15 of the Construction Agreement provides in part:
15. GUARANTEE - It is expressly agreed and understood that the CONTRACTOR guarantees the work against all defects of materials
and workmanship for a period of (1) one year from the date of issuances [sic] of the letter of acceptance. Any defects
discovered during said period shall be made good by the CONTRACTOR at its own expense upon notification in writing by the
OWNER, x x x120
However, the repainting job still proved deficient. In a letter dated May 31, 1996, 121 respondent informed petitioner that it has taken
the initiative to get an outside contractor for the subsisting deficiencies. Respondent subsequently contracted Silver Line Builders
140
for the repainting job in the contract price of Php 1,050,000.00. 122 Petitioner should answer for these expenses, pursuant to
Article 1167 of the Civil Code:
Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that
what has been poorly done be undone.
Section 6 of the Construction Agreement also provides, in part, that if the work is found defective in any material respect due to the
fault of the contractor, the defects should be removed and replaced and all expenses of satisfactory reconstruction of the replaced
materials shall be for its sole account.123
Sub-rulings
I. Petitioner is entitled to an extension of 21 days for the delay during the excavation stage
The daily reports of respondent's project manager, Engr. Arnulfo Delima, show that petitioner performed earth and demolition
works involving excavation, boulders and gravel filling, and soil poisoning from December 9, 1994 to February 14, 1995.
But in the construction schedule petitioner submitted to respondent, the duration of the earth and demolition works should have
only been from and until mid-December 1994. Petitioner accuses respondent of suppressing information about the existence of the
concrete slabs and the extra soft condition of the soil, which were material in petitioner's determination of the time and cost
required by the works. Thus, petitioner asks for a total extension of approximately 1 and 1/2 months equivalent to the actual period
it took petitioner to perform these earthworks.
We disagree that petitioner is entitled to a full extension of its request (30-40 days for the removal of the concrete slabs and 14
days for arresting the soil condition). We hold that for these excavation works, it is fair to grant petitioner with a total extension of
only 21 days or three weeks.
The existence of the layers of concrete slabs and the extra soft condition of the soil was not easily determinable upon site
inspection. In fact, these were not included in the Construction Agreement or in the Minutes of the Pre-Bid Conferences. Petitioner
would have considered in its bid plan and proposal the attendant time and costs the measures required to address these conditions
had it known about them from the beginning. 53 In Advanced Foundation Construction Systems Corporation v. New World Properties
and Ventures, Inc., we deferred to the expert opinion of the Construction Industry Arbitration Commission that in practice, removal
of underground obstructions is a "major item of work" that needs to be included in the contractor's scope of work. It cannot be
understood as being merely subsumed under the general heading "miscellaneous."
Mere, the CA agreed with petitioner that the concrete slabs were unforeseen and their removal caused delay in the construction
phase. The CA also acknowledged that the extra soft condition of the soil cannot be easily seen with the naked eye. The CA thus
held "it is understandable that BFC could not be expected, upon ocular inspection, to immediately determine the soil condition."
We rule, however, that the removal of the concrete slabs and the filling of boulders may have taken two or three more times in
effort to accomplish than usual.57 The removal also took time because of the frequent breakdown of the heavy equipment petitioner
used in the process, and petitioner's failure to provide enough manpower. The daily reports 58 support this and Engr. Delima also
convincingly testified.
Petitioner was obliged to provide "all materials, labor, tools, and equipments [sic], and other incidentals required for the complete
and satisfactory completion of the project" for the project. Under Section 5 of the Construction Agreement, "[a]ll materials
and labor of every grade and equipment necessary for the prosecution and termination of the work shall be of the best grade of
their respective kind and the quality of workmanship shall be in accordance with the requirements of the contract and its
Annexes." Petitioner was, therefore, obliged to provide the appropriate equipment in good running condition. Failing on this,
petitioner is not entitled to the full extension of 30 - 40 days it requested.
141
II. We also disagree that petitioner is entitled to a full extension of 14 days it requested for the delay
caused by the extra soft condition of the soil.
Firstly, we defer to the testimony of Arch. Orencio Sare, Jr., the designer of the building, that the soil investigation report dated
September 1994 was not crucial for the contractor's work. Arch. Sare testified that the report was only instrumental for the
designer's work and not for the contractor's because it was intended to determine the soil bearing capacity. 63 Hence, we agree that
there was no malicious intention to suppress the soil investigation report from petitioner, even if it was only furnished to petitioner
alter the contract was awarded in November 1994. 64 This is not to say, however, that the contractor should not be apprised of the
actual condition of the soil before bidding. The soil report could have assisted petitioner in estimating the extent of its excavation
works. As Mr. Gerardo Apoderado65 testified, the extra soft condition of the soil spelled problems because the area cannot be
excavated to the required elevation.66 In its letter dated December 9, 1994, 67 petitioner proposed to respondent that since the
actual soil condition is very soft, thicker boulders and a thicker gravel base should be used. Petitioner then informed respondent
that these changes, on top of the demolition of unforeseen concrete slabs and arresting the soil condition, would result in additional
working time and cost. Respondent did not object to or refute this letter. 68
Respondent claims, however, that petitioner was responsible for the delay caused by the soil condition because it failed to
immediately provide remedies when water from a broken drainage nearby seeped in. 69 Thus, in a letter dated January 16, 1995,
respondent reminded petitioner of the required bottom elevation and noted that petitioner's latest excavation was undercut.
Respondent also brought to petitioner's attention the muddy condition of the excavated area. 70
We agree with the CA that petitioner should have taken measures to address the problem with the broken drainage. We note that
as of January 16, 1995, petitioner had failed to properly stabilize the soil and obtain the required elevation of the area. 71 This is a
lapse which merits a reduction on petitioner's estimate for extension. We merely reduce the extension on the finding that at most,
the broken drainage only aggravated the soil condition, but doesn't change the fact that it had been extra soft from the start. It was
not even shown when the drainage broke and leaked and whether its effects were visible or known to petitioner from the
beginning. Furthermore, in the same manner that petitioner should answer for the faulty equipment used in the removal of the
concrete slabs, petitioner should also answer for the delay in the deliveries of the boulders used for filling in the excavated area. 72
All told, both parties were responsible for the delay caused by the excavation and earthworks. Thus, even if petitioner may be held
liable for negligence in the performance of its obligation, Article 1172 of the Civil Code 73 provides that such liability may be
regulated by the courts according to the circumstances of the case. Here, the existence of concrete slabs and the extra soft soil
remained a condition beyond the control of petitioner. Since these caused an unforeseen delay in the excavation stage, petitioner
should be credited accordingly. We find that a reduced extension of 21 days for the earth and demolition works is commensurate
and fair.
1168 – VIOLATIONS OF NEGATIVE PERSONAL OBLIGATIONS
Fajardo, Jr. v. Freedom to Build Inc.,

August 1, 2000
FACTS
Freedom To Build, Incorporated, an owner-developer and seller of low-cost housing, sold to petitioner-spouses, a house and lot
designated Lot No. 33, Block 14, of the De la Costa Homes in Barangka, Marikina, Metro Manila. The Contract to Sell executed
between the parties, contained a Restrictive Covenant providing certain prohibitions, to wit:
"Easements. For the good of the entire community, the homeowner must observe a two-meter easement in front. No structure of
any kind (store, garage, bodega, etc.) may be built on the front easement.
"Upward expansion. A second storey is not prohibited. But the second storey expansion must be placed above the back portion
of the house and should not extend forward beyond the apex of the original building.
"Front expansion: 2nd Storey: No unit may be extended in the front beyond the line as designed and implemented by the
142
developer in the 60 sq. m. unit. In other words, the 2nd floor expansion, in front, is 6 meters back from the front property line and
4 meters back from the front wall of the house, just as provided in the 60 sq. m. units.’’
The above restrictions were also contained in Transfer Certificate of Title No. N-115384 covering the lot issued in the name of
petitioner-spouses.
The controversy arose when petitioners, despite repeated warnings from respondent, extended the roof of their house to the
property line and expanded the second floor of their house to a point directly above the original front wall. Respondent filed before
the Regional Trial Court, National Capital Judicial Region, Branch 261, Pasig City, an action to demolish the unauthorized structures.
ISSUE
RULING
In their petition for review to this Court, the spouses contest the judgment of the courts below. Adjacent owners reportedly have no
objection to the construction, and have even expressed interest in undertaking a similar expansion in their respective residences.
Moreover, the couple's two children, a son and a daughter, might soon get married and then share, with their families, living
quarters with petitioners. The latter also assail the personality of private respondent to question the construction which have
effectively relinquished its ownership, right or interest over the subdivision upon the execution of the Deed of Absolute Sale in favor
of the individual homeowners. Per the contract between Freedom to Build Incorporated and the De la Costa Low Income Project
Homeowners' Association (hereinafter homeowners' association), petitioners aver, the enforcement of the prohibitions contained in
the "Restrictive Covenant" originally residing on respondent is now lodged in the homeowners' association. Petitioners maintain that
it is incumbent upon the homeowners' association, not on respondent, to enforce compliance with the provisions of the covenant.
A perusal of the provisions of the covenant would show that the restrictions therein imposed were intended -
"For the protection and benefit of the De La Costa Low Income Housing Project, and of all the persons who may now, or hereafter
become owners of any part of the project, and as part of the consideration for the conveyance of the housing unit, these
restrictions are promulgated in order that; the intents and purposes for which the project was designed shall be upheld; to wit:
subsequent duly approved sale and assignments of housing units shall be made only to low income families; a certain level of
privacy shall be observed; a community spirit shall be fostered; and an undisturbed possession and occupancy at the homeowners
shall be maintained."5
Restrictive covenants are not, strictly speaking, synonymous with easements. While it may be correct to state that restrictive
covenants on the use of land or the location or character of buildings or other structures thereon may broadly be said to create
easements or rights, it can also be contended that such covenants, being limitations on the manner in which one may use his own
property, do not result in true easements, but a case of servitudes (burden), sometimes characterized to be negative easements or
reciprocal negative easements. Negative easement is the most common easement created by covenant or agreement whose effect
is to preclude the owner of the land from doing an act, which, if no easement existed, he would be entitled to do.
Courts which generally view restrictive covenants with disfavor for being a restriction on the use of one's property, have,
nevertheless, sustained them where the covenants are reasonable, not contrary to public policy, or to law, and not in restraint of
trade. Subject to these limitations, courts enforce restrictions to the same extent that will lend judicial sanction to any other valid
contractual relationship. In general, frontline restrictions on constructions have been held to be valid stipulations.
The provisions in a restrictive covenant prescribing the type of the building to be erected are crafted not solely for the purpose of
creating easements, generally of light and view, nor as a restriction as to the type of construction, but may also be aimed as a
check on the subsequent uses of the building conformably with what the developer originally might have intended the stipulations to
be. In its Memorandum, respondent states in arguing for the validity of the restrictive covenant that the –
143
"restrictions are not without specific purpose. In a low cost-socialized housing, it is of public knowledge that owners-developers are
constrained to build as many number of houses on a limited land area precisely to accommodate marginalized lot buyers, providing
as much as possible the safety, aesthetic and decent living condition by controlling overcrowding. Such project has been designed
to accommodate at least 100 families per hectare."
There appears to be no cogent reasons for not upholding restrictive covenants aimed to promote aesthetics, health, and privacy or
to prevent overcrowding.
Viewed accordingly, the statement of petitioners that their immediate neighbors have not opposed the construction is unavailing to
their cause, the subject restrictive covenant not being intended for the benefit of adjacent owners but to prescribe the uses of the
building, i.e., to ensure, among other things, that the structures built on De la Costa Homes Subdivision would prevent
overcrowding and promote privacy among subdivision dwellers. The argument then of petitioners that expansion is necessary in
order to accommodate the individual families of their two children must fail for like reason. Nor can petitioners claim good faith; the
restrictive covenants are explicitly written in the Contract To Sell and annotated at the back of the Transfer Certificate of Title.
Petitioners raise the issue of the personality of respondent to enforce the provisions of the covenant. Broadly speaking, a suit for
equitable enforcement of a restrictive covenant can only be made by one for whose benefit it is intended. It is not thus normally
enforceable by one who has no right nor interest in the land for the benefit of which the restriction has been imposed. Thus, a
developer of a subdivision can enforce restrictions, even as against remote grantees of lots, only if he retains part of the land. There
would have been merit in the argument of petitioners - that respondent, having relinquished ownership of the subdivision to the
homeowners, is precluded from claiming any right or interest on the same property - had not the homeowners' association,
confirmed by its board of directors, allowed respondent to enforce the provisions of the restrictive covenant.
Finally, petitioners argue that for lack of a specific provision, prescribing the penalty of demolition in the "Restrictive Covenant" in
the event of a breach thereof, the prayer of respondent to demolish the structure should fail. This argument has no merit; Article
1168 of the New Civil Code states:
"When the obligation consists in not doing and the obligor does what has been forbidden him, it shall be undone at his expense."
This Court is not unaware of its ruling in Ayala Corporation vs. Ray Burton Development Corporation, which has merely
adjudged the payment of damages in lieu of demolition. In the aforementioned case, however, the elaborate mathematical formula
for the determination of compensatory damages which takes into account the current construction cost index during the
immediately preceding 5 years based on the weighted average of wholesale price and wage indices of the National Census and
Statistics Office and the Bureau of Labor Statistics is explicitly provided for in the Deed of Restrictions entered into by the parties.
This unique and peculiar circumstance, among other strong justifications therein mentioned, is not extant in the case at bar.
In sum, the Court holds that -
(1)....The provisions of the Restrictive Covenant are valid;
(2)....Petitioners must be held to be bound thereby; and
(3)....Since the extension constructed exceeds the floor area limits of the Restrictive Covenant, petitioner-spouses can be required
to demolish the structure to the extent that it exceeds the prescribed floor area limits.
Rivera v. Solidbank Corp.,

G.R. No. 163269, [April 19, 2006]
FACTS
144
Rivera was an employee of Solidbank for several years. After deciding to focus on his poultry business, he availed one of the two
retirement programs of his employer. In consideration for his availment of the SRP ( the Special Retirement Program (SRP),
under which a retiring employee would receive 250% of the gross monthly salary multiplied by the number of years
in service.), Rivera and Solidbank executed the Release, Waiver and Quitclaim, and the Undertaking as supplement thereto, and
that he received retirement pay amounting to P963,619.28 from respondent. On May 1, 1995, within the one-year ban (as
stipulated in the Undertaking) and without prior knowledge of respondent, petitioner was employed by Equitable as Manager of its
Credit Investigation and Appraisal Division, Consumers' Banking Group. Despite demands, petitioner failed to return the P963,
619.28 to respondent on the latter's allegation that he had breached the one-year ban by accepting employment from Equitable,
which according to respondent was a competitor bank.
The issues for resolution are:
(1) whether the parties raised a genuine issue in their pleadings, affidavits, and documents, that is, whether the employment ban
incorporated in the Undertaking which petitioner executed upon his retirement is unreasonable, oppressive, hence, contrary to
public policy;
and (2) whether petitioner is liable to respondent for the restitution of P963,619.28 representing his retirement benefits, and
interest thereon at 12% per annum as of May 23, 1995 until payment of the full amount.
On the first issue, petitioner claims that, based on the pleadings of the parties, and the documents and affidavits appended
thereto, genuine issues as to matters of fact were raised therein. He insists that the resolution of the issue of whether the
employment ban is unreasonable requires the presentation of evidence on the circumstances which led to respondent bank's offer
of the SRP and ORP, and petitioner's eventual acceptance and signing of the Undertaking on March 1, 1995. There is likewise a
need to adduce evidence on whether the employment ban is necessary to protect respondent's interest, and whether it is an undue
restraint on petitioner's constitutional right to earn a living to support his family. He further insists that respondent is burdened to
prove that it sustained damage or injury by reason of his alleged breach of the employment ban since neither the Release, Waiver
and Quitclaim, and Undertaking he executed contain any provision that respondent is automatically entitled to the restitution of the
P963,619.28. Petitioner points out that all the deeds provide is that, in case of breach thereof, respondent is entitled to protection
before the appropriate courts of law.
On the second issue, petitioner avers that the prohibition incorporated in the Release, Waiver and Quitclaim barring him as
retiree from engaging directly or indirectly in any unlawful activity and disclosing any information concerning the business of
respondent bank, as well as the employment ban contained in the Undertaking he executed, are oppressive, unreasonable, cruel
and inhuman because of its overbreath . He reiterates that it is against public policy, an unreasonable restraint of trade, because it
prohibits him to work for one year in the Philippines, ultimately preventing him from supporting his family. He points out that a
breadwinner in a family of four minor daughters who are all studying, with a wife who does not work, one would have a very
difficult time meeting the financial obligations even with a steady, regular-paying job. He insists that the Undertaking deprives him
of the means to support his family, and ultimately, his children's chance for a good education and future. He reiterates that the
returns in his poultry business fell short of his expectations, and unfortunately, the business was totally destroyed by typhoon
"Rosing" in November 1995.
Petitioner further maintains that respondent's management prerogative does not give it a license to entice its employees to retire at
a very young age and prohibit them from seeking employment in a so-called competitor bank or financial institution, thus prevent
them from working and supporting their families (considering that banking is the only kind of work they know). Petitioner avers that
"management's prerogative must be without abuse of discretion . A line must be drawn between management prerogative regarding
business operations per se and those which affect the rights of the employees . In treating its employees, management should see
to it that its employees are at least properly informed of its decision or modes of action."
145
On the last issue, petitioner alleges that the P1,045,258.95 he received was his retirement benefit which he earned after serving
the bank for 18 years. It was not a mere gift or gratuity given by respondent bank, without the latter giving up something of value
in return. On the contrary, respondent bank received "valuable consideration," that is, petitioner quit his job at the relatively young
age of 45, thus enabling respondent to effect its reorganization plan and forego the salary, benefits, bonuses, and promotions he
would have received had he not retired early.
Petitioner avers that, under the Undertaking, respondent would be entitled to a cause of action against him before the appropriate
courts of law if he had violated the employment ban. He avers that respondent must prove its entitlement to the P963,619.28. The
Undertaking contains no provision that he would have to return the amount he received under the SRP; much less does it provide
that he would have to pay 12% interest per annum on said amount. On the other hand, the Release, Waiver and Quitclaim does not
contain the provision prohibiting him from being employed with any competitor bank or financial institution within one year from
February 28, 1995. Petitioner insists that he acted in good faith when he received his retirement benefits; hence, he cannot be
punished by being ordered to return the sum of P963,619.28 which was given to him for and in consideration of his early
retirement.
Neither can petitioner be subjected to the penalty of paying 12% interest per annum on his retirement pay of P963,619.28 from
May 23, 1995, as it is improper and oppressive to him and his family. As of July 3, 2002, the interest alone would amount to
P822,609.67, thus doubling the amount to be returned to respondent bank under the decision of the RTC and the CA. The
imposition of interest has no basis because the Release, Waiver and Quitclaim, and the Undertaking do not provide for payment of
interest. The deeds only state that breach thereof would entitle respondent to bring an action to seek damages, to include the
return of the amount that may have been paid to petitioner by virtue thereof. On the other hand, any breach of the Undertaking or
the Release, Waiver and Quitclaim would only entitle respondent to a cause of action before the appropriate courts of law. Besides,
the amount received by petitioner was not a loan and, therefore, should not earn interest pursuant to Article 1956 of the Civil
Code.
Finally, petitioner insists that he acted in good faith in seeking employment with another bank within one year from February 28,
1995 because he needed to earn a living to support his family and finance his children's education. Hence, the imposition of
interest, which is a penalty, is unwarranted.
By way of Comment on the petition, respondent avers that the Undertaking is the law between it and petitioner. As such, the latter
could not assail the deed after receiving the retirement benefit under the SRP. As gleaned from the averments in his petition,
petitioner admitted that he executed the Undertaking after having been informed of the nature and consequences of his refusal to
sign the same, i.e., he would not be able to receive the retirement benefit under the SRP.
Respondent maintains that courts have no power to relieve parties of obligations voluntarily entered into simply because their
contracts turned out to be disastrous deeds. Citing the ruling of this Court in Eastern Shipping Lines, Inc. v. Court of Appeals , [26]
respondent avers that petitioner is obliged to pay 12% per annum interest of the P963,619.28 from judicial or extrajudicial
demand.
In reply, petitioner asserts that respondent failed to prove that it sustained damages, including the amount thereof , and
that neither the Release, Waiver and Quitclaim nor the Undertaking obliged him to pay interest to respondent.
ISSUE
146
(1) whether the parties raised a genuine issue in their pleadings, affidavits, and documents, that is, whether the employment
ban incorporated in the Undertaking which petitioner executed upon his retirement is unreasonable, oppressive, hence,
contrary to public policy; and
(2) ) whether petitioner is liable to respondent for the restitution of P963,619.28 representing his retirement benefits, and
interest thereon at 12% per annum as of May 23, 1995 until payment of the full amount
RULING
RULING
The petition is meritorious.
I. Summary judgment for breach of contract
Sections 1 and 3, Rule 34 of the Revised Rules of Civil Procedure provide:
Section 1. Summary judgment for claimant. - A party seeking to recover upon a claim, counterclaim, or cross-claim or to obtain a
declaratory relief may, at any time after the pleading in answer thereto has been served, move with supporting affidavits,
depositions or admissions for a summary judgment in his favor upon all or any part thereof.
Sec. 3. Motion and proceedings thereon . - The motion shall be served at least ten (10) days before the time specified for the
hearing. The adverse party may serve opposing affidavits, depositions, or admissions at least three (3) days before the hearing.
After the hearing, the judgment sought shall be rendered forthwith if the pleadings, supporting affidavits, depositions, and
admissions on file, show that, except as to the amount of damages, there is no genuine issue as to any material fact and that the
moving party is entitled to a judgment as a matter of law.
For a summary judgment to be proper, the movant must establish two requisites: (a) there must be no genuine issue as to any
material fact, except for the amount of damages; and (b) the party presenting the motion for summary judgment must be entitled
to a judgment as a matter of law. Where, on the basis of the pleadings of a moving party, including documents appended thereto,
no genuine issue as to a material fact exists, the burden to produce a genuine issue shifts to the opposing party. If the opposing
party fails, the moving party is entitled to a summary judgment.
A genuine issue is an issue of fact which requires the presentation of evidence as distinguished from an issue which is a sham,
fictitious, contrived or a false claim. The trial court can determine a genuine issue on the basis of the pleadings, admissions,
documents, affidavits or counteraffidavits submitted by the parties. When the facts as pleaded appear uncontested or undisputed,
then there is no real or genuine issue or question as to any fact and summary judgment called for. On the other hand, where the
facts pleaded by the parties are disputed or contested, proceedings for a summary judgment cannot take the place of a trial. The
evidence on record must be viewed in light most favorable to the party opposing the motion who must be given the benefit of all
favorable inferences as can reasonably be drawn from the evidence.
Courts must be critical of the papers presented by the moving party and not of the papers/documents in opposition thereto.
Conclusory assertions are insufficient to raise an issue of material fact. A party cannot create a genuine dispute of material fact
through mere speculations or compilation of differences. He may not create an issue of fact through bald assertions, unsupported
contentions and conclusory statements. He must do more than rely upon allegations but must come forward with specific facts in
support of a claim. Where the factual context makes his claim implausible, he must come forward with more persuasive evidence
demonstrating a genuine issue for trial.
147
Where there are no disputed material facts, the determination of whether a party breached a contract is a question
of law and is appropriate for summary judgment. When interpreting an ambiguous contract with extrinsic evidence,
summary judgment is proper so long as the extrinsic evidence presented to the court supports only one of the conflicting
interpretations. Where reasonable men could differ as to the contentions shown from the evidence, summary judgment might be
denied.
In United Rentals (North America), Inc. v. Keizer , the U.S. Circuit Court of Appeals resolved the issue of whether a summary
judgment is proper in a breach of contract action involving the interpretation of such contract, and ruled that:
[A] contract can be interpreted by the court on summary judgment if (a) the contract's terms are clear, or (b) the evidence
supports only one construction of the controverted provision, notwithstanding some ambiguity. x x x If the court finds
no ambiguity, it should proceed to interpret the contract - and it may do so at the summary judgment stage. If, however, the court
discerns an ambiguity, the next step - involving an examination of extrinsic evidence - becomes essential. x x x Summary judgment
may be appropriate even if ambiguity lurks as long as the extrinsic evidence presented to the court supports only one of the
conflicting interpretations.
In this case, there is no dispute between the parties that, in consideration for his availment of the SRP, petitioner executed the
Release, Waiver and Quitclaim, and the Undertaking as supplement thereto, and that he received retirement pay amounting to
P963,619.28 from respondent. On May 1, 1995, within the one-year ban and without prior knowledge of respondent, petitioner was
employed by Equitable as Manager of its Credit Investigation and Appraisal Division, Consumers' Banking Group. Despite demands,
petitioner failed to return the P963,619.28 to respondent on the latter's allegation that he had breached the one-year ban by
accepting employment from Equitable, which according to respondent was a competitor bank.
II.
We agree with petitioner's contention that the issue as to whether the post-retirement competitive employment ban incorporated in
the Undertaking is against public policy is a genuine issue of fact, requiring the parties to present evidence to support their
respective claims.
As gleaned from the records, petitioner made two undertakings. The first is incorporated in the Release, Waiver and Quitclaim
that he signed, to wit:
4. I will not, at any time, in any manner whatsoever, directly or indirectly engage in any unlawful activity prejudicial to the interest
of the BANK, its parent, affiliate or subsidiary companies, their stockholders, officers, directors, agents or employees, and their
successors-in-interest and will not disclose any information concerning the business of the BANK, its manner or operation, its plans,
processes or data of any kind.
The second undertaking is incorporated in the Undertaking following petitioner's execution of the Release, Waiver and Quitclaim
which reads:
4. That as a supplement to the Release and Quitclaim, I executed in favor of Solidbank on FEBRUARY 28, 1995, I hereby expressly
undertake that I will not seek employment with any competitor bank or financial institution within one (1) year from February 28,
1995.
148
In the Release, Waiver and Quitclaim, petitioner declared that respondent may bring " an action for damages which may include, but
not limited to the return of whatever sums he may have received from respondent under said deed if he breaks his undertaking
therein." On the other hand, petitioner declared in the Undertaking that "any breach on his part of said Undertaking or the terms
and conditions of the Release, Waiver and Quitclaim will entitle respondent to a cause of action against [petitioner] for protection
before the appropriate courts of law."
Article 1306 of the New Civil Code provides that the contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy.
The freedom of contract is both a constitutional and statutory right. A contract is the law between the parties and courts have no
choice but to enforce such contract as long as it is not contrary to law, morals, good customs and against public policy.
The well-entrenched doctrine is that the law does not relieve a party from the effects of an unwise, foolish or disastrous
contract, entered into with full awareness of what he was doing and entered into and carried out in good faith. Such
a contract will not be discarded even if there was a mistake of law or fact. Courts have no jurisdiction to look into the wisdom of the
contract entered into by and between the parties or to render a decision different therefrom. They have no power to relieve parties
from obligation voluntarily assailed, simply because their contracts turned out to be disastrous deals.
On the other hand, retirement plans, in light of the constitutional mandate of affording full protection to labor, must be liberally
construed in favor of the employee, it being the general rule that pension or retirement plans formulated by the employer
are to be construed against it. Retirement benefits, after all, are intended to help the employee enjoy the remaining years of
his life, releasing him from the burden of worrying for his financial support, and are a form of reward for being loyal to the
employer.
In Ferrazzini v. Gsell, the Court defined public policy in civil law countries and in the United States and the Philippines:
By "public policy," as defined by the courts in the United States and England, is intended that principle of the law which holds that
no subject or citizen can lawfully do that which has a tendency to be injurious to the public or against the public good, which may
be termed the "policy of the law," or "public policy in relation to the administration of the law ." (Words & Phrases Judicially Defined,
vol. 6, p. 5813, and cases cited.) Public policy is the principle under which freedom of contract or private dealing is
restricted by law for the good of the public. (Id., Id.) In determining whether a contract is contrary to public policy the nature
of the subject matter determines the source from which such question is to be solved. (Hartford Fire Ins. Co. v. Chicago, M. & St. P.
Ry. Co., 62 Fed. 904, 906.)
The foregoing is sufficient to show that there is no difference in principle between the public policy ( orden publico) in the two
jurisdictions (the United States and the Philippine Islands) as determined by the Constitution, laws, and judicial decisions.
The Court proceeded to define "trade" as follows:
In the broader sense, it is any occupation or business carried on for subsistence or profit. Anderson's Dictionary of Law gives the
following definition: "Generally equivalent to occupation, employment, or business, whether manual or mercantile; any occupation,
employment or business carried on for profit, gain, or livelihood, not in the liberal arts or in the learned professions." In Abbott's
Law Dictionary, the word is defined as "an occupation, employment or business carried on for gain or profit." Among the
definitions given in the Encyclopaedic Dictionary is the following: "The business which a person has learnt, and which he carries on
for subsistence or profit; occupation; particularly employment, whether manual or mercantile, as distinguished from the liberal arts
or the learned professions and agriculture." Bouvier limits the meaning to commerce and traffic, and the handicraft of mechanics.
(In re Pinkney, 47 Kan., 89.) We are inclined to adopt and apply the broader meaning given by the lexicographers.
149
In the present case, the trial court ruled that the prohibition against petitioner accepting employment with a competitor bank or
financial institution within one year from February 28, 1995 is not unreasonable. The appellate court held that petitioner was
estopped from assailing the post-retirement competitive employment ban because of his admission that he signed the Undertaking
and had already received benefits under the SRP.
The rulings of the trial court and the appellate court are incorrect.
There is no factual basis for the trial court's ruling, for the simple reason that it rendered summary judgment and thereby
foreclosed the presentation of evidence by the parties to prove whether the restrictive covenant is reasonable or not.
Moreover, on the face of the Undertaking, the post-retirement competitive employment ban is unreasonable because it has
no geographical limits; respondent is barred from accepting any kind of employment in any competitive bank within the
proscribed period. Although the period of one year may appear reasonable, the matter of whether the restriction is reasonable or
unreasonable cannot be ascertained with finality solely from the terms and conditions of the Undertaking, or even in tandem with
the Release, Waiver and Quitclaim.
Undeniably, petitioner retired under the SRP and received P963,619.28 from respondent. However, petitioner is not proscribed,
by waiver or estoppel, from assailing the post-retirement competitive employment ban since under Article 1409 of
the New Civil Code, those contracts whose cause, object or purpose is contrary to law, morals, good customs, public
order or public policy are inexistent or void from the beginning. Estoppel cannot give validity to an act that is prohibited by
law or one that is against public policy. [51]
Respondent, as employer, is burdened to establish that a restrictive covenant barring an employee from accepting a competitive
employment after retirement or resignation is not an unreasonable or oppressive, or in undue or unreasonable restraint of trade ,
thus, unenforceable for being repugnant to public policy. As the Court stated in Ferrazzini v. Gsell, cases involving contracts in
restraint of trade are to be judged according to their circumstances, to wit:
There are two principal grounds on which the doctrine is founded that a contract in restraint of trade is void as against
public policy.
One is, 1. the injury to the public by being deprived of the restricted party's industry; and the other is, the
2. injury to the party himself by being precluded from pursuing his occupation, and thus being prevented from supporting himself
and his family.
And in Gibbs vs. Consolidated Gas Co. of Baltimore, supra, the court stated the rule thus:
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Public welfare is first considered, and if it be not involved, and the restraint upon one party is not greater than protection to the
other party requires, the contract may be sustained. The question is, whether, under the particular circumstances of the
case and the nature of the particular contract involved in it, the contract is, or is not, unreasonable.
In cases where an employee assails a contract containing a provision prohibiting him or her from accepting competitive employment
as against public policy, the employer has to adduce evidence to prove that the restriction is reasonable and not greater than
necessary to protect the employer's legitimate business interests. The restraint may not be unduly harsh or oppressive in
curtailing the employee's legitimate efforts to earn a livelihood and must be reasonable in light of sound public policy.
Courts should carefully scrutinize all contracts limiting a man's natural right to follow any trade or profession
anywhere he pleases and in any lawful manner. But it is just as important to protect the enjoyment of an establishment in
trade or profession, which its employer has built up by his own honest application to every day duty and the faithful performance of
the tasks which every day imposes upon the ordinary man. What one creates by his own labor is his. Public policy does not intend
that another than the producer shall reap the fruits of labor; rather, it gives to him who labors the right by every legitimate means
to protect the fruits of his labor and secure the enjoyment of them to himself. Freedom to contract must not be unreasonably
abridged. Neither must the right to protect by reasonable restrictions that which a man by industry, skill and good judgment has
built up, be denied.
The Court reiterates that the determination of reasonableness is made on the particular facts and circumstances of
each case. [58] In Esmerson Electric Co. v. Rogers , [59] it was held that the question of reasonableness of a restraint requires a
thorough consideration of surrounding circumstances, including the subject matter of the contract, the purpose to be served, the
determination of the parties, the extent of the restraint and the specialization of the business of the employer. The court has to
consider whether its enforcement will be injurious to the public or cause undue hardships to the employee, and whether the
restraint imposed is greater than necessary to protect the employer. Thus, the court must have before it evidence relating to the
legitimate interests of the employer which might be protected in terms of time, space and the types of activity proscribed .
Consideration must be given to the employee's right to earn a living and to his ability to determine with certainty
the area within which his employment ban is restituted. A provision on territorial limitation is necessary to guide an
employee of what constitutes as violation of a restrictive covenant and whether the geographic scope is co-extensive with that in
which the employer is doing business. In considering a territorial restriction, the facts and circumstances surrounding
the case must be considered.
Thus, in determining whether the contract is reasonable or not, the trial court should consider the following factors:
(a) whether the covenant protects a legitimate business interest of the employer;
(b) whether the covenant creates an undue burden on the employee;
(c) whether the covenant is injurious to the public welfare;
(d) whether the time and territorial limitations contained in the covenant are reasonable; and
(e) whether the restraint is reasonable from the standpoint of public policy. [62]
Not to be ignored is the fact that the banking business is so impressed with public interest where the trust and interest of the public
in general is of paramount importance such that the appropriate standard of diligence must be very high, if not the highest degree
of diligence.
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We are not impervious of the distinction between restrictive covenants barring an employee to accept a post-employment
competitive employment or restraint on trade in employment contracts and restraints on post-retirement competitive
employment in pension and retirement plans either incorporated in employment contracts or in collective bargaining agreements
between the employer and the union of employees, or separate from said contracts or collective bargaining agreements which
provide that an employee who accepts post retirement competitive employment will forfeit retirement and other benefits or will be
obliged to restitute the same to the employer. The strong weight of authority is that forfeitures for engaging in subsequent
competitive employment included in pension and retirement plans are valid even though unrestricted in time or geography .
The raison d'etre is explained by the United States Circuit Court of Appeals in Rochester Corporation v. W.L. Rochester, Jr.: [64]
x x x The authorities, though, generally draw a clear and obvious distinction between restraints on competitive employment in
employment contracts and in pension plans. The strong weight of authority holds that forfeitures for engaging in subsequent
competitive employment, included in pension retirement plans, are valid, even though unrestricted in time or geography. The
reasoning behind this conclusion is that the forfeiture, unlike the restraint included in the employment contract, is not a prohibition
on the employee's engaging in competitive work but is merely a denial of the right to participate in the retirement plan if he does so
engage. A leading case on this point is Van Pelt v. Berefco, Inc., supra, 208 N.E.2d at p. 865, where, in passing on a forfeiture
provision similar to that here, the Court said:
"A restriction in the contract which does not preclude the employee from engaging in competitive activity, but simply provides for
the loss of rights or privileges if he does so is not in restraint of trade." (emphasis added) [65]
A post-retirement competitive employment restriction is designed to protect the employer against competition by former
employees who may retire and obtain retirement or pension benefits and, at the same time, engage in competitive employment.
We have reviewed the Undertaking which respondent impelled petitioner to sign, and find that in case of failure to comply with the
promise not to accept competitive employment within one year from February 28, 1995, respondent will have a cause of action
against petitioner for "protection in the courts of law." The words "cause of action for protection in the courts of law" are so broad
and comprehensive, that they may also include a cause of action for prohibitory and mandatory injunction against petitioner,
specific performance plus damages, or a damage suit (for actual, moral and/or exemplary damages), all inclusive of the restitution
of the P963,619.28 which petitioner received from respondent. The Undertaking and the Release, Waiver and Quitclaim do
not provide for the automatic forfeiture of the benefits petitioner received under the SRP upon his breach of said
deeds. Thus, the post-retirement competitive employment ban incorporated in the Undertaking of respondent does not, on its face,
appear to be of the same class or genre as that contemplated in Rochester.
It is settled that actual damages or compensatory damages may be awarded for breach of contracts. Actual damages are primarily
intended to simply make good or replace the loss covered by said breach. They cannot be presumed. Even if petitioner had
admitted to having breached the Undertaking, respondent must still prove that it suffered damages and the amount
thereof. In determining the amount of actual damages, the Court cannot rely on mere assertions, speculations, conjectures or
guesswork but must depend on competent proof and on the best evidence obtainable regarding the actual amount of losses. The
benefit to be derived from a contract which one of the parties has absolutely failed to perform is of necessity to some extent a
matter of speculation of the injured party.
On the assumption that the competitive employment ban in the Undertaking is valid, petitioner is not automatically entitled to
return the P963,619.28 he received from respondent. To reiterate, the terms of the Undertaking clearly state that any breach by
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petitioner of his promise would entitle respondent to a cause of action for protection in the courts of law; as such, restitution of the
P963,619.28 will not follow as a matter of course. Respondent is still burdened to prove its entitlement to the aforesaid
amount by producing the best evidence of which its case is susceptible.
1169 – PRINCIPLE OF DELAY
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is
to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner
with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.
LEAÑO v. CA
369 S 36
FACTS
On November 13, 1985, Hermogenes Fernando, as vendor and Carmelita Leaño, as vendee executed a contract to sell
(obligation is a unilateral undertaking on the part of the buyer) involving a piece of land, Lot No. 876-B, with an area of 431 square
meters, located at Sto. Cristo, Baliuag, Bulacan.
In the contract, Carmelita Leaño bound herself to pay Hermogenes Fernando the sum of one hundred seven thousand and
seven hundred and fifty pesos (P107,750.00) as the total purchase price of the lot. The manner of paying the total purchase price
was as follows:
"The sum of TEN THOUSAND SEVEN HUNDRED SEVENTY FIVE (P10,775.00) PESOS, shall be paid at the signing of this
contract as DOWN PAYMENT, the balance of NINETY SIX THOUSAND NINE HUNDRED SEVENTY FIVE PESOS (P96,975.00)
shall be paid within a period of TEN (10) years at a monthly amortization of P1,747.30 to begin from December 7, 1985
with interest at eighteen per cent (18%) per annum based on balances." 4
The contract also provided for a grace period of one month within which to make payments, together with the one corresponding to
the month of grace. Should the month of grace expire without the installments for both months having been satisfied, an interest of
18% per annum will be charged on the unpaid installments.
Should a period of ninety (90) days elapse from the expiration of the grace period without the overdue and unpaid installments
having been paid with the corresponding interests up to that date, respondent Fernando, as vendor, was authorized to declare the
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contract cancelled and to dispose of the parcel of land, as if the contract had not been entered into. The payments made, together
with all the improvements made on the premises, shall be considered as rents paid for the use and occupation of the premises and
as liquidated damages.
After the execution of the contract, Carmelita Leaño made several payments in lump sum. Thereafter, she constructed a house on
the lot valued at P800,000.00. The last payment that she made was on April 1, 1989.
On September 16, 1991, the trial court rendered a decision in an ejectment case earlier filed by respondent Fernando ordering
petitioner Leaño to vacate the premises and to pay P250.00 per month by way of compensation for the use and occupation of the
property from May 27, 1991 until she vacated the premises, attorney's fees and costs of the suit. On August 24, 1993, the trial
court issued a writ of execution which was duly served on petitioner Leaño.
On September 27, 1993, petitioner Leaño filed with the Regional Trial Court of Malolos, Bulacan a complaint for specific
performance with preliminary injunction. Petitioner Leaño assailed the validity of the judgment of the municipal trial court for being
violative of her right to due process and for being contrary to the avowed intentions of Republic Act No. 6552 regarding protection
to buyers of lots on installments. Petitioner Leaño deposited P18,000.00 with the clerk of court, Regional Trial Court, Bulacan, to
cover the balance of the total cost of Lot 876-B.
On November 4, 1993, after petitioner Leaño posted a cash bond of P50,000.00, the trial court issued a writ of preliminary
injunction to stay the enforcement of the decision of the municipal trial court.
ISSUE
whether petitioner Leaño was in delay in paying the amortizations.
RULING
Yes. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.
Contrary to the findings of the trial court, the transaction between the parties was a conditional sale not an absolute sale. The
intention of the parties was to reserve the ownership of the land in the seller until the buyer has paid the total purchase price.
Consider the following:
First, the contract to sell makes the sale, cession and conveyance "subject to conditions" set forth in the contract to sell.29
Second, what was transferred was the possession of the property, not ownership. The possession is even limited by the following:
(1) that the vendee may continue therewith "as long as the VENDEE complies with all the terms and conditions mentioned, and (2)
that the buyer may not sell, cede, assign, transfer or mortgage or in any way encumber any right, interest or equity that she may
have or acquire in and to the said parcel of land nor to lease or to sublease it or give possession to another person without the
written consent of the seller.
Finally, the ownership of the lot was not transferred to Carmelita Leaño. As the land is covered by a torrens title, the act of
registration of the deed of sale was the operative act that could transfer ownership over the lot. There is not even a deed that could
be registered since the contract provides that the seller will execute such a deed "upon complete payment by the VENDEE of the
total purchase price of the property" with the stipulated interest.
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In a contract to sell real property on installments, the full payment of the purchase price is a positive suspensive condition, the
failure of which is not considered a breach, casual or serious, but simply an event that prevented the obligation of the vendor to
convey title from acquiring any obligatory force.33 The transfer of ownership and title would occur after full payment of the price. 34
In the case at bar, petitioner Leaño's non-payment of the installments after April 1, 1989, prevented the obligation of respondent
Fernando to convey the property from arising. In fact, it brought into effect the provision of the contract on cancellation.
Contrary to the findings of the trial court, Article 1592 of the Civil Code is inapplicable to the case at bar. 35 However, any attempt to
cancel the contract to sell would have to comply with the provisions of Republic Act No. 6552, the "Realty Installment Buyer
Protection Act."
R.A. No. 6552 recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller to
cancel the contract upon non-payment of an installment by the buyer, which is simply an event that prevents the obligation of the
vendor to convey title from acquiring binding force. The law also provides for the rights of the buyer in case of cancellation. Thus,
Sec. 3 (b) of the law provides that:
"If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property
equivalent to fifty percent of the total payments made and, after five years of installments, an additional five percent every
year but not to exceed ninety percent of the total payment made: Provided, That the actual cancellation of the contract
shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the
contract by a notarial act and upon full payment of the cash surrender value to the buyer." [Emphasis supplied]
The decision in the ejectment case operated as the notice of cancellation required by Sec. 3(b). As petitioner Leaño was not given
then cash surrender value of the payments that she made, there was still no actual cancellation of the contract. Consequently,
petitioner Leaño may still reinstate the contract by updating the account during the grace period and before actual cancellation.
Should petitioner Leaño wish to reinstate the contract, she would have to update her accounts with respondent Fernando in
accordance with the statement of account which amount was P183,687.00.
On the issue of whether petitioner Leaño was in delay in paying the amortizations, we rule that while the contract provided that the
total purchase price was payable within a ten-year period, the same contract specified that the purchase price shall be paid in
monthly installments for which the corresponding penalty shall be imposed in case of default. Petitioner Leaño cannot ignore the
provision on the payment of monthly installments by claiming that the ten-year period within which to pay has not elapsed.
Article 1169 of the Civil Code provides that in reciprocal obligations, neither party incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his
obligation, delay by the other begins.
In the case at bar, respondent Fernando performed his part of the obligation by allowing petitioner Leaño to continue in possession
and use of the property. Clearly, when petitioner Leaño did not pay the monthly amortizations in accordance with the terms of the
contract, she was in delay and liable for damages. However, we agree with the trial court that the default committed by petitioner
Leaño in respect of the obligation could be compensated by the interest and surcharges imposed upon her under the contract in
question.
It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no doubt upon the intention
of the contracting parties, the literal meaning of its stipulation shall control. Thus, as there is no ambiguity in the language of the
contract, there is no room for construction, only compliance.
HEIRS OF BACUS v. CA
FACTS
On June 1, 1984, Luis Bacus leased to private respondent Faustino Duray a parcel of agricultural land in Bulacao, Talisay, Cebu.
Designated as Lot No. 3661-A-3-B-2, it had an area of 3,002 square meters, covered by Transfer Certificate of Title No. 48866. The
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lease was for six years, ending May 31, 1990. The contract contained an option to buy clause . Under said option, the lessee had
the exclusive and irrevocable right to buy 2,000 square meters of the property within five years from a year after the effectivity of
the contract, at P200 per square meter. That rate shall be proportionately adjusted depending on the peso rate against the US
dollar, which at the time of the execution of the contract was fourteen pesos.
Close to the expiration of the contract, Luis Bacus died on October 10, 1989. Thereafter, on March 15, 1990, the Duray spouses
informed Roque Bacus, one of the heirs of Luis Bacus, that they were willing and ready to purchase the property under the option
to buy clause. They requested Roque Bacus to prepare the necessary documents, such as a Special Power of Attorney authorizing
him to enter into a contract of sale, on behalf of his sisters who were then abroad.
On March 30, 1990, due to the refusal of petitioners to sell the property, Faustino Duray's adverse claim was annotated by the
Register of Deeds of Cebu, at the back of TCT No. 63269, covering the segregated 2,000 square meter portion of Lot No. 3661-A-3-
B-2-A.[3]
Subsequently, on April 5, 1990, Duray filed a complaint for specific performance against the heirs of Luis Bacus with the Lupon
Tagapamayapa of Barangay Bulacao, asking that he be allowed to purchase the lot specifically referred to in the lease contract with
option to buy. At the hearing, Duray presented a certification from the manager of Standard Chartered Bank, Cebu City, addressed
to Luis Bacus, stating that at the request of Mr. Lawrence Glauber, a bank client, arrangements were being made to allow Faustino
Duray to borrow funds of approximately P700,000 to enable him to meet his obligations under the contract with Luis Bacus.
Having failed to reach an agreement before the Lupon, on April 27, 1990, private respondents filed a complaint for specific
performance with damages against petitioners before the Regional Trial Court, praying that the latter, (a) execute a deed of sale
over the subject property in favor of private respondents; (b) receive the payment of the purchase price; and (c) pay the damages.
On the other hand, petitioners alleged that before Luis Bacus' death, private respondents conveyed to them the former's lack of
interest to exercise their option because of insufficiency of funds, but they were surprised to learn of private respondents' demand.
In turn, they requested private respondents to pay the purchase price in full but the latter refused. They further alleged that private
respondents did not deposit the money as required by the Lupon and instead presented a bank certification which cannot be
deemed legal tender.
On October 30, 1990, private respondents manifested in court that they caused the issuance of a cashier's check in the amount of
P650,000[6] payable to petitioners at anytime upon demand.
ISSUES
a) When private respondents opted to buy the property covered by the lease contract with option to buy, were they already
required to deliver the money or consign it in court before petitioner executes a deed of transfer?
b) Did private respondents incur in delay when they did not deliver the purchase price or consign it in court on or before the
expiration of the contract?
RULING
On the first issue, petitioners contend that private respondents failed to comply with their obligation because there was neither
actual delivery to them nor consignation in court or with the Municipal, City or Provincial Treasurer of the purchase price before the
contract expired. Private respondents' bank certificate stating that arrangements were being made by the bank to release P700,000
as a loan to private respondents cannot be considered as legal tender that may substitute for delivery of payment to petitioners nor
was it a consignation.
Obligations under an option to buy are reciprocal obligations. The performance of one obligation is conditioned on the
simultaneous fulfillment of the other obligation. In other words, in an option to buy, the payment of the purchase price by the
creditor is contingent upon the execution and delivery of a deed of sale by the debtor.
In this case, when private respondents opted to buy the property, their obligation was to advise petitioners of their decision and
their readiness to pay the price. They were not yet obliged to make actual payment. Only upon petitioners' actual execution and
delivery of the deed of sale were they required to pay. As earlier stated, the latter was contingent upon the former. In Nietes vs.
Court of Appeals, 46 SCRA 654 (1972), we held that notice of the creditor's decision to exercise his option to buy need not be
coupled with actual payment of the price, so long as this is delivered to the owner of the property upon performance of his part of
the agreement. Consequently, since the obligation was not yet due, consignation in court of the purchase price was not yet
156
required.
Consignation is the act of depositing the thing due with the court or judicial authorities whenever the creditor cannot accept or
refuses to accept payment and it generally requires a prior tender of payment. In instances, where no debt is due and owing,
consignation is not proper. Therefore, petitioners' contention that private respondents failed to comply with their obligation under
the option to buy because they failed to actually deliver the purchase price or consign it in court before the contract expired and
before they execute a deed, has no leg to stand on.
Corollary, private respondents did not incur in delay when they did not yet deliver payment nor make a consignation before the
expiration of the contract. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. Only from the moment one of the parties fulfills his obligation, does
delay by the other begin.
In this case, private respondents, as early as March 15, 1990, communicated to petitioners their intention to buy the property and
they were at that time undertaking to meet their obligation before the expiration of the contract on May 31, 1990. However,
petitioners refused to execute the deed of sale and it was their demand to private respondents to first deliver the money before
they would execute the same which prompted private respondents to institute a case for specific performance in the Lupong
Tagapamayapa and then in the RTC. On October 30, 1990, after the case had been submitted for decision but before the trial court
rendered its decision, private respondents issued a cashier's check in petitioners' favor purportedly to bolster their claim that they
were ready to pay the purchase price. The trial court considered this in private respondents' favor and we believe that it rightly did
so, because at the time the check was issued, petitioners had not yet executed a deed of sale nor expressed readiness to do so .
Accordingly, as there was no compliance yet with what was incumbent upon petitioners under the option to buy, private
respondents had not incurred in delay when the cashier's check was issued even after the contract expired.
MEGAWORLD v. TANSECO
10/03/2009
FACTS
On July 7, 1995, petitioner Megaworld Globus Asia, Inc. (Megaworld) and respondent Mila S. Tanseco (Tanseco) entered into a
Contract to Buy and Sell a 224 square-meter (more or less) condominium unit at a pre-selling project , "The Salcedo Park," located
along Senator Gil Puyat Avenue, Makati City.
The purchase price was P16,802,037.32, to be paid as follows: (1) 30% less the reservation fee of P100,000, or P4,940,611.19, by
postdated check payable on July 14, 1995; (2) P9,241,120.50 through 30 equal monthly installments of P308,037.35 from August
14, 1995 to January 14, 1998; and (3) the balance of P2,520,305.63 on October 31, 1998, the stipulated delivery date of the unit;
provided that if the construction is completed earlier, Tanseco would pay the balance within seven days from receipt of a notice of
turnover.
Section 4 of the Contract to Buy and Sell provided for the construction schedule as follows:
4. CONSTRUCTION SCHEDULE - The construction of the Project and the unit/s herein purchased shall be completed and delivered
not later than October 31, 1998 with additional grace period of six (6) months within which to complete the Project and the unit/s,
barring delays due to fire, earthquakes, the elements, acts of God, war, civil disturbances, strikes or other labor disturbances,
government and economic controls making it, among others, impossible or difficult to obtain the necessary materials, acts of third
person, or any other cause or conditions beyond the control of the SELLER. In this event, the completion and delivery of the unit
are deemed extended accordingly without liability on the part of the SELLER. The foregoing notwithstanding, the SELLER reserves
the right to withdraw from this transaction and refund to the BUYER without interest the amounts received from him under this
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contract if for any reason not attributable to SELLER, such as but not limited to fire, storms, floods, earthquakes, rebellion,
insurrection, wars, coup de etat, civil disturbances or for other reasons beyond its control, the Project may not be completed or it
can only be completed at a financial loss to the SELLER. In any event, all construction on or of the Project shall remain the property
of the SELLER.
Tanseco paid all installments due up to January, 1998, leaving unpaid the balance of P2, 520,305.63 pending delivery of the unit.
Megaworld, however, failed to deliver the unit within the stipulated period on October 31, 1998 or April 30, 1999, the last day of the
six-month grace period.
A few days shy of three years later, Megaworld, by notice dated April 23, 2002 (notice of turnover), informed Tanseco that the unit
was ready for inspection preparatory to delivery. Tanseco replied through counsel, by letter of May 6, 2002, that in view of
Megaworld's failure to deliver the unit on time, she was demanding the return of P14,281,731.70 representing the total installment
payment she had made, with interest at 12% per annum from April 30, 1999, the expiration of the six-month grace period. Tanseco
pointed out that none of the excepted causes of delay existed.
Her demand having been unheeded, Tanseco filed on June 5, 2002 with the Housing and Land Use Regulatory Board's (HLURB)
Expanded National Capital Region Field Office a complaint against Megaworld for rescission of contract, refund of payment, and
damages.
In its Answer, Megaworld attributed the delay to the 1997 Asian financial crisis which was beyond its control; and argued that
default had not set in, Tanseco not having made any judicial or extrajudicial demand for delivery before receipt of the notice of
turnover.
Tanseco, on the other hand, maintained her position too, and citing Megaworld's bad faith which became evident when it insisted
on making the delivery despite the long delay, insisted that she deserved the award of damages and attorney's fees.
ISSUE
Whether or not Megaworld incurred delay in delivering the condominium unit to Tanseco
RULING
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands
from them the fulfillment of their obligation.
(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to
be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or
(4) In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay
by the other begins.
The Contract to Buy and Sell of the parties contains reciprocal obligations, i.e., to complete and deliver the condominium unit on
October 31, 1998 or six months thereafter on the part of Megaworld, and to pay the balance of the purchase price at or about the
time of delivery on the part of Tanseco. Compliance by Megaworld with its obligation is determinative of compliance by Tanseco
with her obligation to pay the balance of the purchase price. Megaworld having failed to comply with its obligation under the
contract, it is liable therefor.
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That Megaworld's sending of a notice of turnover preceded Tanseco's demand for refund does not abate her cause. For demand
would have been useless, Megaworld admittedly having failed in its obligation to deliver the unit on the agreed date.
Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which,
though foreseen, were inevitable.
The Court cannot generalize the 1997 Asian financial crisis to be unforeseeable and beyond the control of a business corporation. A
real estate enterprise engaged in the pre-selling of condominium units is concededly a master in projections on commodities and
currency movements, as well as business risks. The fluctuating movement of the Philippine peso in the foreign exchange market is
an everyday occurrence, hence, not an instance of caso fortuito. Megaworld's excuse for its delay does not thus lie.
GENERAL MILLING v. RAMOS

