SUPREME COURT DECISIONS
CIVIL LAW
LAND TITLES AND DEEDS; No title to registered land in derogation of that of the
registered owner shall be acquired by prescription or adverse possession. A title, once
registered, cannot be defeated even by adverse, open and notorious possession.
FACTS: The heirs of Leopoldo Vencilao Sr., the petitioners, filed a complaint against the spouses
Gepalago alleging that they were the absolute owners of a parcel of land having inherited the same from
their father, who during his lifetime was in peaceful, open, notorious and uninterrupted possession and
enjoyment of the property in the concept of owner for more than 30 years.
The Gepalago spouses, on the other hand, appeared that they were the registered owners of the land which
was previously a portion of a 1,401,570 sq. m. land owned by a certain Pedro Luspo. The records showed
that the entire property was mortgaged by Luspo as security for a loan which for his failure to pay was
foreclosed by the bank. PNB as the highest bidder in the foreclosure sale, conveyed the whole property to
56 vendees among whom were the spouses Gepalago.
ISSUE: Who has the better right over the land, the Vencilaos or the Gepalagos?
HELD: The Gepalago spouses has the better right. The rule is well settled that prescription does not run
against registered land. Thus, under Sec. 47 of PD No. 1529, otherwise known as the Property
Registration Decree, it is specifically provided that “no title to registered land in derogation of that of the
registered owner shall be acquired by prescription or adverse possession.” A title, once registered, cannot
be defeated even by adverse, open and notorious possession. The certificate of title issued is an absolute
and indefeasible evidence of ownership of the property in favor of the person whose name appears
therein. It is binding and conclusive upon the whole world. [Heirs of Leopoldo Vencilao Sr. vs CA et al,
G.R. No. 123713, April 1, 1998---FIRSTDI VISION; Bellosillo, J.]
ESTOPPEL; Whenever a paTty has, by his own declaration, act or omission, intentionally
and deliberately led another to believe a particular thing to be true, and to act upon such a
belief, he cannot, in any litigation arising out of such declaration, act or omission, be
permitted to falsity it.
FACTS: Petitioner Pureza contracted the services of spouses Bonifacio and Crisanta Alejandro to
construct a two-storey building. To facilitate this project, he applied for a Pag-ibig Housing Loan with the
Asia Trust Development Bank. An order of payment was signed by him authorizing the respondent-bank
to release the contract price of P155,356.30 to the spouses-contractors.
The house was not constructed as originally planned. Nevertheless, petitioner signed a Certificate of
House Completion/Acceptance. Payment was subsequently released by the respondent bank to
spouses-contractors.
Subsequently, petitioner filed a complaint against the respondent bank claiming that although the
construction was only 70% finished, the latter released to the spouses 90% of the proceeds. The lower
court rendered judgment in favor of petitioners.
ISSUE: Whether or not the respondent bank was negligent in releasing the proceeds of the loan to the
spouses, in accordance with the Order of Payment.
HELD: The respondent bank cannot be held liable for the release of the proceeds to the contractors
because the petitioners willingly and voluntarily signed the Order of Payment and the Certificate of
House Completion/Ac-ceptance.
The application of principle of estoppel is proper and timely in heading off petitioner’s shrewd efforts at
renouncing his previous acts to the prejudice of parties who had dealt with him honestly and in good faith.
A principle of equity and natural justice, this is expressly adopted under Art. 1431 of the Civil Code, and
pronounced as one of the conclusive presumption under Rule 131, Sec. 3 [a] of the Rules of Court.
Petitioner, having performed affirmative acts upon which the respondents based their subsequent actions,
cannot thereafter refute his acts or revenge on the effects of the same, to the prejudice of the latter. To
allow him to do so would be tantamount to conferring upon him the liberty to limit his liability at his
whim and caprice, which is against the very principle of equity and natural justice. [Pureza vs. CA, G.R.
No. 122053, May 15, 1998 THIRD DIVISION; Narvasa, C.J.]
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CREDIT TRANSACTIONS; A guarantor is the insurer of the solvency of the debtor and
thus binds himself to pay if the principal is unable to pay while a surety is the insurer of the
debt, and he obligates himself to pay it the principal does not pay.
FACTS: Spouses Raul and Elen Claveria, doing business under the name “Agro Brokers”, contracted a
loan with Consolidated Bank and Trust Corp. [now Solid Bank] in the amount of P2,875,000.00 to
finance the purchase of two [2] maritime barges and one tugboat which would be used in their maritime
business. In order to secure the loan, respondent spouses executed a chattel mortgage over three [3]
vessels. !n addition Ayala Int’l. Phil. Inc., now herein petitioner F. Zobel Inc. executed a continuing
guaranty.
When the spouses defaulted in the payment, Solid Bank filed a complaint for sum of money against the
spouses and F. Zobel Inc. The latter moved to dismiss the complaint on the ground that its liability as
guarantor of the loan was extinguished pursuant to Art. 2080 of the Civil Code of the Phil. It argued that
it has lost its right to be subrogated to the first mortgage in view of Solid Bank’s failure to register the
chattel mortgage with the appropriate government agency.
Solid Bank contended that Art. 2080 is not applicable because petitioner is not a guarantor but a surety.
Motion to dismiss was denied.
ISSUE: Whether F. Zobel Inc. obligated itself to Solid Bank not as a guarantor but as a surety under the
continuing guaranty.
HELD: The use of the term “guarantor” does not ipso facto mean that the contract is one of guaranty.
The interpretation of the contract is not limited to the title alone but to the contents and intention of the
parties. The terms of the coniract categorically obligates the petitioner as “surety” to induce Solid Bank to
extend credit to respondent spouses.
