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OBLIGATIONS,CONTRACT: DEFINITION, ELEMENTS
SM LAND, INC., Petitioner, v. BASES CONVERSION AND DEVELOPMENT AUTHORITY
AND ARNEL PACIANO D. CASANOVA, ESQ., IN HIS OFFICIAL CAPACITY AS
PRESIDENT AND CEO OF BCDA, Respondents.
G.R. No. 203655, March 18, 2015 Special Third Division
Ponente: Velasco Jr., J.:
Contract is a “juridical convention manifested in legal form, by virtue of which one or more persons
bind themselves in favor of another or others, or reciprocally, to the fulfilment of a prestation to give,
to do, or not to do.”
This is a motion for reconsideration of the decision which granted the petition for certiorari filed by
SM Land, Inc. (SMLI) and directed respondent Bases Conversion Development Authority (BCDA)
FACTS: On December 14, 2009 SMLI submitted the first Unsolicited Proposal to BCDA, the
submission constituted an offer to undertake the development of the subject property. SMLI’s offer,
which was duly accepted by the BCDA, provided for standards to set the the floor price and does not
foreclose better offers that can even surpass the property’s current market value. On August 6, 2010,
BCDA Board issued the Certification of Successful Negotiations, whereby, it accepted SMLI’s
Unsolicited Proposal and declared SMLI eligible to enter into the proposed JV activity, agreeing
further “to subject [SMLI]’s Original Proposal to Competitive Challenge pursuant to the NEDA JV
Guidelines, which competitive challenge process shall be immediately implemented.
ISSUES:
1.Whether or not BCDA and SMLI has a contract upon which the latter has the right to demand that
its unsolicited proposal be subjected to a competitive challenge and;
2. whether or not the agreement BCDA and SMLI may be terminated by reasons of public interest.
HELD:
1.Yes, there exists a valid agreementbetween SMLI and BCDA, a perfected contract––a source of
rights and reciprocal obligations on the part of both parties. Consequently, a breach thereof may give
rise to a cause of action against the erring party. Article 1305 of the New Civil Code defines a
contract as “a meeting of minds between two persons whereby one binds himself, with respect to the
other, to give something or to render some service.” It is a “juridical convention manifested in legal
form, by virtue of which one or more persons bind themselves in favor of another or others, or
reciprocally, to the fulfilment of a prestation to give, to do, or not to do.”Article 1318 provides that
the essential requisites of a valid contract are:(1) Consent of the contracting parties;(2) Object
certain which is the subject matter of the contract; and(3) Cause of the obligation which is
established.
The first requisite, consent, is manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract.In the case at bar, when SMLI submitted the
first Unsolicited Proposal to BCDA, the submission constituted an offer to undertake the
development of the subject property. BCDA then entered into negotiations with SMLI until the
BCDA finally accepted the terms of the final unsolicited proposal. Their agreement was thereafter
reduced into writing through the issuance of the Certification of Successful Negotiations where the
meeting of the parties’ minds was reflected, to wit: that the parties, after successful negotiations
reached an agreement on the purpose, terms and conditions on the development of the subject
property, which shall become the terms for the Competitive Challenge pursuant to the Guidelines of
the Joint Venture. Bothe parties affixed their signatures on the Certification of Successful
Negotiations and thereafter had it notarized.
Cause, on the other hand, is the essential reason which moves the parties to enter into the contract. It
is the immediate, direct and proximate reason which justifies the creation of an obligation through the
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will of the contracting parties. Article 1350 provides that “[i]n onerous contracts the cause is
understood to be, for each contracting party, the prestation or promise of a thing or service by the
other.” The cause of the agreement is the parties’ interest in the sale or acquisition and development
of the property and their undertaking to perform their respective obligations, as reflected in the
Certificate of Successful Negotiations and in the Terms of Reference (TOR) issued by BCDA.
Lastly, object certain refers to the subject matter of the contract. It is the thing to be delivered or the
service to be performed. Here, when the BCDA Board issued, on August 6, 2010, the Certification of
Successful Negotiations, it not only accepted SMLI’s Unsolicited Proposal and declared SMLI
eligible to enter into the proposed JV activity. It also “agreed to subject [SMLI]’s Original Proposal
to Competitive Challenge pursuant to Annex C [of the NEDA JV Guidelines], which competitive
challenge process shall be immediately implemented.
The elements of a valid contract being present, there thus exists between SMLI and BCDA a
perfected contract, embodied in the Certification of Successful Negotiations, upon which certain
rights and obligations spring forth, including the commencement of activities for the solicitation for
comparative proposals.
This agreement is the law between the contracting parties with which they are required to comply in
good faith. BCDA’s subsequent unilateral cancellation of this perfected contract which this Court
deemed to have been tainted with grave abuse of discretion. BCDA could not validly renege on its
obligation to subject the unsolicited proposal to a competitive challenge in view of this perfected
contract, and especially so after BCDA gave its assurance that it would respect the rights that accrued
in SMLI’s favor arising from the same.
2. No. The alleged adverse effects on the government remain speculative; respondents should,
therefore, honor its commitment with petitioner not only pursuant to its contractual and legal
obligations under the TOR and the NEDA JV Guidelines, but also as a balancing mechanism
between the tangible benefits the government stands to reap in terms of contract consideration, and
its intangible benefits including improved public confidence in the government in terms of ease of
doing business with. The government is not not precluded from availing of safeguards and remedies
it is entitled to after soliciting comparative proposals, as provided under the TOR and the NEDA JV
Guidelines.
The NEDA JV Guidelines, has the force and effect of law. The interpretation offered by BCDA is,
therefore, unacceptable. Between procedural guidelines promulgated by an agency pursuant to its
rule-making power and a condition unilaterally designed and imposed for the implementation of the
same, the former must prevail. BCDA does not wield any rule-making power such that it can validly
alter or abandon a clear and definite provision in the NEDA JV Guidelines under the guise of a
condition under the TOR.
The Respondents’ Motion for Reconsideration is denied with finality.
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NATURE OF OBLIGATION;SURETY CONTRACTS; BREACH OF
CONTRACT
STRONGHOLD INSURANCE COMPANY, INC., Petitioner, vs.
SPOUSES RUNE and LEA STROEM, Respondents.
G.R. No. 204689
January 21, 2015
Manila, Second Division
Ponente: Marvic M.V.F. Leonen, Associate Justice
This is a Petition for Reviewunder Rule 45 of the Rules of Court assailing the Decisionof the Court of
Appeals.
FACTS:
Spouses Rune and Lea Stroem (Spouses Stroem) entered into an Owners-Contractor Agreement
secured by a performance bond of P4,500,000.00 from Stronghold Insurance Company, Inc. with
Asis-Leif & Company, Inc. (Asis-Leif) for the construction of a two-storey house on the lot owned by
Spouses Stroem. By the performance bond,Asis-Leif bound themselves jointly and severally to pay
the Spouses Stroem the agreed amount in the event that the construction project is not completed.
Asis-Leif failed to finish the projecton time despite repeated demands of the Spouses Stroem.Spouses
Stroem subsequently rescinded the agreement.They then hired an independent appraiser to evaluate
the progress of the construction project. The projects remained partially contructed as per the
conducted appraisal. The spouses subsequently filed a Complaint with Prayer for Preliminary
Attachment for breach of contract and for sum of money with a claim for damages against Asis-Leif,
Ms. Cynthia Asis-Leif, and Stronghold.The trial court rendered a judgment in favor of the Spouses
Stroem and ordered Stronghold to pay the Spouse Stroem P4,500,000.00 with 6% legal interest from
the time of first demand.Both Stronghold and the Spouses Stroem appealed to the Court of
Appeals.The Court of Appeals affirmed with modification the trial court’s Decision. It increased the
amount of attorney’s fees to P50,000.00 and held that Stronghold’s liability under the performance
bond is limited only to additional costs for the completion of the project.
When submitted for arbitration of which the question of jurisdiction asthe main issue was linked to
the question on the nature of the Owners-Contractor Agreement. The trial court held that it was
separate and distinct from the Bond, the parties to the contracts being distinct, holding further that the
arbitration clause in the Agreement is binding only on the parties thereto, thereby ruling that the
arbitral tribunal had no jurisdiction. On appeal, the Court further held that the terms of the bond show
that Stronghold is liable as surety and that notice to Stronghold is not required for its liability to
attach, which ruling as for the petitioner muddled the issue of jurisdiction. Hence this appeal.
ISSUES:
1. Whether petitioner Stronghold Insurance Company, Inc. is liable under the questioned Performance
Bond which will determine whether or not CIAC will be vested with jurisdiction.
2. What is the extent of liability of the petitioner Stronghold Insurance Company, Inc.?
3. What is the distinction between involves ordinary suretyship or corporate suretyship and in which
category does the present surety in question falls?
HELD:
1. This court has previously held that a performance bond, which is meant "to guarantee the supply of
labor,materials, tools, equipment, and necessary supervision to complete the project” is significantly
and substantially connected to the construction contract and, therefore, falls under the jurisdiction of
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the CIAC. Prudential Guarantee and Assurance Inc. v. Anscor Land, Inc.A guarantee or a surety
contract under Article 2047 of the Civil Code of the Philippines is an accessory contract because it is
dependent for its existence upon the principal obligation guaranteed by it.In fact, the primary and only
reason behind the acquisition of the performance bond was to guarantee that the construction project
would proceed in accordance with the contract terms and conditions. In effect, the performance bond
becomes liable for the completion of the construction project in the event th e party obliged fails in its
contractual undertaking. In practice, a performance bond is usually a condition or a necessary
component of construction contracts. In the case at bar, the performance bond was so connected with
the construction contract that the former was agreed by the parties to be a condition for the latter to
push through and at the same time, the former is reliant on the latter for its existence as an accessory
contract.Although not the construction contract itself, the performance bond is deemed as an associate
of the main construction contract that it cannot be separated or severed from its principal. The
Performance Bond is significantly and substantially connected to the construction contract that there
can be no doubt it is the CIAC, under Section 4 of EO No. 1008, which has jurisdiction over any
dispute arising from or connected with it.
At first look, the Owners-Contractor Agreement and the performance bond reference each other; the
performance bond was issued pursuant to the construction agreement.A performance bond is a kind of
suretyship agreement. A suretyship agreement is an agreement "whereby a party, called the surety,
guarantees the performance by another party, called the principal or obligor, of an obligation or
undertaking in favor of another party, called the obligee." In the same vein, a performance bond is
"designed to afford the project owner security that the . . . contractor, will faithfully comply with the
requirements of the contract . . . and make good [on the] damages sustained by the project owner in
case of the contractor’s failure to so perform."
It is settled that the surety’s solidary obligation for the performance of the principal debtor’s
obligation is indirect and merely secondary. Nevertheless, the surety’s liability tothe "creditor or
promisee of the principal is said to be direct, primary and absolute; in other words, he is directly and
equally bound with the principal." In enforcing a surety contract, the ‘complementary contractsconstrued-together’ doctrine finds application. According to this principle, an accessory contract must
beread in its entirety and together with the principal agreement. Article 1374 of the Civil Code
provides: The 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.
Applying the "complementary-contracts-construed-together" doctrine, this court in Prudential held
that the surety willingly acceded to the terms of the construction contract despite the silence of the
performance bond as to arbitration. In the present case, Article 7 of the Owners-Contractor
Agreement merely stated that a performance bond shall be issued in favor of respondents, in the event
that Asis-Leif fails to perform its duty under the Owners-Contractor Agreement. Consequently, the
performance bond merely referenced the contract entered into by respondents and Asis-Leif, which
pertained to Asis-Leif’s duty toconstruct a two-storey residence building with attic, pool, and
landscaping over respondents’ property.However, where a surety in a construction contract actively
participates in a collection suit, it is estopped from raising jurisdiction later. Assuming that petitioner
is privy to the construction agreement, we cannot allow petitioner to invoke arbitration at this late
stage of the proceedings since to do so would go against the law's goal of prompt resolution of cases
in the construction industry.
The petition is denied.
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OBLIGATIONS: ASSIGNMENT OF CREDIT/ SUBROGATION
FLORITA LIAM, petitioner vs. UNITED COCONUT PLANTERS’ Bank, respondent
June 15, 2016 GR No.194664
Supreme Court Third Division
Ponente: Bienvenido L. Reyes, J.:
This is a Petition for Review on Certiorari 1 under Rule 45of the Court of Appeals decision holding
that United Coconut Planters Bank (UCPB) was wrongly impleaded in Fiorita Liam's (Liam)
complaint for specific performance before the Housing and Land Use Regulatory Board (HLURB).
FACTS:
In April 1996, Liam entered into a contract to sell with developer Primetown Property Group, Inc.
(PPGI) for the purchase of a condominium unit in the latter’s Makati Prime City (MPC)
condominium project in Makati City for the price of P2,614,652.66to be delivered not later than 35
months from the start of actual construction. To finance the project PPGI obtained a loan from UCPB
transferring to UCPB its right to collect all receivables from condominium buyers, including Liam.
For this purpose, PPGI and UCPB executed a Memorandum of Agreement (MOA) and a document
denominated as Sale of Receivables and Assignment of Rights and Interests (Deed of Sale/
Assignment). PPGI notified Liam of the sale of its receivables to UCPB and directed her to remit any
remaining balance of the condominium unit's purchase price to UCPB, further stating that "the
payment arrangement shall in no way cause any amendment of terms and conditions, nor the
cancellation of the Contract to Sell she executed with PPGI. " Liam forthwith remitted her payments
to UCPB. However, in March1999, and subsequently in February 2001, Liam wrote UCPB asking for
the deferment of her amortization payments until such time that the unit is ready for delivery and
afterwards stopped making payments, stating that she will only resume making payments once the
unit is delivered. Liam also requested the waiver of interests and penalties for the period prior to
UCPB' s assumption as the payee of her amortizations. Her requests, however, were left unanswered.
Thus, in April 2004, Liam demanded for the refund of all the payments she made for PPGI's failure to
deliver the unit on the stipulated date. In July 1, 2005, UCPB proposed to Liam a financing package
for the full settlement of the balance of the purchase price. In October 2005, Liam saw UCPB's
newspaper advertisement offering to the public the sale of 'ready for occupancy' units in the Palm
Tower of MPC condominium project at a much lower price. Thus Liam requested UCPB to suspend
the restructuring of her loan and instead asked for the downgrading of her purchased two-bedroom
condominium unit to another unit equivalent in value to the Pl ,223,000.00 total payments she already
made. She also questioned the realty tax and documentary stamp tax imposed by UCPB in the
proposed financing package. Her requests, however, remained unheeded. Thus, in 2006, Liam filed a
Complaint for specific performance before the HLURB against PPGI and UCPB. HLURB ruled in
favor of Liam. Upon the appeal filed by PPGI and UCPB, the above ruling was affirmed with
modification by the HLURB Board of Commissioners. Upon appeal by UCPB, the CA ruled in favor
of the bank ruling that Liam had no right to demand for specific performance from UCPB because it
was not a privy to the contract to sell. The obligations of PPGI to Liam remained subsisting and it
continued to be Liam's obligor with respect to the delivery of the condominium units even after the
assignment.
ISSUE:
1. Whether or not the transaction between UCPB and PPGI was an assignment of credit and not
subrogation.
2. Whether or not UCPB has any liability in the transaction with Liam.
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HELD:
1. The transaction between UCPB and PPGI was an assignment of credit and not a subrogation. The
Court made the following distinction between assignment of credit and subrogation:
Aspects
Assignment of credit
Definition and an agreement by virtue of which the
consequences
owner of a credit, known as the
assignor, by a legal cause, such as
sale, dation in payment, exchange or
donation, and without the consent of
the debtor, transfers his credit and
accessory rights to another, known as
the assignee who acquires the power
to enforce it to the same extent as the
assignor could enforce it against the
debtor.
necessity of the the consent of the debtor is not
consent of the necessary in order that the
debtor in the assignment may fully produce legal
original
effects. What the law requires in an
transaction.
assignment of credit is not the
consent of the debtor but merely
notice to him as the assignment takes
effect only from the time he has
knowledge thereof. A creditor may,
therefore, validly assign his credit
and its accessories without the
debtor's consent.
Nature
may be done either gratuitously or
onerously, in which case, the
assignment has an effect similar to
that of a sale
Subrogation
is a process by which the third
party pays the obligation of the
debtor to the creditor with the
latter's
consent.
As
a
consequence, the paying third
party steps into the shoes of the
original creditor as subrogee of
the latter. It results in a subjective
novation of the contract in that a
third person is subrogated to the
rights of the creditor
subrogation requires an agreement
among the three parties concerned
- the original creditor, the debtor,
and the new creditor. lt is a new
contractual relation based on the
mutual agreement among all the
necessary parties.
it is onerous in nature
Assignment of credit may constitute a dation in payment, such as when a debtor, in order to obtain a
release from his debt, assigns to his creditor a credit he has against a third pcrson. It is the process of
transferring the right of the assignor to the assignee who would then have the right to proceed against
the debtor.
The terms of the MOA and Deed of Sale/Assignment between PPGI and UCPB unequivocally show
that the parties intended an assignment of PPG l's credit in favor of UCPB, in effect the MOA is
explicit that as partial settlement of its loan, PPGI sold in favor of UCPB its unsold condominium
units in MPC as well as its outstanding receivables from the 539 units covered by Contracts to Sell.
The CA found that based on the Agreement, UCPB is merely the assignee of the receivables under
the contracts to sell to the extent that the assignment is a manner adopted by which Primetown can
pay its loan to the bank. The CA held that the assignment of receivables did not make UCPB the
owner or developer of the unfinished project to make it solidarily liable with Primetown.
UCPB should not be held liable for the obligations and liabilities of PPGI under its contract to sell
with Liam, considering that the bank is a mere assignee of the rights and receivables under the
Agreement it executed with PPGI. There being no other grounds to hold UCPB solidarily liable with
PPGI, the instant petition must be denied for lack of merit.
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CIVIL OBLIGATION RESULTING FROM DELICT
PAZ T. BERNARDO, SUBSTITUTED BY HEIRS, MAPALAD G. BERNARDO, EMILIE B.
KO, MARILOU B. VALDEZ, EDWIN T. BERNARDO AND GERVY B.
SANTOS, Petitioners, v. PEOPLE OF THE PHILIPPINES, Respondent.
G.R. No. 182210, October 05, 2015
SECOND DIVISION
BRION, J.:
Petition for Review on Certiorari assailing the Court of Appeals (CA) finding Bernardo guilty beyond
reasonable doubt of five (5) counts of violation of Batas Pambansa Blg. 22
FACTS:
In June 1991, Bernardo obtained a loan evidenced by a promissory from the private complainant
Carmencita C. Bumanglag (Bumanglag) in the amount of P460,000.00 payable on or before its
maturity on November 30, 1991. The couple solidarity bound themselves to pay the loan with
corresponding interest at 12% per annum payable upon default. As additional security, Bernardo gave
Bumanglag the owner's duplicate copy of Transfer Certificate of Title No. (T-1034) 151841, same
security, Bernardo took back the title from Bumanglag to use as a collateral in another transaction. In
place of the title, Bernardo issued to Bumanglag Far East Bank and Trust Company (FEBTC) checks,
covering the loan. When Bumanglag deposited these checks to Bernardo's account but they were
dishonored on the ground of "Account Closed." Bumanglag thus sent Bernardo a notice informing her
of the dishonor of the checks. The demand went unheeded, prompting Bumanglag to initiate a
criminal complaint against Bernardo with the Office of the City Prosecutor of Makati for five counts
of violation of B.P. 22.
After the requisite preliminary investigation, the Office of the City Prosecutor of Makati City found
probable cause to indict Bernardo for the offenses charged. Bernardo entered a not guilty plea on
arraignment stating that the questioned checks were presented beyond the 90-day period provided
under the law, claiming further that she has paid in cash the aggregate amount of P717,000.00.
According to Bernardo, although Bumanglag returned to her the title to the property after payment,
Bumanglag never bothered to issue her receipts. Bumanglag did not return the checks either. The trial
court ruled in favor of Bumanglag. Bernardo moved for reconsideration but the RTC denied her
motion. On appeal, the CA affirmed Bernardo's conviction but deleted the penalty of imprisonment
and in lieu thereof, imposed a P460,000.00 fine. The CA also retained the civil indemnity of
P460,000.00 that the lower court imposed, plus 12% interest from the time of the institution of the
criminal charges until full payment.Bernardo moved for reconsideration but the CA denied her
motion. Hence, the present petition. During this trial, the petitioner diedand her heirs were required to
appear as substitutes for purposes of determining Bernardo's civil liability
ISSUE:
Whether or not Bernardo could be held civilly liable.
HELD:
Yes, Bernardo is civilly liable and which liability should be charged to her estate. In this account, the
Court made the following illucidation on civil liability.
Classes of Civil Liabilities. An act or omission causing damage to another may give rise to several
distinct civil liabilities on the part of the offender. If the conduct constitutes a felony, the accused may
be held civilly liable under Article 100 of the Revised Penal Code (ex delicto). This particular civil
liability due the offended party is rooted on facts that constitute a crime. Otherwise stated, civil
liability arises from the offense charged. It is not required that the accused be convicted to be
entitled to civil liability based on delict. As long as the facts constituting the offense charged are
established by preponderance of evidence, civil liability may be awarded. Moreover, the civil liability
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based ondelict is 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 same act or omission, however, may also give rise to independent civil liabilities based on other
sources of obligation. Article 1157 of the Civil Code enumerates these other sources of obligation
from which the civil liability may arise as a result of the same act or omission: (a) law (b) contracts;
(c) quasi-contracts, and (d) quasi-delicts. Among these are the civil liabilities for intentional torts
under Articles 32 and 34 of the Civil Code and for quasi-delicts under Article 2176 of Civil
Code. For conduct constituting defamation, fraud, and physical injuries, the Civil Code likewise
grants the offended party the right to institute a civil action independently of the criminal action under
Article-33 of the Civil Code.
Thus, it is entirely possible for one to be free from civil ability directly arising from a violation of the
penal law and to still be liable civilly based on contract or by laws other than the criminal law. Such
civil actions may proceed independently of the criminal proceedings and regardless of the result of
the criminal action, subject however, to the caveat that the offended party cannot recover damages
twice for the same act or omission.
Bernardo's civil liability may be enforced in the present case despite her death.
As a general rule, the death of an accused pending appeal extinguishes her criminal liability and the
corresponding civil liability based solely on the offense (delict). The death amounts to an acquittal of
the accused based on the constitutionally mandated presumption of innocence in her favor, which can
be overcome only by a finding of guilt - something that death prevents the court from making. In a
sense, death absolves the accused from any earthly responsibility arising from the offense — a divine
act that no human court can reverse, qualify, much less disregard. The intervention of death of the
accused in any case is an injunction by fate itself so that no criminal liability and the corresponding
civil liability arising from the offense should be imposed on him.
The independent civil liabilities, however, survive death and an action for recovery therefore may be
generally pursued but only by filing a separate civil action and subject to Section 1, Rule 111 of the
Rules on Criminal Procedure as amended. This separate civil action may be enforced against the
estate of the accused.
In B.P. 22 cases, the criminal action shall be deemed to include the corresponding civil actions.
Instead of instituting two separate cases, only a single suit is filed and tried. This rule was enacted to
help declog court dockets, which had been packed with B.P. 22 because creditors used the courts as
collectors.