07/20/2011
FACTS
On August 24, 1989, General Milling Corporation (GMC) entered into a Growers Contract with spouses Librado and Remedios
Ramos (Spouses Ramos). Under the contract, GMC was to supply broiler chickens for the spouses to raise on their land in Barangay
Banaybanay, Lipa City, Batangas. 1 To guarantee full compliance, the Growers Contract was accompanied by a Deed of Real Estate
Mortgage over a piece of real property upon which their conjugal home was built. The spouses further agreed to put up a surety
bond at the rate of PhP 20,000 per 1,000 chicks delivered by GMC. The Deed of Real Estate Mortgage extended to Spouses Ramos
a maximum credit line of PhP 215,000 payable within an indefinite period with an interest of twelve percent (12%) per annum.
The Deed of Real Estate Mortgage contained the following provision:
WHEREAS, the MORTGAGOR/S has/have agreed to guarantee and secure the full and faithful compliance of
[MORTGAGORS'] obligation/s with the MORTGAGEE by a First Real Estate Mortgage in favor of the MORTGAGEE, over a 1 parcel of
land and the improvements existing thereon, situated in the Barrio/s of Ã‚-Banaybanay, Municipality of Lipa City, Province of
Batangas, Philippines, his/her/their title/s thereto being evidenced by Transfer Certificate/s No./s T-9214 of the Registry of Deeds
for the Province of Batangas in the amount of TWO HUNDRED FIFTEEN THOUSAND (P 215,000.00), Philippine Currency, which the
maximum credit line payable within a x x x day term and to secure the payment of the same plus interest of twelve percent (12%)
per annum.
Spouses Ramos eventually were unable to settle their account with GMC. They alleged that they suffered business losses because of
the negligence of GMC and its violation of the Growers Contract.
On March 31, 1997, the counsel for GMC notified Spouses Ramos that GMC would institute foreclosure proceedings on their
mortgaged property.
On May 7, 1997, GMC filed a Petition for Extrajudicial Foreclosure of Mortgage. On June 10, 1997, the property subject of the
foreclosure was subsequently sold by public auction to GMC after the required posting and publication. It was foreclosed for PhP
935,882,075, an amount representing the losses on chicks and feeds exclusive of interest at 12% per annum and attorney's fees. To
complicate matters, on October 27, 1997, GMC informed the spouses that its Agribusiness Division had closed its business and
poultry operations.
On March 3, 2000, Spouses Ramos filed a Complaint for Annulment and/or Declaration of Nullity of the Extrajudicial Foreclosure
Sale with Damages. They contended that the extrajudicial foreclosure sale on June 10, 1997 was null and void, since there was no
compliance with the requirements of posting and publication of notices under Act No. 3135, as amended, or An Act to Regulate the
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Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages. They likewise claimed that there was no
sheriff's affidavit to prove compliance with the requirements on posting and publication of notices. It was further alleged that the
Deed of Real Estate Mortgage had no fixed term. A prayer for moral and exemplary damages and attorney's fees was also included
in the complaint. Librado Ramos alleged that, when the property was foreclosed, GMC did not notify him at all of the foreclosure.
During the trial, the parties agreed to limit the issues to the following: (1) the validity of the Deed of Real Estate Mortgage; (2) the
validity of the extrajudicial foreclosure; and (3) the party liable for damages.
In its Answer, GMC argued that it repeatedly reminded Spouses Ramos of their liabilities under the Growers Contract. It argued that
it was compelled to foreclose the mortgage because of Spouses Ramos' failure to pay their obligation. GMC insisted that it had
observed all the requirements of posting and publication of notices under Act No. 3135.
ISSUE
Was there sufficient demand?
RULING
We now go to the second issue raised by GMC. GMC asserts error on the part of the CA in finding that no demand was made on
Spouses Ramos to pay their obligation. On the contrary, it claims that its March 31, 1997 letter is akin to a demand.
We disagree.
There are three requisites necessary for a finding of default.
First, the obligation is demandable and liquidated;
second, the debtor delays performance; and
third, the creditor judicially or extrajudicially requires the debtor's performance.
According to the CA, GMC did not make a demand on Spouses Ramos but merely requested them to go to GMC's office to discuss
the settlement of their account. In spite of the lack of demand made on the spouses, however, GMC proceeded with the foreclosure
proceedings. Neither was there any provision in the Deed of Real Estate Mortgage allowing GMC to extrajudicially foreclose the
mortgage without need of demand.
Indeed, Article 1169 of the Civil Code on delay requires the following:
Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them
the fulfilment of their obligation.
(1) When the obligation or the law expressly so declares; x x x
As the contract in the instant case carries no such provision on demand not being necessary for delay to exist, We agree with the
appellate court that GMC should have first made a demand on the spouses before proceeding to foreclose the real estate mortgage.
Development Bank of the Philippines v. Licuanan finds application to the instant case:
The issue of whether demand was made before the foreclosure was effected is essential. If demand was made and duly received by
the respondents and the latter still did not pay, then they were already in default and foreclosure was proper. However, if demand
was not made, then the loans had not yet become due and demandable. This meant that respondents had not defaulted in their
payments and the foreclosure by petitioner was premature. Foreclosure is valid only when the debtor is in default in the payment of
his obligation.
CRUZ v. GRUSPE
G.R. No. 191431, [March 13, 2013]
FACTS
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The claim arose from an accident that occurred on October 24, 1999, when the mini bus owned and operated by Cruz and driven by
one Arturo Davin collided with the Toyota Corolla car of Gruspe; Gruspe’s car was a total wreck. The next day, on October 25,
1999, Cruz, along with Leonardo Q. Ibias went to Gruspe’s office, apologized for the incident, and executed a Joint Affidavit of
Undertaking promising jointly and severally to replace the Gruspe’s damaged car in 20 days, or until November 15, 1999, of the
same model and of at least the same quality; or, alternatively, they would pay the cost of Gruspe’s car amounting to P350,000.00 ,
with interest at 12% per month for any delayed payment after November 15, 1999, until fully paid. When Cruz and Leonardo failed
to comply with their undertaking, Gruspe filed a complaint for collection of sum of money against them on November 19, 1999
before the RTC.
In their answer, Cruz and Leonardo denied Gruspe’s allegation, claiming that Gruspe, a lawyer, prepared the Joint Affidavit of
Undertaking and forced them to affix their signatures thereon, without explaining and informing them of its contents; Cruz affixed
his signature so that his mini bus could be released as it was his only means of income; Leonardo, a barangay official, accompanied
Cruz to Gruspe’s office for the release of the mini bus, but was also deceived into signing the Joint Affidavit of Undertaking.
Leonardo died during the pendency of the case and was substituted by his widow, Esperanza. Meanwhile, Gruspe sold the wrecked
car for P130,000.00.
In a decision dated September 27, 2004, the RTC ruled in favor of Gruspe and ordered Cruz and Leonardo to pay P220,000.00,6
plus 15% per annum from November 15, 1999 until fully paid, and the cost of suit.
ISSUE
Whether the demand of the obligation be reckoned from November 19, 1999.
RULING
Contracts are obligatory no matter what their forms may be, whenever the essential requisites for their validity are present. In
determining whether a document is an affidavit or a contract, the Court looks beyond the title of the document, since the
denomination or title given by the parties in their document is not conclusive of the nature of its contents. In the construction or
interpretation of an instrument, the intention of the parties is primordial and is to be pursued. If the terms of the document are
clear and leave no doubt on the intention of the contracting parties, the literal meaning of its stipulations shall control. If the words
appear to be contrary to the parties’ evident intention, the latter shall prevail over the former.
A simple reading of the terms of the Joint Affidavit of Undertaking readily discloses that it contains stipulations characteristic of a
contract. As quoted in the CA decision, the Joint Affidavit of Undertaking contained a stipulation where Cruz and Leonardo promised
to replace the damaged car of Gruspe, 20 days from October 25, 1999 or up to November 15, 1999, of the same model and of at
least the same quality. In the event that they cannot replace the car within the same period, they would pay the cost of Gruspe’s
car in the total amount of P350,000.00, with interest at 12% per month for any delayed payment after November 15, 1999, until
fully paid. These, as read by the CA, are very simple terms that both Cruz and Leonardo could easily understand.
There is also no merit to the argument of vitiated consent. An allegation of vitiated consent must be proven by preponderance of
evidence; Cruz and Leonardo failed to support their allegation. Although the undertaking in the affidavit appears to be onerous and
lopsided, this does not necessarily prove the alleged vitiation of consent. They, in fact, admitted the genuineness and due execution
of the Joint Affidavit and Undertaking when they said that they signed the same to secure possession of their vehicle. If they truly
believed that the vehicle had been illegally impounded, they could have refused to sign the Joint Affidavit of Undertaking and filed a
complaint, but they did not. That the release of their mini bus was conditioned on their signing the Joint Affidavit of Undertaking
does not, by itself, indicate that their consent was forced – they may have given it grudgingly, but it is not indicative of a vitiated
consent that is a ground for the annulment of a contract.
Thus, on the issue of the validity and enforceability of the Joint Affidavit of Undertaking, the CA did not commit any
legal error that merits the reversal of the assailed decision.
Nevertheless, the CA glossed over the issue of demand which is material in the computation of interest on the amount due. The
RTC ordered Cruz and Leonardo to pay Gruspe “P350,000.00 as cost of the car xxx plus fifteen percent (15%) per annum from
November 15, 1999 until fully paid[.]”11 The 15% interest (later modified by the CA to be 12%) was computed from November 15,
1999 – the date stipulated in the Joint Affidavit of Undertaking for the payment of the value of Gruspe’s car . In the absence of a
finding by the lower courts that Gruspe made a demand prior to the filing of the complaint, the interest cannot be computed from
November 15, 1999 because until a demand has been made, Cruz and Leonardo could not be said to be in default. “In order that
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the debtor may be in default[,] it is necessary that the following requisites be present: (1) that the obligation be demandable and
already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance judicially and
extrajudicially.” Default generally begins from the moment the creditor demands the performance of the obligation. In
this case, demand could be considered to have been made upon the filing of the complaint on November 19, 1999, and it is only
from this date that the interest should be computed.
Although the CA upheld the Joint Affidavit of Undertaking, we note that it imposed interest rate on a per annum basis, instead of
the per month basis that was stated in the Joint Affidavit of Undertaking without explaining its reason for doing so. Neither party,
however, questioned the change. Nonetheless, the Court affirms the change in the interest rate from 12% per month to 12% per
annum, as we find the interest rate agreed upon in the Joint Affidavit of Undertaking excessive.
Maybank Philippines., Inc. v. Spouses Tarrosa,

G.R. No. 213014, [October 14, 2015]
FACTS
ISSUE
RULING
Chua Ping Hian v. Manas,

October 16, 2019
FACTS
[Petitioner Ching] and his family own several cinemas in Metro Manila. Sometime in July 1997, [respondent Manas] learned that
Ching was going to open four theaters in the Sunshine Mall Plaza in Taguig, Metro Manila. He visited [petitioner] Ching at the
latter's office at Spring Cinema, Libertad, Pasay City and introduced himself as a supplier of movie equipments (sic) to Emilio
Ching's ([petitioner] Ching's brother) cinemas at Holiday Plaza, Libertad, Pasay City.
[Petitioner] Ching informed [respondent] Manas that he needed five complete sets of Simplex Model XL movie projectors for the
cinemas at Sunshine Mall. [Respondent] Manas informed [petitioner] Ching that he happened to have Simplex Model XL projectors
which are US Rebuilt. He then invited [petitioner] Ching to his house in Makati where said projectors were stored so that the latter
could see the same. Since only four Simplex projectors were available then, [respondent] Manas assured [petitioner] Ching that the
fifth set of Simplex Model XL will arrive from the United States anytime.
On 15 August 1997, [respondent] Manas and [petitioner] Ching executed the Contract of Sale.
In anticipation of the signing of the above contract, or on 19 July 1997, [petitioner] Ching paid [respondent] Manas the amount of
P945,000.00 as downpayment. The four sets of Simplex XL projectors were delivered on 22 August 1997. Several other equipments
(sic), parts and accessories for the projector sets were delivered within the period of 22 August 1997 until 8 May 1999.
[Petitioner] Ching claims that he asked [respondent] Manas to deliver the fifth Simplex projector set and install the projectors .
[Respondent] Manas, not having yet the fifth Simplex XL projector set, prevailed on [petitioner] Ching to receive a Century brand
projector. After all, it was intended only to be a standby projector. Because the opening date of his cinemas was fast approaching,
[petitioner] Ching agreed. The Century projector, which in the market is a little higher in price than the Simplex brand, was
delivered on 29 November 1998.
162
Despite the clarity of paragraph 3 of the contract, the parties differed in the interpretation thereof.
[Respondent] Manas claims to have completed installation of the projectors. On the other hand, [petitioner] Ching asserts that
[respondent] Manas failed to completely install the apparatus/equipment prompting him to hire Nelson Ruzgal to do the wiring
connections for a fee of P20,000.00.
Ruzgal commenced his work on the wirings to make the apparatus/equipments ( sic) work on 26 November 1998. He was assisted
by the two projectionists of [petitioner] Ching, Adan Mostera and Lito Pilar. Two days before the scheduled opening of the cinemas,
on 23 December 1998, Ruzgal and the projectionists could not light the lamphouses. [Respondent] Manas, who had been observing
them, called in his own technician to help. Since the lamphouse would not light, [respondent] Manas' technician took some parts
from the rectifier. After re-installing said parts, the lamphouse lit up. Having observed how [respondent] Manas' teclmician focused
the lamphouses and lit the xenon bulb, Ruzgal and [petitioner] Ching's two projectionists, went to the other theaters to adjust the
lamphouses. Since the adjusting mechanism was found inside the lamphouse and the bulb inside emitted heat, it took them almost
an hour to adjust one lamphouse. It took Ruzgal and the projectionists overnight to finish adjusting all ten lamphouses.
On 24 December 1998, the trial run of the cinemas was successfully held and the cinemas officially opened on 25 December 1998.
In the first four months after operations, some parts of the projectors started having problems. [Respondent] Manas was
informed of the defects and asked to replace the same but he failed to do so.
Sometime in May 1999, [respondent] Manas wrote [petitioner] Ching a notice of full compliance of the terms of the contract of
sale. He also asked Lito Pilar, one of [petitioner] Ching's projectionists to affix his signature thereo.
On 26 September 2000, [respondent] Manas filed a complaint for Sum of Money and Damages against [petitioner] Ching before the
Regional Trial Court[, Branch 118 of Pasay City (RTC)]. The case was docketed as Civil Case No. 00-0297 for Sum of Money and
Damages]. He alleged that he had faithfully complied with the Contract of Sale and the equipments (sic) he delivered were utilized
by [petitioner] Ching in the formal opening of his cinemas on 24 December 1998. Despite repeated demands, both verbal and
written, [petitioner Ching] refused to pay him the remaining balance of P2,205.000.00. [Respondent] Manas prayed that [petitioner
Ching] be ordered to pay him the unpaid sum of P2,205,000.00 as principal, with 12% interest per annum as agreed in the
invoices/delivery receipts, counted from date of formal demand on 24 August 1999 until fully paid. He also asked for damages and
attorney's fees.
ISSUES:
whether respondent Manas is entitled to an award of stipulated interest for the supposed delay on the part of petitioner
Ching in the payment of the remaining balance of the contract price.

RULING

The instant Petition is impressed with merit. Respondent Manas is not entitled to an award of stipulated interest.
To recall, the RTC, in its Decision dated September 4, 2006, ruled that stipulated interest of 12% should be awarded in favor of
respondent Manas, counted from the date of default. The CA modified the same and held that the interest of 12% per
annum stipulated by the parties in the Contract of Sale should be applied from the finality of judgment until full payment. In the
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Amended Decision, the CA further modified the RTC's Decision and held that the 12% stipulated interest should be counted from
the date of extrajudicial demand on August 24, 1999 until full payment.
Based on the established facts of the instant case, however, both the RTC and CA committed error in awarding contractual
stipulated interest in favor of respondent Manas.
The contractual stipulated interest is provided in paragraph 6 of the Contract of Sale, which states that in the event of
failure by petitioner Ching to pay any installment of the herein agreed purchase price when such is already due, the latter shall be
liable to pay an interest on the amount due at the rate of 14% percent per annum (and not 12% per annum as incorrectly held
by the RTC and CA):
6. NON-PERFORMANCE OF OBLIGATION - In the event of failure by the SELLER to deliver and install the apparatus/equipment
herein purchased, the BUYER shall have the option of rescinding this Contract with damages or institute a legal action for specific
performance with damages. On the other hand, in the event (sic) failure by the BUYER to pay any installment of the herein agreed
purchase price when such is already due, the BUYER shall be liable to pay an interest on the amount due at the rate of fourteen
(14%) percent per annum.
Hence, as agreed upon by the parties in the Contract of Sale, the stipulated interest to be paid by petitioner Ching shall only accrue
when the installment payment is already due and petitioner Ching failed to make such installment payment . Simply stated,
petitioner Ching shall pay the stipulated interest only when he is in delay.
Based on the established facts of the instant case, petitioner Ching was not in delay when he failed to pay the balance of the
purchase price.
To recall, based on paragraph 2 of the Contract of Sale, petitioner Ching obligated himself to make three installment
payments as regards the objects of the sale: (a) the down payment of 30% or P945,000.00 upon the signing of the Contract of
Sale, which petitioner Ching did; (b) a second payment of 40% or P1,260,000.00 upon full and complete delivery of all the items
indicated in the Contract of Sale, provided the complete delivery is effected on or before January 15, 1998; and (c) the balance of
30% or P945,000.00 after the complete installation, dry run/testing and satisfactory operations of all the units/sets installed .
Stated simply, the Contract of Sale between petitioner Ching, as buyer, and respondent Manas, as seller, gave rise to
a reciprocal obligation, wherein petitioner Ching was obliged to pay the balance of the purchase price while respondent Manas
was obliged to make complete delivery of the objects of the sale on or before January 15, 1998 and ensure complete installation,
dry run-testing, and satisfactory operations of all the equipment installed.
In a reciprocal obligation, the performance of one is conditioned on the simultaneous fulfillment of the other obligation .
Neither party incurs in delay if the other does not comply or is not ready to comply in a manner with what is incumbent upon him.
[18]
As explained by recognized Civil Law Commentator, former CA Justice Eduardo P. Caguioa, a reciprocal obligation has been
defined as that "where each of the parties is a promissee of a prestation and promises another in return as a counterpart of
equivalent of the other. The most salient feature of this obligation is reciprocity."
In the instant case, it is not of serious dispute that respondent Manas reneged on his obligations as seller, justifying petitioner
Ching's refusal to pay the balance of the purchase price.
First, in its Amended Decision, the CA already found as established fact that there was no complete delivery of the objects of
sale in accordance with the Contract of Sale.
It was the obligation of respondent Manas to deliver five sets of Simplex Model XL 35mm movie projectors. Respondent Manas was
only able to deliver four sets, and the fifth set delivered was a Century brand projector. As held by the CA in its Amended Decision,
the delivery of the Century brand projector cannot be considered a substantial compliance of the obligation to deliver a Simplex
Model XL movie projector because the Century brand projector is significantly less valuable compared to a Simplex Model XL movie
projector. As found by the CA, the Century brand projector is worth only P220,000.00, while a Simplex Model XL projector costs
P630,000.00, or almost three times the value of the Century brand projector. [20]
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The CA likewise noted that petitioner Ching "did not acquiesce [to] the delivery of the Century brand as a substitute of the Simplex
model. [Petitioner Ching] had to accept the Century brand delivered on November 29, 1998 considering that he had already
announce (sic) to the public that the theater will start its operation on December 25, 1998 x x x. Hence, he was forced to accept
the Century brand in time for the opening of the movie house."
The CA pointed out that the evidence on record reveals that when petitioner Ching reminded respondent Manas that he would pay
respondent Manas the complete balance of the contract price only after the complete delivery of the five sets of the Simplex Model
XL movie projectors, respondent Manas responded positively as the fifth set of the Simplex Model XL movie projector would
supposedly be forthcoming. The records also show that the fifth Simplex Model XL movie projector was never delivered to petitioner
Ching.
Second, as factually found by the CA, "the delivery was made after 15 January 1998" in contravention of respondent Manas'
obligation to deliver the objects of the sale on or before January 15, 1998
Third, there was no complete installation of the movie projector units as contemplated under the Contract of Sale.
The CA factually found that "[respondent] Manas is liable to [petitioner] Ching for failing to comply with his obligation to completely
install the equipments (sic) which resulted to [petitioner] Ching's expenses in hiring a third party to completely install the
projectors." It must be recalled that petitioner Ching was obligated to pay the balance of 30% or P945,000.00 only after the
complete installation, dry run/testing and satisfactory operations of all the units/sets installed. As stressed by the CA, "[t]he
stipulation in the contract of sale is clear and unambiguous. The complete installation is to be made by the seller."
The "complete installation" contemplated under the Contract of Sale refers to the installation of five complete sets of Simplex Model
XL movie projectors. However, as already discussed, the fifth Simplex Model XL movie projector was not delivered and installed,
despite respondent Manas promising petitioner Ching that the said unit "was coming anytime soon." Hence, even as petitioner Ching
engaged the services of a third party to complete the installation of the projectors delivered, there was still no complete installation
envisioned under the contract because the fifth Simplex Model XL unit was never delivered and installed.
Furthermore, the Court notes that in the May 1999 letter issued by respondent Manas addressed to petitioner Ching, it is apparent
that respondent Manas sought the payment of the remaining balance of 70% of the contract price only after petitioner Ching would
have inspected the entire projection system and found them to be satisfactory:
Kindly inspect the whole projection systems of Cinemas 1, 2, 3, 4 and should you find them to your fullest satisfaction, please
release the remaining balance (70%) of the Contract of Sale be paid and release (sic) to the undersigned .
Simply stated, respondent Manas covenanted that the payment of the remaining balance by petitioner Ching was made contingent
on the latter's satisfactory assessment that respondent Manas completely delivered and installed all of the movie projector units.
Obviously, petitioner Ching did not find the delivery, installation, and operation of the movie projector systems satisfactory on
account of respondent Manas' failure to deliver the fifth Simplex XL movie projector, the failure of respondent Manas to ensure the
complete installation of the movie projector systems, and respondent Manas' delivery of defective components.
In fact, very telling is the unequivocal pronouncement of the CA that " [petitioner] Ching had a valid reason for refusing
payment until the issue of recoupement (sic) for breach of warranty was resolved."
Therefore, with petitioner Ching being justified in withholding the payment of the balance of the purchase price on account of the
several breaches of contract committed by respondent Manas, it cannot be said that petitioner Ching was in delay.
Necessarily, respondent Manas is not entitled to the stipulated interest as provided in the Contract of Sale. And considering that
petitioner Ching cannot be deemed in delay in accordance with the Contract of Sale, the legal interest shall accrue only from the
finality of this Decision until full payment.
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ARTICLE 1170. NON-PERFORMANCE BY FRAUD, NEGLIGENCE OR DELAY
PRUDENTIAL BANK v. CA
MARCH 16, 2000
FACTS
Private respondent Leticia Tupasi-Valenzuela opened Savings Account No. 5744 and Current Account No. 01016-3 in
the Valenzuela Branch of petitioner Prudential Bank, with automatic transfer of funds from the savings account to the
current account.
On June 1, 1988, herein private respondent deposited in her savings account Check No. 666B (104561 of even date)
the amount of P35,271.60, drawn against the Philippine Commercial International Bank (PCIB). Taking into account
that deposit and a series of withdrawals, private respondent as of June 21, 1988 had a balance of P35,993.48 in her
savings account and P776.93 in her current account, or total deposits of P36,770.41, with petitioner.
Thereafter, private respondent issued Prudential Bank Check No. 983395 in the amount of P11,500.00 post-dated June
20, 1988, in favor of one Belen Legaspi. It was issued to Legaspi as payment for jewelry which private respondent had
purchased. Legaspi, who was in jewelry trade, endorsed the check to one Philip Lhuillier, a businessman also in the
jewelry business. When Lhuillier deposited the check in his account with the PCIB, Pasay Branch, it was dishonored for
being drawn against insufficient funds. Lhuillier's secretary informed the secretary of Legaspi of the dishonor. The
latter told the former to redeposit the check. Legaspi's secretary tried to contact private respondent but to no avail.
Upon her return from the province, private respondent was surprised to learn of the dishonor of the check. She went
to the Valenzuela Branch of Prudential Bank on July 4, 1988, to inquire why her check was dishonored. She
approached one Albert Angeles Reyes, the officer in charge of current account, and requested him for the ledger of
her current account. Private respondent discovered a debit of P300.00 penalty for the dishonor of her Prudential Check
No. 983395. She asked why her check was dishonored when there were sufficient funds in her account as reflected in
her passbook. Reyes told her that there was no need to review the passbook because the bank ledger was the best
proof that she did not have sufficient funds. Then, he abruptly faced his typewriter and started typing.
Later, it was found out that the check in the amount of P35,271.60 deposited by private respondent on June 1, 1988,
was credited in her savings account only on June 24, 1988, or after a period of 23 days. Thus the P11,500.00 check
was redeposited by Lhuillier on June 24, 1988, and properly cleared on June 27, 1988.
Because of this incident, the bank tried to mollify private respondent by explaining to Legaspi and Lhuillier that the
bank was at fault. Since this was not the first incident private respondent had experienced with the bank, private
respondent was unmoved by the bank's apologies and she commenced the present suit for damages before the RTC of
Valenzuela.
ISSUE
Whether petitioner bank committed a mistake or negligence when it misposted private respondent’s check deposit
to another account.
RULING
Firstly, petitioner questions the award of moral damages. It claims that private respondent did not suffer any damage
upon the dishonor of the check. Petitioner avers it acted in good faith. It was an honest mistake on its part, according
to petitioner, when misposting of private respondent's deposit on June 1, 1988, happened. Further, petitioner
contends that private respondent may not "claim" damages because the petitioner's manager and other employee had
profusely apologized to private respondent for the error. They offered to make restitution and apology to the payee of
the check, Legaspi, as well as the alleged endorsee, Lhuillier. Regrettably, it was private respondent who declined the
166
offer and allegedly said, that there was nothing more to it, and that the matter had been put to rest.5 [Rollo, pp. 21-
24.]
Admittedly, as found by both the respondent appellate court and the trial court, petitioner bank had committed a
mistake. It misposted private respondent's check deposit to another account and delayed the posting of the same to
the proper account of the private respondent. The mistake resulted to the dishonor of the private respondent's check.
The trial court found "that the misposting of plaintiff's check deposit to another account and the delayed posting of the
same to the account of the plaintiff is a clear proof of lack of supervision on the part of the defendant bank."6 [Id. at
62.] Similarly, the appellate court also found that "while it may be true that the bank's negligence in dishonoring the
properly funded check of appellant might not have been attended with malice and bad faith, as appellee [bank]
submits, nevertheless, it is the result of lack of due care and caution expected of an employee of a firm engaged in so
sensitive and accurately demanding task as banking."7 [Id. at 70.]
In Simex International (Manila), Inc, vs. Court of Appeals, 183 SCRA 360, 367 (1990), and Bank of Philippine Islands
vs. IAC, et al., 206 SCRA 408, 412-413 (1992), this Court had occasion to stress the fiduciary nature of the relationship
between a bank and its depositors and the extent of diligence expected of the former in handling the accounts
entrusted to its care, thus:
"In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account
consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately,
down to the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any
given time the amount of money the depositor can dispose of as he sees fit, confident that the bank will deliver it as
and to whomever he directs. A blunder on the part of bank, such as the dishonor of a check without good reason, can
cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation.
The point is that as a business affected with public interest and because of the nature of its functions, the bank is
under obligation to treat the account of its depositors with meticulous care, always having in mind the fiduciary
nature of their relationship. x x x"
In the recent case of Philippine National Bank vs. Court of Appeals,[G.R. No. 126152, September 28, 1999,
citing the cases of Metropolitan Bank and Trust Company vs. Court of Appeals, 237 SCRA 761 (1994) and Leopoldo
Araneta vs. Bank of America, 40 SCRA 144 (1971).] we held that "a bank is under obligation to treat the accounts of
its depositors with meticulous care whether such account consists only of a few hundred pesos or of millions of pesos.
Responsibility arising from negligence in the performance of every kind of obligation is demandable. While petitioner's
negligence in this case may not have been attended with malice and bad faith, nevertheless, it caused serious anxiety,
embarrassment and humiliation". Hence we ruled that the offended party in said case was entitled to recover
reasonable moral damages.
Even if malice or bad faith was not sufficiently proved in the instant case, the fact remains that petitioner has
committed a serious mistake. It dishonored the check issued by the private respondent who turned out to have
sufficient funds with petitioner. The bank's negligence was the result of lack of due care and caution required of
managers and employees of a firm engaged in so sensitive and demanding business as banking. Accordingly, the
award of moral damages by the respondent Court of Appeals could not be said to be in error nor in grave abuse of its
discretion.
There is no hard-and-fast rule in the determination of what would be a fair amount of moral damages since each case
must be governed by its own peculiar facts. The yardstick should be that it is not palpably and scandalously excessive.
In our view, the award of P100,000.00 is reasonable, considering the reputation and social standing of private
respondent Leticia T. Valenzuela.9 [Cf. Philippine National Bank vs. Court of Appeals, G.R. No. 126152, September 28,
1999, p. 7; Tan vs. Court of Appeals, 239 SCRA 310, 324 (1994).]
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The law allows the grant of exemplary damages by way of example for the public good.10 [See CIVIL CODE, Article
2229.] The public relies on the banks' sworn profession of diligence and meticulousness in giving irreproachable
service. The level of meticulousness must be maintained at all times by the banking sector. Hence, the Court of
Appeals did not err in awarding exemplary damages. In our view, however, the reduced amount of P20,000.00 is more
appropriate
PRUDENTIAL BANK v. RAPANOT

816 S 34 (CAGUIOA)
FACTS
ISSUE
RULING
The Mortgage Agreement is null and void as against Rapanot, and thus cannot be enforced against him.
The Bank avers that contrary to the CA's conclusion in the questioned Decision, it exercised due diligence before it
entered into the Mortgage Agreement with Golden Dragon and accepted Unit 2308-B2, among other properties, as
collateral.The Bank stressed that prior to the approval of Golden Dragon's loan, it deployed representatives to
ascertain that the properties being offered as collateral were in order. Moreover, it confirmed that the titles
corresponding to the properties offered as collateral were free from existing liens, mortgages and other
encumbrances. Proceeding from this, the Bank claims that the CA overlooked these facts when it failed to recognize
the Bank as a mortgagee in good faith.
The Court finds the Bank's assertions indefensible.
First of all, under Presidential Decree No. 957 (PD 957), no mortgage on any condominium unit may be constituted by
a developer without prior written approval of the National Housing Authority, now HLURB. PD 957 further requires
developers to notify buyers of the loan value of their corresponding mortgaged properties before the proceeds of the
secured loan are released. The relevant provision states:
Section 18. Mortgages. - No mortgage on any unit or lot shall be made by the owner or developer without prior
written approval of the Authority. Such approval shall not be granted unless it is shown that the proceeds of the
mortgage loan shall be used for the development of the condominium or subdivision project and effective measures
have been provided to ensure such utilization. The loan value of each lot or unit covered by the mortgage shall be
determined and the buyer thereof, if any, shall be notified before the release of the loan. The buyer may, at his
option, pay his installment for the lot or unit directly to the mortgagee who shall apply the payments to the
corresponding mortgage indebtedness secured by the particular lot or unit being paid for, with a view to enabling said
buyer to obtain title over the lot or unit promptly after full payment thereof.
In Far East Bank & Trust Co. v. Marquez , the Court clarified the legal effect of a mortgage constituted in violation of
the foregoing provision, thus:
The lot was mortgaged in violation of Section 18 of PD 957. Respondent, who was the buyer of the property, was not
notified of the mortgage before the release of the loan proceeds by petitioner. Acts executed against the provisions of
mandatory or prohibitory laws shall be void. Hence, the mortgage over the lot is null and void insofar as
private respondent is concerned.
168
The Court reiterated the foregoing pronouncement in the recent case of Philippine National Bank v. Lim [60] and again
in United Overseas Bank of the Philippines, Inc. v. Board of Commissioners-HLURB .[61]
Thus, the Mortgage Agreement cannot have the effect of curtailing Rapanot's right as buyer of Unit 2308-B2, precisely
because of the Bank's failure to comply with PD 957.
Moreover, contrary to the Bank's assertions, it cannot be considered a mortgagee in good faith. The Bank failed to
ascertain whether Golden Dragon secured HLURB's prior written approval as required by PD 957 before it accepted
Golden Dragon's properties as collateral. It also failed to ascertain whether any of the properties offered as collateral
already had corresponding buyers at the time the Mortgage Agreement was executed.
The Bank cannot harp on the fact that the Mortgage Agreement was executed before the Contract to Sell and Deed of
Absolute Sale between Rapanot and Golden Dragon were executed, such that no amount of verification could have
revealed Rapanot's right over Unit 2308-B2. The Court particularly notes that Rapanot made his initial payment for Unit
2308-B2 as early as May 9, 1995, four (4) months prior to the execution of the Mortgage Agreement. Surely, the Bank
could have easily verified such fact if it had simply requested Golden Dragon to confirm if Unit 2308-B2 already had a
buyer, given that the nature of the latter's business inherently involves the sale of condominium units on a commercial
scale.
It bears stressing that banks are required to exercise the highest degree of diligence in the conduct of their affairs .
The Court explained this exacting requirement in the recent case of Philippine National Bank v. Vila, thus:
In Land Bank of the Philippines v. Belle Corporation , the Court exhorted banks to exercise the highest degree of
diligence in its dealing with properties offered as securities for the loan obligation:
When the purchaser or the mortgagee is a bank, the rule on innocent purchasers or mortgagees for value is applied
more strictly. Being in the business of extending loans secured by real estate mortgage, banks are presumed to be
familiar with the rules on land registration. Since the banking business is impressed with public interest, they are
expected to be more cautious, to exercise a higher degree of diligence, care and prudence, than private individuals in
their dealings, even those involving registered lands. Banks may not simply rely on the face of the certificate of title.
Hence, they cannot assume that, x x x the title offered as security is on its face free of any encumbrances or lien, they
are relieved of the responsibility of taking further steps to verify the title and inspect the properties to be mortgaged.
As expected, the ascertainment of the status or condition of a property offered to it as security for a loan must be a
standard and indispensable part of the bank's operations. x x x (Citations omitted)
We never fail to stress the remarkable significance of a banking institution to commercial transactions,
in particular, and to the country's economy in general. The banking system is an indispensable
institution in the modern world and plays a vital role in the economic life of every civilized nation.
Whether as mere passive entities for the safekeeping and saving of money or as active instruments of
business and commerce, banks have become an ubiquitous presence among the people, who have come
to regard them with respect and even gratitude and, most of all, confidence. Consequently, the highest
degree of diligence is expected, and high standards of integrity and performance are even required, of
it.
In loan transactions, banks have the particular obligation of ensuring that clients comply with all the documentary
requirements pertaining to the approval of their loan applications and the subsequent release of their proceeds.
169
If only the Bank exercised the highest degree of diligence required by the nature of its business as a financial
institution, it would have discovered that
(i) Golden Dragon did not comply with the approval requirement imposed by Section 18 of PD 957, and
(ii) that Rapanot already paid a reservation fee and had made several installment payments in favor of Golden Dragon,
with a view of acquiring Unit 2308-B2.
The Bank's failure to exercise the diligence required of it constitutes negligence, and negates its assertion that it is a
mortgagee in good faith. On this point, this Court's ruling in the case of Far East Bank & Trust Co. v. Marquez [67] is
instructive:
Petitioner argues that it is an innocent mortgagee whose lien must be respected and protected, since the title offered
as security was clean of any encumbrance or lien. We do not agree.
"x x x As a general rule, where there is nothing on the certificate of title to indicate any cloud or vice in the ownership
of the property, or any encumbrance thereon, the purchaser is not required to explore further than what
the Torrens Title upon its face indicates in quest for any hidden defect or inchoate right that may subsequently defeat
his right thereto. This rule, however, admits of an exception as where the purchaser or mortgagee has knowledge of a
defect or lack of title in the vendor, or that he was aware of sufficient facts to induce a reasonably prudent man to
inquire into the status of the property in litigation."
Petitioner bank should have considered that it was dealing with a town house project that was already in progress. A
reasonable person should have been aware that, to finance the project, sources of funds could have been used other
than the loan, which was intended to serve the purpose only partially. Hence, there was need to verity whether any
part of the property was already the subject of any other contract involving buyers or potential buyers. In granting
the loan, petitioner bank should not have been content merely with a clean title, considering the
presence of circumstances indicating the need for a thorough investigation of the existence of buyers
like respondent. Having been wanting in care and prudence, the latter cannot be deemed to be an innocent
mortgagee.
Petitioner cannot claim to be a mortgagee in good faith. Indeed it was negligent, as found by the Office
of the President and by the CA. Petitioner should not have relied only on the representation of the
mortgagor that the latter had secured all requisite permits and licenses from the government agencies
concerned. The former should have required the submission of certified true copies of those documents
and verified their authenticity through its own independent effort.
Having been negligent in finding out what respondent's rights were over the lot, petitioner must be
deemed to possess constructive knowledge of those rights.
The Court can surely take judicial notice of the fact that commercial banks extend credit accommodations to real
estate developers on a regular basis. In the course of its everyday dealings, the Bank has surely been made aware of
the approval and notice requirements under Section 18 of PD 957. At this juncture, this Court deems it necessary to
170
stress that a person who deliberately ignores a significant fact that could create suspicion in an otherwise reasonable
person cannot be deemed a mortgagee in good faith. The nature of the Bank's business precludes it from feigning
ignorance of the need to confirm that such requirements are complied with prior to the release of the loan in favor of
Golden Dragon, in view of the exacting standard of diligence it is required to exert in the conduct of its affairs.
Proceeding from the foregoing, we find that neither mistake nor misapprehension of facts can be ascribed to the CA in
rendering the questioned Decision. The Court likewise finds that contrary to the Bank's claim, the CA did not overlook
material facts, since the questioned Decision proceeded from a thorough deliberation of the facts established by the
submissions of the parties and the evidence on record.
Chinatrust (Phils.) Commercial Bank v. Turner