Simply put, a guarantor is the insurer of the solvency of the debtor and thus binds himself to pay if the
principal is unable to pay while a surety is the insurer of the debt, and he obligates himself to pay if the
principal does not pay. [E. Zobel Inc. vs. CA, GB. No. 113931, May 6, 1998- SECOND DIVISION;
Regalado, J.]
CREDIT TRANSACTIONS; A surety is an undertaking that the debt shall be paid, a
guaranty is an undertaking that the debtor shall pay. A surety promises to pay the
principal’s debt if the principal will not pay, while a guarantor agrees that the creditor
after proceeding against the principal, may proceed against the guarantor if the principal is
unable to pay.
FACTS: Pursuant to a promissory note, respondent corporation extended a loan to the spouses Osmena
and Azarraga as principal debtors with the petitioner as the co-maker. The principal debtors were not able
to pay the entire amount of the loan. On the basis of the petitioner’s solidary liability under the
promissory note, respondent corporation filed a complaint against petitioner Palmares as the lone
party-defendant, to the exclusion of the principal debtors allegedly by reason of insolvency. She invoked
as a defense that he is a guarantor and not a surety. Thus, she may be held liable only after the
respondent company has proceeded against the principal debtors. The lower court ruled in favor of the
company.
ISSUE: Whether the petitioner is liable as a surety or as a guarantor.
HELD: It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and
leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall
control. In the case at bar, petitioner expressly bound herself to be jointly and severally or solidarily liable
with the principal maker of the note. The terms of the contract are clear, explicit and unequivocal that her
liability is that of a surety. A surety is an undertaking that the debt shall be paid, a guaranty is an
undertaking that the debtor shall pay. A surety promises to pay the principal’s debt if the principal will
not pay, while a guarantor agrees that the creditor after proceeding against the principal, may proceed
against the guarantor if the principal is unable to pay. [Palmares vs. CA, G.R. No. 126490, March 31,
1998--- SECOND DIV/S/ON; Regalado, J.]
CONTRACT OF SALE; A contract of sale is perfected at the moment there is a meeting of
the minds upon the thing that is the object of the contract and upon the price.
FACTS: Petitioner Fule, a banker and a jeweler at the same time, and respondent Dr. Cruz entered into a
contract of sale involving a pair of emerald-cut diamond earrings owned by the latter and a 1O-hectare
land owned by the former. Since the value of the jewelry is much higher than the parcels of land, the
parties agreed that the balance of the same would be paid in cash. Barely two hours after the sale, Fule
demanded that his money be returned for it appeared that the earrings were fake. Cruz countered that the
jewelry is genuine and that before Fule accepted the earrings, the petitioner have it examined for 15
minutes. Having failed to settle the disputes, another jeweler was consulted. The result indicates that
indeed the same was fake. Fule then filed a case in court praying that the contract of sale between him and
the respondent be declared null and void. The court ruled otherwise which the CA affirmed. Petition.
ISSUES: Whether or not there was a perfected contract of sale; Whether or not the contract of sale is
null and void.
HELD: A contract of sale is perfected at the moment there is a meeting of the minds upon the thing
which is the object of the contract and upon the price. Being consensual, a contract of sal€ has the force of
law between the contracting parties and they are expected to abide in good faith by their respective
contractual commitments. In the case at bar, it is evident that there was a meeting of the minds between
petitioner and Dr. Cruz. As such, they are bound by the contract unless there are reasons or circumstances
that warrant its nullification.
As regards the second issue, contracts that maybe annulled or voided are: (1) those where one of the
parties is incapable of giving consent to a contract; and (2) those where the consent is vitiated by mistake,
violence, intimidation, undue influence or fraud.
In the case at bar, petitioner stresses that the jewelry subject of the contract was a counterfeit and
therefore, his consent was vitiated with fraud. The records, however, are bare of any evidence manifesting
that private respondent employed insidious words or machinations to entice Fule into entering the contract
of barter. Neither is there any evidence showing that Dr. Cruz induced petitioner to sell his land or that
she cajoled him to take the earrings in exchange for said property. Moreover, on account of his work as a
banker-jeweler, it can be rightfully assumed that he was an expert on matters regarding gems. He had the
intellectual capacity and the business acumen as a banker to take precautionary measures to avert such a
mistake. As the Civil Code provides, “there is no mistake if the party alleging it knew the doubt,
contingency or risk affecting the object of the contract.” [Fu/e vs. CA, G.R. No. 112212; March 2, 1998
THIRD DIVISION; Romero, J.]
CONTRACT OF SALE; The contract of sale is perfected at the moment there is a meeting
of the minds upon the thing which is the object of the contract and upon the price.
FACTS: Petitioner Xentrex Automotive, Inc. is a dealer of motor vehicles. On October 1991, private
respondent went to petitioner to purchase a brand new car valued at P494,000.00. Private respondent
Samson made an initial deposit of P50,000.00 while the balance was to be paid thru bank financing.
Eventually, due to the slow pace in the processing of their application for financing, Samson decided to
pay the balance by tendering a check in the amount of P250,000.00. As it turned out to private
respondent’s shock and disappointment, the car had already been sold to another buyer without his
knowledge, prompting him to file a complaint for breach of contract and damages against Xentrex. The
lower court ruled in favor of Samson which the Court of Appeals affirmed. Petition.
ISSUE: Whether or not there was a perfected contract of sale between Samson and Xentrex.
HELD: The petition lacks merit. Undoubtedly, there was a perfected contract of safe between petitioner
and private respondent as confirmed by the trial court when it found that “by accepting a deposit of
P50,000.00 and by pulling out a unit of Phil. Nissan, petitioner obliged itself to sell to Samson a
determinate thing for a price certain in money which was P494,000.00.’ Resultingly, Phil. Nissan
committed a breach of contract when it allowed the unit in question to be sold to another buyer to the
prejudice of private respondent. Article 1475 of the New Civil Code is very explicit that the contract of
sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the
contract and upon the price. From that moment, the parties may reciprocally demand performance, subject
to the provisions of the law governing the forms of contract. [Xentrex vs. CA; G.R. No. 121559; June
18.1998 FIRST DIVISION; Quisumbing, J.]
CONTRACT OF SALE; Sale of property by a holder of land prior to the issuance of the
certificate of title is valid and binding between the parties.