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OBLIGATIONS: DAMAGES INCURRED IN DELAY
VIL-REY PLANNERS AND BUILDERS, Petitioners, v. LEXBER, INC., Respondent.
G.R. NO. 189447
LEXBER, INC., Petitioner, v. STRONGHOLD INSURANCE COMPANY, INC., Respondent.
G.R. No. 189401, June 15, 2016
First Division
Sereno, C.J.:
Before us are petitions for review on certiorari under Rule 45 of the Rules of Court seeking to nullify
the Court of Appeals (CA) Decision1 and Resolution2 in CA-G.R. CV No. 90241. The CA Decision
found Vil-Rey Planners and Builders (Vil-Rey) and Stronghold Insurance Company, Inc.
(Stronghold), solidarily liable to Lexber, Inc. (Lexber) in the amount of P284,084.46 plus attorney's
fees of P50,000. The CA Resolution denied the motions for reconsideration filed by Vil-Rey and
Stronghold.
FACTS
Vil-Rey and Lexber entered into a Construction Contract dated 17 April 19963 (first contract)
whereby the former undertook to work on the compacted backfill of the latter's 56,565-square-meter
property in Barangay Bangad, Cabanatuan City. Based on the first contract, Vil-Rey shall complete
the project in 60 days for a consideration of P5,100,000. Lexber released to Vil-Rey a mobilization
downpayment of P500,000 secured by Surety Bond G(16) No. 066915 (first surety bond) issued by
Stronghold. For its part, Vil-Rey agreed to indemnify Stronghold for whatever amount the latter
might be adjudged to pay Lexber under the surety bond.5ChanRoblesVirtualawlibrary
Vil-Rey and Lexber mutually terminated the first contract and entered into a Construction Contract
dated 1 July 19966 (second contract) to cover the remaining works, but under revised terms and
conditions. The contract amount was P2,988,700.20, and the scope of work was required to be
completed in 60 days.
On 23 December 1996, Vil-Rey and Lexber executed Work Order No. CAB-96-09 (third contract) for
the completion of the remaining works by 15 January 1997. Under the third contract, a consideration
of P1,168,728.37 shall be paid on the following basis: 50% downpayment to be secured by a surety
bond in the same amount issued by Stronghold upon approval of the work order and 50% balance
upon completion of the works. Accordingly, Stronghold, issued a second surety bond in the amount
of P584,364.19 in favor of Lexber. Vil-Rey again obligated itself to indemnify Stronghold for
whatever amount the latter might be held to pay under the surety bond.
In a letter dated 21 January 1997 addressed to Lexber, Vil-Rey requested the extension of the
contract period to 31 January 1997. Lexber granted the request for extension. However, Vil-Rey
failed to complete the works by the end of the extended period, or even after Lexber gave it another
five days to finish the works. Lexber then wrote Stronghold seeking to collect on the two surety
bonds issued in favor of the former. When negotiations failed, Lexber filed a Complaint for sum of
money and damages against Vil-Rey and Stronghold before the RTC.
RTC adjudged Vil-Rey and Stronghold jointly and severally liable to Lexberwith interest at the rate
of 12% per annum as actual and compensatory damages from the time of the breach until full
satisfaction. As regards Stronghold, the trial court found that the wording of the surety bonds did not
embody the parties' true intent, which was to ensure the faithful performance by Vil-Rey of its
obligations. Considering its failure in this regard, Stronghold should pay the total amount of the two
surety bonds to Lexber. CA ruled that, considering the mutual termination of the first and second
contracts, no liability could be assessed against Vil-Rey. Whatever claims Lexber had against Vil-Rey
had been deemed waived with the execution of the third contract. Consequently, Stronghold could not
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be made to pay under the first surety bond, which covered only the mobilization downpayment under
the first contract. Vil-Rey's motion for reconsideration and Stronghold's motion for partial
reconsideration were denied by the CA. Hence this petition.
ISSUES:
1. Whether Vil-Rey is liable for breach of contract
2. Whether Stronghold's liability under the second surety bond was extinguished by the extension of
the third contract
HELD:
1. Yes. Vil-Rey is liable for breach of contract.Breach of contract is the failure of a party, without
legal reason, to comply with the terms of a contract or perform any promise that forms either a part
or the whole of it. No proof was presented to show that Vil-Rey was able to accomplish 95% of the
works under the third contract. Nevertheless, even if we were to assume that this claim is true, it still
falls short of the obligation to finish 100% of the works. The next payment for Vil-Rey would have
fallen due upon completion of the works. Thus, it cannot put up the defense that its failure to comply
with its obligation was because it was not paid. Under the above provisions, the parties clearly took
on reciprocal obligations. These are obligations that arise from the same cause, such that the
obligation of one is dependent upon that of the other. The reciprocal obligation in this case was
Lexber's payment of the 50% balance upon Vil-Rey's completion of the works on or before 15
January 1997. However, despite the grant of extension until 31 January 1997, and even after the lapse
of another five-day grace period, Vil-Rey failed to finish the works under the third contract. The law
provides that the obligation of a person who fails to fulfill it shall be executed at that person's
cost. The CA was correct in ruling that Vil-Rey should be held liable for the amount paid by Lexber
to another contractor to complete the works. Furthermore, Article 2201 of the Civil Code provides:
Article 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good
faith is liable shall be those that are the natural and probable consequences of the breach of the
obligation, and which the parties have foreseen or could have reasonably foreseen at the time the
obligation
was
constituted.
2. Stronghold claims that the extension of time for the completion of the works under the third
contract from 15 January 1997 to 31 January 1997 was made without its consent as surety.It is argued
that an extension of payment given by the creditor to the debtor without notice to or consent of the
surety extinguishes the surety's obligation, unless a continuing guarantee was executed by the surety.
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OBLIGATIONS: DAMAGES INCURRED IN DELAY
RODRIGO RIVERA, Petitioner, s.
SPOUSES SALVADOR CHUA AND VIOLETA S. CHUA, Respondents.
x-----------------------x
SPS. SALVADOR CHUA and VIOLETA S. CHUA, Petitioners,
vs.RODRIGO RIVERA, Respondent. SUPREME COURT
G.R. No. 184458 G.R. No. 184472 (January 14, 2015)
First Division
Ponente: Jose Portugal Perez
These are consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of Court
assailing the Decision of the Court of Appeals in CA-G.R. SP No. 90609 which affirmed with
modification the separate rulings of the Manila City trial courts, the Regional Trial Court, in a case
for collection of a sum of money due a promissory note.
FACTS:
The parties were friends. Rivera obtained a loan from the Spouses Chua where it is agreed and
understood that failure on my part to pay the amount of (120,000.00) One Hundred Twenty Thousand
Pesos on December 31, 1995. (sic) I agree to pay the sum equivalent to FIVE PERCENT (5%)
interest monthly from the date of default until the entire obligation is fully paid for.
In October 1998, almost three years from the date of payment stipulated in the promissory note,
Rivera, as partial payment for the loan, issued and delivered to the SpousesChua, as payee, a check in
the amount of P25,000.00. Subsequently, two more checks were issued but upon presentment for
payment, the two checks were dishonored for the reason "account closed." As of May 1999, the
amount due the Spouses Chua was pegged at P366,000.00 covering the principal ofP120,000.00 plus
five percent (5%) interest per month from January 1996 to May 1999. The Spouses Chua alleged that
they have repeatedly demanded payment from Rivera to no avail. Because of Rivera’s unjustified
refusal to pay, the Spouses Chua were constrained to file a suit on 11 June 1999. The MeTC ruled in
favor of the Spouses Chua. On appeal, the RTC affirmed the decision of the MeTC. Both trial courts
found the Promissory Note as authentic and validly bore the signature of Rivera. Undaunted, Rivera
appealed to the Court of Appeals which affirmed Rivera’s liability under the Promissory Note,
reduced the imposition of interest on the loan from 60% to 12% per annum, and reinstated the award
of attorney’s fees in favor of the Spouses Chua. Hence, these consolidated petitions for review on
certiorari.
ISSUE:
Whether or not the honorable court of appeals erred in holding that demand is no longer necessary
and in applying the provisions of the negotiable instruments law.
HELD:
Article 1169 of the Civil Code explicitly 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.
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 declare; 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
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(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. (Emphasis supplied)
There are four instances when demand is not necessary to constitute the debtor in default: (1) when
there is an express stipulation to that effect; (2) where the law so provides; (3) when the period is the
controlling motive or the principal inducement for the creation of the obligation; and (4) where
demand would be useless. In the first two paragraphs, 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.
The liability for damages of those who default, including those who are guilty of delay, in the
performance of their obligations is laid down on Article 117024 of the Civil Code. Corollary thereto,
solidifies the consequence of payment of interest as an indemnity for damages when the obligor
incurs in delay: If the obligation consists inthe payment of a sum of money, and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of
the interest agreed upon, and in the absence of stipulation, the legal interest, which is six percent per
annum. (Article 2209) Article 2209 is specifically applicable in this instance where: (1) the obligation
is for a sum of money; (2) the debtor, is in delay; and (3) the Promissory Note provides for an
indemnity for damages upon default.
Article 1226 of the Civil Code provides In obligations with a penal clause, the penalty shall
substitute the indemnity for damages and the payment of interests in case of noncompliance, if there
isno stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the
penalty or is guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the provisions of this
Code.
The penal clause is generally undertaken to insure performance and works as either, or both,
punishment and reparation. It is an exception to the general rules on recovery of losses and damages.
As an exception to the general rule, a penal clause must be specifically set forth in the obligation.
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OBLIGATIONS: DAMAGES
LUCITA TIOROSIO-ESPINOSA, Petitioner, vs. HONORABLE PRESIDING JUDGE
VIRGINIA HOFILEÑA-EUROPA, in her capacity as Presiding Judge of the Regional Trial
Court of Davao City, Branch 11, 11th Judicial Region, Davao City, NICOLAS L. SUMAPIG, in
his capacity as Sheriff IV of the Office of the Provincial Sheriff, Office of the Clerk of Court,
11thJudicial Region, Davao City and NECEFERO JOVERO, Respondents.
January 20, 2016 G.R. No. 1857462016
Supreme Court Of Manila Thlrd Division
Ponente: Francis H. Jardeleza, Associate Justice
Petition for certiorari on procedural grounds and whether the awards of moral damages, exemplary
damages, and attorney's fees may be included in an execution pending appeal.
FACTS:
Private respondent Necefero Jovero (Jovero) filed an action for damages against spouses Pompiniano
Espinosa1and petitioner Lucita Tiorosio-Espinosa (Spouses Espinosa) before the Regional Trial Court
of Davao City (RTC). In the complaint, Jovero alleged that Spouses Espinosa maliciously filed
several cases for theft, estafa and perjury against him for the sole purpose of vexing, harassing, and
humiliating him. Accordingly, Jovero prayed that Spouses Espinosa be ordered to pay compensatory
damages, moral damages, exemplary damages, attorney’s fees, and costs of suit.
After trial, the RTC rendered a decisionin favor of Jovero. Consequently, Jovero moved for execution
pending appeal, citing his advanced age and failing health. Meanwhile, Spouses Espinosa moved for
reconsideration of the RTC decision. On April 12, 2007, the RTC granted Jovero’s motion for
execution pending appeal and denied Spouses Espinosa’s motion for reconsideration. The RTC
subsequently issued a writ of execution pending appeal on April 19, 2007 which covered the entire
amount stated in the decision.
Aggrieved by the denial of their motion for reconsideration, Spouses Espinosa filed their notice of
appeal of the main RTC decision. They also filed a separate motion to stay execution pending appeal
and to approve/fix the supersedeas bond. They contended that execution pending appeal involving
awards of moral and exemplary damages is improper because it is contrary to the decisions of the
Supreme Court. The RTC denied the motion to stay execution pending appeal in an order dated
September 14, 2007. Spouses Espinosa filed a petition for certiorari with the CA which dismissed the
petition. On appeal by the spouses, CA denied the motion for reconsideration. Hence, this appeal.
In his comment, Jovero claims that the issues raised by Lucita are not germane to the CA resolutions
subject of the present petition. He posits that the issues being raised in the petition for review properly
pertain to the alleged errors of the RTC, not the CA. In any case, Jovero maintains that the RTC
correctly granted the motion for execution pending appeal because of his advanced age and frail
health.
ISSUE:
Whether the awards of moral and exemplary damages, as well as attorney’s fees, may be the subject
of execution pending appeal.
HELD:
The resolution of this issue is straightforward. Jurisprudence is replete with pronouncements that
execution pending appeal of awards of moral and exemplary damages, and attorney’s fees is not
allowed. In Radio Communications of the Philippines, Inc. (RCPI) v. Lantin, we explained why these
cannot be the subject of execution pending appeal:
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…The execution of any award for moral and exemplary damages is dependent on the outcome of the
main case.Unlike actual damages for which the petitioners may clearly be held liable if they breach a
specific contract and the amounts of which are fixed and certain, liabilities with respect to moral and
exemplary damages as well as the exact amounts remain uncertain and indefinite pending resolution
by the Intermediate Appellate Court and eventually the Supreme Court. The existence of the factual
bases of these types of damages and their causal relation to the petitioners' act will have to be
determined in the light of the assignments of errors on appeal. It is possible that the petitioners, after
all, while liable for actual damages may not be liable for moral and exemplary damages. Or as in
some cases elevated to the Supreme Court, the awards may be reduced.
In Engineering Construction Inc. v. National Power Corporation, we expanded the RCPI doctrine to
likewise exclude consequential damages and attorney's fees from execution pending appeal. The
doctrine has since been reiterated in Heirs of Santiago C. Divinagracia v. Ruiz, International School,
Inc. (Manila) v. Court of Appeals, Echauz v. Court of Appeals, and Valencia v. Court of
Appeals. Clearly, the RTC committed legal error when it ordered the premature execution of the
awards of moral damages, exemplary damages, and attorney's fees. Nonetheless, we recognize that
the RTC had the power to order the execution pending appeal of actual or compensatory damages in
accordance with the cited authorities.
The rest of petitioner's arguments are devoted to assailing the sheriff's levy of her properties:
However, a petition for certiorari is not the proper remedy to question the sheriff's actions. The
special civil action of certiorari is directed only against a tribunal, board or officer exercising judicial
or quasi-judicial functions. lt is not available as a remedy for the correction of acts performed by a
sheriff during the execution process, which acts are neither judicial nor quasi-judicial but arc purely
ministerial functions. The more appropriate remedy would have been a petition for prohibition filed
under Section 2 of Rule 65. Moreover, the matters being raised by the petitioner are factual in nature
and, hence, not proper for this Court to resolve at the first instance.
The petition is partially granted and modified to exclude moral damages, exemplary damages, and
attorney's fees in the execution pending appeal.
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OBLIGATION: EXTINGUISHMENT, EXTRAJUDICIAL
FORECLOSURE
SPOUSES FLORANTE E. JONSAY AND LUZVIMINDA L. JONSAY AND MOMARCO
IMPORT CO, INC. Petitioners, versus SOLIDBANK CORPORATION (now
METROPOLITAN BANK AND TRUST COMPANY), respondent
April 16, 2016 G.R. No. 206459
Supreme Court Baguio City Third Division
Ponente: REYES, J
A petition for Review1 from the Amended of the Court of Appeals (CA) granting in part the appeal of
the respondent Solidbank Corporation of the RTC’s annul ment ofthe extrajudicial foreclosure
proceedings instituted against the petitioners over the mortgaged properties.
FACTS:
Momarco, controlled and owned by the Spouses Jonsay, is an importer, manufacturer and distributor
of animal health and feedmill products catering to cattle, hog and poultry producers. In 1995, and
again in 1997, Momarco obtained loans of P60,000,000.00 in total from Solidbank secured by
mortgage over three parcels of their more than 2 hectare land in Laguna with the stipulated rate of
interest was 18.75% per annum, along with an escalation clause tied to increases in pertinent Central
Bank-declared interest rates, which which interest, Solidbank was eventually able to unilaterally
increase up to 3 0% per annum. Momarco religiously paid the monthly interests charged by
Solidbank from November 1995 until January 1998, when it paid Pl,370,321.09. Claiming business
reverses brought on by the 1997 Asian financial crisis, Momarco tried unsuccessfully to negotiate a
moratorium or suspension in its interest payments. Due to persistent demands by Solidbank,
Momarco made its next, and its last, monthly interest payment in April 1998 in the amount of
Pl,000,000.00. Solidbank applied the said payment to Momarco's accrued interest for February 1998.
Solidbank proceeded to extrajudicially foreclose on the mortgage, and sold them at the auction sale
held in 1999. It submitted the winning bid of P82,327,249.54, representing Momarco's outstanding
loans, interests and penalties, plus attorney's fees of P3,600,000.00. But Momarco now claims that on
the date of the auction the fair market value of their mortgaged lots had increased sevenfold to
P441,750,000.00. A month before the expiration of the period to redeem the lots, the petitioners filed
a Complaint for Annulment of the Extrajudicial Foreclosure of Mortgage, Injunction, Accounting and
Damages with Prayer for the Immediate Issuance of a Writ of Preliminary Prohibitory Injunction.
The RTC granted the petitioners' application for TRO and a writ of preliminary prohibitory injunction
declaring the extra-judicial foreclosure proceedings null and void effect and the defendants
prohibited to consolidate the titles in the name of Solidbank without prejudice to the filing of the
action for collection or recovery of the sum of money secured by the real estate mortgage. The court
ordered that the interest rates on the petitioners' indebtedness be reduced to 12% per annum, declaring
that the interest rates, ranging from 19% to 30%, as well as the penalties, charges and attorney's fees
imposed by Solidbank, were excessive, unconscionable and immoral, and that Solidbank has no carte
blanche authority under the Usury Law to unilaterally raise the interest rates to levels as to enslave the
borrower and hemorrhage its assets. Solidbank's verification in its application for foreclosure of
mortgage was also declared defective in form and that the bank manipulated the foreclosure sale
through a defective publication of the notice of auction and by submitting an unconscionably low bid
of P82,327,000.00, whereas the value of the lots had risen sevenfold since the rehabilitation of the
SLEX. On appeal, CA rendered judgment affirming the RTC in toto. The CA in its amended
decision: (a) upheld the validity of the extrajudicial foreclosure proceedings, the consolidation of the
titles of Solidbank in the foreclosed properties, and the dismissal of Solidbank's counterclaim; (b)
ordered the reduction of the interest rates on the petitioners' indebtedness to the legal rate of 12% per
annum, thereby affirming that the unilateral increases in the monthly interest rates, which averaged
2.19% per month or 26.25% per annum, "without notice to the mortgagors," are void for being
iniquitous, excessive and unconscionable.
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ISSUES:
1. Whether or not the law and jursprudence on extrajudicial foreclosure of real estate mortgage,
damages and contract of adhesion was correctly applied.
HELD:
The petitioners' mere proposal to extinguish their loan obligations by way of dacion en pago does not
novate the mortgage contract. On the question of the petitioners' failed proposal to extinguish their
loan obligations by way of dacion en pago, no bad faith can be imputed to Solidbank for refusing the
offered settlement as to render itself liable for moral and exemplary damages after opting to
extrajudicially foreclose on the mortgage. Dacion en pago is a special mode of payment whereby the
debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding
obligation. The undertaking is really one of sale, that is, the creditor is really buying the thing or
property of the debtor, payment for which is to be charged against the debtor's debt. As such, the
essential elements of a contract of sale, namely, consent, object certain, and cause or consideration
must be present. It is only when the thing offered as an equivalent is accepted by the creditor that
novation takes place, thereby, totally extinguishing the debt.
An escalation clause in a loan agreement granting the lending bank authority to unilaterally increase
the interest rate without prior notice to and consent of the borrower is void. After annulling the
foreclosure of mortgage, the RTC reduced the interest imposable on the petitioners' loans to 12%, the
legal interest allowed for a loan or forbearance of credit, citing Medel v. CA.69 In effect, the RTC
voided not just the unilateral increases in the monthly interest, but also the contracted interest of
18.75%. The implication is to allow the petitioners to recover what they may have paid in excess of
what was validly due to Solidbank, if any. In Floirendo, Jr. v. Metropolitan Bank and Trust Co., 70
the promissory note provided for interest at 15.446% per annum for the first 30 days, subject to
upward/downward adjustment every 30 days thereafter.71 It was further provided that: The rate of
interest and/or bank charges herein stipulated, during the term of this Promissory Note, its extension,
renewals or other modifications, may be increased, decreased, or otherwise changed from tirrie to
time by the Bank without advance notice to me/us in the event of changes in the interest rate
prescribed by law or the Monetary Board of the Central Bank of the Philippines, in the rediscount rate
of member banks with the Central Bank of the Philippines, in the interest rates on savings and time
deposits, in the interest rates on the banks borrowings, in the reserve requirements, or in the overall
costs of funding or money. The Court ordered the "reformation" of the real estate mortgage contract
and the promissory note, in that any increases in the interest rate beyond 15.446o/o per annum could
not be collected by respondent bank since it was devoid of prior consent of the petitioner, as well as
ordered that · the interest paid by the debtor in excess of 15.446% be applied to the payment of the
principal obligation. The Court declared void the escalation clause in a credit agreement whereby the
"bank reserves the right to increase the interest rate within the limits allowed by law at any time
depending on whatever policy it may adopt in the future xx x."
It is basic that there can be no contract in the true sense in the absence of the element of agreement, or
of mutual assent of the parties. If this assent is wanting on the part of one who contracts, his act has
no more efficacy than if it had been done under duress or by a person of unsound mind. Similarly,
contract changes must be made with the consent of the contracting parties. The minds of all the
parties must meet as to the proposed modification, especially when it affects an important aspect of
the agreement. In the case of loan contracts, it cannot be gainsaid that the rate of interest is always a
vital component, for it can make or break a capital venture. Thus, any change must be mutually
agreed upon, otherwise, it is bereft of any binding effect. We cannot countenance petitioner bank's
posturing that the escalation clause at bench gives it unbridled right to unilaterally upwardly adjust
the interest on private respondents' loan. That would completely take away from private respondents
the right to assent to an important modification in their agreement, and would negate the element of
mutuality in contracts.
The Court declared as a contract of adhesion a pro forma promissory note which creates a "take it or
leave it" dilemma for borrower and gives the mortgagee bank an unbridled right to adjust the interest
independently and upwardly, thereby completely taking away from the borrower the "right to assent
to an important modification in their agreement," thus negating the element of mutuality in their
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contracts. It was held that borrowers' accessory duty to pay interest did not give banks unrestrained
freedom to charge any rate other than that which was agreed upon. No interest shall be due, unless
expressly stipulated in writing. It would be the zenith of farcicality to specify and agree upon rates
that could be subsequently upgraded at whim by only one party to the agreement. The "unilateral
detennination and imposition" of increased rates is "violative of the principle of mutuality of contracts
ordained in Article 1308 of the Civil Code." One-sided impositions do not have the force of law
between the parties, because such impositions are not based on the parties' essential equality.
Although escalation clauses are valid in maintaining fiscal stability and retaining the value of money
on long-term contracts, giving respondent an unbridled right to adjust the interest independently and
upwardly would completely take away from petitioners the "right to assent to an important
modification in their agreement" and would also negate the element of mutuality in their contracts.