July 3,2017
FACTS
On September 13, 2004, British national Turner initiated via Chinatrust-Ayala Branch the telegraphic transfer of
US$430.00 to the account of "MIN TRAVEL/ESMAT AZMY, Account No. 70946017, Citibank, Heliopolis Branch" in Cairo,
Egypt. The amount was partial payment to Turner's travel agent for his and his wife's 11-day tour in Egypt. Turner
paid a service fee of US$30.00. Both amounts were debited from his dollar savings account with Chinatrust.
On the same day, Chinatrust remitted the funds through the Union Bank of California, its paying bank, to Citibank-New
York, to credit them to the bank account of Min Travel/Esmat Azmy in Citibank-Cairo, Egypt. [8] On September 17,
2004, Chinatrust received Citibank-Cairo's telex-notice about the latter's inability to credit the funds it received because
the "beneficiary name d[id] not match their books (referred to as the 'discrepancy notice')." In other words, the
beneficiary's name "Min Travel/Esmat Azmy" given by Turner did not match the account name on file of Citibank-Cairo.
Chinatrust relayed this information to Turner on September 20, 2004, "the next succeeding business day." [11]
Chinatrust claimed that it relayed the discrepancy to Turner and requested him to verify from his beneficiary the
correct bank account name. On September 22, 2004, Turner allegedly informed Chinatrust that he was able to contact
Esmat Azmy, who acknowledged receipt of the transferred funds. Turner, however, had to cancel his travel-tour
because his wife got ill and requested from Chinatrust the refund of his money.
According to Chinatrust, it explained to Turner that since the funds were already remitted to his beneficiary's account,
they could no longer be withdrawn or retrieved without Citibank-Cairo's consent. Turner was, thus, advised to seek the
refund of his payment directly from his travel agency.
Turner allegedly insisted on withdrawing the funds from Chinatrust explaining that the travel agency would forfeit fifty
percent (50%) as penalty for the cancellation of the booking, as opposed to the minimal bank fees he would shoulder
if he withdrew the money through Chinatrust. Hence, Chinatrust required Turner to secure, at least, his travel agency's
written certification denying receipt of the funds so that it could act on his request. However, Turner purportedly failed
to submit the required certification despite repeated reminders.
On October 28, 2004, Chinatrust received Citibank-Cairo's Swift telex reply, which confirmed receipt of Chinatrust's
telegraphic funds transfer and its credit to the bank account of Min Travel, not "Min Travel/Esmat Azmy" as indicated
by the respondent, as early as September 15, 2004. This information was relayed to Turner on October 29, 2004.[18]
Despite this official confirmation, Turner allegedly continued to insist on his demand for a refund.
171
On March 7, 2005, Turner filed a Complaint against Chinatrust before the Metropolitan Trial Court of Makati City,
demanding the refund of his telegraphic transfer of P24,129.88 plus damages.
Upon further queries, Chinatrust received another telex on September 28, 2005 from Citibank-Cairo confirming again
and acknowledging receipt of Turner's remittance and its credit to the account of Min Travel on September 15, 2004.
[22]
After the parties had submitted their respective position papers in accordance with the Rules on Summary Procedure,
the Metropolitan Trial Court of Makati City, Branch 61 rendered a Decision on January 15, 2006, dismissing Turner's
complaint for lack of merit as well as Chinatrust's counterclaim. The Metropolitan Trial Court found sufficient evidence
to prove that Chinatrust complied with its contractual obligation to transmit the funds to Citibank-Cairo and that these
funds were actually credited to the intended beneficiary's account.
Turner filed an appeal. On the substantive matters, Turner argued that the Metropolitan Trial Court erred in ruling that
he had no basis in claiming a refund from Chinatrust and in not awarding him damages and attorney's fees.
ISSUE
whether petitioner Chinatrust (Philippines) Commercial Bank was negligent in the performance of its obligation under
the telegraphic transfer agreement; and
whether the subsequent acts of petitioner after compliance with its obligation can be considered "negligent" to justify
the award of damages by the Regional Trial Court, as affirmed by the Court of Appeals.
RULING
The Regional Trial Court and the Court of Appeals erred in awarding damages to respondent.
Petitioner was not remiss in the performance of its contractual obligation to remit the funds. It was established that
the funds were credited to the account of Min Travel on September 15, 2004, or two (2) days from respondent's
application.
Petitioner cannot likewise be faulted for the discrepancy notice sent by Citibank-Cairo, assuming there was a mistake
in its sending. It merely relayed its contents to respondent. Citibank-Cairo is not an agent of petitioner but a
beneficiary bank designated by respondent, upon the instruction of the beneficiary, Min Travel.
The Regional Trial Court, as affirmed by the Court of Appeals, found petitioner negligent in addressing the concerns
and queries of respondent. It specifically faulted petitioner for failure to submit any letters, tracers, cables, or other
evidence of communication sent to Citibank-Cairo to inquire about the status of the remittance and adjudged
petitioner liable for the anxieties suffered by respondent.
The rule that factual findings of the Court of Appeals are not reviewable by this Court is subject to certain exceptions
such as when there is a misapprehension of facts and when the conclusions are contradicted by the evidence on
record.[72] Here, there is insufficient evidence to show negligence on the part of petitioner.
The one (1)-month delay in receiving the telex reply from Citibank-Cairo does not sufficiently prove petitioner's fault or
negligence, especially since "[petitioner's communications were coursed thru a third-party-correspondent bank, Union
Bank of California."[73]
172
Furthermore, the lower courts overlooked the fact that respondent knew all along, or as early as September 22, 2004,
that his funds were already received by his beneficiary. Despite this, he insisted on demanding the retrieval of the
funds after he opted not to pursue with his travel abroad.
Respondent did not specifically deny paragraphs 8 and 9 of petitioner's Answer with Counterclaims, which
alleged the following:
8. However, on September 22, 2004, the Plaintiff, despite being aware that his foregoing remittance was already
received by the beneficiary MIN TRAVEL, changed his mind, and stated that he will no longer push though with his
tour travel, and thus, requested for the retrieval of said funds. Defendant relayed said request through the foregoing
channel to Citibank-Cairo. Considering that said fund was already transferred, Citibank-Cairo refused to honor said
request, and consider the transmittal closed and accomplished;
9. Plaintiff, however, insisted on demanding refund of said amount from the Defendant, who politely denied such
demand, and repeatedly explained to the Plaintiff that Citibank-Cairo will not honor such request, and that there is
nothing that the Defendant can do under the circumstances.
The Affidavit of Rosario C. Astrologo (Astrologo), Branch Service Head, Chinatrust-Ayala Branch, was never rebutted
by respondent by submitting his counter evidence. Portions of it stated:
7. On September 22, 2004, when he visited our branch office, which he has been doing almost everyday, he
mentioned to our Ms. Rina Chua, the bank's Senior Service Assistant, Ayala Branch, that he [was] able to contact Mr.
Esmat Azmy who already confirmed having received the said remittance;
8. When I also talked to him, also on the same date, he, stated that he changed his mind and will no longer push
through with his said travel because his wife, who is supposed to accompany him, became sick, injured, or something
to such effect. He also mentioned that if he will cancel his travel agreement, the travel agency will only return to him
fifty [percent] (50%) of his foregoing down-payment, but if he will be able to retrieve and withdraw such remittance
from the bank, he will only pay the bank charges, which is minimal. He, therefore, insisted, that said fund be
withdrawn and returned to him by the bank;
9. He was also told that if such fund was already received by the travel agency and credited to its bank account of said
travel agency at Citibank, it cannot be returned anymore, and I advised him to contact his travel agency and negotiate
for the refund of his entire proceeds. I do not know if he later made such plea to his travel agency for we were not
told what happened later. I promised, however, that we will relay his request for its retrieval of such fund to Citibank,
which we did thru various telexes.
The successful remittance was later confirmed by the telex-reply from Citibank-Cairo on October 28, 2004, stating that
the funds were credited to the account of Min Travel on September 15, 2004. [76] This telex-reply confirms that
petitioner indeed made a follow up with Citibank-Cairo regarding the status of respondent's funds.
Moreover, the refusal of petitioner's personnel to accede to respondent's demand for a refund cannot be considered an
actionable wrong. Their refusal was due primarily to lack of information or knowledge of the effective cancellation of
the remittance and not from a deliberate intent to ignore or disregard respondent's rights. When respondent insisted
on asking for the refund, he was repeatedly requested to submit a certification or, at least, a written denial from his
beneficiary that the funds were not in fact received. They cannot be faulted for wanting to verify with Citibank-Cairo
the status of the remittance before acting upon his request, especially since the funds have actually been received by
Citibank-Cairo. The written denial would also be the basis for petitioner's demand upon Citibank-Cairo.
173
The Court of Appeals erred in ruling that petitioner had the duty to immediately return the money to Turner together
with the service fee upon the first instance that it relayed the discrepancy notice to him. Turner could no longer
rescind the telegraphic transfer agreement.
In Republic of the Philippines v. Philippine National Bank, this Court described the nature of a telegraphic transfer
agreement:
"[C]redit" in its usual meaning is a sum credited on the books of a company to a person who appears to be entitled to
it. It presupposes a creditor-debtor relationship, and may be said to imply ability, by reason of property or estates, to
make a promised payment.
[A]s the transaction is for the establishment of a telegraphic or cable transfer, the agreement to remit creates a
contractual obligation and has been termed a purchase and sale transaction (9 C.J.S. 368). The purchaser of a
telegraphic transfer upon making payment completes the transaction insofar as he is concerned, though insofar as the
remitting bank is concerned the contract is executory until the credit is established .
Thus, once the amount represented by the telegraphic transfer order is credited to the account of the payee or
appears in the name of the payee in the books of the receiving bank, the ownership of the telegraphic transfer order is
deemed to have been transmitted to the receiving bank. The local bank is deemed to have fully executed the
telegraphic transfer and is no longer the owner of this telegraphic transfer order.
It is undisputed that on September 13, 2004, the funds were remitted to Citibank-New York through petitioner's
paying bank, Union Bank of California. Citibank-New York, in turn, credited Citibank-Cairo, Egypt, Heliopolis Branch.
Moreover, it was established that the amount of US$430.00 was actually credited to the account of Min Travel on
September 15, 2004, or merely two (2) days after respondent applied for the telegraphic transfer and even before
petitioner received its "discrepancy notice" on September 17, 2004. Chinatrust is, thus, deemed to have fully executed
the telegraphic transfer agreement and its obligation to respondent was extinguished. Hence, respondent could no
longer ask for rescission of the agreement on September 22, 2004.
When the funds were credited to the account of Min Travel at Citibank-Cairo, ownership and control of these funds
were transferred to Min Travel. Thus, the funds could not be withdrawn without its consent.
The Court of Appeals, in affirming the decision of the Regional Trial Court, held that petitioner was obliged to
immediately return the money to respondent as early as September 17, 2004 when it received the "discrepancy
notice" from Citibank-Cairo.[81] It held that petitioner's failure to do so even upon respondent's demand constituted an
actionable negligence under Article 1172.
The Court of Appeals misappreciated the true import of the discrepancy notice when it held that the notice was an
"effective cancellation of the remittance by the Citibank-Cairo" [83] that gave rise to the legal obligation of petitioner to
return the funds to respondent.
The discrepancy notice does not mean that the funds were not received by the beneficiary bank. On the
contrary, what it implies is that these funds were actually received by Citibank-Cairo but it could not apply it because
the account name of the beneficiary indicated in the telex instruction does not match the account name in its books.
174
In short, it cannot find in its file the beneficiary account name "Min Travel/Esmat Azmy" pursuant to the telex
instruction, for which reason, Citibank-Cairo asked for clarifications. Petitioner, in turn, had to clarify from respondent,
because it was respondent himself, upon instruction of his travel agency, who indicated such beneficiary's name in his
telegraphic transfer form. True enough, as later shown, the beneficiary account name was not "Min Travel/Esmat
Azmy" but only "Min Travel." Petitioner, therefore, had nothing to do with the mismatch of the beneficiary name and
could not be made liable for it.
The information initially relayed by Citibank-Cairo and received by petitioner on September 17, 2004—that the funds
were not applied to the intended account because the beneficiary name did not match its books—proved to be no
longer true. This is because Citibank-Cairo later confirmed that respondent's remittance was duly credited to the
account of Min Travel on September 15, 2004.
As stated earlier, respondent's request for retrieval of the funds was because he changed his mind about the travel
rather than the discrepancy notice sent by Citibank-Cairo. The Affidavit of Astrologo was never refuted.
The tour travel arrangement, which brought about the remittance of the funds, is a separate and private arrangement
between respondent and Min Travel. Respondent's change of mind and claim for refund, therefore, should have been
properly addressed to Min Travel, which already had possession of the funds and not to petitioner, who was not privy
to the arrangement.
Orient Freight International, Inc. v. Keihin-Everett Forwarding Co., Inc.,

August 9, 2017
FACTS
On October 16, 2001, Keihin-Everett entered into a Trucking Service Agreement with Matsushita. Under the Trucking
Service Agreement, Keihin-Everett would provide services for Matsushita's trucking requirements. These services were
subcontracted by Keihin-Everett to Orient Freight, through their own Trucking Service Agreement executed on the
same day.
When the Trucking Service Agreement between Keihin-Everett and Matsushita expired on December 31, 2001, Keihin-
Everett executed an In-House Brokerage Service Agreement for Matsushita's Philippine Economic Zone Authority
export operations. Keihin-Everett continued to retain the services of Orient Freight, which sub-contracted its work to
Schmitz Transport and Brokerage Corporation.
In April 2002, Matsushita called Keihin-Everett's Sales Manager, Salud Rizada, about a column in the April 19, 2002
issue of the tabloid newspaper Tempo. This news narrated the April 17, 2002 interception by Caloocan City police of a
stolen truck filled with shipment of video monitors and CCTV systems owned by Matsushita.
When contacted by Keihin-Everett about this news, Orient Freight stated that the tabloid report had blown the incident
out of proportion. They claimed that the incident simply involved the breakdown and towing of the truck, which was
driven by Ricky Cudas (Cudas), with truck helper, Rubelito Aquino (Aquino). The truck was promptly released and did
not miss the closing time of the vessel intended for the shipment.
Keihin-Everett directed Orient Freight to investigate the matter. During its April 20, 2002 meeting with Keihin-Everett
and Matsushita, as well as in its April 22, 2002 letter addressed to Matsushita, Orient Freight reiterated that the truck
merely broke down and had to be towed.
175
However, when the shipment arrived in Yokohama, Japan on May 8, 2002, it was discovered that 10 pallets of the
shipment's 218 cartons, worth US$34,226.14, were missing.
Keihin-Everett independently investigated the incident. During its investigation, it obtained a police report from the
Caloocan City Police Station. The report stated, among others, that at around 2:00 p.m. on April 17, 2002, somewhere
in Plaza Dilao, Paco Street, Manila, Cudas told Aquino to report engine trouble to Orient Freight. After Aquino made
the phone call, he informed Orient Freight that the truck had gone missing. When the truck was intercepted by the
police along C3 Road near the corner of Dagat-Dagatan Avenue in Caloocan City, Cudas escaped and became the
subject of a manhunt.
When confronted with Keihin-Everett's findings, Orient Freight wrote back on May 15, 2002 to admit that its previous
report was erroneous and that pilferage was apparently proven.
In its June 6, 2002 letter, Matsushita terminated its In-House Brokerage Service Agreement with Keihin-Everett,
effective July 1, 2002. Matsushita cited loss of confidence for terminating the contract, stating that Keihin-Everett's
way of handling the April 17, 2002 incident and its nondisclosure of this incident's relevant facts "amounted to fraud
and signified an utter disregard of the rule of law." [
Keihin-Everett, by counsel, sent a letter dated September 16, 2002 to Orient Freight, demanding P2,500,000.00 as
indemnity for lost income. It argued that Orient Freight's mishandling of the situation caused the termination of Keihin-
Everett's contract with Matsushita.
When Orient Freight refused to pay, Keihin-Everett filed a complaint dated October 24, 2002 for damages with Branch
10, Regional Trial Court, Manila. The case was docketed as Civil Case No. 02-105018. [17] In its complaint, Keihin-
Everett alleged that Orient Freight's "misrepresentation, malice, negligence and fraud" caused the termination of its In-
House Brokerage Service Agreement with Matsushita. Keihin-Everett prayed for compensation for lost income, with
legal interest, exemplary damages, attorney's fees, litigation expenses, and the costs of the suit.
On June 9, 2010, Orient Freight filed this Petition for Review on Certiorari under Rule 45 with this Court, arguing that
the Court of Appeals incorrectly found it negligent under Article 2176 of the Civil Code. As there was a subsisting
Trucking Service Agreement between Orient Freight itself and Keihin-Everett, petitioner avers that there was a pre-
existing contractual relation between them, which would preclude the application of the laws on quasi-delicts.
ISSUE
Whether the Court of Appeals, considering the existing contracts in this case, erred in applying Article 2176 of the Civil
Code;
Whether Orient Freight, Inc. was negligent for failing to disclose the facts surrounding the hijacking incident on April
17, 2002, which led to the termination of the Trucking Service Agreement between Keihin-Everett Forwarding Co., Inc.
and Matsushita Communication Industrial Corporation of the Philippines; and
RULING
176
i. Here, petitioner denies that it was obliged to disclose the facts regarding the hijacking incident since this was not
among the provisions of its Trucking Service Agreement with respondent. There being no contractual obligation,
respondent had no cause of action against petitioner:
Applying said test, assuming for the sake of argument that petitioner indeed failed to inform respondent of the
incident where the truck was later found at the Caloocan Police station, would an independent action prosper based on
such omission? Assuming that there is no contractual relation between the parties herein, would petitioner's omission
of not informing respondent that the truck was impounded gives [sic] rise to a quasi-delict? Obviously not, because
the obligation, if there is any in the contract, that is to inform plaintiff of said incident, could have been spelled out in
the very contract itself duly executed by the parties herein specifically in the Trucking Service Agreement. It is a fact
that no such obligation or provision existed in the contract. Absent said terms and obligations, applying the principles
on tort as a cause for breaching a contract would therefore miserably fail as the lower Court erroneously did in this
case.
The obligation to report what happened during the hijacking incident, admittedly, does not appear on the plain text of
the Trucking Service Agreement. Petitioner argues that it is nowhere in the agreement. Respondent does not dispute
this claim. Neither the Regional Trial Court nor the Court of Appeals relied on the provisions of the Trucking Service
Agreement to arrive at their respective conclusions. Breach of the Trucking Service Agreement was neither alleged nor
proved.
While petitioner and respondent were contractually bound under the Trucking Service Agreement and the events at
the crux of this controversy occurred during the performance of this contract, it is apparent that the duty to investigate
and report arose subsequent to the Trucking Service Agreement. When respondent discovered the news report on the
hijacking incident, it contacted petitioner, requesting information on the incident. Respondent then requested
petitioner to investigate and report on the veracity of the news report. Pursuant to respondent's request, petitioner
met with respondent and Matsushita on April 20, 2002 and issued a letter dated April 22, 2002, addressed to
Matsushita. Respondent's claim was based on petitioner's negligent conduct when it was required to investigate and
report on the incident:
The defendant claimed that it should not be held liable for damages suffered by the plaintiff considering that the
proximate cause of the damage done to plaintiff is the negligence by employees of Schmitz trucking. This argument is
untenable because the defendant is being sued in this case not for the negligence of the employees of Schmitz
trucking but based on defendant's own negligence in failing to disclose the true facts of the hijacking incident to
plaintiff Keihin and Matsushita.
Both the Regional Trial Court and Court of Appeals erred in finding petitioner's negligence of its obligation to report to
be an action based on a quasi-delict Petitioner's negligence did not create the vinculum juris or legal relationship with
the respondent, which would have otherwise given rise to a quasi-delict. Petitioner's duty to respondent existed prior
to its negligent act. When respondent contacted petitioner regarding the news report and asked it to investigate the
incident, petitioner's obligation was created. Thereafter, petitioner was alleged to have performed its obligation
negligently, causing damage to respondent.
The doctrine "the act that breaks the contract may also be a tort," on which the lower courts relied, is inapplicable
here. Petitioner's negligence, arising as it does from its performance of its obligation to respondent, is dependent on
this obligation. Neither do the facts show that Article 21 of the Civil Code applies, there being no finding that
petitioner's act was a conscious one to cause harm, or be of such a degree as to approximate fraud or bad faith:
177
To be sure, there was inaction on the part of the defendant which caused damage to the plaintiff, but there is nothing
to show that the defendant intended to conceal the truth or to avoid liability. When the facts became apparent to
defendant, the latter readily apologized to Keihin and Matsushita for their mistake.
Consequently, Articles 1170, 1172, and 1173 of the Civil Code on negligence in the performance of an obligation
should apply.
ii.
Under Article 1170 of the Civil Code, liability for damages arises when those in the performance of their obligations are
guilty of negligence, among others. Negligence here has been defined as "the failure to observe that degree of care,
precaution and vigilance that the circumstances just demand, whereby that other person suffers injury." If the law or
contract does not provide for the degree of diligence to be exercised, then the required diligence is that of a good
father of a family. The test to determine a party's negligence is if the party used "the reasonable care and caution
which an ordinarily prudent person would have used in the same situation" when it performed the negligent act. If the
party did not exercise reasonable care and caution, then it is guilty of negligence.
In this case, both the Regional Trial Court and the Court of Appeals found that petitioner was negligent in failing to
adequately report the April 17, 2002 hijacking incident to respondent and not conducting a thorough investigation
despite being directed to do so. The trial court's factual findings, when affirmed by the Court of Appeals, are binding
on this Court and are generally conclusive.
The Regional Trial Court found that petitioner's conduct showed its negligent handling of the investigation and its
failure to timely disclose the facts of the incident to respondent and Matsushita:
[Orient Freight] was clearly negligent in failing to investigate properly the incident and make a factual report to Keihin
and Matsushita. [Orient Freight] claimed that it was pressed for time considering that they were given only about one
hour and a half to investigate the incident before making the initial report. They claimed that their employees had no
reason to suspect that the robbery occurred considering that the seal of the van remained intact. Moreover, the
priority they had at that time was to load the cargo to the carrying vessel on time for shipment on April 19, 200[2].
They claimed that they made arrangement with the Caloocan Police Station for the release of the truck and the cargo
and they were able to do that and the objective was achieved. This may be true but the Court thinks that [Orient
Freight] had enough time to investigate properly the incident. The hijacking incident happened on April 17, 200[2] and
the tabloid Tempo published the hijacking incident only on April 19, 200[2]. This means that [Orient Freight] had
about two (2) days to conduct a diligent inquiry about the incident. It took them until May 15, 200[2] to discover that
a robbery indeed occurred resulting in the loss of ten pallets or 218 cartons valued at US $34,226.14. They even
denied that there was no police report only to find out that on May 15, 200[2] that there was such a report. It was
[Orient Freight] 's duty to inquire from the Caloocan Police Station and to find out if they issued a police report, Yet, it
was plaintiff Keihin which furnished them a copy of the police report. The failure of [Orient Freight] to investigate
properly the incident and make a timely report constitutes negligence. Evidently, [Orient Freight] failed to exercise due
diligence in disclosing the true facts of the incident to plaintiff Keihin and Matsushita . As a result, plaintiff Keihin
suffered income losses by reason of Matsushita's cancellation of their contract which primarily was caused by the
negligence of [Orient Freight].
The Court of Appeals affirmed the trial court's finding of negligence:
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From the foregoing account, it is evident that [Orient Freight] not only had knowledge of the foiled hijacking of the
truck carrying the subject shipment but, more importantly, withheld said information from [Keihin-Everett], Confronted
with the April 19, 2002 tabloid account thereof, [Orient Freight] appears to have further compounded its omission by
misleading [Keihin-Everett] and Matsu[s]hita into believing that the subject incident was irresponsibly reported and
merely involved a stalled vehicle which was towed to avoid obstruction of traffic. Given that the police report
subsequently obtained by [Keihin-Everett] was also dated April 17, 2002, [Orient Freight's insistence on its good faith
on the strength of the information it gathered from its employees as well as the timely shipment and supposed good
condition of the cargo clearly deserve scant consideration.
Petitioner's argument that its acts were a "sound business judgment which the court cannot supplant or question nor
can it declare as a negligent act" lacks merit. The Regional Trial Court found that the circumstances should have
alerted petitioner to investigate the incident in a more circumspect and careful manner:
On this score, [Orient Freight] itself presented the circumstances which should have alerted [Orient Freight] that there
was more to the incident than simply a case of mechanical breakdown or towing of the container truck to the police
station. [Orient Freight] pointed to specific facts that would naturally arouse suspicion that something was wrong
when the container was found in the premises of the Caloocan Police Station and that driver Ricky Cudas was nowhere
to be found. The police does [sic] not ordinarily impound a motor vehicle if the problem is merely a traffic violation.
More important, driver Ricky Cudas disappeared and was reported missing. When the Caloocan Police chanced upon
the container van, it was found straying at C-3 which is outside its usual route. All these circumstances should have
been enough for [Orient Freight] to inquire deeper on the real circumstances of the incident.
[Orient Freight] talked to Rubelito Aquino and apparently failed to listen closely to the statement given by their truck
helper to the Caloocan Police. The truck helper recounted how the engine of the truck stalled and the driver was able
to start the engine but thereafter, he was nowhere to be seen. By this circumstance alone, it should have become
apparent to [Orient Freight] that the truck driver gypped the truck helper into calling the company and had a different
intention which was to run away with the container van. It readily shows that Ricky Cudas intended to hijack the
vehicle by feigning or giving the false appearance of an engine breakdown. Yet, [Orient Freight] dismissed the incident
as a simple case of a unit breakdown and towing of vehicle allegedly due to traffic violation. Under the circumstances,
therefore, the defendant failed to exercise the degree of care, precaution and vigilance which the situation demands.
Despite the circumstances which would have cautioned petitioner to act with care while investigating and reporting the
hijacking incident, petitioner failed to do so. Petitioner is responsible for the damages that respondent incurred due to
the former's negligent performance of its obligation.
Pineda v. De Vega
FACTS
ISSUE
Was a demand letter sent by petitioner to respondent and was it received by the latter? [
RULING
It was, indeed, alleged in the complaint, as well as in her testimony, that demand was sent to [respondent] by
registered mail and was received on September 7, 2004. However, the registry return card evidencing such receipt
was not specifically and formally offered in evidence. What she presented, instead, was a copy of the said demand
letter with only a photocopy of the face of a registry return card claimed to refer to the said letter.
[Respondent] properly opposed the said evidence as it does not prove that she, in fact, received the letter. We have
thoroughly reviewed her formal offer as well and found no reference to the registry receipt card or any other
179
competent proof i.e., postman certificate or the testimony of the postman, that [respondent] actually received the said
demand letter.
[Petitioner] could have simply presented and offered in evidence the registry receipt or the registry return card
accompanying the demand letter. However, she offered no explanation why she failed to do so. There is, thus, no
satisfactory proof that the letter was received by [respondent].
After the CA found that petitioner failed to prove that extrajudicial demand was made upon respondent as required by
law and after it had observed that petitioner had not asserted any of the exceptions to the requisite demand under
Article 1169 of the Civil Code, the CA concluded that respondent could not be considered in default. Necessarily,
petitioner's case should fail.[40]
While the CA is correct on its factual finding, its legal conclusion is, however, flawed.
What petitioner seeks to enforce against respondent is a contract of loan, which is secured by a real estate mortgage .
Based on the sources of obligations enumerated under Article 1157 of the Civil Code, the obligation that petitioner
seeks to make respondent liable for is one which arises from contract. Liability for damages arises pursuant to Article
1170 of the Civil Code against "[t]hose who in the performance of their obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene the tenor thereof." Delay or mora is governed by Article 1169 of the
Civil Code, which provides:
ART. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation.
(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the
thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract;
or
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by
the other begins. (1100a)
Default or mora, which is a kind of voluntary breach of an obligation, signifies the idea of delay in the fulfillment of
an obligation with respect to time. In positive obligations, like an obligation to give, the obligor or debtor incurs in
delay from the time the obligee or creditor demands from him the fulfillment of the obligation. Demand may be judicial
— if the creditor files a complaint against the debtor for the fulfillment of the obligation — or extrajudicial — if the
creditor demands from the debtor the fulfillment of the obligation either orally or in writing. Whether the demand is
judicial or extrajudicial, if the obligor or debtor fails to fulfill or perform his obligations, like payment of a loan, as in
this case, he is in mora solvendi, and, thus, liable for damages.
While delay on the part of respondent was not triggered by an extrajudicial demand because petitioner had failed to so
180
establish receipt of her demand letter, this delay was triggered when petitioner judicially demanded the
payment of respondent's loan from petitioner. While the CA was correct in observing that default generally
begins from the moment the creditor demands the performance of the obligation, and without such demand, judicial
or extrajudicial, the effects of default will not arise, it failed to acknowledge that when petitioner filed her complaint
dated June 10, 2005, such filing constituted the judicial demand upon respondent to pay the latter's principal
obligation and the interest thereon. Respondent, having thus incurred in delay (counted from the filing of the
complaint), is liable for damages pursuant to Article 1170 of the Civil Code.
Firstly, the RTC erred in granting petitioner's remedies or demands of collection and foreclosure of mortgage
successively. The settled rule is that these remedies of collection and foreclosure are mutually exclusive. The
invocation or grant of one remedy precludes the other.
Since Bachrach Motor Co., Inc. v. Icarañgal, the Court has consistently ruled[49] that:
We hold, therefore, that, in the absence of express statutory provisions, a mortgage creditor may institute
against the mortgage debtor either a personal action for debt or a real action to foreclose the mortgage .
In other words, he may pursue either of the two remedies, but not both. By such election, his cause of action can by
no means be impaired, for each of the two remedies is complete in itself. Thus, an election to bring a personal action
will leave open to him all the properties of the debtor for attachment and execution, even including the mortgaged
property itself. And, if he waives such personal action and pursues his remedy against the mortgaged property, an
unsatisfied judgment thereon would still give him the right to sue for a deficiency judgment, in which case, all the
properties of the defendant, other than the mortgaged property, are again open to him for the satisfaction of the
deficiency. In either case, his remedy is complete, his cause of action undiminished, and any advantages attendant to
the pursuit of one or the other remedy are purely accidental and are all under his right of election. On the other hand,
a rule that would authorize the plaintiff to bring a personal action against the debtor and simultaneously or
successively another action against the mortgaged property, would result not only in multiplicity of suits so offensive
to justice (Soriano vs.Enriques, 24 Phil., 584) and obnoxious to law and equity (Osorio vs. San Agustin, 25 Phil., 404),
but also in subjecting the defendant to the vexation of being sued in the place of his residence or of the residence of
the plaintiff, and then again in the place where the property lies.
The rationale as to the exclusive effect of the remedies or options is explained, thus:
For non-payment of a note secured by mortgage, the creditor has a single cause of action against the debtor. This
single cause of action consists in the recovery of the credit with execution of the security. In other words, the creditor
in his action may make two demands, the payment of the debt and the foreclosure of the mortgage. But both
demands arise from the same cause, the non-payment of the debt, and, for that reason, they constitute a single cause
of action. Though the debt and the mortgage constitute separate agreements, the latter is subsidiary to the former,
and both refer to one and the same obligation. Consequently, there exists only one cause of action for a single
breach of that obligation. Plaintiff, then, by applying the rule above stated, cannot split up his single cause of
action by filing a complaint for payment of the debt, and thereafter another complaint for foreclosure of the mortgage.
If he does so, the filing of the first complaint will bar the subsequent complaint. By allowing the creditor to file two
separate complaints simultaneously or successively, one to recover his credit and another to foreclose his mortgage,
we will, in effect, be authorizing him plural redress for a single breach of contract at so much cost to the courts and
with so much vexation and oppression to the debtor.
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x x x But, as we have heretofore stated, the creditor's cause of action is not only single but indivisible, although the
agreements of the parties, evidenced by the note and the deed of mortgage, may give rise to different remedies. x x x
The cause of action should not be confused with the remedy created for its enforcement. And considering, as we have
shown, that one of the two remedies available to the creditor is as complete as the other, he cannot be allowed to
pursue both in violation of those principles of procedure intended to secure simple, speedy and unexpensive
administration of justice.
In Cerna v. CA, the Court ruled that the filing of a collection suit barred the foreclosure of the mortgage.
Given the foregoing, the Court sustains the RTC's ruling which orders respondent to pay petitioner the loaned amount
of P200,000.00. However, the RTC's ruling that in default of respondent's payment, petitioner can foreclose on the
mortgage is erroneous.
Secondly, the RTC erred on the rate of interest that it imposed. The 12% per annum rate of interest should be revised
in the light of Nacar v. Gallery Frames. Since the RTC found that the undated Agreement contained no stipulation on
interest and the 2003 Agreement's interest rate was unconscionable, the rate of interest on the loan of respondent
should be 12% per annum from judicial demand or filing of the original complaint with the RTC until June 30, 2013
and 6% per annum from July 1, 2013 until finality of this Decision. The total amount due as of such date of finality
shall bear an interest of 6% per annum until its full satisfaction.
Thirdly, as already pointed above, the RTC erred in reckoning the imposition of interest from extrajudicial demand
because the finding of the CA in this respect is upheld.
Fourthly, the award of P50,000.00 nominal damages is deleted. As reiterated in Robes-Francisco Realty &
Development Corp. v. Court of First Instance of Rizal (Branch XXXIV), [56] "nominal damages cannot coexist with
compensatory damages."
ARTICLE 1174- DOCTRINE OF FORTUITOUS EVENT
PAL v. CA
226 S 423
182
FACTS
On 25 November 1976, private respondent Zapatos filed a complaint for damages for breach of contract of carriage against
Philippine Airlines, Inc. (PAL), before the then Court of First Instance, now Regional Trial Court, of Misamis Occidental, at Ozamiz
City. According to him, on 2 August 1976, he was among the twenty-one (21) passengers of PAL Flight 477 that took off from Cebu
bound for Ozamiz City. The routing of this flight was Cebu-Ozamiz-Cotabato. While on flight and just about fifteen (15) minutes
before landing at Ozamiz City, the pilot received a radio message that the airport was closed due to heavy rains and inclement
weather and that he should proceed to Cotabato City instead.
Upon arrival at Cotabato City, the PAL Station Agent informed the passengers of their options to return to Cebu on flight 560 of the
same day and thence to Ozamiz City on 4 August 1975, or take the next flight to Cebu the following day, or remain at Cotabato and
take the next available flight to Ozamiz City on 5 August 1975. The Station Agent likewise informed them that Flight 560 bound for
Manila would make a stop-over at Cebu to bring some of the diverted passengers; that there were only six (6) seats available as
there were already confirmed passengers for Manila; and, that the basis for priority would be the check-in sequence at Cebu.
Zapatos chose to return to Cebu but was not accommodated because he checked-in as passenger No. 9 on Flight 477. He insisted
on being given priority over the confirmed passengers in the accommodation, but the Station Agent refused private respondent's
demand explaining that the latter's predicament was not due to PAL's own doing but to be a force majeure.
Zapatos tried to stop the departure of Flight 560 as his personal belongings, including a package containing a camera which a
certain Miwa from Japan asked him to deliver to Mrs. Fe Obid of Gingoog City, were still on board. His plea fell on deaf ears. PAL
then issued to private respondent a free ticket to Iligan city, which the latter received under protest. Private respondent was left at
the airport and could not even hitch a ride in the Ford Fiera loaded with PAL personnel. PAL neither provided private respondent
with transportation from the airport to the city proper nor food and accommodation for his stay in Cotabato City.
The following day, private respondent purchased a PAL ticket to Iligan City. He informed PAL personnel that he would not use the
free ticket because he was filing a case against PAL. In Iligan City, private respondent hired a car from the airport to Kolambugan,
Lanao del Norte, reaching Ozamiz City by crossing the bay in a launch. His personal effects including the camera, which were
valued at P2,000.00 were no longer recovered.
On 13 January 1977, PAL filed its answer denying that it unjustifiably refused to accommodate private respondent. It alleged that
there was simply no more seat for private respondent on Flight 560 since there were only six (6) seats available and the priority of
accommodation on Flight 560 was based on the check-in sequence in Cebu; that the first six (6) priority passengers on Flight 477
chose to take Flight 560; that its Station Agent explained in a courteous and polite manner to all passengers the reason for PAL's
inability to transport all of them back to Cebu; that the stranded passengers agreed to avail of the options and had their respective
tickets exchanged for their onward trips; that it was
only the private respondent who insisted on being given priority in the accommodation; that pieces of checked-in baggage and had
carried items of the Ozamiz City passengers were removed from the aircraft; that the reason for their pilot's inability to land at
Ozamis City airport was because the runway was wet due to rains thus posing a threat to the safety of both passengers and
aircraft; and, that such reason of force majeure was a valid justification for the pilot to bypass Ozamiz City and proceed directly to
Cotabato City.
ISSUE
Is PAL negligent and, consequently, liable for damages?
RULING
Yes.
In its petition, PAL vigorously maintains that private respondent's principal cause of action was its alleged denial of private
respondent's demand for priority over the confirmed passengers on Flight 560. Likewise, PAL points out that the complaint did not
impute to PAL neglect in failing to attend to the needs of the diverted passengers; and, that the question of negligence was not and
never put in issue by the pleadings or proved at the trial.
183
Contrary to the above arguments, private respondent's amended complaint touched on PAL's indifference and inattention to his
predicament.
With regard to the award of damages affirmed by the appellate court, PAL argues that the same is unfounded. It asserts that it
should not be charged with the task of looking after the passengers' comfort and convenience because the diversion of the flight
was due to a fortuitous event, and that if made liable, an added burden is given to PAL which is over and beyond its duties under
the contract of carriage. It submits that granting arguendo that negligence exists, PAL cannot be liable in damages in the absence
of fraud or bad faith; that private respondent failed to apprise PAL of the nature of his trip and possible business losses; and, that
private respondent himself is to be blamed for unreasonably refusing to use the free ticket which PAL issued.
The contract of air carriage is a peculiar one. Being imbued with public interest, the law requires common carriers
to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very
cautious persons, with due regard for all the circumstances. In Air France v. Carrascoso, we held that —
A contract to transport passengers is quite different in kind and degree from any other contractual relation.
And this, because of the relation which an air carrier sustains with the public. Its business is mainly with the
travelling public. It invites people to avail of the comforts and advantages it offers . The contract of air carriage,
therefore, generates a relation attended with a public duty . . . .
The position taken by PAL in this case clearly illustrates its failure to grasp the exacting standard required by law. Undisputably,
PAL's diversion of its flight due to inclement weather was a fortuitous event. Nonetheless, such occurrence did not
terminate PAL's contract with its passengers. Being in the business of air carriage and the sole one to operate in the country, PAL is
deemed equipped to deal with situations as in the case at bar. What we said in one case once again must be stressed, i.e., the
relation of carrier and passenger continues until the latter has been landed at the port of destination and has left
the carrier's premises. Hence, PAL necessarily would still have to exercise extraordinary diligence in safeguarding the comfort,
convenience and safety of its stranded passengers until they have reached their final destination. On this score, PAL grossly failed
considering the then ongoing battle between government forces and Muslim rebels in Cotabato City and the fact that the private
respondent was a stranger to the place. As the appellate court correctly ruled —
While the failure of plaintiff in the first instance to reach his destination at Ozamis City in accordance with the
contract of carriage was due to the closure of the airport on account of rain and inclement weather which was
radioed to defendant 15 minutes before landing, it has not been disputed by defendant airline that Ozamis City
has no all-weather airport and has to cancel its flight to Ozamis City or by-pass it in the event of inclement
weather. Knowing this fact, it becomes the duty of defendant to provide all means of comfort and
convenience to its passengers when they would have to be left in a strange place in case of such by-
passing. The steps taken by defendant airline company towards this end has not been put in evidence, especially
for those 7 others who were not accommodated in the return trip to Cebu, only 6 of the 21 having been so
accommodated. It appears that plaintiff had to leave on the next flight 2 days later. If the cause of non-
fulfillment of the contract is due to a fortuitous event, it has to be the sole and only cause (Art. 1755
CC., Art. 1733 C.C.) Since part of the failure to comply with the obligation of common carrier to deliver its
passengers safely to their destination lay in the defendant's failure to provide comfort and convenience to its
stranded passengers using extra-ordinary diligence, the cause of non-fulfillment is not solely and
exclusively due to fortuitous event, but due to something which defendant airline could have
prevented, defendant becomes liable to plaintiff.
While we find PAL remiss in its duty of extending utmost care to private respondent while being stranded in Cotabato City, there is
no sufficient basis to conclude that PAL failed to inform him about his non-accommodation on Flight 560, or that it was inattentive
to his queries relative thereto. SC tempered PAL’s liability.
On 3 August 1975, the Station Agent reported to his Branch Manager in Cotabato City that —
3. Of the fifteen stranded passengers two pax elected to take F478 on August 05, three pax opted to take F442
August 03. The remaining ten (10) including subject requested that they be instead accommodated ( sic) on F446
CBO-IGN the following day where they intended to take the surface transportation to OZC. Mr. Pedro Zapatos had
by then been very vocal and boiceterous (sic) at the counter and we tactfully managed to steer him inside the
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Station Agent's office. Mr. Pedro Zapatos then adamantly insisted that all the diverted passengers should have
been given priority over the originating passengers of F560 whether confirmed or otherwise. We explained our
policies and after awhile he seemed pacified and thereafter took his ticket (in-lieued ( sic) to CBO-IGN, COCON
basis), at the counter in the presence of five other passengers who were waiting for their tickets too. The rest of
the diverted pax had left earlier after being assured their tickets will be ready the following day. 2
Aforesaid Report being an entry in the course of business is prima facie evidence of the facts therein stated. Private respondent,
apart from his testimony, did not offer any controverting evidence. If indeed PAL omitted to give information about the options
available to its diverted passengers, it would have been deluged with complaints. But, only private respondent complained.
Admittedly, private respondent's insistence on being given priority in accommodation was unreasonable considering the fortuitous
event and that there was a sequence to be observed in the booking, i.e., in the order the passengers checked-in at their port of
origin. His intransigence in fact was the main cause for his having to stay at the airport longer than was necessary.
Anent the plaint that PAL employees were disrespectful and inattentive toward private respondent, the records are bereft of
evidence to support the same. Thus, the ruling of respondent Court of Appeals in this regard is without basis. On the contrary,
private respondent was attended to not only by the personnel of PAL but also by its Manager."
In the light of these findings, we find the award of moral damages of Fifty Thousand Pesos (P50,000.00) unreasonably excessive
SOUTHEASTERN COLLEGE v. CA
292 S 422
Typhoon is considered as a fortuitous event.
Facts
Private respondents are owners of a house at 326 College Road, Pasay City, while petitioner owns a four-storey school building
along the same College Road. On October 11, 1989, at about 6:30 in the morning, a powerful typhoon "Saling" hit Metro Manila.
Buffeted by very strong winds, the roof of petitioner's building was partly ripped off and blown away, landing on and destroying
portions of the roofing of private respondents' house. After the typhoon had passed, an ocular inspection of the destroyed building
was conducted by a team of engineers headed by the city building official, Engr. Jesus L. Reyna. Pertinent aspects of the latter's
Report 5 dated October 18, 1989 stated, as follows:
5. One of the factors that may have led to this calamitous event is the formation of the building in the area and the general
direction of the wind. Situated in the peripheral lot is an almost U-shaped formation of 4-storey building. Thus, with the strong
winds having a westerly direction, the general formation of the building becomes a big funnel-like structure, the one situated along
College Road, receiving the heaviest impact of the strong winds. Hence, there are portions of the roofing, those located on both
ends of the building, which remained intact after the storm.
6. Another factor and perhaps the most likely reason for the dislodging of the roofing structural trusses is the improper anchorage
of the said trusses to the roof beams. The 1/2' diameter steel bars embedded on the concrete roof beams which serve as truss
anchorage are not bolted nor nailed to the trusses. Still, there are other steel bars which were not even bent to the trusses, thus,
those trusses are not anchored at all to the roof beams.
It then recommended that "to avoid any further loss and damage to lives, limbs and property of persons living in the vicinity," the
fourth floor of subject school building be declared as a "structural hazard."
In their Complaint 6 before the Regional Trial Court of Pasay City, Branch 117, for damages based on culpa aquiliana, private
respondents alleged that the damage to their house rendered the same uninhabitable, forcing them to stay temporarily in others'
houses. And so they sought to recover from petitioner P117,116.00, as actual damages, P1,000,000.00, as moral damages ,
P300,000.00, as exemplary damages and P100,000.00, for and as attorney's fees; plus costs.
185
In its Answer, petitioner averred that subject school building had withstood several devastating typhoons and other calamities in the
past, without its roofing or any portion thereof giving way; that it has not been remiss in its responsibility to see to it that said
school building, which houses school children, faculty members, and employees, is "in tip-top condition"; and furthermore, typhoon
"Saling" was "an act of God and therefore beyond human control" such that petitioner cannot be answerable for the damages
wrought thereby, absent any negligence on its part.
Issues
Whether or not petitioner is liable for damage caused to others by typhoon "Saling" being an act of God. whether the damage on
the roof of the building of private respondents resulting from the impact of the falling portions of the school building's roof ripped
off by the strong winds of typhoon "Saling", was, within legal contemplation, due to fortuitous event?
Whether petitioner was negligent, such that if it were not, the damage caused to private respondents' house could have been
avoided?
Ruling
No, petitioner has not been shown negligent or at fault regarding the construction and maintenance of its school building in
question and that typhoon "Saling" was the proximate cause of the damage suffered by private respondents' house. Private
respondents' claim for actual and moral damages as well as attorney's fees must fail. Petitioner cannot be made to answer for a
purely fortuitous event. More so because no bad faith or willful act to cause damage was alleged and proven to warrant moral
damages.
Petitioner cannot be held liable for the damages suffered by the private respondents. This conclusion finds support in Article 1174 of
Civil Code, which provides:
Art 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which,
though foreseen, were inevitable.
The antecedent of fortuitous event or caso fortuito is found in the Partidas which defines it as "an event which takes place by
accident and could not have been foreseen." Escriche elaborates it as "an unexpected event or act of God which could neither be
foreseen nor resisted." Civilist Arturo M. Tolentino adds that "[f]ortuitous events may be produced by two general causes: (1) by
nature, such as earthquakes, storms, floods, epidemics, fires, etc. and (2) by the act of man (force majeure), such as an
armed invasion, attack by bandits, governmental prohibitions, robbery, etc."
In order that a fortuitous event may exempt a person from liability, it is necessary that he be free from any previous
negligence or misconduct by reason of which the loss may have been occasioned. An act of God cannot be invoked for
the protection of a person who has been guilty of gross negligence in not trying to forestall its possible adverse consequences.
When a person's negligence concurs with an act of God in producing damage or injury to another, such person is not exempt from
liability by showing that the immediate or proximate cause of the damages or injury was a fortuitous event. When the effect is
found to be partly the result of the participation of man - whether it be from active intervention, or neglect, or failure to act - the
whole occurrence is hereby humanized, and removed from the rules applicable to acts of God.
In the case under consideration, the lower court accorded full credence to the finding of the investigating team that subject school
building's roofing had "no sufficient anchorage to hold it in position especially when battered by strong winds." Based on such
finding, the trial court imputed negligence to petitioner and adjudged it liable for damages to private respondents.
After a thorough study and evaluation of the evidence on record, this Court believes otherwise, notwithstanding the general rule
that factual findings by the trail court, especially when affirmed by the appellate court, are binding and conclusive upon this
Court. After a careful scrutiny of the records and the pleadings submitted by the parties, we find exception to this rule and hold
that the lower courts misappreciated the evidence proffered.
186
There is no question that a typhoon or storm is a fortuitous event, a natural occurrence which may be foreseen but is
unavoidable despite any amount of foresight, diligence or care. 5 In order to be exempt from liability arising from any adverse
consequence engendered thereby, there should have been no human participation amounting to a negligent act. In other words;
the person seeking exoneration from liability must not be guilty of negligence. Negligence, as commonly understood, is conduct
which naturally or reasonably creates undue risk or harm to others. It may be the failure to observe that degree of care, precaution,
and vigilance which the circumstances justify demand, or the omission to do something which a prudent and reasonable man,
guided by considerations which ordinarily regulate the conduct of human affairs, would
do. From these premises, we proceed to determine whether petitioner was negligent, such that if it were not, the damage caused
to private respondents' house could have been avoided?
At the outset, it bears emphasizing that a person claiming damages for the negligence of another has the burden of proving the
existence of fault or negligence causative of his injury or loss. The facts constitutive of negligence must be affirmatively
established by competent evidence, not merely by presumptions and conclusions without basis in fact. Private respondents, in
establishing the culpability of petitioner, merely relied on the aforementioned report submitted by a team which made
an ocular inspection of petitioner's school building after the typhoon. As the term imparts, an ocular inspection is one by means of
actual sight or viewing. What is visual to the eye through, is not always reflective of the real cause behind. For instance, one who
hears a gunshot and then sees a wounded person, cannot always definitely conclude that a third person shot the victim. It could
have been self-inflicted or caused accidentally by a stray bullet. The relationship of cause and effect must be clearly shown.
In the present case, other than the said ocular inspection, no investigation was conducted to determine the real cause of the partial
unroofing of petitioner's school building. Private respondents did not even show that the plans, specifications and design of said
school building were deficient and defective. Neither did they prove any substantial deviation from the approved plans and
specifications. Nor did they conclusively establish that the construction of such building was basically flawed.
On the other hand, petitioner elicited from one of the witnesses of private respondents, city building official Jesus Reyna, that the
original plans and design of petitioner's school building were approved prior to its construction. Engr. Reyna admitted that it was a
legal requirement before the construction of any building to obtain a permit from the city building official (city engineer, prior to the
passage of the Building Act of 1977). In like manner, after construction of the building, a certification must be secured from the
same official attesting to the readiness for occupancy of the edifice. Having obtained both building permit and certificate of
occupancy, these are, at the very least, prima facie evidence of the regular and proper construction of subject school building.
Furthermore, when part of its roof needed repairs of the damage inflicted by typhoon "Saling", the same city official gave the go-
signal for such repairs - without any deviation from the original design - and subsequently, authorized the use of the entire fourth
floor of the same building. These only prove that subject building suffers from no structural defect, contrary to the report that its
"U-shaped" form was "structurally defective." Having given his unqualified imprimatur, the city building official is presumed to have
properly performed his duties in connection therewith.
In addition, petitioner presented its vice president for finance and administration who testified that an annual maintenance
inspection and repair of subject school building were regularly undertaken. Petitioner was even willing to present its maintenance
supervisor to attest to the extent of such regular inspection but private respondents agreed to dispense with his testimony and
simply stipulated that it would be corroborative of the vice president's narration.
Moreover, the city building official, who has been in the city government service since 1974, admitted in open court that no
complaint regarding any defect on the same structure has ever been lodged before his office prior to the institution of the case at
bench. It is a matter of judicial notice that typhoons are common occurrences in this country. If subject school building's roofing
was not firmly anchored to its trusses, obviously, it could not have withstood long years and several typhoons even stronger than
"Saling."
In light of the foregoing, we find no clear and convincing evidence to sustain the judgment of the appellate court. We thus hold
that petitioner has not been shown negligent or at fault regarding the construction and maintenance of its school
building in question and that typhoon "Saling" was the proximate cause of the damage suffered by private
respondents' house.
187
With this disposition on the pivotal issue, private respondents' claim for actual and moral damages as well as attorney's fees must
fail. Petitioner cannot be made to answer for a purely fortuitous event. More so because no bad faith or willful act to cause
damage was alleged and proven to warrant moral damages.
Private respondents failed to adduce adequate and competent proof of the pecuniary loss they actually incurred. It is not enough
that the damage be capable of proof but must be actually proved with a reasonable degree of certainty, pointing out specific facts
that afford a basis for measuring whatever compensatory damages are borne. Private respondents merely submitted an estimated
amount needed for the repair of the roof their subject building. What is more, whether the "necessary repairs" were caused ONLY
by petitioner's alleged negligence in the maintenance of its school building, or included the ordinary wear and tear of the house
itself, is an essential question that remains indeterminable.
The Court deems unnecessary to resolve the other issues posed by petitioner.
As regards the sixth issue, however, the writ of execution issued on April 1, 1993 by the trial court is hereby nullified and set aside.
Private respondents are ordered to reimburse any amount or return to petitioner any property which they may have received by
virtue of the enforcement of said writ.
PHILCOMSAT v. GLOBE TELECOM