FACTS: Petitioner Mananzala was the owner of a parcel of land by virtue of the deed of sale executed
by National Housing Authority (NHA) in her favor. However, 25 years prior to the actual issuance of the
certificate of title, private respondent Corazon Aranes and petitioner entered into a contract of sale
covering the same parcel of land. Among the agreement between the parties is that title to the land shall
be transferred to Aranes within 30 days after Mananzala paid the full price of the land to NHA.
Mananzala denied selling the land contending that the deed was a forgery and that her signature was
obtained by means of fraud. Furthermore, she averred that the sale was void since it was made before the
actual title of the land has been delivered to her in violation of the resolution of NHA. The trial court
ruled in her favor which the Court of Appeals reversed. Appeal.
ISSUE: Whether or not the sale of the land was valid.
HELD: Petitioner avers that the appellate court erred in relying on the presumption of regularity
accorded to notarial documents in holding the deed of sale between her and private respondent to be valid.
This is not true. The decision of the appellate court shows that the court also took into account the
evidence of the parties. It relied on the report of the NBI which found the signature of the petitioner on
the questioned document to be genuine. The trial court itself arrived at the same conclusions as to the
genuineness and due execution of the deed. Indeed, petitioner’s claim that her signature on the deed had
been procured through fraud is contradicted by her allegation in court that the signature on the deed was
not hers. If the signature on the deed was not her signature, then it could not have been procured by fraud.
As to the second contention, the sale between the parties is valid and binding. There is no evidence
whatsoever tnat the sale between the parties was made in violation of any rule of the NHA. This issue was
never passed upon either by the trial court nor by the Court of Appeals. The above argument, as well as
petitioner’s contention that the sale to private respondent is void because it was made within one year
after the title to the property was issued in the name of the petitioner, while raised by petitioner in her
answer in the trial court, was not passed upon and she did not urge it anymore except on appeal. For all
intents and purposes, therefore, petitioner waived this ground and cannot urge it as a ground for reversing
the decision of the Court of Appeals. [Mananzala vs. CA; G.R,. No. 115101; March 2, 1998 SECOND
DIVISION; Mendoza, J.]
QUASI-DELICT; To sustain a claim based on quasi-delict, the following requisites must
concur: (a) damage suffered by the plaintiff; (b) fault or negligence of the defendant; and
(c) connection of cause and effect between the fault of the defendant and the damage
incurred by the plaintiff.
FACTS: The car owned and driven by Soriano collided with the car owned by FILCAR Transport, Inc.
(FILCAR), and driven by Peter Dahl-Jensen as lessee. As a consequence, petitioner FGU Insurance
Corporation, in view of its insurance contract with Lydia, paid the latter. By way of subrogation, it sued
Dahl-Jensen and respondent FILCAR as well as Fortune Insurance Corporation (FORTUNE) as insurer of
the latter for quasi-delict before the RTC of Makati City. Unfortunately, summons was not served on
Jensen since he was no longer staying at his given address and upon motion of petitioner, he was
dropped from the complaint. After trial, the court dismissed the case for failure of FGU to substantiate its
claim of subrogation. The Court of Appeals affirmed the ruling of the trial court although based only on
the fault or negligence of Dahl-Jensen since the negligence of respondent FILCAR was not sufficiently
proved. Petitioner insists that respondents are liable for damages suffered by third persons although the
vehicle is leased to another. It ruled that petitioner failed to establish its cause of action for sum of money
based on quasi-delict.
ISSUE: Whether or not FILCAR and its insurer may be held liable for damages suffered by a third party
although the vehicle is leased to another.
HELD: To sustain a claim based on quasi-delict, the following requisites must concur; (a) damage
suffered by the plaintiff; (b) fault or negligence of the defendant; and, (c) connection of cause and effect
between the fault or negligence of the defendant and the damage incurred by the plaintiff. In the case at
bar, the petitioner failed to prove the existence of the second requisite, i.e., fault or negligence of
defendant FILCAR, because only the fault or negligence of Dahl-Jensen was sufficiently established. It
should be noted that the damage caused on the vehicle of Soriano was brought about by the circumstance
that Dahl-Jensen swerved to the right while the vehicle he was driving was at the center lane. It is plain
that the negligence was solely attributable to DahI-Jensen thus making the damage suffered by the other
vehicle his personal liability. Respondent FILCAR did not have any participation therein. Petitioner has
no cause of action against respondent FILCAR on the basis of quasi-delict. Logically, its claim against
respondent Fortune can neither prosper. [FGU Insurance Cotp. vs. CA; G.R. No. 118889; March23, 1998
FIRST DIVISION; Bellosillo , J.]
DONATION; Donation is onerous when the burden, charge or future service equal to or
more in value than the thing donated is imposed by the donor. Acceptance of the donation
by the donee is indispensable for its validity.
FACTS: Catalina, a widow and grandmother of petitioner Lagazo executed a deed of donation in favor
of the latter. Following the donation, the petitioner checked with the Register of Deed and found out that
the property was in the delinquent list. So, he paid the installment in arrears and the balance on the lot and
declared the said property in the name of Catalina. Later, Lagazo also sent a demand letter to defendant
Cabanlit asking him to vacate the land but the latter claimed ownership thereof. Trial ensued and the
lower court ruled in favor of the petitioner which the CA reversed. The appellate court anchored its
decision on the ground that there was no showing that petitioner accepted his grandmother’s donation and
that said donation having found to be a simple donation has not complied with the formalities for
donation of real property.