The clause cited earlier made the fulfillment of the contracts "dependent exclusively upon the
uncontrolled will" of respondent and was therefore void. Besides, the pro forma promissory notes
have the character of a contract d'adhesion, "where the parties do not bargain on equal footing, the
weaker party's [the debtor's] participation being reduced to the alternative 'to take it or leave it."'
"While the Usury Law ceiling on interest rates was lifted by Central Bank Circular No. 905, nothing
in the said Circular grants lenders carte blanche authority to raise interest rates to levels which will
either enslave their borrowers or lead to a hemorrhaging of their assets." In fact, we have declared
nearly ten years ago that neither this Circular nor PD 1684, which further amended the Usury Law,
"authorized either party to unilaterally raise the interest rate without the other's consent." Although
such increases are not usurious, since the "Usury Law is now legally inexistent" - the interest ranging
from 26 percent to 35 percent in the statements of account - "must be equitably reduced for being
iniquitous, unconscionable and exorbitant." Rates found to be iniquitous or unconscionable are void,
as if it there were no express contract thereon. Above all, it is undoubtedly against public policy to
charge excessively for the use of money.
Mortgagee institutions are reminded that extrajudicial foreclosure proceedings are not adversarial
suits filed before a court. It is not commenced by filing a complaint but an ex-parte application for
extra judicial foreclosure of mortgage before the executive judge, pursuant to Act No. 3135, as
amended, and special administrative orders issued by this Court, particularly Administrative Matter
No. 99-10-05-0 Re: Procedure in Extra-Judicial Foreclosure of Mortgage. The executive judge
receives the application neither in a judicial capacity nor on behalf of the court; the conduct of
extrajudicial foreclosure proceedings is not governed by the rules on ordinary or special civil actions.
The executive judge performs therein an administrative function to ensure that all requirements for
the extrajudicial foreclosure of a mortgage are satisfied before the clerk of court, as the ex-officio
sheriff, goes ahead with the public auction of the mortgaged property.
From November 9, 1995 to April 1998, the petitioners paid monthly interests totaling
P24,277,283.22. Deducting P24,277,283.22 from the sum of the total loan principal of
P60,000,000.00 and the total interest due of P31,828,500.00, which is P91,828,500.00, leaves the
amount of P67,551,216.78 in interest owed by the petitioners as of March 5, 1999. The Court shall
exclude all the penalties or surcharges charged by the bank, and shall allow the bank to recover only 1
% as attorney's fees, or P675,512.17, not the P3,600,000.00 awarded by the RTC. Thus, all in all, the
petitioners owed the bank P68,226,728.95) as of March 5, 1999. Deducting P68,226,728.95 from
Solidbank's winning bid of P82,327,000.00 leaves an excess of P14,100,271.05 in the proceeds of the
auction over the outstanding loan obligation of the petitioners. This amount must be paid by
Solidbank to the petitioners. Since the P14,100,271.05 is the excess in the auction proceeds, thus an
ordinary monetary obligation and not a loan or a forbearance of credit, it shall earn simple interest at
six percent ( 6%) per annum from judicial demand up to finality.
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CIVIL LIABILITY PROPER NOTICE
GREEN STAR EXPRESS, INC. and FRUTO SAYSON, JR., Petitioners, vs.
NISSIN-UNIVERSAL ROBINA CORPORATION, Respondent.
G.R. No. 181517
July 6, 2015
Manila Third Division
Ponente: Diosdado M. Peralta,Associate Justice
A petition for Review under Rule 45 of the Rules of Court
FACTS:
A Mitsubishi L-300 owned by Universal Robina Corporation (URC) figured in an accident with
petitioner Green Star Express, Inc.' s (Green Star) passenger bus, resulting in the death of the van's
driver. Thus, the bus driver, petitioner Fruto Sayson, Jr., was charged with the crime of reckless
imprudence resulting in homicide.
Thereafter, Green Star sent a demand letter to respondent NissinUniversal Robina Corporation
(NURC) for the repair of its passenger bus amounting to P567, 070.68. NURC denied any liability
therefore and argued that the criminal case shall determine the ultimate liabilities of the parties.
Thereafter, the criminal case was dismissed without prejudice, due to insufficiency of evidence.
Sayson and Green Star then filed a complaint for damages against NURC before the RTC of San
Pedro, Laguna. Francis Tinio, one of NURC's employees, was the one who received the summons.
NURC filed a Motion to Dismiss claiming lack of jurisdiction due to improper service. RTC denied
the motion. NURC elevated the case to the CA via a Petition for Certiorari which was granted the
petition reversing the RTC ruling. A motion for reconsideration was filed but the same was denied.
Hence, this petition.
ISSUE:
Whether or not the summons was properly served on NURC, vesting the trial court with jurisdiction.
HELD: No. It is a well-established rule that the rules on service of summons upon a domestic private
juridical entity must be strictly complied with. Otherwise, the court cannot be said to have acquired
jurisdiction over the person of the defendant.
It argues that under Section 11, Rule 14 of the 1997 Rules of Court, which provides the rule on
service of summons upon a juridical entity, in cases where the defendant is a domestic corporation
like NURC, summons may be served only through its officers.
Section 11. Service upon domestic private juridical entity. – When the defendant is a corporation,
partnership or association organized under the laws of the Philippines with a juridical personality,
service may be made on the president, managing partner, general manager, corporate secretary,
treasurer, or in-house counsel.
In the past, the Court upheld service of summons upon a construction project manager, a
corporation’s assistant manager, and ordinary clerk of a corporation, private secretary of corporate
executives, retained counsel, and officials who had control over the operations of the corporation like
the assistant general manager or the corporation’s Chief Finance and Administrative Officer. The
Court then considered said persons as "agent" within the contemplation of the old rule. Notably,
under the new Rules, service of summons upon an agent of the corporation is no longer
authorized, The rule now likewise states "general manager" instead of "manager"; "corporate
secretary" instead of merely "secretary"; and "treasure" instead of "cashier." It has now become
restricted, limited, and exclusive only to the persons enumerated in the aforementioned provision,
following the rule in statutory construction that the express mention of one person excludes all others,
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or expression unions est exclusion alterius. Service must, therefore, be made only on the person
expressly listed in the rules. If the revision committee intended to liberalize the rule on service of
summons, it could have easily done so by clear and concise language.
Here, Tinio, a, member of NURC’s accounting staff, received the summons on January 22, 2004.
Green star claims that it was received upon instruction of Junadette Avedillo. The general manager of
the corporation. Such fact, however, does not appear in the Sheriff’s Return.13 The Return did not
even state whether Avedillo was present at the time the summons was received by Tinio, the
supposed assistant manager. Green Star further avers that the sheriff tendered the summons, but
Avedillo simply refused to sign and receive the same. She then allegedly instructed Tinio to just
receive it in her behalf. However, Green Star never presented said sheriff as witness during the
hearing of NURC’s motion to dismiss to attest to said claim. And while the sheriff executed an
affidavit which appears to support such allegation, the same was likewise not presented as evidence.
It was only when the case was already before the CA that said affidavit first surfaced. Since the
service of summons was made on a cost accountant, which is not one of the designated persons under
Section 11 of Rule 14, the trial court did not vadily acquire jurisdiction over NURC, although the
corporation may have actually received the summons. To rule otherwise will be an outright
circumvention of the rules, aggravating further the delay in the administration of justice.
At this juncture, it is worth emphasizing that notice to enable the other party to be heard and to
present evidence is not a mere technicality or a trivial matter in any administrative or judicial
proceedings. The service of summons is a vital and indispensable ingredient of due process.
Corporations would be easily deprived of their right to present their defense in a multi-million peso
suit, if the Court would disregard the mandate of the Rules on the service of summons.
The petition is denied.
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CONTRACTS: PRINCIPLE OF MUTUALITY OF CONTRACTS
FLORANTE VITUG, Petitioner, vs. EVANGELINE A. ABUDA, Respondent.
G.R. No. 201264, January 11, 2016
Supreme Court, Manila, Second Division
Ponente: Marvic M.V.F. Leonen, Associate Justice
Parties who have validly executed a contract and have availed themselves of its benefits may not, to
escape their contractual obligations, invoke irregularities in its execution to seek its invalidation.
A Petition for Review on Certiorari under Rule 45 on the validity of the mortgage contract executed
by the parties.
FACTS:
In March 1997, Abuda loaned P250,000.00 to Vitug and his wife, Narcisa Vitug, the latter
mortgaging their lot in Tondo Manila for the loan of P250,000.00, as a security for 6 months within
which to pay back the full amount plus the 10% agreed interest per month. The property was then
subject of a conditional Contract to Sell between the National Housing Authority and Vitug whereby,
the title-award was to be received by the Mortgagee by virtue of a Special Power of Attorney,
executed by Mortgagor in her favor, authorizing Mortgagee to expedite, follow-up, cause the release
and to receiveand take possession of the title award of the said property from the NHA, until the
mortgage amount is fully paid for and settled.
In November1997, the parties executed a "restructured" mortgage contract on the property to secure
the amount of P600,000.00 representing the original P250,000.00 loan, additional loans, and
subsequent credit accommodationsgiven by Abuda to Vitug with an interest of five (5) percent per
month. By then, the property was covered by a Transfer Certificate of Title under Vitug's
name.Spouses Vitug failed to pay their loans despite Abuda's demands.
In 2003, Abuda filed a Complaint for Foreclosure of Property before the Regional Trial Court
ofManila which ruled in favor of Vitug. On appeal, Vitug, contended that the real estate mortgage
contract he and Abuda entered into was void on the grounds of fraud and lack of consent under
Articles 1318, 1319, and 1332 of the Civil Code. He alleged that he was only tricked into signing the
mortgage contract, whose terms he did not really understand, alleging hence, his consent to the
mortgage contract was vitiated. The CA partially granted the petition holding that an interest rate of 1
% per month or 12% per annum shall be applied to the principal loan of P600,000.00, computed from
the date of judicial demand, i.e.,November 21, 2003; and 12% interest per annum on the amount due
from the date of the finality of the Decision until fully paid.
In 2011, Vitug moved for the reconsideration of the Court of Appeals' holding that not all the
requisites of a valid mortgage contract were present since he did not have free disposal of his property
when he mortgaged it to Abuda, i.e, his transfer certificate of title had an annotation by the National
Housing Authority, which provided that consent must first be obtained before he may dispose or
encumber his property. Vitug also argued in his Motion for Reconsideration that the property was
exempt from execution because it was constituted as a family home before its mortgage. The CA
denied Vitug's Motion for Reconsideration. Hence, this Petition.
ISSUES:
1. Whether the restriction clause in petitioner's title rendered invalid the real estate mortgage he and
respondent Evangeline Abuda executed; and
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2. Whether petitioner's property is a family home that is free from execution, forced sale, or
attachment under the Family Code.
HELD:
1. No. All the elements of a valid mortgage contract were present. For a mortgage contract to be
valid, the absolute owner of a property must have free disposal of the property. That property must be
used to secure the fulfillment of an obligation. Article 2085 of the Civil Code provides:
Art. 2085. The following requisites are essential to contracts of pledge and mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free disposal of their property, and
in the absence thereof, that they be legally authorized for the purpose.
Petitioner's undisputed title to and ownership of the property is sufficient to give him free disposal of
it. As owner of the property, he has the right to enjoy all attributes of ownership
including jus disponendi or the right to encumber, alienate, or dispose his property "without other
limitations than those established by law." The NHA the restrictions do not divest petitioner of his
ownership rights. They are mere burdens or limitations on petitioner's jus disponendi. Thus, petitioner
may dispose or encumber his property. However, the disposition or encumbrance of his property is
subject to the limitations and to the rights that may accrue to the National Housing Authority. When
annotated to the title, these restrictions serve as notice to the whole world that the National Housing
Authority has claims over the property, which it may enforce against others.
2. No. Even though petitioner's property has been constituted as a family home, it is not exempt from
execution. Article 155 of the Family Code explicitly provides that debts secured by mortgages are
exempted from the rule against execution, forced sale, or attachment of family home:Art. 155. The
family home shall be exempt from execution, forced sale or attachment except:….(3) For debts
secured by mortgages on the premises before or after such constitution. Since petitioner's property
was voluntarily used by him as security for a loan he obtained from respondent, it may be subject to
execution and attachment.
3. The Court of Appeals correctly found that the interest rates of 5% or 10% per month imposed on
petitioner's loan were unconscionable.
Parties are free to stipulate interest rates in their loan contracts in view of the suspension of the
implementation of the Usury Law ceiling on interest effective January 1, 1983.
The freedom to stipulate interest rates is granted under the assumption that we have a perfectly
competitive market for loans where a borrower has many options from whom to borrow. It assumes
that parties are on equal footing during bargaining and that neither of the parties has a relatively
greater bargaining power to command a higher or lower interest rate. It assumes that the parties are
equally in control of the interest rate and equally have options to accept or deny the other party's
proposals. In other words, the freedom is granted based on the premise that parties arrive at interest
rates that they are willing but are not compelled to take either by force of another person or by force
of circumstances.
Article 1306 of the Civil Code limits the freedom to contract to promote public morals, safety, and
welfare:
Art. 1306. 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 Petition was denied.
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CONTRACTS:BREACH OF CONTRACT; RECISSION
SPOUSES ALEXANDER AND JULIE LAM, Doing Business Under the Name and Style
"COLORKWIK LABORATORIES" AND "COLORKWIK PHOTO
SUPPLY", Petitioners, vs.KODAK PHILIPPINES, LTD., Respondent.
G.R. No. 167615, January 11, 2016
Supreme Court, Manila, Second Division
Ponente: Marvic M.V.F. Leonen, Associate Justice
This is a Petition for Review on Certiorari which modified the Decisionof the Regional Trial Court by
reducing the amount of damages awarded to petitioners Spouses Alexander and Julie Lam (Lam
Spouses) breach of their contract of sale by the respondent Kodak Philippines, Ltd.
FACTS:
On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd. entered into an agreement (Letter
Agreement) for the sale of three (3) units of the Kodak Minilab System 22XL (Minilab Equipment) in
the amount of ₱1,796,000.00 per unit. On January 15, 1992, the respondent, delivered one (1) unit of
the Minilab Equipment in Tagum, Davao Province and the petitioners issued postdated checks
amounting to ₱35,000.00 each for 12 months as payment for the first delivered unit, with the first
check due on March 31, 1992.Later on, the petitioners requested that Kodak Philippines, Ltd. not
negotiate the checks dated March 31, 1992 and April 30, 1992. However, both checks were
negotiated by Kodak Philippines, Ltd. and were honored by the depository bank. The 10 other checks
were subsequently dishonored after the Lam Spouses ordered the depository bank to stop payment.
Kodak Philippines, Ltd. canceled the sale and demanded that the Lam Spouses return the unit it
delivered together with its accessories.The Lam Spouses ignored the demand but also rescinded the
contract through the letter dated November 18, 1992 on account of Kodak Philippines, Ltd.’s failure
to deliver the two (2) remaining Minilab Equipment units.
On November 25, 1992, Kodak Philippines, Ltd. filed a Complaint for replevin and/or recovery of
sum of money and obtained a favorable decision, with the court ordering the seizure of the Minilab
Equipment, which included the lone delivered unit, its standard accessories, and a separate generator
set. By virtue of a writ of seizure, the respondent gained possession of the Minilab Equipment unit,
accessories, and the generator set.The Lam Spouses then filed before the Court of Appeals a Petition
to Set Aside the Orders issued by the trial court, which was remanded to the RTC by the CA, which
lower court found in favor of the petitioners. On appeal, herein respondent obtained favorable ruling
on the issuance of replevin. Echoing the ruling of the trial court, the Court of Appeals held that the
liability of the Lam Spouses to pay the remaining balance for the first delivered unit is based on the
second sentence of Article 1592 of the New Civil Code. The CA heltd that the Lam Spouses’ receipt
and use of the Minilab Equipment before they knew that the respondent would not deliver the two (2)
remaining units has made them liable for the unpaid portion of the purchase price.
The Court of Appeals noted that Kodak Philippines, Ltd. sought the rescission of its contract with the
Lam Spouses in the letter dated October 14, 1992.The rescission was based on Article 1191 of the
New Civil Code, which provides: "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." Due to the foregoing
developments, the present petition was filed.
ISSUES:
1.Whether the contract between petitioners and respondent pertained to obligations that are severable,
divisible, and susceptible of partial performance under Article 1225 of the New Civil Code; and
2. Upon rescission of the contract, what the parties are entitled to under Article 1190 and Article 1522
of the New Civil Code.
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HELD:
1. Yes. The nature of each unit of the three (3) Minilab Equipment is such that one can perform its
own functions, without awaiting for the other units to perform and complete its job. So much so, the
nature of the object of the Letter Agreement is susceptible of partial performance, thus the obligation
is divisible.With the contract being severable in character, respondent argues that it performed its
obligation when it delivered one unit of the Minilab Equipment. Since each unit could perform on its
own, there was no need to await the delivery of the other units to complete its job. Respondent then is
of the view that when petitioners ordered the depository bank to stop payment of the issued checks
covering the first delivered unit, they violated their obligations under the Letter Agreement since
respondent was already entitled to full payment.Respondent also argues that petitioners benefited
from the use of the Minilab Equipment for 10 months—from March to December 1992— despite
having paid only two (2) monthly installments.Respondent avers that the two monthly installments
amounting to ₱70,000.00 should be the subject of an offset against the amount the Court of Appeals
awarded to petitioners.The Letter Agreement contained an indivisible obligation.
2. Both parties having rescinded their contract with each other, the respondent the letter dated October
14, 1992, and likewise the petitioners, through the letter dated November 18, 1992, are entitled to
mutual restitution. This rescission from both parties is founded on Article 1191 of the New Civil
Code: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
fulfilment and the rescission of the obligation, with the payment of damages in either case. He may
also seek rescission, even after he has chosen fulfilment, 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 abrogates the contract from its inception and requires a mutual restitution of benefits
received. 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.
Furthermore, award of exemplary damages and attorney’s fees were deemed proper by the Court,
noting that exemplary damages may be awarded when a wrongful act is accompanied by bad faith or
when the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner which
would justify an award of exemplary damages under Article 2232 of the Civil Code. Since the award
of exemplary damages is proper in this case, attorney’s fees and cost of the suit may also be
recovered as provided under Article 2208 of the Civil Code.
Respondent Kodak Philippines, Ltd. is ordered to pay petitioners Alexander and Julie Lam: (a)
P270,000.00, representing the partial payment made on the Minilab Equipment; (b) P130,000.00,
representing the amount of the generator set, plus legal interest at 12% .per annum from December
1992 until fully paid; (c) P440,000.00 as actual damages; (d) P25,000.00 as moral damages; (e)
P50,000.00 as exemplary damages; and (f) P20,000.00 as attorney's fees.
Petitioners are ordered to return the Kodak Minilab System 22XL unit and its standard accessories to
respondent.
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CONTRACTS OF COMMON CARRIER:LIABILITIES;
OBLIGATIONS: SUBROGATION
TRANSIMEX CO., petitioner, vs. MAFRE ASIAN INSURANCE CORPORATION GR. No.
190271, September 14, 2016
Supreme Court, Manila, First Division
Ponente: SERENO
This case involves a money claim filed by an insurance company against the ship agent of a common
carrier.
FACTS:
On 21 May 1996, MIV Meryem Ana received from Helm Duengemittel GMBH at Odessa, Ukraine a
shipment of Prilled Urea Fertilizer covered by two separate bills of lading and consigned to Fertiphil
for delivery to two ports - one in Poro Point, San Fernando, La Union; and the other in Tabaco,
Albay. Fertiphil insured the cargo against all risks under Marine Risk Notes issued by respondent.
On 20 June 1996, MIV Meryem Ana arrived at Poro Point, La Union, and discharged 14,339.507
metric tons of fertilizer under the first bill of lading. The ship sailed on to Tabaco, Al bay, to unload
the remainder of the cargo which were found insufficient or less than what was stated in the bill of
lading, which caused Fertiphil to file a claim with the respondent for Pl,617,527.37, 15 which was
found compensable. After paying the claim of Fertiphil, respondent demanded reimbursement from
petitioner on the basis of the right of subrogation. The claim was denied, prompting respondent to file
a Complaint with the RTC for recovery of sum of money. The RTC ruled in favor of respondent and
ordered petitioner to pay the claim of Pl,617,527.37. The Court finds that the cargo unloaded at ports
of destination had a shortage of 349.65 metric tons and that defendants failed to exercise extraordinary care and diligence in the transport and handling of the cargo, hence, the presumption of fault
and/or negligence as provided in Art. 1735 of the Civil Code on the part of the defendants stands
unrebutted as against the latter. The CA affirmed the ruling of the RTC and denied petitioner's appeal.
The petitioner moved for reconsideration, but was denied. Hence, this appeal.
ISSUES:
1. Whether the transaction is governed by the provisions of the Civil Code on common carriers or by
the provisions of COGSA; and
2. Whether petitioner is liable for the loss or damage sustained by the cargo because of bad weather.
HELD:
1. The provisions of the Civil Code on common carriers are applicable. As expressly provided in
Article 1753 of the Civil Code, "the law of the country to which the goods are to be transported shall
govern the liability of the common carrier for their loss, destruction or deterioration." Since the cargo
in this case was transported from Odessa, Ukraine, to Tabaco, Albay, the liability of petitioner for the
alleged shortage must be determined in accordance with the provisions of the Civil Code on common
carriers. In Eastern Shipping Lines, Inc. v. BPI/MS Insurance Corp., the Court declared: According to
the New Civil Code, the law of the country to which the goods are to be transported shall govern the
liability of the common carrier for their loss, destruction or deterioration. The Code takes precedence
as the primary law over the rights and obligations of common carriers with the Code of Commerce
and COGSA applying suppletorily.
2. Yes. It was liable. Under Article 1739, for a common carrier to be fully exempt from liability on
account of loss due to fortuitous event, the following requisites are required: 1. that the fortuitous
event must have been the proximate and only cause of the loss; 2) the common carrier should have
exercised due diligence to prevent or minimize the loss before, during and after the occurrence of the
fortuitous event.
The defendants must have exercised extraordinary care and diligence in the transport and handling of
the cargo. Being bereft of any evidence to support their claim of having exercised extraordinary care
and diligence, presumption of the defendant’s fault and/or negligence as provided in Art. 1735 of the
Civil Code on the part of the defendants stands unrebutted as against the latter.
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To excuse a common carrier fully of any liability, Article 1739 of the Civil Code requires that the
fortuitous event must have been the proximate and only cause of the loss. Moreover, it should have
exercised due diligence to prevent or minimize the loss before, during and after the occurrence of the
fortuitous event. xx xx In the present case, defendants-appellants did not present proof that the "bad
weather" they encountered was a "storm" as contemplated by Article 1734(1 ). String winds are the
ordinary vicissitudes of a sea voyage. Even if the weather encountered by the ship was to be deemed a
natural disaster under Article 1739 of the Civil Code, defendants-appellants failed to show tl~at such
natural disaster or calamity was the proximate and only cause of the loss. The shortage must not have
been caused or worsened by human participation. The defense of fortuitous event or natural disaster
cannot be successfully made when the injury could have been avoided by human precaution.
The question on whether there is sufficient proof that the loss or damage incurred by the cargo was
caused by a "storm" or a "peril of the sea." The Court ruled in the negative. The petitioner failed to
prove the existence of a storm or a peril of the sea within the context of Article 1734(1) of the Civil
Code or Section 4(2)( c) of COGSA and there was no sufficient proof that the damage to the shipment
was solely and proximately caused by bad weather. The presence of a "storm" or a "peril of the sea"
was not established within the meaning of the provisions of the Civil Code and COGSA on common
carriers. To be considered absolutory causes under either statute, bad weather conditions must reach a
certain threshold of severity. With respect to storms, this Court has explained the difference between
a storm and ordinary weather conditions in Central Shipping Co. Inc. v. Insurance Company ofNorth
America. Significantly, no typhoon was observed within the Philippine area of responsibility during
that period. Consequently, the strong winds accompanying the southwestern monsoon could not be
classified as a "storm." Such winds are the ordinary vicissitudes of a sea voyage. The phrase "perils of
the sea" carries the same connotation. Severity of weather must be "so unusual, unexpected and
catastrophic as to be beyond reasonable expectation." Accordingly, strong winds and waves are not
automatically deemed perils of the sea, if these conditions are not unusual for that particular sea area
at that specific time, or if they could have been reasonably anticipated or foreseen. Petitioner also
failed to prove that the inclement weather encountered by the vessel was unusual, unexpected, or
catastrophic. In particular, the strong winds and waves, which allegedly assaulted the ship, were not
shown to be worse than what should have been expected in that particular location during that time of
the year. Consequently, this Court cannot consider these weather conditions as "perils of the sea" that
would absolve the carrier from liability.
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CONTRACT OF SALE: CONDITIONAL VS. ABSOLUTE
BONIFACIO DADAN, PETITIONER, V. SPOUSES GREGORIO SERRANO AMD
ADELAIDA REYES.
AUGUST 1, 2016 (GR 195072)
Manila, Third Division
Ponente: Peralta, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court.
FACTS:
Respondents spouses Gregorio Serrano and Adelaida Reyes (Spouses Serrano) are the registered
owners of a parcel of land situated in Lubao, Pampanga, covered by an Original Certificate of Title
(OCT). Sometime in the years 1940 and 1950, when the property was still co-owned by respondent
Gregorio and his siblings, Gregorio's sisters, Marciana and Felicidad, gave petitioner Bonifacio
Danan and a certain Artemio Vitug permission to possess a portion of the said land and to build their
homes thereon in exchange for one cavan of palay every year. Thereafter, in separate documents
denominated as "Agreement in Receipt Form" dated June 27, 1976, Gregorio sold to Bonifacio and
Artemio their respective 400- square-meter portions of the property. Based on the agreement, the full
consideration of the contract is P6,000.00, subject to the following conditions: 1. The amount of
P2,000.00 should be paid vendor upon the signing of the contract. 2. The amount of P2,000.00 should
be paid to the vendor at his residence at Sta. Cruz, Lubao, Pampanga, on or before June 30, 1977. 3.
The last instalment of P2,000.00 should be paid to the vendor at his abovementioned residence on or
before June 30, 1978. 4; and that on July 2, 1976, Mr. Gregorio Serrano, the vendor wouldl execute a
Deed of Conditional Sale. In 1978, the parties executed another agreement further agreeing that in
June 1978, upon the completion of the full payment of the agreed price, the herein vendor would
deliver to the vendee a title corresponding to the lot or portion sold. It was further agreed that any
violation of the stipulations herein stated would entitle the innocent or aggrieved party a right to ask
for damages. While Bonifacio and Artemio paid the P2,000.00 upon the signing of the Agreement,
they were both unable to pay the balance of the purchase price when they fell due but nevertheless
remained in possession of their respective lots. In a Complaint in 1998, the Spouses Serrano
instituted ejectment proceedings against Bonifacio and Artemio, praying that Bonifacio and Artemio
be ordered to vacate the premises and to pay monthly rentals and attorney's fees. The complaint, was
dismissed on the ground of lack of jurisdiction by the trial court. A Complaint for specific
performance was filed by Bonifacio and Artemio for spouses Serrano to execute and deliver a proper
deed of sale alleging that they purchased their respective portions of land via the Agreement in
Receipt Form, claiming further that Gregorio intentionally deceived them into signing the documents
in 1992 purportedly intended to facilitate the processing and issuance of their titles over their
respective portions of land but which turned out to be a declaration that they were merely caretakers
of the same. Said documents were eventually used for the ejectment case against them. In 1994, the
Spouses Serrano had already obtained the title over the subject properties in their names. It was
prayed that the Agreement be declared as null and void. According to the trial court, the acceptance of
a down payment means that the contract is no longer executory but partly executed, removing the
same from the coverage of the Statute of Frauds. Thus the trial court ruled in favor of Bonifacio and
Artemio. As to the non-payment of the P4,000.00 balance, the trial court sustained the reasoning of
Bonifacio and Artemio that despite the fact that they were more than willing to pay the same, they
were sufficiently prevented from doing so because of the continued absence of the Spouses Serrano.
On appeal, the court ruled in favor of the spouses. Hence this appeal.
ISSUES:
1. Whether the contract between the parties was a conditional sale and not an absolute sale.
2. Whther or not the petitioner can demand respondent spouses serrano to transfer the subject
property despite his failure to comply with the suspensive condition of full payment of the purchase
price.
3. Whether or not the action has prescribed.
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HELD:
1. The contested contract was a contract to sell. In a contract of sale, the title to the property passes
to the vendee upon the delivery of the thing sold; in a contract to sell, the ownership is, by agreement,
retained by the vendor and is not to pass to the vendee until full payment of the purchase price. In a
contract of sale, the vendee' s non-payment of the price is a negative resolutory condition, while in a
contract to sell, the vendee's full payment of the price is a positive suspensive condition to the coming
into effect of the agreement. In the first case, the vendor has lost and cannot recover the ownership of
the property unless he takes action to set aside the contract of sale. In the second case, the title simply
remains in the vendor if the vendee does not comply with the condition precedent of making payment
at the time specified in the contract. In a contract to sell, the prospective vendor binds himself to sell
the property subject of the agreement exclusively to the prospective vendee upon fulfilment of the
condition agreed upon which is the full payment of the purchase price but reserving to himself the
ownership of the subject property despite delivery thereof to the prospective buyer. In the instant
case, the "Agreement in Receipt Form" reveals that the same is a contract to sell and not a contract of
sale. As expressly stipulated therein, the parties "agreed that in June 1978, upon the completion of the
full payment of the agreed price, the herein vendor will deliver to the vendee a title corresponding to
the lot or portion sold." Clearly, the title to the property was to remain with the Spouses Serrano, to
pass only to Bonifacio until his full payment of the purchase price.
2. In conditional sales of all kinds of real estate (industrial, commercial, residential), RA No. 6552 not
only recognizes the right of the seller to cancel the contract upon nonpayment of an installment by the
buyer, an event that prevents the obligation of the seller to convey title from acquiring binding force,
it also provides for the rights of the buyer in case of such cancellation. Its salient provisions provide:
Sec. 3. In all transactions or contracts involving the sale or financing of real estate on installment
payments, including residential condominium apartments but excluding industrial lots, commercial
buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four, as
amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at
least two years of installments, the buyer is entitled to the following rights in case he defaults in the
payment of succeeding installments: (a) To pay, without additional interest, the unpaid installments
due within the total grace period earned by him, which is hereby fixed at the rate of one month grace
period for every one year of installment payments made: Provided, That this right shall be exercised
by the buyer only once in every five years of the life of the contract and its extensions, if any. (b) 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
payments 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. Down
payments, deposits or options on the contract shall be included in the computation of the total
number of installments made. Sec. 4. In case where less than two years of installments were paid, the
seller shall give the buyer a grace period of not less than sixty days from the date the installment
became due. If the buyer fails to pay the installments due at the expiration of the grace period, the
seller may cancel the contract 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. 30 Thus, the rights of the buyer in the
event he defaults in the payment of the succeeding installments depend upon whether he has paid at
least two (2) years of installments or less. In the case at hand, it is undisputed that Bonifacio was only
able to pay the first P2,000.00 installment upon the signing of their agreement, thereafter, failing to
pay the balance of the purchase price when they fell due
3. Yes, the petitioner’s action has already prescribed. The buyer filed an action for specific
performance seeking to compel the seller to accept the balance of the purchase price and to execute
the corresponding deeds of absolute sal after 27 years. Article 1144 of the Civil Code provides that
actions based upon a written contract must be brought within ten years from the time the right of
action accrues. In this case, the action was filed way beyond the period allowed.
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CONTRACT OF SALE: VALIDITY OF
MILAGROS HERNANDEZ, REPRESENTED BY HER ATTORNEY-IN-FACT FE
HERNANEDEZ-ARCEO VS. EDWINA OCAMPO , PHILIPPINE SAVINGS BANK,
FELICITAS MENDOZA, METROPOLITAN BANK AND TRUST COMPANY AND THE
SHERIFF OF THE RTC OF BINAN, LAGUNA
August 15, 2016, G.R. No. 181286
Manila,Third division
Ponente: Francis Jardeleza, J.:
This is a Petition for Review on Certiorari' under Rule 45 of the Revised Rules of Court from the
Decision the Court of Appeals (CA) which affirmed the order of the Regional Trial Court (RTC) of
Bifian, Laguna, Branch for Annulment of Deed of Sale and Transfer Certificates of Title (TCT).
FACTS:
Petitioner Milagros Hernandez (Hernandez) alleges that sometime in 1985, she bought from Romeo
Uy An (An) two parcels of land, Lot 8 Block 3 (Lot 8) and Lot 6 Block 3 (Lot 6), both located in
Bifian, Laguna, as evidenced by a deed of sale, and from such time of sale, she was in continuous,
open, and adverse possession of these lots. Until now, her daughter, Fe HernandezArceo and her
family occupy them without transfer. Hernandez entrusted the registration of the lots in her name to
her son-in-law, Ricardo San Andres. However, he died in 1991 without transferring the titles to
Hernandez's name. 9 At that time, Hernandez was already residing in the United States 10 and was
not aware of the non-registration of the lots. Due to old age, she has also not come back to the
Philippines for a long time. Sometime in 2002, Hernandez and her family discovered that the lots
were mortgaged, extrajudicially foreclosed, and were separately sold at public auctions with the two
banks emerging as the highest bidders. The lots were also subsequently sold by the banks and herein
buyers and respondents registered the same in their names by virtue of a Deed of Sale dated April 13,
1989.
In January 2002, PSB filed a petition for the issuance of writ of possession, which was granted by the
court. Meanwhile, Hernandez filed a Complaint for Cancellation of Transfer Certificates of Title. The
summonses were served upon Metrobank and PSB in November of the same year. In March 2004, the
RTC issued a Writ of Possession in favor of PSB over the six lots subject of the petition. A Notice to
Vacate was then issued the following year. Both the Writ of Possession and the Notice to Vacate were
addressed to Ocampo and her husband, Ricardo Ocampo, as mortgagors. In 2004, Metro bank on
petition was granted the issuance of writ of possession on the contested lots. Consequently, a Notice
to Vacate was also issued. Both the Writ of Possession and the Notice to Vacate were addressed to
Mendoza. The RTC ruled that the allegation of fraudulent registration of the titles in the names of
Ocampo and Mendoza were evidentiary in nature and thus, must be proven through trial on the
merits. It pointed out that PSB relied on the title of the property mortgaged, which was clean and free
from any annotation, encumbrance, lien or any adverse claim. The RTC also agreed that the issuance
of writ of possession is ministerial to the court after the lapse of one year to redeem the property.
Hernandez filed a Motion for Reconsideration, but it was also denied by the RTC.Hence a Petition for
Certiorari with Prayer for Preliminary Injunction36 under Rule 65 of the Revised Rules of Court with
the CA which dismissed the Petition. Hence this appeal.
ISSUE:
1. Who among the parties has a superior right of ownership of the contested lots?
2. What remedies are available to the adverse possessors of a titled propery?
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HELD:
1. Ocampo and Mendoza who hold the TCTs have superior rights. The TCTs which contain the
names of the respondents is considered to be superior documents over Hernandez's Deed of Sale.
Absent a finding that the TCTs were fraudulently obtained by Ocampo and Mendoza, the right of
Hernandez cannot be considered yet as clear and unmistakable. The crux in this case, as there were
transfer certificates of title in the name of Ocampo and Mendoza while on the other hand the adverse
possession as owners are alleged to be exercised by petitioner, there is no unmistakable right yet on
the part of petitioner. Our Ruling The petition is unmeritorious. The writs of possession can be issued
and implemented. A writ of possession is generally understood to be an order whereby the sheriff is
commanded to place a person in possession of a real or personal property. 44 It may be issued in: (1)
land registration proceedings under Section 17 of Act No. 496;45 (2) judicial foreclosure, provided
the debtor is in possession of the mortgaged realty and no third person, not a party to the foreclosure
suit, had intervened; (3) extrajudicial foreclosure of a real estate mortgage under Section 7 of Act No.
3135,46 as amended by Act No. 4118; and (4) execution sales.
In cases of extrajudicial foreclosure sales of real estate mortgage under Section 747 of Act No. 3135,
as amended, the purchaser or the mortgagee who is also the purchaser in the foreclosure sale may
apply for a writ of possession either: (1) within the one-year redemption period, upon the filing of a
bond; or (2) after the lapse of the redemption period, without need of a bond.The two instances when
a purchaser can apply for a writ of possession: During the one-year redemption period, as
contemplated by Section 7 of the above-mentioned law, a purchaser may apply for a writ of
possession by filing an ex parte motion under oath in the registration or cadastral proceedings if the
property is registered, or in special proceedings in case the property is registered under the Mortgage
Law. In this case, a bond is required before the court may issue a writ of possession. On the other
hand, upon the lapse of the redemption period, a writ of possession may be issued in favor of the
purchaser in a foreclosure sale, also upon a proper ex parte motion. This time, no bond is necessary
for its issuance; the mortgagor is now considered to have lost any interest over the foreclosed
property. The purchaser then becomes the owner of the foreclosed property, and he can demand
possession at any time following the consolidation of ownership of the property and the issuance of
the corresponding TCT in his/her name. It is at this point that the right of possession of the purchaser
can be considered to have ripened into the absolute right of a confirmed owner.
Thus, where the property levied upon on execution is occupied by a party other than a judgment
debtor, the procedure is for the court to conduct a hearing to determine the nature of said possession,
i.e., whether or not he is in possession of the subject property under a claim adverse to that of the
judgment debtor. This is because a third party, who is not privy to the debtor, is protected by law and
can only be ejected from the premises after he has been given an opportunity to be heard, to comply
with the time-honored principle of due process. Art. 433. Actual possession under claim of ownership
raises a disputable presumption of ownership. The true owner must resort to judicial process for the
recovery of the property. Under the aforequoted provision, one who claims to be the owner of a
property possessed by another must bring the appropriate judicial action for its physical recovery. The
term "judicial process" could mean no less than an ejectment suit or reinvindicatory action, in which
the ownership claims of the contending parties may be properly heard and adjudicated. An ex-parte
petition for issuance of a possessory writ under Section 7 of Act No. 3135 is not, strictly speaking, a
"judicial process" as contemplated above. Where the complainant's right or title is doubtful or
disputed, injunction is not proper. it would be virtually recognizing petitioner's claim that the deeds of
conveyances and the titles are a nullity without further proof to the detriment of the doctrine of
presumption of validity in favor of these documents. The Petition is denied.
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CONTRACTS: WARRANTY
BISHOP BRODERICK S. PABILLO, DD, PABLO R. MANALAST AS, JR., PhD, MARIA
CORAZON AKOL, CONCEPCION B. REGALADO, HECTOR A. BARRIOS, LEO Y.
QUERUBIN, AUGUSTO C. LAGMAN, FELIX P. MUGA, II, PhD, ATTY. GREGORIO T.
FABROS, EVITA L. JIMENEZ, and JAIME DL CARO, PhD, Petitioners, vs.
COMMISSION ON ELECTIONS, EN BANC, represented by Acting Chairperson
CHRISTIAN ROBERT S. LIM, and SMARTMATIC-TIM CORPORATION, represented by
Smartmatic Asia-Pacific President CESAR FLORES, Respondents.
x-----------------------x
INTEGRATED BAR OF THE PHILIPPINES, Petitioner, vs. COMMISSION ON
ELECTIONS, represented by its Acting Chairperson ROBERT S. LIM, and SMARTMATICTIM CORPORATION, Respondents.
G.R. No. 216098 G.R. No. 216562, April 21, 2015
Supreme Court, Baguio City, En Banc
Ponente: Estela M. Perlas-Bernabe, Associate Justice
Before this Court are consolidated petitions for certiorari and prohibition assailing respondent the
Commission on Elections Resolution which approved a direct contracting arrangement with
respondent Smartmatic-TIM Corporation (Smartmatic-TIM) for the diagnostics, maintenance, repair,
and replacement of the COMELEC's Precinct Count Optical Scan (PCOS) machines, as well as the
resulting contract thereof, the Extended Warranty Contract
FACTS:
In 1997, Congress enacted Republic Act No. (RA) 8436, which authorized the COMELEC "to use an
automated election system (AES) x x x for the process of voting, counting of votes and
canvassing/consolidation of results of national and local elections.The COMELEC was authorized by
aw "to procure by purchase, lease or otherwise any supplies, equipment, materials, and services
needed for the holding of the elections by an expedited process of public bidding of vendors,
suppliers or lessors. RA 8436 further provided that the AES "shall be under the exclusive supervision
and control of the COMELEC. After a process of bidding, in June 2009, the COMELEC by virtue of
an En Banc Resolution confirmed Smartmatic-TIM - a joint venture company formed by Smartmatic
International Corporation (Smartmatic) and Total Information Management Corporation (TIM) – as
the winning bidder. A contract between the COMELEC and Smartmatic-TIM designated as 2009
AES Contract was executed providing that in the event that [the] COMELEC exercises its option to
purchase [(OTP)] the Goods until December 31, 2010, the COMELEC "shall pay [Smartmatic-TIM]
an additional amount of [P2,130,635,048.15]"; "a warranty shall be required in order to assure that:
[a] manufacturing defects shall be corrected; and/or [b] replacements shall be made by [SmartmaticTIM], for a minimum period of three (3) months, in the case of supplies, and one (1) year, in the case
of equipment, after performance of this Contract"; and for the "PCOS, [Smartmatic-TIM] shall
warrant the availability of parts, labor and technical support and maintenance to COMELEC for ten
(10) years, if purchased.
The COMELEC was able to implement for the first time the AES on a nationwide scale during the
May 10, 2010 Synchronized National and Local Elections. Subsequently, the COMELEC en
banc approved the full exercise of the OTP thus, the 2012 Deed of Sale was executed for the
remaining PCOS and CCS machines, which the COMELEC used during the May 13, 2013
Synchronized National and Local Elections.
In November 2013, the COMELEC received from Smartmatic-TIM a proposal letter to "extend the
warranty" of the PCOS machines for three (3) years., based on which the COMELEC Advisory
Council (CAC) recommended, among others, the reuse of the existing technology for the upcoming
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2016 Elections. COMELEC's Law Department subsequently came up with a Final Extended
Warranty Proposal. The COMELEC En Banc, approved Program 1 of Smartmatic-TIM's PCOS
Extended Warranty Proposal amounting toP300,000,000.00, exclusive of Value-Added Tax.
On January 30, 2015, the COMELEC and Smartmatic-TIM entered into the Extended Warranty
Contract (Program 1), whereby Smartmatic-TIM undertook the following during a five (5)-month
period: (a) accomplish a physical inventory count of all the 81,896 PCOS machines with the
authorized COMELEC representatives ensuring, among others, that the serial numbers are properly
recorded and annotated in the Inventory List of the COMELEC; (b) complete a full diagnostic of
every PCOS machine in accordance with the Diagnostic Program; (c) examine each PCOS machine
to determine the required refurbishment to bring them back to working condition; (d) perform a full
Preventive Maintenance Program of every PCOS machine, among others. The following were,
however, excluded from the scope of work: (a) those PCOS machines that are unavailable during the
five (5) month period of the Program or those units beyond the four percent (4%) cap; (b) those
cosmetic changes or refinishing of the machines or furnishing of the machines or furnishing supplies
for such purposes, or making specification changes; and (c) those PCOS machines, where persons or
entities other than Smartmatic-TIM authorized representative, performed maintenance or repair
services, as a result of which, further repair or maintenance is required to be done by a SmartmaticTIM authorized representative to restore the machines to good working condition.
Two cases were subsequently filed mainly assailing the illegality of the law on automated election
and pertinent to the principles of contracts, questioning the validity among others, whether or not the
Extended Warranty Contract (Program 1), being a part of the 2009 AES Contract.
ISSUES:
Whether or not the Extended Warranty Agreement between the COMELEC and Smartmatic-TIM was
valid.
HELD:
1. No. That the Extended Warranty Contract (Program I) excludes from the scope of work those
PCOS machines, where persons or entities other than Smartmatic-TIM authorized representative,
performed maintenance or repair services, as a result of which, further repair or maintenance is
required to be done by a Smartmatic-TIM authorized representative to restore the machines to good
working condition155 does not call for a different conclusion. Said exclusion was inserted as part of
the Extended Warranty Contract (Program I) that was agreed upon only after the expiration of the
original warranty on manufacturing defects. In other words, the exclusion was only part of
Smartmatic-TIM' s offer for a new contract, which the COMELEC accepted only after the warranty
on manufacturing defects had lapsed.
The fact that sufficient number of ITD personnel could have well been trained by Smartmatic-TIM
itself on matters related to the repair, refurbishment, tuning up and maintenance of the PCOS
machines, as well as the electronic transmission facility. As such, the conduct of repair is premature
considering that the units requiring repair, if any, is yet to be determined. The same can be said for
the replacement of servers and network equipment which has yet to be evaluated.
The Extended Warranty Contract (Program 1) cannot be validated by the mere expedient of
characterizing the same as a part of the 2009 AES Contract. The services of repair and refurbishment
cannot be procured from Smartmatic-TIM through an "extended warranty" mode, unless this Court
assents to a blatant circumvention of the procurement law.The 2009 AES Contract, Smartmatic-TIM
warrants that its parts, labor and technical support and maintenance will be available to the
COMELEC, if it so decides to purchase such parts, labor and technical support and maintenance
services, within the warranty period stated, i.e., ten (10) years for the PCOS, reckoned from May
2010. Since Article 8.8 is a mere warranty on availability, it entails a subsequent purchase contract,
founded upon a new consideration, to be effectively invoked. However, by no means does this
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provision dispense with the need to bid out the ensuing purchase contract. Neither does this
presuppose that the COMELEC is - for the stated period of ten (10 years) - already beholden to
Smartmatic-TIM. Certainly, the COMELEC's hands cannot be hamstrung by a mere warranty on
availability, which is precisely a warranty provision that should operate in its favor. In any event, the
spirit of competition which primordially animates the procurement law cannot be undercut absent the
law's own exceptive conditions. Otherwise, other potential bidders would be deprived of the
opportunity to participate and offer better terms to the government. That Smartmatic-TIM has already
acquired complete monopoly over any subsequent need the government would have in relation to the
PCOS machines for a period of ten (10) years is a notion this Court, under these circumstances,
cannot accept.
The Extended Warranty Contract (Program 1) is not a mere "warranty extension."An extended
warranty gives a prolonged warranty to consumers to provide the additional service of replacing or
repairing goods, the defects of which are directly related to how the item was manufactured. As an
"extension,'' the defect to be repaired should occur within the extended period covered in the
agreement.
In these cases, the warranty period for manufacturing defects had, as above-discussed, lapsed a long
time ago, or last March 30, 2013, which follows the one (1) year warranty period for the PCOS
machines, reckoned from March 30, 2012 when the 2012 Deed of Sale was executed. Hence, there
was nothing more that could be extended.
The Extended Warranty Contract (Program 1) as a revival, rather than an extension. However, if the
Court were to condone this way of thinking, then the bidding for any service related to the PCOS, or
any government project for that matter, would never be needed at all. All the Procuring Entity has to
do is simply revive the provisions of a dead contract and perpetually hold itself to the original
contract awardee. Clearly, this undermines the very core of the procurement law - it eliminates
competition, deprives the government of the opportunity to receive offers with more advantageous
terms, and, more significantly, erodes the public's faith by rousing suspicions of favoritism and
anomaly; perforce, the COMELEC's "extended warranty mode" cannot - as it should not - be
sanctioned.
To stretch the argument further, neither should the principle of autonomy of contracts preclude the
Extended Warranty Contract's (Program 1) scrutiny. The principle is not a safe haven to just leave the
parties to their agreement - it bears a sharp limitation that although parties may agree to stipulations,
clauses, terms and conditions as they may deem appropriate, they should not be contrary to law,
morals, good customs, public order or public policy; hence, the Court, after ascertaining the contract's
true nature, should proceed to assess if it transgresses this limitation.
For all these counts, the conclusion thus reached is that the COMELEC had committed grave abuse of
discretion amounting to lack or excess of jurisdiction. As a result, its Resolution No. 9922 and the
Extended Warranty Contract (Program 1) should be stricken down, and necessarily, all amounts paid
to Smartmatic-TIM pursuant to the said contract, if any, being public funds sourced from taxpayers'
money, should be returned to the government in accordance with the procedures contained in existing
rules and regulations.
WHEREFORE, the petitions are GRANTED. Accordingly, COMELEC Resolution No. 9922 and the
Extended Warranty Contract (Program 1) are hereby declared NULL and VOID. This Decision is
immediately executory in view of the time considerations attendant herein.211 SO ORDERED.
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VOID CONTRACTS
CONSOLACION D. ROMERO AND ROSARIO S.D. DOMINGO, Petitioners, v. ENGRACIA
D. SINGSON, Respondent.
G.R. No. 200969, August 03, 2015
SECOND DIVISION
Ponente: DEL CASTILLO, J.
This Petition for Review on Certiorari
FACTS:
The petitioners Consolacion Domingo Romero and Rosario S.D. Domingo and respondent Engracia
Domingo Singson - are siblings. Their parents, Macario and Felicidad Domingo, own a 223-square
meter piece of property in San Juan City, Metro Manila. It appears that petitioners and other siblings,
Rafael and Ramon Domingo, are the actual occupants of the subject property, having stayed there
with their parents since birth. On the other hand, respondent took up residence in Mandaluyong City.
In 2006, a new certificate of titlewas issued in respondent's name, by virtue of a notarized Absolute
Deed of Sale dated June 6, 2006 by and between Macario and Felicidad - as sellers, and respondent as buyer. And this despite the fact that Macario and Felicidad were then already deceased. Soon
thereafter, respondent sent letters to her siblings demanding that they vacate the subject property,
under pain of litigation. Petitioners and their other siblings filed a Complaint for annulment and
cancellation of the new TCT and the contested deed of saleon the ground of forgery. Respondent filed
an unlawful detainer suit against petitioners and her brothers Rafael and Ramon before the MeTCT.
The MeTC favored herein respondent, based on the right of the plaintiff being a holder of a Torrens
Title which is a right in rem. On appeal with the RTC, the court favored herein respondents
affirming in toto the decision of the lower court. On motion for reconsideration, however, the RTC
reversed itself, ruling that defendants-appellants' occupancy of subject property is premised on their
right thereto as co-owners, being compulsory heirs of their parents, and it not being established that
they had alienated such right in favor of their sister, herein plaintiff-appellee, the latter cannot eject
them therefrom. The respondent filed a Motion for Reconsideration, which the RTC denied in a
subsequent Order. On appeal, the CA rendered judgment in favor of herein respondents. Hence, the
instant Petition.
ISSUES:
1. Whether or not the action for unlawful detainer was proper where the ejectment complaint is
indispensably intertwined with the issue of ownership.
2. Whether or not the petitioner has the right of ownership as against the respondents who procured
their title thru fraud
HELD:
1. No.They could not be evicted from the subject property since they are co-owners of the same,
having inherited it from their deceased parents; that respondent's title was derived from a forged deed
of sale, which does not make her the sole owner of the subject property; that as co-owners and since
respondent's title is void, they have a right of possession over the subject property and they may not
be evicted therefrom; that their defense that respondent obtained her title through a forged deed of
sale does not constitute a collateral attack on such title, but is allowed in order to prove their legal
right of possession and ownership over the subject property.
The principle that "the person who has a Torrens Title over a land is entitled to possession thereof"
cannot be applied in this case where fraud in obtaining the title was involved.
When the deed of sale in favor of respondent was purportedly executed by the parties thereto and
notarized on June 6, 2006, it is perfectly obvious that the signatures of the vendors therein, Macario
and Felicidad, were forged. They could not have signed the same, because both were by then long
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deceased., making the deed of sale null and void, A void contract is "equivalent to nothing; it
produces no civil effect; and it does not create, modify or extinguish a judicial relation.” “When the
instrument presented is forged, even if accompanied by the owner's duplicate certificate of title, the
registered owner does not thereby lose his title, and neither does the assignee in the forged deed
acquire any right or title to to the property.”
In sum, the fact that respondent has in her favor a certificate of title is of no moment; her title cannot
be used to validate the forgery or cure the void sale.
Insofar as a person who fraudulently obtained a property is concerned, the registration of the property
in said person's name would not be sufficient to vest in him or her the title to the property. A
certificate of title merely confirms or records title already existing and vested. The indefeasibility of
the Torrens title should not be used as a means to perpetrate fraud against the rightful owner of real
property. Good faith must concur with registration because, otherwise, registration would be an
exercise in futility. A Torrens title does not furnish a shield for fraud, notwithstanding the longstanding rule that registration is a constructive notice of title binding upon the whole world.The legal
principle is that if the registration of the land is fraudulent, the person in whose name the land is
registered holds it as a mere trustee.
Since respondent acquired no right over the subject property, the same remained in the name of the
original registered owners, Macario and Felicidad. Being heirs of the owners, petitioners and
respondent thus became, and remain co-owners - by succession - of the subject property. As such,
petitioners may exercise all attributes of ownership over the same, including possession - whether de
facto or dejure; respondent thus has no right to exclude them from this right through an action for
ejectment.
"An action to declare the nullity of a void title does not prescribe and is susceptible to direct, as well
as to collateral, attack;" petitioners were not precluded from questioning the validity of respondent's
title in the ejectment case.
Thus, left with no cause of action for ejectment against petitioners, respondent's ejectment case must
be dismissed.
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VALIDITY OF CONTRACTS: CAPACITY OF PARTIES
JOSEFINA V. NOBLEZA, Petitioner, v. SHIRLEY B. NUEGA, Respondent.
G.R. No. 193038, March 11, 2015
Supreme Court, Manila, Third Division
Ponente: Villarama, Jr., J.:
A petition for review on certiorari of a CA decision
FACTS:
Respondent Shirley B. Nuega (Shirley) was married to Rogelio A. Nuega (Rogelio) on September 1,
1990. Sometime in 1988 when the parties were still engaged, Shirley was working as a domestic
helper in Israel, they purchased a 111 sq.m. residential lot in Marikina for P102,000.00 from
Rodeanna Realty Corporation. In 1989, a TCT over the subject property was issued by the Registry of
Deeds of Marikina, Rizal solely under the name of Rogelio. On September 1, 1990, Shirley and
Rogelio got married and lived in the subject property. The following year, Shirley returned to Israel
for work. While overseas, she received information that Rogelio had brought home another woman,
Monica Escobar, into the family home. She also learned, and was able to confirm upon her return to
the Philippines in May 1992, that Rogelio had been introducing Escobar as his wife. In June 1992,
Shirley filed two cases against Rogelio: one for Concubinage before the Provincial Prosecution Office
of Rizal, and another for Legal Separation and Liquidation of Property before the RTC of Pasig City.
Subsequently, Rogelio sold the subject property to herein petitioner without Shirley's consent in the
amount of Three Hundred Eighty Thousand Pesos (P380,000.00), including petitioner's undertaking
to assume the existing mortgage on the property with the National Home Mortgage Finance
Corporation and to pay the real property taxes due thereon. Meanwhile, in a Decision of the RTC
granted the petition for legal separation and ordered the dissolution and liquidation of the regime of
absolute community of property between Shirley and Rogelio. Rogelio appealed but the CA denied
due course and dismissed the petition. In August 1996, Shirley instituted a Complaint for Rescission
of Sale and Recoveiy of Property against petitioner and Rogelio before the RTC of Marikina City,
Branch 273. After trial on the merits, the trial court granted Shirley’s petition. Herein petitioner
appealed with the CA, but the appellate court affirmed the trial court's ruling, Hence, this petition.
ISSUES:
Whether or not the contract of sale between the petitioner and the respondent’s spouse is null and
void
HELD:
The contract is null and void. While the TCT shows that the owner of the subject property is Rogelio
alone. The nullity of the sale made by Rogelio but that it constitutes community property. Article 91
of the Family Code provides: Unless otherwise provided in this Chapter or in the marriage
settlements, the community property shall consist of all the property owned by the spouses at the time
of the celebration of the marriage or acquired thereafter. Respondent and Rogelio were married on
September 1, 1990. Rogelio, on his own and without the consent of herein respondent as his spouse,
sold the subject property via a Deed of Absolute Sale during the subsistence of a valid contract of
marriage was void under Article 96 of The Family Code of the Philippines, which provide that:
Art. 96. The administration and enjoyment of the community property shall belong to both spouses
jointly. In case of disagreement, the husband's decision shall prevail, subject to recourse to the court
by the wife for a proper remedy, which must be availed of within five years from the date of the
contract implementing such decision.
In the event that one spouse is incapacitated or otherwise unable to participate in the administration of
the common properties, the other spouse may assume sole powers of administration. These powers do
not include the powers of disposition or encumbrance without the authority of the court or the written
consent of the other spouse. In the absence of such authority or consent, the disposition or
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encumbrance shall be void. However, the transaction shall be construed as a continuing offer on the
part of the consenting spouse and the third person, and may be perfected as a binding contract upon
the acceptance by the other spouse or authorization by the court before the offer is withdrawn by
either or both offerors. It is clear under the foregoing provision of the Family Code that Rogelio
could not sell the subject property without the written consent of respondent or the authority of the
court. Without such consent or authority, the entire sale is void.
In the instant case, defendant Rogelio sold the entire subject property to defendant-appellant Josefina
on 29 December 1992 or during the existence of Rogelio's marriage to plaintiff-appellee Shirley,
without the consent of the latter. The subject property forms part of Rogelio and Shirley's absolute
community of property. Thus, the trial court erred in declaring the deed of sale null and void only
insofar as the 55.05 square meters representing the one-half (1/2) portion of plaintiff-appellee Shirley.
In absolute community of property, if the husband, without knowledge and consent of the wife, sells
the property, such sale is void. The consent of both the husband Rogelio and the wife Shirley is
required and the absence of the consent of one renders the entire sale null and void including the
portion of the subject property pertaining to defendant Rogelio who contracted the sale with
defendant-appellant Josefina. Sence, the trial court erred in declaring the said Deed of Absolute Sale
as void only insofar as the 1/2 portion pertaining to the share of Shirley is concerned.
Finally, consistent with our ruling that Rogelio solely entered into the contract of sale with petitioner
and acknowledged receiving the entire consideration of the contract under the Deed of Absolute Sale,
Shirley could not be held accountable to petitioner for the reimbursement of her payment for the
purchase of the subject property. Under Article 94 of the Family Code, the absolute community of
property shall only be "liable for x x x [d]ebts and obligations contracted by either spouse without the
consent of the other to the extent that the family may have been benefited x x x." As correctly stated
by the appellate court, there being no evidence on record that the amount received by Rogelio
redounded to the benefit of the family, respondent cannot be made to reimburse any amount to
petitioner.
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CONTRACTS: PACTUM COMMISSORIUM; DACION IN PAYMENT
SPOUSES ROBERTO AND ADELAIDA PEN, Petitioners, v. SPOUSES SANTOS AND
LINDA JULIAN, Respondents.
G.R. No. 160408, January 11, 2016
Supreme Court, Manila, First Division
Ponente: Bersamin, J.:
FACTS:
In 1986, the Julians obtained loans loans for a total of P110,000.00 which were charged interest at 6%
per month. As security, on May 23, 1986, the appellees executed a Real Estate Mortgage over their
property covered by a TCT, the owner's duplicate of which was delivered to the appellants. When the
loans became due and demandable, appellees failed to pay despite several demands. As such,
appellant Adelaida decided to institute foreclosure proceedings. However, she was prevailed upon by
appellee Linda not to foreclose the property because of the cost of litigation and since it would cause
her embarrassment as the proceedings will be announced in public places at the City Hall, where she
has many friends. Instead, appellee Linda offered their mortgaged property as payment in kind. After
the ocular inspection, the parties agreed to have the property valued at P70,000.00. Thereafter, on
October 22, 1986 appellee executed a two (2) page Deed of Sale duly signed by her on the left margin
and over her printed name. In July 1989, appellants allege that appellee Linda offered to repurchase
the property to which the former agreed at the repurchase price of P436,115.00 payable in cash on
July 31, 1989. The appellees failed to repurchase on the agreed date. On February 1990, appellees
again offered to repurchase the property for the same amount, but they still failed to repurchase. On
June 28, 1990, another offer was made to repurchase the property for the same amount. Appellee
Linda offered to pay P100,000.00 in cash as sign of good faith. The offer was rejected by appellant
Adelaida. Upon the agreement of the parties, the amount of P100,000.00 was deducted from the
balance of the appellees' indebtedness, so that as of October 15, 1997, their unpaid balance amounted
to P319,065.00. At the time the mortgage was executed, they were likewise required by the appellant
Adelaida to sign a one (1) page document purportedly an "Absolute Deed of Sale". Said document did
not contain any consideration, and was "undated, unfilled and unnotarized". They allege that their
total payments amounted to P115,400.00 and that their last payment was on June 28, 1990 in the
amount of P100,000.00. In December 1992, appellee Linda Julian offered to pay appellant Adelaida
the amount of PI50,000.00. The latter refused to accept the offer and demanded that she be paid the
amount of P250,000.00. Unable to meet the demand, appellee Linda desisted from the offer and
requested that she be shown the land title which she conveyed to the appellee Adelaida, but the latter
refused. Upon verification with the Registry of Deeds of Quezon City, she was informed that the title
to the mortgaged property had already been registered in the name of appellee Adelaida.
It appeared that the lots were made subject of conveyance to third persons. In 1994, appellees
formally demanded the reconveyance of the title and/or the property to them, but the appellants
refused. It turned out that appellant Adelaida, caused to be notarized the Deed of Sale earlier signed
by appellee Julian, and used this spurious deed of sale as the vehicle for her fraudulent transfer unto
herself of one of the lots. In 1999, the RTC ruled in favor of the respondents. On appeal by the
petitioners, the CA affirmed the RTC with modification. Hence, this appeal.
ISSUES:
1. Whether or not the deed of sale as valid; and
2. Whether or not the monetary interest was due for Linda's use of Adelaida's money..
HELD:
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1. The deed of sale was void being in essence a pactum commissorium. Article 2088 of the Civil
Code prohibits the creditor from appropriating the things given by way of pledge or mortgage, or
from disposing of them; any stipulation to the contrary is null and void. The elements for pactum
commissorium to exist are as follows, to wit: (a) that there should be a pledge or mortgage wherein
property is pledged or mortgaged by way of security for the payment of the principal obligation; and
(b) that there should be a stipulation for an automatic appropriation by the creditor of the thing
pledged or mortgaged in the event of non-payment of the principal obligation within the stipulated
period. The first element was present considering that the property of the respondents was mortgaged
by Linda in favor of Adelaida as security for the former's indebtedness. As to the second, the
authorization for Adelaida to appropriate the property subject of the mortgage upon Linda's default
was implied from Linda's having signed the blank deed of sale simultaneously with her signing of the
real estate mortgage. The haste with which the transfer of property was made upon the default by
Linda on her obligation, and the eventual transfer of the property in a manner not in the form of a
valid dacion en pago ultimately confirmed the nature of the transaction being a pactum
commissorium.
That Linda's deed of sale had been executed simultaneously with the real estate mortgage, led the
court to the conclusion that such circumstances rendered the transaction pactum commissiorium.
The contract was not a valid dacion en pago. Dacion en pago, which is in the nature of a sale because
property is alienated in favor of the creditor in satisfaction of a debt in money must show the
following elements: (a) the existence of a money obligation; (b) the alienation to the creditor of a
property by the debtor with the consent of the former; and (c) the satisfaction of the money obligation
of the debtor.12 To have a valid dacion en pago, therefore, the alienation of the property must fully
extinguish the debt. In this case, the debt of the respondents subsisted despite the transfer of the
property in favor of Adelaida.
According to Article 1318 of the Civil Code, the requisites for any contract to be valid are, namely:
(a) the consent of the contracting parties; (b) the object; and (c) the consideration. There is a
perfection of a contract when there is a meeting of the minds of the parties on each of these requisites.
To reach that moment of perfection, the parties must agree on the same thing in the same sense, so
that their minds meet as to all the terms. They must have a distinct intention common to both and
without doubt or difference; until all understand alike, there can be no assent, and therefore no
contract. The minds of parties must meet at every point; nothing can be left open for further
arrangement. So long as there is any uncertainty or indefiniteness, or future negotiations or
considerations to be had between the parties, there is not a completed contract, and in fact, there is no
contract at all.
In a sale, the contract is perfected at the moment when the seller obligates herself to deliver and to
transfer ownership of a thing or right to the buyer for a price certain, as to which the latter agrees. The
absence of the consideration from Linda's copy of the deed of sale was credible proof of the lack of
an essential requisite for the sale. The meeting of the minds of the parties so vital in the perfection of
the contract of sale did not transpire. Linda's leaving the consideration blank implied the authority of
Adelaida to fill in that essential detail in the deed of sale upon Linda's default on the loan, the
conclusion of the CA that the deed of sale was a pactum commisoriumstill holds.
The Court affirms the decision subject to the payment of the amount due from the respondents with
legal interest of 12% per annum until full payment.
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CONTRACT OF SALE: RIGHTS OF THE VENDEE
TORRES-MADRID BROKERAGE, INC., Petitioner, - versus - FEB MITSUI MARINE
INSURANCE CO., INC. and BENJAMIN P. MANALAST AS, doing business under the name
of BMT TRUCKING SERVICES, Respondents.
July 11, 2016 G.R. No. 194121
Manila, Second Division
Ponente: Arturo D. Brion
A petition for review on certiorari challenging the Court of Appeals' which affirmed the Regional
Trial Court's (RTC) finding petitioner Torres-Madrid Brokerage, Inc. (TMBI) and respondent
Benjamin P. Manalastas jointly and solidarily liable to respondent FEB Mitsui Marine Insurance Co.,
Inc. (Mitsui) for damages from the loss of transported cargo.
FACTS:
On October 7, 2000, a shipment of various electronic goods from Thailand and Malaysia arrived at
the Port of Manila for Sony Philippines, Inc. (Sony). Previous to the arrival, Sony had engaged the
services of TMBI to facilitate, process, withdraw, and deliver the shipment from the port to its
warehouse in Biñan, Laguna. TMBI subcontracted the services of Benjamin Manalastas’ company,
BMT Trucking Services (BMT), to transport the shipment from the port to the Biñan warehouse. One
of the four BMT trucks that delivered the shipment from the port went missing and subsequently a
complaint for qualified theft was filed against the driver. Sony demanded payment for the lost
shipment but BMT refused to pay. Sony filed an insurance claim with the Mitsui, the insurer of the
goods. After evaluating the merits of the claim, Mitsui paid Sony PHP7,293,386.23 corresponding to
the value of the lost goods. After being subrogated to Sony’s rights, Mitsui sent TMBI a demand
letter dated August 30, 2001 for payment of the lost goods. TMBI refused to pay Mitsui’s claim. As a
result, Mitsui filed a complaint against TMBI . TMBI, in turn, impleaded Benjamin Manalastas, the
proprietor of BMT, as a third-party defendant. TMBI alleged that BMT’s driver, Lapesura, was
responsible for the theft/hijacking of the lost cargo and claimed BMT’s negligence as the proximate
cause of the loss. TMBI prayed that in the event it is held liable to Mitsui for the loss, it should be
reimbursed by BMT. At the trial, it was revealed that BMT and TMBI have been doing business with
each other since the early 80’s. It also came out that there had been a previous hijacking incident
involving Sony’s cargo in 1997, but neither Sony nor its insurer filed a complaint against BMT or
TMBI.The RTC found TMBI and Benjamin Manalastas jointly and solidarily liable to pay Mitsui
PHP 7,293,386.23 as actual damages, attorney’s fees equivalent to 25% of the amount claimed, and
the costs of the suit. The RTC held that TMBI and Manalastas were common carriers and had acted
negligently. Both TMBI and BMT appealed the RTC’s verdict. TMBI denied that it was a common
carrier required to exercise extraordinary diligence. It maintains that it exercised the diligence of a
good father of a family and should be absolved of liability because the truck was “hijacked” and this
was a fortuitous event. BMT claimed that it had exercised extraordinary diligence over the lost
shipment, and argued as well that the loss resulted from a fortuitous event. The CA affirmed the
RTC’s decision holding that “hijacking” is not necessarily a fortuitous event because the term refers
to the general stealing of cargo during transit; that TMBI is a common carrier engaged in the business
of transporting goods for the general public for a fee; that even if the “hijacking” were a fortuitous
event, TMBI’s failure to observe extraordinary diligence in overseeing the cargo and adopting
security measures rendered it liable for the loss;and that even if TMBI had not been negligent in the
handling, transport and the delivery of the shipment, TMBI still breached its contractual obligation to
Sony when it failed to deliver the shipment. Hence, the present petition.
ISSUES:
1. Whether or not TMBI was a common carrier.
2. Whether the “hijacking” event in the instant case was a fortuitous event and what is the extent
of TMBI’s liability?
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HELD:
1. Yes, TBMI is a common carrier. The delivery of the goods is an integral, albeit ancillary, part of
its brokerage services. That TMBI does not own trucks and has to subcontract the delivery of its
clients’ goods, is immaterial. As long as an entity holds itself to the public for the transport of goods
as a business, it is considered a common carrier regardless of whether it owns the vehicle used or has
to actually hire one. Lastly, TMBI’s customs brokerage services – including the transport/delivery of
the cargo – are available to anyone willing to pay its fees.
2. TMBI should be held responsible for the loss, destruction, or deterioration of the goods it
transports unless it results from: (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 of 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. For all other cases - such as theft or
robbery – a common carrier is presumed to have been at fault or to have acted negligently, unless it
can prove that it observed extraordinary diligence. Simply put, the theft or the robbery of the goods is
not considered a fortuitous event or a force majeure.
Nevertheless, a common carrier may absolve itself of liability for a resulting loss: (1) if it proves that
it exercised extraordinary diligence in transporting and safekeeping the goods; or (2) if it stipulated
with the shipper/owner of the goods to limit its liability for the loss, destruction, or deterioration of
the goods to a degree less than extraordinary diligence. However, a stipulation diminishing or
dispensing with the common carrier’s liability for acts committed by thieves or robbers who do not
act with grave or irresistible threat, violence, or force is void under Article 1745 of the Civil Code for
being contrary to public policy. Jurisprudence, too, has expanded Article 1734’s five exemptions. De
Guzman v. Court of Appeals47 interpreted Article 1745 to mean that a robbery attended by “grave or
irresistible threat, violence or force” is a fortuitous event that absolves the common carrier from
liability. In the present case, the shipper, Sony, engaged the services of TMBI, a common carrier, to
facilitate the release of its shipment and deliver the goods to its warehouse. In turn, TMBI
subcontracted a portion of its obligation – the delivery of the cargo – to another common carrier,
BMT. Despite the subcontract, TMBI remained responsible for the cargo. Under Article 1736, a
common carrier’s extraordinary responsibility over the shipper’s goods lasts from the time these
goods are unconditionally placed in the possession of, and received by, the carrier for transportation,
until they are delivered, actually or constructively, by the carrier to the consignee. That the cargo
disappeared during transit while under the custody of BMT – TMBI’s subcontractor – did not
diminish nor terminate TMBI’s responsibility over the cargo. Article 1735 of the Civil Code
presumes that it was at fault. Instead of showing that it had acted with extraordinary diligence, TMBI
simply argued that it was not a common carrier bound to observe extraordinary diligence. Its failure
to successfully establish this premise carries with it the presumption of fault or negligence, thus
rendering it liable to Sony/Mitsui for breach of contract.
TMBI’s liability to Mitsui does not stem from a quasi-delict (culpa aquiliana) but from its breach of
contract (culpa contractual). The tie that binds TMBI with Mitsui is contractual, albeit one that passed
on to Mitsui as a result of TMBI’s contract of carriage with Sony to which Mitsui had been
subrogated as an insurer who had paid Sony’s insurance claim. The legal reality that results from this
contractual tie precludes the application of quasi-delict based Article 2194. A third party may recover
from a common carrier for quasi-delict but must prove actual negligence. Sony/Mitsui’s cause of
action against BMT could only arise from quasi-delict, as a third party suffering damage from the
action of another due to the latter’s fault or negligence, pursuant to Article 2176 of the Civil Code.
An action for breach of contract (culpa contractual) and an action for quasi-delict (culpa aquiliana)
are distinct from each other. In culpa contractual, the plaintiff only needs to establish the existence of
the contract and the obligor’s failure to perform his obligation. It is not necessary for the plaintiff to
prove or even allege that the obligor’s noncompliance was due to fault or negligence because Article
1735 already presumes that the common carrier is negligent. The common carrier can only free itself
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from liability by proving that it observed extraordinary diligence. The plaintiff in culpa aquiliana
must clearly establish the defendant’s fault or negligence because this is the very basis of the action.
Moreover, if the injury to the plaintiff resulted from the act or omission of the defendant’s employee
or servant, the defendant may absolve himself by proving that he observed the diligence of a good
father of a family to prevent the damage.
In the present case, Mitsui’s action is solely premised on TMBI’s breach of contract. Mitsui did not
even sue BMT, much less prove any negligence on its part. If BMT has entered the picture at all, it is
because TMBI sued it for reimbursement for the liability that TMBI might incur from its contract of
carriage with Sony/Mitsui. Accordingly, there is no basis to directly hold BMT liable to Mitsui for
quasi-delict. BMT is liable to TMBI on breach of their contract of carriage. By subcontracting the
cargo delivery to BMT, TMBI entered into its own contract of carriage with a fellow common carrier.
The cargo was lost after its transfer to BMT' s custody based on its contract of carriage with TMBI.
Following Article 1735, BMT is presumed to be at fault. Since BMT failed to prove that it observed
extraordinary diligence in the performance of its obligation to TMBI, it is liable to TMBI for breach
of their contract of carriage. In these lights, TMBI is liable to Sony, subrogated by Mitsui, for
breaching the contract of carriage. In tum, TMBI is entitled to reimbursement from BMT due to the
latter's own breach of its contract of carriage with TMBI. The proverbial buck stops with BMT who
may either: (a) absorb the loss, or (b) proceed after its missing driver, the suspected culprit, pursuant
to Article 2181.
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CONTRACT OF LEASE: NATURE OF
NEW WORLD DEVELOPERS AND MANAGEMENT, INC., Petitioner, vs.AMA
COMPUTER LEARNING CENTER, INC., Respondent.
x-----------------------x
AMA COMPUTER LEARNING CENTER, INC., Petitioner. vs.NEW WORLD
DEVELOPERS AND MANAGEMENT, INC., Respondent,
G.R. No. 187930 G.R. No. 188250, February 23, 2015
Supreme Court, Manila, First Division
Ponente: Ma. Lourdes P.A. Sereno, Cj:
Consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of Court assailing the
Court of Appeals (CA) Decision1 dated 22 January 2009 and Resolution2 dated 18 May 2009 in CAG.R. CV No. 89483.
The CA Decision ordered AMA Computer Learning Center, Inc. (AMA) to pay New World
Developers and Management, Inc. (New World) unpaid rentals for 2 months, as well asliquidated
damages equivalent to 4 months’ rent. The CA Resolution denied the separate motions for
reconsideration filed by the parties.
FACTS
New World is the owner of a commercial building in Sampaloc, Manila, the entire second floor of
which was the subject of and eight-year contract of lease with AMA from 1998 to 2006.The monthly
rental for the first year was set at P181,500, with an annual escalation rate equivalent to 15% for the
succeeding years. It was also agreed that AMA may preterminate the contract but n case of
pretermination, AMA shall be liable for liquidated damages in an amount equivalent to six months of
the prevailing rent.In compliance with the contract, AMA paid New World the amount of P450,000
as advance rental and another P450,000 as security deposit.For the first three years, AMA paid the
monthly rent as stipulated in the contract, with the required adjustment in accordance with the
escalation rate for the second and the third years.In a letter dated 18 March 2002, AMA requested the
deferment of the annual increase in the monthly rent by citing financial constraints brought about by a
decrease in its enrollment. New World agreed to reduce the escalation rate by 50% for the next six
months. The following year, AMA again requested the adjustment of the monthly rent and New
World obliged by granting a 45% reduction of the monthly rent and a 5% reduction of the escalation
rate for the remaining term of the lease. For this purpose, the parties entered into an Addendum to the
Contract of Lease.
On the evening of 6 July 2004, AMA removed all its office equipment and furniture from the leased
premises. The following day, New World received a letter from AMA dated 6 July 2004 10 stating that
the former had decided to preterminate the contract effective immediately on the ground of business
losses due to a drastic decline in enrollment. AMA also demanded the refund of its advance rental and
security deposit.New World replied in a letter dated 12 July 2004,11 to which was attached a
Statement of Account12 indicating the following amounts to be paid by AMA: 1) unpaid two months’
rent in the amount of P466,620; 2) 3% monthly interest for the unpaid rent in the amount
of P67,426.59; 3) liquidated damages equivalent to six months of the prevailing rent in the amount
of P1,399,860; and 4) damage to the leased premises amounting to P15,580. The deduction of the
advance rental and security deposit paid by AMA still left an unpaid balance in the amount
of P1,049,486.59.Despite the meetings between the parties, they failed to arrive at a settlement
regarding the payment of the foregoing amounts. In 2004, New World filed a complaint for a sum of
money and damages against AMA before the Regional Trial Court of Marikina City. The RTC ruled
in favor of New World. Upon the denial of its motion for reconsideration, AMA filed an appeal
before the CA, which denied the same. The appellate court ruled that the RTC erred in imposing a 3%
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monthly penalty interest on the unpaid rent, because there was no stipulation either in the Contract of
Lease or in the Addendum to the Contract of Lease concerning the imposition of interest in the event
of a delay in the payment of the rent.Thus, the CA ruled that the rent in arrears should earn interest at
the rate of 6% per annum only, reckoned from the date of the extrajudicial demand on 12 July 2004
until the finality of the Decision. Thereafter, interest at the rate of12% per annum shall be imposed
until full payment.
ISSUES:
1. Whether AMA is liable to pay six months’ worth of rent as liquidated damages.
2. Whether AMA remained liable for the rental arrears.
HELD:
1. AMA is liable for six months’ worth of rent as liquidated damages.Articles 1159 and 1306 of the
Civil Code state:Art. 1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith. Art. 1306. 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 fundamental rule is
that a contract is the law between the parties. Unless it has been shown that its provisions are wholly
or in part contrary to law, morals, good customs, public order, or public policy, the contract will be
strictly enforced by the courts.
In rebuttal, AMA invokes Article 2227 of the Civil Code, to wit:
Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably
reduced if they are iniquitous or unconscionable.
In Ligutan v. CA, we held that the resolution of the question of whether a penalty is reasonable, or
iniquitous or unconscionable would depend on factors including but not limited to the type, extent
and purpose of the penalty; the nature of the obligation; the mode of the breach and its consequences;
the supervening realities; and the standing and relationship of the parties. The appreciation of these
factors is essentially addressed to the sound discretion of the court.
In the sphere of personal and contractual relations governed by laws, rules and regulations created to
promote justice and fairness, equity is deserved, not demanded. The application of equity necessitates
a balancing of the equities involved in a case,for "[h]e who seeks equity must do equity, and he who
comes into equity must come with clean hands." Persons in dire straits are never justified in trampling
on other persons’ rights. Litigants shall be denied relief if their conduct has been inequitable, unfair
and dishonest as to the controversy in issue. The actions of AMA smack of bad faith.
We cannot abide by the prayer for the further reduction of the liquidated damages. We find that, in
view of the surrounding circumstances, the CA even erred in reducing the liquidated damages to four
month’s worth of rent. Under the terms of the contract, and in light of the failure of AMA to show
that it is deserving of this Court’s indulgence, the payment of liquidated damages in an amount
equivalent to six months’ rent is proper.
Also proper is an award of exemplary damages. Article 2234 of the Civil Code provides:
Art. 2234. While the amount of the exemplary damages need not be proved, the plaintiff must show
that he is entitled to moral, temperate or compensatory damages before the court may consider the
question of whether or not exemplary damages should be awarded. In case liquidated damages have
been agreed upon, although no proof of loss is necessary in order that such liquidated damages may
be recovered, nevertheless, before the court may consider the question of granting exemplary in
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addition to the liquidated damages, the plaintiff must show that he would be entitled to moral,
temperate or compensatory damages were it not for the stipulation for liquidated damages. In this
case, it is quite clear that New World sustained losses as a result of the unwarranted acts of AMA.
Further, were it not for the stipulation in the contract regarding the payment of liquidated damages,
we would be awarding compensatory damages to New World.
"Exemplary damages are designed by our civil law to permit the courts to reshape behaviour that is
socially deleterious in its consequence by creating negative incentives or deterrents against such
behaviour."40 As such, they may be awarded even when not pleaded or prayed for.41 In order to
prevent the commission of a similar act in the future, AMA shall pay New World exemplary damages
in the amount of P100,000.
2.AMA’s liability for the rental arrears has already been extinguished.The advance rental, retains its
purpose of answering for the outstanding amounts that AMA may owe New World. As to the actual
application of the security deposit and the advance rental: AMA had a two-month rental arrears in the
amount of P466,620.Applying the security deposit of P450,000 to the arrears will leave a balance
of P16,620 in New World’s favor.Given that we have found AMA liable for liquidated damages
equivalent to six months’ rent in the amount of P1,399,860, its total liability to New World
is P1,416,480. The advance rental of P450,000 is applied to arrive at a total extinguishment of the
liability for the unpaid rentals and a partial extinguishment of the liability for liquidated damages.
This shall leave AMA still liable to New World in the amount of P966,480. Not constituting a
forbearance of money, this amount shall earn interest at the rate of 6% per annum imposed on the
amount of 966,480 from the time of extrajudicial demand on 12 July 2004 until the finality of this
Decision.
Thereafter – this time pursuant to the modification in Nacar– the amount due shall earn interest at the
rate of 6% per annum until satisfaction, this interim period being deemed to be by then equivalent to a
forbearance of credit.48
Considering the foregoing, there was no occasion for the unpaid two months’ rental to earn interest.
The Court does not allow the imposition of 3% monthly penalty interest thereon because if the
obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity
for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed
upon and in the absence of stipulation, the legal interest, which is six per cent per annum.In the
instant case, the Contract of Lease and the Addendum to the Contract of Lease do not specify any
interest in the event of delay of payment of rentals. Accordingly, there being no stipulation
concerning interest, the trial court erred in imposing 3% interest per month on the two-month unpaid
rentals.
Having relied on the Contract of Lease for its demand for payment of liquidated damages, New
World should have also referred to the contract to determine the proper application of the advance
rental and security deposit. Had it done so in the first instance, it would have known that there is no
occasion for the imposition of interest, 3% or otherwise, on the unpaid rentals. WHEREFORE, the
Court of Appeals Decision dated 22 January 2009 and Resolution dated 10 May 2009 in CA-G.R. CV
No. 89483 is AFFIRMED with MODIFICATION.
AMA Computer Learning Center, Inc. is ordered to pay New World Developers and Management,
Inc. the amount of P966,480, with interest at the rate of 6% per annum from 12 July 2004 until full
payment.
In addition, AMA shall pay New World exemplary damages in the amount of P100,000, which shall
earn interest at the rate of 6% per annum from the finality of this Decision until full payment.
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CONTRACT OF LEASE, SALE: VALIDITY
REBECCA FULLIDO, Petitioner, v. GINO GRILLI, Respondent.
G.R. No. 215014, February 29, 2016
MENDOZA, J.:
This is a petition for review on certiorari seeking to reverse and set aside the May 31, 2013
Decision1and the September 24, 20142 Resolution of the Court of Appeals (CA) in CA-G.R. CEB-SP
No. 06946, which affirmed the April 26, 2012 Decision3 of the Regional Trial Court, Branch 47,
Tagbilaran City (RTC) in Civil Case No. 7895, reversing the March 31, 2011 Decision4 of the
Municipal Circuit Trial Court, Dauis, Bohol (MCTC) in Civil Case No. 244, a case for unlawful
detainer filed by Gino Grilli (Grilli) against Rebecca Fullido (Fullido).
FACTS
Sometime in 1994, Grilli, an Italian national, met Fullido in Bohol and courted her. In 1995, Grilli
decided to build a residential house where he and Fullido would stay whenever he would be
vacationing in the country.Grilli financially assisted Fullido in procuring a lot in Bohol, from her
parents. On the said property, they constructed a house, which was funded by Grilli. Upon
completion, they maintained a common-law relationship and lived there whenever Grilli was on
vacation in the Philippines twice a year.
In 1998, Grilli and Fullido executed a contract of lease, a memorandum of agreement (MOA) and a
special power of attorney (SPA), to define their respective rights over the house and lot.The lease
contract stipulated, among others, that Grilli as the lessee, would rent the lot, registered in the name of
Fullido, for a period of fifty (50) years, to be automatically renewed for another fifty (50) years upon
its expiration in the amount of P10,000.00 for the whole term of the lease contract; and that Fullido as
the lessor, was prohibited from selling, donating, or encumbering the said lot without the written
consent of Grilli.
The MOA, on the other hand, stated, among others, that Grilli paid for the purchase price of the house
and lot; that ownership of the house and lot was to reside with him; and that should the common-law
relationship be terminated, Fullido could only sell the house and lot to whomever Grilli so desired.
Initially, their relationship was harmonious, but it turned sour after 16 years of living together. Both
charged each other with infidelity. They could not agree who should leave the common property, and
Grilli sent formal letters to Fullido demanding that she vacate the property, but these were unheeded.
In Grilli filed a complaint for unlawful detainer with prayer for issuance of preliminary injunction
against Fullido. The MTC denied Grilli’s petition.On appeal, RTC reversed and set aside the MCTC
decision on the view that Grilli had the exclusive right to use and possess the house and lot by virtue
of the contract of lease executed by the parties. Since the period of lease had not yet expired, Fullido,
as lessor, had the obligation to respect the peaceful and adequate enjoyment of the leased premises by
Grilli as lessee. The RTC opined that absent a judicial declaration of nullity of the contract of lease,
its terms and conditions were valid and binding. As to the TPO, the RTC held that the same had no
bearing in the present case which merely involved the possession of the leased property. On appeal,
the CA upheld the decision of the RTC emphasizing that in an ejectment case, the only issue to be
resolved would be the physical possession of the property. The CA was also of the view that as
Fullido executed both the MOA and the contract of lease, which gave Grilli the possession and use of
the house and lot, the same constituted as a judicial admission that it was Grilli who had the better
right of physical possession. The CA stated that the TPO issued by the RTC under Section 21 of R.A.
No. 9262 was without prejudice to any other action that might be filed by the parties.Fullido filed a
motion for reconsideration but it was denied. Hence, this present petition.
ISSUES:
1. Whether or not the ejectment order is anchored on patently null and void contract.
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2. Whether or not the petitioner may be ejected from their conjugal abode where respondent has been
earlier ordered to vacate by virtue of a permanent protection order.
HELD.
1. Yes, the ejectment order is based on a void contract of lease and of the MOA.Unlawful detainer is
an action to recover possession of real property from one who unlawfully withholds possession
thereof after the expiration or termination of his right to hold possession under any contract, express
or implied. The possession of the defendant in unlawful detainer is originally legal but became illegal
due to the expiration or termination of the right to possess. The only issue to be resolved in an
unlawful detainer case is the physical or material possession of the property involved, independent of
any claim of ownership.
The Court further held that a contract could be declared void in a summary action of unlawful
detainer, based on the principle that a void contract cannot bethe source of any right. A void or
inexistent contract may be defined as one which lacks, absolutely either in fact or in law, one or some
of the elements which are essential for its validity. It is one which has no force and effect from the
very beginning, as if it had never been entered into; it produces no effect whatsoever either against or
in favor of anyone.Quod nullum est nullum producit effectum. Article 1409 of the New Civil Code
explicitly states that void contracts also cannot be ratified; neither can the right to set up the defense
of illegality be waived. Accordingly, there is no need for an action to set aside a void or inexistent
contract.
The lease contract and the MOA circumvent the constitutionalrestraint against foreign ownership of
lands.Under Section 1 of Article XIII of the 1935 Constitution, natural resources shall not be
alienated, except with respect to public agricultural lands and in such cases, the alienation is limited
to Filipino citizens. Concomitantly, Section 5 thereof states that, save in cases of hereditary
succession, no private agricultural land shall be transferred or assigned except to individuals,
corporations, or associations qualified to acquire or hold lands of the public domain in the
Philippines. The prohibition on the transfer of lands to aliens was adopted in the present 1987
Constitution, under Sections 2, 3 and 7 of Article XII thereof. Agricultural lands, whether public or
private, include residential, commercial and industrial lands. The purpose of prohibiting the transfer
of lands to foreigners is to uphold the conservation of our national patrimony and ensure that
agricultural resources remain in the hands of Filipino citizens.The prohibition, is not limited to the
sale of lands to foreigners. It also covers leases of lands amounting to the transfer of all or
substantially all the rights of dominion. Where a scheme to circumvent the Constitutional prohibition
against the transfer of lands to aliens is readily revealed as the purpose for the contracts, then the
illicit purpose becomes the illegal cause rendering the contracts void. Thus, if an alien is given not
only a lease of, but also an option to buy, a piece of land by virtue of which the Filipino owner cannot
sell or otherwise dispose of his property, this to last for 50 years, then it becomes clear that the
arrangement is a virtual transfer of ownership whereby the owner divests himself in stages not only of
the right to enjoy the land but also of the right to dispose of it — rights which constitute ownership. If
this can be done, then the Constitutional ban against alien landholding in the Philippines, is indeed in
grave peril.
In the case at bench, the lease contract and the MOA, from which Grilli purportedly drew his right of
possession, were found to be null and void for being unconstitutional. A contract that violates the
Constitution and the law is null and void ab initio and vests no rights and creates no obligations. It
produces no legal effect at all.36 Hence, as void contracts could not be the source of rights, Grilli had
no possessory right over the subject land. A person who does not have any right over a property from
the beginning cannot eject another person possessing the same. Consequently, Grilli's complaint for
unlawful detainer must be dismissed for failure to prove his cause of action.
The petition is granted.
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LEASE: VALIDITY OF EXTRAJUDICIAL RESCISSION
NISSAN CAR LEASE PHILS., INC., Petitioner, vs.LICA MANAGEMENT, INC. and
PROTON PILIPINAS, INC., Respondents.
January 13, 2016, G.R. No. 176986
Supreme Court of Manila Third Division
Ponente: Francis H. Jardeleza, Associate Justice
This is a Petition for Review on Certiorari
FACTS:
LMI is the owner of a 2,860 square meters property in Makati City which it leased to NCLPI for a
term of ten (10) years with a monthly rental of ₱308,000.00 and an annual escalation rate of
10%. Sometime in September 1994, NCLPI, with LMI’s consent, allowed its subsidiary Nissan
Smartfix Corporation (NSC) to use the leased premises.Subsequently, NCLPI became delinquent in
paying the monthly rent, such that its total rental arrearagesamounted to ₱1,741,520.85. In May 1996,
Nissan and Lica verbally agreed to convert the arrearages into a debt,however the former still reneged
on its obligation to settle its financial dues to the latter. Thus, LMI informed NCLPI that it was
terminating their Contract of Lease and demanded that NCLPI to pay the amount of ₱2,651,570.39
for unpaid rentals and to vacate the premises within 5 days from receipt of the notice.In the meantime,
Proton sent NCLPI an undated request to use the premises as a temporary display center for "Audi"
brand cars for a period of ten (10) days. In the same letter, Proton undertook "not to disturb NCLPI
and LMI’s lease agreement and ensure that NCLPI will not breach the same by lending the premises x
x x without any consideration." NCLPI acceded to this request.In October 1996, NCLPI entered into a
Memorandum of Agreement with Proton whereby the former agreed to allow Proton to do renovation
work. The latter subsequently paid 3 months of lease.
In October 1996, NCLPI, expressed to LMI that it has no intention of abandoning the lease and citing
efforts to negotiate a possible sublease of the property. LMI, on November 8, 1996, entered into a
Contract of Lease with Proton over the subject premises. On November 12, 1996, LMI filed a
Complaint for sum of money with damages seeking to recover from NCLPI the amount of
₱2,696,639.97, equivalent to the balance of its unpaid rentals, with interest and penalties, as well as
exemplary damages, attorney’s fees, and costs of litigation.Later NCLPI demanded Proton to vacate
the leased premises In a Third-Party Complaint against Proton, NCLPI alleged that LMI and Proton
"schemed" and "colluded" to unlawfully force NCLPI from the premises. Since it has not abandoned
its leasehold right, NCLPI asserts that the lease contract between LMI and Proton is void for lack of a
valid cause or consideration. The third party complaint filed by defendant is DENIED for lack of
merit. The trial court found that NCLPI purposely violated the terms of its contract with LMI when it
failed to pay the required rentals and contracted to sublease the premises without the latter’s
consent. Aggrieved, NCLPI filed a Petition for Review with the CA. The CA denied NCLPI’s appeal
and affirmed the trial court’s decision. NCLPI sought for a reconsideration but the CA denied its
petition. Hence, this petition.
ISSUES:
1. Whether or not a contract may be rescinded extrajudicially despite the absence of a special
contractual stipulation therefor.
HELD:
Yes, the extrajudicial rescission of lease contract is valid. Art. 1191 of the Civil Code provides that
the power to rescind is implied in reciprocal obligations, in cases where one of the obligors should
fail to comply with what is incumbent upon him. Otherwise stated, an aggrieved party is not
prevented from extrajudicially rescinding a contract to protect its interests, even in the absence of any
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provision expressly providing for such right. The rationale for this rule was explained in the case
of University of the Philippines v. De los Angeles wherein this Court held that the law definitely
does not require that the contracting party who believes itself injured must first file suit and wait for a
judgment before taking extrajudicial steps to protect its interest. Otherwise, the party injured by the
other's breach will have to passively sit and watch its damages accumulate during the pendency of
the suit until the final judgment of rescission is rendered when the law itself requires that he should
exercise due diligence to minimize its own damages (Civil Code, Article 2203).
Whether a contract provides for it or not, the remedy of rescission is always available as a remedy
against a defaulting party. When done without prior judicial imprimatur, however, it may still be
subject to a possible court review.
An extrajudicial 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 extrajudicial rescission is questioned by
the opposing party in court. 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.
The only practical effect of a contractual stipulation allowing extrajudicial rescission is "merely to
transfer to the defaulter the initiative of instituting suit, instead of the rescinder.”
In fact, the rule is the same even if the parties’ contract expressly allows extrajudicial rescission. The
other party denying the rescission may still seek judicial intervention to determine whether or not the
rescission was proper.
Having established that LMI can extrajudicially rescind its contract with NCLPI even absent an
express contractual stipulation to that effect, the question now to be resolved is whether this
extrajudicial rescission was proper under the circumstances.
As earlier discussed, NCLPI’s non-payment of rentals and unauthorized sublease of the leased
premises were both clearly proven by the records. We thus confirm LMI’s rescission of its contract
with NCLPI on account of the latter’s breach of its obligations.
The petition is denied.
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LEASE; ACCION PUBLICIANA; ACCESSORIES
REX DACLISON, Petitioner, vs.EDUARDO BAYTION, Respondent.
April 6, 2016, G.R. No. 219811
Supreme Court Baguio, Second Division
Ponente: Jose Catral Mendoza, Associate Justice
A petition for review under Rule 45.
FACTS:
Baytion was a co-owner of a parcel of land consisting of 1,500 square meters, covered by Transfer
Certificate Title (TCT) No. 221507. The said property was inherited by him and his siblings from
their parents and, as agreed upon, was being administered by him. As administrator, he leased
portions of the property to third persons.Erected on the said property was a one-storey building which
was divided into seven units or stalls. One of the stalls was leased to a certain Leonida Dela Cruz who
used it for her business of selling rocks, pebbles and similar construction materials.When the lease of
Nida expired sometime in May 2008, Daclison and other persons acting under her took possession of
the portion leased and occupied by Leonida without the prior knowledge and consent of Baytion.
Since then, Daclison had been occupying the contested portion and using it for his business of selling
marble and other finishing materials without paying anything to Baytion.Upon learning of Daclison’s
unauthorized entry into the subject portion of the property, sometime in June 2008, Baytion
demanded that he vacate it. Despite oral and written demands to vacate, Daclison refused to do so.
This prompted Baytion to file the complaint for forcible entry and damages.Daclison, in his answer,
averred that sometime in 1978, Baytion leased the subject portion to Antonio dela
Cruz(Antonio) where the latter started a business; that ten or fifteen years later, a stone walling, called
a riprap, was erected at the creek lying beside Baytion’s property, leaving a deep down-sloping area;
that Antonio negotiated with a certain engineer so he could be in possession of the said down-slope;
that Antonio had the down-slope filled up until it was leveled with the leased portion; that Antonio
paid for the right to possess the same; that in 2000, Antonio’s business was taken over by Leonida,
who suffered a stroke in December 2007; that after her death, the business was taken over by Ernanie
Dela Cruz (Ernanie); that in February 2008, he (Daclison) entered into a business venture with
Ernanie in the same leased property and he took over the management of the business; that he
received a letter from Baytion addressed to Ernanie requesting the latter to vacate the subject
premises; that Baytion and Ernanie came to an agreement that the latter would continue the lease of
the property; that he issued a check in the amount of ₱100,000.00 as payment for the rental arrears;
that two weeks thereafter, Baytion returned the check and demanded that Ernanie vacate the property;
that Baytion promised that he would no longer bother them if they would just transfer to the filled-up
and plane-leveled property; that on account of the said promise, he and Ernanie vacated the leased
area and transferred their business to the filled-up portion; that despite the fact that they already
vacated the leased portion of the property, Baytion still filed a complaint with the barangay claiming
that the filled-up portion was part of his property; that the executive officer of the barangay who
conducted the investigation made a report indicating that a mojon was placed by him (Daclison)
which showed the boundary of Baytion’s property; that Baytion acknowledged the said report and
agreed to put an end to the controversy; and that despite Baytion’s agreement to put an end to the
dispute, he still sent a demand letter to vacate.
On August 25, 2009, the MeTC dismissed the case on the ground that Baytion failed to include his
siblings or his co-owners, as plaintiffs in the case. The dismissal, however, was without
prejudice.Baytion appealed the case to the RTC, which ruled that the MeTC lacked jurisdiction to
decide the case because the allegations in the complaint failed to constitute a case of forcible entry.
Pursuant to Section 8, Rule 40 of the Rules of Court, however, the RTC did not dismiss the case and,
instead, exercised its original jurisdiction over the same.The RTC then decided that Baytion had a
better right of possession over the property. Aggrieved, Daclison filed an appeal with the CA which
ruled in favor of Bayton. Daclison filed a motion for reconsideration but it was denied by the CA in
the assailed resolution.Hence, the present petition for review.
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ISSUES:
1. Whether or not the instant case is an accion publiciana with respect to the land outside tct no. 221507; that,
effectively, the respondent has prior possession of the property outside tct no. 221507.
HELD:
It was clear that the disputed property was the filled-up portion between the riprap constructed by the
government and the property covered by TCT No. 221507. According to Daclison, the property
covered by TCT No. 221507 had already been surrendered to Baytion which the latter never disputed.
As such, the Court is now confronted with the question as to who between the parties has a better
right over this contested portion between the land co-owned by Baytion and the constructed riprap.
Baytion does not have a better right over the contested portion
The RTC and the CA erred in holding that Baytion has a better right to possess the contested portion.
Baytion’s contention that he owns that portion by reason of accretion is misplaced. Article 457 of the
New Civil Code provides:
To the owners of lands adjoining the banks of rivers belongs the accretion which they gradually
receive from the effects of the current of the waters.
In other words, the following requisites must concur in order for an accretion to be considered,
namely:
(1) that the deposit be gradual and imperceptible;
(2) that it be made through the effects of the current of the water; and,
(3) that the land where accretion takes place is adjacent to the banks of rivers.
In the case at bench, this contested portion cannot be considered an accretion. To begin with, the land
came about not by reason of a gradual and imperceptible deposit. The deposits were artificial and
man-made and not the exclusive result of the current from the creek adjacent to his property. Baytion
failed to prove the attendance of the indispensable requirement that the deposit was due to the effect
of the current of the river or creek. Alluvion must be the exclusive work of nature and not a result of
human intervention.Furthermore, the disputed property cannot also be considered an improvement or
accession. Article 445 of the Civil Code provides:Art. 445. Whatever is built, planted or sown on the
land of another and the improvements or repairs made thereon, belong to the owner of the land,
subject to the provisions of the following articles.
It must be noted that Article 445 uses the adverb "thereon" which is simply defined as "on the thing
that has been mentioned." In other words, the supposed improvement must be made, constructed or
introduced within or on the property and not outside so as to qualify as an improvement contemplated
'by law. Otherwise, it would just be very convenient for land owners to expand or widen their
properties in the guise of improvements.
In view of all the foregoing, it is the opinion of this Court that Baytion, not being the owner of the
contested portion, does not have a better right to possess the same.1âwphi1 In fact, in his initiatory
pleading, he never claimed to have been in prior possession of this piece of property. His claim of
ownership is without basis. As earlier pointed out, the portion is neither an accretion nor an accession.
That being said, it is safe to conclude that he does not have any cause of action to eject Daclison.
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CONTRACTS OF LOAN: REMEDIES; JUDICIAL FORECLOSURE
METROPOLITAN BANK AND TRUST COMPANY, Petitioner, vs.FADCOR, INC. or THE
FLORENCIO CORPORATION, LETICIA D. FLORENCIO, RACHEL FLORENCIOAGUSTIN, MA. MERCEDES FLORENCIO and ROSENDO CESAR FLORENCIO,
JR., Respondent.
January 25, 2016 G.R. No. 197970
Supreme Court of Manila, Third Division
Ponente: Diosdado M. Peralta,Associate Justice
Petition for Review on Certiorari.
FACTS:
Metrobank granted five (5) loans in the aggregate amount of P32,950,000.00 to respondent Fadcor,
Inc. or The Florencio Corporation (Fadcor). As such, Fadcor executed five (5) Non-negotiable
Promissory Notes in favor of Metrobank. In addition, Fadcor executed two (2) Real Estate Mortgages
in favor of Metrobank over ten (10) parcels of land as collateral for the loans obtained on August 2,
1995, in the amount of P18,000,000.00; P10,000,000.00, obtained in September 1995, and an
Amendment of Real Estate Mortgage to secure a loan of P22,000,000.00, obtained in October1995.
Furthermore, the same respondents executed two (2) Continuing Surety Agreements in favor of
Metrobank, binding themselves jointly and severally liable to pay any existing or future obligation in
favor of Metrobank up to a maximum amount of Ninety Million Pesos (P90,000,000.00) only.
Thereafter, respondents defaulted in the payment of their loan amortizations in the total aggregate
sum of P32,350,594.12, hence, after demands for payment of the arrears were ignored, Metrobank
filed on April 20, 2001 an extra-judicial petition for foreclosure of mortgage before the Notary Public
for and in the Province of Rizal, of the ten (10) mortgaged parcels of land in accordance with Act No.
3135, as amended. In July 2001, the foreclosed properties were sold at public auction in the amount
of P32,961,820.72 to Metrobank as the highest bidder. Consequently, the corresponding Certificate of
Sale was issued to Metrobank and the proceeds of sale were applied to Fadcor's indebtedness and
expenses of foreclosure. Nonetheless, the amount of P17,479,371.86 remained unpaid as deficiency
obligation, prompting Metrobank to demand from respondents payment of such deficiency obligation.
Respondents, on the other hand, failed to pay. Hence, in 2003, Metrobank filed a Complaint against
Fadcor for recovery of the deficiency obligation.
The RTC decided in favor of plaintiff Metropolitan Bank and Trust Company ordering defendants
jointly and severally to pay plaintiff the amount of P17,479,371.86 representing deficiency obligation
plus interest thereon at the legal rate of 12% per annum computed from August 1, 2001 until the
obligation is fully paid, plus attorney's fees.After the denial of its motion for reconsideration,
Metrobank appealed the case to the CA which granted the appeal, thus, reversing and setting aside the
decision of the RTC. In reversing the RTC, the CA ruled in favor of the respondents. On appeal, the
motion for reconsideration filed by Metrobank was again denied. Hence, the present petition.
ISSUE:
The relevant issue in this case is as to the nature of extrajudicial foreclosure of mortgaged property as
a means to extinguish a loan obligation.
HELD:
The Court impliedly upheld the validity of extrajudicial foreclosure of mortgaged property as a means
to extinguish a loan obligation.
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SALE: RIGHTS OF THE VENDEE; TITLE OF OWNERSHIP
DEPARTMENT OF EDUCATION, represented by its Regional Director, Petitioner,
vs.
DELFINA C. CASIBANG, ANGELINA C. CANAPI, ERLINDA C. BAJAN, LORNA G.
GUMABAY, DIONISIA C. ALONZO, MARIA C. BANGA YAN and DIGNA C.
BINAYUG, Respondents.
G.R. No. 192268, January 27, 2016
Third Division
Ponente: Peralta, J.:
Petition for Review on Certiorari, of petitioner Department of Education (DepEd), represented by its
Regional Director seeking to reverse and set aside the Decision dated April 29, 2010 of the Court of
Appeals (CA) affirming the Decision dated January l 0, 2008 of the Regional Trial Court (RTC) of
Tuguegarao City, Cagayan, Branch 5, declaring the respondents the owners of property in
controversy and ordering the DepEd to pay the value of the property.
FACTS:
The property in controversy is a seven thousand five hundred thirty-two (7,532) square meter portion
of Lot 115 covered by Original Certificate of Title (OCT) No. 0-627 registered under the name of
Juan Cepeda, the respondents' late father.Sometime in 1965, upon the request of the then Mayor Justo
Cesar Caronan, Cepeda allowed the construction and operation of a school on the western portion of
his property. The school is now known as Solana North Central School, operating under the control
and supervision of the petitioner DepEd.Despite Cepeda's death in 1983, the herein respondents and
other descendants of Cepeda continued to tolerate the use and possession of the property by the
school.Sometime between October 31, 2000 and November 2, 2000, the respondents entered and
occupied a portion of the property. Upon discovery of the said occupation, the teachers of the school
brought the matter to the attention of the barangay captain. The school officials demanded the
respondents to vacate the property. However, the respondents refused to vacate the property, and
asserted Cepeda's ownership of the lot.
On June 21, 2001, the DepEd filed a Complaint for Forcible Entry and Damages against respondents
before the Municipal Circuit Trial Court (MCTC) of Solana-Enrile. The MCTC ruled in favor of the
petitioner and directed respondents to vacate the premises. On appeal, the R TC affirmed the decision
of the MCTC.Thereafter, respondents demanded the petitioner to either pay rent, purchase the area
occupied, or vacate the premises. DepEd did not heed the demand and refused to recognize the
ownership of the respondents over the property.On March 16, 2004, the respondents filed an action
for Recovery of Possession and/or Sum of Money against the DepEd. Respondents averred that since
their late father did not have any immediate need of the land in 1965, he consented to the building of
the temporary structure and allowed the conduct of classes in the premises. They claimed that they
have been deprived of the use and the enjoyment of the portion of the land occupied by the school,
thus, they are entitled to just compensation and reasonable rent for the use of property.In its Answer,
the DepEd alleged that it owned the subject property because it was purchased by civic-minded
residents of Solana, Cagayan from Cepeda. It further alleged that contrary to respondents' claim that
the occupation is by mere tolerance, the property has always been occupied and used adversely,
peacefully, continuously and in the concept of owner for almost forty (40) years. It insisted that the
respondents had lost whatever right they had over the property through laches. The Respondents had
for their defense the strength of a valid title over the property evidenced by the TCT and their proof of
regular payment of realty tax.The DepEd failed to present its evidence or witness to substantiate its
defense.Consequently, the RTC considered the case submitted for decision and rendered a Decision
finding that the respondents are the owners of the subject property. The DepEd, through the Office of
the Solicitor General (OSG), appealed the case before the CA. In its appeal, the DepEd insisted that
the respondents have lost their right over the subject property for their failure to assert the same for
more than thirty years, starting in 1965, when the Mayor placed the school in possession thereof.The
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CA then affirmed the decision of the RTC. Aggrieved, the DepEd, through the OSG, filed before this
Court the present petition.
ISSUE:
Whether or not the respondents’ right to recover the possession of the subject property is barred by
prescription and/or laches.
HELD:
No. Laches, in a general sense, is 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.There is no absolute rule as to
what constitutes laches or staleness of demand; each case is to be determined according to its
particular circumstances. The question of laches is addressed to the sound discretion of the court, and
since laches is an equitable doctrine, its application is controlled by equitable considerations. It
cannot work to defeat justice or to perpetrate fraud and injustice.Laches is evidentiary in nature, the
following elements, as prescribed in the case of Go Chi Gun, et al. v. Co Cho, et al.,must be present
to constitute laches: (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.
The subject property is covered by OCT No. O-627, registered in the name of the Juan Cepeda. A
fundamental principle in land registration under the Torrens system is that a certificate of title serves
as evidence of an indefeasible and incontrovertible title to the property in favor of the person whose
name appears therein. Thus, the certificate of title becomes the best proof of ownership of a parcel of
land.
As registered owners of the lots in question, the respondents have a right to eject any person illegally
occupying their property. This right is imprescriptible. Even if it be supposed that they were aware of
the petitioner's occupation of the property, and 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. This right is never barred by laches.
Professor Arturo M. Tolentino states that acts merely tolerated are "those which by reason of
neighborliness or familiarity, the owner of property allows his neighbor or another person to do on the
property; they are generally those particular services or benefits which one's property can give to
another without material injury or prejudice to the owner, who permits them out of friendship or
courtesy." x x x. and, Tolentino continues, even though "this is continued for a long time, no right
will be acquired by prescription." x x x
The possession by the DepEd of the subject lot was clearly by mere tolerance, since it was not proven
that it laid an adverse claim over the property by virtue of the purported sale.Moreover, the trial court
ruled that the DepEd is a builder in good faith. To be deemed a builder in good faith, it is essential
that a person asserts title to the land on which he builds, that he be a possessor in the concept of
owner, and that he be unaware that there exists in his title or mode of acquisition any flaw which
invalidates it.Article 448. The owner of the land on which anything has been built, sown or planted in
good faith, shall have the right to appropriate as his own the works, sowing, or planting, after
payment of the indemnity provided for in Articles 546 and 548, or to oblige the one who built or
planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or
planter cannot be obliged to buy the land if its value is considerably more than that of the building or
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trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to
appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the
lease and in case of disagreement, the court shall fix the terms thereof.
Article 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good
faith may retain the thing until he has been reimbursed therefor.Useful expenses shall be refunded
only to the possessor in good faith with the same right of retention, the person who has defeated him
in the possession having the option of refunding the amount of the expenses or of paying the increase
in value which the thing may have acquired by reason thereof.
In the case of Bernardo v. Bataclan, the Court explicated that Article 448 provides a just and
equitable solution to the impracticability of creating "forced co-ownership" by giving the owner of
the land the option to acquire the improvements after payment of the proper indemnity or to oblige
the builder or planter to pay for the land and the sower to pay the proper rent. The owner of the land is
allowed to exercise the said options because his right is older and because, by the principle of
accession, he is entitled to the ownership of the accessory thing.
Thus, the two options available to the respondents as landowners are: (a) they may appropriate the
improvements, after payment of indemnity representing the value of the improvements introduced
and the necessary and useful expenses defrayed on the subject lots; or (b) they may oblige the DepEd
to pay the price of the land. However, it is also provided under Article 448 that the builder cannot be
obliged to buy the land if its value is considerably more than that of the improvements and buildings.
If that is the case, the DepEd is not duty-bound to pay the price of the land should the value of the
same be considerably higher than the value of the improvement introduced by the DepEd on the
subject property. In which case, the law provides that the parties shall agree on the terms of the lease
and, in case of disagreement, the court shall fix the terms thereof.
The RTC, as affirmed by the CA, ruled that the option of the landowner to appropriate after payment
of the indemnity representing the value of the improvements introduced and the necessary and useful
expenses defrayed on the subject lots is no longer feasible or convenient because it is now being used
as school premises. Considering that the appropriation of improvements upon payment of indemnity
pursuant to Article 546 by the respondents of the buildings being used by the school is no longer
practicable and feasible, the respondents are thus left with the second option of obliging the DepEd to
pay the price of the land or to require the DepEd to pay reasonable rent if the value of the land is
considerably more than the value of the buildings and improvements.
The Petition for Review on Certiorariis denied. The case is REMANDED to the court of origin to
determine the value of the subject property. If the value of the property is less than the value of the
buildings and improvements, the Department of Education is ordered to pay such amount. If the value
of the property is greater than the value of the buildings and improvements, the DepEd is ordered to
pay reasonable rent in accordance with the agreement of the parties. In case of disagreement, the trial
court shall fix the amount of reasonable rent.
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CONTRACT OF A SALE OF LAND: VALIDITY
GINAENDAYA, Petitioner,vs.ERNESTO V. VILLAOS, Respondent.
G.R. No. 202426 January 27, 2016
Second Division
Ponente: Mariano C. Del Castillo, AssociateJustice
This Petition for Review on Certiorari assails the 2012 Decision of the Court of Appeals (CA)
dismissing petitioner's Petition for Review
FACTS:
Gina Endaya and the other heirs of Atilano Villaos filed before the RTC, in Palawan City, a
complaint for declaration of nullity of deeds of sale, recovery of titles, and accounting of income of
the Palawan Village Hotel against Ernesto V. Villaos. The the complaint sought the recovery of
several lots, including that on which the PVH and Wooden Summer Homes are located.The
complaint in the main said that the purported sale of the affected lots, from Atilano to respondent, was
spurious. In May 2006, respondent filed an ejectment case with preliminary mandatory
injunction against petitioners.
According to respondent, he bought from Atilano eight (8) parcels of land, including those where
PVH and WSH stood. Respondent then took possession of the lots and started to manage and operate
the said hotels. Upon taking possession of the said lots, he told petitioner and the others who live in
residential houses in the lots in question, to vacate the premises, giving them a period of six (6)
months to do so.However, instead of leaving, petitioner even participated in a violent and unlawful
take-over of portions of PVH and WSH, thus, the filing of the ejectment case.
Denying that Atilano, during his lifetime, had executed deeds of sale involving the subject lots in
favor of respondent, petitioner stated that during the alleged execution of said deeds, Atilano was no
longer ambulatory and could no longer talk and give assent to the deeds of sale. Ruling in favor of
herein respondent, the MTCC held that an action questioning the ownership of a property does not bar
the filing of an ejectment case since the only issue for resolution in an unlawful detainer case is the
physical or material possession of the property independent of any claim of ownership, ruling further
that respondent had the right to the possession of the residential house subject of the instant case and
ordered the petitioners to vacate the same and pay attorney's fees in the amount of
P20,000.00.Aggrieved by the decision, petitioners appealed before the RTC which affirmed the ruling
of the MTCC. It further ruled that the MTCC simply took cognizance of the existence of the deeds of
sale in favor of respondent without passing judgment as to whether these deeds were valid or
not.According to the RTC, the questioned deeds of absolute sale, being notarized documents, are
considered to be public documents and carry with them the presumption of regularity.Petitioner filed
a motion for reconsideration, arguing that the RTC should pass judgment on the legality of
the deedsfor the purpose of deciding who between the parties has a better right to possession even if
the same issue is pending before another court. The CA denied the Petition, hence this appeal.
ISSUES:
Whether or not the petitioner has a better right overthe subject properties and whether the action for
unlawful detainer rendered in against the petitioner proper.
HELD:
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The Petitioner has a better right over the subject property. In resolving the issue of possession in an
ejectment case, the registered owner of the property is preferred over the transferee under an
unregistered deed of sale. In the instant case, the evidence showed that as between the parties, it is the
petitioner who has a Torrens Title to the property. Respondents merely showed their unregistered
deeds of sale in support of their claims. In Tenio-Obsequio v. Court of Appeals, it was held that the
Torrens System was adopted in this country because it was believed to be 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.It is settled that a Torrens Certificate of title is indefeasible and binding
upon the whole world unless and until it has been nullified by a court of competent jurisdiction.
Under existing statutory and decisional law, the power to pass upon the validity of such certificate of
title at the first instance properly belongs to the Regional Trial Courts in a direct proceeding for
cancellation of title.As opposed to the unregistered deeds of sale, the certificate of title certainly
deserves more probative value. Indeed, a Torrens Certificate is evidence of indefeasible title of
property in favor of the person in whose name appears therein; such holder is entitled to the
possession of the property until his title is nullified.
However, it should be noted that the CA merely affirmed the power of the trial court to provisionally
resolve the issue of ownership, which consequently includes the power to determine the validity of
the deeds of sale. As previously stated, such determination is not conclusive, and the issue of
ownership and the validity of the deeds of sale would ultimately be resolved in the case for annulment
of the deeds of sale.
Even if we sustain the petitioners’ arguments and rule that the deeds of sale are valid contracts, it
would still not bolster the petitioners’ case. In a number of cases, the Court had upheld the registered
owners’ superior right to possess the property. In Co v. Militar, the Court was confronted with a
similar issue of which between the certificate of title and an unregistered deed of sale should be given
more probative weight in resolving the issue of who has the better right to possess. There, the Court
held that the court a quo correctly relied on the transfer certificate of title in the name of petitioner, as
opposed to the unregistered deeds of sale of the respondents. The Court stressed therein that the
Torrens System was adopted in this country because it was believed to be 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.
It is settled that a Torrens title is evidence of indefeasible title to property in favor of the person in
whose name the title appears. It is conclusive evidence with respect to the ownership of the land
described therein. It is also settled that the titleholder is entitled to all the attributes of ownership of
the property, including possession. Thus, in Arambulo v. Gungab, this Court declared that the age-old
rule is that the person who has a Torrens title over a land is entitled to possession thereof.
In the present case, there is no dispute that petitioner is the holder of a Torrens title over the entire Lot
83. Respondents have only their notarized but unregistered Kasulatan sa Bilihan to support their
claim of ownership. Thus, even if respondents’ proof of ownership has in its favor a juris
tantum presumption of authenticity and due execution, the same cannot prevail over petitioner’s
Torrens title. This has been our consistent ruling which we recently reiterated in Pascual v.
Coronel, viz[.]:
Even if we sustain the petitioners’ arguments and rule that the deeds of sale are valid contracts, it
would still not bolster the petitioners’ case. In a number of cases, the Court had upheld the registered
owners’ superior right to possess the property. In Co v. Militar, the Court was confronted with a
similar issue of which between the certificate of title and an unregistered deed of sale should be given
more probative weight in resolving the issue of who has the better right to possess. There, the Court
held that the court a quo correctly relied on the transfer certificate of title in the name of petitioner,
as opposed to the unregistered title in the name of respondents. The Court stressed therein that the
Torrens System was adopted in this country because it was believed to be 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.
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While respondent has in his favor deeds of sale over the eight parcels of land, these deeds were not
registered; thus, title remained in the name of the owner and seller Atilano. When he died, title passed
to petitioner, who is his illegitimate child. Article 777 of the Civil Code provides that the rights to the
succession are transmitted from the moment of the death of the decedent.Thus, the petitioner and her
co-heirs have a superior right to possession, being heirs who succeeded the registered owner of the
properties in dispute.
When the execution of the judgment in the unlawful detainer case would result in the demolition of
the premises such that the result of enforcement would be permanent, unjust and probably irreparable,
then the unlawful detainer case should at least be suspended, if not abated or dismissed, in order to
await final judgment in the more substantive case involving legal possession or ownership. The facts
indicate that petitioner and her co-heirs have established residence on the subject premises; the fact
that they were given a long period of six months within which to vacate the same shows how deep
they have established roots therein. If they vacate the premises, serious irreversible consequences –
such as demolition of their respective residences – might ensue. It is thus more prudent to await the
outcome of Civil Case No. 4162.
In Vda. de Legaspi v. Avendaño, the Court suspended the enforcement of a writ of demolition
rendered in an ejectment case until after a case for annulment of title involving the property to be
demolished was decided. The Court ratiocinated:
x x x. Where the action, therefore, is one of illegal detainer, as distinguished from one of forcible
entry, and the right of the plaintiff to recover the premises is seriously placed in issue in a proper
judicial proceeding, it is more equitable and just and less productive of confusion and disturbance of
physical possession, with all its concomitant inconvenience and expenses. For the Court in which the
issue of legal possession, whether involving ownership or not, is brought to restrain, should a petition
for preliminary injunction be filed with it, the effects of any order or decision in the unlawful detainer
case in order to await the final judgment in the more substantive case involving legal possession or
ownership. It is only where there has been forcible entry that as a matter of public policy the right to
physical possession should be immediately set at rest in favor of the prior possession regardless of the
fact that the other party might ultimately be found to have superior claim to the premises involved,
thereby to discourage any attempt to recover possession thru force, strategy or stealth and without
resorting to the courts.
Petition is granted.
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LEASE CONTRACT: REMEDIES OF LESSORS
REGULUS DEVELOPMENT, INC., Petitioner, vs.ANTONIO DELA CRUZ, Respondent.
January 25, 2016 G.R. No. 198172
Second Division
Ponente: Arturo M. Brion, Associate Justice
Petition for review on certiorari.
FACTS:
The petitioner is the owner of an apartment (San Juan Apartments) located at San Juan Street, Pasay
City. Antonio dela Cruz (respondent) leased two units of the San Juan Apartments in 1993 and 1994.
The contract of lease for each of the two units similarly provides a lease period of one (1) month,
subject to automatic renewals, unless terminated by the petitioner upon written notice.
The petitioner sent the respondent a letter to terminate the lease of the two subject units. Due to the
respondent’s refusal to vacate the units, the petitioner filed a complaint for ejectment before the
Metropolitan Trial Court (MTC) of Pasay City, Manila, on May 1, 2001.The MTC resolved the case
in the petitioner’s favor and ordered the respondent to vacate the premises, and pay the rentals due
until the respondent actually complies.
The respondent appealed to the Regional Trial Court (RTC). Pending appeal, the respondent
consigned the monthly rentals to the RTC due to the petitioner’s refusal to receive the
rentals.The RTC affirmed the decision of the MTC in toto and denied the motion for reconsideration
filed by the respondent.On appeal, the CA reversed the lower courts’ decisions and dismissed the
ejectment case.The petitioner filed a motion (to withdraw funds deposited by the defendant-appellant
as lessee) praying for the withdrawal of the rentals consigned by the respondent with the RTC, which
the court granted. The petitioner, however, is entitled to the amount of rentals for the use and
occupation of the subject units, as provided in the executed contracts of lease and on the basis of
justice and equity.The court denied the respondent’s motion for reconsideration. On appeal, the CA
dismissed the petition and held that the assailed RTC Orders were issued pursuant to its equity
jurisdiction. The respondent’s motion for reconsideration was similarly denied. Hence, this appeal.
ISSUE:
The petitioner poses the core issue of whether the RTC had jurisdiction to levy on the respondent’s
real property.
HELD
Yes., the levy of real property was ordered by the RTC in the exercise of its equity jurisdiction.
The levy of the respondent’s property was made pursuant to the RTC orders issued in the exercise of
its equity jurisdiction, independent of the ejectment case originally filed with the MTC. The levy of
the respondent’s property was issued to satisfy the amounts due under the lease contracts, and not as a
result of the decision in the ejectment case.
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OBLIGATION: EXTINGUISHMENT; NOVATION
NYMPHA S. ODIAMAR, , - versus - LINDA ODIAMAR VALEN CIA, Respondent. Present:
SERENO, C.J., Chairperson, LEONARDO-DE CASTRO, BERSAMIN, PERLAS-BERNABE,
and CAGUIOA, JJ. Petitioner
May 2, 2016 G.R. No. 213582
First Division
Ponente: MARIA LOURDES P. A. SERENO Chief Justice
A petition for review on certiorari of the Court of Appeals decision which affirmed the Decision of
the Regional Trial.
FACTS:
In August 2003, respondent filed a complaint for sum of money and damages against petitioner,
alleging that the latter owed her P2,100,000.00 for which the petitioner issued a check for the said
amount to guarantee the payment of the debt, but upon presentment, the same was dishonored.
Respondent lamented that petitioner refused to pay despite repeated demands, and that had she
invested the money loaned to petitioner or deposited the same in a bank, it would have earned interest
at the rate of 36% per annum or three percent (3%) per month. For her part, petitioner sought the
dismissal 10 of the complaint on the ground that it was her deceased parents who owed respondent
money. Accordingly, respondent's claim should be filed in the proceedings for the settlement of their
estates. Petitioner averred that respondent had, in fact, participated in the settlement proceedings and
had issued a certification stating that it was petitioner's deceased parents who were indebted to
respondent for P2,000,000.00. She further maintained that as administratix of her parents' estates, she
agreed to pay such indebtedness on installment but respondent refused to accept her payments.
Respondent countered that petitioner personally borrowed almost half of the P2, 100,000.00 from her,
as evidenced by the check which she issued after agreeing to settle the same in installments. While
respondent conceded that petitioner made several installment payments from December 29, 2000 until
May 31, 2003, she pointed out that the latter failed to makeany succeeding payments. Moreover,
respondent denied participating in the proceedings for the settlement of the estates of petitioner's
parents, clarifying that petitioner was the one who prepared the certification alluded to and that she
(respondent) signed it on the belief that petitioner would make good her promise to pay her
(respondent). The RTC denied petitioner's motion to dismiss, thus prompting her to file an answer.
She asserted that respondent merely persuaded her to issue the check to guarantee her deceased
parents' loan. She further claimed that the check was blank when she issued it and that despite having
no authority to fill up the same, respondent wrote the amount and date thereon. She also maintained
that from December 29, 2000 to May 31, 2003, she made, in almost daily installments, payments to
respondent ranging from P500.00 to Pl0,000.00, and that while she tried to make succeeding
payments, respondent refused to accept the same, demanding, instead, the payment of the entire
balance. The RTC refused to give credence to petitioner's contention that it was her deceased parents
who borrowed money from respondent, observing that while the latter acknowledged that the former's
deceased parents owed her P700,000.00 out of the P2, 100,000.00, petitioner likewise admitted that
she obtained personal loans from respondent. Hence, according to the RTC, petitioner cannot deny
her liability to respondent. Further, by assuming the liability of her deceased parents and agreeing to
pay their debt in installments - which she in fact paid from December 29, 2000 to May 31, 2003 in
amounts of PS00.00 to Pl 0,000.00, and which payments respondent did actually accept - a mixed
novation took place and petitioner was substituted in their place as debtor. Thus, the liabilities of the
estates of petitioner's deceased parents were extinguished and transferred to petitioner. The RTC
finally ruled in favor of respondent and ordered petitioner to pay: (a) Pl,710,049.00 which represents
the unpaid portion of the P2,100,000.00 debt; (b) twelve percent (12%) interest computed from the
time judicial demand was made on August 20, 2003 until fully paid; (c) Pl0,000.00 as attorney's fees;
(d) litigation expenses amounting to Pl9,662.78; and (e) the costs of suit.
On appeal, the CA affirmed the ruling of the RTC. It agreed that petitioner cannot deny her liability
to respondent in view of her admission that she borrowed money from the latter several times; that
novation took place insofar as petitioner was substituted in place of petitioner's late parents,
considering that petitioner undertook to pay her deceased parents' debt.
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ISSUE:
Whether or not there was a novation of the liability of the original debtors with that of the petitioner.
HELD:
No, there was no novation. The Court ruled that the "fact that the creditor accepts payments from a
third person, who has assumed the obligation, will result merely in the addition of debtors and not
novation." At its core, novation is never presumed, and the animus novandi, whether totally or
partially, must appear by express agreement of the parties, or by their acts that are too clear and
unequivocal to be mistaken. Here, the intent to novate was not satisfactorily proven by respondent. At
best, petitioner only manifested her desire to shoulder the debt of her parents, which does not amount
to novation.
It is fundamental that for monetary interest to be due, there must be an express written agreement
therefor. Article 1956 of the Civil Code provides that "no interest shall be due unless it bas been
expressly stipulated in writing." In this relation, case law states that the lack of a written stipulation to
pay interest on the loaned amount bars a creditor from charging monetary interest and the collection
of interest without any stipulation therefor in writing is prohibited by law. Here, respondent herself
admitted that there was no written agreement that interest would be due on the sum loaned, only that
there was an implicit understanding that the same would be subject to interest since she also borrowed
the same from banks which, as a matter of course, charged interest.
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AGENCY
DRA. MERCEDES OLIVER, Petitioner versus PHILIPPINE SAVINGS BANK and LILIA
CASTRO, Respondent
April 4, 2016 GR No. 214567
SUPREME COURT BAGUIO CITY THIRD DIVISION
Ponente: Mendoza, J.
FACTS:
In 1997, herein petitioner made an initial deposit of P12 million into her PSBank account. During that
time, Castro convinced her to loan out her deposit as interim or bridge financing for the approved
loans of bank borrowers who were waiting for the actual release of their loan proceeds. Under this
arrangement, Castro would first show the approved loan documents to Oliver. Thereafter, Castro
would withdraw the amount needed from Oliver’s account. Upon the actual release of the loan by
PSBank to the borrower, Castro would then charge the rate of 4% a month from the loan proceeds as
interim or bridge financing interest. Together with the interest income, the principal amount
previously withdrawn from Oliver’s bank account would be deposited back to her account.
Meanwhile, Castro would earn a commission of 10% from the interest. Their arrangement went on
smoothly for months. Due to the frequency of bank transactions, Oliver even entrusted her passbook
to Castro. Because Oliver earned substantial profit, she was further convinced by Castro to avail of an
additional credit line in the amount of P10 million. The said credit line was secured by a real estate
mortgage on her house and lot in Ayala Alabang. Oliver instructed Castro to pay P2 million monthly
to PSBank starting September 1998 so that her credit line for P10 million would be fully paid by
January 1999. Beginning September 1998, Castro stopped rendering an accounting for Oliver. The
latter then demanded the return of her passbook. When Castro showed her the passbook sometime in
late January or early February 1995, she noticed several erasures and superimpositions therein. She
became very suspicious of the many erasures pertaining to the December 1998 entries so she
requested a copy of her transaction history register from PSBank. When her transaction history
register was shown to her, Oliver was surprised to discover that the amount of P4,491,250.00 was
entered into her account in December 1998, while a total of P7 million was withdrawn from her
account on the same day. Oliverasserted that she neither applied for an additional loan of P4.5 million
nor authorized the withdrawal of P7 million. She also discovered another loan for P1,396,310.45,
acquired in January 999 and allegedly issued in connection with the P10 million credit line. In
Oliver’s passbook, there were no entries from December 17, 1998 to December 27, 1998. The
transaction history register, however, showed several transactions on these very same dates including
the crediting of P4.5 million and the debiting of P7 million on December 21, 1998. Oliver then
learned that the additional P4.5 million and P1,396,310.45 loans were also secured by the real estate
mortgage, covering the same property in Ayala Alabang. Oliver received two collection letters, dated
May and June 1999, from PSBank referring to the non-payment of unpaid loans, to wit: (1)
P4,491,250.00 from the additional loan and (2) P1,396,310.45 from the P10 million credit line. In
response, Oliver protested that she neither availed of the said loans nor authorized the withdrawal of
P7 million from her account.She also claimed that the P10 million loan from her credit line was
already paid in full. On July 14, 1999, a final demand letter was sent to Oliver by PSBank, requiring
her to pay the unpaid loans. Oliver, however, still refused to pay. Subsequently, Oliver received a
notice of sale involving the property in Ayala Alabang on September 15, 1999 informed her of the
impending extra-judicial foreclosure and sale of her house and lot to be held in October 1999. Thus
Oliver filed the subject complaint against PSBank and Castro.
The RTC dismissed the complaint and rendered judgment in favor of PSBank and Castro. According
to the RTC, PSBank and Castro should not be held liable for the loan of P4.5 million and the
withdrawal of the P7 million. Castro was able to submit the Debit Credit Memo and the Savings
Account Check Deposit Slip to prove that there were some previous loan transactions between Oliver
and Lim. Considering that neither PSBank nor Castro obtained the P7 million, there was no
obligation on their part to return the amount. Moreover, the trial court stated that Oliver failed to
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controvert PSBank’s allegation that she had unpaid loan obligations. Thus, it concluded that PSBank
had the right to foreclose the mortgaged property.
On appeal, the Motion for Reconsideration was granted, ordering the defendants Lilia Castro and
Philippine Savings Bank to jointly and solidarily pay plaintiff Dra. Mercedes Oliver, the sums of 1.
P1,111,850.77 as actual damages; 2. P100,000.00 as moral damages; 3. P100,000.00 as attorney’s
fees; and 4. P100,000.00 as exemplary damages. The Writ of Preliminary Injunction was alo made
permanent. Aggrieved, Castro and PSBank appealed before the CA. The CA granted the appeal.
Hence, this petition.
ISSUES
1. Whether or not the respondent bank was guilty of fraud attended the processing and release of the
loan and the withdrawal of P7 million pesos from the petitioner’s account.
2. Whether or not the respondents are jointly and severally liable to the petitioner for damages.
HELD:
1. The petition is impressed with merit. There was an implied agency between Oliver and Castro; the
loans were properly acquired A contract of agency may be inferred from all the dealings between
Oliver and Castro. Agency can be express or implied from the acts of the principal, from his silence
or lack of action, or his failure to repudiate the agency knowing that another person is acting on his
behalf without authority.The question of whether an agency has been created is ordinarily a question
which may be established in the same way as any other fact, either by direct or circumstantial
evidence. The question is ultimately one of intention. In this case, Oliver and Castro had a business
agreement wherein Oliver would obtain loans from the bank, through the help of Castro as its branch
manager; and after acquiring the loan proceeds, Castro would lend the acquired amount to prospective
borrowers who were waiting for the actual release of their loan proceeds. Oliver would gain 4% to
5% interest per month from the loan proceeds of her borrowers, while Castro would earn a
commission of 10% from the interests. Clearly, an agency was formed because Castro bound herself
to render some service in representation or on behalf of Oliver, in the furtherance of their business
pursuit.38 For months, the agency between Oliver and Castro benefited both parties. Oliver, through
Castro’s representations, was able to obtain loans, relend them to borrowers, and earn interests; while
Castro acquired commissions from the transactions. Oliver even gave Castro her passbook to
facilitate the transactions. Accordingly, the laws on agency apply to their relationship. Article 1881 of
the New Civil Code provides that the agent must act within the scope of his authority. He may do
such acts as may be conducive to the accomplishment of the purpose of the agency. Thus, as long as
the agent acts within the scope of the authority given by his principal, the actions of the former shall
bind the latter.
2. Both Castro and PSBank must be held solidarily liable.Castro, as agent of Oliver and as branch
manager of PS Bank, utterly failed to secure the authorization of Oliver to withdraw such substantial
amount. As a standard banking practice intended precisely to prevent unauthorized and fraudulent
withdrawals, a bank manager must verify with the client-depositor to authenticate and confirm that he
or she has validly authorized such withdrawal. Castro’s lack of authority to withdraw the P7 million
on behalf of Oliver became more apparent when she altered the passbook to hide such transaction.
Castro went beyond the scope of her authority in withdrawing the P7 million from Oliver’s bank
account. Her flimsy excuse that the said amount was transferred to the account of a certain Lim
deserves scant consideration. Hence, Castro must be held liable for prejudicing Oliver. PSBank failed
to exercise the highest degree of diligence required of banking institutions Aside from Castro,
PSBank must also be held liable because it failed to exercise utmost diligence in the improper
withdrawal of the P7 million from Oliver’s bank account. If the agent contracts in the name of the
principal, exceeding the scope of his authority, and the principal does not ratify the contract, it shall
be void if the party with whom the agent contracted is aware of the limits of the powers granted by
the principal. In this case, however, the agent is liable if he undertook to secure the principal's
ratification. In the case of banks, the degree of diligence required is more than that of a good father of
a family. Considering the fiduciary nature of their relationship with their depositors, banks are duty
bound to treat the accounts of their clients with the highest degree of care.
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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 accounts of its depositors with meticulous care, always having
in mind the fiduciary nature of their relationship. Court held that the depositor expected the bank to
treat his account with the utmost fidelity, whether such account consisted 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 the 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. Time and again, the Court has emphasized that the bank is
expected to ensure that the depositor’s funds shall only be given to him or his authorized
representative. Court held that the usual banking procedure was that withdrawals of savings deposits
could only be made by persons whose authorized signatures were in the signature cards on file with
the bank. In the said case, the bank therein allowed an unauthorized person to withdraw from its
depositor’s savings account, thus, it failed to exercise the required diligence of banks and must be
held liable.
The bank violated its fiduciary duty because it allowed a withdrawal by a representative even though
the authorization portion of the withdrawal slip was not signed by the depositor.
There was a clear showing of PSBank’s failure to exercise the degree of diligence that it ought to
have exercised in dealing with its clients. It could not prove that the withdrawal of P7 million was
duly authorized by Oliver. As a banking institution, PSBank was expected to ensure that such
substantial amount should only be transacted with the consent and authority of Oliver. PSBank,
however, reneged on its fiduciary duty by allowing an encroachment upon its depositor’s account
without the latter’s permission. Hence, PSBank must be held liable for such improper transaction.
Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable for
damages caused by their employees acting within the scope of their assigned tasks. Castro, as acting
branch manager of PSBank ,was able to facilitate the questionable transaction as she was also
entrusted with Oliver’s passbook. In other words, Castro was the representative of PSBank, and, at
the same time, the agent of Oliver, earning commissions from their transactions. Oddly, PSBank,
either consciously or through sheer negligence, allowed the double dealings of its employee with its
client. Such carelessness and lack of protection of the depositors from its own employees led to the
unlawful withdrawal of the P7 million from Oliver’s account. Although Castro was eventually
terminated by PSBank because of certain problems regarding client accommodation and loss of
confidence, the damage to Oliver had already been done. Thus, both Castro and PSBank must be held
solidarily liable.
Award of damages as a result of the invalid foreclosure is also proper. The loans of Oliver from
PSBank which were secured by real estate mortages amounted to P5,888,149.33. Had it not been for
the said unauthorized withdrawal, Oliver’s debts would have been satisfied. Consequently, PSBank’s
foreclosure of the real estate mortgage covering the two (2) loans in the total amount of
P5,888,149.33 was improper.
With PSBank being found liable to Oliver for P7 million, after offsetting her loans would have
PSBank and Castro still owing her P1,111,850.77, which must be suitably paid in the form of actual
damages. The award of moral damages must also be upheld. Specifically, in culpa contractual or
breach of contract, like in the present case, moral damages are recoverable only if the defendant has
acted fraudulently or in bad faith, or is found guilty of gross negligence amounting to bad faith, or in
wanton disregard of his contractual obligations. Verily, the breach must be wanton, reckless,
malicious, or in bad faith, oppressive or abusive.
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DIGEST OF CASES IN CIVIL LAW REVIEW2. ETBeltran.AUSL. SY2016-2017