429 S 153
Fortuitous event is present in this case.
Facts
For several years prior to 1991, Globe Mckay Cable and Radio Corporation, now Globe Telecom, Inc. (Globe), had been engaged in
the coordination of the provision of various communication facilities for the military bases of the United States of America (US) in
Clark Air Base, Angeles, Pampanga and Subic Naval Base in Cubi Point, Zambales. The said communication facilities were installed
and configured for the exclusive use of the US Defense Communications Agency (USDCA), and for security reasons, were operated
only by its personnel or those of American companies contracted by it to operate said facilities. The USDCA contracted with said
American companies, and the latter, in turn, contracted with Globe for the use of the communication facilities. Globe, on the other
hand, contracted with local service providers such as the Philippine Communications Satellite Corporation (Philcomsat) for the
provision of the communication facilities.
On 07 May 1991, Philcomsat and Globe entered into an Agreement whereby Philcomsat obligated itself to establish, operate and
provide an IBS Standard B earth station (earth station) within Cubi Point for the exclusive use of the USDCA. 2 The term of the
contract was for 60 months, or five (5) years. In turn, Globe promised to pay Philcomsat monthly rentals for each leased circuit
involved.
At the time of the execution of the Agreement, both parties knew that the Military Bases Agreement between the Republic of the
Philippines and the US (RP-US Military Bases Agreement), which was the basis for the occupancy of the Clark Air Base and Subic
Naval Base in Cubi Point, was to expire in 1991. Under Section 25, Article XVIII of the 1987 Constitution, foreign military bases,
troops or facilities, which include those located at the US Naval Facility in Cubi Point, shall not be allowed in the Philippines unless a
new treaty is duly concurred in by the Senate and ratified by a majority of the votes cast by the people in a national referendum
when the Congress so requires, and such new treaty is recognized as such by the US Government.
Subsequently, Philcomsat installed and established the earth station at Cubi Point and the USDCA made use of the same.
On 16 September 1991, the Senate passed and adopted Senate Resolution No. 141, expressing its decision not to concur in
the ratification of the Treaty of Friendship, Cooperation and Security and its Supplementary Agreements that was supposed to
extend the term of the use by the US of Subic Naval Base, among others. The last two paragraphs of the Resolution state:
FINDING that the Treaty constitutes a defective framework for the continuing relationship between the two countries in the spirit of
friendship, cooperation and sovereign equality: Now, therefore, be it
188
Resolved by the Senate, as it is hereby resolved, to express its decision not to concur in the ratification of the Treaty of Friendship,
Cooperation and Security and its Supplementary Agreements, at the same time reaffirming its desire to continue friendly relations
with the government and people of the United States of America.
On 31 December 1991, the Philippine Government sent a Note Verbale to the US Government through the US Embassy, notifying it
of the Philippines termination of the RP-US Military Bases Agreement. The Note Verbale stated that since the RP-US Military Bases
Agreement, as amended, shall terminate on 31 December 1992, the withdrawal of all US military forces from Subic Naval Base
should be completed by said date.
In a letter dated 06 August 1992, Globe notified Philcomsat of its intention to discontinue the use of the earth station effective 08
November 1992 in view of the withdrawal of US military personnel from Subic Naval Base after the termination of the RP-US Military
Bases Agreement. Globe invoked as basis for the letter of termination Section 8 (Default) of the Agreement, which provides:
Neither party shall be held liable or deemed to be in default for any failure to perform its obligation under this Agreement if such
failure results directly or indirectly from force majeure or fortuitous event. Either party is thus precluded from performing
its obligation until such force majeure or fortuitous event shall terminate. For the purpose of this paragraph, force majeure shall
mean circumstances beyond the control of the party involved including, but not limited to, any law, order, regulation, direction or
request of the Government of the Philippines, strikes or other labor difficulties, insurrection riots, national emergencies, war, acts of
public enemies, fire, floods, typhoons or other catastrophies or acts of God.
Philcomsat sent a reply letter dated 10 August 1992 to Globe, stating that we expect [Globe] to know its commitment to pay the
stipulated rentals for the remaining terms of the Agreement even after [Globe] shall have discontinue[d] the use of the earth station
after November 08, 1992. Philcomsat referred to Section 7 of the Agreement, stating as follows:
7.DISCONTINUANCE OF SERVICE
Should [Globe] decide to discontinue with the use of the earth station after it has been put into operation, a written notice shall be
served to PHILCOMSAT at least sixty (60) days prior to the expected date of termination. Notwithstanding the non-use of the earth
station, [Globe] shall continue to pay PHILCOMSAT for the rental of the actual number of T1 circuits in use, but in no case shall be
less than the first two (2) T1 circuits, for the remaining life of the agreement. However, should PHILCOMSAT make use or sell the
earth station subject to this agreement, the obligation of [Globe] to pay the rental for the remaining life of the agreement shall be
at such monthly rate as may be agreed upon by the parties.
After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter dated 24 November 1993 demanding payment of
its outstanding obligations under the Agreement amounting to US$4,910,136.00 plus interest and attorneys fees. However, Globe
refused to heed Philcomsats demand.
On 27 January 1995, Philcomsat filed with the Regional Trial Court of Makati a Complaint against Globe, praying that the latter be
ordered to pay liquidated damages under the Agreement, with legal interest, exemplary damages, attorneys fees and costs of suit.
The case was raffled to Branch 59 of said court.
Globe filed an Answer to the Complaint, insisting that it was constrained to end the Agreement due to the termination of the RP-US
Military Bases Agreement and the non-ratification by the Senate of the Treaty of Friendship and Cooperation, which events
constituted force majeure under the Agreement. Globe explained that the occurrence of said events exempted it from paying rentals
for the remaining period of the Agreement.
Issue
Whether the termination of the RP-US Military Bases Agreement, the non-ratification of the Treaty of Friendship, Cooperation and
Security, and the consequent withdrawal of US military forces and personnel from Cubi Point constitute force majeure which would
exempt Globe from complying with its obligation to pay rentals under its Agreement with Philcomsat.
Ruling
189
Yes.
There is no merit in Philcomsat’s argument that Section 8 of the Agreement cannot be given effect because the enumeration of
events constituting force majeure therein unduly expands the concept of a fortuitous event under Article 1174 of the Civil Code and
is therefore invalid.
In support of its position, Philcomsat contends that under Article 1174 of the Civil Code, an event must be unforeseen in order to
exempt a party to a contract from complying with its obligations therein. It insists that since the expiration of the RP-US Military
Bases Agreement, the non-ratification of the Treaty of Friendship, Cooperation and Security and the withdrawal of US military forces
and personnel from Cubi Point were not unforeseeable, but were possibilities known to it and Globe at the time they entered into
the Agreement, such events cannot exempt Globe from performing its obligation of paying rentals for the entire five-year term
thereof.
However, Article 1174, which exempts an obligor from liability on account of fortuitous events or force majeure, refers not only to
events that are unforeseeable, but also to those which are foreseeable, but inevitable:
Art. 1174. Except in cases specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those events which, could not be foreseen, or which, though
foreseen were inevitable.
A fortuitous event under Article 1174 may either be an act of God, or natural occurrences such as floods or typhoons, or an act of
man, such as riots, strikes or wars.
Philcomsat and Globe agreed in Section 8 of the Agreement that the following events shall be deemed events constituting force
majeure:
1.Any law, order, regulation, direction or request of the Philippine Government;
2.Strikes or other labor difficulties;
3.Insurrection;
4.Riots;
5.National emergencies;
6.War;
7.Acts of public enemies;
8.Fire, floods, typhoons or other catastrophies or acts of God;
9.Other circumstances beyond the control of the parties.
Clearly, the foregoing are either unforeseeable, or foreseeable but beyond the control of the parties. There is nothing in the
enumeration that runs contrary to, or expands, the concept of a fortuitous event under Article 1174.
Furthermore, under Article 1306 of the Civil Code, parties to a contract may establish such stipulations, clauses, terms and
conditions as they may deem fit, as long as the same do not run counter to the law, morals, good customs, public order or public
policy.
190
Article 1159 of the Civil Code also provides that obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith. Courts cannot stipulate for the parties nor amend their agreement where the
same does not contravene law, morals, good customs, public order or public policy, for to do so would be to alter the real intent of
the parties, and would run contrary to the function of the courts to give force and effect thereto.
Not being contrary to law, morals, good customs, public order, or public policy, Section 8 of the Agreement which Philcomsat and
Globe freely agreed upon has the force of law between them.
In order that Globe may be exempt from non-compliance with its obligation to pay rentals under Section 8, the concurrence of the
following elements must be established: (1) the event must be independent of the human will; (2) the occurrence must render
it impossible for the debtor to fulfill the obligation in a normal manner; and (3) the obligor must be free of participation in, or
aggravation of, the injury to the creditor.
The Court agrees with the Court of Appeals and the trial court that the abovementioned requisites are present in the instant case.
Philcomsat and Globe had no control over the non-renewal of the term of the RP-US Military Bases Agreement when
the same expired in 1991, because the prerogative to ratify the treaty extending the life thereof belonged to the
Senate. Neither did the parties have control over the subsequent withdrawal of the US military forces and personnel from Cubi
Point in December 1992:
Obviously the non-ratification by the Senate of the RP-US Military Bases Agreement (and its Supplemental Agreements) under its
Resolution No. 141. (Exhibit 2) on September 16, 1991 is beyond the control of the parties. This resolution was followed by the
sending on December 31, 1991 o[f] a Note Verbale (Exhibit 3) by the Philippine Government to the US Government notifying the
latter of the formers termination of the RP-US Military Bases Agreement (as amended) on 31 December 1992 and that accordingly,
the withdrawal of all U.S. military forces from Subic Naval Base should be completed by said date. Subsequently, defendant [Globe]
received a formal order from Cdr. Walter F. Corliss II Commander USN dated July 31, 1992 and a notification from ATT dated July
29, 1992 to terminate the provision of T1s services (via an IBS Standard B Earth Station) effective November 08, 1992. Plaintiff
[Philcomsat] was furnished with copies of the said order and letter by the defendant on August 06, 1992.
Resolution No. 141 of the Philippine Senate and the Note Verbale of the Philippine Government to the US Government are acts,
direction or request of the Government of the Philippines and circumstances beyond the control of the defendant. The formal order
from Cdr. Walter Corliss of the USN, the letter notification from ATT and the complete withdrawal of all the military forces and
personnel from Cubi Point in the year-end 1992 are also acts and circumstances beyond the control of the defendant.
Considering the foregoing, the Court finds and so holds that the afore-narrated circumstances constitute force majeure or
fortuitous event(s) as defined under paragraph 8 of the Agreement.
II.
From the foregoing, the Court finds that the defendant is exempted from paying the rentals for the facility for the remaining term of
the contract.
As a consequence of the termination of the RP-US Military Bases Agreement (as amended) the continued stay of all US Military
forces and personnel from Subic Naval Base would no longer be allowed, hence, plaintiff would no longer be in any position to
render the service it was obligated under the Agreement. To put it blantly (sic), since the US military forces and personnel left or
withdrew from Cubi Point in the year end December 1992, there was no longer any necessity for the plaintiff to continue
maintaining the IBS facility.
The aforementioned events made impossible the continuation of the Agreement until the end of its five-year term without fault on
the part of either party. The Court of Appeals was thus correct in ruling that the happening of such fortuitous events
rendered Globe exempt from payment of rentals for the remainder of the term of the Agreement.
191
Moreover, it would be unjust to require Globe to continue paying rentals even though Philcomsat cannot be compelled to perform
its corresponding obligation under the Agreement. As noted by the appellate court:
We also point out the sheer inequity of PHILCOMSATs position. PHILCOMSAT would like to charge GLOBE rentals for the balance of
the lease term without there being any corresponding telecommunications service subject of the lease. It will be grossly unfair and
iniquitous to hold GLOBE liable for lease charges for a service that was not and could not have been rendered due to an act of the
government which was clearly beyond GLOBEs control. The 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 party free therefrom (Allied Banking Corporation v. Court of Appeals, 284 SCRA 357 ).
GAISANO CAGAYAN v. INS. CO. of NORTH AMERICA
Facts
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the local distributor
of products bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI separately obtained from respondent fire insurance
policies with book debt endorsements. The insurance policies provide for coverage on "book debts in connection with ready-made
clothing materials which have been sold or delivered to various customers and dealers of the Insured anywhere in the
Philippines." The policies defined book debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days
after the time of the loss covered under this Policy." 3 The policies also provide for the following conditions:
1. Warranted that the Company shall not be liable for any unpaid account in respect of the merchandise sold and delivered
by the Insured which are outstanding at the date of loss for a period in excess of six (6) months from the date of the
covering invoice or actual delivery of the merchandise whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within twelve (12) days after the close of every calendar
month all amount shown in their books of accounts as unpaid and thus become receivable item from their customers and
dealers. x x x4
xxxx
Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano Superstore Complex in
Cagayan de Oro City, owned by petitioner, was consumed by fire. Included in the items lost or destroyed in the fire were stocks of
ready-made clothing materials sold and delivered by IMC and LSPI.
On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges that IMC and LSPI filed with
respondent their claims under their respective fire insurance policies with book debt endorsements; that as of February 25, 1991,
the unpaid accounts of petitioner on the sale and delivery of ready-made clothing materials with IMC was P2,119,205.00 while with
LSPI it was P535,613.00; that respondent paid the claims of IMC and LSPI and, by virtue thereof, respondent was subrogated to
their rights against petitioner; that respondent made several demands for payment upon petitioner but these went unheeded.
In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be held liable because the property
covered by the insurance policies were destroyed due to fortuities event or force majeure; that respondent's right of subrogation
has no basis inasmuch as there was no breach of contract committed by it since the loss was due to fire which it could not prevent
or foresee; that IMC and LSPI never communicated to it that they insured their properties; that it never consented to paying the
claim of the insured.
At the pre-trial conference the parties failed to arrive at an amicable settlement. Thus, trial on the merits ensued.
Issue:
192
Is petitioner liable for the unpaid accounts?
Ruling
Yes. Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 1174 32 of the Civil Code is
misplaced. As held earlier, petitioner bears the loss under Article 1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for petitioner's accounts with
IMC and LSPI that remained unpaid 45 days after the fire. Accordingly, petitioner's obligation is for the payment of money.
As correctly stated by the CA, where the obligation consists in the payment of money, the failure of the debtor to make the
payment even by reason of a fortuitous event shall not relieve him of his liability. The rationale for this is that the rule that an
obligor should be held exempt from liability when the loss occurs thru a fortuitous event only holds true when the obligation
consists in the delivery of a determinate thing and there is no stipulation holding him liable even in case of fortuitous event. It does
not apply when the obligation is pecuniary in nature.
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction of anything of the
same kind does not extinguish the obligation." If the obligation is generic in the sense that the object thereof is designated merely
by its class or genus without any particular designation or physical segregation from all others of the same class, the loss or
destruction of anything of the same kind even without the debtor's fault and before he has incurred in delay will not have the effect
of extinguishing the obligation. This rule is based on the principle that the genus of a thing can never perish. Genus nunquan
perit. An obligation to pay money is generic; therefore, it is not excused by fortuitous loss of any specific property of
the debtor.
Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to this case. (Note: usually fire is not a
fortuitous event; there is always an intervention of man).
What is relevant here is whether it has been established that petitioner has outstanding accounts with IMC and LSPI.
With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C-22" show that petitioner has an
outstanding account with IMC in the amount of P2, 119,205.00. Exhibit "E" is the check voucher evidencing payment to IMC. Exhibit
"F" is the subrogation receipt executed by IMC in favor of respondent upon receipt of the insurance proceeds. All these documents
have been properly identified, presented and marked as exhibits in court. The subrogation receipt, by itself, is sufficient to establish
not only the relationship of respondent as insurer and IMC as the insured, but also the amount paid to settle the insurance claim.
The right of subrogation accrues simply upon payment by the insurance company of the insurance claim. Respondent's action
against petitioner is squarely sanctioned by Article 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the injury or
loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the contract.
Petitioner failed to refute respondent's evidence.
As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No evidentiary weight can be given to
Exhibit "F Levi Strauss", a letter dated April 23, 1991 from petitioner's General Manager, Stephen S. Gaisano, Jr., since it is not an
admission of petitioner's unpaid account with LSPI. It only confirms the loss of Levi's products in the amount of P535,613.00 in the
fire that razed petitioner's building on February 25, 1991.
Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation receipt was offered in evidence. Thus,
there is no evidence that respondent has been subrogated to any right which LSPI may have against petitioner. Failure to
substantiate the claim of subrogation is fatal to petitioner's case for recovery of the amount of P535,613.00.
193
SICAM V. JORGE
529 S 443
Facts
On different dates from September to October 1987, Lulu V. Jorge (respondent Lulu) pawned several pieces of jewelry
with Agencia de R. C. Sicam located at No. 17 Aguirre Ave., BF Homes Parañaque, Metro Manila, to secure a loan in the total
amount of P59,500.00.
On October 19, 1987, two armed men entered the pawnshop and took away whatever cash and jewelry were found inside the
pawnshop vault. The incident was entered in the police blotter of the Southern Police District, Parañaque Police Station.
Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing her of the loss of her jewelry due to the robbery
incident in the pawnshop. On November 2, 1987, respondent Lulu then wrote a letter 4 to petitioner Sicam expressing disbelief
stating that when the robbery happened, all jewelry pawned were deposited with Far East Bank near the pawnshop since it had
been the practice that before they could withdraw, advance notice must be given to the pawnshop so it could withdraw the jewelry
from the bank. Respondent Lulu then requested petitioner Sicam to prepare the pawned jewelry for withdrawal on November 6,
1987 but petitioner Sicam failed to return the jewelry.
On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed a complaint against petitioner Sicam with
the Regional Trial Court of Makati seeking indemnification for the loss of pawned jewelry and payment of actual, moral and
exemplary damages as well as attorney's fees. The case was docketed as Civil Case No. 88-2035.
Petitioner Sicam filed his Answer contending that he is not the real party-in-interest as the pawnshop was incorporated on April 20,
1987 and known as Agencia de R.C. Sicam, Inc; that petitioner corporation had exercised due care and diligence in the safekeeping
of the articles pledged with it and could not be made liable for an event that is fortuitous.
Issue
Whether robbery is considered as a fortuitous event and whether petitioner Roberto Sicam is negligent.
Ruling
I.
Petitioners insist that they are not liable since robbery is a fortuitous event and they are not negligent at all.
We are not persuaded.
Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the
nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be
foreseen or which, though foreseen, were inevitable.
Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not enough that the event
should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid. The
mere difficulty to foresee the happening is not impossibility to foresee the same.
To constitute a fortuitous event, the following elements must concur: (a) the cause of the unforeseen and unexpected occurrence
or of the failure of the debtor to comply with obligations must be independent of human will; (b) it must be impossible to
foresee the event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the
194
occurrence must be such as to render it impossible for the debtor to fulfill obligations in a normal manner; and, (d) the obligor
must be free from any participation in the aggravation of the injury or loss.
The second and fourth elements are absent in this case.
The burden of proving that the loss was due to a fortuitous event rests on him who invokes it. And, in order for a fortuitous event
to exempt one from liability, it is necessary that one has committed no negligence or misconduct that may have
occasioned the loss.
It has been held that an act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible
adverse consequences of such a loss. One's negligence may have concurred with an act of God in producing damage and injury to
another; nonetheless, showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not
exempt one from liability. When the effect is found to be partly the result of a person's participation -- whether by
active intervention, neglect or failure to act -- the whole occurrence is humanized and removed from the rules applicable
to acts of God.
Petitioner Sicam had testified that there was a security guard in their pawnshop at the time of the robbery. He likewise testified that
when he started the pawnshop business in 1983, he thought of opening a vault with the nearby bank for the purpose of
safekeeping the valuables but was discouraged by the Central Bank since pawned articles should only be stored in a vault inside the
pawnshop. The very measures which petitioners had allegedly adopted show that to them the possibility of robbery was not only
foreseeable, but actually foreseen and anticipated. Petitioner Sicam’s testimony, in effect, contradicts petitioners’ defense of
fortuitous event.
Moreover, petitioners failed to show that they were free from any negligence by which the loss of the pawned jewelry may have
been occasioned.
Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility of negligence on the part
of herein petitioners. In Co v. Court of Appeals, the Court held:
It is not a defense for a repair shop of motor vehicles to escape liability simply because the damage or loss of a thing
lawfully placed in its possession was due to carnapping. Carnapping per se cannot be considered as a fortuitous
event. The fact that a thing was unlawfully and forcefully taken from another's rightful possession, as in
cases of carnapping, does not automatically give rise to a fortuitous event. To be considered as such,
carnapping entails more than the mere forceful taking of another's property. It must be proved and
established that the event was an act of God or was done solely by third parties and that neither the
claimant nor the person alleged to be negligent has any participation. In accordance with the Rules of
Evidence, the burden of proving that the loss was due to a fortuitous event rests on him who invokes it —
which in this case is the private respondent. However, other than the police report of the alleged carnapping
incident, no other evidence was presented by private respondent to the effect that the incident was not due to its fault. A
police report of an alleged crime, to which only private respondent is privy, does not suffice to establish the carnapping.
Neither does it prove that there was no fault on the part of private respondent notwithstanding the parties' agreement at
the pre-trial that the car was carnapped. Carnapping does not foreclose the possibility of fault or negligence on the part of
private respondent.
Just like in Co, petitioners merely presented the police report of the Parañaque Police Station on the robbery committed based on
the report of petitioners' employees which is not sufficient to establish robbery. Such report also does not prove that petitioners
were not at fault.
II.
On the contrary, by the very evidence of petitioners, the CA did not err in finding that petitioners are guilty of concurrent or
contributory negligence as provided in Article 1170 of the Civil Code, to wit:
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Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in
any manner contravene the tenor thereof, are liable for damages.
Article 2123 of the Civil Code provides that with regard to pawnshops and other establishments which are engaged in making
loans secured by pledges, the special laws and regulations concerning them shall be observed, and subsidiarily, the provisions on
pledge, mortgage and antichresis.
The provision on pledge, particularly Article 2099 of the Civil Code, provides that the creditor shall take care of the thing
pledged with the diligence of a good father of a family. This means that petitioners must take care of the pawns the way a prudent
person would as to his own property.
In this connection, Article 1173 of the Civil Code further provides:
Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature
of the obligation and corresponds with the circumstances of the persons, of time and of the place. When negligence shows
bad faith, the provisions of Articles 1171 and 2201, paragraph 2 shall apply.
If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a
good father of a family shall be required.
We expounded in Cruz v. Gangan that negligence is 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. It is want of care required by the circumstances.
A review of the records clearly shows that petitioners failed to exercise reasonable care and caution that an ordinarily prudent
person would have used in the same situation. Petitioners were guilty of negligence in the operation of their pawnshop business.
Revealing that there were no security measures adopted by petitioners in the operation of the pawnshop. Evidently, no sufficient
precaution and vigilance were adopted by petitioners to protect the pawnshop from unlawful intrusion. There was no clear showing
that there was any security guard at all. Or if there was one, that he had sufficient training in securing a pawnshop. Further, there
is no showing that the alleged security guard exercised all that was necessary to prevent any untoward incident or to ensure that
no suspicious individuals were allowed to enter the premises. In fact, it is even doubtful that there was a security guard, since it is
quite impossible that he would not have noticed that the robbers were armed with caliber .45 pistols each, which were allegedly
poked at the employees. Significantly, the alleged security guard was not presented at all to corroborate petitioner Sicam's claim;
not one of petitioners' employees who were present during the robbery incident testified in court.
Furthermore, petitioner Sicam's admission that the vault was open at the time of robbery is clearly a proof of petitioners' failure to
observe the care, precaution and vigilance that the circumstances justly demanded. Petitioner Sicam testified that once the
pawnshop was open, the combination was already off. Considering petitioner Sicam's testimony that the robbery took place on a
Saturday afternoon and the area in BF Homes Parañaque at that time was quiet, there was more reason for petitioners to have
exercised reasonable foresight and diligence in protecting the pawned jewelries. Instead of taking the precaution to protect them,
they let open the vault, providing no difficulty for the robbers to cart away the pawned articles.
We, however, do not agree with the CA when it found petitioners negligent for not taking steps to insure themselves against loss of
the pawned jewelries.
Under Section 17 of Central Bank Circular No. 374, Rules and Regulations for Pawnshops, which took effect on July 13, 1973, and
which was issued pursuant to Presidential Decree No. 114, Pawnshop Regulation Act, it is provided that pawns pledged must be
insured, to wit:
Sec. 17. Insurance of Office Building and Pawns- The place of business of a pawnshop and the pawns pledged to it must
be insured against fire and against burglary as well as for the latter(sic), by an insurance company accredited by the
Insurance Commissioner.
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However, this Section was subsequently amended by CB Circular No. 764 which took effect on October 1, 1980, to wit:
Sec. 17 Insurance of Office Building and Pawns – The office building/premises and pawns of a pawnshop must be
insured against fire. (emphasis supplied).
where the requirement that insurance against burglary was deleted. Obviously, the Central Bank considered it not feasible to
require insurance of pawned articles against burglary.
The robbery in the pawnshop happened in 1987, and considering the above-quoted amendment, there is no statutory duty imposed
on petitioners to insure the pawned jewelry in which case it was error for the CA to consider it as a factor in concluding that
petitioners were negligent.
Nevertheless, the preponderance of evidence shows that petitioners failed to exercise the diligence required of them
under the Civil Code.
The diligence with which the law requires the individual at all times to govern his conduct varies with the nature of the situation in
which he is placed and the importance of the act which he is to perform. 34 Thus, the cases of Austria v. Court of
Appeals,35 Hernandez v. Chairman, Commission on Audit36 and Cruz v. Gangan37 cited by petitioners in their pleadings, where the
victims of robbery were exonerated from liability, find no application to the present case.
In Austria, Maria Abad received from Guillermo Austria a pendant with diamonds to be sold on commission basis, but which Abad
failed to subsequently return because of a robbery committed upon her in 1961. The incident became the subject of a criminal case
filed against several persons. Austria filed an action against Abad and her husband (Abads) for recovery of the pendant or its value,
but the Abads set up the defense that the robbery extinguished their obligation. The RTC ruled in favor of Austria, as the Abads
failed to prove robbery; or, if committed, that Maria Abad was guilty of negligence. The CA, however, reversed the RTC decision
holding that the fact of robbery was duly established and declared the Abads not responsible for the loss of the jewelry on account
of a fortuitous event. We held that for the Abads to be relieved from the civil liability of returning the pendant under Art. 1174 of
the Civil Code, it would only be sufficient that the unforeseen event, the robbery, took place without any concurrent fault on the
debtor’s part, and this can be done by preponderance of evidence; that to be free from liability for reason of fortuitous event, the
debtor must, in addition to the casus itself, be free of any concurrent or contributory fault or negligence. 38
We found in Austria that under the circumstances prevailing at the time the Decision was promulgated in 1971, the City of Manila
and its suburbs had a high incidence of crimes against persons and property that rendered travel after nightfall a matter to be
sedulously avoided without suitable precaution and protection; that the conduct of Maria Abad in returning alone to her house in
the evening carrying jewelry of considerable value would have been negligence per se and would not exempt her from responsibility
in the case of robbery. However we did not hold Abad liable for negligence since, the robbery happened ten years previously; i.e.,
1961, when criminality had not reached the level of incidence obtaining in 1971.
In contrast, the robbery in this case took place in 1987 when robbery was already prevalent and petitioners in fact had already
foreseen it as they wanted to deposit the pawn with a nearby bank for safekeeping. Moreover, unlike in Austria, where no
negligence was committed, we found petitioners negligent in securing their pawnshop as earlier discussed.
In Hernandez, Teodoro Hernandez was the OIC and special disbursing officer of the Ternate Beach Project of the Philippine Tourism
in Cavite. In the morning of July 1, 1983, a Friday, he went to Manila to encash two checks covering the wages of the employees
and the operating expenses of the project. However for some reason, the processing of the check was delayed and was completed
at about 3 p.m. Nevertheless, he decided to encash the check because the project employees would be waiting for their pay the
following day; otherwise, the workers would have to wait until July 5, the earliest time, when the main office would open. At that
time, he had two choices: (1) return to Ternate, Cavite that same afternoon and arrive early evening; or (2) take the money with
him to his house in Marilao, Bulacan, spend the night there, and leave for Ternate the following day. He chose the second option,
thinking it was the safer one. Thus, a little past 3 p.m., he took a passenger jeep bound for Bulacan. While the jeep was on Epifanio
de los Santos Avenue, the jeep was held up and the money kept by Hernandez was taken, and the robbers jumped out of the jeep
and ran. Hernandez chased the robbers and caught up with one robber who was subsequently charged with robbery and pleaded
guilty. The other robber who held the stolen money escaped. The Commission on Audit found Hernandez negligent because he had
not brought the cash proceeds of the checks to his office in Ternate, Cavite for safekeeping, which is the normal procedure in the
handling of funds. We held that Hernandez was not negligent in deciding to encash the check and bringing it home to Marilao,
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Bulacan instead of Ternate, Cavite due to the lateness of the hour for the following reasons: (1) he was moved by unselfish motive
for his co-employees to collect their wages and salaries the following day, a Saturday, a non-working, because to encash the check
on July 5, the next working day after July 1, would have caused discomfort to laborers who were dependent on their wages for
sustenance; and (2) that choosing Marilao as a safer destination, being nearer, and in view of the comparative hazards in the trips
to the two places, said decision seemed logical at that time. We further held that the fact that two robbers attacked him in broad
daylight in the jeep while it was on a busy highway and in the presence of other passengers could not be said to be a result of his
imprudence and negligence.
Unlike in Hernandez where the robbery happened in a public utility, the robbery in this case took place in the pawnshop which is
under the control of petitioners. Petitioners had the means to screen the persons who were allowed entrance to the premises and to
protect itself from unlawful intrusion. Petitioners had failed to exercise precautionary measures in ensuring that the robbers were
prevented from entering the pawnshop and for keeping the vault open for the day, which paved the way for the robbers to easily
cart away the pawned articles.
In Cruz, Dr. Filonila O. Cruz, Camanava District Director of Technological Education and Skills Development Authority (TESDA),
boarded the Light Rail Transit (LRT) from Sen. Puyat Avenue to Monumento when her handbag was slashed and the contents were
stolen by an unidentified person. Among those stolen were her wallet and the government-issued cellular phone. She then reported
the incident to the police authorities; however, the thief was not located, and the cellphone was not recovered. She also reported
the loss to the Regional Director of TESDA, and she requested that she be freed from accountability for the cellphone. The Resident
Auditor denied her request on the ground that she lacked the diligence required in the custody of government property and was
ordered to pay the purchase value in the total amount of P4,238.00. The COA found no sufficient justification to grant the request
for relief from accountability. We reversed the ruling and found that riding the LRT cannot per se be denounced as a negligent act
more so because Cruz’s mode of transit was influenced by time and money considerations; that she boarded the LRT to be able to
arrive in Caloocan in time for her 3 pm meeting; that any prudent and rational person under similar circumstance can reasonably be
expected to do the same; that possession of a cellphone should not hinder one from boarding the LRT coach as Cruz did
considering that whether she rode a jeep or bus, the risk of theft would have also been present; that because of her relatively low
position and pay, she was not expected to have her own vehicle or to ride a taxicab; she did not have a government assigned
vehicle; that placing the cellphone in a bag away from covetous eyes and holding on to that bag as she did is ordinarily sufficient
care of a cellphone while traveling on board the LRT; that the records did not show any specific act of negligence on her part and
negligence can never be presumed.
Unlike in the Cruz case, the robbery in this case happened in petitioners' pawnshop and they were negligent in not exercising the
precautions justly demanded of a pawnshop.
METRO CONCAST v. ALLIED BANKING
Facts
On various dates and for different amounts, Metro Concast, a corporation duly organized and existing under and by virtue of
Philippine laws and engaged in the business of manufacturing steel, through its officers, herein individual petitioners, obtained
several loans from Allied Bank. These loan transactions were covered by a promissory note and separate letters of
credit/trust receipts.
The interest rate under Promissory Note No. 96-21301 was pegged at 15.25% per annum (p.a.), with penalty charge of 3% per
month in case of default; while the twelve (12) trust receipts uniformly provided for an interest rate of 14% p.a. and 1% penalty
charge. By way of security, the individual petitioners executed several Continuing Guaranty/Comprehensive Surety Agreements in
favor of Allied Bank. Petitioners failed to settle their obligations under the aforementioned promissory note and trust receipts,
hence, Allied Bank, through counsel, sent them demand letters, all dated December 10, 1998, seeking payment of the total amount
of ₱51,064,093.62, but to no avail. Thus, Allied Bank was prompted to file a complaint for collection of sum of money (subject
complaint) against petitioners before the RTC, docketed as Civil Case No. 00-1563. In their second Amended Answer, petitioners
admitted their indebtedness to Allied Bank but denied liability for the interests and penalties charged, claiming to have paid the total
sum of ₱65,073,055.73 by way of interest charges for the period covering 1992 to 1997.
They also alleged that the economic reverses suffered by the Philippine economy in 1998 as well as the devaluation of the peso
against the US dollar contributed greatly to the downfall of the steel industry, directly affecting the business of Metro Concast and
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eventually leading to its cessation. Hence, in order to settle their debts with Allied Bank, petitioners offered the sale of Metro
Concast’s remaining assets, consisting of machineries and equipment, to Allied Bank, which the latter, however, refused . Instead,
Allied Bank advised them to sell the equipment and apply the proceeds of the sale to their outstanding obligations. Accordingly,
petitioners offered the equipment for sale, but since there were no takers, the equipment was reduced into ferro scrap or scrap
metal over the years. In 2002, Peakstar Oil Corporation (Peakstar), represented by one Crisanta Camiling (Camiling), expressed
interest in buying the scrap metal. During the negotiations with Peakstar, petitioners claimed that Atty. Peter Saw (Atty. Saw), a
member of Allied Bank’s legal department, acted as the latter’s agent. Eventually, with the alleged conformity of Allied Bank,
through Atty. Saw, a Memorandum of Agreement dated November 8, 2002 (MoA) was drawn between Metro Concast,
represented by petitioner Jose Dychiao, and Peakstar, through Camiling, under which Peakstar obligated itself to purchase
the scrap metal for a total consideration of ₱34,000,000.00, payable.
Unfortunately, Peakstar reneged on all its obligations under the MoA. In this regard, petitioners asseverated that:
(a) their failure to pay their outstanding loan obligations to Allied Bank must be considered as force majeure
; and
(b) since Allied Bank was the party that accepted the terms and conditions of payment proposed by Peakstar, petitioners
must therefore be deemed to have settled their obligations to Allied Bank. To bolster their defense, petitioner Jose Dychiao
(Jose Dychiao) testified during trial that it was Atty. Saw himself who drafted the MoA and subsequently received the
₱2,000,000.00 cash and the two (2) Bankwise post-dated checks worth ₱1,000,000.00 each from Camiling. However, Atty.
Saw turned over only the two (2) checks and ₱1,500,000.00 in cash to the wife of Jose Dychiao.
Claiming that the subject complaint was falsely and maliciously filed, petitioners prayed for the award of moral damages in the
amount of ₱20,000,000.00 in favor of Metro Concast and at least ₱25,000,000.00 for each individual petitioner, ₱25,000,000.00 as
exemplary damages, ₱1,000,000.00 as attorney’s fees, ₱500,000.00 for other litigation expenses, including costs of suit.
Issues
Whether or not the loan obligations incurred by the petitioners under the subject promissory note and various trust receipts have
already been extinguished.
Whether Peakstar’s breach of its obligations to Metro Concast arising from the MoA can be classified as a fortuitous event.
Ruling
I.
Article 1231 of the Civil Code states that obligations are extinguished either by payment or performance, the loss of the thing
due, the condonation or remission of the debt, the confusion or merger of the rights of creditor and debtor, compensation or
novation.
In the present case, petitioners essentially argue that their loan obligations to Allied Bank had already been extinguished due to
Peakstar’s failure to perform its own obligations to Metro Concast pursuant to the MoA. Petitioners classify Peakstar’s default as a
form of force majeure in the sense that they have, beyond their control, lost the funds they expected to have received from the
Peakstar (due to the MoA) which they would, in turn, use to pay their own loan obligations to Allied Bank. They further state that
Allied Bank was equally bound by Metro Concast’s MoA with Peakstar since its agent, Atty. Saw, actively represented it during the
negotiations and execution of the said agreement. Petitioners’ arguments are untenable.
At the outset, the Court must dispel the notion that the MoA would have any relevance to the performance of petitioners’
obligations to Allied Bank. The MoA is a sale of assets contract, while petitioners’ obligations to Allied Bank arose from various
loan transactions. Absent any showing that the terms and conditions of the latter transactions have been, in any way, modified
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or novated by the terms and conditions in the MoA, said contracts should be treated separately and distinctly from each other, such
that the existence, performance or breach of one would not depend on the existence, performance or breach of the other.
In the foregoing respect, the issue on whether or not Allied Bank expressed its conformity to the assets sale transaction between
Metro Concast and Peakstar (as evidenced by the MoA) is actually irrelevant to the issues related to petitioners’ loan obligations to
the bank. Besides, as the CA pointed out, the fact of Allied Bank’s representation has not been proven in this case and hence,
cannot be deemed as a sustainable defense to exculpate petitioners from their loan obligations to Allied Bank.
II.
Now, anent petitioners’ reliance on force majeure, suffice it to state that Peakstar’s breach of its obligations to Metro Concast
arising from the MoA cannot be classified as a fortuitous event under jurisprudential formulation. As discussed in Sicam v. Jorge:
Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not enough that the event
should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid. The
mere difficulty to foresee the happening is not impossibility to foresee the same. To constitute a fortuitous event, the following
elements must concur:
(a) the cause of the unforeseen and unexpected occurrence or of the failure of the debtor to comply with obligations must be
independent of human will;
(b) it must be impossible to foresee the event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to
avoid;
(c) the occurrence must be such as to render it impossible for the debtor to fulfill obligations in a normal
manner; and
(d) the obligor must be free from any participation in the aggravation of the injury or loss.
The first and third requisites are not present in the present case.
While it may be argued that Peakstar’s breach of the MoA was unforseen by petitioners, the same us clearly not "impossible"to
foresee or even an event which is independent of human will." Neither has it been shown that said occurrence rendered it
impossible for petitioners to pay their loan obligations to Allied Bank and thus, negates the former’s force majeure theory
altogether. In any case, as earlier stated, the performance or breach of the MoA bears no relation to the performance or breach of
the subject loan transactions, they being separate and distinct sources of obligations. The fact of the matter is that petitioners’ loan
obligations to Allied Bank remain subsisting for the basic reason that the former has not been able to prove that the same had
already been paid or, in any way, extinguished. In this regard, petitioners’ liability, as adjudged by the CA, must perforce stand.
Considering, however, that Allied Bank’s extra-judicial demand on petitioners appears to have been made only on December 10,
1998, the computation of the applicable interests and penalty charges should be reckoned only from such date.
Tan v. Great Harvest Enterprises, Inc.,