ISSUE: Whether there was a valid simple or onerous donation.
HELD: The donation is a simple donation. A simple or pure donation is one whose cause is pure
liberality, while an onerous donation is one which is subject to burdens, charges or future services equal
to or more in value than the thing donated. In the case at bar, the petitioner’s payment of the arrearages
and balances due on the lot does not render the donation onerous. Even conceding the petitioner’s full
payment of the purchase price of the lot might have been a burden to him, such payment was not however
imposed by the donor as a condition for the donation. Rather, the payments made by Lagazo were his
voluntary act as gleaned from his testimony during the trial.
However, the donation, following the theory of cognition, is perfected only upon the moment the donor
knows of the acceptance of the donation by the doneé. Nowhere in the case did the petitioner present any
evidence of his acceptance of the donation. Petition denied. [Lagazo vs. CA, G.R. No. 112796; March 5,
1998-- FIRST DI VISION; Panganiban, J.]
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CONTRACTS; A contract of employment is a contract of adhesion and any ambiguity
therein should be construed against the party preparing it.
FACTS: Private respondent Victoria Abril was employed in 1982 by petitioner Philippine Federation of
Credit Cooperatives, Inc. (PFCCI) in different capacities until 1988. The initial statements of employment
contract provide that PFCCI hires her on contractual basis until the completion of the project while the
succeeding provisions thereof provided that she shall be under probationary status for a period of six (6)
months. After the six-month probationary employment has elapsed, she was allowed to work for a period
of one year, after which period, her employment was terminated.
She filed a complaint for illegal dismissal against PFCCI. The company alleged that she is a casual or
contractual employee because she applied for the position of Regional Field Officer under a contract
which had been fixed for a specific project or undertaking, the completion or termination of which had
been determined at the time of engagement. The Labor Arbiter dismissed the case for lack of merit. On
appeal, the decision was reversed by the NLRC. Hence, this petition by PFCCI.
ISSUE: Whether the employment based on the contract is contractual or probationary.
HELD: The employee has become a regular employee because she has been allowed to work after the
probationary period. Where a contract of employment, being a contract of adhesion, is ambiguous, any
ambiguity therein should be construed strictly against the party who prepared it. Furthermore, Article
1702 of the Civil Code provides that, in case of doubt, all labor contracts shall be construed in favor of the
laborer. In the case at bar, the ambiguity in the terms of the contract should be construed against the
company. (Philippine Federation of Credit Cooperatives, Inc., et.aI. vs. NLRC, G.R. No. 121071,
December 11, 1998; Romero,J.]
CONTRACTS; The failure of the first lessee to vacate the premises cannot exculpate the
lessor from its obligation to the subsequent lessee.
FACTS: A lease contract was executed between Urban Development Bank (UDB) and Valgosons
Realty, Inc. (VRI), covering a portion of the ground floor of the latter’s building. Despite repeated
demands, VRI failed to place UDB in possession of the leased premises. It appears that the same property
is leased to Prudential Bank (PB) which continued paying the monthly rentals. The lessor VRI had also
been accepting the monthly rentals. It, on the other hand, kept on reminding PB that the place should be
made available for its new lessee, otherwise, they will be held responsible for any claim for damages by
its new tenant. Because of Prudential Bank’s continued failure to surrender the leased premises despite
the termination of the contract, Urban Bank sued petitioner VRI for rescission of their lease contract. The
lower court adjudged the lessor and the first lessee liable for damages The Court of Appeals affirmed the
trial court’s finding except that it absolved the first lessee from liability.
ISSUE: Whether or not the first lessee’s refusal to vacate the leased premises exculpates the lessor from
its obligation to deliver possession of the same to the second lessee.
HELD: Prudential Bank’s refusal to vacate the leased premises did not exculpate the lessor from its
obligation to deliver possession of the same to the second lessee. The first lease contract executed by
petitioner VRI with respondent Prudential Bank is separate and distinct from its second lease contract
with respondent Urban Bank. As lessor, it was incumbent on him to deliver the premises to the lessee in
accordance with their agreement and should it become necessary, to eject any unlawful occupant
therefrom. Under Article 1654 of the New Civil Code, a lessor, like petitioner herein, is obliged to deliver
the thing which is the object of the contract in such a condition as to render it for the use intended.
[Valgosons Realty Inc. vs. CA, Urban Development Bank and Prudential Bank, G.R. No. 126233,
September 11, 1998; Martinez, J.]
EARNEST MONEY; An earnest money is considered part of the purchase price and proof
of the perfection of the sale. An option is a distinct and separate contract granting a
privilege to buy or sell within an agreed time and at a determined price.
FACTS: Spouses Co entered into a verbal contract with Custodio covering the sale of the Beata property
in favor of the latter for $100,000 payable in two installments. Under their contract, the Cos paid $1,000
and P40,000 as earnest money in order that the property may be reserved for them to be deducted from
the total purchase price of $100,000. Although the period of payment had already expired, Custodio paid
the Cos the sum of $30,000 as partial payment of the purchase price. After a demand to pay the balance of
$70,000 Custodio failed to complete payments. Thus, the Cos informed her that the option to purchase the
Beata property was lost. They offered to sell her another property and the previous payments already
made will be applied to the payment of the second property if Custodio would purchase the same within
thirty (30) days. Otherwise, they would forfeit the $30,000. The latter manifested that she was willing to
pay the balance of the price of the Beata property and not the second property. In view thereof, the Cos
rescinded the contract.
Custodio filed a complaint for rescission of the Contract and prayed for the refund of the $30,000. The
trial court ruled in her favor and ordered the Cos to refund the amount of $30,000 in Custodio’s favor.
The Court of Appeals affirmed the decision.
The Cos’ main argument is that Custodio lost her option over the Beata property and her failure to
exercise said option resulted in the forfeiture of any amounts paid by her.
ISSUE: Whether or not the Cos may forfeit the amounts paid for the buyer’s failure to observe the option
pursuant to the letter.
HELD: The Co’s cannot forfeit the amounts paid by Custodio because that would be in violation of the
contract of sale entered into between themselves. The facts show that the parties entered into a perfected
contract of sale and not an option contract. All the elements of the contract of sale are present when
Custodio’s offer to purchase the Beata property was accepted by the Cos. Even the manner of payment
was agreed upon and there was payment of an earnest money which is considered part of the purchase
price and proof of the perfection of the sale.
An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price.
It is separate and distinct contract from that which the parties may enter into upon the consummation of
the option. It must be supported by consideration. [Spouses Co vs CA, G.R. No. 112330, August 17, 1999;
Gonzaga-Reyes, J.]
EARNEST MONEY; In the absence of stipulation to the contrary, earnest money being a
part of the purchase price should be returned to the prospective buyer in case the sale fails.
FACTS: Private respondent, Barretto Realty owned 43 parcels of land which were mortgaged to UCPB.
When the mortgage was about to be foreclosed, petitioner, Golden Rod, Inc., offered to buy the property.
The offer was accepted by the Barretto Realty who thereby acknowledged the receipt of earnest money
from Golden Rod, Inc. It was agreed that the latter would pay the Barretto’s indebtedness to UCPB. Due
to some economic reverses however, Golden Rod was not able to pay UCPB. It then wrote Barretto
Realty that it could not go through with the purchase of the property. She demanded the refund of earnest
money paid. After failure to refund the earnest money, Golden Rod filed an action before the Regional
Trial Court which ordered the refund of the earnest money. The Court of Appeals reversed the trial court.
It granted the forfeiture of the earnest money to answer for the damages sustained by the private
respondent. Hence, this petition.
ISSUE: Whether or not the seller of real property may keep the earnest money to answer for damages in
the event the sale fails due to the fault of the prospective buyer.
HELD: The seller cannot keep the earnest money in the absence of a specific stipulation. Under Art.
1482 of the Civil Code, whenever earnest money is given in a contract of sale, it shall be considered as
part of the purchase price and as proof of perfection of the contract. Petitioner clearly stated without any
objection from private respondent that the earnest money was intended to form part of the purchase price.
Hence, the parties could not have intended that the earnest money or advance payment would be forfeited
when the buyer should fail to pay the balance of the price, especially in the absence of a clear and express
agreement thereon. By reason of its failure to make payment, petitioner, through its agent, informed
private respondent that it would no longer push through with the sale. In other words, petitioner resorted
to extra-judicial rescission of its agreement with private respondent.
Art. 1385 of the Civil Code provides that rescission creates the obligation to return the things which were
the object of the contract together with their fruits and interest. By virtue of the extra-judicial rescission,
private respondent is obliged to return the earnest money. [Golden Rod, Inc. vs. CA, 126812,
November24, 1998; Bellosillo, J.]
PRIVITY OF CONTRACTS; There being no privity of contract between two lessees, each
has no cause of action between them.
FACTS: Urban Development Bank (UDB) leased from Valgosons Realty, Inc. (VRI), a portion of the
ground floor of its building. Despite repeated demands, VRI failed to place UDB in possession of the
leased premises because Prudential Bank is still occupying the space as the first lessee. Urban Bank
commenced an action against the owner of the building who instead heaped the blame on Prudential Bank
(PB) when it refused to vacate the premises. Prudential Bank, however, continued paying and Valgosons
had been accepting the monthly rentals after the expiration of the contract. The latter kept reminding
Prudential Bank that the place should be made available for its new lessee, otherwise, they will be held
responsible for any claim for damages which may be filed by its new tenant. Because of Prudential
Bank’s continued failure to surrender the leased premises, Urban Bank sued petitioner VRI for rescission
of their lease contract. The lower court adjudged the lessor VRI and Prudential Bank liable for damages.
The Court of Appeals however, absolved respondent PB from liability.
ISSUE: Whether or not the first lessee (Prudential Bank) can be held liable by the second lessee (UDB).
HELD: Assuming arguendo that respondent Prudential Bank’s refusal to leave the premises was the
proximate cause of lessor’s failure to comply with its obligation to respondent Urban Bank, still the latter,
as second lessee, has no cause of action against the first lessee respondent Prudential Bank. It should be
noted that there is no privity of contract between the two respondent-lessees. It was not also shown that
respondent UDB, as lessee, assumed the obligation under the lease contract to eject any person who
occupies the property. Neither does it appear that petitioner-lessor imposed such condition on respondent
UDB. It was incumbent upon the lessor to place the lessee in possession of the property and to defend the
latter against other claims related to rightful possession. /Valqosons Realty Inc. vs. CA, Urban
Development Bank and Prudential Bank, G.R. No. 126233, September 11, 1998; Martinez, J.]
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TRUST; A trust arises in favor of one who pays the purchase money of the property in the
name of another on the presumption that he who pays for a thing intends a beneficial
interest therein for himself.
FACTS: Petitioner Marsh Thomsom was an officer of the respondent American Chamber of Commerce
(AmCham) for over ten years. When his superior retired, the latter’s proprietary share in the Manila Polo
Club (MPC) was listed in Thomsom’s name and paid for by AmCham through his retiring superior’s
intercession. Thomsom paid the corresponding transfer fee but AmCham subsequently reimbursed the
amount. However, it was agreed that Thomsom shall execute a document recognizing AmCham’s
beneficial ownership over the shares. He failed to do so despite the many demands from AmCham
management.
When petitioner’s contract of employment was up for renewal, he notified his employer of his
unwillingness to continue his services. AmChain, however, asked the former to stay on for another six (6)
months. The petitioner made a counter-proposal, that he shall accept it if he shall be allowed to retain the
shares after reimbursing AmCham the purchase price. It was rejected. Pending the negotiation, AmCham
executed a Release and Quitclaim of its claims against Thomsoin. The quitclaim did not mention the
MPC shares. The company demanded the return of the MPC shares and the transfer of said shares to the
nominee of AMCHAM but Thomsom claims ownership of the MPG shares, asserting that he merely
incurred a debt to respondent when the latter advanced the funds for the purchase of the share. On the
other hand, AmChain asserts beneficial ownership whereby petitioner only holds the share in its name but
the beneficial title belongs to private respondent.
The trial court awarded the share to Thomsom on the ground that the Articles of incorporation of Manila
Polo Club prohibits artificial persons to be club members. The Court of Appeals reversed the decision.
ISSUE: Whether or not petitioner has the obligation to transfer the MPG shares to the nominee of
AMCHAM.
HELD: Petitioner is obligated to transfer the MPG shares to the nominee of AmCham as he is merely
holding the shares in trust. When AmChain paid the purchase price for the share but Thomsom was given
legal title thereto, a resulting trust is presumed as a matter of law. As an officer of AMCHAM, petitioner
occupied a fiduciary position in the business of AmCham. The respondent’s purpose in acquiring the
share was to provide additional incentive to its chosen executive. Although the share was placed in the
name of the petitioner, his title is limited to usufruct, that is, to enjoy the facilities and privileges of such
membership. Such arrangement reflects a trust relationship governed by the law and equity. [Marsh
Thomson v. Court of Appeals, G.R. No.116631, October 28, 1998; Quisumbing, J. ]
PRESCRIPTION; An action based on an implied or constructive trust prescribes In ten
(10) years from the issuance of the Torrens title over the property.
FACTS: During the lifetime of spouses Rafael Sr. and Felicidad Marquez, they begot twelve children.
They both acquired a parcel of land sometime in 1945. Felicidad predeceased Rafael in 1952. Sometime
in 1982, Rafael Sr. executed an affidavit of adjudication vesting unto himself the sole ownership of the
property thus, a new TCT was issued in his name. He executed a donation inter vivos covering the land
and the house constructed thereon in favOr of three of his children. As a result of the donation, a new
TCT was issued in favor of the donees who occupied the land from 1983 to 1991. When the other
children knew about the new leT, they immediately demanded their respective shares over the land but to
no avail. They filed a complaint for reconveyance and partition with damages alleging that the affidavit of
adjudication and the deed of donation inter vivos executed by their father were fraudulent as the three
children who benefited as donees took advantage of the advanced age of their father. The donees
contended that the action has prescribed. The trial court decided against the donees but the Court of
Appeals reversed the decision.
ISSUE: Whether or not the petition for reconveyance and partition has prescribed.
HELD: The action has not yet prescribed. When Rafael Sr. misrepresented in the affidavit of adjudication
that he was the only heir of his wife when in fact all their children were alive and managed to secure a
new TCT in his name, a constructive trust under Article 1456 of the New Civil Code was established in
favor of the children. Perforce, an action based on an implied or constructive trust prescribes in ten (10)
years from the issuance of the Torrens title over the property. Therefore, the prescriptive period shall start
to run in 1982 when a new TCT was issued in the name of Rafael Sr. Thus, considering that the action for
reconveyance was filed in 1991 or nine years later, presription has not yet barred the action. [Marquez vs.
Court of Appeals, G.R. No. 125715, December29, 1998; Romemo J. ]
ADOPTION; The written consent of the natural parent is indispensable for the validity of
the decree of adoption except when the parent has abandoned the child or that such parent
is insane or hopelessly intemperate.
FACTS: Herbert and Anna Marie Gang were husband and wife who have three children. Later, the
spouses were legally separated and the court awarded the custody of the children to Anna Marie. Herbert,
on the other hand, went to the United States and got naturalized as an American citizen but continuously
supported his children as required by the court.
Later on, Anna Marie entrusted the custody of the children to her childless brother and sister-in-law. The
latter filed a special proceedings for the adoption of the children. Only Anna Marie’s consent was
attached to the petition without including Herbert’s consent. She submits that his consent is not necessary
because the latter has abandoned the children. Upon learning such fact, Herbert immediately sent a
telegram manifesting his opposition to the adoption proceedings. Notwithstanding the opposition, the
lower court issued the decree of adoption in favor of Anna Marie’s brother. Herbert appealed contending
that the decree of adoption is invalid because of the lack of his written consent which is required by the
Family Code. He further argues that he had not abandoned his children by presenting as evidence the
letters of the children to him showing their love and affection and the certification of US banks showing
that even prior to the petition for adoption, he had deposited amounts for the benefit of the children. The
Court of Appeals affirmed the lower court’s decision.
ISSUE: Whether or not the decree of adoption is valid.
HELD: The decree of adoption is not valid. The written consent of the natural parent is indispensable for
the validity of the decree of adoption. Nevertheless, the requirement of written consent can be dispensed
with if the parent has abandoned the child or that such parent is insane or hopelessly intemperate. Physical
estrangement alone, without financial and moral desertion, is not tantamount to abandonment. In the
instant case, the pieces of evidence show that there was no financial and moral desertion and Herbert’s
written consent is necessary in order for the decree of adoption to be valid. [Herbert Cang vs CA, G.R.
No. 105308, September25, 1998; Romero, J.]
LAND TITLES AND DEEDS; Every person dealing on registered lands may safely rely on
the certificate of title of the vendor/transferor, and is not required to go beyond the
certificate and inquire into the circumstances culminating in the vendor’s acquisition of the
property.
FACTS: Spouses Tan bought a parcel of land from Santos. The land is covered by a Torrens title showing
that it was originally acquired from Severa Gregorio: After Severa’s death, one of her heirs tried to sell
the land notwithstanding the fact that pertinent documents from the Registry of Deeds showed previous
sale of 2/3 portion of the lot in favor of Santos, and the latter in favor of spouses Tan. The conveyance is
evidenced by deed of absolute sale.
Severa’s heirs filed a complaint against spouses Tan for cancellation of title and/or reconveyance with
damages alleging that the deed of conveyance by Severa in favor of Santos was a forgery and that the
subsequent sale by the latter of the property was void.
ISSUE: Whether or not the purchase of the land by spouses Tan was valid despite a claim of forgery in
the deed of sale.
HELD: Every person dealing with registered lands may Safely rely on the correctness of the certificate of
title of the vendor, and he is not required to go beyond the certificate and inquire into the circumstances
culminating in the vendor’s acquisition of the property. When the spouses Tan purchased the subject
property from Santos, the title was clean andfree from any lien and encumbrance. Consequently, they are
purchasers ri good faith for they bought the property without notice that some persons have a right or
interest over such property and paid the full price at the time of the purchase or before they have notice of
a defect in the vendor’s title. [Heirs of Severa Gregorio vs. Court of Appeals, G. R. No. 117609,
December 19, 1998; Purisima, J.]
MARRIAGE; The divorce obtained by Filipino citIz.u~s after the effectivity of the Civil
Code is not recognized in the Philippines as it is contrary to State policy.
FACTS: Spouses Herbert and Anna Marie Gang were FilipinQ citizens. After the petition for legal
separation was granted, He~bert~Wep~t0 the United States where he sought a divorce from Anna Marie
bef?re~he court of the State of Nevada. Said court issued the divorce decre, He then took an American
wife and thus became naturalized American citizen. Thereafter, he divorced his American wife and never
remarried. In a special proceedings for the adoption of their children, only Anna Marie’s consent was
attached to the petition. She submits that Herbert’s consent is not necessary because the latter has long
forfeited his parental rights over the children on ground, among others, that he divorced her.
ISSUE: Whether or not the divorce decree granted by the Nevada court is valid.
HELD: The divorce decree granted to Herbert is not valid. The divorce obtained by Filipino citizens after
the effectivity of the Civil Code is not • recognized in the Philippines as it is contrary to State policy.
While Herbert is now an American citizen, as regards Anna Marie who has apparently remained a
Filipino citizen, the divorce has no legal effect. [Herbert Cang vs. CA, G.R. No. 105308, September25,
1998; Romero, J.]
DONATION; In a conditional donation with an automatic reversion clause, the donor has
an inchoate interest in the donated property prior to the fulfillment by the donee of the
condition and such inchoate interest may be sold by the donor.
FACTS: Trinidad Gorvera together with her sisters Leonila and Paz and brother Epapiadito executed a
Conditional Deed of Donation over a IWOhectare land in favor of Municipality of Talacogon, subject to
the condition that the land shall be used solely and exclusively as part of the campus of proposed school
in Talacogon. The deed of donation provides for the automatic reversion of the property to the donor in
casethe condition was not complied with. Trinidad remained in possession of the land despite the
donation. In 1962, she sold one hectare of the said land to Regalado Mondejar. Subsequently, she verbally
sold the remaining land again to Mondejar without a deed of sale and evidenced solely by receipts of
payment. In 1980, the heirs of Trinidad filed a complaint for forcible entry against Mondejar, but was
dismissed. In 1987, the Sangguniang Bayan of Talacogon enacted a resolution reverting the ownership
over the two-hectare land back to the donor as the condition was not fulfilled. In the meantime, Mondejar
sold portions of land to four vendees. In 1988, the heirs of Trinidad filed a complaint against the four
vendees contending that the sale between Trinidad and Mondejar is invalid because of the donation and
therefore the subsequent sales made are null and void.
ISSUE: Whetheror not the sale made by Trinidad to Mondejar was valid.
HELD: The sale was valid. The donation made is subject to a resolutory condition. When the
Sangguniang Bayan enacted the resolution that it cannot comply with the condition of building a school
and the same was made known to the donor, the ownership of the donated property reverted to Trinidad
as provided in the automatic reversion clause in the deed of donation. Prior to such reversion of
ownership, the donor may have an inchoate interest in the donated property during the time that
ownership of the land has not reverted to her by virtue of the automatic reversion clause. Such inchoate
interest may be the subject of contract including the contract of sale. [Quiqada vs. Court of Appeals, G.R.
No. 126444, December 4, 1998; Martinez, J. ]
RESCISSION; In the absence of an express stipulation authorizing the sellers to
extrajudlcally rescind the contract of sale, the latter cannot unilaterally and extrajudicially
rescind the contract of sale.
FACTS: Spouses Co entered into a verbal contract with Custodio covering the sale of the Beata property
in favor of the latter for $100,000 payable in two installments. Although the period of payment had
already expired, Custodio paid the Cos the sum of $30,000 as partial payment of the purchase price. After
a demand to pay the balance of $70,000 Custodio failed to complete payments. Thus, the Cos informed
her that the optton to purchase the Beata property was lost. They offered to sell her another property and
the previous payments already made will be applied to the payment of the second property if Custodio
would purchase the same within thirty (30) days. Otherwise, they would forfeit the $30,000. The latter
manifested that she was willing to pay the balance of the price of the Beata property and not the second
property. In view thereof, the Cos rescinded the contract.
Custodio filed a complaint for rescission of the contract and prayed for the refund of the $30,000. The
trial court ruled in her favor and ordered the Cos to refund fhe amount of $30,000 in Custodio’s favor but
the earnest money of $1,000 and P40,000 was forfeited in Co’s favor. The Court of Appeals affirmed the
decision. The Cos argued that the rescission was proper and the $30,000 should be forfeited in their favor
because Custodio lost her option to pay the balance of the purchase price.
ISSUE: Whether or not the refund of $30,000 is proper.
HELD: The refund of the $30,000 is proper. The Cos are of the mistaken belief that Custodio had lost
heroption overthe Beata propertyforherfailure to pay the balance of $70,000. In the absence of an express
stipulation authorizing the sellers to extrajudically rescind the contract of sale, the Cos cannot unilaterally
and extrajudicially rescind the contract of sale. Accordingly, Custodio acted well within her rights when
she attempted to complete the sum owed ($100,000) as the contract was still subsisting. The condition
contained in the letter that the property would be forfeited is not binding. The condition was unilaterally
imposed by the Cos and was agreed to by Custodio and cannot be considered as part of the contract of
sale for lack of Custodio’s consent. [Spouses Co vs CA, G.R. No. 112330, August 17, 1999;
Gonzaga-Reyes, J.]
COMPENSATION; In order for compensation to take place, two persons must be
mutually debtors and creditors of each other.
FACTS: Unisphere International Inc. is an occupant of a unit in a condominium owned by EGV Realty.
On two occasions, said unit was robbed resulting to a total loss of P 12,295.00. It demanded
compensation and reimbursement from EGV Realty for the losses incurred as a result of the robbery.
When the latter any liability, Unisphere withheld payment of its monthly dues. EGV Realty sued for the
collection of unpaid monthly dues in the amount of P 13,142.67. In its answer, Unisphere alleged that it
could not be deemed in default in the payment of said unpaid dues because its tardiness was occasioned
by petitioner’s failure to provide security for the building premises in order to prevent robberies. It
asserted as counterclaim that the amount of P 12, 295.00 representing the total value of its loss due to the
two robberies be awarded to it by way of damages.
The SEC ruled that EGV Realty was not liable for the value of the items burglarized from the
respondents’ unit. On appeal, the Court of Appeals reversed the decision finding petitioner liable for the
value of lost items. It ordered Unisphere to pay the amount of P847.67, representing the balance after
offsetting the amount of P 12,295.00 against the said P13,142.67. EGV Realty questions the propriety of
the offsetting of claims.
ISSUE: Whether or not set-off or compensation is proper.
HELD: Set-off or compensation is not proper. Compensation takes place when two persons, in their own
right are creditors and debtors of each other. For compensation to take place, a distinction must be made
between a debt and a mere claim. A debt is a claim which has been formally passed upon by the highest
authority to which it can in law be submitted and has been declared to be a debt. A claim, on the other
hand, is a debt in embryo. It is mere evidence of a debt and must pass thru the process prescribed by the
law before it develops into what is properly called debt.
While respondent Unisphere does not deny any liability for its unpaid dues to petitioner, the latter does
not admit any responsibility for the loss suffered by the former occasioned by the burglary. At best, what
respondent Unisphere has against the petitioner is just a claim, not a debt. Such being the case, it is not
enforceable in court. It is only the debts that are enforceable in court, there being no apparent defenses
inherent in them. Respondent Unispheres claim for its loss has not been passed upon by any legal
authority so as to elevate it to the level of a debt hence it cannot be deemed as a creditor of the petitioner.
[E.G.V. Realty vs. Court of Appeals, G.R. NO. 120236, July20, 1999; Kapunan, J.]
NOVATION; Novation has four essential requisites, to wit: (1) the existence of a previous
valid obligation; (2) the agreement of all parties to the new contract; (3) the extinguishment
of the old contract; and (4) the validity of the new one.
FACTS: Petitioner spouses purchased a house and lot. To finance the same, they obtained a loan from
Apex Mortgage and Loan Corp. (Apex) and issued a promissory note in favor of the latter. Interest rate at
12% was stipulated in the note. Also, an escalation clause was contained in the note authorizing Apexto
increase the rate of interest in the event that any law should be enacted increasing the lawful rate of
interest.
Petitioner spouses failed to pay several installments. Another promissory note was executed by them, now
on the increased interest rate at 21% per annum. Again, the spouses failed to pay the same. Thus, Apex
brought an action against the spouses. The trial court ruled in favor of Apex and ordered the spouses to
pay Apex the amount of the note plus interest at 12%. Both parties appealed. The CA modified the
decision of the trial court and ordered the spouses to pay the note at 21% interest.
Petitioner spouses filed a petition for review on the contention that the 21% interest cannot be enforced.
They claim that the interest rate of 12% per annum should be adjudged inasmuch as the two promissory
notes constitute one transaction. Allegedly, the first note defined the terms and conditions of the loan
while the second note is merely an extension of and derives its existence from the former. Hence, the
second note is governed by the stipulations in the first note.
ISSUE: Whether the collectible interest is at the rate of 12% under the first note or 21% under the second
note.
HELD: The collectible interest is 21% based on the second promissory note. The first promissory note
was cancelled and replaced by the second. This second note became the new contract governing the
parties’ obligation. In effect, there is novation. All the elements of novation are present, to wit: (1) the
existence of a previous valid obligation; (2) the agreement of all parties to the new contract; (3) the
extinguishment of the old contract; (4) the validity of the new one. In the instant case, the first note was
valid and subsisting when the spouses executed the second note. Both parties voluntarily accepted the
terms of the second note as to the interest rate and they unequivocally stipulated to extinguish the first
note as shown by the fact that the second note states this cancels PN # A-387-78 (referring to the first
note) dated Dec.22,1978” and the word “cancelled” is boldly stamped on the face of the first note. [Sps.
Florante and L.aarni Bautista vs. Pilar Devt. Corp., August 17,1999, G.R. No. 135046; Puno, J.]