March 20, 2019
Robbery and hijacking can be a fortuitous event as illustrated in the present case where the driver absconded the truck. However,
in contrast to De Guzman, the loss of the soya beans here was not attended by grave or irresistible threat, violence, or force. The
loss was on account of the negligence of Tan.
Facts
On February 3, 1994, Great Harvest hired Tan to transport 430 bags of soya beans worth P230,000.00 from Tacoma Integrated
Port Services, Inc. (Tacoma) in Port Area, Manila to Selecta Feeds in Camarin, Novaliches, Quezon City.
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That same day, the bags of soya beans were loaded into Tan's hauling truck. Her employee, Rannie Sultan Cabugatan (Cabugatan),
then delivered the goods to Selecta Feeds.
At Selecta Feeds, however, the shipment was rejected. Upon learning of the rejection, Great Harvest instructed Cabugatan to
deliver and unload the soya beans at its warehouse in Malabon. Yet, the truck and its shipment never reached Great Harvest's
warehouse.
On February 7, 1994, Great Harvest asked Tan about the missing delivery. At first, Tan assured Great Harvest that she would verify
the whereabouts of its shipment, but after a series of follow-ups, she eventually admitted that she could not locate both her truck
and Great Harvest's goods. She reported her missing truck to the Western Police District Anti-Carnapping Unit and the National
Bureau of Investigation.
On February 19, 1994, the National Bureau of Investigation informed Tan that her missing truck had been found in Cavite.
However, the truck had been cannibalized and had no cargo in it. Tan spent over P200,000.00 to have it fixed.
Tan filed a Complaint against Cabugatan and Rody Karamihan (Karamihan), whom she accused of conspiring with each other to
steal the shipment entrusted to her. An Information for theft was filed against Karamihan, while Cabugatan was charged with
qualified theft.
On March 2, 1994, Great Harvest, through counsel, sent Tan a letter demanding full payment for the missing bags of soya beans.
On April 26, 1994, it sent her another demand letter. Still, she refused to pay for the missing shipment or settle the matter with
Great Harvest. Thus, on June 2, 1994, Great Harvest filed a Complaint for sum of money against Tan.
In her Answer, Tan denied that she entered into a hauling contract with Great Harvest, insisting that she merely accommodated it.
Tan also pointed out that since Great Harvest instructed her driver to change the point of delivery without her consent, it should
bear the loss brought about by its deviation from the original unloading point
Tan opines that she is not liable for the value of the lost soya beans since the truck hijacking was a fortuitous event and because
"the carrier is not an insurer against all risks of travel."
Issue
Whether or not petitioner Annie Tan should be held liable for the value of the stolen soya beans.
Ruling
Yes.
Article 1732 of the Civil Code defines common carriers as "persons, corporations, firms or associations engaged in the business
of carrying or transporting passengers or goods or both, by land, water or air, for compensation, offering their services to the
public." The Civil Code outlines the degree of diligence required of common carriers in Articles 1733, 1755, and 1756:
ARTICLE 1733. Common carriers, from the nature of their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all
the circumstances of each case.
ARTICLE 1755. A common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using
the utmost diligence of very cautious persons, with a due regard for all the circumstances.
ARTICLE 1756. In case of death of or injuries to passengers, common carriers are presumed to have been at fault or to have
acted negligently, unless they prove that they observed extraordinary diligence as prescribed in articles 1733 and 1755.
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Law and economics provide the policy justification of our existing jurisprudence. The extraordinary diligence required by the law of
common carriers is primarily due to the nature of their business, with the public policy behind it geared toward achieving allocative
efficiency between the parties to the transaction.
Allocative efficiency is an economic term that describes an optimal market where customers are willing to pay for the goods
produced. Thus, both consumers and producers benefit and stability is achieved.
The notion of common carriers is synonymous with public service under Commonwealth Act No. 146 or the Public Service
Act. Due to the public nature of their business, common carriers are compelled to exercise extraordinary diligence since they will be
burdened with the externalities or the cost of the consequences of their contract of carriage if they fail to take the precautions
expected of them.
Common carriers are mandated to internalize or shoulder the costs under the contracts of carriage. This is so because a contract of
carriage is structured in such a way that passengers or shippers surrender total control over their persons or goods to common
carriers, fully trusting that the latter will safely and timely deliver them to their destination. In light of this inherently inequitable
dynamics— and the potential harm that might befall passengers or shippers if common carriers exercise less than extraordinary
diligence— the law is constrained to intervene and impose sanctions on common carriers for the parties to achieve allocative
efficiency.
Here, petitioner is a common carrier obligated to exercise extraordinary diligence over the goods entrusted to her. Her responsibility
began from the time she received the soya beans from respondent's broker and would only cease after she has delivered them to
the consignee or any person with the right to receive them.
Petitioner's argument is that her contract of carriage with respondent was limited to delivering the soya beans to Selecta Feeds.
Thus, when Selecta Feeds refused to accept the delivery, she directed her driver to return the shipment to the loading point.
Respondent refutes petitioner's claims and asserts that their standing agreement was to deliver the shipment to respondent's
nearest warehouse in case the consignee refused the delivery.
After listening to the testimonies of both parties, the trial court found that respondent was able to prove its contract of carriage with
petitioner. It also found the testimony of respondent's witness, Cynthia Chua (Chua), to be more believable over that of petitioner
when it came to the details of their contract of carriage:
Defendant's assertion that the diversion of the goods was done without her consent and knowledge is self-serving and is effectively
belied by the positive testimony of witness Cynthia Chua, Account Officer of plaintiff corporation (page 23, TSN, March 26, 1996).
Equally self-serving is defendant's claim that she is not liable for the loss of the soyabeans ( sic) considering that the plaintiff has no
existing contract with her. Such a sweeping submission is also belied by the testimony of plaintiff's witness Cynthia Chua who
categorically confirmed the existing business relationship of plaintiff and defendant for hauling and delivery of goods as well as the
arrangement to deliver the rejected goods to the plaintiff's nearest warehouse in the event that goods are rejected by the
consignee with prior approval of the consignor (page 11, TSN, March 26, 1996).
The trial court's appreciation of Chua's testimony was upheld by the Court of Appeals:
Verily, the testimony alone of appellee's Account Officer, Cynthia Chua, dispels the contrary allegations made by appellant in so far
as the nature of their business relationship is concerned. Consistently and without qualms, said witness narrated the details
respecting the company's relations with the appellant and the events that transpired before, during and after the perfection of the
contract and the subsequent loss of the subject cargo. Said testimony and the documentary exhibits, i.e., the Tacoma waybill and
the appellee's waybill, prove the perfection and existence of the disputed verbal contract.
Emphatically, from the aforesaid waybills, it was duly established that while verbal, the parties herein has (sic) agreed for the
hauling and delivery of the soya beans from the company's broker to the intended recipient. It was further proven by evidence that
appellant had agreed and consented to the delivery of the soya beans to the company's nearest warehouse in case the cargo goods
had been rejected by the recipient as it had been the practice between the parties.
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This Court accords the highest respect to the trial court's assessment of a witness' credibility, as it was in a better position to
observe the witness' demeanor while testifying. We see no reason to disturb the factual findings of the lower courts, especially since
they were supported by substantial evidence.
Furthermore, Article 1734 of the Civil Code holds a common carrier fully responsible for the goods entrusted to him or her, unless
there is enough evidence to show that the loss, destruction, or deterioration of the goods falls under any of the enumerated
exceptions:
ARTICLE 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to
any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
Nothing in the records shows that any of these exceptions caused the loss of the soya beans. Petitioner failed to deliver the soya
beans to respondent because her driver absconded with them. She cannot shift the blame for the loss to respondent's supposed
diversion of the soya beans from the loading point to respondent's warehouse, as the evidence has conclusively shown that she had
agreed beforehand to deliver the cargo to respondent's warehouse if the consignee refused to accept it.
Finally, petitioner's reliance on De Guzman v. Court of Appeals is misplaced. There, the common carrier was absolved of liability
because the goods were stolen by robbers who used "grave or irresistible threat, violence, or force" to hijack the goods. De
Guzman viewed the armed hijack as a fortuitous event:
Under Article 1745 (6) above, a common carrier is held responsible — and will not be allowed to divest or to diminish such
responsibility — even for acts of strangers like thieves or robbers, except where such thieves or robbers in fact acted "with grave or
irresistible threat, violence or force." We believe and so hold that the limits of the duty of extraordinary diligence in the vigilance
over the goods carried are reached where the goods are lost as a result of a robbery which is attended by "grave or irresistible
threat, violence[,] or force."
In contrast to De Guzman, the loss of the soya beans here was not attended by grave or irresistible threat, violence, or
force. Instead, it was brought about by petitioner's failure to exercise extraordinary diligence when she neglected vetting her driver
or providing security for the cargo and failing to take out insurance on the shipment's value. As the Court of Appeals held:
Besides, as the records would show, appellant did not observe extra-ordinary diligence in the conduct of her business as a common
carrier. In breach of their agreement, appellant did not provide security while the goods were in transit and she also did not pay for
the insurance coverage of said goods. These measures could have prevented the hijacking or could have ensured the payment of
the damages sustained by the appellee.
ARTICLE 1181 ACQUISITION/ EXTINGUISHMENT OF RIGHTS
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Hilltop Market Fish Vendors’ Association vs Yaranon
Facts
On 22 June 1974, petitioner Hilltop Market Fish Vendors' Association, Inc. (Hilltop), represented by its president Gerardo Rillera
(Rillera), and respondent City of Baguio, represented by its then Mayor Luis Lardizabal, entered into a Contract of Lease over a
lot owned by the City of Baguio, with an area of 568.80 square meters and located at the Hilltop Market, Baguio City.
The contract provided that the period of lease is 25 years, renewable for the same period at the option of both parties, and the
annual lease rental is P25,000, with the first payment commencing upon the issuance by the City Engineer's Office of the Certificate
of full occupancy (Certificate) of the building to be constructed by Hilltop on the let. Before the Certificate is issued, the City of
Baguio can continue collecting market fees from the vendors who are allowed to occupy any portion of the building. At the
termination of the lease period, the City of Baguio will own the building without payment or reimbursement for Hilltop's costs.
Sometime in 1975, Hilltop constructed the building, thereafter known as the Rillera building, on the lot. Even though the City
Engineer's Office did not issue a Certificate, Hilltop's members occupied the Rillera building and conducted business in it.
On 16 October 1980, the City Council of Baguio, through its then Mayor Ernesto Bueno, issued Resolution No. 74-80 rescinding
the contract of lease with Hilltop, for its continued failure to comply with its obligation to complete the Rillera building. In
Resolution Nos. 18-81 and 50-86, the City Council of Baguio reiterated its resolution to rescind the contract and sought to undertake
the completion of the building.
On 20 February 1990, then Mayor Jaime Bugnosen ordered the closure of the two upper floors of the Rillera building based on the
City Council's Resolution No. 24, s. of 1990, that the Rillera building failed to comply with the minimum sanitary standards under
Presidential Decree No. 856.
In a Letter to the Building Official, City Administrator Leonardo dela Cruz stated that "Rillera and his officers would like to discuss x
x x the possibility of completing the necessary requirements for the x x x permit to occupy the Rillera building."
Subsequently, the City Engineer's Office issued its finding that the two upper floors of the Rillera building were unsafe for
occupancy.Thereafter, it recommended to condemn the building. Sometime in 2003, then Mayor Bernardo Vergara issued a notice
to take over the Rillera building.
On 28 February 2005, respondent then Mayor Braulio Yaranon (Yaranon) issued Administrative Order No. 030 S. 2005 (AO No. 30),
ordering the City Building and Architects Office (CBAO) and Public Order and Safety Division to immediately close the Rillera building
to have it cleaned, sanitized and enclosed; to prevent illegal activities in it; and for its completion and preparation for commercial
use.
On 7 March 2005, Hilltop filed with the RTC a Complaint with Very Urgent Application for Temporary Restraining Order and Writ of
Preliminary Injunction praying that the court issue an injunction against the implementation of AO No. 30 and order the concerned
office to issue the Certificate to make the contract of lease effective.
In their Answer dated 13 April 2005, Yaranon and respondent Galo Weygan alleged that the Certificate was not issued to Hilltop
because the Rillera building was not completed, and there were no provisions for electrical and plumbing systems or facilities for
conduct of regular business. In any case, they argued that the issuance of the Certificate shall only signal the start of payment of
annual lease rental and not the effectivity of the contract. They further alleged that even without the Certificate, Hilltop's members
occupied the building and conducted business in it; hence, Hilltop already waived the condition.
Issue
Does the issuance of the Certificate a suspensive condition which determines the perfection of the contract or its effectivity?
Ruling
204
No.
In a contract of lease, one of the parties binds himself to give to another the enjoyment or use of a thing for a price certain, and for
a period which may be definite or indefinite. Being a consensual contract, a lease is perfected at the moment there is a meeting of
the minds upon the thing and the cause or consideration which are to constitute the contract.
Thereafter, the lessor is obliged to deliver the thing which is the object of the contract in such a condition as to render it fit for the
use intended, and the lessee is obliged to use the thing leased as a diligent father of a family, devoting it to the use stipulated or
that which may be inferred from the nature of the thing leased.
In a contract of lease, the cause or essential purpose is the use and enjoyment of the thing. The thing or subject matter of the
contract in this case was clearly identified and agreed upon as the lot where the building would be constructed by Hilltop. The
consideration were the annual lease rental and the ownership of the building upon the termination of the lease period. Considering
that Hilltop and the City of Baguio agreed upon the essential elements of the contract, the contract of lease had been perfected.
From the moment that the contract is perfected, the parties are bound to fulfill what they have expressly stipulated. Thus, the City
of Baguio gave the use and enjoyment of its lot to Hilltop. Both the RTC and the CA found that upon the execution of the contract
on 22 June 1974, Hilltop took possession of the lot and constructed the Rillera building on it. Thereafter, Hilltop's members occupied
the Rillera building and conducted business in it up to the present. The findings of fact of the RTC and the CA are final and
conclusive and cannot be reviewed on appeal by this Court.
Since Hilltop exercised its right as lessee based on the contract of lease and the law, it has no basis in claiming that
the contract of lease did not commence.
Contrary to Hilltop's contention, the issuance of the Certificate was not a suspensive condition which determines the perfection of
the contract or its effectivity. The contract of lease specifically provides that: "x x x the annual lease rental shall be P25,000 payable
within the first 30 days of each and every year; the first payment to commence immediately upon issuance by the City
Engineer's Office of the Certificate of full occupancy of the entire building to be constructed thereon x x x."26
Clearly, the issuance of the Certificate is only a condition that will make Hilltop start paying the annual lease rental to the City of
Baguio. Because the Certificate was not issued, the payment of annual lease rental did not commence. A contract constitutes the
law between the parties and they are, therefore, bound by its stipulations. If the terms of a contract are clear and leave no doubt
as to the intention of the contracting parties, the literal meaning of its stipulations shall control.
Hilltop failed to distinguish between a condition imposed upon the perfection of the contract and a condition imposed on the
performance of an obligation. Failure to comply with the first condition results in the failure of a contract, while the failure to comply
with the second condition only gives the other party the option either to refuse to proceed or to waive the condition.
In this case, the condition, which is the issuance of the Certificate, was imposed only for the obligation to pay the
rent to commence. Payment of the price, or the rent, in this case, goes into the performance of the contract and has
nothing to do with the perfection of the contract.
As further found by the CA:
Considering however that plaintiff-appellant has occupied the building and conducted therein business without the certificate, it is
now estopped to claim that the period of lease has not yet began.
It would be incredible for plaintiff-appellant to assert that the certificate was a condition prior to its occupancy. Plaintiff-appellant
raised no protest when it occupied [the] Rillera [b]uilding. Furthermore, it took no direct action to promptly disavow or disaffirm the
alleged condition in the lease contract. As a matter of fact, it was only in 1999, when the term of the contract had expired, that
plaintiff-appellant became persistent in trying to obtain the certificate from defendants-appellees.
By its continued silence, it has agreed that the issuance of the said certificate was not a condition to the perfection of the lease
contract. The rule of acquiescence by silence has estopped plaintiff-appellant to deny the reality of the state of things which it made
to appear to exist and upon which others have been led to rely. Parties must take the consequences of the position they assume.
205
Hilltop is also estopped from claiming that the contract of lease did not commence since it based its occupancy of the Rillera
building on the contract of lease. In its petition, Hilltop alleged that "an examination of the provisions of the contract of lease would
show that the terms and conditions for the possession and occupation of the building before the issuance of the occupancy permit
by respondents has, likewise, been contemplated by the parties."
On Hilltop's allegation that it completed the building as early as 1975, the records show that the City Council of
Baguio issued Resolutions demanding for the rescission of the contract of lease for failure of Hilltop to complete the
construction of the Rillera building. In reply, the Letter to the Building Official stated that "Rillera and his officers would like to
discuss x x x the possibility of completing the necessary requirements for the x x x permit to occupy the Rillera building." Hilltop did
not deny the authenticity of these documents. Hilltop also admitted in the Letter that it has not completed the requirements for the
Certificate. Furthermore, the RTC found that:
Moreover, uncontroverted findings were made by the Baguio Health Department and the City Engineer's Office, to the effect that
the situation in the Rillera [b]uilding is unsanitary, and considering the structures were damaged by the July 16, 1990 killer
earthquake, it has made the said building dangerous for those occupying it. The Anti-Vice Committee of the Department of Local
Government made also the findings that inside the building were illegal activities like gambling and drinking. 34
Undeniably, Hilltop failed to comply with its obligations under the contract of lease. It failed to complete the requirements for the
issuance of the Certificate and maintain the sanitation of the Rillera building. The City Engineer's Office did not issue the Certificate
because of the fault of Hilltop. The party at fault, Hilltop, cannot use the non-issuance of the Certificate to its advantage because
the non-issuance was due to its fault. In short, Hilltop cannot claim that the 25-year lease period has not yet commenced because
of the non-issuance of the Certificate, since Hilltop itself was responsible for the non-issuance of the Certificate.
Parties who do not come to court with clean hands cannot be allowed to profit from their own wrongdoing. The action (or inaction)
of the party seeking equity must be "free from fault, and he must have done nothing to lull his adversary into repose, thereby
obstructing and preventing vigilance on the part of the latter."
Since the contract of lease already commenced, Hilltop has been occupying the Rillera building even after the termination of the
lease period. The contract of lease provides that the period of lease is 25 years and it is renewable for the same period at the
option of both parties. Based on the findings of the RTC that Hilltop started occupying the lot in 1974 and 25 years have lapsed
without the parties renewing the contract, the contract of lease is already terminated. Thus, the City of Baguio is justified in issuing
AO No. 30, and in taking over the Rillera building being its owner under the contract of lease. There is no basis in granting damages
to Hilltop.
In a reciprocal contract like a lease, the period must be deemed to have been agreed upon for the benefit of both parties, absent
language showing that the term was deliberately set for the benefit of the lessee or lessor alone. The continuance, effectivity, and
fulfillment of a contract of lease cannot be made to depend exclusively upon the free and uncontrolled choice of the
lessee. Mutuality does not obtain in such a contract of lease and no equality exists between the lessor and the lessee
since the life of the contract would be dictated solely by the lessee.
Development Bank vs CA
Facts
Private respondents were the original owner of a parcel of agricultural land covered by TCT No T-1432, situated in Barrio Capucao,
Ozamis City, with an area of 113,695 square meters, more or less.
On 30 May 1977, Private respondents mortgaged said land to petitioner. When private respondents defaulted on their obligation,
petitioner foreclosed the mortgage on the land and emerged as sole bidder in the ensuing auction sale. Consequently. Transfer
Certificate of Title No. T-10913 was eventually issued in petitioner's name.
On 6 April 1984 petitioner and private respondents entered into a Deed of Conditional Sale wherein petitioner agreed to
reconvey the foreclosed property to private respondents.
206
On 6 April 1990, upon completing the payment of the full repurchase price, private respondents demanded from petitioner the
execution of a Deed of Conveyance in their favor.
Petitioner then informed private respondents that the prestation to execute and deliver a deed of conveyance in their favor had
become legally impossible in view of Sec. 6 of Rep. Act 6657 (the Comprehensive Agrarian Reform Law or CARL) approved 10 June
1988, and Sec. 1 of E.O. 407 issued 10 June 1990.
Aggrieved, private respondents filed a complaint for specific performance with damages against petitioner before the Regional Trial
Court of Ozamis City, Branch XV. During the pre-trial court narrowed down the issue to whether or not Sec. 6 of the CARL (Rep. Act
6657) had rendered legally impossible compliance by petitioner with its obligation to execute a deed of conveyance of the subject
land in favor of private respondents.
Petitioner still insists on its position that Rep. Act 6657, E.O. 407 and DBP Circular No.11 rendered its obligation to execute a Deed
of Sale to private respondents "a legal impossibility." 5 Petitioner also questions the award of attorney's fees, nominal damages, and
cost in favor of private respondents, as not in accord with law and the evidence. 6
Issue
Does the the deed of conditional sale extinguished by a supervening event, giving rise to an impossibility of performance?
Ruling
No.
In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend
upon the happening of the event which constitutes the condition.
The deed of conditional sale between petitioner and private respondents was executed on 6 April 1984. Private respondents had
religiously paid the agreed installments on the property until they completed payment on 6 April 1990. Petitioner, in
fact, allowed private respondents to fulfill the condition of effecting full payment, and invoked Section 6 of Rep. Act 6657 only after
private respondents, having fully paid the repurchase price, demanded the execution of a Deed of Sale in their favor.
It will be noted that Rep. Act 6657 was enacted on 10 June 1988. Following petitioner's argument in this case, its prestation to
execute the deed of sale was rendered legally impossible by Section 6 said law. In other words, the deed of conditional sale was
extinguished by a supervening event, giving rise to an impossibility of performance.
We reject petitioner's contention as we rule — as the trial court and CA have correctly ruled — that neither Sec. 6 of Rep. Act
6657 nor Sec. 1 of E.O. 407 was intended to impair the obligation of contract petitioner had much earlier concluded
with private respondents.
More specifically, petitioner cannot invoke the last paragraph of Sec. 6 of Rep. Act 6657 to set aside its obligations already existing
prior to its enactment. In the first place, said last paragraph clearly deals with "any sale, lease, management contract or transfer or
possession of private lands executed by the original landowner." The original owner in this case is not the petitioner but the private
respondents. Petitioner acquired the land through foreclosure proceedings but agreed thereafter to reconvey it to private
respondents, albeit conditionally.
As earlier stated, Sec. 6 of Rep. Act 6657 in its entirety deals with retention limits allowed by law to small landowners. Since the
property here involved is more or less ten (10) hectares, it is then within the jurisdiction of the Department of Agrarian Reform
(DAR) to determine whether or not the property can be subjected to agrarian reform. But this necessitates an entirely differently
proceeding.
The CARL (Rep. Act 6657) was not intended to take away property without due process of law. Nor is it intended to impair the
obligation of contracts. In the same manner must E.O. 407 be regarded. It was enacted two (2) months after private respondents
207
had legally fulfilled the condition in the contract of conditional sale by the payment of all installment on their due dates. These laws
cannot have retroactive effect unless there is an express provision in them to that effect.
CENTRAL PHILIPPINES UNIV v. CA

256 S 511
Facts
Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member of the Board of Trustees of the Central Philippine
College (now Central Philippine University [CPU]), executed a deed of donation in favor of the latter of a parcel of land identified as
Lot No. 3174-B-1 of the subdivision plan Psd-1144, then a portion of Lot No. 3174-B, for which Transfer Certificate of Title No. T-
3910-A was issued in the name of the donee CPU with the following annotations copied from the deed of donation —
1. The land described shall be utilized by the CPU exclusively for the establishment and use of a medical college with all its buildings
as part of the curriculum;
2. The said college shall not sell, transfer or convey to any third party nor in any way encumber said land;
3. The said land shall be called "RAMON LOPEZ CAMPUS", and the said college shall be under obligation to erect a cornerstone
bearing that name. Any net income from the land or any of its parks shall be put in a fund to be known as the "RAMON LOPEZ
CAMPUS FUND" to be used for improvements of said campus and erection of a building thereon. 1
On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr., filed an action for annulment of donation,
reconveyance and damages against CPU alleging that since 1939 up to the time the action was filed the latter had not complied
with the conditions of the donation. Private respondents also argued that petitioner had in fact negotiated with the National Housing
Authority (NHA) to exchange the donated property with another land owned by the latter.
In its answer petitioner alleged that the right of private respondents to file the action had prescribed; that it did not violate any of
the conditions in the deed of donation because it never used the donated property for any other purpose than that for which it was
intended; and, that it did not sell, transfer or convey it to any third party.
Issue
Ruling
We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the deed of donation executed by Don Ramon
Lopez, Sr., gives us no alternative but to conclude that his donation was onerous, one executed for a valuable consideration which
is considered the equivalent of the donation itself, e.g., when a donation imposes a burden equivalent to the value of the donation.
A gift of land to the City of Manila requiring the latter to erect schools, construct a children's playground and open streets on the
land was considered an onerous donation. Similarly, where Don Ramon Lopez donated the subject parcel of land to petitioner but
imposed an obligation upon the latter to establish a medical college thereon, the donation must be for an onerous consideration.
A CONDITIONAL OBLIGATION IS SUBJECT TO A RESOLUTORY CONDITION NOT AN OBLIGATION WITH A PERIOD
Under Art. 1181 of the Civil Code, on conditional obligations, the acquisition of rights, as well as the extinguishment or loss of
those already acquired, shall depend upon the happening of the event which constitutes the condition.
Thus, when a person donates land to another on the condition that the latter would build upon the land a school, the condition
imposed was not a condition precedent or a suspensive condition but a resolutory one. It is not correct to say that the
schoolhouse had to be constructed before the donation became effective, that is, before the donee could become the owner of the
land, otherwise, it would be invading the property rights of the donor. The donation had to be valid before the fulfillment of the
condition. If there was no fulfillment or compliance with the condition, such as what obtains in the instant case, the donation may
now be revoked and all rights which the donee may have acquired under it shall be deemed lost and extinguished.
208
The claim of petitioner that prescription bars the instant action of private respondents is unavailing.
The condition imposed by the donor, i.e., the building of a medical school upon the land donated, depended upon the
exclusive will of the donee as to when this condition shall be fulfilled. When petitioner accepted the donation, it bound
itself to comply with the condition thereof. Since the time within which the condition should be fulfilled depended upon the
exclusive will of the petitioner, it has been held that its absolute acceptance and the acknowledgment of its obligation
provided in the deed of donation were sufficient to prevent the statute of limitations from barring the action of private
respondents upon the original contract which was the deed of donation.
Moreover, the time from which the cause of action accrued for the revocation of the donation and recovery of the property donated
cannot be specifically determined in the instant case. A cause of action arises when that which should have been done is not done,
or that which should not have been done is done. In cases where there is no special provision for such computation, recourse must
be had to the rule that the period must be counted from the day on which the corresponding action could have been instituted. It is
the legal possibility of bringing the action which determines the starting point for the computation of the period. In this case, the
starting point begins with the expiration of a reasonable period and opportunity for petitioner to fulfill what has been charged upon
it by the donor.
The period of time for the establishment of a medical college and the necessary buildings and improvements on the property cannot
be quantified in a specific number of years because of the presence of several factors and circumstances involved in the erection of
an educational institution, such as government laws and regulations pertaining to education, building requirements and property
restrictions which are beyond the control of the donee.
Thus, when the obligation does not fix a period but from its nature and circumstances it can be inferred that a period was intended,
the general rule provided in Art. 1197 of the Civil Code applies, which provides that the courts may fix the duration
thereof because the fulfillment of the obligation itself cannot be demanded until after the court has fixed the period
for compliance therewith and such period has arrived.
This general rule however cannot be applied considering the different set of circumstances existing in the instant case. More than a
reasonable period of fifty (50) years has already been allowed petitioner to avail of the opportunity to comply with the condition
even if it be burdensome, to make the donation in its favor forever valid. But, unfortunately, it failed to do so. Hence, there is no
more need to fix the duration of a term of the obligation when such procedure would be a mere technicality and formality and
would serve no purpose than to delay or lead to an unnecessary and expensive multiplication of suits. Moreover, under Art. 1191 of
the Civil Code, when one of the obligors cannot comply with what is incumbent upon him, the obligee may seek rescission and the
court shall decree the same unless there is just cause authorizing the fixing of a period. In the absence of any just cause for the
court to determine the period of the compliance, there is no more obstacle for the court to decree the rescission claimed.
Finally, since the questioned deed of donation herein is basically a gratuitous one, doubts referring to incidental circumstances of a
gratuitous contract should be resolved in favor of the least transmission of rights and interests. 10 Records are clear and facts are
undisputed that since the execution of the deed of donation up to the time of filing of the instant action, petitioner has failed to
comply with its obligation as donee. Petitioner has slept on its obligation for an unreasonable length of time. Hence, it is only just
and equitable now to declare the subject donation already ineffective and, for all purposes, revoked so that petitioner as donee
should now return the donated property to the heirs of the donor, private respondents herein, by means of reconveyance.
David v. David
January 15, 2014
209
Facts
Respondent Eduardo C. David (Eduardo) initiated this replevin suit against Roberto R. David (Roberto), his first cousin and former
business partner, to recover the possession of one unit of International CO 9670 Truck Tractor and Mi-Bed Trailer.
It appears that on July 7, 1995, Eduardo and his brother Edwin C. David (Edwin), acting on their own and in behalf of their co-heirs,
sold their inherited properties to Roberto, specifically: (a) a parcel of land with an area of 1,231 square meters, together with all the
improvements existing thereon, located in Baguio City and covered by Transfer Certificate of Title No. T-22983 of the Registry of
Deeds of Baguio City (Baguio City lot); and (b) two units International CO 9670 Truck Tractor with two Mi-Bed Trailers. 3 A deed of
sale with assumption of mortgage (deed of sale) embodied the terms of their agreement, stipulating that the consideration for the
sale was ₱6,000,000.00, of which ₱2,000,000 was to be paid to Eduardo and Edwin, and the remaining ₱4,000,000.00 to be paid to
Development Bank of the Philippines (DBP) in Baguio City to settle the outstanding obligation secured by a mortgage on such
properties. The parties further agreed to give Eduardo and Edwin the right to repurchase the properties within a period of three
years from the execution of the deed of sale based on the purchase price agreed upon, plus 12% interest per annum.
In April 1997, Roberto and Edwin executed a memorandum of agreement (MOA) with the Spouses Marquez and Soledad Go
(Spouses Go), by which they agreed to sell the Baguio City lot to the latter for a consideration of ₱10,000,000.00. The MOA
stipulated that "in order to save payment of high and multiple taxes considering that the x x x subject matter of this sale is
mortgaged with DBP, Baguio City, and sold [to Roberto], Edwin will execute the necessary Deed of Absolute Sale in favor of [the
Spouses Go], in lieu of [Roberto]." The Spouses Go then deposited the amount of ₱10,000,000.00 to Roberto’s account.
After the execution of the MOA, Roberto gave Eduardo ₱2,800,000.00 and returned to him one of the truck tractors and trailers
subject of the deed of sale. Eduardo demanded for the return of the other truck tractor and trailer, but Roberto refused to heed the
demand.
Thus, Eduardo initiated this replevin suit against Roberto, alleging that he was exercising the right to repurchase under the deed of
sale; and that he was entitled to the possession of the other motor vehicle and trailer.
In his answer, Roberto denied that Eduardo could repurchase the properties in question; and insisted that the MOA had
extinguished their deed of sale by novation.
Issue
Ruling
A sale with right to repurchase is governed by Article 1601 of the Civil Code, which provides that: "Conventional redemption
shall take place when the vendor reserves the right to repurchase the thing sold, with the obligation to comply with the provisions
of Article 1616 and other stipulations which may have been agreed upon." Conformably with Article 1616, the seller given the
right to repurchase may exercise his right of redemption by paying the buyer: (a) the price of the sale, (b) the expenses of the
contract, (c) legitimate payments made by reason of the sale, and (d) the necessary and useful expenses made on the thing sold.
The deed of sale entered into by Eduardo and Roberto contained the following stipulation on the right to repurchase, to wit:
x x x the Vendors are given the right to repurchase the aforesaid described real property, together with the improvements thereon,
and the two (2) motor vehicles, together with their respective trailers from the Vendee within a period of three (3) years from the
execution of this document on the purchase price agreed upon by the parties after considering the amount previously paid to the
Vendors in the amount of TWO MILLION PESOS (₱2,000,000.00), Philippine Currency, with an interest of twelve percent (12%) per
annum and the amount paid with the Development Bank of the Philippines with an interest of twelve percent (12%) per annum.
The CA and the RTC both found and held that Eduardo had complied with the conditions stipulated in the deed of sale and
prescribed by Article 1616 of the Civil Code. Pertinently, the CA stated:
It should be noted that the alleged repurchase was exercised within the stipulated period of three (3) years from the time the Deed
of Sale with Assumption of Mortgage was executed. The only question now, therefore, which remains to be resolved is whether or
210
not the conditions set forth in the Deed of Sale with Assumption of Mortgage, i.e. the tender of the purchase price previously
agreed upon, which is Php2.0 Million, plus 12% interest per annum, and the amount paid by the defendant to DBP, had been
satisfied.
From the testimony of the defendant himself, these preconditions for the exercise of plaintiff's right to repurchase were adequately
satisfied by the latter. Thus, as stated, from the Php10 Million purchase price which was directly paid to the defendant, the latter
deducted his expenses plus interests and the loan, and the remaining amount he turned over to the plaintiff. This testimony is an
unequivocal acknowledgement from defendant that plaintiff and his co-heirs exercised their right to repurchase the property within
the agreed period by satisfying all the conditions stipulated in the Deed of Sale with Assumption of Mortgage. Moreover, defendant
returned to plaintiff the amount of Php2.8 Million from the total purchase price of Php10.0 Million. This only means that this is the
excess amount pertaining to plaintiff and co-heirs after the defendant deducted the repurchase price of Php2.0 Million plus interests
and his expenses. Add to that is the fact that defendant returned one of the trucks and trailers subject of the Deed of Sale with
Assumption of Mortgage to the plaintiff. This is, at best, a tacit acknowledgement of the defendant that plaintiff and his co-heirs
had in fact exercised their right to repurchase.
Considering that the factual findings of the trial court, when affirmed by the CA, are binding on the Court, 17 the Court affirms the
judgment of the CA upholding Eduardo’s exercise of the right of repurchase. Roberto could no longer assail the factual findings
because his petition for review on certiorari was limited to the review and determination of questions of law only. A question of law
exists when the doubt centers on what the law is on a certain set of undisputed facts, while a question of fact exists when the
doubt centers on the truth or falsity of the alleged facts. Whether the conditions for the right to repurchase were complied with, or
whether there was a tender of payment, is a question of fact. With both the RTC and the CA finding and holding that Eduardo had
fulfilled the conditions for the exercise of the right to repurchase, therefore, we conclude that Eduardo had effectively repurchased
the properties subject of the deed of sale.
In Metropolitan Bank and Trust Company v. Tan, the Court ruled that a redemption within the period allowed by law is not a matter
of intent but of payment or valid tender of the full redemption price within the period. Verily, the tender of payment is the seller’s
manifestation of his desire to repurchase the property with the offer of immediate performance. As we stated in Legaspi v. Court of
Appeals, a sincere tender of payment is sufficient to show the exercise of the right to repurchase. Here, Eduardo paid the
repurchase price to Roberto by depositing the proceeds of the sale of the Baguio City lot in the latter’s account. Such payment was
an effective exercise of the right to repurchase.
On the other hand, the Court dismisses as devoid of merit Roberto’s insistence that the MOA had extinguished the obligations
established under the deed of sale by novation.
The issue of novation involves a question of fact, as it necessarily requires the factual determination of the existence of the various
requisites of novation, namely: (a) there must be a previous valid obligation; (b) the parties concerned must agree to a new
contract; (c) the old contract must be extinguished; and (d) there must be a valid new contract. With both the RTC and the CA
concluding that the MOA was consistent with the deed of sale, novation whereby the deed of sale was extinguished did not occur.
In that regard, it is worth repeating that the factual findings of the lower courts are binding on the Court.
In sales with the right to repurchase, the title and ownership of the property sold are immediately vested in the vendee, subject to
the resolutory condition of repurchase by the vendor within the stipulated period. Accordingly, the ownership of the affected
properties reverted to Eduardo once he complied with the condition for the repurchase, thereby entitling him to the possession of
the other motor vehicle with trailer.
ARTICLE 1182- POTESTATIVE CONDITION
211
Gemudiano, Jr. v. Naess Shipping Philippines, Inc.,

G.R. No. 223825, [January 20, 2020]
FACTS
Sometime in December 2012, petitioner applied with Naess Shipping for possible employment as seaman upon learning of a job
opening in its domestic vessel operations. He had an interview with Naess Shipping and completed the training on International
Safety Management (ISM) Code at the Far East Maritime Foundation, Inc. As advised by Naess Shipping's crewing manager Leah G.
Fetero (Fetero), petitioner underwent the mandatory pre-employment medical examination (PEME) where he was declared fit for
sea service. The expenses for the PEME were shouldered by petitioner.
On February 15, 2013, petitioner signed an Embarkation Order duly approved by Fetero stipulating the terms and conditions of his
employment, and directing him to request for all the necessary documents and company properties from the person he was going
to replace in his vessel of assignment.
On February 18, 2013, Naess Shipping, for and in behalf of its principal Royal Dragon, executed a "Contract of Employment for
Marine Crew on Board Domestic Vessels" (contract of employment) engaging the services of petitioner as Second Officer
aboard the vessel "M/V Meiling 11," an inter-island bulk and cargo carrier, for a period of six months with a gross monthly salary of
P30,000.00. It was stipulated that the contract shall take effect on March 12, 2013. Subsequently, petitioner and respondents
executed an "Addendum to Contract of Employment for Marine Crew Onboard Domestic Vessels" (Addendum) stating
that the employment relationship between them shall commence once the Master of the Vessel issues a boarding confirmation to
the petitioner. Petitioner also bound himself to abide by the Code of Discipline as provided for in the Philippine Merchant Marine
Rules and Regulations.
On March 8, 2013, petitioner received a call from Fetero informing him that Royal Dragon cancelled his embarkation. Thus, he filed
a complaint for breach of contract against respondents before the Arbitration Branch of the NLRC.
In his Position Paper, petitioner alleged that respondent s ' unilateral and unreasonable failure to deploy him despite the perfected
contract of employment constitutes breach and gives rise to a liability to pay actual damages. He also asserts that he is entitled to
the award of moral and exemplary damages and attorney's fees on account of respondents' dishonesty and bad faith, as well as
their wanton, fraudulent and malevolent violation of the contract of employment.
Respondents, on the other hand, argued that petitioner's employment did not commence because his deployment was withheld by
reason of misrepresentation. They stressed that petitioner did not disclose the fact that be is suffering from diabetes mellitus and
asthma which render him unfit for sea service. They claimed that the Labor Arbiter has no jurisdiction over the petitioner's
complaint for breach of contract, invoking the absence of employer-employee relationship.
ISSUE
Does the stipulation contained in Section D of the Addendum a condition which holds in suspense the performance of the
respective obligations of petitioner and respondents under the contract of employment, or the onset of their employment relations?
RULING
We find merit in the petition.
To reiterate, on February 18, 2013, petitioner and respondents entered into a contract of employment stipulating that it shall take
effect on March 12, 2013. Subsequently, the parties executed an Addendum with an agreement that said Addendum shall form of
employment. But respondents cancelled petitioner's embarkation and informed him that he would not be deployed because of his
existing medical condition which he failed to disclose. Thus, petitioner was not able to leave even though he duly passed the PEME
and was declared fit for sea service.
In the instant case, there is no doubt that there was already a perfected contract of employment between petitioner and
respondents. The contract had passed the negotiation stage or "the time the prospective contracting parties manifest their interest
212
in the contract." It had reached the perfection stage or the so-called "birth of the contract" as it was clearly shown that the
essential elements of a contract, i.e., consent, object, and cause, were all present at the time of its constitution. Petitioner and
Fetero, respondents' Crewing Manager, freely entered into the contract of employment, affixed their signatures thereto and
assented to the terms and conditions of the contract (consent), under which petitioner binds himself to render service (object) to
respondents on board the domestic vessel " M/V Meiling 11" for the gross monthly salary of P30,000.00 (cause). An examination of
the terms and conditions agreed upon by the parties will show that their relationship as employer and employee is encapsulated in
the perfected contract of employment. Thus, by virtue of said contract, respondents and petitioner assumed obligations which
pertain to those of an employer and an employee.
Under Section D of the Addendum, "the employment relationship between the Employer on one hand and the Seaman on the
other shall commence once the Master has issued boarding confirmation to the seaman." Relying on this provision, the respondents
insist that there is no employer employee relationship between them and petitioner and that the labor arbiter had no jurisdiction
over the petitioner's complaint. True, the parties to a contract are free to adopt such stipulations, clauses, terms and conditions as
they may deem convenient provided such contractual stipulations should not be contrary to law, morals, good customs, public order
or public policy. But such is not the case here .
The stipulation contained in Section D of the Addendum is a condition which holds in suspense the performance of the respective
obligations of petitioner and respondents under the contract of employment, or the onset of their employment relations. It is a
condition solely dependent on the will or whim of respondents since the commencement of the employment
relations is at the discretion or prerogative of the latter's master of the ship through the issuance of a boarding
confirmation to the petitioner. The Court in Naga Telephone Co., Inc. v. Court of Appeals referred to this kind of condition as a
"potestative condition," the fulfillment of which depends exclusively upon the will of the debtor, in which case, the conditional
obligation is void. Article 1182 of the Civil Code of the Philippines reads:
Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If
it depends upon chance or upon the will of a third person, the obligations shall take effect in conformity with the provisions of this
Code.
In this regard, the Court stressed in Romero v. Court of Appeals:
We must hasten to add, however, that where the so-called "potestative condition" is imposed not on the birth of the obligation but
on its fulfillment, only the condition is avoided, leaving unaffected the obligation itself.
Clearly, the condition set forth in the Addendum is one that is imposed not on the birth of the contract of employment since the
contract has already been perfected, but only on the fulfillment or performance of their respective obligations, i.e., for
petitioner to render services on board the ship and for respondents to pay him the agreed compensation for such services. A purely
potestative imposition, such as the one in the Addendum, must be obliterated from the face of the contract without affecting the
rest of the stipulations considering that the condition relates to the fulfillment of an already existing obligation and not to its
inception. Moreover, the condition imposed for the commencement of the employment relations offends the principle of mutuality of
contracts ordained in Article 1308 of the Civil Code which states that contracts must bind both contracting parties, and its validity or
compliance cannot be left to the will of one of them. The Court is thus constrained to treat the condition as void and of no effect,
and declare the respective obligations of the parties as unconditional. Consequently, the employer-employee relationship between
petitioner and respondents should be deemed to have arisen as of the agreed effectivity date of the contract of employment, or on
March 12, 2013.
At this point, it is settled that an employer-employee relationship exists between respondents and petitioner.
ARTILCE 1184- POSITIVE CONDITION
213
MEGAWORLD v. MAJESTIC FINANCE

(BERSAMIN)
FACTS
On September 23, 1994, Megaworld Properties and Holdings, Inc. (developer) entered into a Joint Venture Agreement
(JVA) with Majestic Finance and Investment Co., Inc. (owner) for the development of the residential subdivision located in Brgy.
Alingaro, General Trias, Cavite. According to the JVA, the development of the 215 hectares of land belonging to the owner (joint
venture property) would be for the sole account of the developer; and that upon completion of the development of the subdivision,
the owner would compensate the developer in the form of saleable residential subdivision lots. The JVA further provided that the
developer would advance all the costs for the relocation and resettlement of the occupants of the joint venture property, subject to
reimbursement by the owner; and that the developer would deposit the initial amount of P10,000,000.00 to defray the expenses for
the relocation and settlement, and the costs for obtaining from the Government the exemptions and conversion permits, and the
required clearances.
On September 24, 1994, the developer and owner agreed, through the addendum to the JVA, to increase the initial deposit for the
settlement of claims and the relocation of the tenants from P10,000,000.00 to P60,000,000.00.
On October 27, 1994, the developer, by deed of assignment, transferred, conveyed and assigned to Empire East Land Holdings,
Inc. (developer/assignee) all its rights and obligations under the JVA including the addendum.
On February 29, 2000, the owner filed in the RTC a complaint for specific performance with damages against the developer,
the developer/assignee, and respondent Andrew Tan, who are now the petitioners herein. The complaint, docketed as Civil Case
No. 67813, was mainly based on the failure of the petitioners to comply with their obligations under the JVA, including the
obligation to maintain a strong security force to safeguard the entire joint venture property of 215 hectares from illegal entrants and
occupants.
Following the joinder of issues by the petitioners' answer with counterclaim, and by the respondents' reply with answer to the
counterclaim, the RTC set the pre-trial of the case. At the conclusion of the pre-trial conference, the presentation of the owner's
evidence was suspended because of the parties' manifestation that they would settle the case amicably. It appears that the parties
negotiated with each other on how to implement the JVA and the addendum.
On September 16, 2002, the owner filed in the RTC a manifestation and motion, praying therein that the petitioners be directed
to provide round-the-clock security for the joint venture property in order to defend and protect it from the invasion of unauthorized
persons. The petitioners opposed the manifestation and motion, pointing out that: (1) the move to have them provide security in
the properties was premature; and (2) under the principle of reciprocal obligations, the owner could not compel them to perform
their obligations under the JVA if the owner itself refused to honor its obligations under the JVA and the addendum.
ISSUE
Whether either party of a joint venture agreement to develop property into a residential subdivision has already performed its
obligation as to entitle it to demand the performance of the other's reciprocal obligation. Whether or not the petitioners are
obligated to perform their obligations under the JVA, including that of providing round-the-clock security for the subject properties,
despite respondents' failure or refusal to acknowledge, or perform their reciprocal obligations there.
RULING
No.
The obligations of the parties under the JVA were unquestionably reciprocal. Reciprocal obligations are those that arise from
the same cause, and in which each party is a debtor and a creditor of the other at the same time, such that the obligations of one
are dependent upon the obligations of the other. They are to be performed simultaneously, so that the performance by one is
214
conditioned upon the simultaneous fulfillment by the other. As the Court has expounded in Consolidated Industrial Gases, Inc. v.
Alabang Medical Center:
Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other,
such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously, so that the
performance of one is conditioned upon the simultaneous fulfillment of the other. In reciprocal obligations, neither party incurs in
delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay by the other begins.
In reciprocal obligations, before a party can demand the performance of the obligation of the other, the former must also perform
its own obligation. For its failure to turn over a complete project in accordance with the terms and conditions of the installation
contracts, CIGI cannot demand for the payment of the contract price balance from AMC, which, in turn, cannot legally be ordered
to pay.
The determination of default on the part of either of the parties depends on the terms of the JVA that clearly categorized the
parties' several obligations into two types.
The first type related to the continuous obligations that would be continuously performed from the moment of the execution of
the JVA until the parties shall have achieved the purpose of their joint venture. The continuous obligations under the JVA were as
follows: (1) the developer would secure the joint venture property from unauthorized occupants; (2) the owner would allow the
developer to take possession of the joint venture property; (3) the owner would deliver any and all documents necessary for the
accomplishment of each activity; and (4) both the developer and the owner would pay the real estate taxes.
The second type referred to the activity obligations. The following table shows the activity obligations of the parties under the
JVA.
The activities under the JVA fell into seven major categories, specifically: (l)the relocation of the occupants; (2) the
completion of the development plan; (3) the securing of exemption and conversion permits; (4) the obtention of the development
permits from government agencies; (5) the development of the subject land; (6) the issuance of titles for the subdivided lots; and
(7) the selling of the subdivided lots and the reimbursement of the advances.
For the first activity (i.e., the relocation of the occupants), the developer was obliged to negotiate with the occupants, to advance
payment for disturbance compensation, and to relocate the occupants to an area within the subject land, while the owner was
obliged to agree to and to allocate the resettlement site within the property, and to approve the expenses to be incurred for the
process. Should the owner fail to allocate the site for the resettlement, the obligation of the developer to relocate would not be
demandable. Conversely, should the developer fail to negotiate with the occupants, the owner's obligation to allocate the
resettlement site would not become due.
As to the second activity (i.e., the completion of the development plan), the developer had the obligation to lay out the plan, but
the owner needed to conform to the plan before the same was finalized. Accordingly, the final development plan would not be
generated should the owner fail to approve the lay-out plan; nor would the owner be able to approve if no such plan had been
initially laid out by the developer.
In each activity, the obligation of each party was dependent upon the obligation of the other. Although their obligations were to be
performed simultaneously, the performance of an activity obligation was still conditioned upon the fulfillment of the continuous
obligation, and vice versa. Should either party cease to perform a continuous obligation, the other's subsequent activity obligation
would not accrue. Conversely, if an activity obligation was not performed by either party, the continuous obligation of the other
would cease to take effect. The performance of the continuous obligation was subject to the resolutory condition that
the precedent obligation of the other party, whether continuous or activity, was fulfilled as it became due. Otherwise, the
continuous obligation would be extinguished.
According to Article 1184 of the Civil Code, the condition that some event happen at a determinate time shall
extinguish the obligation as soon as the time expires, or if it has become indubitable that the event will not take
place.
215
Here, the common cause of the parties in entering into the joint venture was the development of the joint venture property into the
residential subdivision as to eventually profit therefrom. Consequently, all of the obligations under the JVA were subject to the
happening of the complete development of the joint venture property, or if it would become indubitable that the completion would
not take place, like when an obligation, whether continuous or activity, was not performed. Should any of the obligations, whether
continuous or activity, be not performed, all the other remaining obligations would not ripen into demandable obligations while
those already performed would cease to take effect. This is because every single obligation of each party under the JVA rested on
the common cause of profiting from the developed subdivision.
It appears that upon the execution of the JVA, the parties were performing their respective obligations until disagreement arose
between them that affected the subsequent performance of their accrued obligations. Being reciprocal in nature, their
respective obligations as the owner and the developer were dependent upon the performance by the other of its obligations; hence,
any claim of delay or non-performance against the other could prosper only if the complaining party had faithfully complied with its
own correlative obligation.
A respected commentator has cogently observed in this connection:
Same; consequences of simultaneous performance. As a consequence of the rule of simultaneous performance, if the party
who has not performed his obligation demands performance from the other, the latter may interpose the defense of unfulfilled
contract (exceptio non adimpleli contraclus) by virtue of which he cannot be obliged to perform while the other's obligation remains
unfulfilled. Hence, the Spanish Supreme Court has ruled that the non-performance of one party is justified if based on the non-
performance of the other; that the party who has failed to perform cannot demand performance from the other; and that judicial
approval is not necessary to release a party from his obligation, the non-performance of the other being a sufficient defense against
any demand for performance by the guilty party.
Another consequence of simultaneous performance is the rule of compensatio morae, that is to say that neither party incurs in
delay if the other does not or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one
of the parties fulfills his obligations, delay by the other begins.
Yet, the record is bereft of the proof to support the lower courts' unanimous conclusion that the owner had already
performed its correlative obligation under the JVA as to place itself in the position to demand that the developer
should already perform its obligation of providing the round-the-clock security on the property. In issuing its order of
November 5, 2002, therefore, the RTC acted whimsically because it did not first ascertain whether or not the precedent reciprocal
obligation of the owner upon which the demanded obligation of the developer was dependent had already been performed. Without
such showing that the developer had ceased to perform a continuous obligation to provide security over the joint venture
property despite complete fulfillment by the owner of all its accrued obligations , the owner had no right to demand from the
developer the round-the-clock security over the 215 hectares of land.
The CA further gravely erred in characterizing the order for the petitioners to implement the round-the-clock security provision of
the JVA and the addendum as an established and undisputed interim measure that could be issued pending the resolution of the
case on the merits.
Apart from the provisional remedies expressly recognized and made available under Rule 56 to Rule 61 of the Rules of Court, the
Court has sanctioned only the issuance of the status quo ante order but only to maintain the last, actual, peaceable and
uncontested state of things that preceded the controversy. The eminent Justice Florenz D. Regalado, an authority on remedial law,
has delineated the nature of the status quo ante order, and distinguished it from the provisional remedy of temporary restraining
order, as follows:
There have been instances when the Supreme Court has issued a status quo order which, as the very term connotes, is merely
intended to maintain the last, actual, peaceable and uncontested state of things which preceded the controversy. This was resorted
to when the projected proceedings in the case made the conservation of the status quo desirable or essential, but the affected
party neither sought such relief or the allegations in his pleading did not sufficiently make out a case for a temporary restraining
order. The status quo order was thus issued motu proprio on equitable considerations. Also, unlike a temporary restraining order or
a preliminary injunction, a status quo order is more in the nature of a cease and desist order, since it neither directs the doing or
undoing of acts as in the case of prohibitory or mandatory injunctive relief. The further distinction is provided by the present
amendment in the sense that, unlike the amended rule on restraining orders, a status quo order does not require the posting of a
bond.
216
The order of November 5, 2002, by directing the developer to provide sufficient round-the-clock security for the protection of the
joint venture property during the pendency of the case, was not of the nature of the status quo ante order because the developer,
as averred in the complaint, had not yet provided a single security watchman to secure the entire 215 hectares of land for several
years. Also, the owner stated in the comment to the petition that the developer had dismissed all the security guards posted in the
property since 1997. At the time of the filing of the complaint for specific performance on February 29, 2000, therefore, the last
actual, peaceable and uncontested state of things preceding the controversy was the absence of such security, not the installation
of the security personnel/measures. In fact, the failure of the developer to provide the round-the-clock security itself became the
controversy that impelled the owner to bring the action against the petitioners.
By preliminarily directing the developer to provide sufficient round-the-clock security for the protection of the joint venture property
during the pendency of the case, the November 5, 2002 order of the RTC did not come under the category of the status quo
ante order that would issue upon equitable consideration, or even of an injunctive relief that would issue under Rule 58 of the Rules
of Court. Hence, the issuance of the order constituted a blatant jurisdictional error that needed to be excised. Verily, a jurisdictional
error is one by which the act complained of was issued by the court without or in excess of jurisdiction. 36Without jurisdiction means
that the court acted with absolute want of jurisdiction. Excess of jurisdiction means that the court has jurisdiction but has
transcended the same or acted without any statutory authority.
Although the RTC undoubtedly had jurisdiction to hear and decide the principal action for specific performance as well as to act on
the motions submitted to it in the course of the proceedings, the distinction between jurisdiction over the case and jurisdiction to
issue an interlocutory order as an ancillary remedy incident to the principal action should be discerned. We have frequently declared
that a court may have jurisdiction over the principal action but may nevertheless act irregularly or in excess of its jurisdiction in the
course of its proceedings by the granting of an auxiliary remedy. In Leung Ben v. O'Brien, for instance, this Court has thus clarified:
It may be observed in this connection that the word "jurisdiction" as used in attachment cases, has reference not only to the
authority of the court to entertain the principal action but also to its authority to issue the attachment, as dependent upon the
existence of the statutory ground. (6 C. J., 89.) This distinction between jurisdiction to issue the attachment as an ancillary remedy
incident to the principal litigation is of importance; as a court's jurisdiction over the main action may be complete, and yet it may
lack authority to grant an attachment as ancillary to such action. This distinction between jurisdiction over the ancillary has been
recognized by this court in connection with actions involving the appointment of a receiver. Thus in Rocha & Co. vs. Crossfield and
Figueras (6 Phil. Rep., 355), a receiver had been appointed without legal justification. It was held that the order making the
appointment was beyond the jurisdiction of the court; and though the court admittedly had jurisdiction of the main cause, the order
was vacated by this court upon application a writ of certiorari. (See Blanco vs. Ambler, 3 Phil. Rep., 358, Blanco vs. Ambler and
McMicking 3 Phil. Rep., 735, Yangco vs. Rohde, 1 Phil. Rep., 404.)
By parity of reasoning it must follow that when a court issues a writ of attachment for which there is no statutory authority, it is
acting irregularly and in excess of its jurisdiction, in the sense necessary to justify the Supreme Court in granting relief by the writ
of certiorari
1186 – CONSTRUCTIVE FULFILLMENT
TAYAG v. CA
219 S 480
FACTS
The deed of conveyance executed on May 28, 1975 by Juan Galicia, Sr., prior to his demise in 1979, and Celerina Labuguin, in
favor of Albrigido Leyva involving the undivided one-half portion of a piece of land situated at Poblacion, Guimba, Nueva Ecija for
the sum of P50,000.00 under the following terms:
1. The sum of PESOS: THREE THOUSAND (P3,000.00) is HEREBY acknowledged to have been paid upon the
execution of this agreement;
217
2. The sum of PESOS: TEN THOUSAND (P10,000.00) shall be paid within ten (10) days from and after the
execution of this agreement;
3. The sum of PESOS: TEN THOUSAND (P10,000.00) represents the VENDORS' indebtedness with the Philippine
Veterans Bank which is hereby assumed by the VENDEE; and
4. The balance of PESOS: TWENTY SEVEN THOUSAND (P27,000.00.) shall be paid within one (1) year from and
after the execution of this instrument.
is the subject matter of the present litigation between the heirs of Juan Galicia, Sr. who assert breach of the conditions as against
private respondent's claim anchored on full payment and compliance with the stipulations thereof.
The court of origin which tried the suit for specific performance filed by private respondent on account of the herein petitioners'
reluctance to abide by the covenant, ruled in favor of the vendee while respondent court practically agreed with the trial court
except as to the amount to be paid to petitioners and the refund to private respondent are concerned.
There is no dispute that the sum of P3,000.00 listed as first installment was received by Juan Galicia, Sr. According to petitioners, of
the P10,000.00 to be paid within ten days from execution of the instrument, only P9,707.00 was tendered to, and received by,
them on numerous occasions from May 29, 1975, up to November 3, 1979. Concerning private respondent's assumption of the
vendors' obligation to the Philippine Veterans Bank, the vendee paid only the sum of P6,926.41 while the difference the
indebtedness came from Celerina Labuguin. Moreover, petitioners asserted that not a single centavo of the P27, 000.00
representing the remaining balance was paid to them. Because of the apprehension that the heirs of Juan Galicia, Sr. are
disavowing the contract inked by their predecessor, private respondent filed the complaint for specific performance.
In addressing the issue of whether the conditions of the instrument were performed by herein private respondent as vendee, the
Honorable Godofredo Rilloraza, Presiding Judge of Branch 31 of the Regional Trial Court, Third Judicial Region stationed at Guimba,
Nueva Ecija, decided to uphold private respondent's theory on the basis of constructive fulfillment under Article 1186 and estoppel
through acceptance of piecemeal payments in line with Article 1235 of the Civil Code.
Anent the P10,000.00 specified as second installment, the lower court counted against the vendors the candid statement of Josefina
Tayag who sat on the witness stand and made the admission that the check issued as payment thereof was nonetheless paid on a
staggered basis when the check was dishonored. Regarding the third condition, the trial court noted that plaintiff below paid more
than P6,000.00 to the Philippine Veterans Bank but Celerina Labuguin, the sister and co-vendor of Juan Galicia, Sr. paid P3,778.77
which circumstance was construed to be a ploy under Article 1186 of the Civil Code that "prematurely prevented plaintiff from
paying the installment fully" and "for the purpose of withdrawing the title to the lot". The acceptance by petitioners of the various
payments even beyond the periods agreed upon, was perceived by the lower court as tantamount to faithful performance of the
obligation pursuant to Article 1235 of the Civil Code. Furthermore, the trial court noted that private respondent consigned
P18,520.00, an amount sufficient to offset the remaining balance, leaving the sum of P1,315.00 to be credited to private
respondent.
ISSUE
RULING
Insofar as the third item of the contract is concerned, it may be recalled that respondent court applied Article 1186 of the Civil Code
on constructive fulfillment which petitioners claim should not have been appreciated because they are the obligees while
the proviso in point speaks of the obligor. But, petitioners must concede that in a reciprocal obligation like a contract of
purchase, both parties are mutually obligors and also obligees, and any of the contracting parties may, upon non-fulfillment by the
other privy of his part of the prestation, rescind the contract or seek fulfillment (Article 1191, Civil Code). In short, it is puerile for
petitioners to say that they are the only obligees under the contract since they are also bound as obligors to respect the stipulation
in permitting private respondent to assume the loan with the Philippine Veterans Bank which petitioners impeded when they paid
the balance of said loan. As vendors, they are supposed to execute the final deed of sale upon full payment of the balance as
determined hereafter.
218
DEVELOPMENT BANK v. STA. INES MELALE

816 S 425 (LEONEN)
A condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfilment and a debtor loses the right to make use of
the period when a condition is violated, making the obligation immediately demandable.
FACTS
Sometime in 1977, National Galleon Shipping Corporation (Galleon), "formerly known as Galleon Shipping Corporation, was
organized to operate a liner service between the Philippines and its ... trading partners." 8 Galleon's major stockholders were
respondents Sta. Ines Melale Forest Products Corporation (Sta. Ines), Cuenca Investment Corporation (Cuenca Investment),
Universal Holdings Corporation (Universal Holdings), Galleon's President Rodolfo M. Cuenca (Cuenca), Manuel I. Tinio (Tinio), and
the Philippine National Construction Corporation (PNCC).
Galleon experienced financial difficulties and had to take out several loans from different sources such as foreign financial
institutions, its shareholders (Sta. Ines, Cuenca Investment, Universal Holdings, Cuenca, and Tinio), and other entities "with whom
it had ongoing commercial relationships.
DBP guaranteed Galleon's foreign loans. In return, Galleon and its stockholders Sta. Ines, Cuenca Investment, Universal Holdings,
Cuenca, and Tinio, executed a Deed of Undertaking12 on October 10, 1979 and obligated themselves to guarantee DBP's
potential liabilities.
To secure DBP's guarantee, Galleon undertook to secure a first mortgage on its five new vessels and two second-hand
vessels. However, despite the loans extended to it, "[Galleon's] financial condition did not improve."
Cuenca, as Galleon's president, wrote to the members of the Cabinet Standing Committee "for the consideration of a policy decision
to support a liner service."16 Cuenca also wrote then President Ferdinand Marcos and asked for assistance.
On July 21, 1981, President Marcos issued Letter of Instructions No. 1155 18 addressed to the NDC, DBP, and the Maritime
Industry Authority.
On August 10, 1981, pursuant to Letter of Instructions No. 1155, Galleon's stockholders, represented by Cuenca, and NDC, through
its then Chairman of the Board of Directors, Roberto V. Ongpin (Ongpin) entered into a Memorandum of Agreement, where
NDC and Galleon undertook to prepare and sign a share purchase agreement covering 100% of Galleon's equity for
P46,740,755.00. The purchase price was to be paid after five years from the execution of the share purchase agreement. The
share purchase agreement also provided for the release of Sta. Ines, Cuenca, Tinio and Construction Development
Corporation of the Philippines from the personal counter-guarantees they issued in DBP's favor under the Deed of
Undertaking.
The Memorandum of Agreement reads:
KNOW ALL MEN BY THESE PRESENTS:
This Memorandum of Agreement made and entered into this day of August, 1981, at Makati, Metro Manila, Philippines, by and
between the stockholders of Galleon Shipping Corporation listed in Annex A hereof, represented herein by their duly authorized
219
attorney-in-fact, Mr. Rodolfo M. Cuenca (hereinafter called "Sellers") and National Development Company, represented herein by its
Chairman of the Board, Hon. Minister Roberto V. Ongpin (hereinafter called "Buyer").
WITNESSETH: That —
WHEREAS, Sellers and Buyer desire to implement immediately Letter of Instructions No. 1155, dated July 21, 1981, which directs
that Buyer acquire 100% of the shareholdings of Galleon Shipping Corporation ("GSC") from Sellers who are the present owners.
WHEREAS, Sellers have consented to allow Buyer to assume actual control over the management and operations of GSC prior to the
execution of a formal share purchase agreement and the transfer of all the shareholdings of Sellers to Buyer.
NOW, THEREFORE, the parties agree as follows:
1. Within seven (7) days after the signing hereof, Sellers shall take all steps necessary to cause five (5) persons designated by
Buyer to be elected directors of GSC, it being understood that Sellers shall retain the remaining two (2) seats in the GSC board
subject to the condition hereafter stated in clause 7(b).
2. The new board to be created pursuant to clause 1 above shall elect Antonio L. Carpio as Chairman and Chief Executive Officer
and Rodolfo M. Cuenca as President. All other officers will be nominated and appointed by Buyer.
3. As soon as possible, but not more than 60 days after the signing hereof, the parties shall endeavor to prepare and
sign a share purchase agreement covering 100% of the shareholdings of Sellers in GSC to be transferred to Buyer,
i.e. 10,000,000 fully paid common shares of the par value of P1.00 per share and subscription of an additional
100,000,000 common shares of the par value of P1.00 per share of which P36,740,755.00 has been paid, but not yet
issued.
4. Sellers hereby warrant that P46,740,755[.00] had been actually paid to Galleon Shipping Corporation, which amount represents
payment of Sellers for 46,740,755 common shares of said Corporation. This warranty shall be verified by Buyer, the results of which
will determine the final purchase price to be paid to Sellers. The purchase price directed by LOI 1155 to be paid to Sellers shall be
paid after five (5) years from date of the share purchase agreement with no interest cost to buyer.
5. As security for the payment of the aforementioned purchase price, Buyer shall issue to each of the GSC stockholders listed in
Annex A a negotiable promissory note in the amount corresponding to the respective paid-up capital in GSC of each of such
stockholders and with maturity on the date of the fifth annual anniversary of the share purchase agreement.
6. Notwithstanding the provisions of clauses 4 and 5 above, upon the signing of the share purchase agreement, it is understood
that Sellers shall deliver to Buyer all the stock certificates covering 10,000,000 common shares of GSC, and duly and validly
endorsed for transfer, free from any and all Hens and encumbrances whatsoever. It is likewise understood that Buyer shall at that
time acquire all the subscription rights to 100,000,000 common shares of which P36,740,755.00 has been paid by Sellers, and shall
assume the obligation to pay the unpaid portion of such subscription.
7. The stock purchase agreement to be prepared and signed by the parties within sixty (60) days from date hereof shall contain,
among other things:
(a) standard warranties of seller including, but not limited to, warranties pertaining to the accuracy of financial and other
statements of GSC; disclosure of liabilities; payment of all taxes, duties, licenses and fees; non-encumbrance of corporate
assets; valid contracts with third parties, etc. including an indemnity clause covering any breach thereof.
(b) provisions that Buyer shall retain 2 representatives of Sellers in the board of GSC only for as long as Sellers have not been
paid, or have not negotiated or discounted any of the promissory notes referred to in clause 5 above.
(c) provisions whereby Construction Development Corporation of the Philippines, Sta. Ines Melale Forest Products Corporation,
Mr. Rodolfo M. Cuenca and Mr. Manuel I. Tinio shall be released from counter-guarantees they have issued in favor of DBP
and other financial institutions in connection with GSC's various credit accommodations.
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(d) provisions for arbitration as a means of settling disputes and differences of opinion regarding the stock purchase
agreement.
8. Sellers hereby make a special warranty that:
(a) any and all liabilities and obligations as disclosed in the financial statements of Galleon Shipping Corporation are valid,
regular, normal and incurred in the ordinary course of business of Galleon Shipping Corporation, and Buyer will verify this
warranty and conduct an audit of Galleon Shipping Corporation as of March 31 and July 31, 1981; liabilities that do not fall
under the above definition are to be for the account of the Seller; and
(b) from July 31, 1981 to the date of the election of Buyers' representatives to the Board of GSC, GSC has not and shall not
enter into any contract and has not and shall not incur any liability except what is normal and usual in the ordinary course
of shipping business.
9. Valid and duly authorized liabilities of GSC which are the subject of a meritorious lawsuit, or which have been
arranged and guaranteed by Mr. Rodolfo M. Cuenca, may be considered by Buyer for priority in the repayment of
accounts, provided that, upon review, the Buyer shall determine these to be legitimate and were validly incurred
in the ordinary course of GSC's principal business.
Acting as Galleon's guarantor, DBP paid off Galleon's debts to its foreign bank creditor and, on January 25, 1982, pursuant to the
Deed of Undertaking, Galleon executed a mortgage contract26 over seven of its vessels in favor of DBP.
NDC took over Galleon's operations "even prior to the signing of a share purchase agreement." 27 However, despite NDC's takeover,
the share purchase agreement was never formally executed. 28
On February 10, 1982, or barely seven months from the issuance of Letter of Instructions No. 1155, President Marcos issued Letter
of Instructions No. 1195.
On April 22, 1985, respondents Sta. Ines, Cuenca, Tinio, Cuenca Investment and Universal Holdings filed a Complaint with
Application for the Issuance of a Temporary Restraining Order or Writ of Preliminary Injunction. The Complaint was amended
several times to implead new parties and to include new claims/counterclaims.
In their Complaint, Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings alleged that NDC, "without paying a single
centavo, took over the complete, total, and absolute ownership, management, control, and operation of defendant [Galleon] and all
its assets, even prior to the formality of signing a share purchase agreement, which was held in abeyance because the defendant
NDC was verifying and confirming the amounts paid by plaintiffs to Galleon, and certain liabilities of Galleon to plaintiffs.
Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings also alleged that NDC tried to delay 'the formal signing of the
share purchase agreement in order to interrupt the running of the 5-year period to pay ... the purchase of the shares in the amount
of P46,740,755[.00] and the execution of the negotiable promissory notes to secure payment.
As for DBP, Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings claimed that "DBP can no longer go after [them]
for any deficiency judgment [since] NDC had been subrogated [in their place] as borrower[s], hence the Deed of Undertaking
between [Sta. Ines, Cuenca Investment, Universal Holdings, Cuenca, and Tinio and DBP] had been extinguished and novated[.]"
Meanwhile, on December 8, 1986, Proclamation No. 50 created the Asset Privatization Trust. The Asset Privatization Trust was
tasked to "take title to and possession of, conserve, provisionally manage and dispose of, assets which have been identified for
privatization or disposition and transferred to the TI-List for [that] purpose."
Under Administrative Order No. 14 issued by then President Corazon C. Aquino, certain assets of DBP, which included Galleon's
loan accounts, "were identified for transfer to the National Government."
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On February 27, 1987, a Deed of Transfer was executed providing for the transfer of the Galleon loan account from DBP to the
National Government. The Asset Privatization Trust was "constituted as [the National Government's] trustee over the transferred
accounts and assets.
ISSUE
Whether the execution of the share purchase agreement should be considered fulfilled with NDC as the new owner of 100% of
Galleon's shares of stocks despite the non-execution of the said agreement due to NDC’s delay?
RULING
When the "terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulations shall control."
Bautista v. Court of Appeals instructs that where the language of a contract is plain and unambiguous, the contract must be taken
at its face value, thus:
The rule is that where the language of a contract is plain and unambiguous, its meaning should be determined without reference to
extrinsic facts or aids. The intention of the parties must be gathered from that language, and from that language alone. Stated
differently, where the language of a written contract is clear and unambiguous, the contract must be taken to mean that which, on
its face, it purports to mean, unless some good reason can be assigned to show that the words used should be understood in a
different sense. Courts cannot make for the parties better or more equitable agreements than they themselves have been satisfied
to make, or rewrite contracts because they operate harshly or inequitably as to one of the parties, or alter them for the benefit of
one party and to the detriment of the other, or by construction, relieve one of the parties from terms which he voluntarily
consented to, or impose on him those which he did not.
It is not disputed that NDC and respondents Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings executed a
Memorandum of Agreement pursuant to the directives of Letter of Instructions No. 1155.
Under the Memorandum of Agreement, NDC, as the Buyer, undertook to:
a) implement Letter of Instructions No. 1155 and acquire 100% of Galleon's shareholdings;
b) assume actual control over Galleon's management and operations prior to the execution of a formal share purchase
agreement and prior to the transfer to NDC of Galleon's shareholdings;
c) designate five persons to sit in Galleon's Board of Directors;
d) pay Galleon's stockholders the share purchase price after five years from the date of the share purchase agreement;
e) issue each Galleon stockholder a negotiable promissory note with maturity on the date of the fifth annual anniversary of the
share purchase agreement;
f) verify Galleon's special warranty on its liabilities and obligations by conducting an audit; and
g) consider for priority in the repayment of accounts, Galleon's valid and duly authorized liabilities which are the subject of
meritorious lawsuit or which have been arranged and guaranteed by Cuenca.
While respondents, Galleon's stockholders, as the Sellers, undertook to:
a) implement Letter of Instructions No. 1155 by allowing NDC to purchase 100% of their shareholdings;
b) consent for NDC to assume actual control over Galleon's management and operations prior to the execution of a formal
share purchase agreement and prior to the transfer to NDC of Galleon's shareholdings;
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c) elect NDC's designated five persons to Galleon's Board of Directors;
d) warrant that P46,740,755.00 had been actually paid to Galleon, representing payment of 46,740,755 common shares to
Galleon;
e) deliver to NDC, upon signing of the share purchase agreement, 10,000,000 common shares of Galleon, duly and validly
endorsed for transfer, free from any and all liens and encumbrances whatsoever; and
f) make special warranties under clause 8.
As parties to the Memorandum of Agreement, NDC and respondents jointly undertook to:
a) immediately implement Letter of Instructions No. 1155;
b) endeavor to prepare and sign a share purchase agreement covering 100% of Galleon's shareholdings not more than 60 days
after the signing of the Memorandum of Agreement; and
c) incorporate the conditions listed down in clause 7 in the share purchase agreement.
The law is categorical that "various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that
sense which may result from all of them taken jointly."74Fernandez v. Court of Appeals further emphasizes that "[t]he important
task in contract interpretation is always the ascertainment of the intention of the contracting parties and that task is of course to be
discharged by looking to the words they used to project that intention in their contract, all the words not just a particular word or
two, and words in context not words standing alone."
The Court of Appeals found that the Memorandum of Agreement between NDC and Galleon was a perfected contract for NDC to
purchase 100% of Galleon's shareholdings. However, a careful reading of the Memorandum of Agreement shows that what the
parties agreed to was the execution of a share purchase agreement to effect the transfer of 100% of Galleon's shareholdings to
NDC, as seen in clause 3:
3. As soon as possible, but not more than 60 days after the signing hereof, the parties shall endeavor to prepare and sign a share
purchase agreement covering 100% of the shareholdings of Sellers in GSC to be transferred to Buyer, i.e. 10,000,000 fully paid
common shares of the par value of P1.00 per share and subscription of an additional 100,000,000 common shares of the par value
of P1.00 per share of which P36,740,755.00 has been paid, but not yet issued.
The second paragraph of clause 4 likewise makes the execution of a share purchase agreement a condition before the purchase
price can be paid to respondents, since the payment of the purchase price becomes due only after five years from the date of
execution of the share purchase agreement:
4. Sellers hereby warrant that P46,740,755[.00] had been actually paid to Galleon Shipping Corporation, which amount represents
payment of Sellers for 46,740,755 common shares of said Corporation. This warranty shall be verified by Buyer, the results of which
will determine the final purchase price to be paid to Sellers.
The purchase price directed by LOI 1155 to be paid to Sellers shall be paid after five (5) years from date of the share purchase
agreement with no interest cost to buyer.
NDC asserts that the Memorandum of Agreement was only a preliminary agreement between Galleon, represented by Cuenca, and
NDC, represented by Ongpin, for the intended purchase of Galleon's equity pursuant to Letter of Instructions No. 1155, thus:
It merely prescribed the manner, terms and conditions of said purchase. In fact, the [Memorandum of Agreement] provided for a
time frame for the execution of the share purchase agreement which is within sixty (60) days from the signing thereof. By no
means can it be considered as the executing agreement or document for the purchase of the shares.
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NDC's assertion that the Memorandum of Agreement was merely a preliminary agreement that was separate and distinct from the
share purchase agreement, finds support in clause 7 of the Memorandum of Agreement, which lists down the terms and conditions
to be included in the share purchase agreement as follows:
7. The stock purchase agreement to be prepared and signed by the parties within sixty (60) days from date hereof shall contain,
among other things:
(a) standard warranties of seller including, but not limited to, warranties pertaining to the accuracy of financial and other
statements of GSC; disclosure of liabilities; payment of all taxes, duties, licenses and fees; non-encumbrance of corporate
assets; valid contracts with third parties, etc. including an indemnity clause covering any breach thereof.
(b) provisions that Buyer shall retain 2 representatives of Sellers in the board of GSC only for as long as Sellers have not been
paid, or have not negotiated or discounted any of the promissory notes referred to in clause 5 above.
(c) provisions whereby Construction Development Corporation of the Philippines, Sta. Ines Melale Forest Products Corporation,
Mr. Rodolfo M. Cuenca and Mr. Manuel I. Tinio shall be released from counter-guarantees they have issued in favor of DBP
and other financial institutions in connection with GSC's various credit accommodations.
(d) provisions for arbitration as a means of settling disputes and differences of opinion regarding the stock purchase
agreement.
Under clause 7 of the Memorandum of Agreement, NDC and respondents agreed to include in the still-to-be-executed share
purchase agreement, provisions on: (a) standard warranties, including warranties on the accuracy of Galleon's financials, disclosure
of liabilities, etc; (b) the retention of Galleon's representatives in Galleon's board of directors prior to the payment of the share
purchase price; (c) the release of respondents from the counter-guarantees they made in favor of DBP and other financial
institutions in connection with Galleon's various credit accommodations; and (d) arbitration as a means of settling disputes and
differences of opinion regarding the stock purchase agreement.
Taking the provisions of the Memorandum of Agreement as a whole, it is clear that while there was an intention to follow the
directives of Letter of Instructions No. 1155, the transfer of shares from respondents to NDC was to be effected only with the
execution of the share purchase agreement, the terms and conditions of which were laid out in the Memorandum of Agreement.
NDC and the respondents undertook to prepare and sign a share purchase agreement over 100% of respondents' shares in Galleon
not more than sixty days after the signing of the Memorandum of Agreement:
3. As soon as possible, but not more than 60 days after the signing hereof, the parties shall endeavor to prepare and sign a share
purchase agreement covering 100% of the shareholdings of Sellers in GSC to be transferred to Buyer, i.e. 10,000,000 fully paid
common shares of the par value of P1.00 per share and subscription of an additional 100,000,000 common shares of the par value
of P1.00 per share of which P36,740,755.00 has been paid, but not yet issued.
The execution of a share purchase agreement was a condition precedent to the transfer of Galleon's shares to NDC.
However, the Court of Appeals found that the NDC prevented its execution by deliberately delaying its review of Galleon's financial
accounts:
From the foregoing, it is evident that the period for the payment of the purchase price is entirely dependent on the execution of a
share purchase agreement by the parties. The evidence on record, however, show that the defendant-appellant NDC itself
voluntarily prevented the execution of a share purchase agreement when it reneged on its various obligations under the
Memorandum of Agreement. The evidence on record show that the share purchase agreement was not formally executed because
then Minister Roberto Ongpin claimed that the accounts of defendant Galleon had to be reviewed and cleared up before the share
purchase agreement is signed. While defendant Galleon made its financial records available to defendant-appellant NDC for their
review, the latter never made any serious effort to review the financial accounts of the defendant Galleon, hence, effectively
preventing the execution of the share purchase agreement. Consequently, the condition for the running of the period for
the payment of the purchase price of the shares of stocks in defendant Galleon by the defendant-appellant
NDC, i.e., the execution of the Share Purchase Agreement, was deemed fulfilled as it was the defendant-appellant
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NDC itself which prevented it from happening. Under Article 1186 of the Civil Code, a "condition shall be deemed fulfilled
when the obligor voluntarily prevents its fulfilment." This applies in the instant case.
The Regional Trial Court likewise found that respondent Cuenca, as Galleon's representative, initiated moves for the preparation and
execution of the share purchase agreement and NDC's takeover of Galleon. 80 Nonetheless, despite Cuenca's efforts, the share
purchase agreement was never formally executed:
Assuming that the share purchase agreement was a condition for the effectivity of the Memorandum of Agreement (dated 10
August 1981), said condition is deemed fulfilled by virtue of Art. 1186 of the Civil Code, which provides that " the condition shall be
deemed fulfilled when the obligor voluntarily prevents its fulfillment. " Plaintiff Cuenca, as representative of the former shareholders
of defendant Galleon, in order to clear up the accounts preparatory to the execution of the share purchase agreement, created a
team to prepare a statement of defendant Galleon's outstanding accounts which statement of account was intended to be included
as part of the annexes of the said share purchase agreement. Another team with representatives from both parties, that is, the
former stockholders of defendant Galleon and defendant NDC, had to be created for a smoother turnover. However, despite said
efforts done by plaintiff Cuenca the share purchase agreement was not formally executed
NDC denies that it caused the delay in the execution of the share purchase agreement and argues that it was Cuenca who caused
the delay for insisting on the payment first of the advances made in Galleon's favor before executing the share purchase agreement
and relinquishing control over Galleon.
NDC's bare denials cannot succeed in light of the preponderance of evidence submitted by respondents.
In his Affidavit dated June 17, 1999, Cuenca narrated the preparations the Galleon stockholders undertook for the execution of the
share purchase agreement with NDC:
What happened to the share purchase agreement referred to in the Memorandum of Agreement dated August
168. Q :
1981 (Exhibit "J")?
The share purchase agreement was never drawn up despite persistent attempts by myself to see it prepared and
A :
executed. In fact, we continually negotiated with NDC and DBP throughout 1982 and 1983 on the matter.
169. Q : Why was it never executed?
Minister Ongpin kept claiming that the accounts had to be cleared up before any formal agreement could be
A :
signed.
What steps, if any, did the parties take to clear up the accounts preparatory to the signing of the share purchase
170. Q :
agreement?
During the transition period, prior to the signing of the share purchase agreement, I created a team to prepare a
statement of Galleon's outstanding accounts which we intended to include as part of the annexes of the share
purchase agreement. Another team with representatives from both parties, i.e., the former stockholders of Galleon
A :
and NDC, had to be created for a smoother turn-over. In short, we did all that was possible and required of us
under the Memorandum of Agreement. We negotiated with NDC in good faith for years but NDC kept stonewalling
the execution of the share purchase agreement. 84 (Emphasis supplied)
On April 26, 1982, Antonio L. Carpio, NDC's General Manager, sent Ongpin a Memorandum,86 where Carpio acknowledged reviewing
Galleon's outstanding accounts submitted by Cuenca. This supports Cuenca's statement that they submitted a statement of
Galleon's outstanding accounts for NDC's review, as per Ongpin's request, a fact not denied by NDC.
Upon receiving Galleon's outstanding accounts, NDC and Sta. Ines, Cuenca, Tinio, Cuenca Investment and Universal Holdings
should have initiated the execution of the share purchase agreement. However, the share purchase agreement was never executed,
through no fault of Galleon's stockholders.
In clause 4 of the Memorandum of Agreement, NDC as the buyer was to verify the warranty of the Galleon shareholders that
P46,740,755.00 was paid for Galleon's 46,740,755 common shares with par value of P1.00 per share. The results of the verification
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would have determined the final purchase price to be paid to the Galleon shareholders. Nonetheless, despite the verification still to
be done, both parties agreed to execute the share purchase agreement as soon as possible but not more than sixty days from the
signing of the Memorandum of Agreement.
We uphold the Court of Appeals' finding that the failure to execute the share purchase agreement was brought about by NDC's
delay in reviewing the financial accounts submitted by Galleon's stockholders. The Memorandum of Agreement was executed on
August 10, 1981, giving the parties no more than sixty days or up to October 9, 1981, to prepare and sign the share purchase
agreement. However, it was only on April 26, 1982, or more than eight months after the Memorandum of Agreement was signed,
did NDC's General Director submit his recommendation on Galleon's outstanding account. Even then, there was no clear intention to
execute a share purchase agreement as compliance with the Memorandum of Agreement. Article 1186 of the Civil Code is
categorical that a "condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfilment."
Considering NDC's delay, the execution of the share purchase agreement should be considered fulfilled with NDC as the new owner
of 100% of Galleon's shares of stocks.
The due execution of the share purchase agreement is further bolstered by Article 1198(4) of the Civil Code, which states that the
debtor loses the right to make use of the period when a condition is violated, making the obligation immediately demandable:
Article 1198. The debtor shall lose every right to make use of the period:
(1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt;
(2) When he does not furnish to the creditor the guaranties or securities which he has promised;
(3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous
event they disappear, unless he immediately gives new ones equally satisfactory;
(4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the period;
(5) When the debtor attempts to abscond.
Well-settled is the rule that findings of fact made by a trial court and the Court of Appeals are accorded the highest degree of
respect by this Court, and, absent a clear disregard of the evidence before it that can otherwise affect the results of the case, those
findings should not be ignored.
Villamil v. Spouses Erguiza

June 20, 2018
FACTS
On 6 February 2003, petitioner Lily Villamil (petitioner) filed a Complaint for recovery of possession and damages against
respondent-spouses Juanito and Mila Erguiza (respondent-spouses) before the Municipal Trial Court in Cities (MTCC) of Dagupan
City. The complaint alleges, among others, the following:
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2. Plaintiff is the absolute and exclusive owner of that certain parcel of land more particularly described as follows:
''A parcel of land (Lot 3371-C) of the subdivision plan (LRC) Psd-111002, being a portion of Lot 3371 Dagupan Cadastre, LRC Cad.
Record No. 925, situated in the District of Pantal, City of Dagupan, Island of Luzon, x x x containing an area or one hundred ninety-
one (191) square meters, more or less. Covered by Transfer Certificate Title No. 31225 with assessed value of P2,290.00 under Tax
Declaration No. 221092."
A copy of Transfer Certificate of Title No. 31225 and Tax Declaration No. 221092 are hereto attached and marked as Annexes "A"
and "B," respectively;
3. Previously, said parcel of land was covered by Transfer Certificate of Title No. 23988 registered under the names of plaintiff
Corazon Villamil, Efren Villamil, Teddy Villamil, Florencio Villamil, Rodrigo Villamil, Nicasio Villamil, John Villamil, Marcelina Villamil
and Feliciano Villamil, all related. Copy of Transfer Certificate of title No. 23988 is hereto attached as Annex "C";
4. On 20 September 1972, plaintiff together with her deceased sister, Corazon Villamil, and deceased brother, Teddy Villamil,
entered into an agreement with Juanito Erguiza for the purpose of selling the above-described property to the latter subject to the
condition that plaintiff and her siblings would file a petition to secure authorization for minor children from the proper courts.
Likewise, that in case of failure of the plaintiff and her siblings to obtain said authority, the partial payment made by the defendant
Juanito Erguiza shall be applied as rent for twenty (20) years of the premises. A copy of the agreement is hereto attached as Annex
"D";
5. During the course of time, TCT No. 23988 was cancelled and TCT No. 30049 was issued by virtue of a quitclaim executed by
Corazon Villamil and her children in favor of the plaintiff. Likewise, TCT No. 30049 was cancelled and TCT No. 31125 (Annex "A")
was issued by virtue of a Deed of Sale executed by Efren Villamil and Teddy Villamil in favor of the plaintiff. Copies of TCT No.
30049 are hereto attached and marked as Annex "E";
6. Plaintiff has been paying religiously the real estate taxes due on said property;
7. Sometime in 1992 or after the lapse of twenty (20) years and the expiration of the twenty (20) years lease, plaintiff demanded
from the defendants to return possession of the property but the latter failed and refused, and still fails (sic) and refuses (sic) to
return possession of the property to the damage and prejudice of the plaintiff;
8. The continued occupation by the defendants of the property is by mere tolerance of the plaintiff and has been staying thereon
without paying any rent to the plaintiff;
9. On 7 January 2002, plaintiff again demanded from the defendant[s] to return the possession of the property by way of a formal
letter dated December 18, 2001 which was received by the defendant[s] on January 11, 2002. Notwithstanding receipt of said
letter, defendants just ignored the valid pleas of the plaintiff; Annex "F";
10. A period of thirty (30) [days] had lapsed without the said agreement having been enforced, hence, the defendants have lost
whatever rights they have under said agreement;
11. The matter was brought to the Office of the Barangay of Pantal District but no conciliation or settlement was reached between
the parties hence, a certification to file action was issued by said office. A copy of the certification is hereto attached as Annex "G";
The Agreement, which petitioner and respondent-spouses entered into in the sale and purchase of the subject property,
states:
That we, CORAZON G. VILLAMIL, widow, LILY VILLAMIL, married and TEDDY S. VILLAMIL, married, all of legal ages, Filipinos and
residents of Dagupan City, Philippines, for and in consideration of the sum two thousand six hundred fifty seven pesos (P2,657.00),
Philippine currency, to us in hand paid and a receipt of which is hereby acknowledged of JUANITO ERGUIZA, married, of legal age,
227
Filipino and a resident of Dagupan City, Philippines, BY THESE PRESENTS do hereby promise to sell absolutely unto the said Juanito
Erguiza, his heirs or assigns, a parcel of land covered [by] Transfer Certificate of Title No. 23988 of the land records of Dagupan
City, identified as Lot No. 2371, under the following terms and conditions:
1. That the total purchase price of the said land is FIVE THOUSAND ONE HUNDRED FIFTY SEVEN PESOS P5,157.00.
Because of us receiving today the sum of two thousand six hundred and fifty seven pesos (P2,657.00), there is
still a balance of two thousand five hundred pesos (P2,500.00);
2. That because there is still lacking document or that court approval of the sale of the shares of the minor-owners
of parts of this land, the final deed of absolute sale be made and executed upon issuance by the competent
court; that the balance of P2,500.00 will also be given in this stage of execution of this document;
3. In the event however that the petition for the sale of the shares of the minor-owners of the parts of this land is
[disapproved] by the court, the amount of P2,657.00 be considered as lease of the land subject matwr of this
contract for a duration of twenty (20) years.
WITNESS OUR HANDS THIS 29th of September 1972 at Dagupan City, Philippines.
On 26 May 2003, respondent-spouses filed their Answer, which effectively denied the material allegations in petitioner's complaint
and by way of special and affirmative defenses, aver that:
5. That plaintiff has no cause of action.
6. The agreement between the co-heirs of plaintiff and defendants is for the sale on condition of the subject property. A sale even if
conditional transfers ownership to the vendees. And before plaintiff could claim any right, there are certain proceedings which must
first be complied [with]. Defendants did not violate any of the terms and conditions contained in the agreement to which plaintiff is
trying to base her cause of action. It was plaintiff who made sure that the condition contained under the contract to sell will not be
complied with. She caused the execution of documents to violate such rights and it was only now that defendants learned of the
same;
7. That defendants never received a letter coming from the plaintiff regarding the subject property. As a matter of fact, defendants
are trying to enforce the agreement although the conditions contained therein will be left to the sole will of the vendors:
8. That granting arguendo that the plaintiff has the right to damages, such could only be in the form of accrued rentals. x x x 8
ISSUE
Whether the suspensive condition, i.e., judicial approval of the sale of the minor owners' shares, upon which the obligation of the
sellers to execute a deed of sale depends, is fulfilled. Does the petitioner prevented the fulfillment of the suspensive condition
arising the condition constructively fulfilled?
RULING
Principle of constructive fulfillment applies
Article 1186 of the Civil Code reads:
Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.
This provision refers to the constructive fulfillment of a suspensive condition, whose application calls for two requisites, namely:
(a) the intent of the obligor to prevent the fulfillment of the condition, and (b) the actual prevention of the fulfillment. Mere
228
intention of the debtor to prevent the happening of the condition, or to place ineffective obstacles to its compliance, without
actually preventing the fulfillment, is insufficient.
Petitioner and her then co-owners undertook, upon receipt of the down payment from respondent-spouses, the filing of a petition in
court, after which they promised the latter to execute the deed of absolute sale whereupon the latter shall, in turn, pay the entire
balance of the purchase price. The balance of the consideration shall be paid only upon grant of the court's approval and upon
execution of the deed of absolute sale.
Here, there is no doubt that petitioner prevented the fulfillment of the suspensive condition. She herself admitted that they did not
file any petition to seek approval of the court as regards the sale of the shares of the minor owners. In addition, the other co-
owners sold their shares to petitioner such that she was able to consolidate the title in her name. Thus, the condition is deemed
constructively fulfilled, as the intent to prevent fulfillment of the condition and actual prevention thereof were definitely present.
Consequently, it was incumbent upon the sellers to enter into a contract with respondent-spouses for the purchase of the subject
property.
Respondent-spouses' obligation to pay the balance of the purchase price arises only when the court's approval of the sale of the
minor owners' shares shall have been successfully secured, in accordance with Article 1181 of the New Civil Code. Judicial approval
is a condition the operative act of which sets into motion the period of compliance by respondent-spouses of their own obligation,
i.e., to pay the balance of the purchase price. Accordingly, an obligation dependent upon a suspensive condition cannot be
demanded until after the condition takes place because it is only after the fulfillment of the condition that the obligation
arises. Petitioner cannot invoke the non-fulfillment of the condition in the contract to sell when she and her then co-owners
themselves are guilty of preventing the fulfillment of such condition. When it has become evident that the condition would no
longer be fulfilled, it was incumbent upon petitioner to inform respondent-spouses of such circumstance because the choice
whether to waive the condition or continue with the agreement clearly belongs to the latter. Petitioner's claim that respondent-
spouses should have known that the condition would no longer be necessary because the latter knew that the minor owners had
already reached the age of majority and that they should have been more proactive in following up the status of the contract to
sell, deserves scant consideration. While petitioner may have been right in the aforementioned instances, the same will not negate
her obligation to inform respondent-spouses of the non-fulfillment of the condition especially in view of the fact that it was her fault
that the condition became irrelevant and unnecessary.
Parties entered into a contract to sell
A contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the
subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the latter
upon his fulfillment of the conditions agreed upon, i.e., the full payment of the purchase price and/or compliance with the other
obligations stated in the contract to sell. Given its contingent nature, the failure of the prospective buyer to make full payment
and/or abide by his commitments stated in the contract to sell prevents the obligation of the prospective seller to execute the
corresponding deed of sale to effect the transfer of ownership to the buyer from arising. A contract to sell is akin to a
conditional sale where the efficacy or obligatory force of the vendor's obligation to transfer title is subordinated to
the happening of a future and uncertain event, so that if the suspensive condition does not take place, the parties
would stand as if the conditional obligation had never existed. In a contract to sell, the fulfillment of the suspensive
condition will not automatically transfer ownership to the buyer although the property may have been previously delivered to him.
The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute
sale. On the other hand, in a conditional contract of sale, the fulfillment of the suspensive condition renders the sale absolute and
the previous delivery of the property has the effect of automatically transferring the seller's ownership or title to the property to the
buyer.
In Coronel v. Court of Appeals, the Court declared:
The Civil Code defines a contract of sale, thus:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in money or its equivalent.
229
Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The essential elements of a contract of
sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first essential element is lacking.
In a contract to sell, the prospective seller explicity reserves the transfer of title to the prospective buyer, meaning, the prospective
seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an
event, which for present purposes we shall take as the full payment of the purchase price. What the seller agrees or obliges himself
to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other
words the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which
prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further
remedies by the prospective buyer. In Roque vs. Lapuz, this Court had occasion to rule:
Hence, We hold that the contract between the petitioner and the respondent was a contract to sell where the ownership or title is
retained by the seller and is not to pass until the full payment of the price, such payment being a positive suspensive condition
and failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey
title from acquiring binding force.
Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, the prospective
seller's obligation to sell the subject property by entering into a contract of sale with the prospective buyer becomes demandable as
provided in Article 1479 of the Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promisor if the promise is
supported by a consideration distinct from the price.
In this case, the parties entered into an agreement with the following terms and conditions:
That we, CORAZON G. VILLAMIL, widow, LILY VILLAMIL, married and TEDDY S. VILLAMIL, married, all of legal ages, Filipinos and
residents of Dagupan City, Philippines, for and in consideration of the sum two thousand six hundred fifty seven pesos (P2,657.00),
Philippine currency, to us in hand paid and a receipt of which is hereby acknowledged of JUANITO ERGUIZA, married, of legal age,
Filipino and a resident of Dagupan City, Philippines, BY THESE PRESENTS do hereby promise to sell absolutely unto the said
Juanito Erguiza, his heirs or assigns, a parcel of land covered [by] Transfer Certificate of Title No. 23988 of the land records of
Dagupan City, identified as Lot No. 2371, under the following terms and conditions:
6. That the total purchase price of the said land is FIVE THOUSAND ONE HUNDRED FIFTY SEVEN PESOS P5,157.00. Because
of us receiving today the sum of two thousand six hundred and fifty seven pesos (P2,657.00), there is still a balance of two
thousand five hundred pesos (P2,500.00);
7. That because there is still lacking document or that court approval of the sale of the shares of the minor-
owners of parts of this land, the final deed of absolute sale he made and executed upon issuance by the
competent court; that the balance of P2,500.00 will also be given in this stage of execution of this document;
8. In the event however that the petition for the sale of the shares of the minor-owners of the parts of this land is
[disapproved] by the court, the amount of P2,657.00 be considered as lease of the land subject matter of this contract for a
230
duration of twenty (20) years.
WITNESS OUR HANDS THIS 29th of September 1972 at Dagupan City, Philippines.
An examination of the agreement would reveal that the parties entered into a contract to sell the subject property. First, petitioner
and her siblings who were then co-owners merely promised to sell the subject property, thus, signifying their intention to reserve
ownership. Second, the execution of a deed of absolute sale was made dependent upon the proper court's approval of the sale of
the shares of the minor owners. Third, the agreement between the parties was not embodied in a deed of sale. The absence of a
formal deed of conveyance is a strong indication that the parties did not intend immediate transfer of ownership. Fourth, petitioner
retained possession of the certificate of title of the lot. This is an additional indication that the agreement did not transfer to private
respondents, either by actual or constructive delivery, ownership of the property. Finally, respondent Juanito admitted during trial
that they have not finalized the sale in 1972 because there were minor owners such that when they constructed their house
thereon, they sought the permission of petitioner.
1191 – RESOLUTION/RESCISSION
VELARDE V. CA
JULY 11, 2001
A substantial breach of a reciprocal obligation, like failure to pay the price in the manner prescribed by the contract,
entitles the injured party to rescind the obligation. Rescission abrogates the contract from its inception and requires a mutual
restitution of benefits received.
FACTS
David Raymundo [herein private respondent] is the absolute and registered owner of a parcel of land, together with the house and
other improvements thereon, located at 1918 Kamias St., Dasmarinas Village, Makati and covered by TCT No. 142177. Defendant
George Raymundo [herein private respondent] is David’s father who negotiated with plaintiffs Avelina and Mariano Velarde [herein
petitioners] for the sale of said property, which was, however, under lease (Exh. 6, p. 232, Record of Civil Case No. 15952).
On August 8, 1986, a Deed of Sale with Assumption of Mortgage (Exh. A; Exh. 1, pp. 11-12, Record) was executed by
defendant David Raymundo, as vendor, in favor of plaintiff Avelina Velarde, as vendee, with the following terms and conditions:
That for and in consideration of the amount of EIGHT HUNDRED THOUSAND PESOS (P800,000.00), Philippine currency, receipt of
which in full is hereby acknowledged by the VENDOR from the VENDEE, to his entire and complete satisfaction, by these presents
the VENDOR hereby SELLS, CEDES, TRANSFERS, CONVEYS AND DELIVERS, freely and voluntarily, with full warranty of a legal and
valid title as provided by law, unto the VENDEE, her heirs, successors and assigns, the parcel of land mentioned and described
above, together with the house and other improvements thereon.
That the aforesaid parcel of land, together with the house and other improvements thereon, were mortgaged by the VENDOR to the
BANK OF THE PHILIPPINE ISLANDS, Makati, Metro Manila, to secure the payment of a loan of ONE MILLION EIGHT HUNDRED
THOUSAND PESOS (P1,800,000.00), Philippine currency, as evidenced by a Real Estate Mortgage signed and executed by the
VENDOR in favor of the said Bank of the Philippine Islands, on______ and which Real Estate Mortgage was ratified before Notary
Public for Makati, _______, as Doc. No. ____, Page No. ___, Book No. ___, Series of 1986 of his Notarial Register.
That as part of the consideration of this sale, the VENDEE hereby assumes to pay the mortgage obligations on the property herein
sold in the amount of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, in favor of Bank of
the Philippine Islands, in the name of the VENDOR, and further agrees to strictly and faithfully comply with all the terms and
conditions appearing in the Real Estate Mortgage signed and executed by the VENDOR in favor of BPI, including interests and other
charges for late payment levied by the Bank, as if the same were originally signed and executed by the VENDEE.
231
It is further agreed and understood by the parties herein that the capital gains tax and documentary stamps on the sale shall be for
the account of the VENDOR; whereas, the registration fees and transfer tax thereon shall be for the account of the VENDEE. (Exh.
A, pp. 11-12, Record).
On the same date, and as part of the above-document, plaintiff Avelina Velarde, with the consent of her husband, Mariano,
executed an Undertaking (Exh. C, pp. 13-14, Record), the pertinent portions of which read, as follows:
xxx
Whereas, as per Deed of Sale with Assumption of Mortgage, I paid Mr. David A. Raymundo the sum of EIGHT HUNDRED
THOUSAND PESOS (P800,000.00), Philippine currency, and assume the mortgage obligations on the property with the Bank of the
Philippine Islands in the amount of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, in
accordance with the terms and conditions of the Deed of Real Estate Mortgage dated _________, signed and executed by Mr. David
A. Raymundo with the said Bank, acknowledged before Notary Public for Makati, _____, as Doc. No. ___, Page No. ___, Book No.
__, Series of 1986 of his Notarial Register.
WHEREAS, while my application for the assumption of the mortgage obligations on the property is not yet approved by the
mortgagee Bank, I have agreed to pay the mortgage obligations on the property with the Bank in the name of Mr. David A.
Raymundo, in accordance with the terms and conditions of the said Deed of Real Estate Mortgage, including all interests and other
charges for late payment.
WHEREAS, this undertaking is being executed in favor of Mr. David A. Raymundo, for purposes of attesting and confirming our
private understanding concerning the said mortgage obligations to be assumed.
NOW, THEREFORE, for and in consideration of the foregoing premises, and the assumption of the mortgage obligations of ONE
MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, with the Bank of the Philippine islands, I, Mrs.
Avelina D. Velarde, with the consent of my husband, Mariano Z. Velarde, do hereby bind and obligate myself, my heirs, successors
and assigns, to strictly and faithfully comply with the following terms and conditions:
1. That until such time as my assumption of the mortgage obligations on the property purchased is approved by the mortgagee
bank, the Bank of the Philippine Islands, I shall continue to pay the said loan in accordance with the terms and conditions of the
Deed of Real Estate Mortgage in the name of Mr. David A. Raymundo, the original Mortgagor.
2. That, in the event I violate any of the terms and conditions of the said Deed of Real Estate Mortgage, I hereby agree that my
downpayment of P800,000.00, plus all payments made with the Bank of the Philippine Islands on the mortgage loan, shall be
forfeited in favor of Mr. David A. Raymundo, as and by way of liquidated damages, without necessity of notice or any judicial
declaration to that effect, and Mr. David A Raymundo shall resume total and complete ownership and possession of the property
sold by way of Deed of Sale with Assumption of Mortgage, and the same shall be deemed automatically cancelled and be of no
further force or effect, in the same manner as if (the) same had never been executed or entered into.
3. That I am executing this Undertaking for purposes of binding myself, my heirs, successors and assigns, to strictly and faithfully
comply with the terms and conditions of the mortgage obligations with the Bank of the Philippine Islands, and the covenants,
stipulations and provisions of this Undertaking.
That, David A. Raymundo, the vendor of the property mentioned and identified above, [does] hereby confirm and agree to the
undertakings of the Vendee pertinent to the assumption of the mortgage obligations by the Vendee with the Bank of the Philippine
Islands. (Exh. C, pp. 13-14, Record).
This undertaking was signed by Avelina and Mariano Velarde and David Raymundo.
It appears that the negotiated terms for the payment of the balance of P1.8 million was from the proceeds of a loan that plaintiffs
were to secure from a bank with defendants help. Defendants had a standing approved credit line with the Bank of the Philippine
Islands (BPI). The parties agreed to avail of this, subject to BPIs approval of an application for assumption of mortgage by plaintiffs.
232
Pending BPIs approval o[f] the application, plaintiffs were to continue paying the monthly interests of the loan secured by a real
estate mortgage.
Pursuant to said agreements, plaintiffs paid BPI the monthly interest on the loan secured by the aforementioned mortgage for
three (3) months as follows: September 19, 1986 at P27,225.00; October 20, 1986 at P23,000.00; and November 19, 1986
at P23,925.00.
On December 15, 1986, plaintiffs were advised that the Application for Assumption of Mortgage with BPI was not approved (Exh. J,
p. 133, Record). This prompted plaintiffs not to make any further payment.
On January 5, 1987, defendants, thru counsel, wrote plaintiffs informing the latter that their non-payment to the mortgage bank
constitute[d] non-performance of their obligation.
In a Letter dated January 7, 1987, plaintiffs, thru counsel, responded, as follows:
This is to advise you, therefore, that our client is willing to pay the balance in cash not later than January 21, 1987 provided: (a)
you deliver actual possession of the property to her not later than January 15, 1987 for her immediate occupancy; (b) you cause
the release of title and mortgage from the Bank of P.I. and make the title available and free from any liens and encumbrances; and
(c) you execute an absolute deed of sale in her favor free from any liens or encumbrances not later than January 21, 1987.
On January 8, 1987, defendants sent plaintiffs a notarial notice of cancellation/rescission of the intended sale of the subject
property allegedly due to the latters failure to comply with the terms and conditions of the Deed of Sale with Assumption of
Mortgage and the Undertaking (Exh. 5, pp. 225-226, Record). 6cräläwvirtualibräry
Consequently, petitioners filed on February 9, 1987 a Complaint against private respondents for specific performance, nullity of
cancellation, writ of possession and damages. This was docketed as Civil Case No. 15952 at the Regional Trial Court of Makati,
Branch 149.
ISSUE
Is the rescission (resolution) of the contract by private respondents justified?
RULING
Breach of Contract
Petitioners aver that their nonpayment of private respondents mortgage obligation did not constitute a breach of contract,
considering that their request to assume the obligation had been disapproved by the mortgagee bank. Accordingly, payment of the
monthly amortizations ceased to be their obligation and, instead, it devolved upon private respondents again.
However, petitioners did not merely stop paying the mortgage obligations; they also failed to pay the balance of the purchase
price. As admitted by both parties, their agreement mandated that petitioners should pay the purchase price balance of P1.8
million to private respondents in case the request to assume the mortgage would be disapproved. Thus, on December 15, 1986,
when petitioners received notice of the banks disapproval of their application to assume respondents mortgage, they should have
paid the balance of the P1.8 million loan.
Instead of doing so, petitioners sent a letter to private respondents offering to make such payment only upon the fulfillment of
certain conditions not originally agreed upon in the contract of sale. Such conditional offer to pay cannot take the place of actual
payment as would discharge the obligation of a buyer under a contract of sale.
In a contract of sale, the seller obligates itself to transfer the ownership of and deliver a determinate thing, and the buyer to pay
therefor a price certain in money or its equivalent. Private respondents had already performed their obligation through the
execution of the Deed of Sale, which effectively transferred ownership of the property to petitioner through constructive delivery.
Prior physical delivery or possession is not legally required, and the execution of the Deed of Sale is deemed equivalent to delivery.
233
Petitioners, on the other hand, did not perform their correlative obligation of paying the contract price in the manner agreed upon.
Worse, they wanted private respondents to perform obligations beyond those stipulated in the contract before fulfilling their own
obligation to pay the full purchase price.
Validity of the Rescission
Petitioners likewise claim that the rescission of the contract by private respondents was not justified, inasmuch as the former had
signified their willingness to pay the balance of the purchase price only a little over a month from the time they were notified of the
disapproval of their application for assumption of mortgage. Petitioners also aver that the breach of the contract was not substantial
as would warrant a rescission. They cite several cases in which this Court declared that rescission of a contract would not be
permitted for a slight or casual breach. Finally, they argue that they have substantially performed their obligation in good faith,
considering that they have already made the initial payment of P800,000 and three (3) monthly mortgage payments.
As pointed out earlier, the breach committed by petitioners was not so much their nonpayment of the mortgage obligations, as their
nonperformance of their reciprocal obligation to pay the purchase price under the contract of sale. Private respondents right to
rescind the contract finds basis in Article 1191 of the Civil Code, which explicitly provides as follows:
Art. 1191. -- The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission even after he has chosen fulfillment, if the latter should
become impossible.
The right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other
party who violates the reciprocity between them. The breach contemplated in the said provision is the obligors’ failure to comply
with an existing obligation. When the obligor cannot comply with what is incumbent upon it, the obligee may seek rescission and, in
the absence of any just cause for the court to determine the period of compliance, the court shall decree the rescission.
In the present case, private respondents validly exercised their right to rescind the contract, because of the failure of petitioners to
comply with their obligation to pay the balance of the purchase price. Indubitably, the latter violated the very essence of
reciprocity in the contract of sale, a violation that consequently gave rise to private respondents’ right to rescind the same in
accordance with law.
True, petitioners expressed their willingness to pay the balance of the purchase price one month after it became due; however, this
was not equivalent to actual payment as would constitute a faithful compliance of their reciprocal obligation. Moreover, the offer to
pay was conditioned on the performance by private respondents of additional burdens that had not been agreed upon in the
original contract. Thus, it cannot be said that the breach committed by petitioners was merely slight or casual as would preclude the
exercise of the right to rescind.
Misplaced is petitioners reliance on the cases they cited because the factual circumstances in those cases are not analogous to
those in the present one. In Song Fo there was, on the part of the buyer, only a delay of twenty (20) days to pay for the goods
delivered. Moreover, the buyers offer to pay was unconditional and was accepted by the seller. In Zepeda, the breach involved a
mere one-week delay in paying the balance of P1,000, which was actually paid. In Tan, the alleged breach was private respondents
delay of only a few days, which was for the purpose of clearing the title to the property; there was no reference whatsoever to the
nonpayment of the contract price.
In the instant case, the breach committed did not merely consist of a slight delay in payment or an irregularity; such breach would
not normally defeat the intention of the parties to the contract. Here, petitioners not only failed to pay the P1.8 million balance, but
they also imposed upon private respondents new obligations as preconditions to the performance of their own obligation. In effect,
the qualified offer to pay was a repudiation of an existing obligation, which was legally due and demandable under the contract of
sale. Hence, private respondents were left with the legal option of seeking rescission to protect their own interest.
Mutual Restitution Required in Rescission
234
As discussed earlier, the breach committed by petitioners was the nonperformance of a reciprocal obligation, not a violation of the
terms and conditions of the mortgage contract. Therefore, the automatic rescission and forfeiture of payment clauses stipulated in
the contract does not apply. Instead, Civil Code provisions shall govern and regulate the resolution of this controversy.
Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mutual restitution is required to bring back
the parties to their original situation prior to the inception of the contract. Accordingly, the initial payment of P800,000 and the
corresponding mortgage payments in the amounts of P27,225, P23,000 and P23,925 (totaling P874,150.00) advanced by petitioners
should be returned by private respondents, lest the latter unjustly enrich themselves at the expense of the former.
Rescission creates the obligation to return the object of the contract. It can be carried out only when the one who demands
rescission can return whatever he may be obliged to restore. To rescind is to declare a contract void at its inception and to put an
end to it as though it never was. It is not merely to terminate it and release the parties from further obligations to each other, but
to abrogate it from the beginning and restore the parties to their relative positions as if no contract has been made.
CANNU V. GALANG
459 S 80
FACTS
Respondents-spouses Gil and Fernandina Galang obtained a loan from Fortune Savings & Loan Association for P173,800.00 to
purchase a house and lot located at Pulang Lupa, Las PiÃ±as, with an area of 150 square meters covered by Transfer
Certificate of Title (TCT) No. T-8505 in the names of respondents-spouses. To secure payment, a real estate mortgage was
constituted on the said house and lot in favor of Fortune Savings & Loan Association. In early 1990, NHMFC purchased the
mortgage loan of respondents-spouses from Fortune Savings & Loan Association for P173,800.00.
Respondent Fernandina Galang authorized4 her attorney-in-fact, Adelina R. Timbang, to sell the subject house and lot.
Petitioner Leticia Cannu agreed to buy the property for P120,000.00 and to assume the balance of the mortgage obligations with
the NHMFC and with CERF Realty5 (the Developer of the property).
Of the P120,000.00, the following payments were made by petitioners:
Date Amount Paid

July 19, 1990 P40,000.006
March 13, 1991 15,000.007
April 6, 1991 15,000.00
November 28, 1991 5,000.00
Total P75,000.00
Thus, leaving a balance of P45,000.00.
A Deed of Sale with Assumption of Mortgage Obligation dated 20 August 1990 was made and entered into by and between
spouses Fernandina and Gil Galang (vendors) and spouses Leticia and Felipe Cannu (vendees) over the house and lot in question
which contains, inter alia, the following:
NOW, THEREFORE, for and in consideration of the sum of TWO HUNDRED FIFTY THOUSAND PESOS (P250,000.00), Philippine
Currency, receipt of which is hereby acknowledged by the Vendors and the assumption of the mortgage obligation, the Vendors
hereby sell, cede and transfer unto the Vendees, their heirs, assigns and successor in interest the above-described property
together with the existing improvement thereon.
235
It is a special condition of this contract that the Vendees shall assume and continue with the payment of the amortization with the
National Home Mortgage Finance Corporation Inc. in the outstanding balance of P_______________, as of __________ and shall
comply with and abide by the terms and conditions of the mortgage document dated Feb. 27, 1989 and identified as Doc. No. 82,
Page 18, Book VII, S. of 1989 of Notary Public for Quezon City Marites Sto. Tomas Alonzo, as if the Vendees are the original
signatories.
Petitioners immediately took possession and occupied the house and lot.
Petitioners made the following payments to the NHMFC:
Date Amount Receipt No.

July 9, 1990 P 14,312.47 D-503986
March 12, 1991 8,000.00 D-729478
February 4, 1992 10,000.00 D-999127
March 31, 1993 6,000.00 E-563749
April 19, 1993 10,000.00 E-58243
April 27, 1993 7,000.00 E-618326
P 55,312.47
Petitioners paid the "equity" or second mortgage to CERF Realty.
Despite requests from Adelina R. Timbang and Fernandina Galang to pay the balance of P45,000.00 or in the alternative to vacate
the property in question, petitioners refused to do so.
In a letter dated 29 March 1993, petitioner Leticia Cannu informed Mr. Fermin T. Arzaga, Vice President, Fund Management Group
of the NHMFC, that the ownership rights over the land covered by TCT No. T-8505 in the names of respondents-spouses had been
ceded and transferred to her and her husband per Deed of Sale with Assumption of Mortgage, and that they were obligated to
assume the mortgage and pay the remaining unpaid loan balance. Petitioners' formal assumption of mortgage was not approved by
the NHMFC.
Because the Cannus failed to fully comply with their obligations, respondent Fernandina Galang, on 21 May 1993, paid P233,957.64
as full payment of her remaining mortgage loan with NHMFC.
Petitioners opposed the release of TCT No. T-8505 in favor of respondents-spouses insisting that the subject property had already
been sold to them. Consequently, the NHMFC held in abeyance the release of said TCT.
Thereupon, a Complaint for Specific Performance and Damages was filed asking, among other things, that petitioners (plaintiffs
therein) be declared the owners of the property involved subject to reimbursements of the amount made by respondents-spouses
(defendants therein) in preterminating the mortgage loan with NHMFC.
Respondent NHMFC filed its Answer. It claimed that petitioners have no cause of action against it because they have not submitted
the formal requirements to be considered assignees and successors-in-interest of the property under litigation.
In their Answer, respondents-spouses alleged that because of petitioners-spouses' failure to fully pay the consideration and to
update the monthly amortizations with the NHMFC, they paid in full the existing obligations with NHMFC as an initial step in the
rescission and annulment of the Deed of Sale with Assumption of Mortgage. In their counterclaim, they maintain that the acts of
petitioners in not fully complying with their obligations give rise to rescission of the Deed of Sale with Assumption of Mortgage
with the corresponding damages.
ISSUE Does the breach of the obligation committed by petitioner spouses Cannu substantial? Did respondents waived their right to
rescind?
236
RULING
On the first assigned error, petitioners argue that the Court erred when it ruled that their breach of the obligation
was substantial.
Settled is the rule that rescission or, more accurately, resolution, of a party to an obligation under Article 1191 is predicated on a
breach of faith by the other party that violates the reciprocity between them. Article 1191 reads:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
Rescission will not be permitted for a slight or casual breach of the contract. Rescission may be had only for such breaches that are
substantial and fundamental as to defeat the object of the parties in making the agreement. The question of whether a breach of
contract is substantial depends upon the attending circumstances and not merely on the percentage of the amount not paid.
In the case at bar, we find petitioners' failure to pay the remaining balance of P45,000.00 to be substantial. Even
assuming arguendo that only said amount was left out of the supposed consideration of P250,000.00, or eighteen (18%) percent
thereof, this percentage is still substantial. Taken together with the fact that the last payment made was on 28 November 1991,
eighteen months before the respondent Fernandina Galang paid the outstanding balance of the mortgage loan with NHMFC, the
intention of petitioners to renege on their obligation is utterly clear.
Citing Massive Construction, Inc. v. Intermediate Appellate Court , petitioners ask that they be granted additional time to complete
their obligation. Under the facts of the case, to give petitioners additional time to comply with their obligation will be putting
premium on their blatant non-compliance of their obligation. They had all the time to do what was required of them ( i.e., pay the
P45,000.00 balance and to properly assume the mortgage loan with the NHMFC), but still they failed to comply. Despite demands
for them to pay the balance, no payments were made.
The fact that petitioners tendered a Manager's Check to respondents-spouses Galang in the amount of P278,957.00 seven months
after the filing of this case is of no moment. Tender of payment does not by itself produce legal payment, unless it is completed by
consignation. Their failure to fulfill their obligation gave the respondents-spouses Galang the right to rescission.
II.
We likewise rule that there was no waiver on the part of petitioners to demand the rescission of the Deed of Sale with
Assumption of Mortgage. The fact that respondents-spouses accepted, through their attorney-in-fact, payments in installments
does not constitute waiver on their part to exercise their right to rescind the Deed of Sale with Assumption of Mortgage. Adelina
Timbang merely accepted the installment payments as an accommodation to petitioners since they kept on promising they would
pay. However, after the lapse of considerable time (18 months from last payment) and the purchase price was not yet fully paid,
respondents-spouses exercised their right of rescission when they paid the outstanding balance of the mortgage loan with NHMFC.
It was only after petitioners stopped paying that respondents-spouses moved to exercise their right of rescission.
Petitioners cite the case of Angeles v. Calasanz to support their claim that respondents-spouses waived their right to rescind. We
cannot apply this case since it is not on all fours with the case before us. First, in Angeles, the breach was only slight and casual
which is not true in the case before us. Second, in Angeles, the buyer had already paid more than the principal obligation, while in
the instant case, the buyers (petitioners) did not pay P45,000.00 of the P120,000.00 they were obligated to pay.
237
We find petitioners' statement that there is no evidence of prejudice or damage to justify rescission in favor of respondents-spouses
to be unfounded. The damage suffered by respondents-spouses is the effect of petitioners' failure to fully comply with their
obligation, that is, their failure to pay the remaining P45,000.00 and to update the amortizations on the mortgage loan with the
NHMFC. Petitioners have in their possession the property under litigation. Having parted with their house and lot, respondents-
spouses should be fully compensated for it, not only monetarily, but also as to the terms and conditions agreed upon by the parties.
This did not happen in the case before us.
Citing Seva v. Berwin & Co., Inc., petitioners argue that no rescission should be decreed because there is no evidence on record
that respondent Fernandina Galang is ready, willing and able to comply with her own obligation to restore to them the total
payments they made. They added that no allegation to that effect is contained in respondents-spouses' Answer.
We find this argument to be misleading.
First, the facts obtaining in Seva case do not fall squarely with the case on hand. In the former, the failure of one party to perform
his obligation was the fault of the other party, while in the case on hand, failure on the part of petitioners to perform their
obligation was due to their own fault.
Second, what is stated in the book of Justice Edgardo L. Paras is "[i]t (referring to the right to rescind or resolve) can be demanded
only if the plaintiff is ready, willing and able to comply with his own obligation, and the other is not." In other words, if one party
has complied or fulfilled his obligation, and the other has not, then the former can exercise his right to rescind. In this case,
respondents-spouses complied with their obligation when they gave the possession of the property in question to petitioners. Thus,
they have the right to ask for the rescission of the Deed of Sale with Assumption of Mortgage.
III.
On the fourth assigned error, petitioners, relying on Article 1383 of the Civil Code, maintain that the Court of
Appeals erred when it failed to consider that the action for rescission is subsidiary.
Their reliance on Article 1383 is misplaced.
The subsidiary character of the action for rescission applies to contracts enumerated in Articles 1381 of the Civil Code. The contract
involved in the case before us is not one of those mentioned therein. The provision that applies in the case at bar is Article 1191.
In the concurring opinion of Justice Jose B.L. Reyes in Universal Food Corp. v. Court of Appeals , rescission under Article 1191 was
distinguished from rescission under Article 1381. Justice J.B.L. Reyes said:
. . . The rescission on account of breach of stipulations is not predicated on injury to economic interests of the party plaintiff but on
the breach of faith by the defendant, that violates the reciprocity between the parties. It is not a subsidiary action, and Article 1191
may be scanned without disclosing anywhere that the action for rescission thereunder is subordinated to anything other than the
culpable breach of his obligations by the defendant. This rescission is a principal action retaliatory in character, it being
unjust that a party be held bound to fulfill his promises when the other violates his. As expressed in the old Latin
aphorism: "Non servanti fidem, non est fides servanda." Hence, the reparation of damages for the breach is purely secondary.
On the contrary, in the rescission by reason of lesion or economic prejudice, the cause of action is subordinated to the existence of
that prejudice, because it is the raison d Ãªtre as well as the measure of the right to rescind. Hence, where the defendant makes
good the damages caused, the action cannot be maintained or continued, as expressly provided in Articles 1383 and 1384. But the
operation of these two articles is limited to the cases of rescission for lesion enumerated in Article 1381 of the Civil Code of the
Philippines, and does not apply to cases under Article 1191.
From the foregoing, it is clear that rescission ("resolution" in the Old Civil Code) under Article 1191 is a principal action, while
rescission under Article 1383 is a subsidiary action. The former is based on breach by the other party that violates the reciprocity
between the parties, while the latter is not.
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In the case at bar, the reciprocity between the parties was violated when petitioners failed to fully pay the balance of P45,000.00 to
respondents-spouses and their failure to update their amortizations with the NHMFC.
Petitioners maintain that inasmuch as respondents-spouses Galang were not granted the right to unilaterally rescind the sale under
the Deed of Sale with Assumption of Mortgage, they should have first asked the court for the rescission thereof before they fully
paid the outstanding balance of the mortgage loan with the NHMFC. They claim that such payment is a unilateral act of rescission
which violates existing jurisprudence.
In Tan v. Court of Appeals, this court said:
. . . [T]he power to rescind obligations is implied in reciprocal ones in case one of the obligors should not comply with what is
incumbent upon him is clear from a reading of the Civil Code provisions. However, it is equally settled that, in the absence of a
stipulation to the contrary, this power must be invoked judicially; it cannot be exercised solely on a party's own judgment that the
other has committed a breach of the obligation. Where there is nothing in the contract empowering the petitioner to rescind it
without resort to the courts, the petitioner's action in unilaterally terminating the contract in this case is unjustified.
IV.
It is evident that the contract under consideration does not contain a provision authorizing its extrajudicial
rescission in case one of the parties fails to comply with what is incumbent upon him. This being the case, respondents-
spouses should have asked for judicial intervention to obtain a judicial declaration of rescission. Be that as it may, and considering
that respondents-spouses' Answer (with affirmative defenses) with Counterclaim seeks for the rescission of the Deed of Sale with
Assumption of Mortgage, it behooves the court to settle the matter once and for all than to have the case re-litigated again on an
issue already heard on the merits and which this court has already taken cognizance of. Having found that petitioners seriously
breached the contract, we, therefore, declare the same is rescinded in favor of respondents-spouses.
As a consequence of the rescission or, more accurately, resolution of the Deed of Sale with Assumption of Mortgage, it is the duty
of the court to require the parties to surrender whatever they may have received from the other. The parties should be restored to
their original situation.
The record shows petitioners paid respondents-spouses the amount of P75,000.00 out of the P120,000.00 agreed upon. They also
made payments to NHMFC amounting to P55,312.47. As to the petitioners' alleged payment to CERF Realty of P46,616.70, except
for petitioner Leticia Cannu's bare allegation, we find the same not to be supported by competent evidence. As a general rule, one
who pleads payment has the burden of proving it.52 However, since it has been admitted in respondents-spouses' Answer that
petitioners shall assume the second mortgage with CERF Realty in the amount of P35,000.00, and that Adelina Timbang,
respondents-spouses' very own witness, testified53 that same has been paid, it is but proper to return this amount to petitioners.
The three amounts total P165,312.47 - - the sum to be returned to petitioners.
FOREST HILLS v. VERTEX SALES

692 S 707
FACTS
Petitioner Forest Hills Golf & Country Club (Forest Hills) is a domestic non-profit stock corporation that operates and maintains
a golf and country club facility in Antipolo City. Forest Hills was created as a result of a joint venture agreement between Kings
Properties Corporation (Kings) and Fil-Estate Golf and Development, Inc. (FEGDI). Accordingly, Kings and FEGDI owned the
shares of stock of Forest Hills, holding 40% and 60% of the shares, respectively.
In August 1997, FEGDI sold to RS Asuncion Construction Corporation (RSACC) one (1) Class "C" common share of Forest Hills for
₱1.1 million. Prior to the full payment of the purchase price, RSACC transferred its interests over FEGDI's Class "C" common share
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to respondent Vertex Sales and Trading, Inc. (Vertex).4 RSACC advised FEGDI of the transfer and FEGDI, in turn, requested Forest
Hills to recognize Vertex as a shareholder. Forest Hills acceded to the request, and Vertex was able to enjoy membership privileges
in the golf and country club.
Despite the sale of FEGDI's Class "C" common share to Vertex, the share remained in the name of FEGDI, prompting Vertex to
demand for the issuance of a stock certificate in its name. As its demand went unheeded, Vertex filed a complaint6 for
rescission with damages against defendants Forest Hills, FEGDI, and Fil-Estate Land, Inc. (FELI) – the developer of the Forest
Hills golf course. Vertex averred that the defendants defaulted in their obligation as sellers when they failed and refused to issue
the stock certificate covering the Class "C" common share. It prayed for the rescission of the sale and the return of the sums
it paid; it also claimed payment of actual damages for the defendants’ unjustified refusal to issue the stock certificate.
Forest Hills denied transacting business with Vertex and claimed that it was not a party to the sale of the share; FELI claimed the
same defense. While admitting that no stock certificate was issued, FEGDI alleged that Vertex nonetheless was recognized as a
stockholder of Forest Hills and, as such, it exercised rights and privileges of one. FEGDI added that during the pendency of Vertex's
action for rescission, a stock certificate was issued in Vertex's name, but Vertex refused to accept it.
The CA reversed the RTC. It declared that "in the sale of shares of stock, physical delivery of a stock certificate is one of the
essential requisites for the transfer of ownership of the stocks purchased." It based its ruling on Section 63 of the Corporation
Code, which requires for a valid transfer of stock –
(1) the delivery of the stock certificate;
(2) the endorsement of the stock certificate by the owner or his attorney-in-fact or other persons legally authorized to
make the transfer; and
(3) to be valid against third parties, the transfer must be recorded in the books of the corporation.
Without the issuance of the stock certificate and despite Vertex’s full payment of the purchase price, the share cannot be
considered as having been validly transferred. Hence, the CA rescinded the sale of the share and ordered the defendants to return
the amount paid by Vertex by reason of the sale.
Forest Hills filed the present petition for review on certiorari to assail the CA rulings. It argues that rescission should be allowed only
for substantial breaches that would defeat the very object of the parties making the agreement.
The delay in the issuance of the stock certificate could not be considered as a substantial breach, considering that Vertex was
recognized as, and enjoyed the privileges of, a stockholder.
Forest Hills also objects to the CA ruling that required it to return the amount paid by Vertex for the share of stock. It claims that it
was not a party to the contract of sale; hence, it did not receive any amount from Vertex which it would be obliged to return on
account of the rescission of the contract.
In its comment to the petition, Vertex disagrees and claims that its compliance with its obligation to pay the price and the other
fees called into action the defendants’ compliance with their reciprocal obligation to deliver the stock certificate, but the defendants
failed to discharge this obligation. The defendants’ three (3)-year delay in issuing the stock certificate justified the rescission of the
sale of the share of stock. On account of the rescission, Vertex claims that mutual restitution should take place. It argues that
Forest Hills should be held solidarily liable with FEGDI and FELI, since the delay was caused by Forest Hills’ refusal to issue the
share of FEGDI, from whom Vertex acquired its share.
ISSUE
Is the delay in the issuance of the stock certificate be considered as a substantial breach that would result to a rescission of the
contract, considering that Vertex was recognized as, and enjoyed the privileges of, a stockholder?
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RULING
The assailed CA rulings (a) declared the rescission of the sale of one (1) Class "C" common share of Forest Hills to Vertex and (b)
ordered the return by Forest Hills, FEGDI, and FELI to Vertex of the amount the latter paid by reason of the sale. While Forest Hills
argues that the ruling rescinding the sale of the share is erroneous, its ultimate prayer was for the reversal and setting aside of the
ruling holding it liable to return the amount paid by Vertex for the sale.
The Court finds Forest Hills’ prayer justified.
Ruling on rescission of sale is a settled matter
At the outset, we declare that the question of rescission of the sale of the share is a settled matter that the Court can no longer
review in this petition. While Forest Hills questioned and presented its arguments against the CA ruling rescinding the sale of the
share in its petition, it is not the proper party to appeal this ruling.
As correctly pointed out by Forest Hills, it was not a party to the sale even though the subject of the sale was its share of stock. The
corporation whose shares of stock are the subject of a transfer transaction (through sale, assignment, donation, or any other mode
of conveyance) need not be a party to the transaction, as may be inferred from the terms of Section 63 of the Corporation
Code. However, to bind the corporation as well as third parties, it is necessary that the transfer is recorded in the books of the
corporation.
In the present case, the parties to the sale of the share were FEGDI as the seller and Vertex as the buyer (after it succeeded
RSACC). As party to the sale, FEGDI is the one who may appeal the ruling rescinding the sale. The remedy of appeal is available to
a party who has "a present interest in the subject matter of the litigation and is aggrieved or prejudiced by the judgment. A
party, in turn, is deemed aggrieved or prejudiced when his interest, recognized by law in the subject matter of the
lawsuit, is injuriously affected by the judgment, order or decree." The rescission of the sale does not in any way prejudice
Forest Hills in such a manner that its interest in the subject matter – the share of stock – is injuriously affected. Thus, Forest Hills is
in no position to appeal the ruling rescinding the sale of the share. Since FEGDI, as party to the sale, filed no appeal against its
rescission, we consider as final the CA’s ruling on this matter.
Ruling on return of amounts paid by reason of the sale modified
The CA’s ruling ordering the "return to [Vertex] the amount it paid by reason of the sale" 18 did not specify in detail what the amount
to be returned consists of and it did not also state the extent of Forest Hills, FEGDI, and FELI’s liability with regard to the amount to
be returned. The records, however, show that the following amounts were paid by Vertex to Forest Hills, FEGDI, and FELI by
reason of the sale:
Payee Date of Payment Purpose Amount Paid
FEGDI February 9, 1999 Purchase price for one (1) ₱780,000.0019

Class "C" common share
FEGDI February 9, 1999 Transfer fee P 60,000.0020
Forest Hills February 23, 1999 Membership fee P 150,000.0021
FELI September 25, 2000 Documentary P 6,300.0022

Stamps
FEGDI September 25, 2000 Notarial fees P 200.0023
A necessary consequence of rescission is restitution: the parties to a rescinded contract must be brought back to their original
situation prior to the inception of the contract; hence, they must return what they received pursuant to the contract. Not being a
party to the rescinded contract, however, Forest Hills is under no obligation to return the amount paid by Vertex by reason of the
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sale. Indeed, Vertex failed to present sufficient evidence showing that Forest Hills received the purchase price for the share or any
other fee paid on account of the sale (other than the membership fee which we will deal with after) to make Forest Hills jointly or
solidarily liable with FEGDI for restitution.
Although Forest Hills received ₱150,000.00 from Vertex as membership fee, it should be allowed to retain this amount. For three
years prior to the rescission of the sale, the nominees of Vertex enjoyed membership privileges and used the golf course and the
amenities of Forest Hills. We consider the amount paid as sufficient consideration for the privileges enjoyed by Vertex's nominees as
members of Forest Hills.
WHEREFORE, in view of the foregoing, the Court PARTIALLY GRANTS the petition for review on certiorari. The decision dated
February 22, 2012 and the resolution dated May 31, 2012 of the Court of Appeals in CA-G.R. CV No. 89296 are hereby MODIFIED.
Petitioner Forest Hills Golf & Country Club is ABSOLVED from liability for any amount paid by Vertex Sales and Trading, Inc. by
reason of the rescinded sale of one (1) Class "C" common share of Forest Hills Golf & Country Club.
MAGLASANG V. NORTHWESTERN UNIV.

694 S 128
FACTS
On 10 June 2004, respondent Northwestern University (Northwestern), an educational institution offering maritime-related
courses, engaged the services of a Quezon City-based firm, petitioner GL Enterprises, to install a new IBS in Laoag City. The
installation of an IBS, used as the students' training laboratory, was required by the Commission on Higher Education (CHED)
before a school could offer maritime transportation programs.
Since its IBS was already obsolete, respondent required petitioner to supply and install specific components in order to form the
most modern IBS that would be acceptable to CHED and would be compliant with the standards of the International Maritime
Organization (IMO). For this purpose, the parties executed two contracts.
The first contract partly reads:
That in consideration of the payment herein mentioned to be made by the First Party (defendant), the Second Party agrees to
furnish, supply, install and integrate the most modern INTEGRATED BRIDGE SYSTEM located at Northwestern University MOCK
BOAT in accordance with the general conditions, plans and specifications of this contract.
The second contract essentially contains the same terms and conditions as follows:
That in consideration of the payment herein mentioned to be made by the First Party (defendant), the Second Party agrees to
furnish, supply, install & integrate the most modern INTEGRATED BRIDGE SYSTEM located at Northwestern University MOCK BOAT
in accordance with the general conditions, plans and specifications of this contract.
Common to both contracts are the following provisions: (1) the IBS and its components must be compliant with the IMO and CHED
standard and with manuals for simulators/major equipment; (2) the contracts may be terminated if one party commits a substantial
breach of its undertaking; and (3) any dispute under the agreement shall first be settled mutually between the parties, and if
settlement is not obtained, resort shall be sought in the courts of law.
Subsequently, Northwestern paid P1 million as down payment to GL Enterprises. The former then assumed possession of
Northwestern's old IBS as trade-in payment for its service. Thus, the balance of the contract price remained at P1.97 million.
Two months after the execution of the contracts, GL Enterprises technicians delivered various materials to the project site.
However, when they started installing the components, respondent halted the operations. GL Enterprises then asked for an
explanation.
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Northwestern justified the work stoppage upon its finding that the delivered equipment were substandard. It explained further that
GL Enterprises violated the terms and conditions of the contracts, since the delivered components (1) were old; (2) did not have
instruction manuals and warranty certificates; (3) contained indications of being reconditioned machines; and (4) did not meet the
IMO and CHED standards. Thus, Northwestern demanded compliance with the agreement and suggested that GL Enterprises meet
with the former's representatives to iron out the situation.
Instead of heeding this suggestion, GL Enterprises filed on 8 September 2004 a Complaint10 for breach of contract and prayed for
the following sums: P1.97 million, representing the amount that it would have earned, had Northwestern not stopped it from
performing its tasks under the two contracts; at least P100,000 as moral damages; at least P100,000 by way of exemplary
damages; at least P100,000 as attorney's fees and litigation expenses; and cost of suit. Petitioner alleged that Northwestern
breached the contracts by ordering the work stoppage and thus preventing the installation of the materials for the IBS.
Northwestern denied the allegation. In its defense, it asserted that since the equipment delivered were not in accordance with the
specifications provided by the contracts, all succeeding works would be futile and would entail unnecessary expenses. Hence, it
prayed for the rescission of the contracts and made a compulsory counterclaim for actual, moral, and exemplary damages, and
attorney's fees.
ISSUE
Whether there is a substantial breach on the part of GL Enterprises to the contract. Does the stoppage of the operations on the part
of the respondent Northwestern a legal excuse and not a substantial breach of the contract.
RULING. Yes.
Substantial Breaches of the Contracts
Although the RTC and the CA concurred in ordering restitution, the courts a quo, however, differed on the basis thereof. The RTC
applied the equitable principle of mutual fault, while the CA applied Article 1191 on rescission.
The power to rescind the obligations of the injured party is implied in reciprocal obligations, such as in this case. On this score, the
CA correctly applied Article 1191, which provides thus:
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent
upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
The two contracts require no less than substantial breach before they can be rescinded. Since the contracts do not provide for a
definition of substantial breach that would terminate the rights and obligations of the parties, we apply the definition found in our
jurisprudence.
This Court defined in Cannu v. Galang that substantial, unlike slight or casual breaches of contract, are fundamental breaches that
defeat the object of the parties in entering into an agreement, since the law is not concerned with trifles.
The question of whether a breach of contract is substantial depends upon the attending circumstances.
In the case at bar, the parties explicitly agreed that the materials to be delivered must be compliant with the CHED and IMO
standards and must be complete with manuals. Aside from these clear provisions in the contracts, the courts a quo similarly found
that the intent of the parties was to replace the old IBS in order to obtain CHED accreditation for Northwestern's maritime-related
courses.
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According to CHED Memorandum Order (CMO) No. 10, Series of 1999, as amended by CMO No. 13, Series of 2005, any
simulator used for simulator-based training shall be capable of simulating the operating capabilities of the shipboard equipment
concerned. The simulation must be achieved at a level of physical realism appropriate for training objectives; include the
capabilities, limitations and possible errors of such equipment; and provide an interface through which a trainee can interact with
the equipment, and the simulated environment.
Given these conditions, it was thus incumbent upon GL Enterprises to supply the components that would create an IBS that would
effectively facilitate the learning of the students.
However, GL Enterprises miserably failed in meeting its responsibility. As contained in the findings of the CA and the RTC, petitioner
supplied substandard equipment when it delivered components that (1) were old; (2) did not have instruction manuals and
warranty certificates; (3) bore indications of being reconditioned machines; and, all told, (4) might not have met the IMO and CHED
standards. Highlighting the defects of the delivered materials, the CA quoted respondent's testimonial evidence as follows:
Q: In particular which of these equipment of CHED requirements were not complied with?
A: The Radar Ma'am, because they delivered only 10-inch PPI, that is the monitor of the Radar. That is 16-inch and the
gyrocompass with two (2) repeaters and the history card. The gyrocompass - there is no marker, there is no model, there is no
serial number, no gimbal, no gyroscope and a bulb to work it properly to point the true North because it is very important to the
Cadets to learn where is the true North being indicated by the Master Gyrocompass.
xxx
Q: Mr. Witness, one of the defects you noted down in this history card is that the master gyrocompass had no gimbals, gyroscope
and balls and was replaced with an ordinary electric motor. So what is the Implication of this?
A: Because those gimbals, balls and the gyroscope it let the gyrocompass to work so it will point the true North but they being
replaced with the ordinary motor used for toys so it will not indicate the true North.
Q: So what happens if it will not indicate the true North?
A: It is very big problem for my cadets because they must, to learn into school where is the true North and what is that equipment
to be used on board.
Q: One of the defects is that the steering wheel was that of an ordinary automobile. And what is the implication of this?
A: Because. on board Ma am, we are using the real steering wheel and the cadets will be implicated if they will notice that the ship
have the same steering wheel as the car so it is not advisable for them.
Q:. And another one is that the gyrocompass repeater was only refurbished and it has no serial number. What is wrong with that?
A: It should be original Ma am because this gyro repeater, it must to repeat also the true North being indicated by the Master Gyro
Compass so it will not work properly, I don t know it will work properly. ( Underscoring supplied)
Evidently, the materials delivered were less likely to pass the CHED standards, because the navigation system to be installed
might not accurately point to the true north; and the steering wheel delivered was one that came from an
automobile, instead of one used in ships. Logically, by no stretch of the imagination could these form part of the most modern
IBS compliant with the IMO and CHED standards.
Even in the instant appeal, GL Enterprises does not refute that the equipment it delivered was substandard. However, it reiterates
its rejected excuse that Northwestern should have made an assessment only after the completion of the IBS. Thus, petitioner
stresses that it was Northwestern that breached the agreement when the latter halted the installation of the materials for the IBS,
even if the parties had contemplated a completed project to be evaluated by CHED. However, as aptly considered by the CA,
244
respondent could not just "sit still and wait for such day that its accreditation may not be granted by CHED due to the apparent
substandard equipment installed in the bridge system." The appellate court correctly emphasized that, by that time, both parties
would have incurred more costs for nothing.
Additionally, GL Enterprises reasons that, based on the contracts, the materials that were hauled all the way from Quezon City to
Laoag City under the custody of the four designated installers might not have been the components to be used. Without belaboring
the point, we affirm the conclusion of the CA and the RTC that the excuse is untenable for being contrary to human experience.
Given that petitioner, without justification, supplied substandard components for the new IBS, it is thus clear that
its violation was not merely incidental, but directly related to the essence of the agreement pertaining to the
installation of an IBS compliant with the CHED and IMO standards.
Consequently, the CA correctly found substantial breach on the part of petitioner.
In contrast, Northwestern's breach, if any, was characterized by the appellate court as slight or casual. By way of negative
definition, a breach is considered casual if it does not fundamentally defeat the object of the parties in entering into an agreement.
Furthermore, for there to be a breach to begin with, there must be a "failure, without legal excuse, to perform any promise which
forms the whole or part of the contract."
Here, as discussed, the stoppage of the installation was justified. The action of Northwestern constituted a legal excuse to prevent
the highly possible rejection of the IBS. Hence, just as the CA concluded, we find that Northwestern exercised ordinary prudence to
avert a possible wastage of time, effort, resources and also of the P2.9 million representing the value of the new IBS.
SWIRE REALTY V. YU
(PERALTA) 752 S 135
FACTS:
Respondent Jayne Yu and petitioner Swire Realty Development Corporation entered into a Contract to Sell on July 25, 1995
covering one residential condominium unit, specifically Unit 3007 of the Palace of Makati, located at P. Burgos corner Caceres Sts.,
Makati City, with an area of 137.30 square meters for the total contract price of P7,519,371.80, payable in equal monthly
installments until September 24, 1997. Respondent likewise purchased a parking slot in the same condominium building for
P600,000.00.
On September 24, 1997, respondent paid the full purchase price of P7,519,371.80 for the unit while making a down payment of
P20,000.00 for the parking lot. However, notwithstanding full payment of the contract price, petitioner failed to complete and
deliver the subject unit on time. This prompted respondent to file a Complaint for Rescission of Contract with Damages
before the Housing and Land Use Regulatory Board ( HLURB) Expanded National Capital Region Field Office ( ENCRFO).
On October 19, 2004, the HLURB ENCRFO rendered a Decision dismissing respondent’s complaint. It ruled that rescission is not
permitted for slight or casual breach of the contract but only for such breaches as are substantial and fundamental as to defeat the
object of the parties in making the agreement.
ISSUE: Whether rescission of the contract is proper in the instant case.
RULING. Yes, rescission is proper as Swire Realty failed to complete the project condominium unit on time and to deliver the
subject unit on time to respondent Yu.
Article 1191 of the Civil Code sanctions the right to rescind the obligation in the event that specific performance becomes
impossible, to wit:
245
Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with
what is incumbent upon him.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles
1385 and 1388 and the Mortgage Law.
Basic is the rule that the right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach
of faith by the other party who violates the reciprocity between them. The breach contemplated in the said provision is the obligor’s
failure to comply with an existing obligation. When the obligor cannot comply with what is incumbent upon it, the obligee may seek
rescission and, in the absence of any just cause for the court to determine the period of compliance, the court shall decree the
rescission.
In the instant case, the CA aptly found that the completion date of the condominium unit was November 1998 pursuant to License
No. 97-12-3202 dated November 2, 1997 but was extended to December 1999 as per License to Sell No. 99-05-3401
dated May 8, 1999. However, at the time of the ocular inspection conducted by the HLURB ENCRFO, the unit was not yet
completely finished as the kitchen cabinets and fixtures were not yet installed and the agreed amenities were not yet
available. Said inspection report states:
1. The unit of the [respondent] is Unit 3007, which was labeled as P2-07, at the Palace of Makati, located at the
corner of P. Burgos Street and Caceres Street, Poblacion, Makati City. Based on the approved plans, the said unit
is at the 26th Floor.
2. During the time of inspection, the said unit appears to be completed except for the installation of kitchen cabinets
and fixtures.
3. Complainant pinpointed to the undersigned the deficiencies as follows:
a. The delivered unit has high density fiber (HDF) floorings instead of narra wood parquet.
b. The [petitioners] have also installed baseboards as borders instead of pink porrino granite boarders.
c. Walls are newly painted by the respondent and the alleged obvious signs of cladding could not be
determined.
d. Window opening at the master bedroom conforms to the approved plans. As a result it leaves a 3 inches
(sic) gap between the glass window and partitioning of the master’s bedroom.
e. It was verified and confirmed that a square column replaced the round column, based on the approved
plans.
f. At the time of inspection, amenities such as swimming pool and change room are seen at the 31 st floor
only. These amenities are reflected on the 27 th floor plan of the approved condominium plans. Health spa
for men and women, Shiatsu Massage Room, Two-Level Sky Palace Restaurant and Hall for games and
entertainments, replete with billiard tables, a bar, indoor golf with spectacular deck and karaoke rooms
were not yet provided by the [petitioner].
g. The [master’s] bedroom door bore sign of poor quality of workmanship as seen below.
h. The stairs have been installed in such manner acceptable to the undersigned.
i. Bathrooms and powder room have been installed in such manner acceptable to the undersigned.
From the foregoing, it is evident that the report on the ocular inspection conducted on the subject condominium project and subject
unit shows that the amenities under the approved plan have not yet been provided as of May 3, 2002, and that the subject unit has
not been delivered to respondent as of August 28, 2002, which is beyond the period of development of December 1999
under the license to sell.
Incontrovertibly, petitioner had incurred delay in the performance of its obligation amounting to breach of contract as it failed to
finish and deliver the unit to respondent within the stipulated period. The delay in the completion of the project as well as of the
delay in the delivery of the unit are breaches of statutory and contractual obligations which entitle respondent to rescind the
contract, demand a refund and payment of damages.
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FONG V. DUENAS
(BRION) 757 S 412
Food business; failure to provide the valuation of Duena’s shares and to incorporate the Alliance company; reneged of original
promise to invest Php 32.5 million; Article 1192 was applied since both parties both committed a breach in their joint venture
agreement.
FACTS
Dueñas is engaged in the bakery, food manufacturing, and retailing business, which are all operated under his two companies, D.C.
DANTON, Inc. (Danton) and Bakcom Food Industries, Inc. (Bakcom). He was an old acquaintance of Fong as they were
former schoolmates at the De La Salle University. 6
Sometime in November 1996, Dueñas and Fong entered into a verbal joint venture contract where they agreed to engage in
the food business and to incorporate a holding company under the name Alliance Holdings, Inc. (Alliance or the proposed
corporation). Its capitalization would be Sixty Five Million Pesos (₱65 Million), to which they would contribute in equal parts. 7
The parties agreed that Fong would contribute Thirty Two Million and Five Hundred Thousand Pesos (₱32.5 Million) in cash while
Dueñas would contribute all his Danton and Bakcom shares which he valued at ₱32.5 Million.8 Fong required Dueñas to submit the
financial documents supporting the valuation of these shares.
On November 25, 1996, Fong started remitting in tranches his share in the proposed corporation’s capital. He made the remittances
under the impression that his contribution would be applied as his subscription to fifty percent (50%) of Alliance’s total
shareholdings. On the other hand, Dueñas started processing the Boboli9 international license that they would use in their food
business.
Fong observed that despite his ₱5 Million contribution, Dueñas still failed to give him the financial documents on the valuation of the
Danton and Bakcom shares. Thus, except for Dueñas’ representations, Fong had nothing to rely on to ensure that these shares
were really valued at ₱32.5 Million. Moreover, Dueñas failed to incorporate and register Alliance with the Securities and Exchange
Commission (SEC).12
These circumstances convinced Fong that Dueñas would no longer honor his obligations in their joint venture agreement. 13 Thus, on
October 30, 1997, Fong wrote Dueñas informing him of his decision to cancel the joint venture agreement. He also asked for the
refund of the ₱5 Million that he advanced.14 In response, Dueñas admitted that he could not immediately return the money since he
used it to defray the business expenses of Danton and Bakcom. 15
To meet Fong’s demand, Dueñas proposed several schemes for payment of the ₱5 Million.16 However, Fong did not accept any of
these proposed schemes. On March 25, 1998, Fong wrote a final letter of demand17 informing Dueñas that he would file a judicial
action against him should he still fail to pay after receipt of this written demand.
Since Dueñas did not pay, Fong filed a complaint against him for collection of a sum of money and damages 18 on April 24, 1998.
ISSUE
Did Duenas violated the joint venture agreement when he invested Fong’s money to his two companies? Can Fong rescind the joint
venture agreement if Duena’s breach of contract is found to be true?
Did Fong also committed a breach when he reneged his original promise to contribute Php 32.5 million and instead reduced it to
Php 5 million?
RULING
At the outset, the Court notes that the parties’ joint venture agreement to incorporate a company that would hold the shares of
Danton and Bakcom and that would serve as the business vehicle for their food enterprise, is a valid agreement. The failure to
247
reduce the agreement to writing does not affect its validity or enforceability as there is no law or regulation which provides that an
agreement to incorporate must be in writing.
With this as premise, we now address the related issues raised by the parties.
The body rather than the title of the complaint determines the nature of the action.
A well-settled rule in procedural law is that the allegations in the body of the pleading or the complaint, and not its title, determine
the nature of an action.
An examination of Fong’s complaint shows that although it was labeled as an action for a sum of money and damages, it was
actually a complaint for rescission. The following allegations in the complaint support this finding:
9. Notwithstanding the aforesaid remittances, defendant failed for an unreasonable length of time to submit a valuation of the
equipment of D.C. Danton and Bakcom x x x.
10. Worse, despite repeated reminders from plaintiff, defendant failed to accomplish the organization and incorporation of the
proposed holding company, contrary to his representation to promptly do so.
xxxx
17. Considering that the incorporation of the proposed holding company failed to materialize, despite the lapse of one year and four
months from the time of subscription, plaintiff has the right to revoke his pre-incorporation subscription. Such revocation entitles
plaintiff to a refund of the amount of ₱5,000,000.00 he remitted to defendant, representing advances made in favor of defendant to
be considered as payment on plaintiff’s subscription to the proposed holding company upon its incorporation, plus interest from
receipt by defendant of said amount until fully paid. [Emphasis supplied.]
Fong’s allegations primarily pertained to his cancellation of their verbal agreement because Dueñas failed to perform his
obligations to provide verifiable documents on the valuation of the Danton’s and Bakcom’s shares, and to
incorporate the proposed corporation. These allegations clearly show that what Fong sought was the joint venture
agreement’s rescission.
As a contractual remedy, rescission is available when one of the parties substantially fails to do what he has obligated himself to
perform. It aims to address the breach of faith and the violation of reciprocity between two parties in a contract. Under Article 1191
of the Civil Code, the right of rescission is inherent in reciprocal obligations, viz:
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with
what is incumbent upon him. [Emphasis supplied.]
Dueñas submits that Fong’s prayer for the return of his cash contribution supports his claim that Fong’s complaint is an action for
collection of a sum of money. However, Dueñas failed to appreciate that the ultimate effect of rescission is to restore the parties to
their original status before they entered in a contract. As the Court ruled in Unlad Resources v. Dragon: Rescission has the effect of
"unmaking a contract, or its undoing from the beginning, and not merely its termination." Hence, rescission creates the obligation to
return the object of the contract. It can be carried out only when the one who demands rescission can return whatever he may be
obliged to restore. To rescind is to declare a contract void at its inception and to put an end to it as though it never was. It is not
merely to terminate it and release the parties from further obligations to each other, but to abrogate it from the beginning and
restore the parties to their relative positions as if no contract has been made.
Accordingly, when a decree for 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 his original situation. 35 [Emphasis supplied.]
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In this light, we rule that Fong’s prayer for the return of his contribution did not automatically convert the action to a complaint for
a sum of money. The mutual restitution of the parties’ original contributions is only a necessary consequence of their agreement’s
rescission.
I. Rescission under Art. 1191 is applicable in the present case
Reciprocal obligations are those which arise from the same cause, in which each party is a debtor and a creditor of the other, such
that the obligation of one is dependent on the obligation of the other.
Fong and Dueñas’ execution of a joint venture agreement created between them reciprocal obligations that must be performed in
order to fully consummate the contract and achieve the purpose for which it was entered into.
Both parties verbally agreed to incorporate a company that would hold the shares of Danton and Bakcom and which, in turn, would
be the platform for their food business. Fong obligated himself to contribute half of the capital or ₱32.5 Million in cash. On the other
hand, Dueñas bound himself to shoulder the other half by contributing his Danton and Bakcom shares, which were allegedly also
valued at ₱32.5 Million. Aside from this, Dueñas undertook to process Alliance’s incorporation and registration with the SEC.
When the proposed company remained unincorporated by October 30, 1997, Fong cancelled the joint venture agreement and
demanded the return of his ₱5 Million contribution.
For his part, Dueñas explained that he could not immediately return the ₱5 Million since he had invested it in his two companies. He
found nothing irregular in this as eventually, the Danton and Bakcom shares would form part of Alliance’s capital.
Dueñas’ assertion is erroneous.
The parties never agreed that Fong would invest his money in Danton and Bakcom. Contrary to Dueñas’ submission,
Fong’s understanding was that his money would be applied to his shareholdings in Alliance. As shown in Fong’s June13, 1997
letter, this fact remained to be true even after he limited his contribution to ₱5 Million, viz:
Dear Jojit,
Enclosed is our check for ₱919,534.80 representing our additional advances to subject company in process of incorporation. This
will make our total advances to date amounting to ₱5 million
Moreover, under the Corporation Code, before a stock corporation may be incorporated and registered, it is required that at least
twenty five percent (25%) of its authorized capital stock as stated in the articles of incorporation, be first subscribed at the time of
incorporation, and at least twenty five percent (25%) of the total subscription, be paid upon subscription.
To prove compliance with this requirement, the SEC requires the incorporators to submit a treasurer’s affidavit and a certificate of
bank deposit, showing the existence of an amount compliant with the prescribed capital subscription.
In this light, we conclude that Fong’s cash contributions play an indispensable part in Alliance’s incorporation. The process
necessarily requires the money not only to fund Alliance’s registration with the SEC but also its initial capital subscription. This is
evident in the receipts which Dueñas himself executed, one of which provides:
I, JOSE V. DUEÑAS, hereby acknowledge the receipt on January 14, 1997 of the amount of One Million Pesos (Php1,000,000.00)
Check No. 118 118 7014 Metro Bank, Pasong Tamo branch dated January 13, 1997 from Mr. George Fong, which amount shall
constitute an advance of the contribution or investment of Mr. Fong in the joint venture which he and I are in the process of
organizing. Specifically, this amount will be considered as part of Mr. Fong’s subscription to the shares of stock of the joint venture
company which we will incorporate to embody and carry out our joint venture. 40 [Emphasis supplied.]
Thus, Dueñas erred when he invested Fong’s contributions in his two companies. This money should have been used in processing
Alliance’s registration. Its incorporation would not materialize if there would be no funds for its initial capital. Moreover, Dueñas
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represented that Danton and Bakcom’s shares were valued at ₱32.5 Million. If this was true, then there was no need for Fong’s
additional ₱5 Million investment, which may possibly increase the value of the Danton and Bakcom shares.
Under these circumstances, the Court agrees with the trial court that Dueñas violated his agreement with Fong. Aside from
unilaterally applying Fong’s contributions to his two companies, Dueñas also failed to deliver the valuation documents of the Danton
and Bakcom shares to prove that the combined values of their capital contributions actually amounted to ₱32.5 Million. These acts
led to Dueñas’ delay in incorporating the planned holding company, thus resulting in his breach of the contract.
On this basis, Dueñas’ breach justified Fong’s rescission of the joint venture agreement under Article 1191. As the
Court ruled in Velarde v. Court of Appeals:
The right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other
party who violates the reciprocity between them. The breach contemplated in the said provision is the obligor’s failure to comply
with an existing obligation. When the obligor cannot comply with what is incumbent upon it, the obligee may seek rescission and in
the absence of any just cause for the court to determine the period of compliance, the court shall decree the rescission.
In the present case, private respondents validly exercised their right to rescind the contract, because of the failure of petitioners to
comply with their obligation to pay the balance of the purchase price. Indubitably, the latter violated the very essence of reciprocity
in the contract of sale, a violation that consequently gave rise to private respondents’ right to rescind the same in accordance with
law.
II. Fong also breached his obligation
However, the Court notes that Fong also breached his obligation in the joint venture agreement. In his June 13, 1997 letter, Fong
expressly informed Dueñas that he would be limiting his cash contribution from ₱32.5 Million to ₱5 Million because of the following
reasons which we quote verbatim:
1. First, we were faced with the ‘personal’ factor which was explained to you one time. This has caused us to turn down a
number of business opportunities;
2. Secondly, since last year, the operation of Century 21 has been taking more time from us than anticipated. That is why
we decided to relinquish our original plan to manage and operate ‘Boboli’ knowing this limitation. For us, it does not make
sense anymore to go for a significant shareholding when we cannot be hands on and participate actively as originally
planned.43 x x x.
Although these reasons appear to be valid, they do not erase the fact that Fong still reneged on his original promise to contribute
₱32.5 Million. The joint venture agreement was not reduced to writing and the evidence does not show if the parties agreed on
valid causes that would justify the limitation of the parties’ capital contributions. Their only admission was that they obligated
themselves to contribute ₱32.5 Million each.
Hence, Fong’s diminution of his capital share to ₱5 Million also amounted to a substantial breach of the joint venture agreement,
which breach occurred before Fong decided to rescind his agreement with Dueñas. Thus, Fong also contributed to the non-
incorporation of Alliance that needed ₱65 Million as capital to operate.
Fong cannot entirely blame Dueñas since the substantial reduction of his capital contribution also greatly impeded the
implementation of their agreement to engage in the food business and to incorporate a holding company for it.
As both parties failed to comply with their respective reciprocal obligations, we apply Article 1192 of the Civil Code,
which provides:
Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first in fractor 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. [Emphasis supplied.]
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Notably, the Court is not aware of the schedule of performance of the parties’ obligations since the joint venture agreement was
never reduced to writing. The facts, however, show that both parties began performing their obligations after executing the joint
venture agreement. Fong started remitting his share while Dueñas started processing the Boboli international license for the
proposed corporation’s food business.
The absence of a written contract renders the Court unsure as to whose obligation must be performed first. It is possible that the
parties agreed that Fong would infuse capital first and Dueñas’ submission of the documents on the Danton and Bakcom shares
would just follow. It could also be the other way around. Further, the parties could have even agreed to simultaneously perform
their respective obligations.
Despite these gray areas, the fact that both Fong and Dueñas substantially contributed to the non-incorporation of Alliance and to
the failure of their food business plans remains certain.
As the Court cannot precisely determine who between the parties first violated the agreement, we apply the second part of Article
1192 which states: "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. "
In these lights, the Court holds that the joint venture agreement between Fong and Dueñas is deemed extinguished through
rescission under Article 1192 in relation with Article 1191 of the Civil Code. Dueñas must therefore return the ₱5 Million that Fong
initially contributed since rescission requires mutual restitution. After rescission, the parties must go back to their original status
before they entered into the agreement. Dueñas cannot keep Fong's contribution as this would constitute unjust enrichment.
No damages shall be awarded to any party in accordance with the rule under Article 1192 of the Civil Code that in case of mutual
breach and the first infractor of the contract cannot exactly be determined, each party shall bear his own damages.
NOLASCO V. CULAPO
(PERLAS-BERNABE)
777 S 447
FACTS
On July 22, 2008, petitioners and respondents entered into a Contract to Sell (subject contract) over a 165,775-square meter
parcel of land located in Barangay San Isidro, Rodriguez, Rizal covered by Original Certificate of Title No. 152 (subject land).
The subject contract provides, inter alia, that:
(a) the consideration for the sale is P33,155,000.00 payable as follows: down payment in the amount of P11,604,250.00 inclusive
of the amount of P2,000,000.00 previously paid by respondents as earnest money/reservation fee, and the remaining balancee of
P21,550,750.00 payable in 36 monthly installments, each in the amount of P598,632.00 through post-dated checks;
(b) in case any of the checks is dishonored, the amounts already paid shall be forfeited in petitioners' favor, and the
latter shall be entitled to cancel the subject contract without judicial recourse in addition to other appropriate legal
action;
(c) respondents are not entitled to possess the subject land until full payment of the purchase price;
(d) petitioners shall transfer the title over the subject land from a certain Edilberta N. Santos to petitioners' names, and, should they
fail to do so, respondents may cause the said transfer and charge the costs incurred against the monthly amortizations; and
(e) upon full payment of the purchase price, petitioners shall transfer title over the subject land to respondents.
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However, respondents sent petitioners a letter dated November 7, 2008 seeking to rescind the subject contract on the ground of
financial difficulties in complying with the same. They also sought the return of the amount of P12,202,882.00 they had paid to
petitioners. As their letter went unheeded, respondents filed the instant complaint 10 for rescission before the RTC.11
In their defense, petitioners countered that respondents' act is a unilateral cancellation of the subject contract as the former did not
consent to it. Moreover, the ground of financial difficulties is not among the grounds provided by law to effect a valid rescission.
ISSUE
Is the rescission of the subject contract valid when petitioners failed to perform their obligation to effect the transfer of the title to
the subject land from one Edilberta N. Santos to their names within the prescribed period?
RULING
No. The breach does not amount to a substantial breach which would necessitate a rescission or resolution of the contract to sell.
In reciprocal obligations, either party may rescind - or more appropriately, resolve - the contract upon the other party's substantial
breach of the obligation/s he had assumed thereunder. This is expressly provided for in Article 1191 of the Civil Code which states:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him.
"More accurately referred to as resolution, the right of rescission under Article 1191 is predicated on a breach of faith that violates
the reciprocity between the parties to the contract. This retaliatory remedy is given to the contracting party who suffers the
injurious breach on the premise that it is 'unjust that a party be held bound to fulfill his promises when the other violates his.'" Note
that the rescission (or resolution) of a contract will not be permitted for a slight or casual breach, but only for such substantial and
fundamental violations as would defeat the very object of the parties in making the agreement. Ultimately, the question of whether
a breach of contract is substantial depends upon the attending circumstances.
In the instant case, both the RTC and the CA held that petitioners were in substantial breach of paragraph 7 of the subject contract
as they did not cause the transfer of the property to their names from one Edilberta N. Santos within 90 days from the execution of
said contract.
The courts a quo are mistaken.
Paragraph 7 of the subject contract state in full:

7. [Petitioners] shall, within ninety (90) days from the signing of [the subject contract], cause the completion of the transfer of
registration of title of the property subject of [the subject contract], from Edilberta N. Santos to their names, at [petitioners'] own
expense. Failure on the part of [petitioners] to undertake the foregoing within the prescribed period shall
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automatically authorize [respondents] to undertake the same in behalf of [petitioners] and charge the costs
incidental to the monthly amortizations upon due date. (Emphasis and underscoring supplied)
A plain reading of paragraph 7 of the subject contract reveals that while the RTC and the CA were indeed correct in finding that
petitioners failed to perform their obligation to effect the transfer of the title to the subject land from one Edilberta N. Santos to
their names within the prescribed period, said courts erred in concluding that such failure constituted a substantial breach that
would entitle respondents to rescind (or resolve) the subject contract. To reiterate, for a contracting party to be entitled to
rescission (or resolution) in accordance with Article 1191 of the Civil Code, the other contracting party must be in substantial breach
of the terms and conditions of their contract.
A substantial breach of a contract, unlike slight and casual breaches thereof, is a fundamental breach that defeats the object of the
parties in entering into an agreement. Here, it cannot be said that petitioners' failure to undertake their obligation under paragraph
7 defeats the object of the parties in entering into the subject contract, considering that the same paragraph provides respondents
contractual recourse in the event of petitioners' non-performance of the aforesaid obligation, that is, to cause such transfer
themselves in behalf and at the expense of petitioners.
Indubitably, there is no substantial breach of paragraph 7 on the part of petitioners that would necessitate a rescission (or
resolution) of the subject contract. As such, a reversal of the rulings of the RTC and the CA is in order.
The foregoing notwithstanding, the Court cannot grant petitioners' prayer in the instant petition to order the
cancellation of the subject contract and the forfeiture of the amounts already paid by respondents on account of the
latter's failure to pay its monthly amortizations, simply because in their Answer with Compulsory Counterclaim and Motion for
Summary Judgment filed before the RTC, petitioners neither prayed for this specific relief nor argued that they were entitled to the
same.
Worse, petitioners were declared "as in default" for failure to file the required pre-trial brief and, thus, failed to present any
evidence in support of their defense. It is settled that "[w]hen a party deliberately adopts a certain theory and the case is decided
upon that theory in the court below, he will not be permitted to change the same on appeal, because to permit him to do so would
be unfair to the adverse party." The Court's pronouncement in Peña v. Spouses Tolentino is instructive on this matter, to wit:
Indeed, the settled rule in this jurisdiction, according to Mon v. Court of Appeals, is that a party cannot change his theory of the
case or his cause of action on appeal. This rule affirms that "courts of justice have no jurisdiction or power to decide a question not
in issue." Thus, a judgment that goes beyond the issues and purports to adjudicate something on which the court did not hear the
parties is not only irregular but also extrajudicial and invalid. The legal theory under which the controversy
was heard and decided in the trial court should be the same theory under which the review on appeal is conducted.
Otherwise, prejudice will result to the adverse party. We stress that points of law, theories, issues, and arguments
not adequately brought to the attention of the lower court will not be ordinarily considered by a reviewing court,
inasmuch as they cannot be raised for the first time on appeal. This would be offensive to the basic rules of fair
play, justice, and due process.35 (Emphasis and underscoring supplied)
WHEREFORE, the petition is PARTIALLY GRANTED. Accordingly, the Decision dated June 17, 2013 and the Resolution dated
November 19, 2013 of the Court of Appeals in CA-G.R. CV No. 95353 are hereby REVERSED and SET ASIDE. The Contract to Sell
executed by the parties on July 22, 2008 remains VALID and SUBSISTING.
ASB REALTY V. ORTIGAS

(BERSAMIN) 777 S 284
FACTS
253
On June 29, 1994, respondent Ortigas & Company Limited Partnership (Ortigas) entered into a Deed of Sale with Amethyst Pearl
Corporation (Amethyst) involving the parcel of land with an area of 1,012 square meters situated in Barrio Oranbo, Pasig City and
registered under Transfer Certificate of Title (TCT) No. 65118 of the Register of Deeds of Rizal 4 for the consideration of
P2,024,000.00. The Deed of Sale contained the following stipulations, among others:
This lot has been segregated by ORTIGAS from its subdivisions to form part of a zonified BUILDING AREA pursuant to its controlled
real estate development project and subdivision scheme, and is subject to the following covenants which form part of the
consideration of ORTIGAS' sale to VENDEE and its assigns, namely:
xxxx
B. BUILDING WORKS AND ARCHITECTURE:
1. The building to be constructed on the lot shall be of reinforced concrete, cement hollow blocks and other high-quality materials
and shall be of the following height of not more than: fourteen (14) storeys plus one penthouse.
xxxx
L. SUBMISSION OF PLANS:
The final plans and specifications of the said building shall be submitted to ORTIGAS for approval not later than six (6) months from
date hereof. Should ORTIGAS object to the same, it shall notify and specify to the VENDEE in writing the amendments required to
conform with its building restrictions and VENDEE shall submit the amended plans within sixty (60) days from receipt of said notice.
M. CONSTRUCTION AND COMPLETION OF BUILDING:
The VENDEE shall finish construction of its building within four (4) years from December 31, 1991.
As a result, the Register of Deeds of Rizal cancelled TCT No. 65118 and issued TCT No. PT-94175 in the name of Amethyst. The
conditions contained in the Deed of Sale were also annotated on TCT No. PT-94175 as encumbrances.
*On December 28, 1996, Amethyst assigned the subject property to its sole stockholder, petitioner ASB Realty Corporation
(the petitioner), under a so-called Deed of Assignment in Liquidation in consideration of 10,000 shares of the petitioner's
outstanding capital stock. Thus, the property was transferred to the petitioner free from any liens or encumbrances except those
duly annotated on TCT No. PT-94175. The Register of Deeds of Rizal cancelled TCT No. PT-94175 and issued TCT No. PT-105797 in
the name of the petitioner with the same encumbrances annotated on TCT No. PT-94175.
On July 7, 2000, Ortigas filed its complaint for specific performance against the petitioner, which was docketed as Civil Case No.
67978 of the Regional Trial Court (RTC) in Pasig City. Ortigas amended the complaint, and alleged, among others, that:
5. Defendant has violated the terms of the Deed of Absolute Sale (Annex "A") in the following manner:
a. While the lot may be used only "for office and residential purposes", defendant introduced constructions on the property
which are commercial in nature, like restaurants, retail stores and the like
(see par. A, Deed of Absolute Sale, Annex "A").
b. The commercial structures constructed by defendant on the property extend up to the boundary lines of the lot in question
violating the setbacks established in the contract (see par. B.A., ibid).
c. Defendant likewise failed to submit the final plans and specifications of its proposed building not later than six (6) months from
June 29, 1994 and to complete construction of the same within four (4) years from December 31, 1991. (see pars. L and M, ibid).
d. Being situated in a first-class office building area, it was agreed that no advertisements or any kind of commercial signs shall be
allowed on the lot or the improvements therein but this was violated by defendant when it put up commercial signs and
advertisements all over the area, (see par. F, ibid).
6. Any of the afore-described violations committed by the defendant empower the plaintiff to sue under paragraph "N. Unilateral
Cancellation", plaintiff may have the Deed of Absolute Sale (Annex "A") cancelled and the property reverted to it by paying the
defendant the amount it has paid less the items indicated therein.
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For reliefs, Ortigas prayed for the reconveyance of the subject property, or, alternatively, for the demolition of the structures and
improvements thereon, plus the payment of penalties, attorney's fees and costs of sui t.
During the pendency of the proceedings in the RTC, the petitioner amended its Articles of Incorporation to change its name to
St. Francis Square Realty Corporation.
ISSUE
Whether or not Ortigas validly rescinded the Deed of Sale due to the failure of Amethyst and its assignee, the petitioner, to fulfil the
covenants under the Deed of Sale.
RULING
In asserting its right to rescind, Ortigas insists that the petitioner was bound by the covenants of the Deed of Sale annotated on
TCT No. PT-10597 in the name of the petitioner; and that the petitioner's privity to the Deed of Sale was by virtue of its being the
successor-in-interest or assignee of Amethyst.
After evaluating the parties' arguments and the records of the case, the Court holds that Ortigas could not validly demand the
reconveyance of the property, or the demolition of the structures thereon through rescission.
The Deed of Assignment in Liquidation executed between Amethyst and the petitioner expressly stated, in part, that:
x x x x [T]he ASSIGNOR hereby assigns, transfers and conveys unto the ASSIGNEE, its successors and assigns, free from
any lien or encumbrance except those that are duly annotated on the Transfer Certificate of Title (TCT), one parcel of real
property (with improvements). x x x.
xxxx
The ASSIGNEE in turn in consideration of the foregoing assignment of assets to it, hereby surrenders to ASSIGNOR, Amethyst
Pearl Corporation, Stock Certificate Nos. (006, 007, 008, 009, 010, 011), covering a total of TEN THOUSAND SHARES (10,000)
registered in the name of the ASSIGNEE and its nominees in the books of ASSIGNOR, receipt of which is hereby acknowledged, and
in addition hereby releases ASSIGNOR from any and all claims.
The express terms of the Deed of Assignment in Liquidation, supra, indicate that Amethyst transferred to the petitioner only the
tangible asset consisting of the parcel of land covered by TCT No. PT-94175 registered in the name of Amethyst. By no means did
Amethyst assign the rights or duties it had assumed under the Deed of Sale. The petitioner thus became vested with the ownership
of the parcel of land "free from any lien or encumbrance except those that are duly annotated on the [title]" from the time
Amethyst executed the Deed of Assignment in Liquidation.
Although the Deed of Sale stipulated that:

3. The lot, together with any improvements thereon, or any rights thereto, shall not be transferred, sold or encumbered before the
final completion of the building as herein provided unless it is with the prior express written approval of ORTIGAS.
xxxx
The VENDEE hereby agrees that, for the time being, this Deed will not be registered and that its title shall not be issued until the
satisfactory construction of the contemplated Office Building and VENDEE's compliance with all conditions herein. x x
Ortigas apparently recognized without any reservation the issuance of the new certificate of title in the name of Amethyst and the
subsequent transfer by assignment from Amethyst to the petitioner that resulted in the issuance of the new certificate of title under
the name of the petitioner. As such, Ortigas was estopped from assailing the petitioner's acquisition and ownership of
the property.
The application of estoppel was appropriate. The doctrine of estoppel was based on public policy, fair dealing, good faith and
justice, and its purpose was to forbid a party to speak against his own act or omission, representation, or commitment to the injury
of another to whom the act, omission, representation, or commitment was directed and who reasonably relied thereon. The
doctrine sprang from equitable principles and the equities in the case, and was designed to aid the law in the administration of
justice where without its aid injustice would result. Estoppel has been applied by the Court wherever and whenever special
255
circumstances of the case so demanded.
Yet, the query that persists is whether or not the covenants annotated on TCT No. PT-10597 bound the petitioner to the
performance of the obligations assumed by Amethyst under the Deed of Sale.
We agree with Ortigas that the annotations on TCT No. PT-10597 bound the petitioner but not to the extent that rendered the
petitioner liable for the non-performance of the covenants stipulated in the Deed of Sale.
Section 39 of Act No. 496 (The Land Registration Act) requires that every person receiving a certificate of title in pursuance
of a decree of registration, and every subsequent purchaser of registered land who takes a certificate of title for value in good faith
shall hold the same free of all encumbrances except those noted on said certificate. An encumbrance in the context of the provision
is "anything that impairs the use or transfer of property; anything which constitutes a burden on the title; a burden or charge upon
property; a claim or lien upon property." It denotes "any right to, or interest in, land which may subsist in another to the diminution
of its value, but consistent with the passing of the fee by conveyance."
An annotation, on the other hand, is "a remark, note, case summary, or commentary on some passage of a book, statutory
provision, court decision, of the like, intended to illustrate or explain its meaning." The purpose of the annotation is to charge the
purchaser or title holder with notice of such burden and claims. Being aware of the annotation, the purchaser must face the
possibility that the title or the real property could be subject to the rights of third parties.
By acquiring the parcel of land with notice of the covenants contained in the Deed of Sale between the vendor (Ortigas) and the
vendee (Amethyst), the petitioner bound itself to acknowledge and respect the encumbrance. Even so, the petitioner did not step
into the shoes of Amethyst as a party in the Deed of Sale. Thus, the annotation of the covenants contained in the Deed of
Sale did not give rise to a liability on the part of the petitioner as the purchaser/successor-in-interest without its
express assumption of the duties or obligations subject of the annotation. As stated, the annotation was only the notice
to the purchaser/successor-in-interest of the burden, claim or lien subject of the annotation. In that respect, the Court has observed
in Garcia v. Villar:
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.
x x x 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
creditors consent. Article 1293 of the Civil Code provides:
Art. 1293. 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. x x x
To be clear, contractual obligations, unlike contractual rights or benefits, are generally not assignable. But there are recognized
means by which obligations may be transferred, such as by sub-contract and novation. In this case, the substitution of the
petitioner in the place of Amethyst did not result in the novation of the Deed of Sale. To start with, it does not appear
from the records that the consent of Ortigas to the substitution had been obtained despite its essentiality to the novation. Secondly,
the petitioner did not expressly assume Amethyst's obligations under the Deed of Sale, whether through the Deed of Assignment in
Liquidation or another document. And, thirdly, the consent of the new obligor (i.e., the petitioner), which was as essential to the
novation as that of the obligee (i.e., Ortigas), was not obtained.
Even if we would regard the petitioner as the assignee of Amethyst as far as the Deed of Sale was concerned, instead of being the
buyer only of the subject property, there would still be no express or implied indication that the petitioner had assumed Amethyst's
obligations. In short, the burden to perform the covenants under the Deed of Sale, or the liability for the non-performance thereof,
remained with Amethyst. As held in an American case:
The mere assignment of a bilateral executory contract may not be interpreted as a promise by the assignee to the assignor to
assume the performance of the assignor's duties, so as to have the effect of creating a new liability on the part of the assignee to
256
the other party to the contract assigned. The assignee of the vendee is under no personal engagement to the vendor where there is
no privity between them. The assignee may, however, expressly or impliedly, bind himself to perform the assignor's duties. This he
may do by contract with the assignor or with the other party to the contract. It has been held (Epstein v. Gluckin, 233 N. Y. 490)
that where the assignee of the vendee invokes the aid of a court of equity in an action for specific performance, he impliedly binds
himself to perform on his part and subjects himself to the conditions of the judgment appropriate thereto. "He who seeks equity
must do equity." The converse of the proposition, that the assignee of the vendee would be bound when the vendor began the
action, did not follow from the decision in that case. On the contrary, the question was wholly one of remedy rather than right and
it was held that mutuality of remedy is important only so far as its presence is essential to the attainment of the ends of justice.
This holding was necessary to sustain the decision. No change was made in the law of contracts nor in the rule for the
interpretation of an assignment of a contract.
A judgment requiring the assignee of the vendee to perform at the suit of the vendor would operate as the imposition of a new
liability on the assignee which would be an act of oppression and injustice, unless the assignee had, expressly or by implication,
entered into a personal and binding contract with the assignor or with the vendor to assume the obligations of the assignor.
Is rescission the proper remedy for Ortigas to recover the subject property from the petitioner?
The Civil Code uses rescission in two different contexts, namely: (1) rescission on account of breach of contract under Article
1191; and (2) rescission by reason of lesion or economic prejudice under Article 1381. Cogently explaining the differences between
the contexts of rescission in his concurring opinion in Universal Food Corp. v. Court of Appeals, the eminent Justice J.B.L. Reyes
observed:
x x x The rescission on account of breach of stipulations is not predicated on injury to economic interests of the party plaintiff but
on the breach of faith by the defendant, that violates the reciprocity between the parties. It is not a subsidiary action, and Article
1191 may be scanned without disclosing anywhere that the action for rescission thereunder is subordinated to anything; other than
the culpable breach of his obligations by the defendant. This rescission is in principal action retaliatory in character, it being unjust
that a party be held bound to fulfill his promises when the other violates his, as expressed in the old Latin aphorism: " Non servanti
fidem, non est fides servanda ." Hence, the reparation of damages for the breach is purely secondary.
On the contrary, in the rescission by reason of lesion or economic prejudice, the cause of action is subordinated to the existence of
that prejudice, because it is the raison d'etre as well as the measure of the right to rescind. Hence, where the defendant makes
good the damages caused, the action cannot be maintained or continued, as expressly provided in Articles 1383 and 1384. But the
operation of these two articles is limited to the cases of rescission for lesion enumerated in Article 1381 of the Civil Code of the
Philippines, and does not apply to cases under Article 1191.
Based on the foregoing, Ortigas' complaint was predicated on Article 1191 of the Civil Code, which provides:
Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what
is incumbent upon him.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles
Rescission under Article 1191 of the Civil Code is proper if one of the parties to the contract commits a substantial breach of its
provisions. It abrogates the contract from its inception and requires the mutual restitution of the benefits received; hence, it can be
carried out only when the party who demands rescission can return whatever he may be obliged to restore.
Considering the foregoing, Ortigas did not have a cause of action against the petitioner for the rescission of the Deed of Sale. Under
Section 2, Rule 2 of the Rules of Court, a cause of action is the act or omission by which a party violates a right of another.
The essential elements of a cause of action are: (1) a right in favor of the plaintiff by whatever means and under whatever law it
arises or is created; (2) an obligation on the part of the defendant not to violate such right; and (3) an act or omission on the part
257
of the defendant in violation of the right of the plaintiff or constituting a breach of the obligation of the defendant to the plaintiff for
which the latter may maintain an action for recovery of damages or other relief. It is only upon the occurrence of the last element
that the cause of action arises, giving the plaintiff the right to file an action in court for the recovery of damages or other relief. 54
The second and third elements were absent herein. The petitioner was not privy to the Deed of Sale because it was not the
party obliged thereon. Not having come under the duty not to violate any covenant in the Deed of Sale when it purchased the
subject property despite the annotation on the title, its failure to comply with the covenants in the Deed of Sale did not constitute a
breach of contract that gave rise to Ortigas' right of rescission. It was rather Amethyst that defaulted on the covenants under
the Deed of Sale; hence, the action to enforce the provisions of the contract or to rescind the contract should be against Amethyst.
In other words, rescission could not anymore take place against the petitioner once the subject property legally came into the
juridical possession of the petitioner, who was a third party to the Deed of Sale.
GOLDEN VALLEY EXPLORATION, INC. V. PINKIAN MINING CO.,

G.R. NO. 190080, [JUNE 11, 2014]
There is a stipulation in the contract which constitutes a ground for recission and where the parties can
extrajudicially rescind the agreement in case of breach.
FACTS
PMC is the owner of 81 mining claims located in Kayapa, Nueva Vizcaya, 15 of which were covered by Mining Lease Contract (MLC)
No. MRD-56, while the remaining 66 had pending applications for lease. On October 30, 1987, PMC entered into an Operating
Agreement (OA) with GVEI, granting the latter “full, exclusive and irrevocable possession, use, occupancy, and control over the
[mining claims], and every matter pertaining to the examination, exploration, development and mining of the [mining claims] and
the processing and marketing of the products x x x,” for a period of 25 years.
In a Letter dated June 8, 1999, PMC extra-judicially rescinded the OA upon GVEI’s violation of Section 5.01, Article V thereof.
Cited as further justification for its action were reasons such as: ( a) violation of Section 2.03, Article II of the OA, or the failure of
GVEI to advance the actual cost for the perfection of the mining claims or for the acquisition of mining rights, cost of lease
applications, lease surveys and legal expenses incidental thereto; (b) GVEI’s non-reimbursement of the expenses incurred by PMC
General Manager Benjamin Saguid in connection with the visit of a financier to the mineral property in 1996; (c) its non-remittance
of the US$300,000.00 received from Excelsior Resources, Ltd.; (d) its nondisclosure of contracts entered into with other mining
companies with respect to the mining claims; (e) its being a mere “promoter/broker” of PMC’s mining claims instead of being the
operator thereof; and (f) its non- performance of the necessary works on the mining claims.
GVEI contested PMC’s extra-judicial rescission of the OA through a Letter dated December 7, 1999, averring therein that its
obligation to pay royalties to PMC arises only when the mining claims are placed in commercial production which condition has not
yet taken place. It also reminded PMC of its prior payment of the amount of P185,000.00 as future royalties in exchange for PMC’s
express waiver of any breach or default on the part of GVEI.
PMC no longer responded to GVEI’s letter. Instead, it entered into a Memorandum of Agreement dated May 2, 2000 (MOA) with
CVI, whereby the latter was granted the right to “enter, possess, occupy and control the mining claims” and “to explore and
develop the mining claims, mine or extract the ores, mill, process and beneficiate and/or dispose the mineral products in any
method or process,” among others, for a period of 25 years.”lawred
Due to the foregoing, GVEI filed a Complaint for Specific Performance, Annulment of Contract and Damages against PMC and CVI
before the RTC, docketed as Civil Case No. 01-324.
ISSUE
Whether or not there was a valid unilateral rescission by PMC of the Operating Agreement entered into between PMC and GVEI due
to GVEI’s non-payment of royalties considering the parties’ express stipulation in the OA that said agreement may be cancelled on
such ground and for failure to carry out its obligation to conduct operations on and/or commercialize the mining claims already
covered by MLC No. MRD-56
258
RULING
The Court resolves the issue in the affirmative.
In reciprocal obligations, either party may rescind the contract upon the other’s substantial breach of the obligation/s he had
assumed thereunder. The basis therefor is Article 1191 of the Civil Code which states as follows:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him.
More accurately referred to as resolution, the right of rescission under Article 1191 is predicated on a breach of faith that violates
the reciprocity between parties to the contract. This retaliatory remedy is given to the contracting party who suffers the injurious
breach on the premise that it is “unjust that a party be held bound to fulfill his promises when the other violates his.”
As a general rule, the power to rescind an obligation must be invoked judicially and cannot be exercised solely on a
party’s own judgment that the other has committed a breach of the obligation. This is so because rescission of a contract
will not be permitted for a slight or casual breach, but only for such substantial and fundamental violations as would defeat the very
object of the parties in making the agreement. As a well-established exception, however, an injured party need not resort
to court action in order to rescind a contract when the contract itself provides that it may be revoked or cancelled
upon violation of its terms and conditions. As elucidated in Froilan v. Pan Oriental Shipping Co., “there is x x x nothing in the
law that prohibits the parties from entering into agreement that violation of the terms of the contract would cause cancellation
thereof, even without court intervention.” Similarly, in Dela Rama Steamship Co., Inc. v. Tan, it was held that judicial permission to
rescind an obligation is not necessary if a contract contains a special provision granting the power of cancellation to a party.
With this in mind, the Court therefore affirms the correctness of the CA’s Decision upholding PMC’s unilateral rescission of the OA
due to GVEI’s non-payment of royalties considering the parties’ express stipulation in the OA that said agreement may be cancelled
on such ground. This is found in Section 8.01, Article VIII33 in relation to Section 5.01, Article V of the OA which provides:
ARTICLE VIII
CANCELLATION/TERMINATION OF AGREEMENT
8.01 This Agreement may be cancelled or terminated prior to the expiration of the period, original or renewal
mentioned in the next preceding Section only in either of the following ways:
a. By written advance notice of sixty (60) days from OPERATOR to PINKIAN with or without cause by registered mail or personal
delivery of the notice to PINKIAN.
b. By written notice from PINKIAN by registered or personal deliver of the notice to OPERATOR based on the failure to OPERATOR
to make any payments determined to be due PINKIAN under Section 5.01 hereof after written demand for payment has
been made on OPERATOR: Provided that OPERATOR shall have a grace period of ninety (90) days from receipt of such written
demand within which to make the said payments to PINKIAN.
ARTICLE V
ROYALTIES
5.01 Should the PROPERTIES be placed in commercial production the PINKIAN shall be entitled to a Royalty computed as follows:
259
(a) For gold – 3.0 percent of net realizable value of gold

(b) For copper and others – 2.0 percent of net realizable value
“Net REALIZABLE Value” is gross value less the sum of the following:
(1) marketing expenses including freight and insurance;
(2) all smelter charges and deductions;
(3) royalty payments to the government;
(4) ad valorem and export taxes, if any, paid to the government.
The aforesaid royalties shall be paid to PINKIAN within five (5) days after receipt of the smelter or refinery returns.
(Emphases and underscoring supplied)
By expressly stipulating in the OA that GVEI’s non-payment of royalties would give PMC sufficient cause to cancel or rescind the OA,
the parties clearly had considered such violation to be a substantial breach of their agreement. Thus, in view of the above-stated
jurisprudence on the matter, PMC’s extra-judicial rescission of the OA based on the said ground was valid.
In this relation, the Court finds it apt to clarify that the following defenses raised by GVEI in its petition would not impel a different
conclusion:
I.
First, GVEI cannot excuse its non-payment of royalties on the argument that no commercial mining was yet in place. This is
precisely because the obligation to develop the mining areas and put them in commercial operation also belonged to
GVEI as it expressly undertook “to explore, develop, and equip the Claims to mine and beneficiate the ore thereof by any method
or process” and “to enter into contract, agreement, assignments, conveyances and understandings of any kind whatsoever with
reference to the exploration, development, equipping and operation of the Claims, and the mining and beneficiation of the ore
derived therefrom, and marketing the resulting marketable products.”awred
Records reveal that when the OA was signed on October 30, 1987, 15 mining claims were already covered by a perfected mining
lease contract, i.e., MLC No. MRD-56, granting to the holder thereof “the right to extract all mineral deposits found on or
underneath the surface of his mining claims x x x; to remove, process and otherwise utilize the mineral deposits for his own
benefit.”37 This meant that GVEI could have immediately extracted mineral deposits from the covered mineral land and carried out
commercial mining operations from the very start. However, despite earlier demands made by PMC, no meaningful steps were
taken by GVEI towards the commercial production of the 15 perfected mining claims and the beneficial exploration of those
remaining. Consequently, seven years into the life of the OA, no royalties were paid to PMC. Compounding its breach, GVEI not only
failed to pay royalties to PMC but also did not carry out its obligation to conduct operations on and/or commercialize the mining
claims already covered by MLC No. MRD-56. Truth be told, GVEI’s non-performance of the latter obligation under the OA actually
made the payment of royalties to PMC virtually impossible. Hence, GVEI cannot blame anyone but itself for its breach of the OA,
which, in turn, gave PMC the right to unilaterally rescind the same.
II.
Second, neither can GVEI successfully oppose PMC’s rescission of the OA on the argument that the ground to rescind the OA was
only limited to its non-payment of royalties precisely because said ground was actually among the reasons for PMC’s rescission
thereof. Considering the stipulations above-cited, the ground for non-payment of royalties was in itself sufficient for PMC to extra-
judicially rescind the OA.
In any event, even discounting the ground of non-payment of royalties, PMC still had the right to rescind the OA based on the other
grounds it had invoked therefor, namely, (a) violation of Section 2.03, Article II of the OA, or the failure of GVEI to advance the
actual cost for the perfection of the mining claims or for the acquisition of mining rights, cost of lease applications, lease surveys
and legal expenses incidental thereto, (b) GVEI’s non-reimbursement of the expenses incurred by PMC General Manager Benjamin
Saguid in connection with the visit of a financier to the mineral property in 1996, ( c) its non-remittance of the US$300,000.00
received from Excelsior Resources, Ltd., ( d) its non-disclosure of contracts entered into with other mining companies with respect to
the mining claims, (e) its being a mere “promoter/broker” of PMC’s mining claims instead of being the operator thereof, and ( f) its
non-performance of the necessary works on the mining claims, albeit the said grounds should have been invoked judicially
since the court would still need to determine if the same would constitute substantial breach and not merely a
slight or casual breach of the contract. While Section 8.01, Article VIII of the OA as above-cited appears to expressly restrict
the availability of an extra-judicial rescission only to the grounds stated thereunder, the Court finds that the said stipulation
260
does not negate PMC’s implied statutory right to judicially rescind the contract for other unspecified acts that may actually
amount to a substantial breach of the contract. This is based on Article 1191 of the Civil Code (also above-cited) which pertinently
provides that the “power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him” and that “[t]he court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.”
While it remains apparent that PMC had not judicially invoked the other grounds to rescind in this case, the only recognizable effect,
however, is with respect to the reckoning point as to when the contract would be formally regarded as rescinded. Where parties
agree to a stipulation allowing extra-judicial rescission, no judicial decree is necessary for rescission to take place;
the extra-judicial rescission immediately releases the party from its obligation under the contract, subject only to
court reversal if found improper. On the other hand, without a stipulation allowing extra-judicial rescission, it is the
judicial decree that rescinds, and not the will of the rescinding party. This may be gathered from previous Court rulings on
the matter.
For instance, in Ocejo, Perez & Co. v. International Banking Corporation, where the seller, without having reserved title to the thing
sold, sought to re-possess the subject matter of the sale through an action for replevin after the buyer failed to pay its purchase
price, the Court ruled that the action of replevin (which operates on the assumption that the plaintiff is the owner of the thing
subject of the suit) “will not lie upon the theory that the rescission has already taken place and that the seller has recovered title to
the thing sold.” It held that the title which had already passed by delivery to the buyer is not ipso facto re-vested in the seller upon
the latter’s own determination to rescind the sale because it is the judgment of the court that produces the rescission.
On the other hand, in De Luna v. Abrigo (De Luna), the Court upheld the validity of a stipulation providing for the automatic
reversion of donated property to the donor upon non-compliance of certain conditions therefor as the same was akin to an
agreement granting a party the right to extra-judicially rescind the contract in case of breach. The Court ruled, in effect, that a
subsequent court judgment does not rescind the contract but merely declares the fact that the same has been rescinded, viz .:
[J]udicial intervention is necessary not for purposes of obtaining a judicial declaration rescinding a contract already
deemed rescinded by virtue of an agreement providing for rescission even without judicial intervention, but in order to
determine whether or not the rescission was proper.
A similar agreement in Roman Catholic Archbishop of Manila v. CA allowing the ipso facto reversion of the donated property upon
non- compliance with the conditions was likewise upheld, with the Court reiterating De Luna and declaring in unmistakable terms
that:lawred
Where [the propriety of the automatic rescission] is sustained, the decision of the court will be merely declaratory of the
revocation, but it is not in itself the revocatory act. (Emphasis and underscoring supplied)
This notwithstanding, jurisprudence still indicates that an extra-judicial rescission based on grounds not specified in the
contract would not preclude a party to treat the same as rescinded. The rescinding party, however, by such course of
action, subjects himself to the risk of being held liable for damages when the extra-judicial rescission is questioned by the opposing
party in court. This was made clear in the case of U.P. v. De Los Angeles, wherein the Court held as follows:
Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on account of
infractions by the other contracting party must be made known to the other and is always provisional, being ever
subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to
resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing,
decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in
the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced.
In other words, the party who deems the contract violated may consider it resolved or rescinded, and act
accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the
corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law.
x x x.44 (Emphases and underscoring supplied)
The pronouncement, which was also reiterated in the case of Angeles v. Calasanz, sought to explain various rulings that continued
261
to require judicial confirmation even in cases when the rescinding party has a proven contractual right to extra-judicially rescind the
contract. The observation then was mainly on the practical effect of a stipulation allowing extra-judicial rescission being merely “to
transfer to the defaulter the initiative on instituting suit, instead of the rescinder.”d
Proceeding from the foregoing, the Court has determined that the other grounds raised by PMC in its Letter dated June 8, 1999 to
GVEI (the existence of which had not been convincingly disputed herein) amounts to the latter’s substantial breach of the OA. To
the Court’s mind, said infractions, when taken together, ultimately resulted in GVEI’s failure to faithfully perform its primordial
obligation under the OA to explore and develop PMC’s mining claims as well as to put the same into commercial operation.
Accordingly, PMC’s rescission of the OA on the foregoing grounds, in addition to the ground of non-payment of royalties, is equally
valid.
III.
Finally, the Court cannot lend credence to GVEI’s contention that when PMC entered into an agreement with CVI covering the
mining claims, it was committing a violation of the terms and conditions of the OA. As above-explained, the invocation of a
stipulation allowing extra-judicial rescission effectively puts an end to the contract and, thus, releases the parties from the
obligations thereunder, notwithstanding the lack of a judicial decree for the purpose. In the case at bar, PMC, through its Letter
dated June 8, 1999 to GVEI, invoked Section 8.01, Article VIII in relation to Section 5.01, Article V of the OA which allows it to
extra-judicially rescind the contract for GVEI’s non-payment of royalties. Thus, at that point in time, PMC had effectively rescinded
the OA and was then considered to have been released from its legal effects. Accordingly, there stood no legal impediment so as to
hinder PMC from entering into a contract with CVI covering the same mining claims subject of this case.
In fine, the Court denies the instant petition and affirms the assailed CA Decision and Resolution.
THE WELLEX GROUP, INC. V. U-LAND AIRLINES, CO., LTD.,

G.R. NO. 167519, [JANUARY 14, 2015]
FACTS
ISSUE
RULING
PHILIPPINE ECONOMIC ZONE AUTHORITY V. PILHINO SALES CORP.,

G.R. NO. 185765, [SEPTEMBER 28, 2016]
FACTS
ISSUE
RULING
YAMAUCHI V. SUÑIGA
G.R. NO. 199513, [APRIL 18, 2018]
FACTS
ISSUE
RULING
262
CAMP JOHN HAY DEVELOPMENT CORP. V. CHARTER CHEMICAL AND COATING CORP.,
G.R. NO. 198849, [AUGUST 7, 2019]
FACTS
ISSUE
RULING
CAMARINES SUR TEACHERS AND EMPLOYEES ASSOCIATION, INC. V. PROVINCE OF

CAMARINES SUR, G.R. NO. 199666, [OCTOBER 7, 2019]
FACTS
ISSUE
RULING
SPOUSES GODINEZ V. SPOUSES NORMAN

G.R. NO. 225449, [FEBRUARY 26, 2020]
FACTS
ISSUE
RULING
263

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OBLIGATIONS AND CONTRACTS

In the same way, rights and actions are lost by

These two kinds of prescription should not be interchanged.

As to whether rights are acquired or lost

As to the object or subject matter

Distinctions between PRESCRIPTION AND LACHES

The defense of laches applies independently of prescription.

II. Does the action of Pangasinan and Borromeo already prescribed?

The four (4) elements of laches are as follows:

PHIL-AIR CONDITIONING CENTER

b) The amount of P60,000.00 for the unpaid repair services;

e) Costs of the suit.

Art. 1107. Persons who are capable of acquiring

Persons who are disqualified from administering their

1112 – RENUNCIATION OF PRESCRIPTION ALREADY OBTAINED

Art. 1112. Persons with capacity to alienate property may

CALTEX-PHILIPPINES V. AGUIRRE, ET. AL. 787 S 73

The Parties' Arguments

I. The petition lacks merit.

1113 – OBJECT OF PRESCRIPTION

Property of the State or any of its subdivisions not

RE: PROPERTY OF THE STATE

Espinosa also presented two (2) tax declarations

The MTC rendered a Judgment granting Espinosa's petition for registration

The CA dismissed petitioner's appeal and affirmed the MTC Decision

Does Espinosa able to prove that the subject property is patrimonial?

The Court reversed the ruling of the lower courts.

HEIRS OF DELFIN v. NHA

first, the property is established to be private in character; and

Property - such as land - is either of public dominion or private ownership.

first, that the land subject of the claim is agricultural land;

The period to acquire public land by acquisitive

As thoroughly explained in Republic v. Spouses Go:

alienable and disposable,

1. applicants must "present a copy of the

2. certified as a true copy by the legal

1118– POSSESSION IN THE CONCEPT OF AN OWNER

ART. 1118. Possession has to be in the concept of an

Concomitantly, the burden to prove these requisites rests on the applicant.

- Does Article 1118, Civil Code apply to co-ownership

HEIRS of FELICIANO YAMBAO VS. HEIRS OF

(3) that the evidence thereon must be clear and convincing.

1119 – POSSESSION BY MERE TOLERANCE

ART. 1119. Possession through License or

Concept of a Holder - it will not ripen to ownership by way of acquisitive prescription

Possession through license or tolerance of the owner

ABALOS v. HEIRS OF TORIO

The SC ruled in favor of the Heirs of Torio.

Petitioners never disputed such an acknowledgment.

ART. 1120. Possession is interrupted for the purposes

ART. 1121. Possession is naturally interrupted when

The old possession is not revived if a new possession

1122 to 1124 – NATURAL AND CIVIL INTERRUPTION

ART. 1122. If the natural interruption is for only one

ART. 1123. Civil interruption is produced by judicial

TWO FORMS OF INTERRUPTION

Natural Interruption Civil Interruption

Art. 1121 Art. 1123

PACHECO V. COURT OF APPEALS,

ARTICLE 124 JUDICIAL SUMMONS (CIVIL INTERRUPTION)

ART. 1124. Judicial summons shall be deemed not to

Instances under the law: