Civil Law 2 Reviewer.pdf

Civil Law Review 2 • 2013 - 2014

CIVIL LAW REVIEW 2 Obligations & Contracts • Sales • Lease • Partnership •Agency Credit Transactions • Torts & Damages

Atty. VIVIANA MARTIN – PAGUIRIGAN

ARAFAG • HABANA • JALAYAJAY

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*WARNING & DISCLAIMER: This compilation contains case digests for Civil Law Review 2. Some of the

contents are personal digests of the authors and some are gathered through research. Contents may not be accurate, hence, reading the cases in full text is highly recommended. This is for personal use only and no copyright infringement intended. LIST OF CASES SY 2013 – 2014 OBLIGATIONS & CONTRACTS ARTICLES 1156- 1246 1. Macasaet vs. COA……………………………………………………………………………………173 SCRA 352 2. Phil. Export vs. Eusebio Const.et al………………………………………………………….July 13, 2004 3. Tanguilig vs. CA……………………………………………………………………………………….266 SCRA 78 4. Comapnia General vs. Araza……………………………………………………………………7 Phil. 455 5. Veloso vs. Fontanosa……………………………………………………………………………….13 Phil. 79 6. Bayla vs. Silang transit………………………………………………………………………………73 Phil. 557 7. Lee vs. De Guzman…………………………………………………………………………………..187 SCRA 277 8. Barzaga vs. CA…………………………………………………………………………………………..268 SCRA 105 9. NPC vs. CA………………………………………………………………………………………..………161 SCRA 334 10. Picart vs. Smith…………………………………………………………………………………………37 Phil 813 11. Consolidated Bank vs. CA and Diaz………………………………………………………….. Sept. 11, 2003 12. Schmidtz transport vs. transport Venture………………………………………………..April 22, 2005 13. Real vs. Belo…………………………………………………………………………………………….Jan. 26, 2007 14. Phil. Communications vs. Globe Telecom………………………………………………..May 25, 2004 15. SBTC vs. CA………………………………………………………………………………………………249 SCRA 206 16. Mactan Cebu Int’l Airport vs. Tudtud………………………………………………………. Nov. 14, 2008 17. Song Fo vs. Hawaiin Phil. Co……………………………………………………………………..47 Phil 821 18. Cortez vs. CA…………………………………………………………………………………………….July 12, 2006 19. Gil vs. CA and Heirs of Matulac………………………………………………………………… Sept. 12, 2003 20. Spouses Rayos vs. CA and Miranda…………………………………………………………..July 14, 2004 21. Cordero vs. F.S. Management Dev’t………………………………………………………….Oct. 31, 2006 22. Calero vs. Carion……………………………………………………………………………………….107 Phil. 549 23. TRB vs. CA………………………………………………………………………………………………….177 SCRA 788 24. Phil. Blooming Mills vs. CA and TRB……………………………………………………………Oct. 15, 2003 25. Country Bankers vs. CA…………………………………………………………………………….. 201 SCRA 458 26. Com. Credit vs. CA……………………………………………………………………………………..169 SCRA 1 27. Pryce Corp. vs. Pagcor……………………………………………………………………………….May 6, 2005 28. Asiatrust Dev’t Bank vs. Concepts Trading………………………………………………….June 20, 2003 29. Jison vs. CA…………………………………………………………………………………………………164 SCRA 339 30. Lo vs. KJS Eco-Formwork…………………………………………………………………………….Oct. 8, 2003 31. PNB vs. Pineda…………………………………………………………………………………………….197 SCRA 1 32. PCIBank vs. CA…………………………………………………………………………………………….Jan. 31, 2006 33. Culaba vs. CA and san Miguel Corp……………………………………………………………..April 15, 2004 (SEE: Republic Act No. 8183 – repealed Republic Act No. 529 which prohibits payment of money obligations ARAFAG • HABANA • JALAYAJAY

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in currency other than Philippine currency.)

ARTICLES 1247 – 1337 Towne & City Dev’t vs. CA and Voluntad…………………………………………………………July 14, 2004 Coronel vs. Capati…………………………………………………………………………………………..May 26, 2005 People’s Industrial Com. Corp. vs. CA……………………………………………………………..281 SCRA 207 EGMPI vs. CA………………………………………………………………………………………..………..282 SCRA 553 Naga Telephone Co vs. CA………………………………………………………………………………230 SCRA 351 Trans. Pacific Ind. Vs. CA…………………………………………………………………………………235 SCRA 494 Silahis vs. IAC………………………………………………………………………………………………….180 SCRA 21 Francia vs. CA………………………………………………………………………………………………….162 SCRA 753 BPI vs. CA (1279)……………………………………………………………………………………………..June 8, 2006 Citibank vs. Sabeniano…………………………………………………………………………………….Feb. 12, 2007 People’s Bank vs. Syvels………………………………………………………………………………….164 SCRA 247 Young vs. CA……………………………………………………………………………………………………196 SCRA 247 PSBank vs. Spouses Manalac (1292)………………………………………………………………...April 26, 2005 Astro Electronics vs. Phil. Export (1302)…………………………………………………………...Sept. 23, 2003 Carmelcraft vs. NLRC………………………………………………………………………………………..186 SCRA 393 Acol vs. PCIBank (1306)…………………………………………………………………………………….July 25, 2006 Tiu vs. Platinum Plans……………………………………………………………………………………….Feb. 28, 2007 Avon vs. Luna……………………………………………………………………………………………………Dec. 20, 2006 Piltel vs. Tecson………………………………………………………………………………………………..May 7, 2004 PNB vs. Padilla (1308)……………………………………………………………………………………….196 SCRA 537 DKC Holdings vs. CA (1311)………………………………………………………………………………329 SCRA 666 Tanay Recreation vs. Fausto (1311)………………………………………………………………….April 12, 2005 Llenado vs. Llenado………………………………………………………………………………………….March 4, 2009 Gilchrist vs. Cuddy (1314)…………………………………………………………………………………29 Phil. 542 Montecillo vs. Reynes (1317)……………………………………………………………………………July 26, 2002 Francisco vs. Herrera (1318)…………………………………………………………………………….Nov. 21, 2002 Coronel vs. Constantino (1317)………………………………………………………………………..Feb. 7, 2003 Laudicio vs. Arias (1319)…………………………………………………………………………………..43 Phil. 270 Villanueva vs. CA (1319)…………………………………………………………………………………..244 SCRA 395 Adelfa vs. CA (1324)…………………………………………………………………………………………240 SCRA 565 Serra vs. CA………………………………………………………………………………………………………229 SCRA 61 Malbarosa vs. CA (1324)…………………………………………………………………………………..April 30, 2003 Vda. De Ape vs. CA (1332)………………………………………………………………………………..April 15, 2005 Mayor vs. Belen……………………………………………………………………………………………….June 3, 2004

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ARTICLES 1338 – 1428 Bautista vs. CA………………………………………………………………………………………………..Aug. 11, 2004 Dauden Hernaez vs. Delos Angeles…………………………………………………………………27 SCRA 1276 Claudel vs. CA…………………………………………………………………………………………………199 SCRA 113 Berman Memorial vs. Cheng…………………………………………………………………………..May 6, 2005 Guzman Bocaling vs. Bonnevie……………………………………………………………………….206 SCRA 668 Equatorial Realty vs. Mayfair Theater……………………………………………………………..264 SCRA 483 Rivera vs. Del Rosario (1381)…………………………………………………………………………..Jan. 15, 2004 Tanay Recreation vs. Fausto……………………………………………………………………………April 12, 2005 Republic vs. David (1385)………………………………………………………………………………..Aug. 16, 2004 Air France vs. CA (separate action)………………………………………………………………….245 SCRA 485 China Banking vs. CA (1387)…………………………………………………………………………….327 SCRA 378 Cadwallader vs. Smith Bell Trading………………………………………………………………….7 Phil. 461 Vda. De Buncio vs. Estate of de Leon……………………………………………………………….156 SCRA 353 Asia Productions vs. Pano………………………………………………………………………………..205 SCRA Averia vs. Averia (1403)……………………………………………………………………………………Aug. 13, 2004 Clemeno vs. Lobregat (1403)……………………………………………………………………………Sept. 9, 2004 Firme vs. Bukal Enterprises………………………………………………………………………………Oct. 23, 2003 Sumipat vs. Banga et al (1409)…………………………………………………………………………Aug. 13, 2004 Hulst vs. PR Builders………………………………………………………………………………………...Sept. 3, 2007 Hulst vs. PR Builders…………………………………………………………………………………………Sept. 25, 2008 Gochan vs. Heirs of Baba………………………………………………………………………………….Aug. 19, 2003 Fornilda vs. RTC………………………………………………………………………………………………..169 SCRA 351 Suntay vs. CA…………………………………………………………………………………………………….251 SCRA 430 Teja Marketing vs. CA………………………………………………………………………………………..148 SCRA 347 DBP vs. Adil………………………………………………………………………………………………………..161 SCRA 307 ARTICLES 1429 – 1519 Roblett vs. CA…………………………………………………………………………………………………….266 SCRA 71 Bucton vs. Gabar………………………………………………………………………………………………..55 SCRA 499 Olaco vs. CA……………………………………………………………………………………………………….220 SCRA 656 Chiao Sing Tan vs. CA…………………………………………………………………………………………228 SCRA 75 Gicano vs. Gegato………………………………………………………………………………………………157 SCRA 141 Cruz vs. Fernando……………………………………………………………………………………………….Dec. 9, 2005 Pingol vs. CA……………………………………………………………………………………………………….226 SCRA 118 Portugal vs. CA……………………………………………………………………………………………………159 SCRA 179 Sanchez vs. Rigos (1479)…………………………………………………………………………………….45 SCRA 368 Eulogio vs. Apeles………………………………………………………………………………………………Sept. 20, 2009 Rosario vs. PCI (1484)…………………………………………………………………………………………Nov. 11, 2005 Pagtalunan vs. Vda. De Manzano ………………………………………………………………………Sept. 13, 2007 ARAFAG • HABANA • JALAYAJAY

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Fornilda vs. RTC (1491)………………………………………………………………………………………Jan. 24, 1989 Olaguer vs. Locsin (1491)…………………………………………………………………………………..Feb. 12, 2007 Norkis vs. CA (1496)…………………………………………………………………………………………..193 SCRA 694 Gaisano vs. ICNA (1504)…………………………………………………………………………………….June 8, 2006 Lawyers Publishing vs. Tabora (1504)………………………………………………………………..13 SCRA 694 Duran vs. IAC…………………………………………………………………………………………………….138 SCRA 489 Aznar vs. Yapdango……………………………………………………………………………………………13 SCRA 486

ARICLES 1520 – 1610 Radiowealth vs. Palileo (1544)……………………………………………………………………………197 SCRA 245 Nuguid vs. CA……………………………………………………………………………………………………..171 SCRA 213 Torrecampo vs. Alindogan (1544)……………………………………………………………………….Feb. 28, 2007 Gurrea vs. Suplico……………………………………………………………………………………………….April 26, 2006 Moles vs. IAC………………………………………………………………………………………………………169 SCRA 777 Villostas vs. CA…………………………………………………………………………………………………….210 SCRA 491 Spouses Uy vs. Arriza (1548,58,59)……………………………………………………………………..Aug. 17, 2006 De Guzman vs. Toyota (1566)……………………………………………………………………………..Nov. 29, 2006 Goodyear vs. Sy (1566)……………………………………………………………………………………….Nov. 9, 2005 Villarica vs. CA (1601)…………………………………………………………………………………………26 SCRA 189 Leal vs. CA………………………………………………………………………………………………………….155 SCRA 395 Buce vs. CA…………………………………………………………………………………………………………157 SCRA 330 Santos vs. CA………………………………………………………………………………………………………179 SCRA 363 Adorable vs. Inacala……………………………………………………………………………………………103 Phil 481 Bandong vs. Austria…………………………………………………………………………………………….31 Phil. 470 Bayquen vs. boloro……………………………………………………………………………………………..143 SCRA 412 Uy vs. CA…………………………………………………………………………………………………………….246 SCRA 703 Verdad vs. CA……………………………………………………………………………………………………..256 SCRA 593

LEASE BPI vs. Domingo………………………………………………………………………………………………….Nov. 27, 2006 Nakpil vs. NTDC (1654)……………………………………………………………………………………….Sept. 26, 2006 Parilla vs. Pilar (1678)………………………………………………………………………………………….Nov. 30, 2006 Go King vs. Geronimo………………………………………………………………………………………….81 Phil. 445 CMS Investment vs. IAC………………………………………………………………………………………139 SCRA 75 Fermin vs. CA……………………………………………………………………………………………………...196 SCRA 725 Mantruste vs. CA (1678)………………………………………………………………………………………179 SCRA 137 Roman Catholic vs. CA…………………………………………………………………………………………269 SCRA 147 ARAFAG • HABANA • JALAYAJAY

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PARTNERSHIP Agad vs. mabato…………………………………………………………………………………………………23 SCRA 1223 Obillos vs. CIR (1769)………………………………………………………………………………………….139 SCRA 436 Pascual vs. CIR…………………………………………………………………………………………………….166 SCRA 560 Litonjua vs. Litonjua (1771-73)……………………………………………………………………………Dec. 13, 2005 Ortega vs. CA (1804)…………………………………………………………………………………………...245 SCRA 529 Delos Reyes vs. Lukban (1816)…………………………………………………………………………….35 Phil 757 Munasque vs. CA…………………………………………………………………………………………………139 SCRA 533 AGENCY Doles vs. Angeles (1868)……………………………………………………………………………………...June 26, 2006 Rallos vs. Yangco………………………………………………………………………………………………….20 Phil. 269 Gozun vs. Mercado (1873)……………………………………………………………………………………Dec. 19, 2006 Angeles vs. PNR……………………………………………………………………………………………………Aug. 31, 2006 Siasat vs. IAC………………………………………………………………………………………………………..139 SCRA 238 Vetoso vs. CA (1876)……………………………………………………………………………………………260 SCRA 593 Cuison vs. CA (1883)…………………………………………………………………………………………….227 SCRA 391 Rural Bank of Bonbon vs. CA (1883)…………………………………………………………………….212 SCRA 25 DBP vs. CA (1898)………………………………………………………………………………………………..231 SCRA 370 Green Valley vs. IAC (1905)………………………………………………………………………………….133 SCRA 697 Sevilla vs. CA )1927)……………………………………………………………………………………………..160 SCRA 171 Valenzuela vs. CA…………………………………………………………………………………………………191 SCRA 1

CREDIT TRANSACTIONS LOAN Estern Shipping Lines vs. CA……………………………………………………………………………….234 SCRA 78 Florendo vs. CA…………………………………………………………………………………………………..265 SCRA 678 PNB vs. CA………………………………………………………………………………………………………….238 SCRA 20 Siga-an vs. Villanueva…………………………………………………………………………………………Jan. 20, 2009 Alcaraz vs. Equitable………………………………………………………………………………………….July 28, 2006

DEPOSIT Gullas vs. PNB………………………………………………………………………………………………….…62 Phil. 519 ARAFAG • HABANA • JALAYAJAY

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Guingona vs. City Fiscal………………………………………………………………………………………128 SCRA 577 Reyes vs. BPI……………………………………………………………………………………………………….254 SCRA Central Bank vs. Citytrust……………………………………………………………………………………Feb. 4, 2009 GUARANTY Traders Insurance vs. Dy Eng Giok………………………………………………………………………104 Phil 806 Spouses Toh vs. Solidbank…………………………………………………………………………………..Aug. 7, 2003 Totanes vs. Chinabank…………………………………………………………………………………………Jan. 19, 2009 PLEDGE AND MORTGAGE Dizon vs. Suntay………………………………………………………………………………………………….47 SCRA 160 Uy Tong vs. CA…………………………………………………………………………………………………….161 SCRA 383 Acme Shoe Rubber vs. CA……………………………………………………………………………………260 SCRA 714 Roxas vs. CA………………………………………………………………………………………………………..221 SCRA 729 Cerna vs. CA………………………………………………………………………………………………………..220 SCRA 517 Northern Motors vs. Coquia………………………………………………………………………………..66 SCRA 374 Northern Motors vs. Coquia………………………………………………………………………………..68 SCRA 414 Makati Leasing vs. Wearever Textile……………………………………………………………………122 SCRA 296 Associated Insurance vs. Iya……………………………………………………………………………..…103 Phil. 972

CONCURRENCE AND PREFERENCE OF CREDITS Republic vs. Peralta…………………………………………………………………………………………….150 SCRA 37 DBP vs. NLRC………………………………………………………………………………………………………236 SCRA 117

TORTS AND DAMAGES Pci Leasing vs. UCPB (1276)…………………………………………………………………………………July 4, 2008 Cadiente vs. Macas (2179)…………………………………………………………………………………..Nov. 14, 2008 Capili vs. Cardana………………………………………………………………………………………………..Nov. 2, 2006 Professional Services Inc. vs. Agana…………………………………………………………………….Jan. 31, 2007 Glan People’s Lumber vs. IAC………………………………………………………………………………173 SCRA 465 Africa vs. Caltex……………………………………………………………………………………………………16 SCRA 448 Dulay vs. CA………………………………………………………………………………………………………….243 SCRA 220 Custodio vs. Ca……………………………………………………………………………………………………..253 SCRA 283 Libi vs. IAC…………………………………………………………………………………………………………….214 SCRA 16 Coca Cola vs. CA……………………………………………………………………………………………………227 SCRA 293 City of Manila vs. Teotico……………………………………………………………………………………..22 SCRA 267 Guilatco vs. City of Dagupan…………………………………………………………………………………171 SCRA 383 ARAFAG • HABANA • JALAYAJAY

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Gotesco vs. Chatto………………………………………………………………………………………………..210 SCRA 19 MMTC vs. CA…………………………………………………………………………………………………………298 SCRA 495 Geluz vs. CA…………………………………………………………………………………………………………..July 20, 1961 Flores vs. Pineda (2206)………………………………………………………………………………………..Nov. 14, 2008 Villanueva vs. UCPB………………………………………………………………………………………………327 SCRA 391 Inhelder vs. CA……………………………………………………………………………………………………..122 SCRA 577 Tan vs. CA……………………………………………………………………………………………………………..239 SCRA 311 Geraldez vs. CA……………………………………………………………………………………………………..230 SCRA 321 People vs. Prades………………………………………………………………………………………………….239 SCRA 411 RCPI vs. CA……………………………………………………………………………………………………………195 SCRA 147 Vda. De Medina vs. Crescencia……………………………………………………………………………..99 Phil. 507

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ISSUE: OBLIGATIONS & CONTRACTS

FLAVIO K MACASAET & ASSOCIATES, INC. Vs. COA and PHILIPPINE TOURISM AUTHORITY G.R. No. 83748 May 12, 1989 FACTS: On 15 September 1977 respondent Philippine Tourism Authority (PTA) entered into a Contract for "Project Design and Management Services for the development of the proposed Zamboanga Golf and Country Club” in Zamboanga City with petitioner company, but originally with Flavio K Macasaet alone. Under Article IV of said Contract, petitioner was to be entitled to seven (7%) of the "actual construction cost." Pursuant to the foregoing Schedule, the PTA made periodic payments of the stipulated professional fees to petitioner. And, upon completion of the project, PTA paid petitioners what it perceived to be the balance of the latter's professional fees. It turned out, however, that after the project was completed, PTA paid Supra Construction Company, the main contractor, the additional sum of P3,148,198.26 representing the escalation cost of the contract price due to the increase in the price of construction materials. Upon learning of the price escalation, petitioner requested payment of P219,302.47 additional professional fee representing seven (7%) percent of P3,148,198.26. On 3 July 1985 PTA denied payment on the ground that "the subject price escalation referred to increased cost of construction materials and did not entail additional work on the part of petitioner as to entitle it to additional compensation under Article VI of the contract."

ARAFAG • HABANA • JALAYAJAY

Whether or not the price escalation should be included in the "final actual project cost."

HELD: That an escalation clause was not specifically provided for in the Contract is of no moment either for it may be considered as already "built-in" and understood from the very terms "actual construction cost," and eventually "final actual project cost." Article VI of the Contract, has no bearing on the present controversy either. It speaks of any major change in the planning and engineering aspects necessitating the award and payment of additional compensation. Admittedly, there was no additional work by petitioner, which required additional compensation. Rather, petitioner's claim is for payment of the balance of its professional fees based on the "final actual project cost" and not for additional compensation based on Article VI. The terminologies in the contract being clear, leaving no doubt as to the intention of the contracting parties, their literal meaning control (Article 1370, Civil Code). The price escalation cost must be deemed included in the final actual project cost and petitioner held entitled to the payment of its additional professional fees. Obligations arising from contract have the force of law between the contracting parties and should be complied with in good faith (Article 11 59, Civil Code).

FALLO: The ruling of respondent Commission on Audit is hereby SET ASIDE and respondent Philippines Tourism Authority is hereby ordered to pay petitioner the additional amount of P219,302.47 to complete the payment of its professional fee under their Contract for Project Design and Management Services. Page 9

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DOCTRINE: The contract is the law between contracting parties. PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION Vs. V.P. EUSEBIO CONSTRUCTION, INC. G.R. No. 140047 July 13, 2004 FACTS: On 11 June 1981, SOB and the joint venture VPECI and Ajyal executed the service contract for the construction of the Institute of Physical Therapy – Medical Rehabilitation Center, Phase II, in Baghdad, Iraq, wherein the joint venture contractor undertook to complete the Project within a period of 547 days or 18 months. Under the Contract, the Joint Venture would supply manpower and materials, and SOB would refund to the former 25% of the project cost in Iraqi Dinar and the 75% in US dollars at the exchange rate of 1 Dinar to 3.37777 US Dollars. The construction, which was supposed to start on 2 June 1981, commenced only on the last week of August 1981. Because of this delay and the slow progress of the construction work due to some setbacks and difficulties, the Project was not completed on 15 November 1982 as scheduled. But in October 1982, upon foreseeing the impossibility of meeting the deadline and upon the request of Al Ahli Bank, the joint venture contractor worked for the renewal or extension of the Performance Bond and Advance Payment Guarantee. The surety bond was also extended for another period of one year, from 12 May 1982 to 12 May 1983.18 The Performance Bond was further extended twelve times up to 8 December 1986, while the Advance Payment Guarantee was extended three times more up to 24 May 1984 when the latter was cancelled after full refund or reimbursement by the joint venture contractor. The surety bond was likewise extended to 8 May 1987. ARAFAG • HABANA • JALAYAJAY

As of March 1986, the status of the Project was 51% accomplished, meaning the structures were already finished. The remaining 47% consisted in electro-mechanical works and the 2%, sanitary works, which both required importation of equipment and materials. On 26 October 1986, Al Ahli Bank of Kuwait sent a telex call to the petitioner demanding full payment of its performance bond counterguarantee. Upon receiving a copy of that telex message on 27 October 1986, respondent VPECI requested Iraq Trade and Economic Development Minister Mohammad Fadhi Hussein to recall the telex call on the performance guarantee for being a drastic action in contravention of its mutual agreement with the latter that (1) the imposition of penalty would be held in abeyance until the completion of the project; and (2) the time extension would be open, depending on the developments on the negotiations for a foreign loan to finance the completion of the project. It also wrote SOB protesting the call for lack of factual or legal basis, since the failure to complete the Project was due to (1) the Iraqi government's lack of foreign exchange with which to pay its (VPECI's) accomplishments and (2) SOB's noncompliance for the past several years with the provision in the contract that 75% of the billings would be paid in US dollars. Subsequently, or on 19 November 1986, respondent VPECI advised the petitioner not to pay yet Al Ahli Bank because efforts were being exerted for the amicable settlement of the Project. On 14 April 1987, the petitioner received another telex message from Al Ahli Bank stating that it had already paid to Rafidain Bank the sum of US$876,564 under its letter of guarantee, and demanding reimbursement by the petitioner of what it paid to the latter bank plus interest thereon and related expenses. On 6 November 1987, Philguarantee informed VPECI that it would remit US$876,564 to Al Ahli Bank, and reiterated the joint and solidary Page 10

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obligation of the respondents to reimburse the petitioner for the advances made on its counterguarantee. The petitioner thus paid the amount of US$876,564 to Al Ahli Bank of Kuwait on 21 January 1988. Then, on 6 May 1988, the petitioner paid to Al Ahli Bank of Kuwait US$59,129.83 representing interest and penalty charges demanded by the latter bank. On 19 June 1991, the petitioner sent to the respondents separate letters demanding full payment of the amount of P47,872,373.98 plus accruing interest, penalty charges, and 10% attorney's fees pursuant to their joint and solidary obligations under the deed of undertaking and surety bond. When the respondents failed to pay, the petitioner filed on 9 July 1991 a civil case for collection of a sum of money against the respondents before the RTC of Makati City. After due trial, the trial court ruled against Philguarantee and held that the latter had no valid cause of action against the respondents. It opined that at the time the call was made on the guarantee which was executed for a specific period, the guarantee had already lapsed or expired. There was no valid renewal or extension of the guarantee for failure of the petitioner to secure respondents' express consent thereto. The trial court also found that the joint venture contractor incurred no delay in the execution of the Project. Considering the Project owner's violations of the contract which rendered impossible the joint venture contractor's performance of its undertaking, no valid call on the guarantee could be made. Furthermore, the trial court held that no valid notice was first made by the Project owner SOB to the joint venture contractor before the call on the guarantee. Accordingly, it dismissed the complaint, as well as the counterclaims and crossclaim, and ordered the petitioner to pay attorney's fees of P100,000 to respondents VPECI and Eusebio Spouses and P100,000 to 3-Plex and the Santos Spouses, plus costs. ARAFAG • HABANA • JALAYAJAY

ISSUE/S: i. Whether the petitioner is entitled to reimbursement of what it paid to Al Ahli Bank of Kuwait based on the deed of undertaking and surety bond from the respondents. ii. Whether the respondent contractor has defaulted in its obligations that would justify resort to the guaranty.

HELD: I. NO. As found by both the Court of Appeals and the trial court, the delay or the noncompletion of the Project was caused by factors not imputable to the respondent contractor. It was rather due mainly to the persistent violations by SOB of the terms and conditions of the contract, particularly its failure to pay 75% of the accomplished work in US Dollars. Indeed, where one of the parties to a contract does not perform in a proper manner the prestation which he is bound to perform under the contract, he is not entitled to demand the performance of the other party. A party does not incur in delay if the other party fails to perform the obligation incumbent upon him. The petitioner, however, maintains that the payments by SOB of the monthly billings in purely Iraqi Dinars did not render impossible the performance of the Project by VPECI. Such posture is quite contrary to its previous representations. In his 26 March 1987 letter to the Office of the Middle Eastern and African Affairs (OMEAA), DFA, Manila, petitioner's Executive Vice-President Jesus M. Tañedo stated that while VPECI had taken every possible measure to complete the Project, the war situation in Iraq, particularly the lack of foreign exchange, was proving to be a great obstacle. i. In order that the debtor may be in default it is necessary that the following requisites be present: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance because it Page 11

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must appear that the tolerance or benevolence of the creditor must have ended. As stated earlier, SOB cannot yet demand complete performance from VPECI because it has not yet itself performed its obligation in a proper manner, particularly the payment of the 75% of the cost of the Project in US Dollars. The VPECI cannot yet be said to have incurred in delay. Even assuming that there was delay and that the delay was attributable to VPECI, still the effects of that delay ceased upon the renunciation by the creditor, SOB, which could be implied when the latter granted several extensions of time to the former. Besides, no demand has yet been made by SOB against the respondent contractor. Demand is generally necessary even if a period has been fixed in the obligation. And default generally begins from the moment the creditor demands judicially or extra-judicially the performance of the obligation. Without such demand, the effects of default will not arise. Moreover, the petitioner as a guarantor is entitled to the benefit of excussion, that is, it cannot be compelled to pay the creditor SOB unless the property of the debtor VPECI has been exhausted and all legal remedies against the said debtor have been resorted to by the creditor. It could also set up compensation as regards what the creditor SOB may owe the principal debtor VPECI.63 In this case, however, the petitioner has clearly waived these rights and remedies by making the payment of an obligation that was yet to be shown to be rightfully due the creditor and demandable of the principal debtor. It is clear that the payment made by the petitioner guarantor did not in any way benefit the principal debtor, given the project status and the conditions obtaining at the Project site at that time. Moreover, the respondent contractor was found to have valid defenses against SOB, which are fully supported by evidence and which have been meritoriously set up against the paying guarantor, the petitioner in this case. And even if ARAFAG • HABANA • JALAYAJAY

the deed of undertaking and the surety bond secured petitioner's guaranty, the petitioner is precluded from enforcing the same by reason of the petitioner's undue payment on the guaranty. Rights under the deed of undertaking and the surety bond do not arise because these contracts depend on the validity of the enforcement of the guaranty.

JACINTO TANGUILIG Vs.COURT OF APPEALS and VICENTE HERCE JR G.R. No. 117190. January 2, 1997 FACTS: In April 1987 petitioner Jacinto M. Tanguilig doing business proposed to respondent Vicente Herce Jr. to construct a windmill system for him. After some negotiations they agreed on the construction of the windmill for a consideration of P60,000.00 with a one-year guaranty from the date of completion and acceptance by respondent Herce Jr. of the project. Pursuant to the agreement respondent paid petitioner a down payment of P30,000.00 and an installment payment of P15,000.00, leaving a balance of P15,000.00. On 14 March 1988, due to the refusal and failure of respondent to pay the balance, petitioner filed a complaint to collect the amount. In his Answer before the trial court respondent denied the claim saying that he had already paid this amount to the San Pedro General Merchandising Inc. (SPGMI) which constructed the deep well to which the windmill system was to be connected. According to respondent, since the deep well formed part of the system the payment he tendered to SPGMI should be credited to his account by petitioner. Moreover, assuming that he owed petitioner a balance of P15,000.00, this should be offset by the defects in the windmill system which caused the structure to collapse after a strong wind hit their place. Petitioner denied that the construction of a deep well was included in the agreement to build the windmill system, for the contract price of Page 12

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P60,000.00 was solely for the windmill assembly and its installation, exclusive of other incidental materials needed for the project. He also disowned any obligation to repair or reconstruct the system and insisted that he delivered it in good and working condition to respondent who accepted the same without protest. Besides, its collapse was attributable to a typhoon, a force majeure, which relieved him of any liability. RTC held that the construction of the deep well was not part of the windmill project as evidenced clearly by the letter proposals submitted by petitioner to respondent. CA reversed the trial court. It ruled that the construction of the deep well was included in the agreement of the parties because the term "deep well" was mentioned in both proposals.

ISSUE/S: i. Whether the agreement to construct the windmill system included the installation of a deep well. ii. Whether petitioner is under obligation to reconstruct the windmill after it collapsed. HELD: I. The preponderance of evidence supports the finding of the trial court that the installation of a deep well was not included in the proposals of petitioner to construct a windmill system for respondent. Notably, nowhere in either proposal is the installation of a deep well mentioned, even remotely. Neither is there an itemization or description of the materials to be used in constructing the deep well. There is absolutely no mention in the two (2) documents that a deep well pump is a component of the proposed windmill system. The contract prices fixed in both proposals cover only the features specifically described therein and no other. While the words "deep well" and "deep well pump" are mentioned in both, these do not indicate that a deep well is part of the windmill system. They merely describe the type of deep well pump for which the proposed windmill ARAFAG • HABANA • JALAYAJAY

would be suitable. For if the real intent of petitioner was to include a deep well in the agreement to construct a windmill, he would have used instead the conjunctions "and" or "with." Since the terms of the instruments are clear and leave no doubt as to their meaning they should not be disturbed. Moreover, it is a cardinal rule in the interpretation of contracts that the intention of the parties shall be accorded primordial consideration and, in case of doubt, their contemporaneous and subsequent acts shall be principally considered. II. In a long line of cases this Court has consistently held that in order for a party to claim exemption from liability by reason of fortuitous event under Art. 1174 of the Civil Code the event should be the sole and proximate cause of the loss or destruction of the object of the contract. Four (4) requisites must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and, (d) the debtor must be free from any participation in or aggravation of the injury to the creditor. Petitioner failed to show that the collapse of the windmill was due solely to a fortuitous event. Interestingly, the evidence does not disclose that there was actually a typhoon on the day the windmill collapsed. Petitioner merely stated that there was a "strong wind." But a strong wind in this case cannot be fortuitous unforeseeable nor unavoidable. On the contrary, a strong wind should be present in places where windmills are constructed, otherwise the windmills will not turn. The appellate court correctly observed that "given the newly-constructed windmill system, the same would not have collapsed had there been no inherent defect in it which could only be attributable to the appellee." It emphasized that Page 13

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respondent had in his favor the presumption that "things have happened according to the ordinary course of nature and the ordinary habits of life." This presumption has not been rebutted by petitioner. Finally, petitioner's argument that private respondent was already in default in the payment of his outstanding balance of P15,000.00 and hence should bear his own loss, is untenable. 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. When the windmill failed to function properly it became incumbent upon petitioner to institute the proper repairs in accordance with the guaranty stated in the contract. Thus, respondent cannot be said to have incurred in delay; instead, it is petitioner who should bear the expenses for the reconstruction of the windmill. Article 1167 of the Civil Code is explicit on this point that if a person obliged to do something fails to do it, the same shall be executed at his cost.

until the entire 8,000 pesos was paid. The defendant paid 400 pesos and no more. The plaintiff brought this action in the court to foreclose a mortgage for 8,000 pesos upon certain land in the Province of Leyte. A demurrer to the complaint was overruled, but to the order overruling it the defendant did not except. The defendant answered, alleging that the document, the basis of the plaintiff’s claim, was executed through error on his part and through fraud on the part of the plaintiff. A trial was had and judgment was entered for the plaintiff as prayed for in its complaint. The defendant moved for a new trial on the ground that the decision was not justified by the evidence, this motion was denied, to its denial the defendant accepted, and he has brought the case to the SC for review.

ISSUE: Whether the debtor is to be considered to be in default.

FALLO: The appealed decision is MODIFIED. Respondent VICENTE HERCE JR. is directed to pay petitioner JACINTO M. TANGUILIG the balance of P15,000.00 with interest at the legal rate from the date of the filing of the complaint. In return, petitioner is ordered to "reconstruct subject defective windmill system, in accordance with the one-year guaranty" and to complete the same within three (3) months from the finality of this decision. LA COMPAÑIA GENERAL DE TABACOS DE FILIPINA Vs.VICENTE ARAZA G.R. No. 3019 FACTS: The contract sends upon was executed on the 11th day of June, 1901. By terms thereof the defendant promised to pay the plaintiff 8,000 pesos as follows: 500 pesos on the 30th of June, 1901, and the remainder at the rate of 100 pesos a month, payable on the 30th day of each month, ARAFAG • HABANA • JALAYAJAY

HELD: This suit was commenced on the 12th day of June, 1903. There was no provision in the contract by which, upon failure to pay one installment of the debt, the whole debt should thereupon become at once payable. We are of the opinion that the obligation can be enforced in this action for only the amount due and payable on the 12th day of June, 1903. The court below gave no credit for the payment of 400 pesos admitted by the complaint to have been received by the plaintiff. It is allowed interest upon the entire debt from the 1st day of July, 1901. The contract does not provide for the payment of any interest. There is no provision in it declaring expressly that the failure to pay when due should put the debtor in default. There was therefore no default which would make him liable for interest until a demand was made. (Civil Code, art. 1100; Manresa, Com. on Civil Code, vol 8, p. 56.) Page 14

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MARIANO VELOSO, ET AL. VS. ANICETA FONTANOSA G. R. No. 4874. March 2, 1909

only one heir continued to pay after death of decedent, thus giving rise to the filing of the complaint.

FACTS:

ISSUE:

Plaintiffs Mariano, Damiana, and Melchor Veloso are the sole lawful heirs of Gavino Veloso and Buenaventura Veloso, their father and brother, respectively; while Defendants are Aniceta Fontanosa, as widow of Roberto Ancajas, and Florentina, Leona, Maria, Juan, Romualdo, Vicenta, and Felix, all of the surname of Ancajas, the lawful children of the deceased Roberto, and Estefania Fontanosa, mother and legal guardian of the minor Jose Ancajas.

Whether or not defendants are in default and should now be liable for the legal interest of the debt.

That at the death of Gavino Veloso, Roberto Ancajas owed him the sum of 5,065 pesos which he had borrowed prior to the year 1881; in the apportionment of the estate, this debt of 5,065 pesos went to Buenaventura Veloso as his portion; that in the year 1882, Roberto Ancajas, after having acknowledged the transfer of his indebtedness by inheritance to Buenaventura Veloso, continued to receive sums of money from the latter of the same conditions, that is, as loans, and bound himself to make annual payments in sugar. On the 11th of October, 1883, the debt of Roberto Ancajas amounted to 10,449. 18 pesos which rose to 14,439. 40 pesos, which sum, however, was reduced to 12,365. 20 pesos by the payment of 2,074. 20 pesos on account. Up to the year 1893 the Defendants made payments amounting to 642. 27 pesos which reduced the amount owing to 11,722. 43 pesos. On the death of Buenaventura Veloso, the Defendants, as his sole and lawful heirs, inherited, and that same year divided between them all his property with the exception of the abovementioned credit, which is at present held pro indiviso between them, and they, as the lawful heirs of Buenaventura Veloso, the creditor, have repeatedly called upon the Defendants to pay the said credit, heirs deny being liable for debt since ARAFAG • HABANA • JALAYAJAY

HELD: Neither is the sentence contained in the judgment appealed from, that “the legal interest on the said sum at the rate of 6 per cent per annum shall be payable from the month of September, 1893,” in accordance with the law. It is proper to sentence the Defendants to pay the legal interest of 6 per cent per annum by reason of the default incurred by the heirs of Ancajas (art. 1108, Civil Code), but such default cannot date back of September, 1893, that is, from the time of the last payment made by them or by Aniceta Fontanosa. Article 1100 of the Civil Code reads “Persons obliged . . . are in default from the moment when the creditor demands the fulfillment of their obligation, judicially or extrajudicially,” And the judicial demand for the fulfillment of said obligation was only made in 1896; hence, as the date of the complaint interposed in that year has not been fixed, the net amount claimed therein should only commence to bear legal interest from the latter part of 1896, or rather from the beginning of 1897. In a decision of December 3, 1902, the supreme court of Spain held: “That it is a principle of law, acknowledge and sanctioned by article 1100, in relation to article 1108 of the Civil Code, that interest upon default only becomes due from the time of the judicial or extrajudicial notice by the creditor to the debtor, unless otherwise expressly provided by law, or by virtue of a contract, or on account of special circumstances depending upon the nature of the obligation. ” Page 15

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SOFRONIO T. BAYLA Vs. SILANG TRAFFIC CO., INC., G.R. Nos. L-48195 and 48196 May 1, 1942

Petitioners insist that they have the right to recover the amounts it paid, while the respondent and cross-petitioner on its part contends that said amounts have been automatically forfeited and the shares of stock have reverted to the corporation under their agreement.

FACTS: Petitioners instituted an action in the CFI of Cavite against the respondent Silang Traffic Co., Inc. to recover certain sums of money which they had paid severally to the corporation on account of shares of stock they individually agreed to take and pay for under certain specified terms and conditions that, “subscriber further agrees that if he fails to pay any of said installment when due, or to perform any of the aforesaid conditions, or if said shares shall be attached or levied upon by creditors of the said subscriber, then the said shares are to revert to the seller and the payments already made are to be forfeited in favor of said seller, and the latter may then take possession, without resorting to court proceedings.” The respondent corporation set up the defense that the subscribed shares of stock of petitioners had already automatically reverted to the defendant, and the installments paid by them had already been forfeited. RTC absolved the defendant from the complaint and declared canceled (forfeited) in favor of the defendant the shares of stock in question. It held that the resolution of August 1, 1937, was null and void, citing Velasco vs. Poizat (37 Phil., 802) that "a corporation has no legal capacity to release an original subscriber to its capital stock from the obligation to pay for shares; and any agreement to this effect is invalid" CA modified of the RTC decision. It held: that part of the judgment dismissing plaintiff's complaint is affirmed, but that part thereof declaring their subscription canceled is reversed. Defendant is directed to grant plaintiffs 30 days after final judgment within which to pay the arrears on their subscription.

ISSUE: Whether a particular contract is a subscription or a sale of stock is a matter of construction and depends upon its terms and the intention of the parties? Whether under the contract between the parties the failure of the purchaser to pay any of the quarterly installments on the purchase price automatically gave rise to the forfeiture of the amounts already paid and the reversion of the shares to the corporation? HELD: It seems clear from the terms of the contracts in question that they are contracts of sale and not of subscription. The lower courts erred in overlooking the distinction between subscription and purchase "A subscription, properly speaking, is the mutual agreement of the subscribers to take and pay for the stock of a corporation, while a purchase is an independent agreement between the individual and the corporation to buy shares of stock from it at stipulated price." In some particulars the rules governing subscriptions and sales of shares are different. For instance, the provisions of our Corporation Law regarding calls for unpaid subscription and assessment of stock (sections 37-50) do not apply to a purchase of stock. Likewise the rule that corporation has no legal capacity to release an original subscriber to its capital stock from the obligation to pay for his shares, is inapplicable to a contract of purchase of shares. The contract did not expressly provide that the failure of the purchaser to pay any installment

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would give rise to forfeiture and cancelation without the necessity of any demand from the seller; and under article 1100 of the Civil Code persons obliged to deliver or do something are not in default until the moment the creditor demands of them judicially or extra judicially the fulfillment of their obligation, unless (1) the obligation or the law expressly provides that demand shall not be necessary in order that default may arise, (2) by reason of the nature and circumstances of the obligation it shall appear that the designation of the time at which that thing was to be delivered or the service rendered was the principal inducement to the creation of the obligation. FALLO: CA decision reversed. Defendant Silang Traffic Co., Inc., was ordered to pay to the plaintiffs, the sums of P360, P375, P675, and P675, respectively, with legal interest on each of said sums from May 28, 1938, the date of the filing of the complaint, until the date of payment, and with costs in the three instances. ALEX G. LEE, Vs. HON. SALVADOR P. DE GUZMAN, JR. G.R. No. 90926 July 6, 1990

Atty. Benjamin S. Benito, that due to the sudden change of prices by the car manufacturer, they had decided to exercise the option contained in the vehicle sales order, which states: Whenever deposits are made by customers for vehicles, parts and services ordered, the sales for such vehicles, parts or services shall be at the option of Motorcars, Inc., and refund of the deposits shall be made upon request and without undue delay should such option be exercised. The respondent car company thus offered to refund petitioner's deposit of P1,000.00. Respondent contended that the obligation is impossible for the car manufacturer had closed shop and no longer manufacturing 1983 models of Toyota. Petitioner refused the offer.

ISSUE: Should respondent Motorcars be made liable to fulfill a seemingly impossible obligation?

HELD: FACTS: On November 8, 1983, petitioner Alex B. Lee purchased from respondent Motor Cars through its freelance agent, one (1) unit Toyota Corolla Liftback, 1983 model, with the quoted price of P149,700.00 plus miscellaneous expenses of P10,033.00. On the same date, petitioner Lee as customer, signed the vehicle sales order. The delivery of the subject vehicle was within the month of November, 1983. In view of such order, petitioner Lee deposited the amount of P1,000.00 on November 10, 1983 as required in the aforesaid price quotation. Thereupon, on December 15, 1983, petitioner's counsel, Atty. Doroteo A. Dadal, wrote Mr. Nicolas O. Carranceja, Jr., Executive VicePresident of Motorcars, demanding for delivery of the said Toyota car. The respondent car company replied on December 19, 1983, through its counsel ARAFAG • HABANA • JALAYAJAY

It is not possible for Motorcars to comply with the writ of execution since admittedly, the then Delta Motors who manufactured 1983 models of Toyota Liftback had already closed shop, but be this as it may, there is no question that indeed there was a perfected contract of sale between petitioner Lee and private respondent Motorcars pursuant to this Court's (through the Third Division) resolution dated August 31, 1987.

The relief left for petitioner Lee is that found under Article 1170 of the Civil Code which provides: "(T)hose who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in any manner contravene the tenor thereof, are liable for damages."

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The reply letter of private respondent company dated December 19, 1983 which said that "due to the sudden change of prices by the car manufacturer, they have decided to exercise the option . . ." did not relieve Motorcars from the contract had entered into with petitioner Lee. There was therefore delay in the delivery of the subject vehicle which entitles petitioner to be awarded damages. The records show that the subject vehicle should have been delivered within the month of November, 1983. IGNACIO BARZAGA Vs. CA and ANGELITO ALVIAR, G.R. No. 115129. February 12, 1997

FACTS: The petitioner’s wife was suffering from a debilitating ailment and with forewarning of her impending death, she expressed her wish to be laid to rest before Christmas day to spare her family of the long vigils as it was almost Christmas. After his wife passed away, petitioner bought materials from herein private respondents for the construction of her niche. Private respondents however failed to deliver on agreed time and date despite repeated follow-ups. The niche was completed in the afternoon of the 27th of December, and Barzaga's wife was finally laid to rest. However, it was two-and-a-half (2-1/2) days behind schedule.

ISSUE: Was there delay in the performance of the private respondent's obligation?

HELD: YES. Since the respondent was negligent and incurred delay in the performance of his contractual obligations, the petitioner is entitled to be indemnified for the damage he suffered as a ARAFAG • HABANA • JALAYAJAY

consequence of the delay or contractual breach. There was a specific time agreed upon for the delivery of the materials to the cemetery. This is clearly a case of non-performance of a reciprocal obligation, as in the contract of purchase and sale, the petitioner had already done his part, which is the payment of the price. It was incumbent upon respondent to immediately fulfill his obligation to deliver the goods otherwise delay would attach. An award of moral damages is incumbent in this case as the petitioner has suffered so much. NATIONAL POWER CORPORATION NPC VS. CAand (CEPALCO) G.R. No. 113613 September 26, 1997

FACTS: ECI entered into a contract with NAWASA to undertake a construction of a tunnel from Ipo Dam to Bicti including all materials, equipment and labor for the said construction for 800 days. The project involved 2 phases. The first involves tunnel works and the second consists of outworks at both ends of the tunnel. As soon as ECI finished the tunnel works in Bicti, it transferred all its equipments to Ipo Dam to finish the second phase of the project. The record shows that on November 4,1967, typhoon ‘Welming’ hit Central Luzon, passing through defendant’s (NPC) Angat Hydroelectric Project and Dam at lpo, Norzagaray, Bulacan. Strong winds struck the project area, and heavy rains intermittently fell. Due to the heavy downpour, the water in the reservoir of the Angat Dam was rising perilously at the rate of sixty (60) centimeters per hour. To prevent an overflow of water from the dam, since the water level had reached the danger height of 212 meters above sea level, the defendant corporation caused the opening of the spillway gates.” Page 18

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ECI sued NPC for damages. The trial court and the court of appeals found that defendant NPC was negligent when opened the gates only at the height of the typhoon holding that it could have opened the spill gates gradually and should have done so before the ‘typhoon’ came. Thus both courts awarded ECI for damages. NPC assails the decision of the CA as being erroneous on the grounds, inter alia, that the loss sustained by ECI was due to force majeure. It argued that the rapid rise of water level in the reservoir due to heavy rains brought about by the typhoon is an extraordinary occurrence that could not have been foreseen. On the other hand, ECI assails the decision of the court of appeals modifying the decision of the trial court eliminating the awarding of exemplary damages. ISSUES: 1. Whether or not NPC is liable for damages even though the cause of the damage is due to a force majeure? Otherwise stated, whether or not the damage sustained by ECI could be attributed to NPC notwithstanding the occurrence of a force majeure? 2. Whether or not ECI is entitled to exemplary damages? HELD: Yes. NPC was undoubtedly negligent because it opened the spillway gates of the Angat Dam only at the height of typhoon “Welming” when it knew very well that it was safer to have opened the same gradually and earlier, as it was also undeniable that NPC knew of the coming typhoon at least four days before it actually struck. And even though the typhoon was an act of God or what we may call force majeure, NPC cannot escape liability because its negligence was the proximate cause of the loss and damage. As we

have ruled in Juan F. Nakpil & Sons v. Court of Appeals, (144 SCRA 596, 606-607): Thus, if upon the happening of a fortuitous event or an act of God, there concurs a corresponding fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation as provided for in Article 1170 of the Civil Code, which results in loss or damage, the obligor cannot escape liability. The principle embodied in the act of God doctrine strictly requires that the act must be one occasioned exclusively by the violence of nature and human agencies are to be excluded from creating or entering into the cause of the mischief. When the effect, the cause of which is to be considered, is found to be in part the result of the participation of man, whether it be from active intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it was, and removed from the rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175). Thus, it has been held that when the negligence of a person concurs with an act of God in producing a loss, such person is not exempt from liability by showing that the immediate cause of the damage was the act of God. To be exempt from liability for loss because of an act of God, he must be free from any previous negligence or misconduct by which the loss or damage may have been occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil. 129; Tucker v. Milan 49 O.G. 4379; Limpangco & Sons v. Yangco Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657). Substantial evidence is defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion (Philippine Metal Products, Inc. v. Court of Industrial Relations, 90 SCRA 135 [1979]; Police Commission v. Lood, 127 SCRA 757 [1984]; Canete v. WCC, 136 SCRA 302 [1985]) Exemplary Damages

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No. As to the question of exemplary damages, we sustain the appellate court in eliminating the same since it found that there was no bad faith on the part of NPC and that neither can the latter’s negligence be considered gross. In Dee Hua Liong Electrical Equipment Corp. v. Reyes, (145 SCRA 713, 719) we ruled:

Whether or not the defendant in maneuvering his car in the manner above described was guilty of negligence such as gives rise to a civil obligation to repair the damage done

Neither may private respondent recover exemplary damages since he is not entitled to moral or compensatory damages, and again because the petitioner is not shown to have acted in a wanton, fraudulent, reckless or oppressive manner (Art. 2234, Civil Code; Yutuk v. Manila Electric Co., 2 SCRA 377; Francisco v. Government Service Insurance System, 7 SCRA 577; Gutierrez v. Villegas, 8 SCRA 527; Air France v. Carrascoso, 18 SCRA 155; Pan Pacific (Phil.) v. Phil. Advertising Corp., 23 SCRA 977; Marchan v. Mendoza, 24 SCRA 888).

As the defendant started across the bridge, he had the right to assume that the horse and rider would pass over to the proper side; but as he moved toward the center of the bridge it was demonstrated to his eyes that this would not be done; and he must in a moment have perceived that it was too late for the horse to cross with safety in front of the moving vehicle. In the nature of things this change of situation occurred while the automobile was yet some distance away; and from this moment it was no longer within the power of the plaintiff to escape being run down by going to a place of greater safety. The control of the situation had then passed entirely to the defendant.

AMADO PICART VS. FRANK SMITH, JR., G.R. No. L-12219 March 15, 1918 FACTS: Plaintiff Amado Picart was riding on his pony on the Carlatan Bridge in San Fernando, La Union when the defendant, riding on his car, approached. Defendant blew his horn to give warning. Plaintiff moved the horse to the right instead of moving to the left, reasoning that he had no sufficient time to move to the right direction. Defendant continued to approach, and when he had gotten quite near, he quickly turned to the left. The horse was frightened that it turned his body across the bridge. His limb was broken and the rider was thrown off and got injured. The horse died. An action for damages was filed against the defendant.

ISSUE: ARAFAG • HABANA • JALAYAJAY

HELD:

The test by which to determine the existence of negligence in a particular case may be stated as follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence. Conduct is said to be negligent when a prudent man in the position of the tortfeasor would have foreseen that an effect harmful to another was sufficiently probable to warrant his foregoing the conduct or guarding against its consequences.

It goes without saying that the plaintiff himself was not free from fault, for he was guilty of antecedent negligence in planting himself on the wrong side of the road. But as we have already stated, the defendant was also negligent; and in such case the problem always is to discover which Page 20

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agent is immediately and directly responsible. It will be noted that the negligent acts of the two parties were not contemporaneous, since the negligence of the defendant succeeded the negligence of the plaintiff by an appreciable interval. Under these circumstances the law is that the person who has the last fair chance to avoid the impending harm and fails to do so is chargeable with the consequences, without reference to the prior negligence of the other party. THE CONSOLIDATED BANK and TRUST CORPORATION VS. CA and L.C. DIAZ & COMPANY G.R. No. 138569. September 11, 2003 FACTS: Private respondent L.C. Diaz instructed his employee, Calapre, to deposit in his savings account in petitioner bank. Calapre left the passbook of L.C. Diaz to the teller of the petitioner bank because it was taking time to accomplish the transaction and he had to go to another bank. When he returned, the teller told him that somebody got it. The following day, an impostor succeeded in withdrawing P300,000.00 by using said passbook and a falsified withdrawal slip. Private respondent sued the bank for the amount withdrawn by the unknown third person.

procedures (like a secret handshake of sorts) whenever the former withdrew a large sum, RTC pointed out that LC Diaz disregarded this in the past withdrawal. CA, on the other hand, said that the proximate cause of the unauthorized withdrawal is Solidbank's negligence, applying NCC 2176. CA said the 3 elements of QD are present [damages; fault or negligence; connection of cause and effect]. The teller could have called up LC Diaz since the amount being drawn was significant. Proximate cause is teller's failure to call LC Diaz. CA ruled that while LC Diaz was negligent in entrusting its deposits to its messenger and its messenger in leaving the passbook with the teller, Solidbank could not escape liability because of the doctrine of “last clear chance.” Solidbank could have averted the injury had it called up LC Diaz to verify the withdrawal.

ISSUE: Whether or not petitioner bank is liable solely for the amount withdrawn by the impostor?

HELD: RTC applied rules on savings account written on the passbook ["Possession of this book shall raise the presumption of ownership and any payment or payments made by the bank upon the production of the said book and entry therein of the withdrawal shall have the same effect as if made to the depositor personally."] RTC said that the burden of proof shifted to LC Diaz to prove that the signatures are not forged. Also, they applied the rule that the holder of the passport is presumed to be the owner. It was also held that Solidbank did not have any participation in the custody and care of the passbook and as such, their act of allowing the withdrawal was not the proximate cause of the loss. The proximate cause was LC Diaz’ negligence. As regards the contention that LC Diaz and Solidbank had precautionary ARAFAG • HABANA • JALAYAJAY

No. Petitioner Solidbank Corporation shall pay private respondent L.C. Diaz and Company, CPA’s only 60% of the actual damages awarded by the Court of Appeals. The remaining 40% of the actual damages shall be borne by private respondent L.C. Diaz and Company, CPA’s. No. The bank is liable for breach of contract due to negligence or culpa contractual. The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan. Article 1172 of the Civil Code provides that “responsibility arising from negligence in the performance of every kind of obligation is demandable”. The bank is liable to its depositor for breach of the savings deposit agreement due to Page 21

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negligence or culpa contractual. “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 (Simex International vs. CA)”. The tellers know, or should know, that the rules on savings account provide that any person in possession of the passbook is presumptively its owner. If the tellers give the passbook to the wrong person, they would be clothing that person presumptive ownership of the passbook, facilitating unauthorized withdrawals by that person. The doctrine of last clear chance states that where both parties are negligent but the negligent act of one is appreciably later than that of the other, or where it is impossible to determine whose fault or negligence caused the loss, the one who had the last clear opportunity to avoid the loss but failed to do so, is chargeable with the loss. This doctrine is not applicable to the present case. The contributory negligence of the private respondent or his last clear chance to avoid the loss would not exonerate the petitioner from liability. However, it serves to reduce the recovery of damages by the private respondent. Under Article 1172, “the liability may be regulated by the courts, according to the circumstances”. In this case, respondent L.C. Diaz was guilty of contributory negligence in allowing a withdrawal slip signed by its authorized signatories to fall into the hands of an impostor. Thus, the liability of petitioner bank should be reduced. In PHILIPPINE BANK OF COMMERCE VS. CA, the Supreme Court allocated the damages between the depositor who is guilty of contributory negligence and the bank on a 40-60 ratio. The same ruling was applied to this case. Petitioner bank must pay only 60% of the actual damages. SCHMITZ TRANSPORT VS. TRANSPORT VENTURE INC. April 22, 2005 ARAFAG • HABANA • JALAYAJAY

FACTS: On September 25, 1991, SYTCO Pte. Ltd Singapore shipped 545 hot rolled steel sheets in coil from the port of Russia. The cargoes which were to be discharged in Manila were insured with Industrial Insurance Company. The consignee Little Giant Steel Pipe engaged the services of petitioner Schmidt Transport to secure the requisite clearances and deliver the cargoes to the consignee’s warehouse at Cainta Rizal. When the vessel (Alexander Saveliev) arrived at the port of Manila on October 24, 1991 it was assigned by the PPA outside the break water of Manila South Harbor as its berthing area. Respondent Transport Venture Inc. (TVI) on the other hand was engaged by Schmidt to tow the barge containing the cargoes to the shipyard. The arrastre operator was able to unload only 37 out of the 545 coils due to inclement weather conditions. However, no tugboat pulled the barge to the pier. The barge was left floating in open sea for 5 hours. The barge containing the 37 coils pitched and rolled with the waves and eventually capsized. As a consequence, Consignee Little Giant then filed an insurance claim against Industrial Insurance which in turn filed a complaint against Schmidt to recover the amount it paid to Little Giant. The Trial Court held Schmidt Transport and Transport Venture and Blacksea ( owner of the vessel) solidarily liable for the amount P 5.2 milliion. RTC-Manila ruled that petitioner failed to perform its obligation as a common carrier. Petitioner and respondent filed a MR and argued that they were not motivated by gross evident bad faith and that the incident was caused by a fortuitous event. MR was denied.

The decision was affirmed by the CA and the defense of fortuitous event was discredited. Hence, Schmidt Transport filed this petition before the SC against TVI, Industrial Insurance and the Black Sea alleging that in chartering the barge and tugboat of Page 22

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TVI, it was merely acting as an agent of the consignee and that the transportation contract was between TVI and Little giant.

participation of man, whether due to his active intervention or neglect or failure to act, the whole occurrence is then humanized and removed from the rules applicable to the acts of God.

ISSUE:

The appellate court, in affirming the finding of the trial court that human intervention in the form of contributory negligence by all the defendants resulted to the loss of the cargoes, held that unloading outside the breakwater, instead of inside the breakwater, while a storm signal was up constitutes negligence. It thus concluded that the proximate cause of the loss was Black Sea’s negligence in deciding to unload the cargoes at an unsafe place and while a typhoon was approaching. The loss thus falls outside the "act of God doctrine.

Whether or not the loss of the cargoes was due to a fortuitous event, hence, petitioners should not be held liable?

HELD: NO. The Supreme Court held that when a fortuitous event occurs, Article 1174 of the Civil Code absolves any party from any and all liability arising therefrom: ART. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which though foreseen, were inevitable. In order, to be considered a fortuitous event, however, (1) the cause of the unforeseen and unexpected occurrence, or the failure of the debtor to comply with his obligation, must be independent of human will; (2) it must be impossible to foresee the event which constitute the caso fortuito, or if it can be foreseen it must be impossible to avoid; (3) the occurrence must be such as to render it impossible for the debtor to fulfill his obligation in any manner; and (4) the obligor must be free from any participation in the aggravation of the injury resulting to the creditor. The principle embodied in the act of God doctrine strictly requires that the act must be occasioned solely by the violence of nature. Human intervention is to be excluded from creating or entering into the cause of the mischief. When the effect is found to be in part the result of the ARAFAG • HABANA • JALAYAJAY

REAL VS. BELO January 26, 2007

FACTS: Petitioner Virginia Real and respondent Sesinendo Belo both owned and operated a fastfood stall in the food court center of PWU. A fire broke out at the petitioner’s stall which spread and gutted other stalls in the area including that of the respondent’s. Respondent demanded payment from the petitioner but the latter refused. Hence, a case for damages was filed before the MTC.

Respondent alleged that petitioner failed to exercise due diligence in the upkeep and maintenance of her cooking equipments, as well as the selection and supervision of her employees; that petitioner's negligence was the proximate cause of the fire that gutted the fastfood stalls. The petitioner on the other hand denied liability on the grounds that the fire was a fortuitous event and that she exercised due diligence in the selection and supervision of her employees. MTC rendered judgment in favour of respondent Belo and was affirmed by the RTC and CA upon appeal. Page 23

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ISSUE: Whether or not the fire that broke out from petitioner’s stall is a fortuitous event?

HELD: NO. Jurisprudence defines the elements of a "fortuitous event" as follows: (a) the cause of the unforeseen and unexpected occurrence must be independent of human will; (b) it must be impossible to foresee the event which constitutes the caso fortuito, or if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the obligor must be free from any participation in the aggravation of the injury resulting to the creditor. Article 1174 of the Civil Code provides that no person shall be responsible for a fortuitous event which could not be foreseen, or which, though foreseen, was inevitable. In other words, there must be an entire exclusion of human agency from the cause of injury or loss.

It is established by evidence that the fire originated from leaking fumes from the LPG stove and tank installed at petitioner's fastfood stall and her employees failed to prevent the fire from spreading and destroying the other fastfood stalls, including respondent's fastfood stall. Such circumstances do not support petitioner's theory of fortuitous event.

PHILIPPINE COMMUNICATIONS VS. GLOBE May 25, 2004

FACTS: On May 7, 1991 Philcomsat & Globe entered into an agreement whereby Philcomsat obliged itself to establish, operate & provide an IBS standard B earth station for the exclusive use of US defense communications Agency (USDCA). The term was for 60 months or 5 yrs In turn, Globe promised to pay Philcomsat monthly rentals. At the execution of the agreement, both parties knew that military Bases Agreement was to expire in 1991. Subsequently, Philcomsat installed the earth station & USDCA made use of the same. The senate passed a resolution expressing its decision not to concur in the ratification of the treaty of friendship. So the RP-US Military bases Agreement terminate it on Dec. 31, 1992. Globe notified Philcomsat its instruction to discontinue effective Nov. 8, 1992, in view of the withdrawal of US military personnel. Philcomsat sent a reply to pay the stipulated rentals even after Globe shall have discontinued the use of earth station after Nov. 8 1992. After the US military force left Subic, Philcomsat sent a letter demanding payment. However, Globe refused to heed Philcomsat ‘s demand because the termination of the US military bases agreement constitute force majeure and said event exempted it from paying rentals.

ISSUE/S: Whether or not the termination of the RPUS Military Bases Agreement constitutes force majeure which would exempt Globe from complying with its obligation to pay rentals under its Agreement with Philcomsat?

ARAFAG • HABANA • JALAYAJAY

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Whether or not Globe is liable to pay rentals under the agreement for the month of December 1992?

HELD: YES. In order that Globe may be exempt from non-compliance with its obligation to pay rentals under Section 8, the concurrence of the following elements must be established:

a. the event must be independent of the human will; b. the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; and c. the obligor must be free of participation in, or aggravation of, the injury to the creditor. Philcomsat and Globe had no control over the non-renewal of the term of the RP-US Military Bases Agreement when the same expired in 1991, because the prerogative to ratify the treaty extending the life thereof belonged to the Senate. Resolution No. 141 of the Philippine Senate and the Note Verbale of the Philippine Government to the US Government are acts, direction or request of the Government of the Philippines and circumstances beyond the control of the defendant. The formal order from Cdr. Walter Corliss of the USN, the letter notification from ATT and the complete withdrawal of all the military forces and personnel from Cubi Point in the yearend 1992 are also acts and circumstances beyond the control of the defendant. Article 1174, which exempts an obligor from liability on account of fortuitous events or force majeure, refers not only to events that are unforeseeable, but also to those which are foreseeable, but inevitable.

Point only on 31 December 1992. Thus, until that date, the USDCA had control over the earth station and had the option of using the same. Furthermore, Philcomsat could not have removed or rendered ineffective said communication facility until after 31 December 1992 because Cubi Point was accessible only to US naval personnel up to that time. Hence, Globe is liable for payment of rentals until December 1992. SECURITY BANK & TRUST COMPANY and ROSITO C. MANHIT VS. COURT OF APPEALS and YSMAEL C. FERRER October 11, 1995

FACTS: SBTC and Manhit contracted Ferrer to construct in 200 days a building in consideration of 1,760,000.00. Ferrer was able to finish the construction of the building within the prescribed time, but incurred additional expenses of about 300,000.00 on top of the original cost due to drastic increases in construction materials. Ferrer made timely demands for payment of the increased cost, and SBTC and a representative of an architectural firm consulted by SBTC verified Ferrer’s claims for additional cost. A recommendation was then made to settle the claim for 200,000.00 but SBTC did not pay the amount, and instead denied any liability for the additional cost. Ferrer then filed a claim for breach of contract with damages in the RTC, which ruled in favor of Ferrer, Court of Appeals affirmed the decision.

ISSUE: Whether or not SBTC should be held liable for the increase in the cost of construction due to the drastic increase in the cost of materials?

On the second issue, the US military forces and personnel completely withdrew from Cubi ARAFAG • HABANA • JALAYAJAY

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YES. Under Art 1182 of the NCC, a conditional obligation shall be void if its fulfillment depends upon the sole will of the debtor. Under Art IX of the building contract it allows for the adjustment of the contract price upon mutual agreement of the parties.

International Airport Authority (MCIAA) but still no construction was maid on the lot. When MCIA opened for commercial flights, the Lahug Airport was closed and abandoned. The respondents then demanded to repurchases the lot in question at the same price at the time of the taking, without interest, no structures or improvements having been erected thereon and the Lahug Airport having been closed and abandoned, the purpose for which the lot was taken no longer exist.

It is the absence of this mutual agreement that the bank is using to support its contention that it is not liable for the increased cost, and in effect this is an obligation dependent on SBTC’s sole will, since its consent is required for the recovery of the increased cost to be allowed.

As the demand remained unheeded, a case for reconveyance with damages was filed grounded on the alleged assurance made by NAC that the original owners would be entitled to repurchases the lot when and in the event it was no longer used for airport purposes.

This in effect allows SBTC to acquire the constructed building at a price that is far below its actual construction cost, and this constitutes unjust enrichment for SBTC at the expense of Ferrer. This is not allowed by law by virtue of Art 22 of NCC.

RTC ruled in favour of the respondents and was affirmed by the CA, hence, this appeal.

HELD:

ISSUE: Whether or not MCIAA is obliged to reconvey the land the respondents?

WHEREFORE, with the above modification in respect of the amount of attorney's fees, the appealed decision of the Court of Appeals in CA G.R. CV No. 40450 is AFFIRMED. MACTAN CEBU INT’L AIRPORT VS. TUDTUD November 14, 2008

FACTS: Predecessors-in-interest or respondents were the original owners of the lot in question. In 1949, the National Airports Corporation, a public corporation of the RP embarked on a project to expand the Cebu Lahug Airport. For this purpose, an expropriation case was filed and the land was later on transferred to the RP. However no structures related to the operation of the Lahug Airport was constructed in the said lot. The said lot was then transferred to the Air Transport Office (ATO) then to Mactan Cebu ARAFAG • HABANA • JALAYAJAY

HELD: YES. The rights and duties between the MCIAA and respondents are governed by Article 1190 of the Civil Code which provides: When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have received. In case of the loss, deterioration, or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article [Article 1189] shall be applied to the party who is bound to return.

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While the MCIAA is obliged to reconvey Lot No. 988 to respondents, respondents must return to the MCIAA what they received as just compensation for the expropriation of Lot No. 988, plus legal interest to be computed from default, which in this case runs from the time the MCIAA complies with its obligation to the respondents.

SFC filed a complaint for breach of contract against Hawaiian-Philippine Co. and asked P70,369.50. Hawaiian-Philippine Co. answered that there was a delay in the payment from Song Fo & Co. and that Hawaiian-Philippine Co. has the right to rescind the contract due to that and claims it as a special defense.

Respondents must likewise pay the MCIAA the necessary expenses it may have incurred in sustaining Lot No. 988 and the monetary value of its services in managing it to the extent that respondents were benefited thereby.

The judgment of the trial court condemned Hawaiian-Philippine Co. to pay Song Fo & Co. a total of P35,317.93, with legal interest from the date of the presentation of the complaint, and with costs.

Following Article 1187 of the Civil Code, the MCIAA may keep whatever income or fruits it may have obtained from Lot No. 988, and respondents need not account for the interests that the amounts they received as just compensation may have earned in the meantime. In accordance with the earlier-quoted Article 1190 of the Civil Code vis-à-vis Article 1189 which provides that "[i]f a thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor x x x," respondents, as creditors, do not have to settle as part of the process of restitution the appreciation in value of Lot 988 which is a natural consequence of nature and time.

SONG FO VS. HAWAIIN PHIL.CO September 16, 1925

FACTS: Hawaiian-Philippine Co. got into a contract with Song Fo & Co. where it would deliver molasses to the latter. Hawaiian-Philippine Co. was able to deliver 55,006 gallons of molasses before the breach of contract.

ISSUE/S: (1) Did Hawaiian-Philippine Co. agree to sell 400,000 gallons of molasses or 300,000 gallons of molasses? (2) Had Hawaiian-Philippine Co. the right to rescind the contract of sale made with Song Fo & Co.? (3) On the basis first, of a contract for 300,000 gallons of molasses, and second, of a contract imprudently breached by HawaiianPhilippine Co., what is the measure of damages?

HELD: (1) Only 300,000 gallons of molasses was agreed to by Hawaiian-Philippine Co. as seen in the documents presented in court. The language used with reference to the additional 100,000 gallons was not a definite promise. (2) With reference to the second question, doubt has risen as to when Song Fo & Co. was supposed to make the payments for the delivery of molasses as shown in the documents presented by the parties. The Supreme Court said that HawaiianPhilippine Co. does not have the right to rescind ARAFAG • HABANA • JALAYAJAY

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the contract. It should be noted that the time of payment stipulated for in the contract should be treated as of the presence of the contract. There was only a slight breach of contract when the payment was delayed for 20 days after which Hawaiian-Philippine Co. accepted the payment of the overdue accounts and continued with the contract, waiving its right to rescind the contract. The delay in the payment of Song Fo & Co. was not such a violation for the contract. (3) With regard to the third question, the first cause of action of Song Fo & Co. is based on the greater expense to which it was put in being compelled to secure molasses from other sources to which Supreme Court ruled that P3,000 should be paid by Hawaiian-Philippine Co. with legal interest from October 2, 1923 until payment. The second cause of action was based on the lost profits on account of the breach of contract. Supreme Court said that Song Fo & Co. is not entitled to recover anything under the second cause of action because the testimony of Mr. Song Heng will follow the same line of thought as that of the trial court which in unsustainable and there was no means for the court to find out what items make up the P14,000 of alleged lost profits. CORTES vs. COURT OF APPEALS July 12, 2006 FACTS: For the purchase price of 3.7M, Villa Esperanza Development Corporation (vendee) and Antonio Cortes (vendor) entered into a contract of sale over the lots located at Baclaran, Parañaque, Metro Manila. The Corporation advanced to Cortes the total sum of P1,213,000.00. In September 1983, the parties executed a deed of absolute sale on the following terms: The Corporation shall advance 2.2 M as downpayment, and Cortes shall likewise deliver the TCT for the 3 lots. ARAFAG • HABANA • JALAYAJAY

The balance of 1.5M shall be payable within a year from the date of the execution. The Corporation filed the instant case for specific performance seeking to compel Cortes to deliver the TCTs and the original copy of the Deed of Absolute Sale. According to the Corporation, despite its readiness and ability to pay the purchase price, Cortes refused delivery of the sought documents. It prayed for damages, attorney’s fees and litigation expenses. Cortes claimed that the owner’s duplicate copy of the three TCTs were surrendered to the Corporation and it is the latter which refused to pay in full the agreed down payment. RTC rendered a decision rescinding the sale and directed Cortes to return to the Corporation the amount of P1,213,000.00, plus interest. CA reversed the decision and directed Cortes to execute a Deed of Absolute Sale conveying the properties and to deliver the same to the Corporation together with the TCTs, simultaneous with the Corporation’s payment of the balance of the purchase price of P2,487,000.00.

ISSUES: Whether or not Cortes delivered the TCTs and the original Deed to the Corporation?NO. WON there is delay in the performance of the parties’ obligation that would justify the rescission of the contract of sale? THERE IS DELAY IN BOTH PARTIES (compensation morae) HELD:

Cortes avers that he delivered the TCT’s through the broker’s son. He further avers that the broker’s son delivered it to the broker, who in turn delivered them to the Corporation.

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Marcosa Sanchez’s unrebutted testimony is that, she did not receive the TCTs. She also denied knowledge of delivery thereof to her son, Manny. What further strengthened the findings of the Court of Appeals that Cortes did not surrender the subject documents was the offer of Cortes’ counsel at the pre-trial to deliver the TCTs and the Deed of Absolute Sale if the Corporation will pay the balance of the down payment. Indeed, if the said documents were already in the hands of the Corporation, there was no need for Cortes’ counsel to make such offer. Considering that their obligation was reciprocal, performance thereof must be simultaneous. The mutual inaction of Cortes and the Corporation therefore gave rise to a compensation morae or default on the part of both parties because neither has completed their part in their reciprocal obligation. Cortes is yet to deliver the original copy of the notarized Deed and the TCTs, while the Corporation is yet to pay in full the agreed down payment of P2,200,000.00. This mutual delay of the parties cancels out the effects of default, such that it is as if no one is guilty of delay. Under Article 1169 of the Civil Code, from the moment one of the parties fulfills his obligation, delay by the other begins. Since Cortes did not perform his part, the provision of the contract requiring the Corporation to pay in full the down payment never acquired obligatory force. GIL VS. CA and HEIRS OD MATULAC September 12, 2003

FACTS: The case at hand revolves around a disputed parcel of commercial land originally coowned by Concepcion Palma Gil, and her sister, Nieves Palma Gil who was married to Angel Villarica. Concepcion filed a complaint against her sister Nieves Civil Case No. 1160 for specific ARAFAG • HABANA • JALAYAJAY

performance, to compel the defendant to cede and deliver to her an undivided portion of the said property. The lower court ruled in favor of Concepcion. CA affirmed and the decision became final and executory. The sheriff had the property subdivided and executed a Deed of Transfer of one of the four lots to Concepcion. Concepcion executed a deed of absolute sale over the said lot in favor of Iluminada Pacetes. Also, Concepcion filed a complaint for unlawful detainer against the spouses Angel and Nieves Villarica Civil Case No. 2246, which the MTC decided in favor of Concepcion. Meanwhile, the spouses Angel and Nieves Villarica filed a complaint against the sheriff and Concepcion with the Civil Case No. 2151 for the nullification of the deed of transfer executed by the sheriff. Iluminada Pacetes filed a motion to intervene in Civil Case No. 2151, as vendee of the property subject of the case, which was granted by the court. She then filed a motion to dismiss the complaint. The court granted the motion. On the basis of the deed of transfer executed by Sheriff, the Register of Deeds issued TCTs in the name of Concepcion. However, the latter failed to transfer title to the property to and under the name of Iluminada Pacetes. Consequently, the latter did not remit the balance of the purchase price of the property to Concepcion. More than five years having elapsed without the decision in the unlawful detainer case being enforced, Iluminada filed a complaint Civil Case No. 4413 for the revival and execution of the decision of the unlawful detainer case. Subsequently, the lot was sold to Constancio Maglana then to Emilio Matulac. In the meantime, on August 8, 1977, Iluminada consigned with the court in the specific performance case the amount of P11,983.00 only as payment of the purchase price of the property. Three of the surviving heirs of Concepcion Gil, namely, Perla Palma Gil, Vicente Hizon, Jr. and Angel Palma Gil filed on June 17, 1982, a complaint against Emilio Matulac, Constancio Maglana, Agapito Pacetes, Page 29

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and the Register of Deeds, with the CFI for the cancellation of the deed of sale executed by Concepcion in favor of Iliminada Pacetes; the deed of sale executed by the latter in favor of Constancio Maglana; the deed of sale executed by the latter in favor of Emilio Matulac. Petitioners in this case assert that private respondent Iluminada Pacetes failed to pay the balance of the purchase price in the amount of P14,100.00. They did consign and deposit the amount of P11,983.00, but only on August 8, 1977, twenty one years from the execution of the Deed of Absolute Sale in favor of the said spouses, without the latter instituting an action for the cancellation of their obligation. According to the petitioners, the consignation made by Iluminada Pacetes of the amount did not produce any legal effect. In the procedural aspect, it is important to note that the petitioners failed to implead all the compulsory heirs of the deceased Concepcion Gil in their complaint. When she died intestate, Concepcion Gil, a spinster, was survived by her sister Nieves, and her nephews and nieces, three of whom are the petitioners herein.

ISSUE: Whether or not the property has been conveyed to Iluminada Pacetes and the subsequent vendees in spite of the balance that existed for 21 years?

HELD: YES. The subsequent transfers of the property from Pacetes to Maglana, and then from Maglana to herein movant Matulac, was acquired pendente lite. The latter (Matulac) as the latest owner of the property, was, as aptly put by the trial court, subrogated to all the rights and obligations of Pacetes. He is thus the party who now has a substantial interest in the property. Matulac is a real party-in- interest subrogated to all the rights of Iluminada Pacetes, including the right to the issuance of a writ of execution in his name. ARAFAG • HABANA • JALAYAJAY

The vendee paid the downpayment of P7,500.00. By the terms of the contract, the obligation of the vendee to pay the balance of the purchase price ensued only upon the issuance of the certificate of title by the Register of Deeds over the property sold to and under the name of the vendee, and the delivery thereof by the vendor Concepcion Gil to the latter. Concepcion failed to secure a certificate of title over the property. When she died intestate on August 4, 1959, her obligation to deliver the said title to the vendee devolved upon her heirs, including the petitioners. The said heirs, including the petitioners failed to do so, despite the lapse of eighteen years since Concepcions death. Iluminada was not yet obliged on August 8, 1977 to pay the balance of the purchase price of the property, but as a sign of good faith, she nevertheless consigned the amount of P11,983.00, part of the balance of the purchase price of P14,000.00, with the court in Civil Case No. 1160.

SPOUSES RAYOS VS. COURT OF APPEALS July 14, 2004

FACTS: On 1985, Spouses Rayos secured a short term loan from the Philippine Savings Bank payable within a period of one year in quarterly instalments. It was evidenced by a promissory note and the spouses executed a REM over their property located in Las Pinas. On the same year the spouses executed a Deed of Absolute Sale with Assumption of Mortgage over the property with spouses Miranda. However, the spouses executed another document, a contract to sell the said property in favour of the respondents. Respondent Rogelio Miranda then filed an application with PSB to secure approval of his assumption of the petitioner’s obligation on the loan but such was disapproved. Nevertheless, Rogelio paid the first Page 30

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and second quarterly instalment for the account of petitioners. Petitoner then received a letter from the bank reminding him of the last quarterly instalment and fearing that the respondents will not be able to pay the instalment, he paid the amount due. He then advised the bank not to turn over the duplicate title to respondents. Respondents then filed a case against petitioners and the bank claiming that the bank conspired with spouses Rayos in preventing him from paying the last instalment and in refusing to turn over the duplicate title thereby preventing the transfer of the property to his name.

ISSUE: Whether or not petitioner had unilaterally cancelled the contract when he paid the last quarterly instalment?

registration expenses for the transfer of title including the notarization and preparation of this Contract and subsequent documents if any are to be executed, real estate taxes from January 1, 1986 and other miscellaneous expenses shall be for the account of the BUYER; the SELLER hereby represents that all association dues has been paid but that subsequent to the execution of this Contract the payment of the same shall devolve upon the BUYER. Construing the contracts together, it is evident that the parties executed a contract to sell and not a contract of sale. The petitioners retained ownership without further remedies by the respondents until the payment of the purchase price of the property in full. Such payment is a positive suspensive condition, failure of which is not really a breach, serious or otherwise, but an event that prevents the obligation of the petitioners to convey title from arising, in accordance with Article 1184 of the Civil Code.

HELD: NO.It bears stressing that the petitioners and the respondents executed two interrelated contracts, viz: the Deed of Sale with Assumption of Mortgage dated December 26, 1985, and the Contract to Sell dated January 29, 1986. To determine the intention of the parties, the two contracts must be read and interpreted together. Under the two contracts, the petitioners bound and obliged themselves to execute a deed of absolute sale over the property and transfer title thereon to the respondents after the payment of the full purchase price of the property, inclusive of the quarterly installments due on the petitioners' loan with the PSB: 3. That upon full payment of the consideration hereof, the SELLER shall execute a Deed of Absolute Sale in favor of the BUYER that the payment of capital gains tax shall be for the account of the SELLER and that documentary stamps, transfer tax, ARAFAG • HABANA • JALAYAJAY

The non-fulfillment by the respondent of his obligation to pay, which is a suspensive condition to the obligation of the petitioners to sell and deliver the title to the property, rendered the contract to sell ineffective and without force and effect. The parties stand as if the conditional obligation had never existed. Article 1191 of the New Civil Code will not apply because it presupposes an obligation already extant. There can be no rescission of an obligation that is still non-existing, the suspensive condition not having happened. However, the respondents may reinstate the contract to sell by paying the P29,223.67, and the petitioners may agree thereto and accept the respondents' late payment. In this case, the petitioners had decided before and after the respondents filed this complaint in Civil Case No. 15639 to accept the payment of P29,223.67, to execute the deed of absolute sale over the property and cause the transfer of the title of the subject Page 31

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property to the respondents. The petitioners even filed its amended complaint in Civil Case No. 15984 for the collection of the said amount. The Court of Appeals cannot, thus, be faulted for affirming the decision of the trial court and ordering the petitioners to convey the property to the respondents upon the latter's payment of the amount of P29,223.67, provided that the property has not been sold to a third-party who acted in good faith.

Whether or not a contract to sell may be subject to rescission under Art. 1191?

CORDERO VS. F.S. MANAGEMENT DEVELOPMENT October 31, 2006

Since the obligation of petitioners did not arise because of the failure of respondent to fully pay the purchase price, Article 1191 of the Civil Code would have no application.

FACTS: Belen Cordero and 6 others, herein petitioners, entered into a contract to sell with F.S. Management Development over 5 parcels of land located in Nasugbo, Batangas. Under the terms of the contract, a down payment of P3.5M and the payment of the remaining balance in 6 quarterly instalments. However, respondent defaulted from payment. Thus, after demanding the respondents to pay the remaining amount, petitioners filed a complaint for rescission of the contract with damages. Respondent contends that the petitioners were the first ones who violated the contract to sell by preventing access to the property despite the payment of P2.5M worth of earnest money and that the petitioners refused to execute the final contract of price. The RTC ruled in favour of petitioners while the CA ruled in favour of the respondents. In their MR, petitioners contend that the contract to sell may be subject to rescission under Art. 1191 of the NCC as it involves reciprocal obligations.

ISSUE: ARAFAG • HABANA • JALAYAJAY

HELD: NO. Under a contract to sell, the seller retains title to the thing to be sold until the purchaser fully pays the agreed purchase price. The full payment is a positive suspensive condition, the non-fulfillment of which is not a breach of contract but merely an event that prevents the seller from conveying title to the purchaser. The non-payment of the purchase price renders the contract to sell ineffective and without force and effect.

Rayos v. Court of Appeals explained: Construing the contracts together, it is evident that the parties executed a contract to sell and not a contract of sale. The petitioners retained ownership without further remedies by the respondents until the payment of the purchase price of the property in full. Such payment is a positive suspensive condition, failure of which is not really a breach, serious or otherwise, but an event that prevents the obligations of the petitioners to convey title from arising, in accordance with Article 1184 of the Civil Code. x x x The non-fulfillment by the respondent of his obligation to pay, which is a suspensive condition to the obligation of the petitioners to sell and deliver the title to the property, rendered the contract to sell ineffective and without force and effect. The parties stand as if the conditional obligation had never existed. Article 1191 of the New Civil Code will not apply because it presupposes an obligation already extant. Page 32

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There can be no rescission of an obligation that is still non-existing, the suspensive condition not having happened. [Emphasis and underscoring supplied; citations omitted] The subject contract to sell clearly states that "title will be transferred by the owner (petitioners) to the buyer (respondent) upon complete payment of the agreed purchase price." Since respondent failed to fully pay the purchase price, petitioners’ obligation to convey title to the properties did not arise. While rescission does not apply in this case, petitioners may nevertheless cancel the contract to sell, their obligation not having arisen.

CALERO VS. CARRION March 30, 1960

FACTS: From the order of the Court of First Instance of Manila (in Civil Case No. 31409) dismissing his complaint, on the ground of prescription, plaintiff Federico Calero interposed this appeal directly to this Court on questions purely of law. On July 18,1957, defendant renewed their motion to dismiss, on the grounds that (1) the amended complaint states no cause of action (2) the plaintiff's cause of action, if any, is barred by the Statute of Limitations (Sec. 1[e], Rule 8, Rule of Court), and (3) the plaintiff's original complaint being without cause of action, it cannot be amended and/or cured by said amended complaint which changes plaintiff's theory of the case. In connection with the second ground mentioned, defendants stated: Plaintiff's right of action accrued in the year 1937 when the first of plaintiffs alleged various offers to defendants to sell the property at price offered by buyers was refused by defendants (Pars. 13 and 14 of ARAFAG • HABANA • JALAYAJAY

Complaint). It is patent, therefore, that is, ten (10) years from the year 1937. Considering that plaintiff's complaint was filed on December 21, 1956, plaintiff's cause of action if any, is obviously unenforceable and barred by the Statue of Limitations. To this motion, plaintiff filed his opposition on August 2, 1957, to which defendants filed a rejoinder on August 8, 1957. To this rejoinder, plaintiff filed a counter-reply on August 12, 1957. On August 21, 1957, the court issued an order denying defendant's motion to dismiss. From this order, defendants filed a motion for reconsideration on August 27, 1957, which was duly opposed by plaintiff on September 7, 1957. On September 16, 1957, defendants filed a rejoinder to said opposition. From the above-quoted order, plaintiff filed a motion for reconsideration on October 3, 1957, which was duly opposed by defendants on October 18, 1957. On October 23, 1957, the court denied said motion. Hence, this appeal. Plaintiff claims that the lower court erred in dismissing his complaint, contending that (a) the agreement Exhibit A attached to the amended complaint and made an integral part thereof, created "un fideicomiso implicito" or an implied trust, which is not subject to prescription, and (b) that even admitting the obligation is subject to a suspensive undetermined period (not condition), the action to have such period fixed by the court has not yet prescribed. In support of his submission that the agreement created an implied trust, plaintiff-appellant cites the provisions of Articles 1452 and 1453 of the new Civil Code which read as follows: ART. 1452. If two or more persons agree to purchase property and by common consent the legal title is taken in the name of one of them for the benefit of all, a trust is created Page 33

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by force of law in favor of the others in proportion to the interest of each. ART. 1453. When property is conveyed to a person in reliance upon his declared intention to hold it for, or transfer it to another or the grantor, there is an implied trust in favor of the person whose benefit is contemplated. The contention is without merit, Article 1452 abovequoted is inapplicable to this case for the reason that there is absolutely no stipulation in the contract, Exhibit A, that there would be a joint purchase of the property and that the legal title thereto was to be placed in the name of the defendants for the benefit of themselves and herein plaintiff. The recitals in the contracts preceding the paragraph containing the obligation assumed by the defendants, merely refer to the services rendered by the plaintiff as broker who negotiated the sale of the property to the defendants and which the defendants agreed to compensate. Nothing contained therein would indicate that the property was being purchased for the benefit of the plaintiff and the defendants. The terms of the contract admit no doubt that the 20% to be paid the plaintiff is of any amount which may be obtained by the sale of the property after deducting the purchase price thereof, which shall be taken from the liquidated benefit obtained by the owners out of the sale of the said property. Neither is Article 1453 applicable, because there is absolutely nothing in the agreement which even remotely indicates that the property was conveyed to the defendants in reliance upon their declared intention to hold it for, or transfer it to, another or the grantor. Even the very allegations of plaintiff's complaint clearly reflect the true nature of the agreement. It appears therefrom that although the original parties to purchase the property tribute P10,000.00 and the defendants to put up ARAFAG • HABANA • JALAYAJAY

P15,000.00 on account of the down payment of P25,000.00), the same was abandoned and the parties subsequently agreed that the defendants would buy the property exclusively in their name and for their own account. Plaintiff-appellant next contends that the lower court also erred in dismissing his complaint on the finding that plaintiff's right of action to have the period fixed for the sale of the property had already prescribed. It is urged that the time for enforcing their right of action to have the period judicially determined did not begin to run until the defendants had been formally demanded and they refused to sell the property. It was only then, it is argued, that the period of prescription started to run. This seems to be illogical. Before the period is fixed, the defendants' obligation to sell is suspended and they, therefore, cannot be compelled to act. For this reason, a complaint to enforce immediately the principal obligation subject to the suspensive period before this is fixed, will not prosper. But this is not to say that the plaintiff has no cause of action. His cause of action under the agreement is to have the court fix the period and after the expiration of that period, to compel the performance of the principal obligation to sell. And this right to have the period judicially fixed is born from the date of the agreement itself which contains the undetermined period. Extrajudicial demand is not essential for the creation of this cause of action to have the period fixed.1 It exists by operation of law from the moment such an agreement subject to an undetermined period is entered into, whether the period depends upon the will of the debtor alone, or of the parties themselves, or where from the nature and the circumstances of the obligation it can be inferred that a period was intended. This is the clear intendment of Article 1197 of the New Civil Code as well as Article 1128 of the Spanish Civil Code and the applicable doctrine laid down by this Court. And since the agreement was executed on May 28, 1937 and the complaint to have the period fixed was filed on December 21, 1956 or after almost 20 years, plaintiff's action is Page 34

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clearly and indisputably barred under the Statute of Limitations.

receivership by the SEC.

Wherefore, finding no reversible error in the order appealed from, the same is hereby affirmed, with costs against the plaintiff-appellant. So ordered.

HELD:

TRADERS ROYAL BANK vs. CA FACTS: The Philippine Blooming Mills, Inc. and Alfredo Ching jointly submitted to the Securities and Exchange Commission a petition for suspension of payments where Alfredo Ching was joined as copetitioner because under the law, he was allegedly entitled, as surety, to avail of the defenses of PBM and he was expected to raise most of the stockholders' equity of Pl00 million being required under the plan for the rehabilitation of PBM. Traders Royal Bank was included among PBM's creditors named in Schedule A accompanying PBM's petition for suspension of payments. The petitioner bank filed a case to collect Php22,227,794.05 representing PBM’s outstanding obligation to the bank. Ching was impleaded as a defendant for having signed as a surety to the extent of 10M. SEC however issued an order that PBM will go under a rehabilitation and receivership, thus ordered all actions for claims pending before any court to be suspended until further orders from the SEC. As a result, the court dropped PBM from the complaint but denied Ching’s motion to dismiss.

ISSUE: Whether the court a quo could acquire jurisdiction over Ching in his personal and individual capacity as a surety of PBM in the collection suit filed by the bank, despite the fact that PBM's obligation to the bank had been placed under ARAFAG • HABANA • JALAYAJAY

YES. Although Ching was impleaded in SEC Case No. 2250, as a co-petitioner of PBM, the SEC could not assume jurisdiction over his person and properties. The Securities and Exchange Commission was empowered, as rehabilitation receiver, to take custody and control of the assets and properties of PBM only, for the SEC has jurisdiction over corporations only not over private individuals, except stockholders in an intracorporate dispute.

Ching can be sued separately to enforce his liability as surety for PBM, as expressly provided by Article 1216 of the New Civil Code:

ART. 1216. The creditor may proceed against any of the solidary debtors or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, as long as the debt has not been fully collected.

It is elementary that a corporation has a personality distinct and separate from its individual stockholders or members. Being an officer or stockholder of a corporation does not make one's property the property also of the corporation, for they are separate entities (Adelio Cruz vs. Quiterio Dalisay, 152 SCRA 482).Ching's act of joining as a copetitioner with PBM in SEC Case No. 2250 did not vest in the SEC jurisdiction over his person or property, for jurisdiction does not depend on the consent or acts of the parties but upon express provision of law. Page 35

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PHILIPPINE BLOOMING MILLS, INC. vs CA

FACTS: The case is an offshoot of the decision in Traders Royal Bank v.s. CA wherein the court ruled the issue of Ching’s separate liability as a surety despite the rehabilitaion proceedings before the SEC. Ching was the Senior Vice President of PBM. In his personal capacity and not as a corporate officer, Ching signed a Deed of Suretyship dated 21 July 1977 binding himself to pay 10M.

Alfredo Ching now claims that since the SEC had already issued a decision approving a revised rehabilitation plan for PBM’s creditors, and that PBM obtained the credit accommodations for corporate purposes that did not redound to his personal benefit. He further claimed that even as a surety, he has the right to the defenses personal to PBM. Thus, his liability as surety would attach only if, after the implementation of payments scheduled under the rehabilitation plan, there would remain a balance of PBM’s debt to TRB. That as surety and solidary debtor, he should benefit from the change of the nature of the obligation as provided in Art. 1222 NCC.

actions filed by the creditor, avail himself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible.” In granting the loan to PBM, TRB required Ching’s surety precisely to insure full recovery of the loan in case PBM becomes insolvent or fails to pay in full. This was the very purpose of the surety. Thus, Ching cannot use PBM’s failure to pay in full as justification for his own reduced liability to TRB. As surety, Ching agreed to pay in full PBM’s loan in case PBM fails to pay in full for any reason, including its insolvency. TRB, as creditor, has the right under the surety to proceed against Ching for the entire amount of PBM’s loan. This is clear from Article 1216 of the Civil Code: ART. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected.

ISSUE: Whether Ching’s liability is limited to the amount stated in PBM’s rehabilitation plan?

HELD: NO. Art.1222 of the NCC may not apply to Ching “Art. 1222. A solidary debtor may, in ARAFAG • HABANA • JALAYAJAY

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the forfeiture clause in their lease agreement states that the deposit shall be deemed forfeited without prejudice to any other obligations still owing by the lessee to the lessor. COUNTRY BANKERS INSURANCE CORPORATION vs. CA

FACTS: Respondent Oscar Ventanilla Enterprises Corporation (OVEC), as lessor, and the petitioner Enrique F. Sy, as lessee, entered into a lease agreement over the Avenue, Broadway and Capitol Theaters and the land on which they are situated in Cabanatuan City for 6 years commencing from June 13, 1977 and ending June 12,1983. After more than two (2) years of operation of the Avenue, Broadway and Capitol Theaters, the lessor OVEC made demands for the repossession of the said leased properties in view of the Sy's arrears in monthly rentals and non-payment of amusement taxes. Due to Sy’s failure to pay the amount in full, OVEC padlocked the gates of three theaters. Sy asked for reformation of the lease agreement, damages and injuction. OVEC on the other hand, alleged in its answer by way of counterclaims, that by reason of Sy's violation of the terms of the subject lease agreement, OVEC became authorized to enter and possess the three theaters in question and to terminate said agreement and the balance of the deposits given by Sy to OVEC had thus become forfeited; that OVEC would be losing P50,000.00 for every month that the possession and operation of said three theaters remain with Sy and that OVEC incurred P500,000.00 for attorney's service. The trial court ruled in favor of OVEC, and held that the cancellation of the agreement was in accordance with the stipulation in their lease agreement. An award for damages and arrears in rental and taxes plus 100,000 as injunction bond and forfeiture of the 290,000 deposit. It held that ARAFAG • HABANA • JALAYAJAY

ISSUE: Whether or not the forfeiture clause would unjustly enrich OVEC at the expense of Sy

HELD: NO. A provision which calls for the forfeiture of the remaining deposit still in the possession of the lessor, without prejudice to any other obligation still owing, in the event of the termination or cancellation of the agreement by reason of the lessee's violation of any of the terms and conditions of the agreement is a penal clause that may be validly entered into.

A penal clause is an accessory obligation which the parties attach to a principal obligation for the purpose of insuring the performance thereof by imposing on the debtor a special presentation (generally consisting in the payment of a sum of money) in case the obligation is not fulfilled or is irregularly or inadequately fulfilled.

As a general rule, in obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of non-compliance. This is specifically provided for in Article 1226, par. 1, New Civil Code. In such case, proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded (Article 1228, New Civil Code). However, there are exceptions to the rule that the penalty shall substitute the indemnity for damages and the payment of interests in case of non-compliance with the principal obligation. They are first, when there is a Page 37

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stipulation to the contrary; second, when the obligor is sued for refusal to pay the agreed penalty; and third, when the obligor is guilty of fraud.

This supposed damage suffered by OVEC was the alleged P10,000.00 a month increase in rental from P50,000.00 to P60,000,00), which OVEC failed to realize for ten months from February to November, 1980 in the total sum of P100,000.00. This opportunity cost which was duly proven before the trial court, was correctly made chargeable by the said court against the injunction bond posted by CBISCO. The undertaking assumed by CBISCO under subject injunction refers to "all such damages as such party may sustain by reason of the injunction if the Court should finally decide that the Plaintiff was/were not entitled thereto." Thus, the respondent Court correctly sustained the trial court in holding that the bond shall and may answer only for damages which OVEC may suffer as a result of the injunction. COMMERCIAL CREDIT CORPORATION vs. CA

FACTS: Sometime in 1978 private respondent Cagayan De Oro Coliseum, Inc. executed a promissory note in the amount of P329,852.54 in favor of petitioner Commercial Credit Corporation of Cagayan de Oro, payable in 36 monthly installments. The note is secured by a real estate mortgage duly executed by private respondent in favor of petitioner. As said respondent defaulted in the payment of the monthly installments due, petitioner proceeded with the extrajudicial foreclosure of the real estate mortgage in September, 1979. Five minority stockholders of private respondent instituted an action questioning the power of the private respondent to execute the real estate mortgage without the consent of its stockholders. A compromise agreement was entered into which states that the stockholders ARAFAG • HABANA • JALAYAJAY

ratify the said loan and real estate mortgage entered into and assigned by Coliseum. That the corporation had an outstanding obligation to Commercial Credit in the amount of P249,263.23, that they agree to pay interest of 16% per annum. However, Coliseum still failed to comply with the terms of the judgment. Petitioner filed an ex parte motion for the issuance of a writ of execution on march 1983. The court granted the motion, and an auction sale was issued on march 11,1983. Private Respondent seeks to annul the compromisejudgment.

ISSUE: Whether or not a compromise judgment which was found by the CA to be lawful may be modified by the same court?

HELD: NO. It is axiomatic that a compromise judgment is final and immediately executory. Once a judgment becomes final and executory, the prevailing party can have it executed as a matter of right and the execution becomes a ministerial duty on the part of the court . A judicial compromise has the force and effect of res judicata . Such a final and executory judgment cannot be modified or amended. If an amendment is to be made, it may consist only of supplying an omission, striking out a superfluity or interpreting an ambiguous phrase therein in relation to the body of the decision which gives it life . A compromise judgment should not be disturbed except for vices in consent or forgery. In the present case, the compromise agreement was voluntarily entered into by the parties assisted by their respective counsel and was duly approved by the trial court. Indeed, it was confirmed by the respondent appellate court to be lawful. There was, therefore, no cogent basis for the respondent appellate court to modify said Page 38

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compromise agreement by reducing the penalty and attorney's fees provided for therein.

had admitted its failure to pay the rentals for September to November

PRYCE CORPORATION vs. PAGCOR

1993, PPC correctly exercised the option to terminate the lease agreement. Previously, the Contract remained effective, and PPC could collect the accrued rentals. However, from the time it terminated the Contract on November 25, 1993, PPC could no longer demand payment of the remaining rentals as part of actual damages

FACTS: In 1992, a representatives from Pryce Properties Corporation (PPC) made representations with the Philippine Amusement and Gaming Corporation (PAGCOR) on the possibility of setting up a casino in Pryce Plaza Hotel in Cagayan de Oro City. On September 1992, PPC and PAGCOR entered into a lease contract for the operation of casino in Pryce Hotel in Cagayan for 3 years. Hours before the formal opening of the casino, a public rally staged by some local officials, residents and religious leaders was held. They alleged that in 1990 there was an ordinance passed by the city prohibiting the operation of casinos in their area. PAGCOR suspended the opening. It questioned the ordinance alleging that it was unconstitutional. They resumed the casino operations but still, they were bombarded with rallies. The Office of the President advised PAGCOR to stop operations. PPC sent PAGCOR a letter for the full rental payment in case of pre-termination of the lease. PAGCOR declined to pay, and instead asked for reimbursement of the rental deposit and expenses for permanent improvements. CA: in favor of PPC. It held that the PAGCOR’S pretermination of the Contract of Lease was unjustified. The appellate court explained that public demonstrations and rallies could not be considered as fortuitous events that would exempt the gaming corporation from complying with the latter’s contractual obligations. Therefore, the Contract continued to be effective until PPC elected to terminate it on November 25, 1993.As PAGCOR ARAFAG • HABANA • JALAYAJAY

ISSUE: Whether the contract was rescinded or terminated? HELD: TERMINATED. In termination, the contract is deemed valid at the inception prior to termination. The contract binds the parties who are obliged to observe the provisions stated therein. Rescission, it is deemed inexistent and the parties are returned to their status quo ante. Thus, mutual restitution is required in a rescission (or resolution), in order to bring back the parties to their original situation prior to the inception of the contract. Applying this principle to this case, it means that PPC would re-acquire possession of the leased premises, and PAGCOR would get back the rentals it paid the former for the use of the hotel space. In contrast, the parties in a case of termination are not restored to their original situation; neither is the contract treated as if it never existed. Prior to its termination, the parties are obliged to comply with their contractual obligations. Only after the contract has been cancelled will they be released from their obligations. In this case, the actions and pleadings of petitioner show that it never intended to rescind the Lease Contract from the beginning. This fact Page 39

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was evident when it first sought to collect the accrued rentals from September to November 1993 because, as previously stated, it actually demanded the enforcement of the Lease Contract prior to termination. Any intent to rescind was not shown, even when it abrogated the Contract on November 25, 1993, because such abrogation was not the rescission provided for under Article 1659. Future rentals cannot be claimed as compensation for the use or enjoyment of another’s property after the termination of a contract. We stress that by abrogating the Contract in the present case, PPC released PAGCOR from the latter’s future obligations, which included the payment of rentals. To grant that right to the former is to unjustly enrich it at the latter’s expense. However, it appears that Section XX (c) was intended to be a penalty clause. That fact is manifest from a reading of the mandatory provision under subparagraph (a) in conjunction with subparagraph (c) of the Contract. A penal clause is “an accessory obligation which the parties attach to a principal obligation for the purpose of insuring the performance thereof by imposing on the debtor a special prestation (generally consisting in the payment of a sum of money) in case the obligation is not fulfilled or is irregularly or inadequately fulfilled.”

In obligations with a penal clause, the general rule is that the penalty serves as a substitute for the indemnity for damages and the payment of interests in case of noncompliance; that is, if there is no stipulation to the contrary,in which case proof of actual damages is not necessary for the penalty to be demanded. There are exceptions to the aforementioned rule, however, as enumerated in paragraph 1 of Article 1226 of the Civil Code: 1) when there is a stipulation to the contrary, 2) when the obligor is sued for refusal to pay the agreed penalty, and 3) when the obligor is ARAFAG • HABANA • JALAYAJAY

guilty of fraud. In these cases, the purpose of the penalty is obviously to punish the obligor for the breach. Hence, the obligee can recover from the former not only the penalty, but also other damages resulting from the nonfulfillment of the principal obligation. In the present case, the first exception applies because Article XX (c) provides that, aside from the payment of the rentals corresponding to the remaining term of the lease, the lessee shall also be liable “for any and all damages, actual or consequential, resulting from such default and termination of this contract.” Having entered into the Contract voluntarily and with full knowledge of its provisions, PAGCOR must be held bound to its obligations. It cannot evade further liability for liquidated damages. In this case, PAGCOR’s breach was occasioned by events that, although not fortuitous in law, were in fact real and pressing. we find that PAGCOR conducted a series of negotiations and consultations before entering into the Contract. It did so not only with the PPC, but also with local government officials, who assured it that the problems were surmountable. Likewise, PAGCOR took pains to contes t the ordinances before the courts, which consequently declared them unconstitutional. On top of these developments, the gaming corporation was advised by the Office of the President to stop the games in Cagayan de Oro City, prompting the former to cease operations prior to September 1993. ASIATRUST DEVELOPMENT vs CONCEPTS TRADING

FACTS: In March 1996, respondent Concepts Trading Corporation obtained from petitioner Asiatrust Development Corporation a credit accommodation in the amount of P2,000,000 covered by a loan agreement and secured by real and chattel mortgages. The amount was drawn from an Industrial Page 40

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Guarantee Loan Fund (IGLF) account opened by the petitioner in favor of the respondent. On March 4, 1986, the respondent executed Promissory Note in favor of the petitioner. Under the promissory note, the principal amount of P2,000,000 would be charged an interest of 23% per annum, inclusive of 1% service fee. Attached to and made part of the promissory note was the schedule of amortization agreed upon by the parties. As set forth in the schedule, the payment of the loan was to be amortized quarterly over a period of ten years with a two-year grace period on the principal payment. The first payment fell due on May 15, 1986 and the subsequent installments were to be paid every three months thereafter. In the event that the respondent defaulted in the payment of any installment or interest thereof, paragraph 4 of the promissory note provided that: ... the entire amount outstanding under this Note shall immediately, without need for any notice, demand, presentment, protest, or of any other act or deed, the right to all of which is hereby waived by the undersigned: (i) become due, payable and defaulted; (ii) be subject to a penalty equivalent to thirty-six percent (36%) per annum thereof; (iii) together with said penalty, commence to earn interest as [s ic] the rate of twenty-three percent (23%) per annum counted from the date of default until full payment thereof. Respondent failed to pay, prompting petitioner to enforce the acceleration clause. Respondent expressed expressed its willingness to settle its obligation and, due to its tight financial situation, negotiated for a modified payment scheme and thus, the parties entered into a Memorandum of Agreement. In compliance with its undertaking under the MOA, the respondent delivered the first check dated May 5, 1988 in the amount of P159,259.14 and four other checks in the sum of P150,000 each or for the total amount of P759,259.14. This was followed by another batch of five checks covering ARAFAG • HABANA • JALAYAJAY

the months of October 1988 to February 1989, also in the amount of P150,000 each or for a total amount of P750,000.

On March 30, 1989, the petitioner wrote to the respondent requesting for the delivery of the “last checks to completely rehabilitate” its account in accordance with the MOA. When the respondent failed to make the said payments, the petitioner on April 25, 1989 sent a final demand on the respondent to pay its entire obligation under the IGLF in the amount of P2,361,970.10 within five days from receipt thereof. Respondent filed with the RTC of Makati for declaratory relief and alleged that it is up to date in the payment of its loan obligation and, according to its record, the remaining balance amounted to only P316,550.48. The respondent prayed for the trial court to determine the rights and duties of the parties under the MOA to avoid the miscomputation of the loan obligation and any breach thereof. In its answer, the petitioner averred that as of February 15, 1988, the outstanding obligation of the respondent amounted to P2,833,867.04. According to the petitioner, the monthly amortizations paid by the respondent covered only the penalties accruing on the loan. Further, declaratory relief as a remedy sought by the respondent was allegedly improper as it already committed a breach of its obligations. The respondent filed the action a quo merely to defer or avoid payment of its legally contracted loan obligation with the petitioner. By way of compulsory counterclaim, the petitioner prayed for damages and attorney’s fees. The respondent then filed an amended complaint alleging that as of August 1989, it had already paid the petitioner the total amount of P2,259,259 and that there was an overpayment of P100,000. The respondent prayed that the petitioner be ordered to refund the amount overpaid, as well as to release the mortgages and to Page 41

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pay damages and attorney’s fees.

ISSUE: Whether or not petitioner waived the collection of accrued penalties an miscellaneous charges under the promissory note by entering into the MOA? HELD: YES. By entering into a memorandum of agreement, the bank waived the demandability of the entire loan. By such waiver, Concept Trading has not been rendered in default, and also, the penalty was waived under the MOA. Under the schedule of amortization contained in the promissory note, the respondent obliged to pay the principal obligation in quarterly amortizations over a period of ten years and that in case of default, the entire amount shall be due and demandable in its entirety. On the other hand, under the MOA, a new mode of payment was agreed upon, i.e., the payment by the respondent of the initial amount of P159,259.14 and subsequent payments of P150,000 every month until full payment of the loan obligation. The MOA, in effect, rendered the loan no longer due and demandable in its entirety at the time of its execution, precisely because it allowed the respondent under the new schedule of payments to pay the same by monthly installments. It bears stressing that the MOA provided that the mode of payment arose “out of the BANK’s liberality.” To allow the petitioner to collect penalty charges as if the respondent were in default, notwithstanding the existence of a new payment schedule, would be inconsistent with the aforesaid agreement. It must be stressed, however, that the foregoing should not be construed as to mean that the respondent could no longer be held in default and that the petitioner completely waived collection of penalty charges in case of default. Non-payment by the respondent of any of the monthly installments as provided under the MOA ARAFAG • HABANA • JALAYAJAY

would render it in default and the petitioner could collect the penalty charges therefor. As will be shown later, the CA did in fact determine the exact time when the respondent defaulted on its obligation under the MOA and accordingly reckoned therefrom the penalty charges due the petitioner. As noted by the CA, after the last payment of P150,000 on September 1989, the respondent still owed the petitioner the sum of P309,298.58. The respondent’s non-payment of the amortizations due after the said date rendered the balance due and demandable in its entirety, in accordance with the acceleration clause under the MOA. Further, since the respondent defaulted in its monthly payments after September 1989, it was only then that it could be rightfully imposed the penalty charges in accordance with the promissory note. Thus, contrary to the petitioner’s contention, the CA did not rule that the MOA operated as a waiver by the petitioner of its right to collect penalty charges. The petitioner faults the CA for reducing the penalty charges from 36% to 3% per annum on its finding that the former rate was too excessive, considering that the petitioner had already charged an interest rate of 23% per annum and that the principal obligation had been partly complied with. This Court does not agree with the petitioner. Article 1229 of the Civil Code states: Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. JISON V.S. CA

FACTS: Petitioners, the spouses Newton and Salvacion Jison, entered into a Contract to Sell with Page 42

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private respondent, Robert O. Phillips & Sons, Inc., whereby the latter agreed to sell to the former a lot at the Victoria Valley Subdivision in Antipolo, Rizal for P55,000.00, with interest at 8,1965 per annum, payable on an installment basis. Petitioners paid private respondents a down payment of P11,000.00 on October 20, 1961 and from October 27, 1961; to May 8, 1965 a monthly installment of P533.85. Due to the failure of petitioners to build a house as provided in the contract, the stipulated penalty of P5.00 per square meter was imposed to the effect that the monthly amortization was increased to P707.24. On January 1, 1966, February 1, 1966 and March 1, 1966, petitioners failed to pay the monthly installments due on said dates although petitioners subsequently paid the amounts due and these were accepted by private respondent. Petitioners failed to pay from October 1966 to January 1967. On January 11, 1967, private respondent sent a letter to petitioners calling their attention to the fact that their account was four months overdue. This letter was followed up by another letter where private respondent reminded petitioner of the automatic rescission clause of the contract. Petitioners eventually paid on March 1, 1967. Petitioners again failed to pay the monthly installments due .Thus, private respondent returned petitioners' check and informed them that the contract was cancelled when on April 1, 1967 petitioners failed to pay the monthly installment due, thereby making their account delinquent for three months. On April 19, 1967, petitioners tendered payment for all the installments already due but the tender was refused. Petitioners countered by filing a complaint for specific performance with the Court of First Instance of Rizal on May 4, 1967 and consigning the monthly installments due with the court. The TC rendered judgment in favor of ARAFAG • HABANA • JALAYAJAY

private respondent, dismissing the complaint and declaring the contract cancelled and all payments already made by petitioner franchise. ordering petitioners to pay P1,000.00 as and for attorney's fees; and declaring the consignation and tender of payment made by petitioners as not amounting to payment of the corresponding monthly installments. Not satisfied with the decision of the trial court, petitioners appealed to the Court of Appeals. Agreeing with the findings and conclusions of the trial court, the Court of Appeals on November 4, 1976 affirmed the former's decision.

ISSUE: Whether or not rescission of the contract and the forfeiture of the payments already made by petitioner is valid?

HELD: YES. RESCISSION OF CONTRACT WAS VALID. There is no denying that in the instant case the resolution or rescission of the Contract to Sell was valid. Neither can it be said that the cancellation of the contract was ineffective for failure of private respondents to give petitioners notice thereof as petitioners were informed cancelled private respondent that the contract was cancelled in the letter dated April 6, 1967 (Exh. "D"). As R.A. No. 65856, was not yet effective, the notice of cancellation need not be by notarial act, private respondent's letter being sufficient compliance with the legal requirement. The facts of 'fee instant case should be distinguished from those in the Palay Inc. case, as such distinction will explain why the Court in said case invalidated the resolution of the contract. In said case, the subdivision developer, without informing the buyer of the cancellation of the contract, resold the lot to another person. The lot Page 43

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buyer in said case was only informed of the resolution of the contract some six years later after the developer, rejected his request for authority to assign his rights under the contract. Such a situation does not obtain illness: the instant case. In fact, petitioners were informed of the cancellation of their contract in April 1967, when private respondent wrote them the letter dated April 6, 1967 (Exh. "D"), and within a month they were able to file a complaint against Private respondent. While the resolution of the contract and the forfeiture of the amounts already paid are valid and binding upon petitioners, the Court is convinced that the forfeiture of the amount of P5.00 although it includes the accumulated fines for petitioners' failure to construct a house as required by the contract, is clearly iniquitous considering that the contract price is only P6,173.15 The forfeiture of fifty percent (50%) of the amount already paid, or P3,283.75 appears to be a fair settlement. In arriving at this amount the Court gives weight to the fact that although petitioners have been delinquent in paying their amortizations several times to the prejudice of private respondent, with the cancellation of the contract the possession of the lot review.... to private respondent who is free to resell it to another party. Also, had R.A. No. 65856, been applicable to the instant case, the same percentage of the amount already paid would have been forfeited [Torralba 3(b).] The Court's decision to reduce the amount forfeited finds support in the Civil Code. As stated in paragraph 3 of the contract, in case the contract is cancelled, the amounts already paid shall be forfeited in favor of the vendor as liquidated damages. The Code provides that liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable ART.2227. Further, in obligations with a penal clause, the judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor LO VS. KJS ECO-FORMWORK ARAFAG • HABANA • JALAYAJAY

FACTS: Petitioner Lo, a building contractor, ordered scaffolding equipments from respondent KJS worth P540,425.80. He paid a downpayment in the amount of P150,000. The balance was made payable in ten monthly instalments. Respondent delivered the scaffoldings to petitioner. Petitioner was able to pay the first two monthly instalments. However, his business, however, encountered financial difficulties and he was unable to settle his obligation despite demands. Petitioner and respondent executed a Deed of Assignment, petitioner assigning to respondent his receivables of P335,426.14 from Jomero Realty Corp. However, when the respondent tried to collect from Jomero, the latter refused to honor the Deed of Assignment claiming that petitioner was also indebted to it. Respondent then demanded from the petitioner the payment of his obligation, but petitioner refused to pay claiming that his obligation had been extinguished when they executed the Deed of Assignment. As a result, respondent filed an action for recovery of a sum of money against the petitioner.

ISSUE: Whether the Deed of Assignment extinguished the petitioner’s obligation?

HELD: NO. An assignment of credit is an agreement, which is in the nature of a sale personal property, produced the effects of a dation in payment which may extinguish the obligation. In dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. In order that there be a valid dation in payment, the following must be present: (1) There must be the performance of the Page 44

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prestation in lieu of payment, which can be a credit against third person; (2) There must be some difference between the prestation due and that which is given in substitution; (3) There must be an agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the performance of a prestation different from that due.The undertaking really partakes in one sense of the nature 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, petitioner, as vendor or assignor, is bound to warrant the existence and legality of the credit at the time of the sale or assignment. When Jomero claimed that it was no longer indebted to petitioner since the latter also had an unpaid obligation to it, it essentially meant that its obligation to petitioner has been extinguished by compensation. In other words, respondent alleged the non-existence of the credit and asserted its claim to petitioner’s warranty under the assignment. Petitioner failed to make good his warranty that the assignee will be able to recover whatever collectibles the said assignor have against a third person. The assignment being inexistent and ineffectual it did not extinguish the petitioner’s obligation.

PNB VS. PINEDA

FACTS: Arroyo Spouses)\, obtained a loan of P580,000.00 from petitioner bank to purchase 60% of the subscribed capital stock, and thereby acquire the controlling interest of private respondent Tayabas Cement Company, Inc. (TCC). As security for said loan, the spouses Arroyo executed a real estate mortgage over a parcel of land La Vista property. TCC then filed with petitioner bank an application and agreement for the establishment of an eight (8) year deferred letter of credit (L/C) for $7,000,000.00 in favor of Toyo Menka Kaisha, Ltd. to cover the importation of a cement plant ARAFAG • HABANA • JALAYAJAY

machinery and equipment. Upon approval of said application and opening of an L/C the Arroyo spouses executed a Surety Agreement and Covenant to secure the loan accommodation. The imported cement plant machinery and equipment arrived from Japan and were released to TCC under a trust receipt agreement. TCC, failed to remit and/or pay the corresponding amount covered by the drawings. Thus, PNB notified TCC of its intention to repossess, as it later did, the imported machinery and equipment for failure of TCC to settle its obligations under the L/C. In the meantime, the personal accounts of the spouses Arroyo, which included another loan of P160,000.00 secured by a real estate mortgage over parcels of agricultural land known as Hacienda Bacon had likewise become due. Failure of Arroyo spouses to pay the loan, PNB filed a petition for extra-judicial foreclosure of the real estate mortgages over the properties known as the La Vista property and Hacienda Bacon. TCC contends that such foreclosure cannot be done because the bank has already repossessed it’s imported machinery and equipment.

ISSUE: Whether or not TCC’s liability has been extinguished by the repossession of PNB of the imported cement plant machinery and equipment?

HELD: No, liability was not extinguished. In this case PNB took possession of the imported cement plant machinery and equipment pursuant to the trust receipt agreement executed by and between PNB and TCC giving the former the unqualified right to the possession and disposal of all property shipped under the Letter of Credit until such time as all the liabilities and obligations undersaid letter had been discharged.

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PNB's possession of the subject machinery and equipment being precisely as a form of security for the advances given to TCC under the Letter of Credit, said possession by itself cannot be considered payment of the loan secured thereby. Payment would legally result only after PNB had foreclosed on said securities, sold the same and applied the proceeds thereof to TCC's loan obligation. Mere possession does not amount to foreclosure. Neither can said repossession amount to dacion en pago . Dation in payment takes place when property is alienated to the creditor in satisfaction of a debt in money and the same is governed by sales. Dation in payment is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. The repossession of the machinery and equipment in question was merely to secure the payment of TCC's loan obligation and not for the purpose of transferring ownership thereof to PNB in satisfaction of said loan. Thus, no dacion en pago was ever accomplished, hence, there is no payment made and obligation is not extinguished. PCIBANK VS. CA

amount of P4,298,307.77, which Atlas paid.

According to Atlas, apart from the downpayment and installment payments it should be credited with its payment of P4,298,307.77 to NAMAWU. Thus, Atlas claims to have made an overpayment and that PCIB should reimburse to it P233,684.23. When PCIB refused to pay, Atlas sued PCIB to obtain reimbursement of the alleged overpayment. PCIB contended that Atlas still owed it a total of P908,398.75. It also alleged that even before the writ of garnishment was served on Atlas, the judgment in favor of NAMAWU was reduced and had already been partially satisfied. Atlas could not credit the amount received by NAMAWU in satisfaction of the Atlas obligation to PCIB.

ISSUE: Whether or not PCIB can demand from Atlas more than what it received from MBC? Whether or not Atlas can demand reimbursement from PCIB for the payment made to NAMAWU?

FACTS: PCIB and, Manila Banking Corporation (MBC) were joint bidders in a foreclosure sale of assorted mining machinery and equipment previously mortgaged to them by the Philippine Iron Mines, Inc. (PIM). Four years later, Atlas agreed to purchase some of these properties owned jointly by PCIB and MBC, evidenced by a Deed of Sale with the parties agreeing therein to an initial downpayment of P12,000,000.00 and the balance of P18,000,000.00 payable in six monthly installments. The contract contained certain provisions expressly warranting the properties free from all liens and ecumbrances and freeing Atlas from all claims and incidental actions of the union NAMAWU. The NAMAWU then made a claim which stemmed from a labor dispute wherein NAMAWU obtained a favorable judgment against PIM in the ARAFAG • HABANA • JALAYAJAY

HELD: (1) No. This case is deemed as a joint obligation, where there is a concurrence of several creditors, or of several debtors or of several debtors or of several creditors and debtors, by virtue of which each of the creditors has a right to demand, and each of the debtors is bound to render, compliance with his proportionate part of the prestation which constitutes the object of the obligation. Article 1208 of the Civil Code mandates the equal sharing of creditors in the payment of debt in the absence of any law or stipulation to the contrary. There was yet no agreement as of that date concerning the corresponding share of each creditor. It was only on 8 March 1979 when PCIB communicated to Atlas the percentage of payments Page 46

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to be remitted to PCIB and MBC. Before said date, Atlas could be secure in the thought that the matter of sharing was best left to the creditors to decide. The amount entitle to PCIB is therefore an internal matter between it and MBC.

(2) As found by the Court the judgment on NAMAWU’s claim was reduced it toP3,697,047.77. Clearly, Atlas overpaid NAMAWU. It immediately paid NAMAWU, without making any investigation or consultation with PCIB. Article 1236 of the Civil Code applies in this instance that whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. PCIB is the debtor in this case, while Atlas is the third person who paid the obligation of the debtor without the latter’s knowledge and consent. Atlas then may only recover from PCIB the amount of payment which has benefited the latter. If the debt has been paid such as in this case, a payment by a third person would constitute a payment of what is not due; his remedy would be against the person who received the payment (NAMAWU) and not against the debtor who did not benefit from the payment.

CULABA VS. CA and SAN MIGUEL CORP.

FACTS: The spouses Culaba were the owners of the Culaba store and were engaged in the sale and distribution of San Miguel Corp.’s beer products. SMC sol beer products the Culaba spouses in the amount of P28,650.00 as evidenced by a Temporary Credit Invoice. Caluba spouses made a partial payment of P3,740 leaving an unpaid balance of P24,910. As they failed to pay despite demands, SMC filed an action for collection of a sum of money against them. Defendant –spouses denied any liability, claiming that they had already paid the ARAFAG • HABANA • JALAYAJAY

plaintiff in full separate occasions. Defendants presented four Temporary Charge Sales Liquidation Receipts (TCSL). Francisco Caluba testified that he made the payments to an SMC supervisor who came in an SMC van. He was then showed a list of customer’s accountabilities which included his account. SMC then submitted a publisher’s affidavit to prove that the entire booklet of TCSL Receipts bearing Nos. 27301-27350 were reported lost by it, and that it caused the publication of the notice of loss in the July 9, 1983 issue of the Daily Express.

ISSUE: Whether or not the payment made by Francisco Culaba to the alleged MC supervisor extinguished its obligation with SMC?

HELD: No. Payment is a mode of extinguishing an obligation. Article 1240 of the Civil Code provides that payment shall be made to the person in whose favor the obligation has been constituted, or his successor-in-interest, or any person authorized to receive it. In this case, the payments were purportedly made to a "supervisor" SMC, who was clad in an SMC uniform and drove an SMC van. He appeared to be authorized to accept payments as he showed a list of customers’ accountabilities and even issued SMC liquidation receipts which looked genuine. Unfortunately for petitioner Francisco Culaba, he did not ascertain the identity and authority of the said supervisor, nor did he ask to be shown any identification to prove that the latter was, indeed, an SMC supervisor. The petitioners relied solely on the man’s representation. Thus, the payments the petitioners claimed they made were not the payments that discharged their obligation to the private respondent. The petitioners’ loss could have been avoided if they had simply exercised due diligence in ascertaining the identity of the person to whom they allegedly made the payments. Negligence is the omission to do Page 47

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something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something, which a prudent and reasonable man would not do.The most prudent thing the petitionshould have done was to ascertain the identity and authority of the person who collected their payments. Failing this, the petitioners cannot claim that they acted in good faith when they made such payments.

amount of P69,400.00, leaving a balance of P971,959.00 under the terms of their contract. In its Answer with Counter-claims (sic), petitioner averred that it had already paid Guillermo the amount of P1,022,793.46 for his services and that there was even an overpayment of P58,189.46 as evidenced by the vouchers issued to him. Petitioner further claimed that Guillermo is liable for unpaid rentals amounting to P66,000.00 as of June 1990 for his occupancy of one of the houses in Virginia Valley Subdivision since 1985.

TOWNE & CITY DEVELOPMENT CORPORATION VS. CA and GUILLERMO R. VOLUNTAD ISSUES: FACTS: Respondent Guillermo Voluntad (Guillermo) and petitioner Towne & City Development Corporation were both engaged in the construction business. They entered into a contract for the (a) construction of several housing units belonging to or reserved for different individuals; (b) repair of several existing housing units belonging to different individuals; and (c) repair of facilities, all located at the Virginia Valley Subdivision, owned and developed by the petitioner. The total contract cost amounted to One Million Forty One Thousand Three Hundred Fifty Nine (P1,041,359.00) Pesos. The parties agreed that Guillermo should be paid in full by petitioner the agreed contract cost upon completion of the project. Pending completion of the project, Guillermo was allowed by petitioner to occupy, free of charge, one of its houses at the Virginia Valley Subdivision. After completing the construction and repair works subject of the contract, Guillermo demanded payment for his services. When petitioner failed to satisfy his claim in full, Guillermo filed on April 30, 1990 a Complaint for collection against petitioner before the RTC of Manila alleging that petitioner paid him only the

ARAFAG • HABANA • JALAYAJAY

Whether petitioner had paid Guillermo in full in accordance with their contract as evidenced by the vouchers and whether these vouchers suffices as evidence of payment.

HELD: In the case at bar, petitioner has relied on vouchers to prove its defense of payment. However, as correctly pointed out by the trial court which the appellate court upheld, vouchers are not receipts. It should be noted that a voucher is not necessarily an evidence of payment. It is merely a way or method of recording or keeping track of payments made. A procedure adopted by companies for the orderly and proper accounting of funds disbursed. Unless it is supported by an actual payment like the issuance of a check which is subsequently encashed or negotiated, or an actual payment of cash duly receipted for as is customary among businessmen, a voucher remains a piece of paper having no evidentiary weight. A receipt is a written and signed acknowledgment that money has been or goods have been delivered, while a voucher is documentary record of a business transaction. Page 48

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The references to alleged check payments in the vouchers presented by the petitioner do not vest them with the character of receipts. Under Article 1249 of the Civil Code, payment of debts in money has to be made in legal tender and the delivery of mercantile documents, including checks, “shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired.” From the text of the Civil Code provision, it is clear that there are two exceptions to the rule that payment by check does not extinguish the obligation. Neither exception is present in this case. Concerning the first, petitioner failed to produce the originals of the checks after their supposed encashment and even the bank statements although the supposed payments by check were effected only about 5 years before the filing of the collection suit. Anent the second exception, the doctrine is that it does not apply to instruments executed by the debtor himself and delivered to the creditor. Indubitably, that is not the situation in this case. Petitioner also relied upon the testimony of its Corporate Secretary, Rhodora Aguila. Again, the issue about the credibility of said witness involves a question of fact which is a definite incongruity in petitions for review, as in the case before us. In any event, the Court of Appeals convincingly debunked the testimony. NOEMI M. CORONEL VS. ENCARNACION C. CAPATI G. R. No. 157836. May 26, 2005

respondent two checks for the first and second loan. The two loans are embodied in two handwritten instruments. Petitioner failed to pay her loans upon maturity despite repeated demands from respondent. The two checks she issued were dishonored when presented for payment on February 16, 1993 and April 7, 1993. Hence, on September 14, 1993, respondent filed a complaint for sum of money and damages with attachment against petitioner before the Regional Trial Court of Guagua, Pampanga. Petitioner denied contracting the two loans in the amounts of P121,000.00 and P363,000.00 from respondent. She alleged that the Metrobank checks representing the foregoing amounts were two of several checks she issued in favor of respondent for a loan amounting to P1.101 million which she has fully paid. She claimed that despite full payment, respondent still deposited the two checks because of a dispute between them arising from respondent’s demand for exorbitant and additional interest on the P1.101 million loan. Petitioner alleged further that there were instances when respondent asked her to affix her signature on blank sheets of paper¸ thereby implying that the contents of Exhibits containing the loan agreements were written by respondent on sheets of paper signed in advance by petitioner. The RTC ruled in favor of respondent ordering him to pay. The CA affirmed such decision. Hence, this petition.

SM: Extinguishment of Payment ISSUE: FACTS: Petitioner contracted two loans from respondent on September 4, 1992 and October 25, 1992. The first amounted to P121,000.00 payable on or before February 4, 1993 and the second amounted to P363,000.00 payable on or before March 25, 1993. In return, petitioner issued ARAFAG • HABANA • JALAYAJAY

Whether payment was made and that it was fully extinguished.

HELD:

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Petitioner tries to escape responsibility by testifying that it has been respondent’s practice to ask her to sign blank sheets of paper. She wants the court to believe that she did not know of the contents of Exhibits “A-1” and “B-1,” and that these documentary evidence could have been one of those blank sheets of paper that respondent has asked her to sign. We find this tale unacceptable, absent any form of duress or intimidation from respondent, which petitioner does not even allege. Time and again, we have held that one who is of age and a businesswise is presumed to have acted with due care and to have signed the documents in question with full knowledge of its contents and consequences. Petitioner is not one ignorant, illiterate person who could be easily duped into signing blank sheets of papers. She has borrowed large sums of money from respondent. In fact, petitioner’s total loan obligation to respondent has reached over millions of pesos. Petitioner has transacted business with respondent several times. Among others, they include transactions involving a pacto de retro sale which is the subject of another pending case between the parties and loans amounting to P2M and P1M, secured by deeds of real estate mortgage and chattel mortgage, respectively. As the lower court correctly pointed out, petitioner apparently knows how to take care of her business dealings. Thus, on October 21, 1992 and February 22, 1993, she caused the execution of two documents entitled “Discharge of Real Estate Mortgage”[27] and “Discharge of Chattel Mortgage,”[28] respectively, when she paid respondent the full consideration of the promissory notes of P2M and P1M, wherein the mortgages served as security for the payment of said notes. Similarly, petitioner, upon payment of P1M to respondent on November 13, 1992, retrieved the Metrobank Checks which she issued as security to respondent. Interestingly, in the case of the two checks subject matter of this litigation, petitioner did not even demand their return from respondent, notwithstanding her claim that she has paid in full her loan obligation. All she presented was a letter ordering Metrobank to stop payment ARAFAG • HABANA • JALAYAJAY

of the checks without proof that it has been received by, nor actually sent to Metrobank Guagua. Again, we reiterate the rule that when the existence of a debt is fully established by the evidence contained in the record, the burden of proving that it has been extinguished by payment devolves upon the debtor who offers such defense to the claim of the creditor. Even where respondent-creditor who was plaintiff in the lower court, alleges non-payment, the general rule is that the onus rests on the petitioner-debtor who was defendant in the lower court, to prove payment, rather than on the plaintiff-creditor to prove nonpayment. The debtor has the burden of showing with legal certainty that the obligation has been discharged by payment. This, petitioner failed to do FALLO: Denied. RTC and CA decision AFFIRMED

NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO M. MAGGAY VS. CA AND CAMARINES SUR II ELECTRIC COOPERATIVE, INC. (CASURECO II) G.R. No. 107112 February 24, 1994

FACTS: Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company rendering local as well as long distance telephone service in Naga City while private respondent Camarines Sur II Electric Cooperative, Inc. (CASURECO II) is a private corporation established for the purpose of operating an electric power service in the same city. On November 1, 1977, the parties entered into a contract for the use by petitioners in the operation of its telephone service the electric light posts of private respondent in Naga City. In consideration therefor, petitioners agreed to Page 50

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install, free of charge, ten (10) telephone connections for the use by private respondent. The said contract also provided: That the term or period of this contract shall be as long as the party of the first part has need for the electric light posts of the party of the second part it being understood that this contract shall terminate when for any reason whatsoever, the party of the second part is forced to stop, abandoned [sic] its operation as a public service and it becomes necessary to remove the electric lightpost; After the contract had been enforced for over ten (10) years, private respondent filed with RTC against petitioners for reformation of the contract with damages, on the ground that it is too one-sided in favor of petitioners; that it is not in conformity with the guidelines of the National Electrification Administration (NEA) which direct that the reasonable compensation for the use of the posts is P10.00 per post, per month; that after eleven (11) years of petitioners' use of the posts, the telephone cables strung by them thereon have become much heavier with the increase in the volume of their subscribers, worsened by the fact that their linemen bore holes through the posts at which points those posts were broken during typhoons; that a post now costs as much as P2,630.00; so that justice and equity demand that the contract be reformed to abolish the inequities thereon. Private respondent also complained about the poor servicing by petitioners of the ten (10) telephone units which had caused it great inconvenience and damages to the tune of not less than P100,000.00 In petitioners' answer to the first cause of action, they averred that it should be dismissed because (1) it does not sufficiently state a cause of action for reformation of contract; (2) it is barred by prescription, the same having been filed more than ten (10) years after the execution of the contract; and (3) it is barred by estoppel, since private respondent seeks to enforce the contract in the same action. Petitioners further alleged that ARAFAG • HABANA • JALAYAJAY

their utilization of private respondent's posts could not have caused their deterioration because they have already been in use for eleven (11) years; and that the value of their expenses for the ten (10) telephone lines long enjoyed by private respondent free of charge are far in excess of the amounts claimed by the latter for the use of the posts, so that if there was any inequity, it was suffered by them. And with respect to the second cause of action, petitioners claimed, that their telephone service had been categorized by the National Telecommunication Corporation (NTC) as "very high" and of "superior quality." The RTC ruled that while in an action for reformation of contract, it cannot make another contract for the parties, it can, however, for reasons of justice and equity, order that the contract be reformed to abolish the inequities therein. Thus, said court ruled that the contract should be reformed by ordering petitioners to pay private respondent compensation for the use of their posts in Naga City, while private respondent should also be ordered to pay the monthly bills for the use of the telephones also in Naga City. Petitioners appealed to respondent CA, however the same was affirmed.

ISSUES: 1. Whether Article 1267 of the New Civil Code is applicable 2. Whether contract should be reformed 3. Whether the contract was subject to a potestative condition which rendered said condition void. HELD: Article 1267 speaks of "service" which has become so difficult. Taking into consideration the rationale behind this provision, the term "service" should be understood as referring to the "performance" of the obligation. In the present Page 51

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case, the obligation of private respondent consists in allowing petitioners to use its posts in Naga City, which is the service contemplated in said article. Furthermore, a bare reading of this article reveals that it is not a requirement thereunder that the contract be for future service with future unusual change. According to Senator Arturo M. Tolentino, 10 Article 1267 states in our law the doctrine of unforseen events. This is said to be based on the discredited theory of rebus sic stantibus in public international law; under this theory, the parties stipulate in the light of certain prevailing conditions, and once these conditions cease to exist the contract also ceases to exist. Considering practical needs and the demands of equity and good faith, the disappearance of the basis of a contract gives rise to a right to relief in favor of the party prejudiced. On the issue of reformation of contract, petitioners allege that respondent court's ruling that the right of action "arose only after said contract had already become disadvantageous and unfair to it due to subsequent events and conditions, which must be sometime during the latter part of 1982 or in 1983 . . ." is erroneous. In reformation of contracts, what is reformed is not the contract itself, but the instrument embodying the contract. It follows that whether the contract is disadvantageous or not is irrelevant to reformation and therefore, cannot be an element in the determination of the period for prescription of the action to reform. Article 1144 of the New Civil Code provides, inter alia, that an action upon a written contract must be brought within ten (10) years from the time the right of action accrues. Clearly, the ten (10) year period is to be reckoned from the time the right of action accrues which is not necessarily the date of execution of the contract. As correctly ruled by respondent court, private respondent's right of action arose "sometime during the latter part of 1982 or in 1983 when according to Atty. Luis General, Jr. . . ., he was asked by (private respondent's) Board of Directors to study said contract as it already appeared disadvantageous to ARAFAG • HABANA • JALAYAJAY

(private respondent) (p. 31, tsn, May 8, 1989). (Private respondent's) cause of action to ask for reformation of said contract should thus be considered to have arisen only in 1982 or 1983, and from 1982 to January 2, 1989 when the complaint in this case was filed, ten (10) years had not yet elapsed." Regarding the last issue, petitioners allege that there is nothing purely potestative about the prestations of either party because petitioner's permission for free use of telephones is not made to depend purely on their will, neither is private respondent's permission for free use of its posts dependent purely on its will. Petitioners' allegations must be upheld in this regard. A potestative condition is a condition, the fulfillment of which depends upon the sole will of the debtor, in which case, the conditional obligation is void. Based on this definition, respondent court's finding that the provision in the contract, to wit: (a) That the term or period of this contract shall be as long as the party of the first part (petitioner) has need for the electric light posts of the party of the second part (private respondent) . . .. is a potestative condition, is correct. However, it must have overlooked the other conditions in the same provision, to wit: . . . it being understood that this contract shall terminate when for any reason whatsoever, the party of the second part (private respondent) is forced to stop, abandoned (sic) its operation as a public service and it becomes necessary to remove the electric light post ; which are casual conditions since they depend on chance, hazard, or the will of a third person. In sum, the contract is subject to mixed conditions, that is, they depend partly on the will of the debtor and partly on chance, hazard or the will of a third Page 52

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person, which do not invalidate aforementioned provision

the

P492,100.00 representing accrued interest on one of the PN’s. According to the bank, the promissory note was erroneously released.

FALLO: Petition DENIED. CA decision AFFIRMED

TRANS-PACIFIC INDUSTRIAL SUPPLIES, INC. VS. CA and ASSOCIATED BANK G.R. No. 109172 August 19, 1994

FACTS: In 1979, petitioner applied for and was granted several financial accommodations amounting to P1.3 M by respondent Associated Bank. The loans were evidenced and secured by four (4) promissory notes, a real estate mortgage covering three parcels of land and a chattel mortgage over petitioner's stock and inventories. Unable to settle its obligation in full, petitioner requested for, and was granted by respondent bank, a restructuring of the remaining indebtedness which then amounted to P1,057,500.00, as all the previous payments made were applied to penalties and interests. To secure the re-structured loan of P1,213,400.00, three new promissory notes were executed by Trans-Pacific. The mortgaged parcels of land were substituted by another mortgage covering two other parcels of land and a chattel mortgage on petitioner's stock inventory. The released parcels of land were then sold and the proceeds amounting to P1,386,614.20, according to petitioner, were turned over to the bank and applied to Trans-Pacific's restructured loan. Subsequently, respondent bank returned the duplicate original copies of the three promissory notes to Trans-Pacific with the word "PAID" stamped thereon. Despite the return of the notes, or on December 12, 1985, Associated Bank demanded from Trans-Pacific payment of the amount of ARAFAG • HABANA • JALAYAJAY

Initially, Trans-Pacific expressed its willingness to pay the amount demanded by respondent bank. Later, it had a change of heart and instead initiated an action before the Regional Trial Court of Makati, Br. 146, for specific performance and damages. There it prayed that the mortgage over the two parcels of land be released and its stock inventory be lifted and that its obligation to the bank be declared as having been fully paid. The RTC rendered judgment in favor of TransPacific. The CA reversed the RTC decision. ISSUES: Whether petitioner has indeed paid in full its obligation to respondent bank.

HELD: NO. The Court found no reversible error committed by the appellate court in disposing of the appealed decision. As gleaned from the decision of the court a quo, judgment was rendered in favor of petitioner on the basis of presumptions. The above disquisition finds no factual support, however, per review of the records. The presumption created by the Art. 1271 of the Civil Code is not conclusive but merely prima facie. If there be no evidence to the contrary, the presumption stands. Conversely, the presumption loses its legal efficacy in the face of proof or evidence to the contrary. In the case at bar, the Court finds sufficient justification to overthrow the presumption of payment generated by the delivery of the documents evidencing petitioners’ indebtedness. Page 53

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It may not be amiss to add that Article 1271 of the Civil Code raises a presumption, not of payment, but of the renunciation of the credit where more convincing evidence would be required than what normally would be called for to prove payment. The rationale for allowing the presumption of renunciation in the delivery of a private instrument is that, unlike that of a public instrument, there could be just one copy of the evidence of credit. Where several originals are made out of a private document, the intendment of the law would thus be to refer to the delivery only of the original rather than to the original duplicate of which the debtor would normally retain a copy. FALLO: Petition is DENIED for lack of merit.

SILAHIS MARKETING CORPORATION VS. IAC and GREGORIO DE LEON G. R. No. L-74027 December 7, 1989

FACTS: On various dates in October, November and December, 1975, Gregorio de Leon doing business under the name and style of Mark Industrial Sales sold and delivered to Silahis Marketing Corporation various items of merchandise covered by several invoices in the aggregate amount of P22,213.75 payable within thirty (30) days from date of the covering invoices. Allegedly due to Silahis' failure to pay its account upon maturity despite repeated demands, de Leon filed a complaint for the collection of the said accounts including accrued interest thereon in the amount of P661.03 and attorney's fees of P5,000.00 plus costs of litigation. The answer admitted the allegations of the complaint insofar as the invoices were concerned but presented as affirmative defenses; [a] a debit memo for P22,200.00 as unrealized profit for a supposed commission that Silahis should have ARAFAG • HABANA • JALAYAJAY

received from de Leon for the sale of sprockets in the amount of P111,000.00 made directly to Dole Philippines, Incorporated by the latter sometime in August 1975; and [b] Silahis' claim that it is entitled to return the stainless steel screen which was found defective by its client, Borden International, Davao City, and to have the corresponding amount cancelled from its account with de Leon.

ISSUE: Whether or not private respondent is liable to the petitioner for the commission or margin for the direct sale which the former concluded and consummated with Dole Philippines, Incorporated without coursing the same through herein petitioner.

HELD: It must be remembered that compensation takes place when two persons, in their own right, are creditors and debtors to each other. Article 1279 of the Civil Code provides that: "In order that compensation may be proper, it is necessary: [1] that each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; [2] that both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; [3] that the two debts be due; [4] that they be liquidated and demandable; [5] that over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor." Undoubtedly, petitioner admits the validity of its outstanding accounts with private respondent in the amount of P22,213.75 as contained in its answer. But whether private respondent is liable to pay the petitioner a 20% margin or commission on the subject sale to Dole Philippines, Inc. is vigorously disputed. This Page 54

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circumstance prevents legal compensation from taking place. The Court agrees with respondent appellate court that there is no evidence on record from which it can be inferred that there was any agreement between the petitioner and private respondent prohibiting the latter from selling directly to Dole Philippines, Incorporated. Definitely, it cannot be asserted that the debit memo was a contract binding between the parties considering that the same, as correctly found by the appellate court, was not signed by private respondent nor was there any mention therein of any commitment by the latter to pay any commission to the former involving the sale of sprockets to Dole Philippines, Inc. in the amount of P111,000.00. Indeed, such document can be taken as self-serving with no probative value absent a showing or at the very least an inference, that the party sought to be bound assented to its contents or showed conformity thereto. FALLO: Questioned decision of appellate court is hereby affirmed.

respondent

ENGRACIO FRANCIA VS. IAC and HO FERNANDEZ G.R. No. L-67649 June 28, 1988

FACTS: Engracio Francia is the registered owner of a residential lot, 328 square meters, and a twostory house built upon it situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republic of the Philippines for the sum of P4,116.00 representing the estimated amount equivalent to the assessed value of the aforesaid portion. Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at public ARAFAG • HABANA • JALAYAJAY

auction pursuant to Section 73 of Presidential Decree No. 464 known as the Real Property Tax Code in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property. On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his complaint on January 24, 1980. The petitioner seeks to set aside the auction sale of his property which took place on December 5, 1977, and to allow him to recover a 203 square meter lot which was sold at public auction to Ho Fernandez and ordered titled in the latter's name. He further averred that his tax delinquency of P2,400.00 has been extinguished by legal compensation since the government owed him P4, 116.00 when a portion of his land was expropriated. The lower court rendered a decision in favor Fernandez which was affirmed by the Intermediate Appellate Court . Hence, this petition for review.

ISSUE: Whether or not the tax delinquency of Francia has been extinguished by legal compensation.

RULING: There is no legal basis for the contention. By legal compensation, obligations of persons, who in their own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy the requirements provided by Article 1279, to wit: (1) that each one of the obligors be bound principally and that he be at the same time a principal creditor of the other; (2) that the two debts be due. The Court had consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax Page 55

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on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. In addition, a taxpayer cannot refuse to pay his tax when called upon by the collector because he has a claim against the governmental body not included in the tax levy. There are also other factors which compelled the Court to rule against the petitioner. The tax was due to the city government while the expropriation was effected by the national government. Moreover, the amount of P4,116.00 paid by the national government for the 125 square meter portion of his lot was deposited with the Philippine National Bank long before the sale at public auction of his remaining property. Notice of the deposit dated September 28, 1977 was received by the petitioner on September 30, 1977. The petitioner admitted in his testimony that he knew about the P4,116.00 deposited with the bank but he did not withdraw it. It would have been an easy matter to withdraw P2,400.00 from the deposit so that he could pay the tax obligation thus aborting the sale at public auction. FALLO: The petition for review was dismissed. BANK OF THE PHILIPPINE ISLANDS VS. CA and JIMMY T. GO G.R. No. 142731 June 8, 2006

Petitioner, claiming that Noah’s Ark defaulted in its obligations, extrajudicially foreclosed the mortgage. The auction sale was set on 14 April 1998 but on 8 April 1998 private respondent filed a complaint for damages with prayer [for] issuance of TRO and/or writ of preliminary injunction seeking [to] enjoin the auction sale. In the Order dated 14 April 1998 a temporary restraining order was issued and in the same order the application for Preliminary Injunction was set for hearing [i]n the afternoon of the same day.

ISSUE: Whether petitioner corporation was already in default? Whether there was a novation?

HELD: YES. Petitioner corporation alleges that there had been no demand on the part of respondent bank previous to its filing a complaint against petitioner and Rene Knecht personally for collection on petitioner’s indebtedness. For an obligation to become due there must generally be a demand. Default generally begins from the moment the creditor demands the performance of the obligation. Without such demand, judicial or extrajudicial, the effects of default will not arise.

FACTS: Petitioner, Far East Bank and Trust Company, granted a total of eight (8) loans to Noah’s Arc Merchandising (Noah’s Ark is a single proprietorship owned by Mr. Albert T. Looyuko). The said loans were evidenced by identical Promissory Notes all signed by Albert T. Looyuko, private respondent Jimmy T. Go and one Wilson Go. Likewise, all loans were secured by real estate mortgage constituted over a parcel of land registered in the names of Mr. Looyuko and herein private respondent. ARAFAG • HABANA • JALAYAJAY

The Civil Code in Article 11698 provides that one incurs in delay or is in default from the time the obligor demands the fulfillment of the obligation from the obligee. However, the law expressly provides that demand is not necessary under certain circumstances, and one of these circumstances is when the parties expressly waive demand. Hence, since the co-signors expressly waived demand in the promissory notes, demand was unnecessary for them to be in default. NONE. Private respondent further argues that by withholding the lease payments Far East Page 56

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Bank and Trust Company (FEBTC) owed Noah’s Ark for the space FEBTC was leasing from Noah’s Ark and applying said amounts to the outstanding obligation of Noah’s Ark, as expressed in a letter from FEBTC dated May 19, 1998,9 FEBTC has waived default, novated the contract of loan as embodied in the promissory notes and is therefore estopped from foreclosing on the mortgaged property. FEBTC’s act of withholding the lease payments and applying them to the outstanding obligation of Noah’s Ark is merely an acknowledgement of the legal compensation that occurred by operation of law between the parties. The Court has expounded on compensation and more specifically on legal compensation as follows: x x x compensation is a mode of extinguishing to the concurrent amount the obligations of persons who in their own right and as principals are reciprocally debtors and creditors of each other. Legal compensation takes place by operation of law when all the requisites are present, as opposed to conventional compensation which takes place when the parties agree to compensate their mutual obligations even in the absence of some requisites.10 The Civil Code enumerates the requisites of legal compensation, thus: Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. Art. 1279. In order that compensation may be proper, it is necessary: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they be liquidated and demandable; ARAFAG • HABANA • JALAYAJAY

(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. It is clear from the facts that FEBTC and Noah’s Ark are both principal obligors and creditors of each other. Their debts to each other both consist in a sum of money. As discussed above, the eight promissory notes of Noah’s Ark are all due; and the lease payments owed by FEBTC become due each month. Noah’s Ark’s debt is liquidated and demandable; and FEBTC’s lease payments are liquidated and are demandable every month as they fall due. Lastly, there is no retention or controversy commenced by third persons over either of the debts. Novation did not occur as private respondent argued. The Court has declared that a contract cannot be novated in the absence of a new contract executed between the parties. The legal compensation, which was acknowledged by FEBTC in its May 19, 1998 letter, occurred by operation of law, as discussed above. As a consequence, it cannot be considered a new contract between the parties. Hence, the loan agreement, as embodied in the promissory notes and the real estate mortgage, subsists. Since the compensation between the parties occurred by operation of law, FEBTC did not waive Noah’s Ark’s default. As a result of the absence of novation or waiver of default, FEBTC is therefore not estopped from proceeding with the foreclosure. FALLO: Petition is GRANTED.

CITIBANK VS. MODESTA R. SABENIANO G.R. No. 156132 February 6, 2007

FACTS:

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Petitioner Citibank is a banking corporation duly authorized under the laws of the USA to do commercial banking activities n the Philippines. Sabeniano was a client of both Petitioners Citibank and FNCB Finance. Respondent filed a complaint against petitioners claiming to have substantial deposits, the proceeds of which were supposedly deposited automatically and directly to respondent’s account with the petitioner Citibank and that allegedly petitioner refused to despite repeated demands. Petitioner alleged that respondent obtained several loans from the former and in default, Citibank exercised its right to set-off respondent’s outstanding loans with her deposits and money. RTC declared the act illegal, null and void and ordered the petitioner to refund the amount plus interest, ordering Sabeniano, on the other hand to pay Citibank her indebtedness. CA affirmed the decision entirely in favor of the respondent.

ISSUE: Whether petitioner may exercise its right to set-off respondent’s loans with her deposits and money in Citibank-Geneva?

HELD: It is the petitioners’ contention that the term "Citibank, N.A." used therein should be deemed to refer to all branches of petitioner Citibank in the Philippines and abroad; thus, giving petitioner Citibank the authority to apply as payment for the PNs even respondent’s dollar accounts with Citibank-Geneva. Still proceeding from the premise that all branches of petitioner Citibank should be considered as a single entity, then it should not matter that the respondent obtained the loans from Citibank-Manila and her deposits were with Citibank-Geneva. Respondent should be considered the debtor (for the loans) and creditor (for her deposits) of the same entity, petitioner Citibank. Since petitioner Citibank and respondent were principal creditors of each other, ARAFAG • HABANA • JALAYAJAY

in compliance with the requirements under Article 1279 of the Civil Code, then the former could have very well used off-setting or compensation to extinguish the parties’ obligations to one another. And even without the PNs, off-setting or compensation was still authorized because according to Article 1286 of the Civil Code, "Compensation takes place by operation of law, even though the debts may be payable at different places, but there shall be an indemnity for expenses of exchange or transportation to the place of payment." It is true that the afore-quoted Section 20 of the General Banking Law of 2000 expressly states that the bank and its branches shall be treated as one unit. It should be pointed out, however, that the said provision applies to a universal or commercial bank, duly established and organized as a Philippine corporation in accordance with Section 8 of the same statute, and authorized to establish branches within or outside the Philippines. The General Banking Law of 2000, however, does not make the same categorical statement as regards to foreign banks and their branches in the Philippines. What Section 74 of the said law provides is that in case of a foreign bank with several branches in the country, all such branches shall be treated as one unit. As to the relations between the local branches of a foreign bank and its head office, Section 75 of the General Banking Law of 2000 and Section 5 of the Foreign Banks Liberalization Law provide for a "Home Office Guarantee," in which the head office of the foreign bank shall guarantee prompt payment of all liabilities of its Philippine branches. While the Home Office Guarantee is in accord with the principle that these local branches, together with its head office, constitute but one legal entity, it does not necessarily support the view that said principle is true and applicable in all circumstances. FALLO: Petition is partly granted with modification. 1. Citibank is ordered to return to respondent the principal amount of Page 58

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P318,897.34 and P203,150.00 plus 14.5% per annum 2. The remittance of US $149,632.99 from respondent’s Citibank-Geneva account is declared illegal, null and void, thus Citibank is ordered to refund said amount in Philippine currency or its equivalent using exchange rate at the time of payment. 3. Citibank to pay respondent moral damages of P300,000, exemplary damages for P250,000, attorney’s fees of P200,000. 4. Respondent to pay petitioner the balance of her outstanding loans of P1,069,847.40 inclusive off interest.

PEOPLE'S BANK AND TRUST COMPANY VS. SYVEL'S INCORPORATED, ANTONIO Y. SYYAP and ANGEL Y SYYAP G.R. No. L-29280 August 11, 1988

FACTS: This is an action for foreclosure of chattel mortgage executed in favor of the plaintiff by the defendant Syvel's Incorporated on its stocks of goods, personal properties and other materials owned by it and located at its stores or warehouses in different areas in Manila. The chattel mortgage was in connection with a credit commercial line in the amount of P900,000.00 granted the said defendant corporation, the expiry date of which was May 20, 1966. On May 20, 1965, defendants Antonio V. Syyap and Angel Y. Syyap executed an undertaking in favor of the plaintiff whereby they both agreed to guarantee absolutely and unconditionally and without the benefit of excussion the full and prompt payment of any indebtedness to be incurred on account of the said credit line. Against the credit line granted the defendant Syvel's Incorporated the latter drew advances in the form of promissory notes. In view of the failure of the defendant corporation to make payment in accordance with the terms and conditions agreed upon in the Commercial Credit Agreement the plaintiff started to foreclose ARAFAG • HABANA • JALAYAJAY

extrajudicially the chattel mortgage. However, because of an attempt to have the matter settled, the extra-judicial foreclosure was not pushed thru. As no payment had been paid, this case was eventually filed with the IAC of Manila.

ISSUE: Whether the lower court erred in not holding that the obligation secured by the Chattel Mortgage sought to be foreclosed was novated by the subsequent execution between appellee and appellant Antonio V, Syyap of a real estate mortgage as additional collateral to the obligation secured by said chattel mortgage?

HELD: NO. Novation takes place when the object or principal condition of an obligation is changed or altered. It is elementary that novation is never presumed; it must be explicitly stated or there must be manifest incompatibility between the old and the new obligations in every aspect. In the case at bar, there is nothing in the Real Estate Mortgage which supports appellants'submission. The contract on its face does not show the existence of an explicit novation nor incompatibility on every point between the "old and the "new" agreements as the second contract evidently indicates that the same was executed as new additional security to the chattel mortgage previously entered into by the parties. Moreover, records show that in the real estate mortgage, appellants agreed that the chattel mortgage "shall remain in full force and shall not be impaired by this (real estate) mortgage." FALLO: Appeal is DISMISSED for lack of merit and the judgment appealed from is AFFIRMED.

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JESSE YOUNG VS. CA and THE PEOPLE OF THE PHILIPPINES G.R. No. 140425. March 10, 2005

FACTS: On July 11, 1981, Jesse together with his mother Aida Young and his sister Juliet Young went to the house of private complainant Ines Uy asking her to encash three checks with a total value of P50,000.00. Since Ines is a close friend of the Youngs and because they badly needed money, Ines agreed to exchange the three checks with cash. One of the checks is Philippine Bank of Communications (PBC) with a value of P20,000.00 drawn by Jesse. On August 31, 1981, Ines deposited said check in her account with the Consolidated Bank and Trust Corporation (CBTC). On September 1, 1981, CBTC called her up informing her that the subject check was dishonored because there was a stop payment order and because of insufficiency of funds to cover the amount appearing in the check. Thereafter, Ines informed Jesse through telephone that the check was dishonored. Jesse assured her that he would make good the check. However, he did not fulfill his promise. This prompted Ines to seek the help of her lawyer. Her lawyer wrote a demand letter and sent the same to Jesse who refused to receive the same. On the other hand, Jesse denied these allegations and claims claims that he was not given notice of dishonor. He contends that under Section 2 of BP Blg. 22, notice of dishonor or demand for payment coupled with his failure to pay within five banking days is a prerequisite before he can be charged for violation of BP Blg. 22. The RTC rendered judgment finding Jesse guilty beyond reasonable doubt of violating BP Blg. And a civil liability to pay complainant the sum of P20,000.00. CA affirmed in toto in RTC decision.

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ISSUE: Whether the conviction of petitioner of the crime charged is proper in the absence of prior demand for payment of the face value of subject check? HELD: We note that we have held in previous cases that the drawer’s act of notifying the payee at the time of the issuance of the check that he does not have sufficient funds to cover the amount of such check may operate to absolve the drawer from liability under BP Blg. 22. However, it must be emphasized that in said cases, the checks were drawn and issued in good faith and without intention on the part of their respective drawers to apply said checks for account or for value. In Magno vs. Court of Appeals, the rubber checks were simply issued to cover a warranty deposit in a lease contract returnable to the drawer upon the satisfactory completion of the entire period of lease. The drawer did not benefit from the deposit since the checks were used only as a deposit to serve as security for the faithful performance of the drawer’s obligation as a lessee of an equipment. On the other hand, in Idos vs. Court of Appeals, the subject check was issued for the mere purpose of evidencing the private complainant’s share or interest in a partnership he entered into with the drawer of the check. The check was simply meant to show the drawer’s commitment that when the receivables of the partnership are collected and goods are sold and only when such collection and sale were realized, would the drawer give to the private complainant the net amount due him representing his interest in the partnership; it did not involve a debt of or any amount due and payable by the drawer. Thus, the operative facts in the present case are different. Herein petitioner issued the subject check in exchange for cash given to him and his mother and sister by private complainant. Hence, as distinguished from Magno and Idos, it is clear that in the instant case the check was intended to apply for account or for value. Page 60

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Since the three elements of the offense punished under the first paragraph of Section 1 of BP Blg. 22 are present in the instant case, we find no error in the Court of Appeals’ affirmation of the trial court’s decision convicting petitioner of violation of BP Blg. 22. FALLO: CA decision affirmed.

PHILIPPINE SAVINGS BANK VS. SPOUSES MANALAC April 26, 2005 FACTS:

information on their request for the partial release of the mortgage .Enclosed in the same letter is a Cashier’s Check for P1,200,000.00. Upon receipt of the check, The Bank’s Assistant Manager issued a receipt of the said Cashier’s Check. It is understood however, that receipt of said check is not a commitment on the part of the Bank to release the Four (4) TCTs requested to be released on your letter dated 19 December 1983. On December 19, 1983, the bank applied P1,000,000.00 of the P1,200,000.00 to the loan account of the Galicias as payment for the arrearages in interest and the remaining P200,000.00 thereof was applied to the expenses relative to the account of Mañalac.

On 1976, Spouses Manalac obtained a loan from PS Bank covered by a promissory note. The Spouses executed a REM as a security. Due to their inability to pay the loan, such was restructured in 1977 and the Spouses signed another Promissory Note and another REM over the same properties.

On May 23, 1985, the bank sold the property covered by TCT No. 79996 (previously TCT No. 343593) to Ester Villanueva who thereafter sold it to Mañalac. On October 30, 1985, the land covered by TCT No. 79995 was sold by the bank to Teresita Jalbuena.

On 1979, Manalac and Spouses Galicia, with the consent of PS Bank entered into a Deed of Sale with Assumption of Mortgage. Thereafter, the parcels of land purchased by the Galicias together with other properties were in turn mortgaged by them to secure a loan they obtained also from PS Bank. the same year, Spouses Manalac paid PS Bank the value of the parcels of lan now registered in the name of the Galicias. PS Bank then executed a partial release of the REM covered by the aforesaid properties.

Thereafter, or on October 20, 1986, Mañalac instituted an action for damages, docketed as Civil Case No. 53967, before the Regional Trial Court of Pasig, Branch 161, against PSBank and its officers namely Cezar Valenzuela, Alfredo Barretto and Antonio Viray, and spouses Alejandro and Teresita Jalbuena.

Thereafter, Spouses Manalac defaulted again in payment of their loan despite repeated demands, hence, PS Bank filed for a petition for extrajudicial foreclosure of their 5 remaining mortgaged properties. The foreclosure sale proceeded with PS Bank as the highest bidder. The Spouses failed to redeem the said properties and new certificates of title were issued in favour of the bank.

The RTC rendered judgment of annulment of the Certificate of Sale issued in favour of PS Bank as well as the Contract to Sell executed by the bank in favour Spouses Jalbuena. The decision was affirmed by the CA, hence, this appeal before the SC. ISSUE: Whether or not there was novation of the previous mortgage properties?

HELD:

On December 16, 1983, Mañalac wrote the Chairman of the Board of PSBank asking ARAFAG • HABANA • JALAYAJAY

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NO. Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, or, by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor. In order for novation to take place, the concurrence of the following requisites is indispensable: 1. There must be a previous valid obligation, 2. There must be an agreement of the parties concerned to a new contract, 3. There must be the extinguishment of the old contract, and 4. There must be the validity of the new contract. The elements of novation are patently lacking in the instant case. Mañalac tendered a check for P1,200,000.00 to PSBank for the release of 4 parcels of land covered by TCT Nos. N-36192, 36193, and 36194, under the loan account of the Galicias and 417012 (now TCT No. 79996) under the loan account of Mañalac. However, while the bank applied the tendered amount to the accounts as specified by Mañalac, it nevertheless refused to release the subject properties. Instead, it issued a receipt with a notation that the acceptance of the check is not a commitment on the part of the bank to release the 4 TCTs as requested by Mañalac. From the foregoing, it is obvious that there was no agreement to form a new contract by novating the mortgage contracts of the Mañalacs and the Galicias. In accepting the check, the bank only acceded to Mañalac’s instruction on whose loan accounts the proceeds shall be applied but rejected the other condition that the 4 parcels of land be released from mortgage. Clearly, there is no mutual consent to replace the old mortgage contract with a new obligation. The conflicting intention and acts of the parties underscore the absence of any express disclosure or circumstances with which to deduce a clear and unequivocal intent by the parties to novate the old agreement. Novation is never presumed, and the animus novandi, whether totally or partially, must ARAFAG • HABANA • JALAYAJAY

appear by express agreement of the parties, or by their acts that are too clear and unmistakable. The extinguishment of the old obligation by the new one is a necessary element of novation, which may be effected either expressly or impliedly. The term "expressly" means that the contracting parties incontrovertibly disclose that their object in executing the new contract is to extinguish the old one. Upon the other hand, no specific form is required for an implied novation, and all that is prescribed by law would be an incompatibility between the two contracts. While there is really no hard and fast rule to determine what might constitute to be a sufficient change that can bring about novation, the touchstone for contrariety, however, would be an irreconcilable incompatibility between the old and the new obligations. Neither can Mañalac be deemed substitute debtor within the contemplation of Article 1293 of the Civil Code, which states that: Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him the rights mentioned in articles 1236 and 1237. In order to change the person of the debtor, the old one must be expressly released from the obligation, and the third person or new debtor must assume the former’s place in the relation. Novation is never presumed. Consequently, that which arises from a purported change in the person of the debtor must be clear and express. It is thus incumbent on Mañalac to show clearly and unequivocally that novation has indeed taken place. In Magdalena Estates Inc. v. Rodriguez, we held that "the mere fact that the creditor receives a guaranty or accepts payments from a third person who has agreed to assume the obligation, when there is no agreement that the first debtor shall be released from responsibility, does not

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constitute a novation, and the creditor can still enforce the obligation against the original debtor." Mañalac has not shown by competent evidence that they were expressly taking the place of Galicia as debtor, or that the latter were being released from their solidary obligation. Nor was it shown that the obligation of the Galicias was being extinguished and replaced by a new one. The existence of novation must be shown in clear and unmistakable terms. Granting arguendo that a new obligation was established with the acceptance by the bank of the PCIB Check and its application to the loan account of Mañalac on the condition that TCT No. 417012 would be released, this new obligation however could not supplant the October 13, 1977 real estate mortgage executed by Mañalac, which, by all intents and purposes, is now a defunct and non-existent contract. As mentioned earlier, novation cannot be presumed.

ASTRO ELECTRONICS AND PETER ROXAS VS. PHIL. EXPORT AND FOREIGN LOAN GUARANTEE CORP. September 23, 2003

FACTS: Petitioner Astro was granted several loans by PhilTrust with interest and promissory notes. In each promissory notes, Petitioner Roxas signed twice, as President of Astro and in his personal capacity. Roxas also signed a Continuing Suretyship Agreement in favour of PhilTrust Bank, as President of Astro and as surety. Thereafter, Philguarantee with the consent of Astro guaranteed in favour of PhilTrust the payment of 70% of Astro’s loan, subject to the condition that upon payment, it shall be proportionally subrogated to the rights of PhilTrust against Astro. ARAFAG • HABANA • JALAYAJAY

As a result of Astro’s failure to pay despite demands, Phil Guarantee filed against Astro and Roxas a complaint for sum of money in the Makati RTC. RTC rendered judgment giants petitioner which was affirmed by the CA.

ISSUE: Whether or not Roxas should be held solidarily liable with Astro for the sum of money?

HELD: YES. The instant case is one of the legal subrogation that occurs by operation of law, and without need of the debtor’s knowledge. Further, Philguarantee, as guarantor, became the transferee of all the rights of Philtrust as against Roxas and Astro because the “guarantor who pays is subrogated by virtue thereof to all the rights which the creditor had against the debtor.” Subrogation is the transfer of all rights of the creditor to a third person, who substitutes him in all his rights. It may either be legal or conventional. Legal subrogation is that which takes without agreement but by operation of law because of certain acts. Instances of legal subrogation are those provided in Art. 1302 of the Civil Code. Conventional subrogation, on the other hand, is that which takes place by agreement of the parties. In the instant case, Astro’s loan with Philtrust Bank is secured by three promissory notes. These promissory notes are valid and binding against Astro and Roxas. As it appears on the notes, Roxas signed twice: first, as president of Astro and second, in his personal capacity. In signing his name aside from being the President of Asro, Roxas became a co-maker of the promissory notes and cannot escape any liability arising from it. Under the Negotiable Instruments Law, persons who write their names on the face of promissory notes are makers, promising that they will pay to Page 63

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the order of the payee or any holder according to its tenor. Thus, even without the phrase “personal capacity,” Roxas will still be primarily liable as a joint and several debtor under the notes considering that his intention to be liable as such is manifested by the fact that he affixed his signature on each of the promissory notes twice which necessarily would imply that he is undertaking the obligation in two different capacities, official and personal. The three promissory notes uniformly provide: “FOR VALUE RECEIVED, I/We jointly, severally and solidarily, promise to pay to PHILTRUST BANK or order...” An instrument which begins with “I”, “We”, or “Either of us” promise to pay, when signed by two or more persons, makes them solidarily liable. Also, the phrase “joint and several” binds the makers jointly and individually to the payee so that all may be sued together for its enforcement, or the creditor may select one or more as the object of the suit. Having signed under such terms, Roxas assumed the solidary liability of a debtor and Philtrust Bank may choose to enforce the notes against him alone or jointly with Astro. Roxas’ claim that the phrases “in his personal capacity” and “in his official capacity” were inserted on the notes without his knowledge was correctly disregarded by the RTC and the Court of Appeals. It is not disputed that Roxas does not deny that he signed the notes twice. As aptly found by both the trial and appellate court, Roxas did not offer any explanation why he did so. It devolves upon him to overcome the presumptions that private transactions are presumed to be fair and regular and that a person takes ordinary care of his concerns. Aside from his self-serving allegations, Roxas failed to prove the truth of such allegations. Thus, said presumptions prevail over his claims. Bare allegations, when unsubstantiated by evidence, documentary or otherwise, are not equivalent to proof under our Rules of Court.

CARMELCRAFT CORPORATION &/OR CARMEN V. YULO VS. NLRC June 6, 1990

FACTS: The Camelcraft Employees Union sought but did not get recognition from the petitioners. Consequently, it filed a petition for certification election in June 1987. On July 13, 1987, Camelcraft Corporation, through its president and general manager, Carmen Yulo, announced in a meeting with the employees that it would cease operations on August 13, 1987, due to serious financial losses. Operations did cease as announced. On August 17, 1987, the union filed a complaint with the Department of Labor against the petitioners for illegal lockout, unfair labor practice and damages, followed the next day with another complaint for payment of unpaid wages, emergency cost of living allowances, holiday pay, and other benefits. On November 29, 1988, the Labor Arbiter declared the shutdown illegal and violative of the employees' right to self-organization. The claim for unpaid benefits was also granted. NLRC affirmed the decision with modifications. It was the contention of petitioner that the employees are stopped from claiming the alleged unpaid wages and other compensation as they signed waivers made voluntarily and that this contract between the two parties should be respected.

ISSUE: Whether or not the waivers signed by the employees valid or not?

HELD: NO. The contention of the petitioners that the employees are estopped from claiming the ARAFAG • HABANA • JALAYAJAY

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alleged unpaid wages and other compensation must also be rejected. This claim is based on the waivers supposedly made by the complainants on the understanding that "the management will implement prospectively all benefits under existing labor standard laws." The petitioners argue that this assurance provided the consideration that made the quitclaims executed by the employees valid. They add that the waivers were made voluntarily and contend that the contract should be respected as the law between the parties. Even if voluntarily executed, agreements are invalid if they are contrary to public policy. This is elementary. The protection of labor is one of the policies laid down by the Constitution not only by specific provision but also as part of social justice. The Civil Code itself provides: ART. 6. Rights may be waived, unless the waiver is contrary to law, public order, public policy, morals, or good customs, or prejudicial to a third person with a right recognized by law. 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.

an employee from demanding benefits to which he is legally entitled. Release and quitclaim is inequitable and incongruous to the declared public policy of the State to afford protection to labor and to assure the rights of workers to security of tenure. All told, the conduct of the petitioners toward the employees has been less than commendable. Indeed, it is reprehensible. First, the company inveigled them to waive their claims to compensation due them on the promise that future benefits would be paid (and to make matters worse, there is no showing that they were indeed paid). Second, it refused to recognize the respondent union, suggesting to the employees that they join another union acceptable to management. Third, it threatened the employees with the closure of the company and then actually did so when the employees insisted on their demands. All these acts reflect on the bona fides of the petitioners and unmistakably indicate their ill will toward the employees. ACOL VS. PHILIPPINE COMMERCIAL CREDIT CARD INCORPORATED July 25, 2006 FACTS:

The subordinate position of the individual employee vis-a-vis management renders him especially vulnerable to its blandishments and importunings, and even intimidations, that may result in his improvidently if reluctantly signing over benefits to which he is clearly entitled. Recognizing this danger, we have consistently held that quitclaims of the workers' benefits win not estop them from asserting them just the same on the ground that public policy prohibits such waivers. That the employee has signed a satisfaction receipt does not result in a waiver; the law does not consider as valid any agreement to receive less compensation than what a worker is entitled to recover. A deed of release or quitclaim cannot bar ARAFAG • HABANA • JALAYAJAY

On August 20, 1982, petitioner Manuel Acol applied with respondent for a Bankard credit card and extension. Both were issued to him shortly thereafter. For several years, he regularly used this card, purchasing from respondent's accredited establishments and paying the corresponding charges for such purchases. Petitioner discovered the loss of his credit card. After exhausting all efforts to find it, on April 19, 1987, a Sunday, he called up respondent's office and reported the loss. The representative he spoke to told him that his card would be immediately included in the circular of lost cards. Again, on April 20, 1987, petitioner called up respondent to reiterate his report on the loss of Page 65

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his card. He inquired if there were other requirements he needed to comply with in connection with the loss. Respondent's representative advised him to put into writing the notice of loss and to submit it, together with the extension cards of his wife and daughter. Petitioner promptly wrote a letter dated April 20, 1987 confirming the loss and sent it to respondent which received it on April 22, 1987.

NO. The facts of this case are virtually identical with those of Ermitaño v. CA. In that case, petitioner-extension cardholder Manuelita Ermitaño lost her card on the night of August 29, 1989 when her bag was snatched in Makati. That very same evening, she reported the loss and immediately thereafter sent written notice to the respondent credit card company, BPI Express Card Corp. (BECC).

On April 21, 1987, a day before receiving the written notice, respondent issued a special cancellation bulletin informing its accredited establishments of the loss of the cards of the enumerated holders, including petitioner's. Unfortunately, it turned out that somebody used petitioner's card on April 19 and 20, 1987 to buy commodities worth P76,067.28. The accredited establishments reported the invoices for such purchases to respondent which then billed petitioner for that amount.

The verbal and written notices notwithstanding, respondent insisted on billing petitioner Luis Ermitaño, Manuelita's husband and the principal cardholder, for purchases made after the date of the loss totalling P3,197.70. To justify the billing, respondent BECC cited the following stipulation in their contract: In the event the card is lost or stolen, the cardholder agrees to immediately report its loss or theft in writing to BECC…purchases made/incurred arising from the use of the lost/stolen card shall be for the exclusive account of the cardholder and the cardholder continues to be liable for the purchases made through the use of the lost/stolen BPI Express Card until after such notice has been given to BECC and the latter has communicated such loss/theft to its member establishments.

Nonetheless, respondent insisted on colleting and alleged that it was the most practicable procedure of the company. It cited provision no. 1 of the "Terms and Conditions Governing The Issuance and Use of the Bankard" found at the back of the application form: xxx Holder's responsibility for all charges made through the use of the card shall continue until the expiration or its return to the Card Issuer or until a reasonable time after receipt by the Card Issuer of written notice of loss of the Card and its actual inclusion in the Cancellation Bulletin. xxx RTC ruled in favour of petitioner but was reversed by CA. Hence this instant petition before the SC.

It is worth noting that, just like the assailed provision in this case, the stipulation devised by respondent BECC required two conditions before the cardholder could be relieved of responsibility from unauthorized charges: (1) the receipt by the card issuer of a written notice from the cardholder regarding the loss and (2) the notification to the issuer's accredited establishments regarding such loss.

ISSUE: Whether or not Provision No. 1 is valid and binding on the petitioner given that the contract was one of adhesion? HELD:

ARAFAG • HABANA • JALAYAJAY

We struck down this stipulation as contrary to public policy and granted the Ermitaños' petition: Prompt notice by the cardholder to the credit card company of the loss or theft of his card should be enough to relieve the former of any liability occasioned by the Page 66

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unauthorized use of his lost or stolen card. The questioned stipulation in this case, which still requires the cardholder to wait until the credit card company has notified all its member-establishments, puts the cardholder at the mercy of the credit card company which may delay indefinitely the notification of its members to minimize if not to eliminate the possibility of incurring any loss from unauthorized purchases. Or, as in this case, the credit card company may for some reason fail to promptly notify its members through absolutely no fault of the cardholder. To require the cardholder to still pay for the unauthorized purchases after he has given prompt notice of the loss or theft of his card to the credit card company would simply be unfair and unjust. The Court cannot give its assent to such a stipulation which could clearly run against public policy. In this case, the stipulation in question is just as repugnant to public policy as that in Ermitaño. As petitioner points out, the effectivity of the cancellation of the lost card rests on an act entirely beyond the control of the cardholder. Worse, the phrase "after a reasonable time" gives the issuer the opportunity to actually profit from unauthorized charges despite receipt of immediate written notice from the cardholder. Under such a stipulation, petitioner could have theoretically done everything in his power to give respondent the required written notice. But if respondent took a "reasonable" time (which could be indefinite) to include the card in its cancellation bulletin, it could still hold the cardholder liable for whatever unauthorized charges were incurred within that span of time. This would have been truly iniquitous, considering the amount respondent wanted to hold petitioner liable for. Article 1306 of the Civil Code prohibits contracting parties from establishing stipulations contrary to public policy. The assailed provision ARAFAG • HABANA • JALAYAJAY

was just such a stipulation. It is without any hesitation therefore that we strike it down.

TIU vs. PLATINUM PLANS PHILIPPINES February 28, 2007

FACTS: Respondent Platinum Plans Philippines, Inc. is a domestic corporation engaged in the pre-need industry. From 1987 to 1989, petitioner Daisy B. Tiu was its Division Marketing Director. On January 1, 1993, respondent re-hired petitioner as Senior Assistant Vice-President and Territorial Operations Head in charge of its Hong Kong and Asean operations. The parties executed a contract of employment valid for five years. On September 16, 1995, petitioner stopped reporting for work. In November 1995, she became the Vice President for Sales of Professional Pension Plans, Inc., a corporation engaged also in pre-need industry. Consequently, respondent sued petitioner for damages before the RTC of Pasig City, Branch 261. Respondent alleged, among others, that petitioner’s employment with Professional Pension Plans, Inc. violated the noninvolvement clause in her contract of employment. In upholding the validity of the non-involvement clause, the trial court ruled that a contract in restraint of trade is valid provided that there is a limitation upon either time or place. In the case of the pre-need industry, the trial court found the two-year restriction to be valid and reasonable. On appeal, the Court of Appeals affirmed the trial court’s ruling. It reasoned that petitioner entered into the contract on her own will and volition. Thus, she bound herself to fulfill not only what was expressly stipulated in the contract, but also all its consequences that were not against good faith, usage, and law. The appellate court also ruled that the stipulations prohibiting nonPage 67

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employment for two years was valid and enforceable considering the nature of respondents business.

ISSUE: Whether or not the CA erred in sustaining the validity of the non-involvement clause?

franchise dealer and then a year later, as a Supervisor. Sometime in 1978, Avon Cosmetics, Inc. (Avon), herein petitioner, acquired and took over the management and operations of Beautifont, Inc. Nonetheless, respondent Luna continued working for said successor company. Aside from her work as a supervisor, respondent Luna also acted as a make-up artist of petitioner, for which she received a per diem for each theatrical performance. The contract was that:

HELD: YES. In this case, the non-involvement clause has a time limit: two years from the time petitioner’s employment with respondent ends. It is also limited as to trade, since it only prohibits petitioner from engaging in any pre-need business akin to respondent’s. More significantly, since petitioner was the Senior Assistant Vice-President and Territorial Operations Head in charge of respondent’s Hongkong and Asean operations, she had been privy to confidential and highly sensitive marketing strategies of respondent’s business. To allow her to engage in a rival business soon after she leaves would make respondent’s trade secrets vulnerable especially in a highly competitive marketing environment. In sum, The Court finds the noninvolvement clause not contrary to public welfare and not greater than is necessary to afford a fair and reasonable protection to respondent. Hence the restraint is valid and such stipulation prevails.

AVON COSMETICS vs. LUNA 511 SCRA 376

FACTS: The present petition stemmed from a complaint dated 1 December 1988, filed by herein respondent Luna alleging, inter alia¸ that she began working for Beautifont, Inc. in 1972, first as a ARAFAG • HABANA • JALAYAJAY

The Company agrees: 1) To allow the Supervisor to purchase at wholesale the products of the Company. The Supervisor agrees: 1) To purchase products from the Company exclusively for resale and to be responsible for obtaining all permits and licenses required to sell the products on retail. The Company and the Supervisor mutually agree: 1) That this agreement in no way makes the Supervisor an employee or agent of the Company, therefore, the Supervisor has no authority to bind the Company in any contracts with other parties. 2) That the Supervisor is an independent retailer/dealer insofar as the Company is concerned, and shall have the sole discretion to determine where and how products purchased from the Company will be sold. However, the Supervisor shall not sell such products to stores, supermarkets or to any entity or person who sells things at a fixed place of business. 3) That this agreement supersedes any agreement/s between the Company and the Supervisor. 4) That the Supervisor shall sell or offer to sell, display or promote only and exclusively products sold by the Company. 5) Either party may terminate this agreement at will, with or without cause, at any time upon notice to the other. Later, respondent Luna entered into the sales force of Sandre Philippines which caused her termination for the alleged violation of the terms of the Page 68

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contract. The trial court ruled in favor of Luna that the contract was contrary to public policy thus the dismissal was not proper. The Court of Appeals affirmed the decision, hence this petition. ISSUE: Whether the Court of Appeals erred in ruling that the Supervisor’s Agreement was invalid for being contrary to public policy? Whether there was subversion of the autonomy of contracts by the lower courts?

involved. The relevant market for this purpose includes the full range of selling opportunities reasonably open to rivals, namely, all the product and geographic sales they may readily compete for, using easily convertible plants and marketing organizations. Applying the preceding principles to the case at bar, there is nothing invalid or contrary to public policy either in the objectives sought to be attained by paragraph 5, i.e., the exclusivity clause, in prohibiting respondent Luna, and all other Avon supervisors, from selling products other than those manufactured by petitioner Avon.

HELD: Agreements in violation of orden público must be considered as those which conflict with law, whether properly, strictly and wholly a public law or whether a law of the person, but law which in certain respects affects the interest of society. Plainly put, public policy is that principle of the law which holds that no subject or citizen can lawfully do that which has a tendency to be injurious to the public or against the public good. As applied to contracts, in the absence of express legislation or constitutional prohibition, a court, in order to declare a contract void as against public policy, must find that the contract as to the consideration or thing to be done, has a tendency to injure the public, is against the public good, or contravenes some established interests of society, or is inconsistent with sound policy and good morals, or tends clearly to undermine the security of individual rights, whether of personal liability or of private property. From another perspective, the main objection to exclusive dealing is its tendency to foreclose existing competitors or new entrants from competition in the covered portion of the relevant market during the term of the agreement. Only those arrangements whose probable effect is to foreclose competition in a substantial share of the line of commerce affected can be considered as void for being against public policy. The foreclosure effect, if any, depends on the market share ARAFAG • HABANA • JALAYAJAY

Having held that the “exclusivity clause” as embodied in paragraph 5 of the Supervisor’s Agreement is valid and not against public policy, we now pass to a consideration of respondent Luna’s objections to the validity of her termination as provided for under paragraph 6 of the Supervisor’s Agreement giving petitioner Avon the right to terminate or cancel such contract. The paragraph 6 or the “termination clause” therein expressly provides that: The Company and the Supervisor mutually agree: 6) Either party may terminate this agreement at will, with or without cause, at any time upon notice to the other. In the case at bar, the termination clause of the Supervisor’s Agreement clearly provides for two ways of terminating and/or canceling the contract. One mode does not exclude the other. The contract provided that it can be terminated or cancelled for cause, it also stated that it can be terminated without cause, both at any time and after written notice. Thus, whether or not the termination or cancellation of the Supervisor’s Agreement was “for cause,” is immaterial. The only requirement is that of notice to the other party. When petitioner Avon chose to terminate the contract, for cause, respondent Luna was duly notified thereof. Page 69

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Worth stressing is that the right to unilaterally terminate or cancel the Supervisor’s Agreement with or without cause is equally available to respondent Luna, subject to the same notice requirement. Obviously, no advantage is taken against each other by the contracting parties. PILIPINO TELEPHONE CORPORATION VS. TECSON May 7, 2004

FACTS: Mr. Tecson applied for six cellular phone subscriptions with Pilipino Telephone Corporation (PILTEL). The applications were approved and covered by six mobiline service agreements, all of which provides: “Venue of all suits arising from this Agreement or any other suit directly or indirectly arising from the relationship between PILTEL and subscriber shall be in the proper courts of Makati, Metro Manila. Subscriber hereby expressly waives any other venues.” Mr. Tecson filed with the RTC, Iligan City, Lanao Del Norte, a complaint against petitioner for a “Sum of Money and Damages.” PILTEL moved for the dismissal of the complaint on the ground of improper venue.

ISSUE: Whether or not the complaint was filed in the wrong venue?

HELD: Section 4, Rule 4, of the Revised Rules of Civil Procedure allows the parties to agree and stipulate in writing, before the filing of an action, on the exclusive venue of any litigation between them. Such an agreement would be valid and binding provided that the stipulation on the chosen venue is exclusive in nature or in intent, that it is ARAFAG • HABANA • JALAYAJAY

expressed in writing by the parties thereto, and that it is entered into before the filing of the suit. The provision contained in paragraph 22 of the “Mobile Service Agreement,” a standard contract made out by petitioner PILTEL to its subscribers, apparently accepted and signed by respondent, states that the venue of all suits arising from the agreement, or any other suit directly or indirectly arising from the relationship between PILTEL and subscriber, “shall be in the proper courts of Makati, Metro Manila.” The added stipulation that the subscriber “expressly waives any other venue” should indicate, clearly enough, the intent of the parties to consider the venue stipulation as being preclusive in character. PHILIPPINE NATIONAL BANK VS. CA April 30, 1991

FACTS: Private respondent (PR) Ambrosio Padilla, applied for and was granted a credit line of 321.8million, by petitioner PNB. This was for a term of 2 years at 18% interest per annum and was secured byreal estate mortgage and 2 promissory notes executed in favor of Petitioner by PR. The credit agreementand the promissory notes, in effect, provide that PR agrees to be bound by “increases to the interest ratestipulated, provided it is within the limits provided for by law”.Conflict in this case arose when Petitioner unilaterally increased the interest rate from 18% to: (1) 32%[July 1984]; (2) 41% [October 1984]; and (3) 48% [November 1984], or 3 times within the span of a singleyear. This was done despite the numerous letters of request made by PR that the interest rate beincreased only to 21% or 24%.PR filed a complaint against Petitioner with the RTC. The latter dismissed the case for lack of merit. Appeal by PR to CA resulted in his favor. Hence the Page 70

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petition for certiorari under Rule 45 of ROC filed byPNB with SC.

ISSUE: Despite the removal of the Usury Law ceiling on interest, may the bank validly increase the stipulated interest rate on loans contracted with third persons as often as necessary and against the protest of such persons?

in violation of Sec. 2 PD 116.Increases unilaterally effected by PNB was in violation of the Mutuality of Contracts under Art. 1308. This provides that the validity and compliance of the parties to the contract cannot be left to the will of one of the contracting parties. Increases made are therefore void. Increase on the stipulated interest rates made by PNB also contravenes Art. 1956. It provides that, “no interest shall be due unless it has been expressly stipulated in writing”. PR never agreed in writing to pay interest imposed by PNB in excess of 24% per annum. Interest rate imposed by PNB, as correctly found by CA, is indubitably excessive.

HELD: NO. Although under Sec. 2 of PD 116, the Monetary Board is authorized to prescribe the maximum rate of interest for loans and to change such rates whenever warranted by prevailing economic and social conditions, by express provision, it may not do so “oftener than once every 12 months”. If the Monetary Board cannot, much less can PNB, effect increases on the interest rates more than once a year. Based on the credit agreement and promissory notes executed between the parties, although PR did agree to increase on the interest rates allowed by law, no law was passed warranting Petitioner to effect increase on the interest rates on the existing loan of PR for the months of July to November of 1984.Neither there being any document executed and delivered by PR to effect such increase. For escalation clauses to be valid and warrant the increase of the interest rates on loans, there must be:(1) increase was made by law or by the Monetary Board; (2) stipulation must include a clause for the reduction of the stipulated interest rate in the event that the maximum interest is lowered by law or by the Monetary board. In this case, PNB merely relied on its own Board Resolutions, which are not laws nor resolutions of the Monetary Board. Despite the suspension of the Usury Law, imposing a ceiling on interest rates, this does not authorize banks to unilaterally and successively increase interest rates ARAFAG • HABANA • JALAYAJAY

DKC HOLDINGS CORPORATION VS. CA April 5, 2000

FACTS: The subject of the controversy is a parcel of land located in Malinta, Valenzuela, which was originally owned by private respondent Victor U. Bartolome’s deceased mother, Encarnacion Bartolome. This lot was in front of one of the textile plants of petitioner and, as such, was seen by the latter as a potential warehouse site. On March 16, 1988, petitioner entered into a Contract of Lease with Option to Buy with Encarnacion Bartolome, whereby petitioner was given the option to lease or lease with purchase the subject land, which option must be exercised within a period of two years counted from the signing of the Contract. Within the two-year period, petitioner shall serve formal written notice upon the lessor Encarnacion Bartolome of its desire to exercise its option. The contract also provided that in case petitioner chose to lease the property, it may take actual possession of the premises. In such an event, the lease shall be for a period of six years, renewable for another six years, and the monthly rental fee shall be P15,000.00 for the first six years and P18,000.00 for the next six years, in case of renewal.

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Petitioner regularly paid the monthly rental provided for by the Contract to Encarnacion until her death in January 1990. Thereafter, petitioner coursed its payment to private respondent Victor Bartolome, being the sole heir of Encarnacion. Victor, however, refused to accept these payments. Meanwhile, on January 10, 1990, Victor executed an Affidavit of Self-Adjudication over all the properties of Encarnacion, including the subject lot. Accordingly, respondent Register of Deeds cancelled Transfer Certificate of Title and issued Transfer Certificate of Title in the name of Victor Bartolome. On March 14, 1990, petitioner served upon Victor, via registered mail, notice that it was exercising its option to lease the property, tendering the amount of P15,000.00 as rent for the month of March. Again, Victor refused to accept the tendered rental fee and to surrender possession of the property to petitioner. Petitioner thus opened Savings Account No. 1-0402558-I-1 with the China Banking Corporation, Cubao Branch, in the name of Victor Bartolome and deposited therein the P15,000.00 rental fee for March as well as P6,000.00 reservation fees for the months of February and March. Petitioner also tried to register and annotate the Contract on the title of Victor to the property. Although respondent Register of Deeds accepted the required fees, he nevertheless refused to register or annotate the same or even enter it in the day book or primary register. Thus, on April 23, 1990, petitioner filed a complaint for specific performance and damages against Victor and the Register of Deeds. Meanwhile, on May 8, 1990, a Motion for Intervention with Motion to Dismiss was filed by one Andres Lanozo, who claimed that he was and has been a tenant-tiller of the subject property, which was agricultural riceland, for forty-five years. He questioned the jurisdiction of the lower court over the property and invoked the Comprehensive Agrarian Reform Law to protect his rights that would be affected by the dispute between the original parties to the case. ARAFAG • HABANA • JALAYAJAY

After trial on the merits, the RTC rendered judgment dismissing the Complaint and was affirmed by the CA.

ISSUE: Whether or not the Contract of Lease with Option to Buy entered into by the late Encarnacion Bartolome with petitioner was terminated upon her death or whether it binds her sole heir, Victor, even after her demise?

HELD: NO. Article 1311 of the Civil Code provides, as follows"ART. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent. The general rule, therefore, is that heirs are bound by contracts entered into by their predecessors-in-interest except when the rights and obligations arising therefrom are not transmissible by (1) their nature, (2) stipulation or (3) provision of law. In the case at bar, there is neither contractual stipulation nor legal provision making the rights and obligations under the contract intransmissible. More importantly, the nature of the rights and obligations therein are, by their nature, transmissible. The nature of intransmissible rights as explained by Arturo Tolentino, an eminent civilist, is as follows: "Among contracts which are intransmissible are those which are purely personal, either by provision of law, such as in cases of partnerships Page 72

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and agency, or by the very nature of the obligations arising therefrom, such as those requiring special personal qualifications of the obligor. It may also be stated that contracts for the payment of money debts are not transmitted to the heirs of a party, but constitute a charge against his estate. Thus, where the client in a contract for professional services of a lawyer died, leaving minor heirs, and the lawyer, instead of presenting his claim for professional services under the contract to the probate court, substituted the minors as parties for his client, it was held that the contract could not be enforced against the minors; the lawyer was limited to a recovery on the basis of quantum meruit." In American jurisprudence, "(W)here acts stipulated in a contract require the exercise of special knowledge, genius, skill, taste, ability, experience, judgment, discretion, integrity, or other personal qualification of one or both parties, the agreement is of a personal nature, and terminates on the death of the party who is required to render such service." In the case at bar, there is no personal act required from the late Encarnacion Bartolome. Rather, the obligation of Encarnacion in the contract to deliver possession of the subject property to petitioner upon the exercise by the latter of its option to lease the same may very well be performed by her heir Victor. As early as 1903, it was held that "(H)e who contracts does so for himself and his heirs." In 1952, it was ruled that if the predecessor was dutybound to reconvey land to another, and at his death the reconveyance had not been made, the heirs can be compelled to execute the proper deed for reconveyance. This was grounded upon the principle that heirs cannot escape the legal consequence of a transaction entered into by their predecessor-in-interest because they have inherited the property subject to the liability affecting their common ancestor.

of Article 1311 of the Civil Code. Indeed, being an heir of Encarnacion, there is privity of interest between him and his deceased mother. He only succeeds to what rights his mother had and what is valid and binding against her is also valid and binding as against him. In the case at bar, the subject matter of the contract is likewise a lease, which is a property right. The death of a party does not excuse nonperformance of a contract which involves a property right, and the rights and obligations thereunder pass to the personal representatives of the deceased. Similarly, nonperformance is not excused by the death of the party when the other party has a property interest in the subject matter of the contract. Under both Article 1311 of the Civil Code and jurisprudence, therefore, Victor is bound by the subject Contract of Lease with Option to Buy. That being resolved, we now rule on the issue of whether petitioner had complied with its obligations under the contract and with the requisites to exercise its option. The payment by petitioner of the reservation fees during the twoyear period within which it had the option to lease or purchase the property is not disputed. In fact, the payment of such reservation fees, except those for February and March, 1990 were admitted by Victor Petitioner also paid the P15,000.00 monthly rental fee on the subject property by depositing the same in China Bank Savings Account No. 1-0402558-I-1, in the name of Victor as the sole heir of Encarnacion Bartolome,1[19] for the months of March to July 30, 1990, or a total of five (5) months, despite the refusal of Victor to turn over the subject property.

It is futile for Victor to insist that he is not a party to the contract because of the clear provision ARAFAG • HABANA • JALAYAJAY

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Likewise, petitioner complied with its duty to inform the other party of its intention to exercise its option to lease through its letter dated Match 12, 1990,2[21] well within the two-year period for it to exercise its option. Considering that at that time Encarnacion Bartolome had already passed away, it was legitimate for petitioner to have addressed its letter to her heir. It appears, therefore, that the exercise by petitioner of its option to lease the subject property was made in accordance with the contractual provisions. Concomitantly, private respondent Victor Bartolome has the obligation to surrender possession of and lease the premises to petitioner for a period of six (6) years, pursuant to the Contract of Lease with Option to Buy.

TANAY RECREATION CENTER AND DEVELOPMENT CORP. vs. CATALINA MATIENZO FAUSTO April 12, 2005

Anunciacion F. Pacunayen, who replied, asking that petitioner remove the improvements built thereon, as she is now the absolute owner of the property. It appears that Fausto had earlier sold the property to Pacunayen and title has already been transferred in her name. Petitioner filed an Amended Complaint for Annulment of Deed of Sale, Specific Performance with Damages, and Injunction. In her Answer, respondent claimed that petitioner is estopped from assailing the validity of the deed of sale as the latter acknowledged her ownership when it merely asked for a renewal of the lease. According to respondent, when they met to discuss the matter, petitioner did not demand for the exercise of its option to purchase the property, and it even asked for grace period to vacate the premises.

ISSUE: Whetehr or not petitioner’s priority right to purchase also reffered to the right of first refusal?

FACTS: Petitioner Tanay Recreation Center and Development Corp. (TRCDC) is the lessee of a 3,090-square meter property located in Sitio Gayas, Tanay, Rizal, owned by Catalina Matienzo Fausto, under a Contract of Lease. On this property stands the Tanay Coliseum Cockpit operated by petitioner. The lease contract provided for a 20-year term, subject to renewal within sixty days prior to its expiration. The contract also provided that should Fausto decide to sell the property, petitioner shall have the “priority right” to purchase the same. On June 17, 1991, petitioner wrote Fausto informing her of its intention to renew the lease. However, it was Fausto’s daughter, respondent

HELD: When a lease contract contains a right of first refusal, the lessor is under a legal duty to the lessee not to sell to anybody at any price until after he has made an offer to sell to the latter at a certain price and the lessee has failed to accept it. The lessee has a right that the lessor's first offer shall be in his favor. Petitioner’s right of first refusal is an integral and indivisible part of the contract of lease and is inseparable from the whole contract. The consideration for the lease includes the consideration for the right of first refusal and is built into the reciprocal obligations of the parties. It was erroneous for the CA to rule that the right of first refusal does not apply when the property is sold to Fausto’s relative. When the terms of an agreement have been reduced to writing, it is considered as containing all the terms

ARAFAG • HABANA • JALAYAJAY

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agreed upon. As such, there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement, except when it fails to express the true intent and agreement of the parties. In this case, the wording of the stipulation giving petitioner the right of first refusal is plain and unambiguous, and leaves no room for interpretation. It simply means that should Fausto decide to sell the leased property during the term of the lease, such sale should first be offered to petitioner. The stipulation does not provide for the qualification that such right may be exercised only when the sale is made to strangers or persons other than Fausto’s kin. Thus, under the terms of petitioner’s right of first refusal, Fausto has the legal duty to petitioner not to sell the property to anybody, even her relatives, at any price until after she has made an offer to sell to petitioner at a certain price and said offer was rejected by petitioner. ESTATE OF LLENADO VS. LLENADO March 4, 2009

FACTS: The subject of this controversy is a parcel of land in Barrio Malinta, Valenzuela, and registered in the names of Eduardo Llenado and Jorge Llenado. The subject lot once formed part of Lot 249-D owned by and registered in the name of their father, Cornelio Llenado (Cornelio). On December 2, 1975, Cornelio leased to his nephew, Romeo Llenado (Romeo), for a period of five years, renewable for another five years at the option of Cornelio. On March 31, 1978, Cornelio, Romeo and the latter’s cousin Orlando Llenado (Orlando) executed an Agreement whereby Romeo assigned all his rights to Orlando over the unexpired portion of the aforesaid lease contract. The parties further agreed that Orlando shall have the option to renew the lease contract ARAFAG • HABANA • JALAYAJAY

for another three years commencing from December 3, 1980, up to December 2, 1983, renewable for another four years or up to December 2, 1987, and that "during the period that [this agreement] is enforced, the x x x property cannot be sold, transferred, alienated or conveyed in whatever manner to any third party." Shortly thereafter or on June 24, 1978, Cornelio and Orlando entered into a Supplementary Agreement amending the March 31, 1978 Agreement. Under the Supplementary Agreement, Orlando was given an additional option to renew the lease contract for an aggregate period of 10 years at five-year intervals, that is, from December 3, 1987 to December 2, 1992 and from December 3, 1992 to December 2, 1997. The said provision was inserted in order to comply with the requirements of Mobil Philippines, Inc. for the operation of a gasoline station which was subsequently built on the subject lot. Upon the death of Orlando on November 7, 1983, his wife, Wenifreda Llenado (Wenifreda), took over the operation of the gasoline station. Meanwhile, on January 29, 1987, Cornelio sold Lot 249-D to his children, namely, Eduardo, Jorge, Virginia and Cornelio, Jr., through a deed of sale, denominated as "Kasulatan sa Ganap Na Bilihan," for the sum of P160,000.00. As stated earlier, the subject lot, which forms part of Lot 249-D, was sold to Eduardo and Jorge, and titled in their names under TCT No. V-1689. Several months thereafter or on September 7, 1987, Cornelio passed away. Sometime in 1993, Eduardo informed Wenifreda of his desire to take over the subject lot. However, the latter refused to vacate the premises despite repeated demands. Thus, Eduardo filed a complaint for unlawful detainer before the MTC against Wenifreda. On July 22, 1996, the Metropolitan Trial Court rendered its Decision in favor of Eduardo and ordered Wenifreda to: (1) vacate the leased premises; (2) pay Eduardo reasonable compensation for the use and occupation of the Page 75

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premises plus attorney’s fees, and (3) pay the costs of the suit. Winifreda appealed the decision and was reversed by the RTC but also reversed by the CA upon Eduardo’s appeal.

and Orlando; (2) contravening the right of first refusal of Orlando over the subject lot.

HELD: Previously, after Eduardo instituted the aforesaid unlawful detainer case on September 24, 1993, herein petitioner Wenifreda, in her capacity as administratrix of the estate of Orlando Llenado, judicial guardian of their minor children, and surviving spouse and legal heir of Orlando, commenced the subject Complaint,11 later amended, on November 10, 1993 for annulment of deed of conveyance, title and damages against herein respondents Eduardo, Jorge, Feliza Llenado (mother of the Llenado brothers), and the Register of Deeds of Valenzuela, Metro Manila. Petitioner alleged that the transfer and conveyance of the subject lot by Cornelio in favor of respondents Eduardo and Jorge, was fraudulent and in bad faith considering that the March 31, 1978 Agreement provided that while the lease is in force, the subject lot cannot be sold, transferred or conveyed to any third party; that the period of the lease was until December 3, 1987 with the option to renew granted to Orlando; that the subject lot was transferred and conveyed to respondents Eduardo and Jorge on January 29, 1987 when the lease was in full force and effect making the sale null and void; that Cornelio verbally promised Orlando that in case he (Cornelio) decides to sell the subject lot, Orlando or his heirs shall have first priority or option to buy the subject lot so as not to prejudice Orlando’s business and because Orlando is the owner of the property adjacent to the subject lot; and that this promise was wantonly disregarded when Cornelio sold the said lot to respondents Jorge and Eduardo.

ISSUE: Whether or not the sale of the subject lot by Cornelio to his sons, respondents Eduardo and Jorge, is invalid for (1) violating the prohibitory clause in the lease agreement between Cornelio ARAFAG • HABANA • JALAYAJAY

It is not disputed that the lease agreement contained an option to renew and a prohibition on the sale of the subject lot in favor of third persons while the lease is in force. Petitioner claims that when Cornelio sold the subject lot to respondents Eduardo and Jorge the lease was in full force and effect, thus, the sale violated the prohibitory clause rendering it invalid. In resolving this issue, it is necessary to determine whether the lease agreement was in force at the time of the subject sale and, if it was in force, whether the violation of the prohibitory clause invalidated the sale. Under Article 1311 of the Civil Code, the heirs are bound by the contracts entered into by their predecessors-in-interest except when the rights and obligations therein are not transmissible by their nature, by stipulation or by provision of law. A contract of lease is, therefore, generally transmissible to the heirs of the lessor or lessee. It involves a property right and, as such, the death of a party does not excuse non-performance of the contract. The rights and obligations pass to the heirs of the deceased and the heir of the deceased lessor is bound to respect the period of the lease. The same principle applies to the option to renew the lease. As a general rule, covenants to renew a lease are not personal but will run with the land. Consequently, the successors-in-interest of the lessee are entitled to the benefits, while that of the lessor are burdened with the duties and obligations, which said covenants conferred and imposed on the original parties. The foregoing principles apply with greater force in this case because the parties expressly stipulated in the March 31, 1978 Agreement that Romeo, as lessee, shall transfer all his rights and interests under the lease contract with option to renew "in favor of the party of the Third Part (Orlando), the latter’s heirs, successors and assigns" indicating the clear intent to allow the transmissibility of all the Page 76

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rights and interests of Orlando under the lease contract unto his heirs, successors or assigns. Accordingly, the rights and obligations under the lease contract with option to renew were transmitted from Orlando to his heirs upon his death on November 7, 1983. It does not follow, however, that the lease subsisted at the time of the sale of the subject lot on January 29, 1987. When Orlando died on November 7, 1983, the lease contract was set to expire 26 days later or on December 3, 1983, unless renewed by Orlando’s heirs for another four years. While the option to renew is an enforceable right, it must necessarily be first exercised to be given effect. There is no dispute that in the instant case, the lessees (private respondents) were granted the option to renew the lease for another five (5) years after the termination of the original period of fifteen years. Yet, there was never any positive act on the part of private respondents before or after the termination of the original period to show their exercise of such option. The silence of the lessees after the termination of the original period cannot be taken to mean that they opted to renew the contract by virtue of the promise by the lessor, as stated in the original contract of lease, to allow them to renew. Neither can the exercise of the option to renew be inferred from their persistence to remain in the premises despite petitioners’ demand for them to vacate. Similarly, the election of the option to renew the lease in this case cannot be inferred from petitioner Wenifreda’s continued possession of the subject lot and operation of the gasoline station even after the death of Orlando on November 7, 1983 and the expiration of the lease contract on December 3, 1983. In the unlawful detainer case against petitioner Wenifreda and in the subject complaint for annulment of conveyance, respondents consistently maintained that after the death of Orlando, the lease was terminated and that they permitted petitioner Wenifreda and her children to remain in possession ARAFAG • HABANA • JALAYAJAY

of the subject property out of tolerance and respect for the close blood relationship between Cornelio and Orlando. It was incumbent, therefore, upon petitioner as the plaintiff with the burden of proof during the trial below to establish by some positive act that Orlando or his heirs exercised the option to renew the lease. After going over the records of this case, we find no evidence, testimonial or documentary, of such nature was presented before the trial court to prove that Orlando or his heirs exercised the option to renew prior to or at the time of the expiration of the lease on December 3, 1983. In particular, the testimony of petitioner Wenifreda is wanting in detail as to the events surrounding the implementation of the subject lease agreement after the death of Orlando and any overt acts to establish the renewal of said lease. Given the foregoing, it becomes unnecessary to resolve the issue on whether the violation of the prohibitory clause invalidated the sale and conferred ownership over the subject lot to Orlando’s heirs, who are mere lessees, considering that at the time of said sale on January 29, 1987 the lease agreement had long been terminated for failure of Orlando or his heirs to validly renew the same. As a result, there was no obstacle to the sale of the subject lot by Cornelio to respondents Eduardo and Jorge as the prohibitory clause under the lease contract was no longer in force. Petitioner also anchors its claim over the subject lot on the alleged verbal promise of Cornelio to Orlando that should he (Cornelio) sell the same, Orlando would be given the first opportunity to purchase said property. According to petitioner, this amounted to a right of first refusal in favor of Orlando which may be proved by parole evidence because it is not one of the contracts covered by the statute of frauds. Considering that Cornelio sold the subject lot to respondents Eduardo and Jorge without first offering the same to Orlando’s heirs, petitioner argues that the sale is in violation of the latter’s right of first refusal and is, thus, rescissible. Page 77

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GILCHRIST VS. CUDDY 29 Phil 542

MONTECILLO V. REYNES JULY 26, 2002 FACTS:

FACTS: Cuddy leased a cinematograph film ‘Zigomar” to Gilchrist who owned a theater inIloilo for one week beginning May 26, 1913 at an agreed rental of P125.00. DefendantsEspejo and Zaldariaga induced their co-defendant Cuddy to break his contract of leasewith plaintiff Gilchrist by offering Cuddy a rental of P350.00.

ISSUE: Whether or not such acts of Espejo and Zaldariaga were actionable and if so under what legal principle?

HELD: “The liability of the appellants (Es pejo and Zaldariaga) aris es from unlawful acts and not from contractual obligations , as they were under no s uch obligation to induceCuddy to violate his contract with Gilchrist. So that if the action of Gilchrist had been onefor damages , it would be governed by Chapter 2, title 16, book 4 of the (Spanis h) Civil Code. Article 1902 of that code provides that a person who, by act or omission, causesdamage to another when there is fault or negligence, shall be obliged to repair the damages o done. There is nothing in this article which requires as a condition precedent to theliability of a tortfeas or that he mus t know the identity of a pers on to whom he caus es damage. In fact, the chapter wherein this article is found clearly s hows that no s uchknowledge is required in order that the injured party may recover for the damage suffered.”

ARAFAG • HABANA • JALAYAJAY

Ignacia Reynes is the owner of a lot situated in Mabolo, Cebu City, with an area of 448 square meters. In 1981, Reynes sold 185 square meters of the Mabolo Lot to the Abucay Spouses who built a residential house on the lot they bought. Reynes alleged further that on March 1, 1984 she signed a Deed of Sale of the Mabolo Lot in favor of Montecillo. Reynes, being illiterate, signed by affixing her thumb-mark on the document. Montecillo promised to pay the agreed P47,000.00 purchase price within one month from the signing of the Deed of Sale. Reynes further alleged that Montecillo failed to pay the purchase price after the lapse of the one-month period, prompting Reynes to demand from Montecillo the return of the Deed of Sale. Since Montecillo refused to return the Deed of Sale, Reynes executed a document unilaterally revoking the sale and gave a copy of the document to Montecillo. Subsequently, Reynes signed a Deed of Sale transferring to the Abucay Spouses the entire Mabolo Lot, and at the same time confirmed the previous sale in 1981 of a 185square meter portion of the lot. Reynes and the Abucay Spouses alleged that on June 18, 1984 they received information that the Register of Deeds of Cebu City issued Certificate of Title No. 90805 in the name of Montecillo for the Mabolo Lot. Reynes and Spouses Abucay then filed a complaint for Declaration of Nullity and Quieting of Title against petitioner Rido Montecillo. Reynes and the Abucay Spouses argued that “for lack of consideration there was no meeting of the minds” between Reynes and Montecillo . Page 78

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In his Answer, Montecillo, a bank executive with a B.S. Commerce degree claimed he was a buyer in good faith and had actually paid the P47,000.00 consideration stated in his Deed of Sale. Montecillo, however, admitted he still owed Reynes a balance of P10,000.00. He also alleged that he paid P50,000.00 for the release of the chattel mortgage which he argued constituted a lien on the Mabolo Lot. He further alleged that he paid for the real property tax as well as the capital gains tax on the sale of the Mabolo Lot. Montecillo also claimed that the consideration for the sale of the Mabolo Lot was the amount he paid to Cebu Ice and Cold Storage Corporation for the mortgage debt of Bienvenido Jayag. Montecillo argued that the release of the mortgage was necessary since the mortgage constituted a lien on the Mabolo Lot. The trial court rendered a decision declaring the Deed of Sale to Montecillo null and void and ordered the cancellation of Montecillo’s Transfer Certificate of Title No. 90805 and the issuance of a new certificate of title in favor of the Abucay Spouses. The trial court found that Montecillo’s Deed of Sale had no cause or consideration because Montecillo never paid Reynes the P47,000.00 purchase price, contrary to what is stated in the Deed of Sale that Reynes received the purchase price. The trial court ruled that Montecillo’s Deed of Sale produced no effect whatsoever for want of consideration. Not satisfied with the trial court’s Decision, Montecillo appealed the same to the Court of Appeals. The CA affirmed the Decision of the trial court in toto and dismissed the appeal. Still dissatisfied, Montecillo filed the present petition for review on certiorari. Montecillo argues that his Deed of Sale has all the requisites of a valid contract. Montecillo asserts there is no lack of consideration that would prevent the existence of a valid contract. Montecillo argues there is only a breach of his obligation to pay the full purchase ARAFAG • HABANA • JALAYAJAY

price on time. Such breach merely gives Reynes a right to as k for specific performance, or for annulment of the obligation to sell the Mabolo Lot under Art. 1191. Montecillo also asserts that the only issue in controversy is “the mode and/or manner of payment and/or whether or not payment has been made.” Montecillo implies that the mode or manner of payment is separate from the consideration and does not affect the validity of the contract.

ISSUES: 1. Was there an agreement between Reynes and Montecillo that the stated consideration of P47,000.00 in the Deed of Sale be paid to Cebu Ice and Cold Storage to secure the release of the Transfer Certificate of Title? 2. If there was none, is the Deed of Sale void from the beginning or simply rescissible? HELD: 1. NONE . Montecillo’s Deed of Sale does not state that the P47,000.00 purchase price should be paid by Montecillo to Cebu Ice Storage. Montecillo failed to adduce any evidence before the trial court showing that Reynes had agreed, verbally or in writing, that the P47,000.00 purchase price should be paid to Cebu Ice Storage. Absent any evidence showing that Reynes had agreed to the payment of the purchase price to any other party, the payment to be effective must be made to Reynes, the vendor in the sale. Thus, Montecillo’s payment to Cebu Ice Storage is not the payment that would extinguish Montecillo’s obligation to Reynes under the Deed of Sale. The trial court found that Reynes had nothing to do with Jayag’s mortgage debt with Cebu Ice Storage. The trial court made the following findings of fact that Page 79

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Ignacia Reynes was not a party to nor privy of the obligation in favor of the Cebu Ice and Cold Storage Corporation, the obligation being exclusively of Bienvenido Jayag and wife who mortgaged their residential house constructed on the land subject matter of the complaint. The payment by the defendant to release the residential house from the mortgage is a matter between him and Jayag and cannot by implication or deception be made to appear as an encumbrance upon the land. Thus, Montecillo’s payment to Jayag’s creditor could not possibly redound to the benefit of Reynes. 2. VOID AB INITIO Under Article 1318 of the Civil Code, “[T]here is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established.” Article 1352 of the Civil Code also provides that “[C]ontracts without cause x x x produce no effect whatsoever.” On its face, Montecillo’s Deed of Absolute Sale appears supported by a valuable consideration. However, based on the evidence presented by both Reynes and Montecillo, the trial court found that Montecillo never paid to Reynes, and Reynes never received from Montecillo, the P47,000.00 purchase price. There was indisputably a total absence of consideration contrary to what is stated in Montecillo’s Deed of Sale. Where the deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of sale is null and void ab initio for lack of consideration.

This is not merely a case of failure to pay the purchase price, as Montecillo claims, which can only amount to a breach of obligation with rescission as the proper remedy. What we have here is a purported contract that lacks a cause - one ARAFAG • HABANA • JALAYAJAY

of the three essential requisites of a valid contract. Failure to pay the consideration is different from lack of consideration. The former results in a right to demand the fulfillmentor cancellation of the obligation under an existing valid contract while the latter prevents the existence of a valid contract. One of the three essential requisites of a valid contract is consent of the parties on the object and cause of the contract. In a contract of sale, the parties must agree not only on the price, but also on the manner of payment of the price. An agreement on the price but a disagreement on the manner of its payment will not result in consent, thus preventing the existence of a valid contract for lack of consent . This lack of consent is separate and distinct from lack of consideration where the contract states that the price has been paid when in fact it has never been paid. In summary, Montecillo’s Deed of Sale is null and void ab initio not only for lack of consideration, but also for lack of consent.

FRANCISCO V. HERRERA FACTS: Eligio Herrera, Sr., the father of respondent, was the owner of two parcels of land, one consisting of 500 sq. m.(First parcel of land) and another consisting of 451 sq. m.(Second Parcel of land), both were located at Barangay San Andres, Cainta, Rizal. Julian Francisco bought from said landowner the first parcel for the price of P1,000,000, paid in installments from November 30, 1990 to August 10, 1991. Later, petitioner bought the second parcel for P750,000. Contending that the contract price for the two parcels of land was grossly inadequate, the children of Eligio, Sr. tried to negotiate with petitioner to increase the Page 80

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purchase price. When petitioner refused, herein respondent then filed a complaint for annulment of sale, with the RTC of Antipolo City. In his complaint, respondent claimed ownership over the second parcel, allegedly by virtue of a sale in his favor since 1973. He likewise claimed that the first parcel was subject to the coownership of the surviving heirs of Francisca A. Herrera, the wife of Eligio, Sr., considering that she died intestate on April 2, 1990, before the alleged sale to petitioner. Finally, respondent also alleged that the sale of the two lots was null and void on the ground that at the time of sale, Eligio, Sr. was already incapacitated to give consent to a contract because he was already afflicted with senile dementia, characterized by deteriorating mental and physical condition including loss of memory. In his answer, petitioner as defendant below alleged that respondent was estopped from assailing the sale of the lots. Petitioner contended that respondent had effectively ratified both contracts of sales, by receiving the consideration offered in each transaction. The RTC ruled in favor of respondent, which decision was affirmed by the CA. Francisco elevated the matter to the SC via a petition for review on certiorari. He argues that the contracts of sale in the instant case, following Article 1390 of the Civil Code are merely voidable and not void ab initio. Hence, said contracts can be ratified. Petitioner argues that while it is true that a demented person cannot give consent to a contract pursuant to Article 1327, nonetheless the dementia affecting one of the parties will not make the contract void per se but merely voidable. Hence, when respondent accepted the purchase price on behalf of his father who was allegedly suffering from senile dementia, respondent effectively ratified the contracts. The ratified contracts then become valid and enforceable as between the ARAFAG • HABANA • JALAYAJAY

parties. ISSUE: Are the assailed contracts of sale void or merely voidable and hence capable of being ratified? HELD: VIODABLE . A void or inexistent contract is one which has no force and effect from the very beginning. Hence, it is as if it has never been entered into and cannot be validated either by the passage of time or by ratification. There are two types of void contracts: (1) those where one of the essential requisites of a valid contract as provided for by Article 1318 of the Civil Code is totally wanting; and (2) those declared to be so under Article 1409 of the Civil Code. By contrast, a voidable or annullable contract is one in which the essential requisites for validity under Article 1318 are present, but vitiated by want of capacity, error,violence, intimidation, undue influence, or deceit. Article 1318 of the Civil Code states that no contract exists unless there is a concurrence of consent of the parties, object certain as subject matter, and cause of the obligation established. Article 1327 provides that insane or demented persons cannot give consent to a contract. But, if an insane or demented person does enter into a contract, the legal effect is that the contract is voidable or annullable as specifically provided in Article 1390. In the present case, it was established that the vendor Eligio, Sr. entered into an agreement with petitioner, but that the former’s capacity to consent was vitiated by senile dementia. Hence, we must rule that the assailed contracts are not void or inexistent per se; rather, these are contracts that are valid and binding unless annulled through a proper action filed in court seasonably. An Page 81

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annullable contract may be rendered perfectly valid by ratification, which can be express or implied. Implied ratification may take the form of accepting and retaining the benefits of a contract. This is what happened in this case. Respondent’s contention that he merely received payments on behalf of his father merely to avoid their misuse and that he did not intend to concur with the contracts is unconvincing. If he was not agreeable with the contracts, he could have prevented petitioner from delivering the payments, or if this was impossible, he could have immediately instituted the action for reconveyance and have the payments consigned with the court. None of these happened. As found by the trial court and the Court of Appeals, upon learning of the sale, respondent negotiated for the increase of the purchase price while receiving the installment payments. It was only when respondent failed to convince petitioner to increase the price that the former instituted the complaint for reconveyance of the properties. Clearly, respondent was agreeable to the contracts, only he wanted to get more. Further, there is no showing that respondent returned the payments or made an offer to do so. This bolsters the view that indeed there was ratification. One cannot negotiate for an increase in the price in one breath and in the same breath contend that the contract of sale is void. Nor can we find for respondent’s argument that the contracts were void as Eligio, Sr., could not sell the lots in question as one of the properties had already been sold to him, while the other was the subject of a co-ownership among the heirs of the deceased wife of Eligio, Sr. Note that it was found by both the trial court and the Court of Appeals that Eligio, Sr., was the “declared owner” of said lots. This finding is conclusive on us. As declared owner of said parcels of land, it follows that Eligio, Sr., had the right to transfer the ownership thereof under the principle of jus disponendi. In sum, the ARAFAG • HABANA • JALAYAJAY

appellate court erred in sustaining the judgment of the trial court that the deeds of sale of the two lots in question were null and void. CORONEL V. CONSTANTINO FACTS: The subject property consists of two parcels of land situated in Sta. Monica, Hagonoy, Bulacan, designated as Cadastral Lots Nos. 5737 and 5738. The property is originally owned by Honoria Aguinaldo. One-half (1/2) of it was inherited by Emilia Meking Vda. de Coronel together with her sons Benjamin, Catalino and Ceferino, all surnamed Coronel. The other half was inherited by Florentino Constantino and Aurea Buensuceso. Constantino and Buensuceso filed a complaint for declaration of ownership, quieting of title and damages with prayer for writ of mandatory and/or prohibitory injunction with the Regional Trial Court of Bulacan (Branch 8) against Benjamin, Emilia and John Does. Plaintiffs allege that: on April 23, 1981, Jess C. Santos and Priscilla Bernardo purchased the property belonging to Emilia and her sons by virtue of a deed of sale signed by Emilia for the amount of P25,000; on June 21, 1990, Santos and Bernardo in turn sold the same to Constantino and Buensuceso by virtue of a compromise agreement in Civil Case No. 8289-M; they are the owners of the subject property and defendants have illegally started to introduce construction on the premises in question; and pray that “defendants respect, acknowledge and confirm the right of ownership of the plaintiffs to the share, interest and participation of the onethird (1/3) portion of the above described property”. The RTC ruled in favor of the plaintiffs. On appeal, the CA affirmed the decision of the lower court.

ISSUES: Page 82

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1. Whether or not the contract of sale executed by a parent co-owner, in her own behalf, is unenforceable with respect to the shares of her co-heirs children? 2. Whether or not the minor children can ratify unauthorized actions of their parents? 3. Whether or no the co-heirs are indispensable defendants in an action for declaration of ownership and quieting of title? HELD: A careful reading of the “Kasulatan ng Bilihang Patuluyan” which is a private document, not having been duly notarized, shows that only the share of Emilia in the subject property was sold because Benjamin did not sign the document and the shares of Ceferino and Catalino were not subject of the sale. Pertinent portions of the document read as follows:

“KASULATAN NG BILIHANG PATULUYAN” SA KATUNAYAN NITO, kami ay lumagda sa kasulatang ito sa bayan ng Malabon, Rizal ngayong ika-23 ng Abril, 1981. (Signed)

(Signed)

EMILIA MICKING Vda. CORONEL JESS C. SANTOS Nagbili

Nakabili

(Unsigned)

(Signed)

BENJAMIN M. CORONEL PRISCILLA BERNARDO Nagbili

Nakabili”

Thus, it is clear, as already stated, that petitioner Benjamin did not sign the document and that the shares of Catalino and Ceferino in the ARAFAG • HABANA • JALAYAJAY

subject property were not sold by them. Since the shares of Catalino and Ceferino were not sold, plaintiffs Constantino and Buensuceso have no cause of action against them or against any of their heirs. In the present case, the heirs of Catalino and Ceferino are not indispensable parties because a complete determination of the rights of herein petitioners and respondents can be had even if the said heirs are not impleaded. Besides, it is undisputed that petitioners never raised before the trial court the issue of the private respondents’ failure to implead said heirs in their complaint. Instead, petitioners actively participated in the proceedings in the lower court and raised only the said issue on appeal with the Court of Appeals. In the present case, petitioners’ participation in all stages of the case during trial, without raising the issue of the trial court’s lack of jurisdiction over indispensable parties, estops them from challenging the validity of the proceedings therein. Further, the deed of sale is not a competent proof that petitioner Benjamin had sold his own share of the subject property. It cannot be disputed that Benjamin did not sign the document and therefore, it is unenforceable against him. Emilia executed the instrument in her own behalf and not in representation of her three children. Consequently, the sale of the subject property made by Emilia in favor of Santos and Bernardo is limited to the portion which may be allotted to her upon the termination of her co-ownership over the subject property with her children. The three sons of Emilia did not ratify the sale. “Ratification means that one under no disability voluntarily adopts and gives sanction to some unauthorized act or defective proceeding, which without hissanction would not be binding on him. It is this voluntary choice, knowingly made, which amounts to a ratification of what was Page 83

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theretofore unauthorized, and becomes the authorized act of the party so making the ratification. No evidence was presented to show that the three brothers were aware of the sale made by their mother. Unaware of such sale, Catalino, Ceferino and Benjamin could not be considered as having voluntarily remained silent and knowingly chose not to file an action for the annulment of the sale. Their alleged silence and inaction may not be interpreted as an act of ratification on their part. To repeat, the sale is valid insofar as the share of petitioner Emilia Meking Vda. de Coronel is concerned. Hence, Jess C. Santos and Priscilla Bernardo, who purchased the share of Emilia, became co-owners of the subject property together with Benjamin and the heirs of Ceferino and Catalino. As such, Santos and Bernardo could validly dispose of that portion of the subject property pertaining to Emilia in favor of herein private respondents Constantino and Buensuceso. However, the particular portions properly pertaining to each of the co-owners are not yet defined and determined as no partition in the proper forum or extrajudicial settlement among the parties has been effected among the parties. Consequently, the prayer of respondents for a mandatory or prohibitory injunction lacks merit. Plaintiffs-private respondents Florentino Constantino and Aurea Buensuceso are declared owners of one-half (1/2) undivided portion of the subject property plus the one-fourth (¼) undivided share of defendant-petitioner Emilia Meking Vda. de Coronel; and, defendant-petitioner Benjamin Coronel together with the heirs of Catalino Coronel and the heirs of Ceferino Coronel are declared owners of one-fourth (¼) share each of the other one-half (1/2) portion of the subject property, without prejudice to the parties entering into ARAFAG • HABANA • JALAYAJAY

partition of the subject property, judicial or otherwise. LAUDICO V. ARIAS FACTS: Vicente Arias, who, with his codefendants, owned the building Nos. 205 to 221 on Carriedo Street, on his behalf and that of his coowners, wrote a letter to the plaintiff, Mamerto Laudico, giving him an option to lease the building to a third person, and transmitting to him for that purpose a tentative contract in writing containing the conditions upon which the proposed lease should be made. Later Mr. Laudico presented his co-plaintiff, Mr. Fred. M. Harden, as the party desiring to lease the building. On one hand, other conditions were added to those originally contained in the tentative contract, and, on the other, counter-propositions were made and explanations requested on certain points in order to make them clear. These negotiations were carried on by correspondence and verbally at interviews held with Mr. Vicente Arias, no definite agreement having been arrived at until the plaintiff, Mr. Laudico, finally wrote a letter to Mr. Arias on March 6, 1919, advising him that all his propositions, as amended and supplemented, were accepted. It is admitted that this letter was received by Mr. Arias by special delivery at 2.53 p.m. of that day. On that same day, at 11.25 in the morning, Mr. Arias had, in turn, written a letter to the plaintiff, Mr. Laudico, withdrawing the offer to lease the building. The chief prayer of the plaintiff in this action is that the defendants be compelled to execute the contract of lease of the building in question. It thus results that when Arias sent his letter of withdrawal to Laudico, he had not yet received the letter of acceptance, and when it reached him, he had already sent his letter of withdrawal. Page 84

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ISSUE: Whether or not there was a perfected contract of lease between the parties?

HELD: None. Under article 1262, paragraph 2, of the Civil Code, an acceptance by letter does not have any effect until it comes to the knowledge of the offerer. Therefore, before he learns of the acceptance, the latter is not yet bound by it and can still withdraw the offer. Consequently, when Mr. Arias wrote Mr. Laudico, withdrawing the offer, he had the right to do so, inasmuch as he had notyet receive notice of the acceptance. And when the notice of the acceptance was received by Mr. Arias, it no longer had any effect, as the offer was not then in existence, the same having already been withdrawn. There was no meeting of the minds, through offer and acceptance, which is the essence of the contract. While there was an offer, there was no acceptance, and when the latter was made and could have a binding effect, the offer was then lacking. Though both the offer and the acceptance existed, they did not meet to give birth to a contract. Our attention has been called to a doctrine laid down in some decisions to the effect that ordinarily notice of the revocation of an offer must be given to avoid an acceptance which may convert in into a binding contract, and that no such notice can be deemed to have been given to the person to whom the offer was made unless the revocation was in fact brought home to his knowledge. This, however, has no application in the instant case, because when Arias received the letter ARAFAG • HABANA • JALAYAJAY

of acceptance, his letter of revocation had already been received. The latter was sent through a messenger at 11.25 in the morning directly to the office of Laudico and should have been received immediately on that same morning, or at least, before Arias received the letter of acceptance. On this point we do not give any credence to the testimony of Laudico that he received this letter of revocation at 3.30 in the afternoon of that day. Laudico is interested in destroying the effect of this revocation so that the acceptance may be valid, which is the principal ground of his complaint. But even supposing Laudico's testimony to be true, still the doctrine invoked has no application here. With regard to contracts between absent persons there are two principal theories, to wit, one holding that an acceptance by letter of an offer has no effect until it comes to the knowledge of the offerer, and the other maintaining that it is effective from the time the letter is sent. The Civil Code, in paragraph 2 of article 1262, has adopted the first theory and, according to its most eminent commentators, it means that, before the acceptance is known, the offer can be revoked, it not being necessary, in order for the revocation to have the effect of impeding the perfection of the contract, that it be known by the acceptant.Mucius Scaevola says apropros: "To our mind, the power to revoke is implied in the criterion that no contract exists until the acceptance is known. As the tie or bond springs from the meeting or concurrence of the minds, since up to that moment there exists only a unilateral act, it is evident that he who makes it must have the power to revoke it by withdrawing his proposition, although with the obligation to pay such damages as may have been sustained by the person or persons to whom the offer was made and by whom it was accepted, if he in turn failed to give them notice of the withdrawal of the offer. This view is confirmed by the provision of article 1257, Page 85

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paragraph 2, concerning the case where a stipulation is made in favor of a third person, which provision authorizes the contracting parties to revoke the stipulation before the notice of its acceptance. That case is quite similar to that under comment, as said stipulation in favor of a third person (who, for the very reason of being a third person, is not a contracting party) is tantamount to an offer made by the makers of the contract which may or may not be accepted by him, and which does not have any effect until the obligor is notified, and may, before it is accepted, be revoked by those who have made it; therefore, the case being similar, the same rule applies." VILLANUEVA V. CA FACTS: In 1991, private respondent, Almario Go Manuel filed a civil action for sum of money with damages before the Regional Trial Court of Cebu City, Branch 8 against petitioner, Felix Villanueva and his wife Melchora. The subject matter of the action involved a check dated June 30, 1991 in the amount of P167,600.00 issued by petitioner in favor of private respondent. The check supposedly represented payment of loans previously obtained by petitioner from private respondent as capital for the former's mining and fertilizer business. The check when duly represented for payment was dishonored due to insufficiency of funds. A demand was made upon petitioner to make good the check but he failed to do so. Private respondent then filed a criminal complaint for violation of Batas Pambansa Bilang 22 before the Cebu City Prosecutor's Office and the subject civil complaint for sum of money. Petitioner, on the other hand, avers that his principal obligation only amounts to P23,420.00. The RTC ruled in favor of private respondent directing Villanueva to pay P167,600. Apparently aggrieved, both parties appealed the ARAFAG • HABANA • JALAYAJAY

decision to the Court of Appeals. Petitioner prayed for the reversal of the trial court's decision and contended that his principal obligation is only P23,420.00, while private respondent sought interest of ten percent (10%) of the principal obligation; twenty-five percent (25%) as attorney's fees, as well as moral and exemplary damages. The Court of Appeals dismissed the petition and affirmed the decision of the trial court subject to the modification that petitioner was directed to additionally pay private respondent attorney's fees and litigation expenses in the amount of ten (10%) percent of P167,000.00, and the entire obligation to earn interest at six (6%) percent per annum from the filing of the complaint. Petitioner now comes before this Court basically alleging the same issues raised before the Court of Appeals as follows: (a) the Court of Appeals erred in not ruling that the five (5%) and ten (10%) percent interest imposed is not enforceable due to absence of such stipulation in writing; (b) the Court of Appeals erred in not finding that petitioner is only liable for the amount P23,420.00; and (c) the Court of Appeals erred in not declaring that the Central Bank and Monetary Board has no power or authority to repeal the usury law. ISSUE: Whether or not the interest imposed is valid?

HELD: As regards the matter of legal interest, this Court, in the case of Eastern Shipping Lines, Inc. v. Court of Appeals laid down the following guidelines: I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasiPage 86

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delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVII on "Damages" of the Civil Code govern in determining the measure of recoverable damages.

rate of 12% per annum computed from the finality of the decision until payment thereof, the interim period being deemed to be a forbearance of credit.

II. With regard particularly to an award of interest in the concept of actual and c ompensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

ADELFA PROPERTIES vs. CA

FACTS: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due is that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. . 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. Applying the foregoing rules, since the principal obligation in the amount of P167,600.00 is a loan, the same should earn legal interest at the rate of 12% per annum computed from the time the complaint was filed until the finality of this decision. On the other hand, if the total obligation is not satisfied it shall further earn legal interest at the ARAFAG • HABANA • JALAYAJAY

Rosario-Jimenez Castaneda, Salud Jimenez (private respondents), their brothers Jose and Dominador Jimenez were co-owners of a registered land located in Las Pinas. Jose and Dominador entered into an Agreement to Sell with Adelfa with respect to the eastern portion of the land which was apportioned to the two brothers through an extrajudicial partition among the siblings. Adelfa also wished to buy the western portion belonging to private respondents so petitioner and private respondents executed an Exclusive Option to Purchase the property amounting to P2,856,150.00. P50,000 was agreed to be paid as option money which shall be credited as partial payment. Upon failure of Adelfa to pay the balance, the option shall be cancelled and that 50% of the option money will be forfeited while the other 50% will be returned to Adelfa when the property will be sold to another. Atty. Bernardo, counsel of private respondents, held the title of Salud until it was turned over to Adelfa. The latter then made annotations on the title of the exclusive option to purchase. Before Adelfa was able to pay the balance of the price, the nephews and nieces of private respondents filed an action for recovery of ownership against Adelfa, private respondents, Jose and Dominador Jimenez. Adelfa then notified private respondents that they should settle the case Page 87

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with their nephews and nieces while the payment was suspended until the matter was resolved. Salud attributed the action of Adelfa as “lack of word of honor”. Subsequently, the case filed by their nephews and nieces were dismissed. On that same day, a deed of conditional sale was executed in favor of Emylene Chua byprivate respondents. Adelfa, upon learning of the dismissal of the case informed private respondents, through Atty. Bernardo, of its willingness to pay the purchase price and that the necessary deed of sale be given in its favor. Private respondents ignored the same. Subsequently, private respondents returned the 50% of the option price and asked Adelfa to return the title. Judgment of the trial court held that that the agreement entered into by the parties was merely an option contract, and declaring that the suspension of payment by herein petitioner constituted a counter-offer which, therefore, was tantamount to a rejection of the option. The CA affirmed this decision. ISSUES: 1. Whether of not the "Exclusive Option to Purchase" executed between petitioner Adelfa Properties, Inc. and private respondents Rosario Jimenez-Castañeda and Salud Jimenez is an option contract? 2. Whether or not there was a valid suspension of payment of the purchase price by said petitioner, and the legal effects thereof on the contractual relations of the parties?

contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the vendor until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective. Thus, a deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is reserved in the seller until the full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. The parties never intended to transfer ownership to petitioner except upon the full payment of the purchase price. Firstly, the exclusive option to purchase, although it provided for automatic rescission of the contract and partial forfeiture of the amount already paid in case of default, does not mention that petitioner is obliged to return possession or ownership of the property as a consequence of non-payment. There is no stipulation anent reversion or reconveyance of the property to herein private respondents in the event that petitioner does not comply with its obligation. With the absence of such a stipulation, although there is a provisionon the remedies available to the parties in case of breach, it may legally be inferred that the parties never intended to transfer ownership to the petitioner to completion of payment of the purchase price.

HELD: The distinction between the two is important for in contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the full payment of the price. In a ARAFAG • HABANA • JALAYAJAY

The controverted document should legally be considered as a perfected contract to sell. An option, as used in the law on sales, is a continuing offer or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, Page 88

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or under, or in compliance with, certain terms and conditions, or which gives to the owner of the property the right to sell or demand a sale. It is also sometimes called an "unaccepted offer." An option is not of itself a purchase, but merely secures the privilege to buy. It is not a sale of property but a sale of property but a sale of the right to purchase. It is simply a contract by which the owner of property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. He does not sell his land; he does not then agree to sell it; but he does sell something, that it is, the right or privilege to buy at the election or option of the other party. Its distinguishing characteristic is that it imposes no bindingobligation on the person holding the option, aside from the consideration for the offer. Until acceptance, it is not, properly speaking, a contract, and does not vest, transfer, or agree to transfer, any title to, or any interest or right in the subject matter, but is merely a contract by which the owner of property gives the optionee the right or privilege of accepting the offer and buying the property on certain terms. On the other hand, a contract, like a contract to sell, involves a meeting of minds two persons whereby one binds himself, with respect to the other, to give something or to render some service. Contracts, in general, are perfected by mere consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. The distinction between an "option" and a contract of sale is that an option is an unaccepted offer. It states the terms and conditions on which the owner is willing to sell the land, if the holder elects toaccept them within the time limited. If the holder does so elect, he must give notice to the ARAFAG • HABANA • JALAYAJAY

other party, and the accepted offer thereupon becomes a valid and binding contract. If an acceptance is not made within the time fixed, the owner is no longer bound by his offer, and the option is at an end. A contract of sale, on the other hand, fixes definitely the relative rights and obligations of both parties at the time of its execution. The offer and the acceptance are concurrent, since the minds of the contracting parties meet in the terms of the agreement. It must be stressed that there already existed a perfected contract between the parties at the time the alleged counter-offer was made. Thus, any new offer by a party becomes binding only when it is accepted by the other. In the case of private respondents, they actually refused to concur in said offer of petitioner, by reason of which the original terms of the contract continued to be enforceable. At any rate, the same cannot be considered a counter-offer for the simple reason that petitioner's sole purpose was to settle the civil case in order that it could already comply with its obligation. In fact, it was even indicative of a desire by petitioner to immediately comply therewith, except that it was being prevented from doing so because of the filing of the civil case which, it believed in good faith, rendered compliance improbable at that time. In addition, no inference can be drawn from that suggestion given by petitioner that it was totally abandoning the original contract. The test in determining whether a contract is a "contract of sale or purchase" or a mere "option" is whether or not the agreement could be specifically enforced. There is no doubt that the obligation of petitioner to pay the purchase price is specific, definite and certain, and consequently binding and enforceable. Had private respondents Page 89

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chosen to enforce the contract, they could have specifically compelled petitioner to pay the balance of P2,806,150.00. This is distinctly made manifest in the contract itself as an integral stipulation, compliance with which could legally and definitely be demanded from petitioner as a consequence. The alleged option money of P50,000.00 was actually earnest money which was intended to form part of the purchase price. The amount of P50,000.00 was not distinct from the cause or consideration for the sale of the property, but was itself a part thereof. It is a statutory rule that whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract. It constitutes an advance payment and must, therefore, be deducted from the total price. Also, earnest money is given by the buyer to the seller to bind the bargain. There are clear distinctions between earnest money and option money: (a) earnest money is part of the purchase price, while option money ids the money given as a distinct consideration for an optioncontract; (b) earnest money is given only where there is already a sale, while option money applies to a sale not yet perfected; and (c) when earnest money is given, the buyer is bound to pay the balance, while when the would-be buyer gives option money, he is not required to buy.

The aforequoted characteristics of earnest money are apparent in the so-called option contract under review, even though it was called "option money" by the parties. In addition, private respondents failed to show that the payment of the balance of the purchase price was only a condition precedent to the acceptance of the offer or to the exercise of the right to buy. On the contrary, it has ARAFAG • HABANA • JALAYAJAY

been sufficiently established that such payment was but an element of the performance of petitioner's obligation under the contract to sell. II To justify its failure to pay the purchase price within the agreed period, petitioner invokes Article 1590 of the civil Code which provides: Art. 1590. Should the vendee be disturbed in the possession or ownership of the thinacquired, or should he have reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, he may suspend the payment of the price until the vendor has caused the disturbance or danger to cease, unless the latter gives security for the return of the price in a proper case, or it has been stipulated that, notwithstanding any such contingency, the vendee shall be bound to make the payment. A mere act of trespass shall not authorize the suspension of the payment of the price. Respondent court refused to apply the aforequoted provision of law on the erroneous assumption that the true agreement between the parties was a contract of option. As we have hereinbefore discussed, it was not an option contract but a perfected contract to sell. Verily, therefore, Article 1590 would properly apply. Both lower courts, however, are in accord that since Civil Case No. 89-5541 filed against the parties herein involved only the eastern half of the land subject of the deed of sale between petitioner andthe Jimenez brothers, it did not, therefore, have any adverse effect on private respondents' title and Ownership over the western half of the land which is covered by the contract subject of the present case. We have gone over the complaint for recovery Page 90

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of ownership filed in said case and we are not persuaded by the factual findings made by said courts. At a glance, it is easily discernible that, although the complaint prayed for the annulment only of the contract of sale executed between petitioner and the Jimenez brothers, the same likewise prayed for the recovery of therein plaintiffs' share in that parcel of land specifically covered by TCT No. 309773. In other words, the plaintiffs therein were claiming to be co-owners of the entire parcel of land described in TCT No. 309773, and not only of a portion thereof nor, as incorrectly interpreted by the lower courts, did their claim pertain exclusively to the eastern half adjudicated to the Jimenez brothers. Such being the case, petitioner was justified in suspending payment of the balance of thepurchase price by reason of the aforesaid vindicatory action filed against it. The assurance made by private respondents that petitioner did not have to worry about the case because it was pure and simple harassment is not the kind of guaranty contemplated under the exceptive clause in Article 1590 wherein the vendor is bound to make payment even with the existence of a vindicatory action if the vendee should give a security for the return of the price. 2. Be that as it may, and the validity of the suspension of payment notwithstanding, we find and hold that private respondents may no longer be compelled to sell and deliver the subject property to petitioner for two reasons, that is, petitioner's failure to duly effect the consignation of the purchase price after the disturbance had ceased; and, secondarily, the fact that the contract to sell had been validly rescinded by private respondents. The records of this case reveal that as early as February 28, 1990 when petitioner caused its exclusive option to be annotated anew on the ARAFAG • HABANA • JALAYAJAY

certificate of title, it already knew of the dismissal of civil Case No. 89-5541. However, it was only on April 16, 1990 that petitioner, through its counsel, wrote private respondents expressing its willingness to pay the balance of the purchase price uponthe execution of the corresponding deed of absolute sale. At most, that was merely a notice to pay. There was no proper tender of payment nor consignation in this case as required by law. The mere sending of a letter by the vendee expressing the intention to pay, without the accompanying payment, is not considered a valid tender of payment. Besides, a meretender of payment is notsufficient to compel private respondents to deliver the property and execute the deed of absolute sale. It is consignation which is essential in order to extinguish petitioner's obligation to pay the balance of the purchase price. The rule is different in case of an option contract or in legal redemption or in a sale with right to repurchase, wherein consignation is not necessary because these cases involve an exercise of a right or privilege (to buy, redeem or repurchase) rather than the dischargeof an obligation, hence tender of payment would be sufficient to preserve the right or privilege. This is because the provisions on consignation are not applicable when there is no obligation to pay. A contract to sell, as in the case before us, involves the performance of an obligation, not merely the exercise of a privilege of a right. consequently, performance or payment may be effected not by tender of payment alone but by both tender and consignation. Furthermore, petitioner no longer had the right to suspend payment after the disturbance ceased with the dismissal of the civil case filed against it. Necessarily, therefore, its obligation to pay the balancagain arose and resumed after it received notice of such dismissal. Unfortunately, Page 91

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petitioner failed to seasonably make payment, as in fact it has deposit the money with the trial court when this case was originally filed therein.

SERRA VS. COURT OF APPEALS, RCBC 229 SCRA 61 FACTS:

By reason of petitioner's failure to comply with its obligation, private respondents elected to resort to and did announce the rescission of the contract through its letter to petitioner dated July 27, 1990. That written notice of rescission is deemed sufficient under the circumstances. Article 1592 of the Civil Code which requires rescission either by judicial action or notarial act is not applicable to a contract to sell. Furthermore, judicial action for rescission of a contract is not necessary where the contract provides for automatic rescission in case of breach, as in the contract involved in the present controversy. In the case at bar, it has been shown that although petitioner was duly furnished and did receive a written notice of rescission which specified the grounds therefore, it failed to reply thereto or protest against it. Its silence thereon suggests an admission of the veracity and validity of private respondents' claim. Furthermore, the initiative of instituting suit was transferred from the rescinder to the defaulter by virtue of the automatic rescission clause in the contract. But then, the records bear out the fact that asidefrom the lackadaisical manner with which petitioner treated private respondents' latter of cancellation, it utterly failed to seriously seek redress from the court for the enforcement of its alleged rights under the contract. If private respondents had not taken the initiative of filing Civil Case No. 7532, evidently petitioner had no intention to take any legal action to compel specific performance from the former. By such cavalier disregard, it has been effectively estopped from seeking the affirmative relief it now desires but which it had theretofore disdained. ARAFAG • HABANA • JALAYAJAY

Serra owned a parcel of unregistered land located in Masbate. In 1975, he entered with respondent RCBC into a Contract of Lease with an Option to Buy. The essential provisions provide that RCBC will lease the land for 25 years from June 1, 1975 to June 1, 2000, with an option to buy within 10 years from the date of signing the contract (May 20,1975) at a price not greater than P210. Serra registered the land within three years from the signing of the contract. He then pursued RCBC to exercise the option but it was not until September 4, 1984 that RCBC expressed its option. It offered to buy the property at the agreed price of not greater than P210 per square meter or a total of P78,430. Serra told RCBC that he is no longer selling the property. RCBC sought an action for specific performance against Serra. Petitioner argued that the option was not supported by any consideration distinct from the price and hence not binding upon him; that as a condition for the validity of the option, it should have exercised its option within a reasonable time after the registration of the land under the Torrens system, that in its delayed action to enforce the option, it has forfeited whatever its claim to the same. The lower courts ruled in favor of RCBC finding the option contract valid and is supported by a distinct and separate consideration as embodied in the agreement.

ISSUE: Whether the price “not greater than P210” is certain or definite. ?

HELD: There is no dispute that the contract was Page 92

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valid and existing between the parties. Neither the provisions show a contract of adhesion. Serra was a CPA-lawyer when he entered into the contract. In his stature, he should have been more careful in entering into transactions specially those concerning valuable properties.

wanting to abandon his offer to sell the property at the agreed price of P210. The decision of the appellate court was affirmed.

Article 1324 provides that when an offer has allowed the offeree a certain period to accept, the offer maybe withdrawn at anytime before acceptance by communicating such withdrawal, except when the option is founded upon consideration, as something paid or promised. On the other hand, Article 1429 provides that an accepted unilateral promise to buy and sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price.

FACTS:

In a unilateral promise to sell, where the debtor ails to withdraw the promise before the acceptance by the creditor, the transaction becomes a bilateral contract to sell and to buy and the parties may reciprocally demand performance. A price is considered certain if it is so with reference to another thing certain or when the determination is left to the judgment of a specified person. And generally, gross inadequacy of price does not affect a contract of sale. Contracts are to be construed according to the sense and meaning of the terms which the parties have used. In this case, there is evidence to show that the intention of the parties is to peg the price P210 per square meter. This was confirmed by petitioner himself in his testimony. Moreover, by his subsequent acts of having the land titled under the Torrens system, and in pursuing the bank manager to effect the sale immediately, means that he understood perfectly well the terms of the contract. He even had the same property mortgaged to the respondent sometime in 1979, without the slightest hint of ARAFAG • HABANA • JALAYAJAY

MALBAROSA VS. CA, S.E.A. DEVELOPMENT CORP. APRIL 30.2003

Salvador Malbarosa was the president and general manager of Philtectic Corp., and an officer of other companies owned by respondent S.E.A. Development Corp. (SEADC). He was issued with a 1982 Mitsubishi Gallant by SEADC. He expressed his desire to retire from the respondent’s group of companies to Valero, vice-chairman of the Board of Directors of respondent, and requested for his 1989 incentive compensation. He wrote a resignation letter to Valero and repeated his incentive compensation. Da Costa, president of respondent, met with petitioner to discuss his retirement incentives and the mode of payment and he was told that Malbarosa will be receiving P395,000. On March 14, 1990, respondent through Valero wrote a letter offer to petitioner stating that they have accepted his resignation and that the incentive he will receive is P251,057.67, It proposed that the incentive will be paid as follows: the 1982 mitsubishi worth P220,000 and P60,000 worth of shares with Tradestar Intl., a subsidiary of SEADC. If he agrees, petitioner should affix his signature below the word AGREED: SALVADOR MALBAROSA on the space provided in the letter. Dismayed with the offer, he refused to sign the original but instead affixed his signature on the duplicate copy writing therein “RECEIVED ORIGINAL FOR REVIEW PURPOSES. Two weeks from then, respondent has not received nor heard from petitioner so it ordered Valero to withdraw the offer and to recover the car. Page 93

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Respondent was able to secure a writ of replevin but Malbarosa filed a counterbond so the cur remained in his possession. Petitioner alleged that he has accepted the offer on March 28,1990 by affixing his signature on the letter-offer and on the following day, he called up Da Costa in his office to tell him about his acceptance but he was only able to talk to his secretary since he was out. The secretary promised to relay the same and testified that she did. The only response of Da Costa was a nod.

ISSUES: Whether there was a valid acceptance made by petitioner. ?

jurisdiction of the Court under Rule 45 of the Rules of Court, as amended, is limited to revising and correcting errors of law of the CA. As concluded by the Court of Appeals, there had been no acceptance by the petitioner of its March 14, 1990 Letter-offer. The receipt by the petitioner of the original of the March 14, 1990 Letter-offer for review purposes amounted merely to a counter-offer of the petitioner. The findings of the Court of Appeals are binding on the petitioner. The petitioner adduced no proof that the respondent had granted him a period within which to accept its offer. The latter deemed its offer as not accepted by the petitioner in light of petitioner's ambivalence and indecision on March 16, 1990 when he received the letteroffer of respondent. We do not agree with the petitioner.

Whether there was a valid withdrawal of letter-offer by respondent?

Under Article 1318 of the Civil Code, the essential requisites of a contract are as follows:

HELD: The petition is dismissed. Anent the first issue, the petitioner posits that the respondent had given him a reasonable time from March 14, 1990 within which to accept or reject its March 14, 1990 Letter-offer. He had already accepted the offer of the respondent when he affixed his conformity thereto on the space provided therefor on March 28, 1990 and had sent to the respondent corporation on April 7, 1990 a copy of said March 14, 1990 Letter-offer bearing his conformity to the offer of the respondent; hence, the respondent can no longer demand the return of the vehicle in question. He further avers that he had already impliedly accepted the offer when after said respondent's offer, he retained possession of the car. For its part, the respondent contends that the issues raised by the petitioner are factual. The ARAFAG • HABANA • JALAYAJAY

Art. 1318. There is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established. Under Article 1319 of the New Civil Code, the consent by a party is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. An offer may be reached at any time until it is accepted. An offer that is not accepted does not give rise to a consent. The contract does not come into existence. To produce a contract, there must be acceptance of the offer which may be express or implied but must not qualify the terms of the offer. Page 94

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The acceptance must be absolute, unconditional and without variance of any sort from the offer.The acceptance of an offer must be made known to the offeror. Unless the offeror knows of the acceptance, there is no meeting of the minds of the parties, no real concurrence of offer and acceptance. The offeror may withdraw its offer and revoke the same before acceptance thereof by the offeree. The contract is perfected only from the time an acceptance of an offer is made known to the offeror. If an offeror prescribes the exclusive manner in which acceptance of his offer shall be indicated by the offeree, an acceptance of the offer in the manner prescribed will bind the offeror. On the other hand, an attempt on the part of the offeree to accept the offer in a different manner does not bind the offeror as the absence of the meeting of the minds on the altered type of acceptance. An offer made inter praesentes must be accepted immediately. If the parties intended that there should be an express acceptance, the contract will be perfected only upon knowledge by the offeror of the express acceptance by the offeree of the offer. An acceptance which is not made in the manner prescribed by the offeror is not effective but constitutes a counter-offer which the offeror may accept or reject. The contract is not perfected if the offeror revokes or withdraws its offer and the revocation or withdrawal of the offeror is the first to reach the offeree. The acceptance by the offeree of the offer after knowledge of the revocation or withdrawal of the offer is inefficacious. The termination of the contract when the negotiations of the parties terminate and the offer and acceptance concur, is largely a question of fact to be determined by the trial court. In this case, the respondent made its offer through its Vice-Chairman of the Board of Directors, Senen Valero. On March 16, 1990, Da Costa handed ARAFAG • HABANA • JALAYAJAY

over the original of the March 14, 1990 Letter-offer of the respondent to the petitioner. The respondent required the petitioner to accept the offer by affixing his signature on the space provided in said letter-offer and writing the date of said acceptance, thus foreclosing an implied acceptance or any other mode of acceptance by the petitioner. However, when the letter-offer of the respondent was delivered to the petitioner on March 16, 1990, he did not accept or reject the same for the reason that he needed time to decide whether to reject or accept the same. Therewas no contract perfected between the petitioner and the respondent corporation. Although the petitioner claims that he had affixed his conformity to the letter-offer on March 28, 1990, the petitioner failed to transmit the said copy to the respondent. It was only on April 7, 1990 when the petitioner appended to his letter to the respondent a copy of the said March 14, 1990 Letter-offer bearing his conformity that he notified the respondent of his acceptance to said offer. But then, the respondent, through Philtectic Corporation, had already withdrawn its offer and had already notified the petitioner of said withdrawalvia respondent's letter dated April 4, 1990 which was delivered to the petitioner on the same day. Indubitably, there was no contract perfected by the parties on the March 14, 1990 Letter-offer of the respondent. The petitioner's plaint that he was not accorded by the respondent reasonable time to accept or reject its offer does not persuade. It must be underscored that there was no time frame fixed by the respondent for the petitioner to accept or reject its offer. When the offeror has not fixed a period for the offeree to accept the offer, and the offer is made to a person present, the acceptance must be madeimmediately. In this case, the respondent made its offer to the petitioner when Da Costa handed over on March 16, 1990 to the Page 95

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petitioner its March 14, 1990 Letter-offer but that the petitioner did not accept the offer. The respondent, thus, had the option to withdraw or revoke the offer, which the respondent did on April 4, 1990. Even if it is assumed that the petitioner was given a reasonable period to accept or reject the offer of the respondent, the evidence on record shows that from March 16, 1990 to April 3, 1990, the petitioner had more than two weeks which was more than sufficient for the petitioner to accept the offer of the respondent. Although the petitioner avers that he had accepted the offer of the respondent on March 28, 1990, however, he failed to transmit to the respondent the copy of the March 14, 1990 Letter-offer bearing his conformity thereto. Unless and until the respondent received said copy of the letter-offer, it cannot be argued that a contract had already been perfected between the petitioner and the respondent. On the second issue, the petitioner avers that Philtectic Corporation, although a whollyowned and controlled subsidiary of the respondent, had no authority to withdraw the offer of the respondent. The resolution of the respondent authorizing Philtectic Corporation to take such action against the petitioner including the institution of an action against him for the recovery of the subject car does not authorize Philtectic Corporation to withdraw the March 14, 1990 Letter-offer of the respondent. The withdrawal by Philtectic Corporation on April 4, 1990 of the offer of the respondent was ineffective insofar as the petitioner was concerned. The respondent, for its part, asserts that the petitioner had failed to put in issue the matter of lack of authority of Philtectic Corporation to withdraw for and in behalf of the respondent its March 14, 1990 Letter-offer. It contends that the authority of Philtectic ARAFAG • HABANA • JALAYAJAY

Corporation to take such action including the institution of an action against the petitioner for the recovery of the car necessarily included the authority to withdraw the respondent's offer. Even then, there was no need for the respondent towithdraw its offer because the petitioner had already rejected the respondent's offer on March 16, 1990 when the petitioner received the original of the March 14, 1990 Letter-offer of the respondent without the petitioner affixing his signature on the space therefor. We do not agree with the petitioner. Implicit in the authority given to Philtectic Corporation to demand for and recover from the petitioner the subject car and to institute the appropriate action against him to recover possession of the car is the authority to withdraw the respondent's March 14, 1990 Letter-offer. It cannot be argued that respondent authorized Philtectic Corporation to demand and sue for the recovery of the car and yet did not authorize it to withdraw its March 14, 1990 Letter-offer to thepetitioner. Besides, when he testified, Senen Valero stated that the April 4, 1990 letter of Philtectic Corporation to the petitioner was upon his instruction and conformably with the aforesaid resolution of the Board of Directors of the respondent. VDA. DE APE V. CA FACTS: Petitioner was the wife of Fortunato Ape (deceased). Fortunato was one of the eleven children who inherited 1/11 of a land owned by his father Cleopas. During the lifetime of Fortunato, Generosa Cawit de Lumayno (private respondent) instituted an action for specific performance of a deed of sale with damages against Fortunato and his wife, petitioner. Page 96

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Generosa averred that she entered with a contract of sale with Fortunato regarding his share in the property for P5,000.00. Fortunato went to her store at the time when their lease contract was about toexpire. He allegedly demanded the rental payment for his land but as she was no longer interested in renewing their lease agreement, they agreed instead to enter into a contract of sale which Fortunato acceded to provided private respondent bought his portion of Lot No. 2319 for P5,000.00. Thereafter, she asked her son-in-law Flores to prepare the aforementioned receipt. Flores read the document to Fortunato and asked the latter whether he had any objection thereto. Fortunato then went on to affix his signature on the receipt. The agreement was evidenced by a receipt presented in court. Fortunato denied the sale and alleged that the signature appearing as his was forged. According to Fortunato, what was executed between them was a lease contract for five years which was paid annually by Generosa on installment. On the day that Fortunato and his wife went to collect the payment of rent, he was made to sign a paper by Generosa without explaining what was written thereon. Petitioner insisted that the entire Lot No. 2319 had not yet been formally subdivided that on 11 April 1971 she and her husband went to private respondent’s house to collect past rentals for their land then leased by the former, however, they managed to collect only thirty pesos, that private respondent made her (petitioner’s) husband sign a receipt acknowledging the receipt of said amount of money and that the contents of said receipt(prepared by Andres Flores, nephew of Generosa) were never explained to them. She also stated in her testimony that her husband was an illiterate and only learned how to write his name in order to be employed in a sugar central. As for private respondent’s purchase of the shares owned by Fortunato’s co-owners, petitioner maintained that neither she nor her husband ARAFAG • HABANA • JALAYAJAY

received any transactions.

notice

regarding

those

sales

The RTC ruled in favor of petitioner but was reversed by the CA. ISSUE: Whether or not a contract of sale existed between the parties?

HELD: The records of this case betray the stance of private respondent that Fortunato Ape entered into such an agreement with her. A contract of sale is a consensual contract, thus, it is perfected by mere consent of the parties. It is born from the moment there is a meeting of minds upon the thing which is the object of the sale and upon the price. Upon its perfection, the parties may reciprocally demand performance, that is, the vendee may compel the transfer of the ownership and to deliver the object of the sale while the vendor may demand the vendee to pay the thing sold. For there to be a perfected contract of sale, however, the following elements must be present: consent, object, and price in money or its equivalent. The essence of consent is the agreement of the parties on the terms of the contract, the acceptance by one of the offer made by the other. It is the concurrence of the minds of the parties on the object and the cause which constitutes the contract. The area of agreement must extend to all points that the parties deem material or there is no consent at all. To be valid, consent must meet the following requisites: (a) it should be intelligent, or with an exact notion of the matter to which it refers; (b) it should be free and (c) it should be Page 97

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spontaneous. Intelligence in consent is vitiated by error; freedom by violence, intimidation or undue influence; spontaneity by fraud. In this jurisdiction, the general rule is that he who alleges fraud or mistake in a transaction must substantiate his allegation as the presumption is that a person takes ordinary care for his concerns and that private dealings have been entered into fairly and regularly. The exception to this rule is provided for under Article 1332 of the Civil Code which provides that “when one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former.”

In this case, as private respondent is the one seeking to enforce the claimed contract of sale, she bears the burden of proving that the terms of the agreement were fully explained to Fortunato Ape who was an illiterate. This she failed to do. While she claimed in her testimony that the contents of the receipt were made clear to Fortunato, such allegation was debunked by Andres Flores himself when the latter took the witness stand. As can be gleaned from Flores’s testimony, while he was very much aware of Fortunato’s inability to read and write in the English language, he did not bother to fully explain to the latter the substance of the receipt. He even dismissed the idea of asking somebody else to assist Fortunato considering that a measly sum of thirty pesos was involved. Evidently, it did not occur to Flores that the document he himself prepared pertains to the transfer altogether of Fortunato’s property to his mother-in-law. It is precisely in situations such as this when the wisdom of Article 1332 of the Civil Code readily becomes apparent which is “to protect a party to a contract disadvantaged by illiteracy, ARAFAG • HABANA • JALAYAJAY

ignorance, mental handicap.”

weakness or some other

ANDREA MAYOR, VERGEL ROMULO VS. LOURDES BELEN FACTS: Andrea Mayor was the original owner of the subject land. She sold it to respondent Lourdes Belen for P18,000on an instalment basis. Lourdes was able to pay P11,445. Lourdes sold it back to Andrea for the same price and a Kasulatan ng Bilihang Tuluyan was executed in favour of Andrea. A few days after, Andrea executed a mortgage over the same property in favour of a loan obtained from Belen for P12,000. Belen then filed a case against petitioners alleging fraud employed by Andrea and Romulo. She averred that the petitioners made her believe that the deed of sale initially executed was void because it did not reflect the true agreement with regard to the mode of payment. According to petitioners, the deed stated that the sale was paid in cash while the payment was really in instalment basis. Because of thisshe was made to believe that she was to lose whatever she has paid which was 70% of the total price. Petitioners convinced her to execute a deed of mortgage in favour of Andrea. Believing that this will protect her right, she executed two documents, the Kasulatan ng Bilihang Tuluyan at Kasulatan ng Sanglaan. As it turned out, this was just a scheme made by petitioners in order to recover the property from her, hence she wanted to annul the said deeds. Petitioners denied the allegations and stated that Belen freely and voluntarily made the said contracts and the two are binding between them. Judgment was given in favour of Belen. ISSUE: Whether the courts correctly found that petitioners employed fraud and undue influence Page 98

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over Belen in executing the two contracts? HELD: ART. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to.

As defined, fraud refers to all kinds of deception, whether through insidious machination, manipulation, concealment or misrepresentation to lead another party into error. The deceit employed FOR must be serious. It must be sufficient to impress or lead an ordinarily prudent person into error, taking into account the circumstances of each case. This brings to the fore Lourdes M. Belen’s limited educational attainment. While indeed petitioners point out that the deeds denominated as Kasulatan ng Bilihang Tuluyan and Kasulatan ng Sanglaan were executed in Tagalog , a close scrutiny thereof shows that they are practically literal translations of their English counterparts. Thus, the mere fact that the documents were executed in the vernacular neither clarified nor simplified matters for Lourdes who admitted on cross-examination that she merely finished Grade 3, could write a little, and understand a little of the Tagalog language. The appellate court could not then be faulted when it invoked Article 1332 of the Civil Code which states: ART. 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person ARAFAG • HABANA • JALAYAJAY

enforcing the contract must show that the terms thereof have been fully explained to the former. As aptly pointed out by the Court of Appeals, the principle that a party is presumed to know the import of a document to which he affixes his signature is modified by the foregoing article. Under the said article,where a party is unable to read or when the contract is in a language not understood by a party and mistake or fraud is alleged, the obligation to show that the terms of the contract had been fully explained to said party who is unable to read or understand the language of the contract devolves on the party seeking to enforce it. The burden rests upon the party who seeks to enforce the contract to show that the other party fully understood the contents of the document. If he fails to discharge this burden, the presumption of mistake, if not, fraud, stands unrebutted and controlling. In this case, petitioners alleged that Lourdes M. Belen affixed her signature on the questioned contracts freely and voluntarily. We have assiduously scoured the record but like the appellate court we have not come across convincing evidence to support their allegations. In civil cases, he who alleges a fact has the burden of proving it by a preponderance of evidence. Suffice it to state that such self-serving claims are not enough to rebut the presumption of fraud provided for in Article 1332 of the Civil Code. As the party claiming affirmative relief from the court, it is incumbent upon petitioners to convincingly prove their claim. This they failed to do. Bare allegations, unsubstantiated by evidence are not equivalent to proof under our Rules. In short, mere allegations are not evidence. Concededly, both the Kasulatan ng Bilihang Tuluyan and the Kasulatan ng Sanglaan are Page 99

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public documents and there is no dispute that generally, a notarized document carries the evidentiary weight conferred upon it with respect to its due execution. In addition, documents acknowledged before a notary public have in their favor the presumption of regularity. However, the presumption is not absolute and may be rebutted by clear and convincing evidence to the contrary. The presumption cannot be made to apply in this case because the regularity in the execution of the documents were challenged in the proceedings below where their prima facie validity was overthrown by the highly questionable circumstances pointed out by both trial and appellate courts. Furthermore, notarization per se is not a guarantee of the validity of the contents of a document. There are, moreover, other factual circumstances pointed out by both the trial and appellate courts which militate against the contention of petitioners. The evidence on record shows that the respondents Belens intended to stay and occupy the subject land for a considerable length of time. As borne out by the records, respondents bought from Celita Bordeos the house standing on the subject land then owned by Andrea Mayor. Four years later or on November 27, 1979, respondents bought the subject land from petitioner Andrea Mayor. They bought the said land through installments and already paid P11,445.00 of the P18,000.00 purchase price. They also caused the transfer in their names of the tax declarations over the subject land and house. This they did even before they could have completed the payment of the purchase price. In short, their intention and desire to stay on the property is very evident. Petitioners’ suggestion,therefore, that respondents made a sudden volte face and decided to resell the ARAFAG • HABANA • JALAYAJAY

property to them – seven months from the date of the property’s acquisition, after payment of almost two-thirds of the purchase price and transferring the tax declarations thereof in respondents’ names, borders on the absurd and the incredible. It simply is contrary to human experience for respondents to have had a hasty change of heart to dispose of the land on which they intend to make their home and upon which they had invested so much. Petitioners advance the excuse that respondents wanted to immediately dispose of the subject property because the area would be soon converted into a park. If this were so, why would Lourdes Belen thereafter accept the very same property as security knowing fully well that it would revert to the public domain? A mortgage subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation whose security it was constituted. Thus, in case of non-payment, the creditor may proceed against the property for the fulfillment of the obligation. No creditor would accept property as security for the fulfillment of the obligation knowing that the property offered as security would soon be out of the commerce of man. Finally, the non-presentation of petitioner Andrea Mayor on the witness stand is likewise not lost on us and adds to the weakness of petitioners’ cause. While it is true that the non-presentation of a witness is not a reason for discrediting a party’s defense, still we are inclined to take this omission against them in view of the numerous loopholes in their defense. All told, we see no reason in overturning the findings of the appellate court. As has often been stated, "[t]he jurisdiction of this Court over cases brought to it from the Court of Appeals is limited to a review of questions of law since the factual Page 100

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conclusions thereon are conclusive. There are of course exceptions to this rule, but none obtain in the case at bar to warrant a scrutiny of the Court of Appeals’ conclusions which are supported by the evidence on record and carry more weight, it having affirmed the trial court’s factual conclusions." LAURA and ERIBERTO BAUTISTA vs. CA and FERNANDO MORELOS, G.R. No. 158015. August 11, 2004 FACTS: The dispute involves a parcel of land situated along Maceda Street, Sampaloc, Manila, containing an area of approximately 105 square meters. This parcel of land was previously owned and registered in the name of the late Cesar Morelos. Cesar is the uncle of petitioner Laura Morelos Bautista, being the brother of her mother, Rosario Morelos. Cesar, who was married to Rosario Duran, did not have any children. Rosario died in 1972. Cesar died of cardiac arrest on April 15, 1982. During his lifetime, Cesar sold and conveyed the abovementioned parcel of land in favor of petitioner Laura Morelos Bautista, as evidenced by a “Deed of Absolute Sale” notarized by Luis M. de Guzman. Accordingly, Transfer Certificate of Title was issued in the name of petitioner Laura Bautista. Respondent Fernando Morelos, claiming to be the illegitimate child of Cesar Morelos with Angelina Lim-Gue, instituted a complaint for the declaration of nullity of sale and title with damages before the RTC Manila. At the trial, he presented testimonies of expert witnesses who claimed that the signature of Cesar Morelos on the Deed of Absolute Sale and the fingerprints appearing on his Residence Certificate were not his. Petitioners countered that the Deed of Absolute Sale was valid. The witness to the Deed, Carmelita Marcelino, testified that she saw Cesar Morelos and petitioner Laura Bautista sign the same. ARAFAG • HABANA • JALAYAJAY

The RTC ruled in favor of Bautista and declared the sale valid. The CA declared the sale as null and void

ISSUE: Whether the sale is valid? Whether inadequacy of the price invalidates the sale? HELD: As a general rule, forgery cannot be presumed and must be proved by clear, positive and convincing evidence. The burden of proof lies on the party alleging forgery. Hence, a finding of forgery does not depend entirely on the testimony of handwriting experts. Although such testimony may be useful, the judge still exercises independent judgment on the issue of authenticity of the signatures under scrutiny; he cannot rely on the mere testimony of the handwriting expert. The authenticity of signatures is not a highly technical issue in the same sense that questions concerning, e.g., quantum physics or topology or molecular biology, would constitute matters of a highly technical nature. The opinion of a handwriting expert on the genuineness of a questioned signature is certainly much less compelling upon a judge than an opinion rendered by a specialist on a highly technical issue. In the case at bar, the presumption of validity and regularity prevails over allegations of forgery and fraud. As against direct evidence consisting of the testimony of a witness who was physically present at the signing of the contract and who had personal knowledge thereof, the testimony of an expert witness constitutes indirect or circumstantial evidence at best. Carmelita Marcelino, the witness to the Deed of Absolute Sale, confirmed the genuineness, authenticity and due execution thereof. Having been physically present to see the decedent Cesar Morelos and petitioner Laura Bautista affix their signatures on Page 101

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the document, the weight of preponderates in favor of petitioners.

evidence

As to the alleged insufficient consideration of the sale of the property, the mere inadequacy of the price does not affect its validity when both parties are in a position to form an independent judgment concerning the transaction, unless fraud, mistake or undue influence indicative of a defect in consent is present. A contract may consequently be annulled on the ground of vitiated consent and not due to the inadequacy of the price. In the case at bar, however, no evidence to prove fraud, mistake or undue influence indicative of vitiated consent was presented other than the respondent’s selfserving allegations. FALLO: the Petition is GRANTED. CA decision REVERSED. RTC decision REINSTATED.

MARLENE DAUDEN-HERNAEZ vs. DE LOS ANGELES G.R. No. L-27010 April 30, 1969

FACTS: Petitioner Marlene Dauden-Hernaez, a motion picture actress, had filed a complaint against herein private respondents, Hollywood Far East Productions, Inc., and its President and General Manager, Ramon Valenzuela, to recover P14,700.00 representing a balance allegedly due said petitioner for her services as leading actress in two motion pictures produced by the company, and to recover damages. Upon motion of defendants, the respondent court (Judge Walfrido de los Angeles) ordered the complaint dismissed, mainly because the "claim of plaintiff was not evidenced by any written document, either public or private", and the complaint "was defective on its face" for violating Articles 1356 and 1358 of the Civil, Code of the Philippines, as well as for containing defective allege, petitions. ARAFAG • HABANA • JALAYAJAY

Plaintiff sought reconsideration of the dismissal and for admission of an amended complaint, attached to the motion. The court denied reconsideration and the leave to amend on grounds that the complaint is being pro forma, and further declared the dismissal final and unappealable. Hence this petition. ISSUE: Whether the lower court abused its discretion in ruling that a contract for personal services involving more than P500.00 was either invalid or unenforceable under the last paragraph of Article 1358 of the Civil Code of the Philippines?

HELD: YES. We hold that there was abuse, since the ruling herein contested betrays a basic and lamentable misunderstanding of the role of the written form in contracts, as ordained in the present Civil Code. In the matter of formalities, the contractual system of our Civil Code still follows that of the Spanish Civil Code of 1889 and of the "Ordenamiento de Alcala" of upholding the spirit and intent of the parties over formalities: hence, in general, contracts are valid and binding from their perfection regardless of form whether they be oral or written. This is plain from Articles 1315 and 1356 of the present Civil Code. Thus, the first cited provision prescribes: ART. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. Concordantly, the first part of Article 1356 of the Code Provides: Page 102

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ART. 1356. Contracts shall be obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present.... These essential requisites last mentioned are normally (1) consent (2) proper subject matter, and (3) consideration or causa for the obligation assumed (Article 1318). So that once the three elements exist, the contract is generally valid and obligatory, regardless of the form, oral or written, in which they are couched. To this general rule, the Code admits exceptions, set forth in the second portion of Article 1356: However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable.... It is thus seen that to the general rule that the form (oral or written) is irrelevant to the binding effect inter parties of a contract that possesses the three validating elements of consent, subject matter, and causa, Article 1356 of the Code establishes only two exceptions, to wit: (a) Contracts for which the law itself requires that they be in some particular form (writing) in order to make them valid and enforceable (the so-called solemn contracts). Of these the typical example is the donation of immovable property that the law (Article 749) requires to be embodied in a public instrument in order "that the donation may be valid", i.e., existing or binding. Other instances are the donation of movables worth more than P5,000.00 which must be in writing, "otherwise the donation shall be void" (Article 748); contracts to pay interest on loans (mutuum) that must be "expressly stipulated in writing" (Article 1956); and the agreements contemplated by Article 1744, 1773, 1874 and 2134 of the present Civil Code. ARAFAG • HABANA • JALAYAJAY

(b) Contracts that the law requires to be proved by some writing (memorandum) of its terms, as in those covered by the old Statute of Frauds, now Article 1403(2) of the Civil Code. Their existence not being provable by mere oral testimony (unless wholly or partly executed), these contracts are exceptional in requiring a writing embodying the terms thereof for their enforceability by action in court. The contract sued upon by petitioner herein (compensation for services) does not come under either exception. It is true that it appears included in Article 1358, last clause, providing that "all other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one." But Article 1358 nowhere provides that the absence of written form in this case will make the agreement invalid or unenforceable. On the contrary, Article 1357 clearly indicates that contracts covered by Article 1358 are binding and enforceable by action or suit despite the absence of writing. ART. 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in the following article, the contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be exercised simultaneously with the action the contract. It thus becomes inevitable to conclude that both the court a quo as well as the private respondents herein were grossly mistaken in holding that because petitioner Dauden's contract for services was not in writing the same could not be sued upon, or that her complaint should be dismissed for failure to state a cause of action because it did not plead any written agreement. The basic error in the court's decision lies in overlooking that in our contractual system it is not enough that the law should require that the contract be in writing, as it does in Article 1358. The law must further prescribe that without the writing the contract is not valid or not enforceable by action. Page 103

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FALLO: The order dismissing the complaint was set aside, and the case was ordered remanded to the court of origin for further proceedings not at variance with this decision. HEIRS OF CECILIO (also known as BASILIO) CLAUDEL vs.CA, HEIRS OF MACARIO, ESPERIDIONA, RAYMUNDA and CELESTINA, all surnamed CLAUDEL G.R. No. 85240 July 12, 1991

sale, the SIBLINGS OF CECILIO presented a subdivision plan of the said land, dated March 25, 1930, indicating the portions allegedly sold to the SIBLINGS OF CECILIO. CFI-Rizal dismissed the complaint, disregarding the above sole evidence (subdivision plan) presented by the SIBLINGS OF CECILIO. CA reversed the RTC decision.

ISSUES: FACTS: As early as December 28, 1922, Basilio also known as "Cecilio" Claudel, acquired from the Bureau of Lands some parcel of lands of the Muntinlupa Estate Subdivision, located in the poblacion of Muntinlupa, Rizal, with an area of 10,107 square meters; he secured TCT ‘s in 1923; he also declared the lot in his name. He dutifully paid the real estate taxes thereon until his death in 1937. 3 Thereafter, his widow "Basilia" and later, her son Jose, one of the herein petitioners, paid the taxes.

Whether or not a contract of sale of land may be proven orally? Whether or not the prescriptive period for filing an action for cancellation of titles and reconveyance with damages (the action filed by the SIBLINGS OF CECILIO) should be counted from the alleged sale upon which they claim their ownership (1930) or from the date of the issuance of the titles sought to be cancelled in favor of the HEIRS OF CECILIO (1976)?

HELD: Thirty nine years after Cecilio’s death, two branches of Cecilio's family contested the ownership over the land-on one hand the children of Cecilio herein petitioners (hereinafter referred to as HEIRS OF CECILIO), and on the other, the brother and sisters of Cecilio herein private respondents (hereinafter referred to as SIBLINGS OF CECILIO). In 1972, the HEIRS OF CECILIO partitioned this lot among themselves and obtained the corresponding Transfer Certificates of Title on their shares. Four years later, on December 7, 1976, private respondents SIBLINGS OF CECILIO, filed a "Complaint for Cancellation of Titles and Reconveyance with Damages," alleging that 46 years earlier, or sometime in 1930, their parents had purchased from the late Cecilio Claudel several portions of the subject lot.They admitted that the transaction was verbal. However, as proof of the ARAFAG • HABANA • JALAYAJAY

The rule of thumb is that a sale of land, once consummated, is valid regardless of the form it may have been entered into. For nowhere does law or jurisprudence prescribe that the contract of sale be put in writing before such contract can validly cede or transmit rights over a certain real property between the parties themselves. However, in the event that a third party, as in this case, disputes the ownership of the property, the person against whom those claim is brought cannot present any proof of such sale and hence has no means to enforce the contract. Thus the Statute of Frauds was precisely devised to protect the parties in a contract of sale of real property so that no such contract is enforceable unless certain requisites, for purposes of proof, are met. Page 104

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The provisions of the Statute of Frauds pertinent to the present controversy, state: Art. 1403 (Civil Code). The following contracts are unenforceable, unless they are ratified: xxx xxx xxx 2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases, an agreement hereafter made shall be unenforceable by action unless the same, or some note or memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: xxx xxx xxx e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest therein; xxx xxx xxx The purpose of the Statute of Frauds is to prevent fraud and perjury in the enforcement of obligations depending for their evidence upon the unassisted memory of witnesses by requiring certain enumerated contracts and transactions to be evidenced in Writing. The provisions of the Statute of Frauds originally appeared under the old Rules of Evidence. However when the Civil Code was rewritten in 1949 (to take effect in 1950), the provisions of the Statute of Frauds were taken out of the Rules of Evidence in order to be included under the title on Unenforceable Contracts in the Civil Code. The transfer was not only a matter of style but to show that the Statute of Frauds is also a substantive law. Therefore, except under the conditions provided by the Statute of Frauds, the existence of the contract of sale made by Cecilio with his siblings 13 cannot be proved. 2nd Issue: ARAFAG • HABANA • JALAYAJAY

The Civil Code states: Art. 1145. The following actions must be commenced within six years: (1) Upon an oral contract . . If the parties SIBLINGS OF CECILIO had allegedly derived their right of action from the oral purchase made by their parents in 1930, then the action filed in 1976 would have clearly prescribed. More than six years had lapsed. We do not agree with the parties SIBLINGS OF CECILIO when they reason that an implied trust in favor of the SIBLINGS OF CECILIO was established in 1972, when the HEIRS OF CECILIO executed a contract of partition over the said properties. But as we had pointed out, the law recognizes the superiority of the torrens title. Above all, the torrens title in the possession of the HEIRS OF CECILIO carries more weight as proof of ownership than the survey or subdivision plan of a parcel of land in the name of SIBLINGS OF CECILIO. The Court has invariably upheld the indefeasibility of the torrens title. No possession by any person of any portion of the land could defeat the title of the registered owners thereof. In the present case, however, the facts belie the claim of ownership.

FALLO: Petition GRANTED. CA decision REVERSED and SET ASIDE. CFI decision REINSTATED BERMAN MEMORIAL PARK, INC. and LUISA CHONG VS. FRANCISCO CHENG G.R. No. 154630 May 6, 2005 FACTS: Berman Memorial Park, Inc. (BMPI) is the owner and operator of the Iloilo Memorial Park Page 105

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(IMP) located in Jaro, Iloilo City. One of the sales counselors of the corporation was Luisa Chong. On January 18, 1994, Conchita Cheng, Francisco Cheng’s wife, died. On January 20, 1994, Cheng purchased from BMPI a memorial lot. The remains of Conchita were interred in the said lot. Sometime in May 1994, Cheng purchased from the BMPI a bigger lot in the IMP where the remains of his wife would be transferred. He was shown a price list of the lots in the said park, including 24-Lot Family Estate, Sr., with an at-need price of P350,000.00, inclusive of the cost of perpetual care. BMPI offered to sell the said lot to Cheng at a pre-need price of P250,000.00, less P110,000.00 of his payment of P150,000.00 or in the net price of P140,000.00. He was given a computation of the price for his consideration and approval. Cheng agreed to purchase the lot under their Pre-Need Purchase Agreement . Cheng then paid on monthly installment. Subsequently, Cheng received a statement of account from BMPI showing that he still had a balance. Cheng, through counsel, informed BMPI that he had, in fact, made an overpayment, demanded that the excess payment be refunded to him, and that the Certificate of Ownership for 24Lot be issued to him. In a statement of account Cheng prepared, He stated therein that the cost of the two lots was P250,000.00, and that he had made a total payment of P327,375.00. BMPI came out with their own statement of accounts that that Cheng has a balance. Cheng filed a Complaint against the IMP, not against BMPI, and Luisa Chong in the RTC of Iloilo City, for specific performance with damages. He asserted that he had made an overpayment for the said lot. The trial court rendered judgment in favor of Cheng. CA affirmed the RTC decision.

ISSUE: ARAFAG • HABANA • JALAYAJAY

Whether the petitioners and the respondent had agreed that the net price of 24-Lot was only P140,000.00 as it appears in the Pre-Need Purchase Agreement42 is factual? HELD: The respondent signed the agreement and was furnished with a copy. Indeed, the respondent confirmed in his complaint that he signed the agreement. The respondent cannot feign ignorance of the terms of the agreement by alleging that he affixed his signature on a blank form, and on his barefaced and self-serving pretext that he was suffering from hernia and had to be operated on in five days. First. At the bottom of the agreement is the advice given to the respondent: "Please Read This Contract." Second. The respondent had been a businessman for 50 years before he signed the agreement. The Court cannot believe that he would sign a blank agreement without first reading and reviewing the terms and conditions contained therein. The respondent is presumed to take ordinary care of his concerns; that the private transaction was fair and regular; that the ordinary course of business has been followed; and that the respondent intended the ordinary consequences of his voluntary act. Third. The respondent admitted in his Comment dated February 13, 1997 that he had agreed to the conversion of 12-Lot to 24-Lot, and that the petitioner furnished him a computation which he appended to his pleading. The computation shows that the net price of 24-Lot is P140,000.00. Fourth. The respondent complied with the terms and conditions of the Pre-Need Purchase Agreement and made the requisite downpayment and the monthly installments for 17 months without any plaint. He never demanded for a copy of the said agreement, or complained to the petitioners that the contents thereof did not reflect Page 106

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their arrangement, or demanded that the said agreement be reformed to reflect their true agreement. It was only when the respondent received the statement of his account from BMPI sometime in March 1996 that he alleged for the first time that he had overpaid BMPI for 24-Lot. Fifth. The respondent failed to adduce evidence that he was suffering from hernia and that he was to be operated on in five days after signing the May 11, 1994 Pre-Need Purchase Agreement. Article 1370 of the New Civil Code provides 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. No amount of extrinsic aids are required and no further extraneous sources are necessary in order to ascertain the parties’ intent, determinable as it is, from the contract itself. The records are clear that the respondent understood the nature of the contract he entered into. If, indeed, the stipulations as embodied in the aforementioned Pre-Need Purchase Agreement were not the true intention of the parties, the respondent should have filed the corresponding action for reformation of the contract. But he did not. The hornbook rule on interpretation of contracts gives primacy to the intention of the parties, which is the law among them. Ultimately, their intention is to be deciphered not from the unilateral post facto assertions of one of the parties, but from the language used in the contract. And when the terms of the agreement, as expressed in such language, are clear, they are to be understood literally, just as they appear on the face of the contract.

GUZMAN, BOCALING & CO. VS. RAOUL S. V. BONNEVIE G.R. No. 86150 March 2, 1992

The subject of the controversy is a parcel of land measuring 600 square meters, more or less, with two buildings constructed thereon, belonging to the Intestate Estate of Jose L. Reynoso. This property was leased to Raoul S. Bonnevie and Christopher Bonnevie by the administratrix, Africa Valdez de Reynoso, for a period of one year beginning August 8, 1976, at a monthly rental of P4,000.00. The Contract of lease contained the following stipulation: — In case the LESSOR desire or decides to sell the lease property, the LESSEES shall be given a first priority to purchase the same, all things and considerations being equal. On November 3, 1976 Reynoso claims she notified the private respondents by registered mail that she was selling the leased premises for P600.000.00 less a mortgage loan of P100,000.00, and was giving them 30 days from receipt of the letter within which to exercise their right of first priority to purchase the subject property. She said that in the event that they did not exercise the said right, she would expect them to vacate the property not later than March, 1977. On January 20, 1977, Reynoso sent another letter to private respondents advising them that in view of their failure to exercise their right of first priority, she had already sold the property. Upon receipt of this letter, the private respondents wrote Reynoso informing her that neither of them had received her letter dated November 3, 1976; that they had advised her agent to inform them officially should she decide to sell the property so negotiations could be initiated; and that they were "constrained to refuse (her) request for the termination of the lease. On March 7, 1977, the leased premises were formally sold to petitioner Guzman, Bocaling & Co. The Contract of Sale provided for immediate payment of P137,500.00 on the purchase price, the

FACTS: ARAFAG • HABANA • JALAYAJAY

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balance of P262,500.00 to be paid only when the premises were vacated. On April 12, 1977, Reynoso wrote a letter to the private respondents demanding that they vacate the premises within 15 days for their failure to pay the rentals for four months. When they refuse, Reynoso filed a complaint for ejectment against them in the city court of Manila. On September 25, 1979, the parties submitted a Compromise Agreement, which provided inter alia that "the defendant Raoul S.V. Bonnevie shall vacate the premises subject of the Lease Contract, Voluntarily and Peacefully not later than October 31, 1979." This agreement was approved by the City Court and became the basis of its decision. However, as the private respondents failed to comply with the above-qouted stipulation, Reynoso filed a motion for execution of the judgment by compromise, which was granted on November 8, 1979. RTC decided in favor of the Reynoso and ordered respondent to vacate the premises asap.

ISSUE: Whether the respondent court erred in ruling that the grant of first priority to purchase the subject properties by the judicial administratrix needed no authority from the probate court? Whether the Contract of Sale was not voidable but rescissible? Whether petitioner buyer is in good faith? HELD: 1st Issue: The Court agrees with the respondent court that it was not necessary to secure the approval by the probate court of the Contract of Lease because it did not involve an alienation of real property of ARAFAG • HABANA • JALAYAJAY

the estate nor did the term of the lease exceed one year so as top make it fall under Article 1878(8) of the Civil Code. Only if Paragraph 20 of the Contract of Lease was activated and the said property was intended to be sold would it be required of the administratrix to secure the approval of the probate court pursuant to Rule 89 of the Rules of Court. 2nd Issue Even if the order of the probate court was valid, the private respondents still had a right to rescind the Contract of Sale because of the failure of Reynoso to comply with her duty to give them the first opportunity to purchase the subject property. The petitioner argues that assuming the Contract of Sale to be voidable, only the parties thereto could bring an action to annul it pursuant to Article 1397 of the Civil Code. It is stressed that private respondents are strangers to the agreement and therefore have no personality to seek its annulment. The respondent court correctly held that the Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381 (3) of the Civil Code, a contract otherwise valid may nonetheless be subsequently rescinded by reason of injury to third persons, like creditors. The status of creditors could be validly accorded the Bonnevies for they had substantial interests that were prejudiced by the sale of the subject property to the petitioner without recognizing their right of first priority under the Contract of Lease. Rescission is a remedy granted by law to the contracting parties and even to third persons, to secure reparation for damages caused to them by a contract, even if this should be valid, by means of the restoration of things to their condition at the moment prior to the celebration of said contract. It is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the contract may cause, or to Page 108

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protect some incompatible and preference right created by the contract. Recission implies a contract which, even if initially valid, produces a lesion or pecuniary damage to someone that justifies its invalidation for reasons of equity. It is true that the acquisition by a third person of the property subject of the contract is an obstacle to the action for its rescission where it is shown that such third person is in lawful possession of the subject of the contract and that he did not act in bad faith. However, this rule is not applicable in the case before us because the petitioner is not considered a third party in relation to the Contract of Sale nor may its possession of the subject property be regarded as acquired lawfully and in good faith.

interests. Moreover, the petitioner also cannot invoke the Compromise Agreement which it says canceled the right of first priority granted to the Bonnevies by the Contract of Lease. This agreement was set aside by the parties thereto, resulting in the restoration of the original rights of the private respondents under the Contract of Lease. FALLO: Petition DENIED.

3rd Issue: The petitioner cannot be deemed a purchaser in good faith for the record shows that its categorically admitted it was aware of the lease in favor of the Bonnevies, who were actually occupying the subject property at the time it was sold to it. Although the Contract of Lease was not annotated on the transfer certificate of title in the name of the late Jose Reynoso and Africa Reynoso, the petitioner cannot deny actual knowledge of such lease which was equivalent to and indeed more binding than presumed notice by registration. A purchaser in good faith and for value is one who buys the property of another without notice that some other person has a right to or interest in such property and pays a full and fair price for the same at the time of such purchase or before he has notice of the claim or interest of some other person in the property. Good faith connotes an honest intention to abstain from taking unconscientious advantage of another. Tested by these principles, the petitioner cannot tenably claim to be a buyer in good faith as it had notice of the lease of the property by the Bonnevies and such knowledge should have cautioned it to look deeper into the agreement to determine if it involved stipulations that would prejudice its own ARAFAG • HABANA • JALAYAJAY

EQUATORIAL REALTY VS. MAYFAIR November 21, 1996 FACTS: Petitioner Carmelo and Bauermann Inc. leased its parcel of land with 2-storey building to respondent Mayfair Theater Inc. They entered a contract which provides that if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive option to purchase the same. Carmelo informed Mayfair that it will sell the property to Equatorial. Mayfair made known its interest to buy the property but only to the extent of the leased premises. Notwithstanding Mayfair’s intention, Carmelo sold the property to Equatorial.

ISSUE: WON the sale of the property to Equatorial is valid?

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HELD:

o o

The sale of the property should be rescinded because Mayfair has the right of first refusal. Both Equatorial and Carmelo are in bad faith because they knew of the stipulation in the contract regarding the right of first refusal. The stipulation is a not an option contract but a right of first refusal and as such the requirement of a separate consideration for the option, has no applicability in the instant case. The consideration is built in the reciprocal obligation of the parties. In reciprocal contract, the obligation or promise of each party is the consideration for that of the other. (Promise to lease in return of the right to first refusal) With regard to the impossibility of performance, only Carmelo can be blamed for not including the entire property in the right of first refusal. Court held that Mayfair may not have the option to buy the property. Not only the leased area but the entire property.

RIVERA VS. DEL ROSARIO G.R. No. 144934 January 15, 2004

FACTS: Del Rosario is the registered owners of Lot No. 1083-C, a parcel of land situated at Lolomboy, Bulacan. Fidela del Rosario borrowed P250,000 from Mariano Rivera in the early part of 1987. To secure the loan, she and Mariano Rivera agreed to execute a deed of real estate mortgage and an agreement to sell the land. Consequently, Mariano drafted the Deed of Real Estate Mortgage, a Kasunduan (Agreement to Sell), and a Deed of Absolute Sale. The Kasunduan provided the Riveras would purchase the lot for P2.1M. There were 3 installments: o 250 K upon the signing of the Kasunduan ARAFAG • HABANA • JALAYAJAY

750K on August 31, 1987 1.1M on December 31, 1987.

The Deed of Absolute Sale would be executed only after the second installment is paid and a postdated check for the last installment is deposited with Fidela.Although Fidela intended to sign only the Kasunduan & the real estate mortgage, she inadvertently affixed her signature on all 3 documents. Rivera failed to complete the payment in the 2nd installment.Respondents filed a complaint asking for the rescission of Kasunduan for failure of Rivera’s to comply with its condition’s. They also sought the annulment of the deed of absolute sale on the ground of fraud & the reconveyance of the entire property. Petitioners say that there can be no rescission because in accordance with Article 1383, the del Rosarios must show that there were no other legal means available to obtain reparation other than to file a case for rescission. NB: Nieto was the tenant of the property. When the Riveras showed to Nieto that they were the new owners, he desisted from vacating the property. The Riveras agreed to give him a small piece of the land in question. The RTC declared the deed of absolute sale as null and void. The CA modified the RTC’s decision insofar as it deemed the portion pertaining to Nieto as valid.

ISSUE: WON the contract entered into between the parties may be rescinded based on Art 1191? NO WON the deed of absolute sale is null and void in its entirety as opposed to the CA’s decision of validity pertaining to Nieto’s share? YES, VOID IN ITS ENTIRETY Page 110

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HELD: The Kasunduan reveals that it is in the nature of a contract to sell, as distinguished from a contract of sale. In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; while in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. In a contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. Respondents bound themselves to deliver a deed of absolute sale and clean title after petitioners have made the second installment. This promise to sell was subject to the fulfillment of the suspensive condition. Petitioners however failed to complete payment of the second installment. The non-fulfillment of the condition rendered the contract to sell ineffective and without force and effect. It must be stressed that the breach contemplated in Article 1191 of the New Civil Code is the obligor’s failure to comply with an obligation already extant, not a failure of a condition to render binding that obligation. Failure to pay, in this instance, is not even a breach but an event that prevents the vendor’s obligation to convey title from acquiring binding force. Hence, the agreement of the parties in the instant case may be set aside, but not because of a breach on the part of petitioners for failure to complete payment of the second installment. Rather, their failure to do so prevented the obligation of respondents to convey title from acquiring an obligatory force. While Article 1191 uses the term rescission, the original term used in Article 1124 of the old Civil Code, from which Article 1191 was based, was resolution.46 Resolution is a principal action that is based on breach of a party, while rescission under Article 1383 is a subsidiary action limited to cases of rescission for lesion under Article 1381 of the New Civil Code. ARAFAG • HABANA • JALAYAJAY

TANAY RECREATION CENTER AND DEVELOPMENT CORP. VS. CATALINA MATIENZO FAUSTO G.R. No. 140182. April 12, 2005

FACTS: Petitioner Tanay Recreation Center and Development Corp. (TRCDC) is the lessee of a 3,090-square meter property located in Sitio Gayas, Tanay, Rizal, owned by Catalina Matienzo Fausto, under a Contract of Lease. On this property stands the Tanay Coliseum Cockpit operated by petitioner. The lease contract provided for a 20-year term, subject to renewal within sixty days prior to its expiration. The contract also provided that should Fausto decide to sell the property, petitioner shall have the “priority right” to purchase the same. On June 17, 1991, petitioner wrote Fausto informing her of its intention to renew the lease. However, it was Fausto’s daughter, respondent Anunciacion F. Pacunayen, who replied, asking that petitioner remove the improvements built thereon, as she is now the absolute owner of the property. It appears that Fausto had earlier sold the property to Pacunayen and title has already been transferred in her name. Petitioner filed an Amended Complaint for Annulment of Deed of Sale, Specific Performance with Damages, and Injunction. In her Answer, respondent claimed that petitioner is estopped from assailing the validity of the deed of sale as the latter acknowledged her ownership when it merely asked for a renewal of the lease. According to respondent, when they met to discuss the matter, petitioner did not demand for the exercise of its option to purchase the property, and it even asked for grace period to vacate the premises.

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The contention in this case refers to petitioner’s priority right to purchase, also referred to as the right of first refusal?

REPUBLIC OF THE PHILIPPINES, Represented by the SOCIAL SECURITY SYSTEM VS. JERRY V. DAVID G.R. No. 155634. August 16, 2004

HELD: FACTS: When a lease contract contains a right of first refusal, the lessor is under a legal duty to the lessee not to sell to anybody at any price until after he has made an offer to sell to the latter at a certain price and the lessee has failed to accept it. The lessee has a right that the lessor's first offer shall be in his favor. Petitioner’s right of first refusal is an integral and indivisible part of the contract of lease and is inseparable from the whole contract. The consideration for the lease includes the consideration for the right of first refusal and is built into the reciprocal obligations of the parties. It was erroneous for the CA to rule that the right of first refusal does not apply when the property is sold to Fausto’s relative. When the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon. As such, there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement, except when it fails to express the true intent and agreement of the parties. In this case, the wording of the stipulation giving petitioner the right of first refusal is plain and unambiguous, and leaves no room for interpretation. It simply means that should Fausto decide to sell the leased property during the term of the lease, such sale should first be offered to petitioner. The stipulation does not provide for the qualification that such right may be exercised only when the sale is made to strangers or persons other than Fausto’s kin. Thus, under the terms of petitioner’s right of first refusal, Fausto has the legal duty to petitioner not to sell the property to anybody, even her relatives, at any price until after she has made an offer to sell to petitioner at a certain price and said offer was rejected by petitioner.

Jerry V. David is an employee of the SSS. Pursuant to its Employees’ Housing Loan Program, SSS awarded David a house and lot located at North Fairview, Quezon City. A Deed of Conditional Sale over the subject property was thereafter executed between the parties. On reports that numerous violations have been committed by some of the housing awardees in connection with the conditions governing their sales, SSS conducted an investigation on the matter. The investigation revealed that in the case of [Respondent] David, he committed two (2) violations of his deed of conditional sale, to wit: (1) neither the [respondent] nor his immediate family resided and/or occupied the said housing unit, and (2) he allowed a certain Buenaventura Penus to possess and occupy the property. As a consequence of these violations, SSS sent a letter to David formally revoking, terminating and/or rescinding the deed of conditional sale. However, the latter refused to vacate and surrender possession of the subject property, prompting SSS to institute a complaint with the Quezon City RTC on March 28, 1996 revoking the deed of conditional sale and likewise praying for the issuance of a writ of possession in its favor. [Respondent] David denied the alleged violations of the deed of conditional sale, stating that Buenaventura Penus, alluded to by the [petitioner] as possessor-occupant of the subject property, was in fact a caretaker until and after the necessary renovations and modifications on the house were made. RTC dismissed the case and ruled in favor of David. CA affirmed in toto the RTC decision.

ISSUE: ARAFAG • HABANA • JALAYAJAY

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Whether respondent violated the terms and conditions of the “Deed of Conditional Sale”? Whether Rescission is the proper recourse?

HELD: 1st Issue Petitioner avers that respondent violated the terms and conditions of the Deed of Conditional Sale, when he failed to “actually occupy and possess the property at all times” and allowed other persons to do so. Certain rules of contract interpretation come to mind at this point. First, in construing a contract, it is a fundamental task to ascertain the intention of the contracting parties. As a rule, such intention is determined by looking at the words used -- at all the words rather than at a particular word or two; and at words in context rather than just words standing alone. Indeed, under Article 1374 of the Civil Code, “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.” Second, the ascertained intention of the parties is deemed an integral part of the contract, as though it has been originally expressed in unequivocal terms. And third, the reasonableness of the result obtained, after analysis and construction of a contract, must also be carefully considered. The conditions that were allegedly violated by respondent are contained in paragraph 10 of the Deed of Conditional Sale. Plainly, the primary intention behind the abovequoted stipulations is to restrict the sale, the use and the benefit of the housing units to SSS employees and their immediate families only. This objective is in line with that of the SSS housing loan program -- to aid its employees in acquiring their own dwelling units at a low cost. Such intent, draws life also from the social justice policy of RA 1161, as amended, otherwise known as the “Social ARAFAG • HABANA • JALAYAJAY

Security System Law” granting direct housing loans to covered employees and giving priority to lowincome groups. Indeed, the above goal is confirmed by the requirement that respondent-vendee and his heirs or assigns must actually occupy and possess the property at all times; by the proscription that he must not sell, assign, encumber, mortgage, lease, sublet or in any manner alter or dispose of the property for the first five (5) years; and by the further proviso that he may alienate or transfer his rights thereto at any time prior to full payment, but only to petitioner under its right of first refusal or to any other eligible SSS employee. These restrictive covenants are undeniably valid under Article 1306 of the Civil Code. The use of the conjunctive and in subparagraph (c) is not by any chance a surplusage. Neither is it meant to be without any legal signification. Its use is confirmatory of the restrictive intent that the houses provided by petitioner should be for the exclusive use and benefit of the SSS employee-beneficiary. It is easily discernible, therefore, that both “actual occupancy” and “possession at all times” -not just one or the other -- were imposed as conditions upon respondent. The word and -whether it is used to connect words, phrases or full sentences -- must be accepted in its common and usual meaning as “binding together and as relating to one another.” And implies a conjunction, joinder or union. Thus, respondent had to comply with not one, but two, concurring conditions -- actual occupancy and possession at all times. The question is, did he? We rule that he did not. 2nd Issue: In view of the foregoing discussion, we rule that rescission of the Contract is the proper recourse. Article 1191 of the Civil Code provides: “Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the Page 113

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obligors should not comply with what is incumbent upon him.

Paragraph 11, cited above, supports the mutual restitution required in rescission.

“The injured party may choose between fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission even after he has chosen fulfillment, if the latter should become impossible.” As noted in previous cases, the rescission contemplated under Article 1191 is a principal action for “resolution,” which is based on a breach by a party of its reciprocal obligations. The present Contract is one of conditional sale -- oftentimes referred to as a contract to sell, wherein ownership or title is retained by the vendor until “full payment by the VENDEE of the full purchase price of the PROPERTY, with all the interest due thereon, as well as taxes and other charges AND upon their faithful compliance with all the conditions of this Contract x x x.”

Respondent is thus obliged to return the house and lot sold, as well as rental payments he may have earned, if any. On the other hand, petitioner is mandated to refund to him his full payment of P172,978.85 plus legal interest of 6 percent per annum, as well as the value of substantial improvements introduced by him, as appraised by petitioner. Indeed, stipulated in the Deed is such appraisal by the vendor, upon transfer of the property to petitioner or to any of its eligible employees. This condition is reasonably and justly applicable and proper in the present case.

Although a transfer of ownership or title from the seller to the buyer is normally predicated upon the payment of the purchase price, the parties are nevertheless free to stipulate other lawful conditions by which they bind themselves and upon which transfer of ownership depends. In this case, that other obligation was faithful compliance with the conditions of the Contract. Respondent did not faithfully comply with the conditions under subparagraphs (10)(a) and (c). His noncompliance also constituted a breach of his reciprocal obligations under the Deed. The Deed itself provides for its annulment and cancellation by reason of a breach of the terms and conditions stipulated therein. Doctrinally, mutual restitution must follow rescission. Under Article 1385 of the Civil Code, “rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interests x x x.” Moreover, “[t]o rescind is to declare a contract void at its inception and to put an end to it as though it never was.” Hence, rescission restores the parties to their relative positions, as if no contract has been made. ARAFAG • HABANA • JALAYAJAY

FALLO: Petition GRANTED.

AIR FRANCE VS. CA G.R. No. L-57339 December 29, 1983

FACTS: Sometime in February, 1970, the late Jose G. Gana and his family (the GANAS), purchased from AIR FRANCE through Imperial Travels, Incorporated, nine (9) "open-dated" air passage tickets for the Manila/Osaka/Tokyo/Manila route. On 24 April 1970, AIR FRANCE exchanged or substituted the aforementioned tickets with other tickets for the same route. At this time, the GANAS were booked for the Manila/Osaka segment on AIR FRANCE Flight 184 for 8 May 1970, and for the Tokyo/Manila return trip on AIR FRANCE Flight 187 on 22 May 1970. The aforesaid tickets were valid until 8 May 1971, the date written under the printed words "Non valuable apres de (meaning, "not valid after the"). The GANAS did not depart on 8 May 1970. In the meantime, the GANAS had scheduled their departure on 7 May 1971 or one day before the expiry date. In the morning of the very day of their scheduled departure on the first leg of their Page 114

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trip, Teresita requested travel agent Ella to arrange the revalidation of the tickets. Ella gave the same negative answer and warned her that although the tickets could be used by the GANAS if they left on 7 May 1971, the tickets would no longer be valid for the rest of their trip because the tickets would then have expired on 8 May 1971. Teresita replied that it will be up to the GANAS to make the arrangements. With that assurance, Ella on his own, attached to the tickets validating stickers for the Osaka/Tokyo flight, one a JAL. sticker and the other an SAS (Scandinavian Airways System) sticker. The SAS sticker indicates thereon that it was "Reevaluated by: the Philippine Travel Bureau, Branch No. 2" (as shown by a circular rubber stamp) and signed "Ador", and the date is handwritten in the center of the circle. Then appear under printed headings the notations: JL. 108 (Flight), 16 May (Date), 1040 (Time), OK (status). Apparently, Ella made no more attempt to contact AIR FRANCE as there was no more time. Notwithstanding the warnings, the GANAS departed from Manila in the afternoon of 7 May 1971 on board AIR FRANCE Flight 184 for Osaka, Japan.

took effect, as authorized by the Civil Aeronautics Board (CAB) in April, 1971.

ISSUE:

FACTS:

Whether or not, under the environmental milieu the GANAS have made out a case for breach of contract of carriage entitling them to an award of damages?

Alfonso Roxas Chua and his wife Kiang Ming Chu Chua were the owners of a residential land in San Juan, Metro Manila, covered by Transfer Certificate of Title No. 410603. On June19, 1985, petitioner China Bank filed with the Regional Trial Court of Manila, Branch 29, an action for collection of sum of money against Pacific Multi AgroIndustrial Corporation and Alfonso Chua which was docketed as Civil Case No. 85-31257. On November 7, 1985, the trial court promulgated its decision in Civil Case No. 85-31257 in favor of China Banking Corporation. On November 21, 1988, Alfonso Roxas Chua executed a public instrument denominated as "Assignment of Rights to Redeem," whereby he assigned his rights to redeem the one-half undivided portion of the property to his son, private respondent Paulino RoxasChua. Paulino redeemed said one-half share on the very same day.

HELD: No. it is clear that AIR FRANCE cannot be faulted for breach of contract when it dishonored the tickets of the GANAS after 8 May 1971 since those tickets expired on said date; nor when it required the GANAS to buy new tickets or have their tickets re-issued for the Tokyo/Manila segment of their trip. Neither can it be said that, when upon sale of the new tickets, it imposed additional charges representing fare differentials, it was motivated by self-interest or unjust enrichment considering that an increase of fares ARAFAG • HABANA • JALAYAJAY

The conclusion is inevitable that the GANAS brought upon themselves the predicament they were in for having insisted on using tickets that were due to expire in an effort, perhaps, to beat the deadline and in the thought that by commencing the trip the day before the expiry date, they could complete the trip even thereafter. It should be recalled that AIR FRANCE was even unaware of the validating SAS and JAL. stickers that Ella had affixed spuriously. Consequently, Japan Air Lines and AIR FRANCE merely acted within their contractual rights when they dishonored the tickets on the remaining segments of the trip and when AIR FRANCE demanded payment of the adjusted fare rates and travel taxes for the Tokyo/Manila flight. FALLO: Judgment REVERSED

CHINA BANKING CORPORATION VS. CA 327 SCRA 378

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On the other hand, in connection with Civil Case No. 85-31257, another notice of levy on execution was issued on February 4, 1991 by the Deputy Sheriff of Manila against the right and interest of Alfonso Roxas Chua in TCT 410603. Thereafter, a certificate of sale on execution dated April 13, 1992 was issued by the Sheriff of Branch 39, RTC Manila in Civil Case No. 85-31257, in favor of ChinaBank and inscribed at the back of TCT 410603 as Entry No. 01896 on May 4, 1992. On May 20,1993, Paulino Roxas Chua and Kiang Ming Chu Chua instituted Civil Case No. 63199 before theRTC of Pasig, Metro Manila against China Bank, averring that Paulino has a prior and better right over the rights, title, interest and participation of China Banking Corporation in TCT410603. The trial court rendered a decision on July 15, 1994 in favor of private respondentPaulino Roxas Chua. On appeal, the Court of Appeals affirmed the ruling of the trial court

At the time a judgment was rendered in favor of China Bank against Alfonso and the corporation, Paulino was still living with his parents in the subject property. Paulino himself admitted that he knew his father was heavily indebted and could not afford to pay his debts. The transfer was undoubtedly made between father and son at a time when the father was insolvent and had no other property to pay off his creditors. Hence, it is of no consequence whether or not Paulino had given valuable consideration for the conveyance. Petition is granted.

CADWALLADER & COMPANY VS. SMITH, BELL & COMPANY February 9, 1907

ISSUE: FACTS: Whether or not the assignment of the right of redemption made by Alfonso Roxas Chua in favor of private respondent Paulino was done to defraud his creditors and may be rescinded under Article 1387 of the Civil Code? HELD: YES. Existence of fraud or intent to defraud creditors may either be presumed in accordance with Article 1387 of the Civil Code or duly proved as the case may be. After his conjugal share in TCT 410603 was foreclosed by Metrobank, the only property that Alfonso Roxas Chua had was his right to redeem the same, it forming part of his patrimony. "Property" under civil law comprehends every species of title, inchoate or complete, legal or equitable. In the case at bar,the presumption that the conveyance is fraudulent has not been overcome.

ARAFAG • HABANA • JALAYAJAY

In this action the plaintiff, as assignee of the Pacific Export Lumber Company, sues for $3,486, United States currency, the differences between the amount turned over to the company on account of a cargo of cedar piles consigned to the defendants as its agents and afterwards bought by them, and the amount actually received by them on the subsequent sale thereof. The defendant were allowed by the court below a counterclaim of $6,993.80, United States currency, from which was deducted $2,063.16 for the plaintiffs claim, leaving a balance in favor of the defendants of $4,930.64, for the equipment of which, to wit, 9,861.28 pesos, judgment was entered. The defendants have not appealed. The plaintiff took several exceptions, but on the argument its counsel stated that its contention was confined to the allowance by the trial court of the commissions of the defendant on selling the piling.

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In May 1902, the Pacific Export Lumber Company of Portland shipped upon the steamer Quito five hundred and eighty-one (581) piles to the defendant, Henry W. Peabody & Company, at Manila, on the sale of which before storage the consignees were to receive a commission of one half of whatever sum was obtained over $15 for each pile and 5 per cent of the price of the piles sold after storage. After the arrival of the steamer on August 2, Peabody and Company wrote the agent of the Pacific Company at Shanghai that for lack of a demand the piles would have to be sold at considerably less than $15 apiece; whereupon the company’s agent directed them to make the best possible offer for the piles, in response to which on August 5 they telegraphed him an offer of $12 apiece. It was accepted by him on August 6, in consequence of which the defendant paid the Pacific Company $6,972. It afterwards appeared that on July 9 Peabody & Company had entered into negotiations with the Insular Purchasing Agent for the sale for the piles at $20 a piece, resulting of August 4 in the sale to the Government of two hundred and thirteen (213) piles at $19 each. More of them were afterwards sold to the Government at the same figure and the remainder to other parties at carrying prices, the whole realizing to the defendants $10,41.66, amounting to $3,445.66 above the amount paid by the defendant to the plaintiff therefor. Thus it is clear that at the time when the agents were buying from their principal these piles at $12 apiece on the strength of their representation that no better price was obtainable, they had already sold a substantial part of them at $19. In these transactions the defendant, Smith, Bell & Company, were associated with the defendants, Henry W. Peabody & Company, who conducted the negotiations, and are consequently accountable with them.

ISSUE:

ARAFAG • HABANA • JALAYAJAY

Whether or not the sale was fraudulent, hence may be annulled by the aggrieved party?

HELD: YES. It is plaint that in concealing from their principal the negotiations with the Government, resulting in a sale of the piles at 19 a piece and in misrepresenting the condition of the market, the agents committed a breach of duty from which they should benefit. The contract of sale to themselves thereby induced was founded on their fraud and was subject to annulment by the aggrieved party. (Civil Code, articles 1265 and 1269.) Upon annulment the parties should be restored to their original position by mutual restitution. (Article 1303 and 1306.) Therefore the defendants are not entitled to retain their commission realized upon the piles included under the contract so annulled. In respect of the 213 piles, which at the time of the making of this contract on August 5 they had already sold under the original agency, their commission should be allowed. The court below found the net amount due from the defendants to the plaintiff for the Quito piles, after deducting the expense of landing the same and $543.10 commission, was $1,760.88, on which it allowed interest at the rate of 6 per cent from March 1, 1903. This amount should be increased by the addition thereto of the amount of the commission disallowed, to wit, $331.17 giving $2,092.05. Interest computed on this sum to the date of the entry of judgment below amounts to $359.77, which added to the principal sum makes $2,241.82, the amount of plaintiff’s claim, which is to be deducted from defendants’ counterclaim of $6,993.80, leaving a balance of $4,541.98, equivalent to 9,083.96 pesos, the amount for which judgment below should have been entered in favor of the defendants. VDA. DE BUNCIO VS. ESTATE OS SPOUSES DE LEON December 14, 1987 Page 117

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the certificates of title of the land involved in the litigation. FACTS: Involved in this case is an attempt by a daughter to claim her share in her father's estate some sixty-three years after the latter's demise. The father, Andres Arroyo, died sometime in 1901. He left an estate apparently of no mean size, comprised of properties located mainly in Iloilo and Negros Occidental. He was survived by three compulsory heirs: Felix Arroyo, a legitimate son by his first wife, and Filomena Arroyo and Simplicio Arroyo, legitimate children by his second wife. Administration of his estate was assumed and undertaken by Felix Arroyo, as the oldest son, evidently without objection from his brother or sister. On February 19, 1964, his daughter, the aforenamed Filomena Arroyo, then already 84 years of age and a widow, together with her six (6) children, filed suit in the then Court of First Instance of Negros Occidental, seeking to recover from the estate of the late Spouses Anita de Leon and Serafin Villanueva, Sr. and their children, what she claimed to be one third (1/3) of the properties left by her deceased father. Her complaint alleged that her share in the inheritance had at all times been held in trust by Felix Arroyo and after his death, by his heirs and successors-in-interest, who are the defendants named in her complaint, and she had been deprived of that share through fraud and misrepresentation. The defendant Anita de Leon was the granddaughter of Felix Arroyo by his daughter, Fortunata. Serafin Villanueva was her husband. They moved to dismiss the complaint on several grounds: failure of the complaint to state a cause of action, res judicata, laches, estoppel, release, and bar by the statute of limitations. The Trial Court sustained the motion and dismissed the action, by Order dated March 14, 1966. It also directed the Register of Deeds of Iloilo, Negros Occidental, etc., to cancel the annotation of lis pendens caused to be made by the plaintiffs on all ARAFAG • HABANA • JALAYAJAY

On February 19, 1940, the parties executed a compromise agreement entitled Convenio de Transaccion which they acknowledged before a notary public. By it, the Buncio Spouses and their co-plaintiffs sold, transferred and conveyed all their rights, title and interests over all the properties involved in the litigation in favor of the defendant spouses, Anita and Serafin Villanueva. On the same day the parties filed a Peticion with the Court praying that judgment be rendered in accordance with their convenio This the Court did the following day, February 20, 1940. However, on March 14, 1946 (after Liberation), the plaintiffs filed a motion to vacate the decision of February 20, 1940. They alleged as grounds therefor fraud, misrepresentation, deceit and undue influence vitiating their consent to the Convenio de Transaccion.

ISSUE: Whether or not the action for annulment on the ground of fraud has been barred by prescription?

HELD: YES. The action to annul a contract on the ground that consent is vitiated by mistake, violence, intimidation, undue influence or fraud prescribes in four (4) years; and the period is reckoned, in case of mistake or fraud, from the time of the discovery of the same. It is noteworthy that as early as March 14, 1946 the appellants already had pleaded fraud in the motion filed by them on that day to set aside the judgment rendered in Civil Case No. 7268: their contention was that their consent to the convenio de transaccion which the judgment had approved, had been obtained by fraud, or undue machinations. It is thus not unreasonable, surely, to consider March 14, 1946 as the day of the discovery of the fraud. So considered, it should at once be apparent that Page 118

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the prescriptive period of four (4) years had long elapsed when Civil Case No. 7200 was instituted by the appellants on February 19, 1964, eighteen (18) years afterwards. Alternatively categorizing the appellants' cause of action as one for recovery of property held by defendants under a constructive trust, would not improve their situation. The statute of limitations would still preclude their success. Assuming the creation of an implied trust over the real property in question from the time that Felix Arroyo took over possession and administration thereof sometime in 1901, the period of prescription to recover the property-set by law at ten (10) years-began to run from the time that Torrens titles were obtained over the property in the name of the trustee or his successors-ininterest. An action for reconveyance based on an implied or constructive trust must perforce prescribe in ten years and not otherwise. A long line of decisions of this Court, and of very recent vintage at that, illustrates this rule. Undoubtedly, it is now well-settled that an action for reconveyance based on an implied or constructive trust prescribes in ten years from the issuance of the Torrens title over the property. It being clear from the record that the appellants had brought their suit, Civil Case No. 7268, more than ten (10) years after titles had been obtained over the property claimed by the appellees or their predecessor-ininterest, their cause of action predicated on constructive trust is barred by prescription.

ASIA PRODUCTION VS. PANO January 27, 1992

to sell the building to the petitioners for P170,000.00. Petitioners agreed because of private respondents' assurance that they will also assign to the petitioners the contract of lease over the land. The above agreement and promise were not reduced to writing. Private respondents undertook to deliver to the petitioners the deed of conveyance over the building and the deed of assignment of the contract of lease within sixty (60) days from the date of payment of the down payment of P20,000.00. The balance was to be paid in monthly installments. On20 March 1976, petitioners paid the down payment and issued eight (8) post dated checks drawn against the Equitable Banking Corporation for the payment of the eight (8) monthly instalments. Relying on the good faith of private respondents, petitioners constructed in May 1976 a weaving factory on the leased lot. Unfortunately, private respondents, despite extensions granted, failed to comply with their undertaking to execute the deed to sale and to assign the contract despite the fact that they were able to encash the checks dated 30 June and 30 July 1976 in the total amount of P30,000.00. Worse, the lot owner made it plain to petitioners that he was unwilling to give consent to the assignment of the lease unless petitioners agreed to certain onerous terms, such as an increase in rental, or the purchase of the land at a very unconscionable price. Petitioners thereafter removed their effects from the disputed land and therefore filed a case for the collection of the paid instalments which the lower court dismissed because it falls within the purview of the requirements as set forth in the Statute of Frauds. Hence, this petition.

FACTS:

ISSUE:

Sometime in March 1976, private respondents, who claimed to be the owners of a building constructed on a lot leased from Lucio San Andres and located in Valenzuela, Bulacan, offered

Whether or not an action for the refund of partial payments of the purchase price of a building covered byan oral agreement to sell it with an oral promise to assign the contract of lease on the lot

ARAFAG • HABANA • JALAYAJAY

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where thebuilding is constructed is barred by the Statute of Frauds?

Romero, the house and lot containing 150 square meters at 725 Extremadura Street, Sampaloc was apportioned to Macaria.

HELD: NO. The statute of frauds is not applicable because there is partial performance in the aforementioned contract which is the payment of consideration in liu of the promise of the defendants. It goes without saying then, as held in the early case of Almirol, et al. vs. Monserrat, that the statute will apply only to executory rather than executed contracts. Partial execution is even enough to bar the application of the statute . WHEREFORE, the petition is hereby GRANTED. The challenged Orders of 18 April 1979 and 21 June1979 in Civil Case No. Q-23593 of the court below are hereby ANNULLED and SET ASIDE, and the complaint in said case is hereby ordered REINSTATED. The default order against private respondent Lolita Lee Le Hua shall stand and private respondent Alberto Dy is ordered to file his Answer to the complaint with the court below within ten (10) days from receipt of this decision. This decision shall be immediately executor.

GREGORIO AVERIA VS. DOMINGO AVERIA August 13, 2004

FACTS: Macaria Francisco (Macaria) and Marcos Averia contracted marriage which bore six issues, namely: Gregorio, Teresa, Domingo, Angel, Felipe and Felimon. Macaria was widowed and she contracted a second marriage with Roberto Romero (Romero) which bore no issue. Romero died on February 28, 1968, leaving three adjoining residential lots located at Sampaloc, Manila. In a Deed of Extrajudicial Partition and Summary Settlement of the Estate of ARAFAG • HABANA • JALAYAJAY

Alleging that fraud was employed by her coheirs in the partition of the estate of Romero, Macaria filed on June 1, 1970 an action for annulment of title and damages before the Court of First Instance of Manila against her co-heirs Domingo Viray. Macaria’s son Gregorio and his family and daughter Teresa’s family lived with her at Extremadura until her death on March 28, 1983. Close to six years after Macaria’s demise or on January 19, 1989, her children Domingo, Angel and Felipe, along with Susan Pelayo vda. de Averia (widow of Macaria’s deceased son Felimon), filed before theRTC of Manila a complaint against their brother Gregorio and niece Sylvanna Vergara "representing her absentee mother" Teresa Averia, for judicial partition of the Extremadura property inclusive of the 30 square meters judicially awarded. The defendants Gregorio and Sylvanna Vergara, in their Answer to the Complaint, countered that Gregorio and his late wife Agripina spent for the litigation expenses in Civil Case No. 79955, upon the request of Macaria, and the couple spent not less P20,000.00 for the purpose "which amount due to the inflation of the Philippine peso is now equivalent to more or less P200,000.00;" that from 1974 to 1983, Macaria was bedridden and it was Gregorio’s wife Agripina who nursed and took care of her; that before Macaria died, she in consideration of the court and other expenses which were defrayed by Gregorio and his wife in prosecuting Civil Case No. 79955 and of "the kindness of the said couple in caring for her," verbally sold to the spouses Gregorio and Agripina one-half (½) of her Extremadura property.

The RTC rendered judgment in favour of Gregorio Averia. On appeal, CA reversed the decision of the trial court. CA held that the alleged transfers made by Macaria and Domingo in favor of Page 120

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Gregorio were bereft of any written memoranda, held that it was error for the trial court to rely solely on the evidence adduced by the defendants consisting of the testimonies of Gregorio, Veronica Bautista, Sylvanna Vergara Clutario, Atty. Mario C.R. Domingo, Felimon Dagondon and Gregorio Averia, Jr. The CA explained its ruling in this wise: The alleged conveyances purportedly made by Macaria Francisco and plaintiff-appellant Domingo Averia are unenforceable as the requirements under the Statute of Frauds have not been complied with. Article 1403, 2(e) of the New Civil Code. The two (2) transactions in question being agreements for the sale of real property or of an interest therein are in clear contravention of the prescription that it must be in writing and subscribed by the party charged or by an agent thereof. Hence, the strong insistence by defendants-appellees on the verbal conveyances cannot be made the basis for the alleged ownership over the undivided interests claimed by Gregorio Averia. The parol evidence upon which the trial court anchored its award in favor of defendantappellee Gregorio Averia is irregular as such kind of evidence is foreclosed by Article 1403 of the Civil Code that no evidence of the alleged agreements can be received without the writing of secondary evidence which embodies the sale of the real property. The introduction of the testimonies of Gregorio Averia’s witnesses were timely objected to by plaintiffs-appellants. Since the testimonies of defendants-appellees’ witnesses are inadmissible, then such exclusion has pulled the rug under the assailed decision of the trial court and it has no more leg to stand on.

YES. respondents waived any objection to the admission of parol evidence, hence, it is admissible and enforceable following Article 1405 of the Civil Code. Indeed, except for the testimony of petitioner Gregorio bearing on the verbal sale to him by Macaria of the property, the testimonies of petitioners’ witnesses Sylvanna Vergara Clutario and Flora Lazaro Rivera bearing on the same matter were not objected to by respondents. Just as the testimonies of Gregorio, Jr. and Veronica Bautista bearing on the receipt by respondent Domingo on July 23, 1983 from Gregorio’s wife of P5,000.00 representing partial payment of the P10,000.00 valuation of his (Domingo’s) 1/6 share in the property, and of the testimony of Felimon Dagondon bearing on the receipt by Domingo of P5,000.00 from Gregorio were not objected to. Following Article 1405 of the Civil Code, the contracts which infringed the Statute of Frauds were ratified by the failure to object to the presentation of parol evidence, hence, enforceable. ARTICLE 1403. The following contracts are unenforceable, unless they are ratified: xxx (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: xxx (e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest therein; x x x (Emphasis and underscoring supplied),

ISSUE: Whether or not reception of parol evidence in this case is in accordance with the law?

Contrary then to the finding of the CA, the admission of parol evidence upon which the trial court anchored its decision in favor of respondents

HELD: ARAFAG • HABANA • JALAYAJAY

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is not irregular and is not foreclosed by Article 1405. In any event, the Statute of Frauds applies only to executory contracts and not to contracts which are either partially or totally performed. In the case at bar, petitioners claimed that there was total performance of the contracts, full payment of the objects thereof having already been made and the vendee Gregorio having, even after Macaria’s death in 1983, continued to occupy the property until and after the filing on January 19, 1989 of the complaint subject of the case at bar as in fact he is still occupying it. In proving the fact of partial or total performance, oral evidence may be received as what the trial court in the case at bar did. Noted civilist Arturo M. Tolentino elucidates on the matter: The statute of frauds is not applicable to contracts which are either totally or partially performed, on the theory that there is a wide field for the commission of frauds in executory contracts which can only be prevented by requiring them to be in writing, a fact which is reduced to a minimum in executed contracts because the intention of the parties becomes apparent by their execution, and execution concludes, in most cases, the rights of the parties. However it is not enough for a party to allege partial performance in order to render the Statute of Frauds inapplicable; such partial performance must be duly proved. But neither is such party required to establish such partial performance by documentary proof before he could have the opportunity to introduce oral testimony on the transaction. The partial performance may be proved by either documentary or oral evidence. CLEMENO VS. LOBREGAT September 9, 2004

FACTS:

ARAFAG • HABANA • JALAYAJAY

The Spouses Nilus and Teresita Sacramento were the owners of a parcel of land and the house constructed thereon located in Novaliches, Quezon City. The Spouses Sacramento mortgaged the property with the SSS as security for their housing loan and, likewise, surrendered the owner’s and duplicate copies of the certificate of title. On September 2, 1980, the spouses executed a Deed of Sale with Assumption of Mortgage in favour of Spouses Clemeno with the consent of SSS. On March 6, 1981, the Register of Deeds issued TCT No. 277244 over the property in the name of the vendees, who, in turn, executed a Real Estate Mortgage Contract over the property in favor of the SSS to secure the payment of the amount of P22,900.00, the balance of the loan. The Spouses Clemeno also surrendered the owner’s duplicate copy of the said title to the SSS. However, per the records of the SSS Loans Department, the vendors (the Spouses Sacramento) remained to be the debtors. On July 1, 1992, respondent Romeo R. Lobregat, a lawyer and an Election Registrar in the Commission on Elections, filed a Complaint against the petitioners, the Spouses Clemeno, and Nilus Sacramento for breach of contract, specific performance with damages with the RTC of Quezon City. The petitioners, for their part, filed a Complaint against the respondent for recovery of possession of property with damages. Respondent claimed that he entered into a verbal agreement with petitioner Clemeno for the sale of the subject property and that he made several instalments for the purchased price. He further claimed that Clemeno, in reply to his letter said that he never sold the property to respondent and that he merely tolerated respondent’s possession of the property for one year; that the latter offered to buy the property but he rejected the offer; and that he instead consented to lease the property to the respondent. The petitioner also declared in his letter to respondent that even though he consented into the sale, such was Page 122

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unenforceable as there was no document executed by them to evince the sale.

HELD:

Petitioner Clemeno on the other hand claimed that sometime in June 1987, petitioner Clemeno, Jr. agreed to sell the property for P270,000.00 payable in three (3) installments: (a) P90,000.00 upon the respondent’s taking possession of the property; (b) P90,000.00 payable within six (6) months thereafter; and (c) P90,000.00 not later than June 1, 1988. The respondent assured petitioner Clemeno, Jr. that there would be nothing to worry about the documentation of the sale; being a lawyer, he would take care of everything. However, the respondent failed to pay the balance of the purchase price of the property in the amount of P156,970.04 despite promises to do so.

NO. Article 1403 is applicable only to executory contracts and not to completed, executed or partially executed contracts as such in the case at bar.

On September 16, 1989, petitioner Clemeno, Jr. went to the respondent’s house to talk to him anew, but the latter was nowhere to be found. He made a typewritten letter to the respondent, stating that the latter had been given more than enough time to exercise the option to buy the property but failed to do so; hence, the offer was deemed cancelled. The petitioner left the letter with the respondent’s daughter, Michelle Lobregat.

The contract entered into by the parties was not a contract to sell because there was no agreement for the petitioners to retain ownership over the property until after the respondent shall have paid the purchase price in full, nor an agreement reserving to the petitioners the right to unilaterally resolve the contract upon the buyer’s failure to pay within a fixed period. Unlike in a contract of sale, the payment of the price is a positive suspensive condition in a contract to sell, failure of which is not a breach but an event that prevents the obligation of the vendor to convey the title from becoming effective.

The trial court rendered judgment in favour of petitioners. Respondent appealed to the CA which reversed the decision ruling thatthe contract entered into between the parties was a contract of sale, not a contract to sell. The appellate court also ruled that Article 1403(2) was not applicable because the contract was already partly performed, since partial payments had been made by the respondent as evidenced by receipts signed by the petitioners.

ISSUE: Whether or not the instants case falls under Article 1403 of the NCC, hence unenforceable? ARAFAG • HABANA • JALAYAJAY

We find and so hold that the contract between the parties was a perfected verbal contract of sale, not a contract to sell over the subject property, with the petitioner as vendor and the respondent as vendee. Sale is a consensual contract and is perfected by mere consent, which is manifested by a meeting of the minds as to the offer and acceptance thereof on three elements: subject matter, price and terms of payment of the price.

The contract of sale of the parties is enforceable notwithstanding the fact that it was an oral agreement and not reduced in writing as required by Article 1403(2) of the New Civil Code, which reads: Art. 1403. The following contracts are unenforceable, unless they are ratified: … "(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases, an agreement hereafter made shall be unenforceable by action, unless the same, or some Page 123

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note or memorandum thereof, be in writing, and subscribed by the parties charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: … ‘(d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accepts and receives part of such goods and chattels, or the evidences, or some of them, of such things in action, or pay at the time some part of the purchase money: but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum; …’" This is so because the provision applies only to executory, and not to completed, executed or partially executed contracts. In this case, the contract of sale had been partially executed by the parties, with the transfer of the possession of the property to the respondent and the partial payments made by the latter of the purchase price thereof. We agree with the petitioners’ contention that the respondent did not pay the total purchase price of the property within the stipulated period. Moreover, the respondent did not pay the balance of the purchase price of the property. However, such failure to pay on the part of the respondent was not because he could not pay, but because petitioner Angel Clemeno, Jr. told him not to do so. The latter instructed the respondent to continue paying the monthly amortizations due to the SSS on the loan. Unknown to the respondent, petitioner Angel Clemeno, Jr. wanted to increase the purchase price of the property at the prevailing market value in 1992, and not its value in 1987 when the contract of sale was perfected. The petitioners failed to prove their claim that a lease purchase agreement over the property ARAFAG • HABANA • JALAYAJAY

was entered into. Except for their bare claim, they failed to adduce a morsel of documentary evidence to prove the same. On the other hand, all the receipts issued by them on the partial payments made by the respondent were for the purchase price of the property, and not as rentals thereof.

SPOUSES FIRME VS. BUKAL ENTERPRISES & DEVELOPMENT October 23, 2003

FACTS: Spouses Constante and Azucena Firme are the registered owners of a parcel of land located on Dahlia Avenue, Fairview Park, Quezon City. Renato de Castro, the vice president of Bukal Enterprises and Development Corporation authorized his friend, Teodoro Aviles, a broker, to negotiate with the Spouses Firme for the purchase of the Property. On 28 March 1995, Bukal Enterprises filed a complaint for specific performance and damages with the trial court, alleging that the Spouses Firme reneged on their agreement to sell the Property. The complaint asked the trial court to order the Spouses Firme to execute the deed of sale and to deliver the title to the Property to Bukal Enterprises upon payment of the agreed purchase price. On 7 August 1998, the trial court rendered judgment against Bukal Enterprises, dismissing the case and ordering Bukal Enterprises to pay the Spouses Constante and Azucena Firme (1) the sum of P335,964.90 as and by way of actual and compensatory damages; (2) the sum of P500,000.00 as and by way of moral damages; (3) the sum of P100,000.00 as and by way of attorney’s fees; and (4) the costs of the suit. The trial court held there was no perfected contract of sale as Bukal Enterprises failed to establish that the Spouses Firme gave their consent Page 124

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to the sale of the Property; and that Aviles had no valid authority to bind Bukal Enterprises in the sale transaction. Bukal Enterprises appealed to the Court of Appeals, which reversed and set aside the decision of the trial court. The appellate court ordered the Spouses Firme to execute the Deed of Absolute Sale transferring the ownership of the subject property to Bukal Enterprises immediately upon receipt of the purchase price of P3,224,000.00 and to perform all such acts necessary and proper to effect the transfer of the property covered by TCT 264243 to Bulak Enterprises; and directed Bukal Enterprises to deliver the payment of the purchase price of the property within 60 days from the finality of the judgment. The Court of Appeals held that the lack of a board resolution authorizing Aviles to act on behalf of Bukal Enterprises in the purchase of the Property was cured by ratification; inasmuch as Bukal Enterprises ratified the purchase when it filed the complaint for the enforcement of the sale. The spouses Firme filed the petition for review on certiorari before the Supreme Court. ISSUE: Whether there was a perfected contract between the Spouses Firme and Bukal Enterprises, the latter allegedly being represented by Aviles? HELD: NO. There was no consent on the part of the Spouses Firme. Consent is an essential element for the existence of a contract, and where it is wanting, the contract is non-existent. The essence of consent is the conformity of the parties on the terms of the contract, the acceptance by one of the offer made by the other. The Spouses Firme flatly rejected the offer of Aviles to buy the Property on behalf of Bukal Enterprises. There was therefore no concurrence of the offer and the acceptance on the subject matter, consideration and terms of payment as would result in a perfected contract of sale. Further, there was no approval from the Board of Directors of Bukal Enterprises as would ARAFAG • HABANA • JALAYAJAY

finalize any transaction with the Spouses Firme. Aviles did not have the proper authority to negotiate for Bukal Enterprises. Aviles testified that his friend, De Castro, had asked him to negotiate with the Spouses Firme to buy the Property. De Castro, as Bukal Enterprises’ vice president, testified that he authorized Aviles to buy the Property. However, there is no Board Resolution authorizing Aviles to negotiate and purchase the Property on behalf of Bukal Enterprises. A corporation can only exercise its powers and transact its business through its board of directors and through its officers and agents when authorized by a board resolution or its by-laws. Aviles, who negotiated the purchase of the Property, is neither an officer of Bukal Enterprises nor a member of the Board of Directors of Bukal Enterprises. There is no Board Resolution authorizing Aviles to negotiate and purchase the Property for Bukal Enterprises. There is also no evidence to prove that Bukal Enterprises approved whatever transaction Aviles made with the Spouses Firme. In fact, the president of Bukal Enterprises did not sign any of the deeds of sale presented to the Spouses Firme. Even De Castro admitted that he had never met the Spouses Firme. Considering all these circumstances, it is highly improbable for Aviles to finalize any contract of sale with the Spouses Firme. Furthermore, the Court notes that in the Complaint filed by Bukal Enterprises with the trial court, Aviles signed the verification and certification of non-forum shopping. The verification and certification of non-forum shopping was not accompanied by proof that Bukal Enterprises authorized Aviles to file the complaint on behalf of Bukal Enterprises. The power of a corporation to sue and be sued is exercised by the board of directors. “The physical acts of the corporation, like the signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate by-laws or by a specific act of the board of directors.” The purpose of verification is to secure an assurance that the allegations in the pleading are true and correct and that it is filed in good faith. True, this requirement Page 125

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is procedural and not jurisdictional. However, the trial court should have ordered the correction of the complaint since Aviles was neither an officer of Bukal Enterprises nor authorized by its Board of Directors to act on behalf of Bukal Enterprises.

LYDIA SUMIPAT VS. BRIGIDO BANGA August 13, 2004

FACTS: The spouses Placida Tabo-tabo and Lauro Sumipat, who are childless, acquired three parcels of land. Lauro Sumipat, however, sired five illegitimate children out of an extra-marital affair with Pedra Dacola, namely: herein defendantsappellees Lydia, Laurito,Alicia, Alejandro and Lirafe, all surnamed Sumipat. On January 5, 1983, Lauro Sumipat executed a document denominated "DEED OF ABSOLUTE TRANSFER AND/OR QUIT-CLAIM OVER REAL PROPERTIES" (the assailed document) in favour of defendants-appellees covering the three parcels of land (the properties). It appears that on January 5, 1983 when the assailed document was executed, Lauro Sumipat was already very sick and bedridden; that upon defendant-appellee Lydia’s request, their neighbor Benjamin Rivera lifted the body of Lauro Sumip atwhere upon Lydia guided his (Lauro Sumipat’s) hand in affixing his signature on the assailed document which she had brought; that Lydia thereafter left but later returned on the same day and requested Lauro’s unlettered wife Placida to sign on the assailed document, as she did in haste, even without the latter getting a responsive answer to her query on what it was all about. After Lauro Sumipat’s death,his wife Placida, and defendants-appellees jointly administered the properties 50% of the produce of which went to plaintiff-appellant. But as Placida’s share in theproduce of the properties dwindled ARAFAG • HABANA • JALAYAJAY

until she no longer received any and learning that the titles to the properties in question were already transferred/made in favor of the defendants-appellees, she filed a complaint for declaration of nullity of titles, contracts, partition, recovery of ownership now the subject of the present appeal.’ The trial court found that the subject properties are conjugal. However, because Placida failed to question the genuineness and due execution of the deed and even admitted having affixed her signature thereon, the trial court declared that the entirety of the subject properties, and not just Lauro Sumipat’s conjugal share, were validly transferred to the defendants, the petitioners herein. But the Court of Appeals annulled the deed insofar as it covers Placida’s conjugal share in the subject properties because the latter’s consent thereto was vitiated by mistake when she affixed her signature on the document. ISSUES: Whether or not the questioned deed by its terms or under the surrounding circumstances has validly transferred title to the disputed properties to the petitioners? Whether or not the questioned deed is subject to prescription?

HELD: 1.) NO. A perusal of the deed reveals that it is actually a gratuitous disposition of property —a donation— although Lauro Sumipat imposed upon the petitioners the condition that he and his wife, Placida, shall be entitled to one-half (1/2) of all the fruits or produce of the parcels of land for their subsistence and support. The deed covers three (3) parcels of land. Being a donation of immovable property, the Page 126

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requirements for validity set forth in Article 749 of the Civil Code should have been followed, Viz: In order that the donation of the immovable may bevalid, it must be made in a public document, specifying thereinthe property donated and the value of the charges which thedonee must satisfy.The acceptance may be made in the same deed of donationor in a separate public document, but it shall not take effect unless it is done during the lifetime of the donor. If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and this step shall be noted in both instruments. In this case,the donees’ acceptance of the donation is not manifested either in the deed itself or in a separate document. Hence, the deed as an instrument of donation is patently void. 2.) NO. Being an absolute nullity, both as a donation and as a sale, the deed is subject to attack at any time, in accordance with the rule in Article 1410 of the Civil Code that an action to declare the inexistence of a void contract does not prescribe. When there is a showing of illegality, the property registered is deemed to be simply held in trust for the real owner by the person in whose name it is registered, and the former then has the right to sue for the reconveyance of the property. The action for the purpose is also imprescriptible. As long as the land wrongfully registered under the Torrens system is still in the name of the person who caused such registration, an action in personam will lie to compel him to reconvey the property to the real owner.

HULST VS. PR BUILDERS INC. September 3, 2007

FACTS: ARAFAG • HABANA • JALAYAJAY

Jacobus Hulst and Ida are spouses and Dutch nationals, and entered a Contract to Sell with PR Builders to buy a townhouse in Batangas. PR Builders failed to comply with its verbal promise to complete theproject by June 1995, so the Hulst spouses filed before the HLURB for rescission of contract with interest, damages and attorney fees. The HLURB Arbiter decided in favor of the spouses. Afterwards, the spouses divorced. Ida assigned her rights over thetownhouse to Jacobus, who continued to pursue the case. The Sheriff implemented the Writ of Execution by levying on respondent‟s 15 parcels of land covered by 13 TCTs. A public auction was set afterwards of the levied properties. Respondent filed an Urgent Motion to Quash Writ of Levy on the ground that an over levy was made. The aggregated appraised value of the properties based on the Appraisal Report is over P83.6 million. Without a restraining order from the HLURB, the Sheriff proceeded to sell the properties at the public auction. Holly Properties Realty Corporation won the bid for all 15 parcels of land at P5.4 million. P5.3 million was turned over to Hulst to satisfy the judgment award. Later on the same day, the Sheriff received an order dated on the day of the auction from the HLURB Arbiter to suspend execution. The HLURB Arbiter and Director ordered to set aside the Sheriff‟s levy, saying that the valuations of the Sheriff and the Appraisal Report is so egregious at P6 million and P83.6 million respectively. The court is justified to intervene where the inadequacy of price shocksthe conscience. The Sheriff should have looked into the matter first and not disregard the objections of PR Builders‟ counsel. What is at issue is not the value of the properties as determined during the auction sale, but the determination of value levied upon by the Page 127

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Sheriff taking in consideration the fair market value of the properties levied upon to determine whether they are sufficient to satisfy the judgment. Any levy in excess of the judgment award is void.

Generally, parties to a void agreement cannot expect the aid of the lawwhen they are deemed in pari delicto. There should have been no suitto recover from one to the other.

Hulst filed before the CA. The CA dismissed the petition saying that the inadequacy of price being supposedly immaterial in the right to redeemis not applicable, because the adequacy in the present case is not mere inadequacy but an inadequacy that shocks the senses. The aggregate value of P83.6 million shockingly exceeds the judgment debt of only around P6 million.

There are exceptions, particularly Article 1414 (c) which provides that: “When money is paid or property delivered for an illegal purpose, the contract may be repudiated by one of the parties before the purpose has been accomplished, or before any damage has been cause to a third person. In such case, the courts may, if the public interest will be subserved, allow the party repudiating the contract to recover the money or property.”

ISSUE: Whether or not the Contract to Sell was a void and inexistent contract?

RULING: YES. SC granted petition and declared HLURB order NULL and VOID. 1. Foreigners acquiring Philippine property First, SC immediately addressed the important fact that the Hulst spouses are foreign nationals who are disqualified under the Constitution from owning real property in their names. It is unequivocal that the Contract to Sell entered into by the Hulst spouses is void, since they are both Dutch nationals. Art 1409 of the Civil Code provides that all contracts whose cause, object or purpose is contrary to law or public policy and those expressly prohibited or declared void by law are inexistent and void from the beginning. Art 1410 provides that the action or defense for the declaration of the inexistence of a contract does not prescribe. A void contract is equivalent to nothing; it produces no civil effect. It does not create, modify or extinguish a juridical relation. 2. Exceptions to Pari Delicto ARAFAG • HABANA • JALAYAJAY

3. Contract to Sell, not Contract of Sale. 1414, not 1412 Hulst spouses and PR Builders entered a Contract to Sell, not a Contract of Sale. In a Contract of Sale, the title passes to the buyer upon delivery of the purchase price. A Contract to Sell is a conditional sale where the obligatory force of the seller‟s obligation to transfer title is subordinated to the happening of a future and uncertain event. If the suspensive condition does not take place, the parties would stand as if the conditional obligation never existed. Art 1414, not Art 1412 applies because the unlawful or forbidden cause that does not constitute a criminal offense referred to in Art 1412 has not taken place before the purpose was accomplished or before any damage has been cause. Ownership was not transferred to the alien petitioner in the Contract to Sell before Hulst filed for rescission. In a Contract to Sell, ownership has not yet transferred to Hulst when he filed for rescission. The intent to circumvent the constitutional proscription on aliens owning real property or the violation of the law did not materialize because petitioner caused the rescission of the contract before the execution of the final deed transferring ownership. Page 128

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Hulst can recover under the exception (c) under Article 1414. One who repudiates the agreement and demands his money before the illegal act has taken place is entitled to recover. The contract being void and inexistent, he is, however, only entitled to recover the purchase price paid and not damages and interests due to absence of a juridical tie. 4. Gross inadequacy of price Gross inadequacy of price does not nullify an execution sale, except if itis one that shocks the conscience to allow the courts to intervene. Furthermore, where there is right to redeem, the inadequacy of price should be immaterial since the judgment debtor may reacquire the property or else sell his right to redeem and recover any loss. The HLURB Arbiter and Director had no sufficient factual basis to determine the value of the properties. PR Builders only submitted an Appraisal Report based on surmises and assumption that the unit appraised had already been built. The projected value did not become a reality because the property has not been developed. The Appraisal Report is not the best proof to show that there was inadequacy that shocks the conscience. The HLURB Arbiter lost jurisdiction by virtue of the consummation of the auction sale. The winning bidder, Holly Properties Realty Corporation, rightfully acquired the properties. The Sheriff was right to proceed with the public auction absent any order from the HLURB Arbiter and Director on the set date. Each of the 15 properties were successfully bidded upon and sold and the debt and fees fully satisfied and remitted upon payment by Holly Properties. What was only left to be done was the issuance of the certificates of sale to the winning bidder.

FELIX GOCHAN vs. HEIRS OF BABA FACTS: ARAFAG • HABANA • JALAYAJAY

The conjugal property of spouses Raymundo Baba and Dorotea Inot, was originally titled in thename of Dorotea. After Raymundo’s demise, an extrajudicial settlement of his estate, including Lot No. 3537, was executed among the heirs of Raymundo, namely, Dorotea Inot and his 2 children, Victoriano Baba and Gregorio Baba. Onehalf undivided portion of the 6,326 square meter lot was adjudicated infavor of Dorotea, and the other half divided between Victoriano and Gregorio. On December 28, 1966, Dorotea, Victoriano and Gregorio, in consideration of the amount of P2,346.70, sold Lot No. 3537 to petitioner Felix Gochan and Sons Realty Corporation (Gochan Realty ). Consequently, OCT No. RO-0820 was cancelled and in lieu thereof, Transfer Certificate of Title No. T-1842, dated February 23, 1968 was issued in favor of Gochan Realty. Sometime in 1995, Gochan entered into a joint venture agreement with Sta. Lucia Realty and Development Corporation Inc. for the development, among others, of Lot No. 3537, into a subdivision. On June 13, 1996, respondents’ heirs, filed a complaint for quieting of title and reconveyance with damages against petitioners with the RTC of Lapu-Lapu City. They alleged that they are among the 7 children of Dorotea Inot and Raymundo Baba; that petitioners connived with Dorotea Inot, Victoriano and Gregorio Baba in executing the extrajudicial settlement and deed of sale which fraudulently deprived them of their hereditary share in Lot No. 3537; and that said transactions are void insofar as their respective shares are concerned because they never consented to the said sale and extrajudicial settlement, which came to their knowledge barely a year prior to the filing of the complaint. In its answer, petitioner Gochan Realty averred that respondents have no personality to sue because they are not children of Dorotea Inot and Raymundo Baba; that even assuming they are lawful heirs of the spouses, their action is barred by estoppel, laches and prescription for having been filed more than 28 years after the issuance of the transfer certificate of title in its name; and that any defect in the transactions leading to its acquisition Page 129

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of Lot No. 3537 will not affect its title because it is a purchaser in good faith and for value. On May 3, 1997, the complaint for quieting of title and reconveyance with damages filed against petitioner was dismissed on the ground of prescription and laches. The trial court ruled that respondents’ action is one for enforcement of implied or constructive trust based on fraud which prescribes in 10 years from the issuance of title over the property. Hence, respondents’ action was barred by prescription and laches for having been filed after 28 years from the time Gochan Realty obtained title to the property. Respondents appealed to the Court of Appeals which reversed the decision of the trial court and reinstated the complaint of respondents.

ISSUE: Whether there is a cause of action to declare the inexistence of the contract of sale with respect to the share of respondents in the subject lot on the ground of absence of any of the essential requisites of a valid contract?

HELD: Under Article 1318 of the Civil Code, there is no contract unless the following requisites concur: (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation. The absence of any of these essential requisites renders the contract inexistent and an action or defense to declare said contract void ab initio does not prescribe, pursuant to Article 1410 of the same Code. In Delos Reyes v. Court of Appeals , it was held that one of the requisites of a valid contract under Article 1318 of the Civil Code, namely, the consent and the capacity to give consent of the parties to the contract, is an indispensable condition for the existence of consent. There is no effective consent in law without the capacity to ARAFAG • HABANA • JALAYAJAY

give such consent. In other words, legal consent presupposes capacity. In Heirs of Romana Ingjug-Tiro v. Casals , the Court, applying Article 1410 of the Civil Code 1 [ 2 0 declared that a claim of prescription is unavailing where the assailed conveyance is void ab initio with respect to those who had no knowledge of the transaction. The case involved a fraudulent sale and extrajudicial settlement of a lot executed without the knowledge and consent of some of the co-owners. It was held that the sale of the realty is void in so far as it prejudiced the shares of said co-owners and that the issuance of a certificate of title over the whole property in favor of the vendee does not divest the other co-owners of the shares that rightfully belonged to them. The nullity of the said sale proceeds from the absence of legal capacity and consent to dispose of the property. Nemo dat quod non habet — No one can give more than what he has. Assuming that the allegations in respondents’ complaint are true, their claim that the execution of the extrajudicial settlement and the deed of sale involving Lot No. 3537, which led to the issuance of a certificate of title in the name of Gochan Realty, was without their knowledge or consent, gives rise to an imprescriptible cause of action to declare said transaction inexistent on the ground of absence of legal capacity and consent. Hence, the dismissal of respondents’ complaint on the ground of prescription was erroneous. .It is but fair, without prejudging the issues, that the parties be allowed to substantiate their respective claims and defenses in a full-blown trial, and obtain a ruling on all the issues presented in their pleadings. Indeed, while the averments in the complaint show that respondents’ action is imprescriptible, Gochan Realty is not precluded from presenting evidence that it is a purchaser in good faith or that respondents have no personality to sue for reconveyance or, even assuming that they are lawful heirs of Dorotea Inot and Raymundo Baba, that they are guilty of laches or are estopped from questioning thevalidity of the extrajudicial partition and deed of sale of Lot No. 3537 with respect to their shares. The trial court thus erred in dismissing Page 130

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respondent’s complaint on the ground of prescription and laches, and while the Court of Appeals is correct in ordering the reinstatement of the complaint. DAVID P. FORNILDA VS RTC

entitled" Sergio I. Amonoy vs. Heirs of Asuncion M. Pasamba and Heirs of Alfonso 1. Fornilda" Petitioners, as defendants therein, alleged that the amount agreed upon as attorney's fees was only Pll,695.92 and that the sum of P27,600.00 was unconscionable and unreasonable.

FACTS: The deceased, Julio M. Catolos formerly owned six (6) parcels of land located in Tanay, Rizal, which are the controverted properties in the present litigation. His estate was the subject of settlement in SpecialProceedings No. 3103 of the then Court of First Instance of Rizal. ForniIda and Asuncion M. Pasamba were some of the legal heirs and were represented in the case by Atty. Sergio Amonoy (hereinafter referred to as Respondent Amonoy). A Project of Partition was filed in the Intestate Court whereby the Controverted Parcels were adjudicated to Alfonso I. Fornilda and Asuncion M. Pasamba. On 12 January 1965, the Court approved the Project of Partition. It was not until 6 August 1969, however, that the estate was declared closed and terminated after estate and inheritance taxes had been paid, the claims against the estate settled and all properties adjudicated. Eight (8) days thereafter, or on 20 January 1965, Alfonso 1. Fornilda and Asuncion M. Pasamba executed a Contract of Mortgage wherein they mortgaged the Controverted Parcels to Respondent Amonoy as security for the payment of his attorney's fees for services rendered in the aforementioned intestate proceedings. Asuncion M. Pasamba died on 24 February 1969 while Alfonso 1. Fornilda passed away on 2 July 1969. Petitioners are some of the heirs of Alfonso I. Fornilda. Since the mortgage indebtedness was not paid, on 21 January 1970, Respondent Amonoy instituted foreclosure proceedings before the Court of First Instance of Rizal, at Pasig, Branch VIII ARAFAG • HABANA • JALAYAJAY

On 28 September 1972, the Trial Court rendered judgement in the Foreclosure Case ordering the Pasamba and Fornilda heirs to pay Respondent Amonoy, within ninety (90).days from receipt of the decision, On 6 February 1973, the Controverted Parcels were foreclosed and on 23 March 1973, an auction sale was held with Respondent Amonoy as the sole bidder for P23,760.00. Said sale was confirmed by the Trial Court. To satisfy the deficiency, another execution sale was conducted with Respondent Amonoy as the sole bidder for P12,137.50. On the basis of an Affidavit of Consolidation of Ownership by Respondent Amonoy, the corresponding tax declarations covering the Controverted Parcels were consolidated in his name. On 19 December 1973, or a year after the judgment in the Foreclosure Case, an action for Annulment of Judgment entitled " Maria Penano et al. vs. Sergio Amonoy, et al ." squarely put in issue were the properiety of the mortgage, the validity of the judgment of foreclosure sale and the tenability of aquisition by respondent Omonoy at the sheriff’s sale. This petition mainly asserts that the mortgage and the sheriff sale are void for they are contrary to Art. 1491 of the Civil Code. Under this provision, a lawyer is prohibited from acquiring either by purchase or assignment the property or rights involved which are the object of the litigation in which they intervene by virtue of their profession.

ISSUE: Whether the mortgage constituted on the controverted parcels of land in favor of Amonoy Page 131

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comes within the scope of the prohibition in Art. 1491 of the Civil Code?

HELD: Under Art. 1491 of the Civil Code: The following persons cannot acquire by purchase even at a public or judicial or auction, either in person or through the mediation of another: (5) Justices, judges, prosecuting attorneys, ... the property and rights in litigation or levied upon on execution before the court within whose junction or territory they exercise their respective functions; this prohibition includes the act of acquitting by assignment and shall apply to lawyers with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession . Under the aforequoted provision, a lawyer is prohibited from acquiring either by purchase or assignment the property or rights involved which are the object of the litigation in which they intervene by virtue of their profession The prohibition on purchase is all embracing to include not only sales to private individuals but also public or judicial sales The rationale advanced for the prohibition is that public policy disallows the transactions in view of the fiduciary relationship involved i.e., the relation of trust and confidence and the peculiar control exercised by these persons In the instant case, it is undisputed that the Controverted Parcels were part of the estate of the late Julio M. Catolos subject of intestate estate proceedings, wherein Respondent Amonoy acted as counsel for some of the heirs from 1959 until 1968 by his own admission that these properties were adjudicated to Alfonso Fornilda and Asuncion M. Pasamba in the Project of Partition approved by the Court on 12 January 1965; that on 20 January 1965, or only eight (8) days thereafter, and while he was still intervening in the case as counsel, ARAFAG • HABANA • JALAYAJAY

these properties were mortgaged by petitioners' predecessor-in-interest to Respondent Amonoy to secure payment of the latter's attorney's fees in the amount of P27,600.00; that since the mortgage indebtedness was not paid, Respondent Amonoy instituted an action for judicial foreclosure of mortgage on 21 January 1970; that the mortgage was subsequently ordered foreclosed and auction sale followed where Respondent Amonoy was the sole bidder for P23,600.00; and that being short of the mortgage indebtedness, he applied for and further obtained a deficiency judgment. The fact that the properties were first mortgaged and only subsequently acquired in an auction sale long after the termination of the intestate proceedings will not remove it from the scope of the prohibition. To rule otherwise would be to countenance indirectly what cannot be done directly. Being a void contract, the action or defense for the declaration of its inesistence is imprescriptible . The defect of a void or inexistence contract is permanent. Mere lapse of time cannot give it efficacy. Neither can the right to set up the defense of illegality be waived. The six (6) parcels of land herein controverted are hereby ordered returned to petitioners unless some of them have been conveyed to innocent third persons. With respect to petitioners' prayer for disbarment by reason of malpractice of Respondent Amonoy embodied in their pleading entitled 'Mahigpit na Musiyung para Papanagutin Kaugnay ng Paglalapastangan' and 'Masasamang Gawain (Mal-Pracrices) and "Paninindigan (Memorandum)" both filed on Sergio I. Amonoy is hereby required, within fifteen (15) days from notice hereof, to submit an Answer thereto. After receipt of the same, a new docket number will be assigned to the case. SUNTAY VS. CA

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FACTS: Respondent Federico Suntay was the registered owner of a parcel of land situated in Sto. Niño, Hagonoy, Bulacan. Federico applied as a miller-contractor of the then National Rice and Corn Corporation (NARIC). However, his application, although prepared by his nephewlawyer, petitioner Rafael Suntay, was disapproved, obviously because at that time he was tied up with several unpaid loans. For purposes of circumvention, he had thought of allowing Rafael to make the application for him. Rafael prepared an absolute deed of sale whereby Federico, for and in consideration of P20,000.00 conveyed to Rafael said parcel of land with all its existing structures. Less than three months after this conveyance, a counter sale was prepared and signed by Rafael who also caused its delivery to Federico. Through this counter conveyance, the same parcel of land with all its existing structures was sold by Rafael back to Federico for the same consideration of P20,000.00. Federico then requested Rafael to deliver his copy of the TCT for the subject land so that he can have the counter deed of sle in his favor registered in his name, Rafael refused such request. As a result, Federico filed a complaint for reconveyance and damages against Rafael. Federico allged that the first sale of the land was perfected since Rafael never paid or delivered the payment and he never demande and received the sum of P20,000 or any valuable consideration. Also, that the Deed of Absolute Sale is an absolutely simulated or fictitious transaction.

ISSUE: Whether or not there was a valid sale between Federico and Rafael?

HELD:

ARAFAG • HABANA • JALAYAJAY

No, there was no perfected sale. It is provided by law that a contract of purchase and sale is void and produces no effect whatsoever where the same is without cause or consideration in that the purchase price, which appears in the said contract, has in fact never been paid by the purchaser to the vendor. In this case, considering the following facts: (1) That the 2 instruments were executed closely one the other involving transfer and re-transfer of the same property at exactly the same price; (2) The existing close relationship between the parties; and (3) The inadequacy of the price in relation to the location and nature of the property, the Deed of Sale is found to be a mere accommodation arrangement executed without any consideration and therefore a simulated contract of sale. Furthermore, the complete absence of an attempt in any manner on the part of Rafael to assert his rights of ownership over the land and the ricemill is a clear badge of fraud. Federico remained in actual possession, cultivation and occupation of the disputed lot further proves the fictitiousness of the transfer. Therefore, the deed of sale executed by Federico in favor of his nephew, Raphael, is absolutely simulated and fictitious and, hence, null and void. TEJA MARKETING VS. CA

FACTS: On May 1975, defendant Pedro Nale bought from the plaintiff Teja Marketing a motorcycle for the sum of P8,000. Defendant paid a downpayment of P1,700 with a promise that he would pay plaintiff the balance within 60 days. The defendant, however, failed to comply with his promise and requested for an extension. However, defendant still failed to comply. In this particular transaction a chattel mortgage was constituted as a security for the payment of the balance of the purchase price. It was first mortgaged to Teja Marketing, however, it was found that Teja Marketing and Angel Jaucian are one and the same, and it was made to appear that way so that Nale Page 133

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could attached the unit to Juacian’s franchise/MCH Line. The agreement also provides that Teja Marketing will make the yearly registration of the motorcycle. Teja Marketing, however, failed to register on the ground that defendant failed to comply with some requirements. Teja Marketing filed an action for Sum of Money with Damages against Nale.

ISSUE: Whether or not there is a valid and existing Contract of Sale?

said date whereby they bound themselves jointly and severally to pay the account in 10 equal yearly amortizations. As the obligation remained outstanding and unpaid even after the lapse of the aforesaid ten-year period, Confesor, who was by then a member of the Congress of the Philippines, executed a second promissory note on April 11, 1961 expressly acknowledging said loan and promising to pay the same on or before June 15, 1961 and upon his failure to pay he agrees to the foreclosure of mortgage over a certain conjugal property. Said spouses not having paid the obligation on the specified date, the DBP filed a complaint dated September 11, 1970 in the City Court of Iloilo City against the spouses for the payment of the loan.

HELD: No, the contract is null and void. The parties operated under an arrangement known as the “kabit system” whereby a person who has been granted a certificate of public convenience allows another person who owns motor vehicles to operate under such franchise for a fee. A certificate of public convenience is a special privilege conferred by the government. Abuse of this privilege by the grantees thereof cannot be countenanced. Although not outrightly penalized as a criminal offense, the kabit system is invariably recognized as being contrary to public policy and, therefore, void and in existent under Article 1409 of the Civil Code. As provided in Article 1422 of the Civil Code, “A contract which is the direct result of a previous illegal contract, is also void and inexistent”. It is a fundamental principle that the court will not aid either party to enforce an illegal contract, but will leave both where it finds then. DBP VS. ADIL

FACTS: On February1940 spouses Patricio Confesor and Jovita Villafuerte obtained an agricultural loan from DBP, in the sum of P2,000.00, as evidenced by a promissory note of ARAFAG • HABANA • JALAYAJAY

ISSUE: Whether or not a promissory note executed in consideration of a previous promissory note which had been barred by prescription constitutes as a waiver to the right of prescription of the action?

HELD: Yes. The Court ruled that when a debt is already barred by prescription, it cannot be enforced by the creditor. But a new contract recognizing and assuming the prescribed debt would be valid and enforceable. In this case, respondent Confesor executed a second promissory note whereby he promised to pay the amount covered by the previous promissory note, and upon failure to do so, agreed to the foreclosure of the mortgage. Respondent thereby effectively and expressly renounced and waived is right to the prescription covering the first promissory note. Since the second promissory note states that failure to pay will allow such foreclosure of mortgage the conjugal property used to secure the mortgage is liable for this obligation. ROBLETT VS. CA Page 134

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FACTS: On December 1985 Roblett Industrial Construction Corporation (RICC) trough its Asst,-VP Aller,Jr., entered into an agreement with Contractors Equipment Corporation (CEC) wherein the latter would lease to the former various construction equipment for its projects. An offsetting arrangement was also made wherein respondent CEC received from RICC construction materials worth P115,000 thus reducing petitioner’s balance to P227,909.38. A day before the execution of the agreement, RICC paid CEC P10,000 in postdated checks which were eventually dishonored. CEC debited the amount to RICC’s account increasing its balance to P237, 909.38. On September 1986 CEC instituted an action for a sum of money against petitioner RICC. RICC contends that after deliberation and audit it appeared that petitioner overpaid respondent CEC by P12,000. However, Manaligod, General Manager of CEC declared that RICC received a statement of account in the amount of P237,350.18 which it never questioned.

ISSUE: Whether the defendant may be considered to have fully paid its obligation by way of offsetting for the P115,000 construction materials received by the plaintiff?

HELD: No. Petitiner-defendant RICC have not yet paid its obligation. Estoppel in pais arises when one, by is acts, representations or admissions, or by his own silence when he ought to speak out, intentionally or through culpable negligence, induces another to believe certain facts to exist and such other rightfully relies and acts on such belief, so that he will be prejudiced if the former is permitted t deny the existence of such facts. This is ARAFAG • HABANA • JALAYAJAY

applicable in the present case. A statement of account for P376,35018 covering a certain period was received from respondent by petitioner without a protest from the latter. Neither did petitioner controvert the demand letter concerning the overdue account of P327,909,38, rather it even asked that they be given ample time to source funds to settle the account.

BUCTON VS. GABAR

FACTS: Sometime in 1946 defendant Josefina Llamoso Gabar bought a land from the spouses Villarin on installment basis, P500 down, the balance payable in installments. Josefina entered into a verbal agreement with her sister-in-law, plaintiff Nicanora Gabar Bucton, that the latter would pay one-half of the price (P3,000) and would then own one-half of the land. Pursuant to this understanding Nicanora gave her sister-in-law Josefina the initial amount of P1,000, for which the latter signed a receipt. Meanwhile, after Josefina had received in January, 1946 the initial amount of P1,000 as above stated, plaintiffs took possession of the portion of the land indicated to them by defendants and built a modest nipa house therein. About two years later plaintiffs built behind the nipa house another house for rent. And, subsequently, plaintiffs constructed a house of strong materials, with three apartments in the lower portion for rental purposes. In January, 1947 the spouses Villarin executed the deed of sale of the land in favor of defendant Josefina Llamoso Gabar, Plaintiffs then sought to obtain a separate title for their portion of the land in question. Defendants repeatedly declined to accommodate plaintiffs. Their excuse: Page 135

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the entire land was still mortgaged with the Philippine National Bank as guarantee for defendants' loan of P3,500 contracted on June 16, 1947. Plaintiffs continued enjoying their portion of the land. planting fruit trees and receiving the rentals of their buildings. In 1953, with the consent of defendants (who were living on their portion), plaintiffs had the entire land surveyed and subdivided preparatory to obtaining their separate title to their portion. After the survey and the planting of the concrete monuments defendants erected a fence. Bucton filed an action for specific performance ordering defendant spouses to execute in their favor a deed of sale of the one half of the property. Defendants denies agreement to sell to plaintiffs one-half of the land in litigation. She declared that the amounts she had received from plaintiff Nicanora Gabar Bucton — first, P1,000, then P400 — were loans, not payment of one-half of the price of the land (which was P3,000).

ISSUE: Whether or not petitioner is entitled to compel respondent to execute a formal deed of conveyance over the subject land?

HELD: Yes, petitioner may compel respondent to execute a formal deed of conveyance and to obtain their separate title to the land. It is clear that petitioner Bucton paid P1,500 to respondent Josefina Gabar as purchase price of one-half of the subject lot. The sale, although ot consigned in a public instrument or formal writing, is nevertheless valid and binding between petitioners and private respondents, for the time-honored rule is that even a verbal contract of sale or real estate produces legal effects between the parties. Although at the time said petitioner paid P1,000.00 as part payment of the purchase price on January 19, 1946, private respondents were not yet the owners of the lot, they became such owners on January 24, ARAFAG • HABANA • JALAYAJAY

1947, when a deed of sale was executed in their favor by the Villarin spouses. Under Article 1434 of the Civil Code, “when a person who is not the owner of a thing sells or alienates and delivers it, and later the seller or grantor acquires title thereto, such title passes by operation of law to the buyer or grantee." Petitioners therefore became owners of the one-half portion of the lot in question by virtue of a sale which, though not evidenced by a formal deed, was nevertheless proved by both documentary and parole evidence.

OLACO VS. CA

FACTS: It appears that on May 1943, the Philippine Sugar Estate Development Company, Ltd., sold a parcel of land, , situated at Oroquieta St., Sta. Cruz , Manila, with the Deed of Absolute Sale naming Emilia O'Laco as vendee; thereafter, Transfer Certificate of Title No. 66456 was issued in her name. On May 1960, private respondentspouses Valentin Co Cho Chit and O Lay Kia learned from the newspapersthat EmiliaO'Laco sold the same property to the Roman Catholic Archbishop of Manila for P230,000.00, with assumption of the real estate mortgage constituted thereon. Respondent-spouses sued petitionerspouses Emilia O'Laco and Hugo Luna to recover the purchase price of the land, respondent-spouses asserting that petitioner Emilia O'Laco knew that they were the real vendees of the Oroquieta property and that the legal title thereto was merely placed in her name. They contend that Emilia O'Laco breached the trust when she sold the land. On September 1976, finding no trust relation between the parties, the trial court dismissed the complaint together with the counterclaim. Petitioners and respondents appealed.

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Whether or not there was an existing trust relations between parties? Whether or not prescription has set in?

HELD: Yes, there is an existing trust relations. The Court held that a resulting trust was indeed intended by the parties under Art. 1448 of the Civil Code, which states that “There is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by another for the purpose ofhaving the beneficial interest of the property. The former is the trustee, while the latter is the beneficiary..”Respondentspouses explained that the reason why they did not place the properties in their name was that being Chinese nationals at the time of the purchase they did not want to execute the required affidavit to the effect that they were allies of the Japanese. Since O Lay Kia took care of Emilia when she was still young, she did not hesitate to place the title of the property in Emilia’s name. This arrangement was also made by the said respondent-spouses in another lot where it was place under the name of Ambrosio O’Laco, the brother of Emilia. It was established by Ambrosio in another action for reconveyance insitituted against him by the respondent-spouses that the latter used his name in buyingthe Kusang-loob property while that of petitioner Emilia was used in the purchase of the Oroquieta property. In effect, there was an implied admission by Ambrosio that his sister Emilia, like him was merely used as a dummy. As for the prescription, the Court ruled that it has not set in. In resulting trust, the rule of imprescriptibility may apply as long as trustee has not repudiated the trust. Once it is repudiated, it is converted to a constructive trust and subject to prescription. A resulting trust is repudiated if the followingrequisites concur: (1) the trustee has performed unequivocal acts of repudiation ; (2) ARAFAG • HABANA • JALAYAJAY

Such positive ats of repudiation have been made known to the cestui qui trust; (3) the evidence is clear and convincing. Thus until that point, respondent-spouses were not aware of the act of Emilia which would convey to them the idea that she was repudiating the resulting trust. The second requisite is therefore absent. Hence, prescription did not begin to run until the sale of the subject property, which is clearly an act of repudiation.

CHIAO LIONG TAN vs. CA FACTS: Petitioner Chiao Liong Tan claims to be the owner of a Isuzu Elf van, which he purchased in March, 1987. As owner thereof, petitioner says he has been in possession, enjoyment and utilization of the said motor vehicle until it was taken from him by his older brother, Tan Ban Yong. Petitioner relies principally on the fact that the Isuzu Elf van is registered in his name under Certificate of Registration No. 1501909. He claims in his testimony before the trial court that the said vehicle was purchased from Balintawak Isuzu Motor Center for a price of over P100,000.00; that he sent his brother to pay for the van and the receipt for payment was placed in his (petitioner's) name because it was his money that was used to pay for thevehicle; that he allowed his brother to use the van because the latter was working for his company, the CLT Industries; and that his brother later refused to return the van to him and appropriated the same for himself. On the other hand, private respondent testified that CLT Industries is a family business that was placed in petitioner's name because at that time he was then leaving for the United States and petitioner is the remaining Filipino in the family residing in the Philippines. When the family business needed a vehicle in 1987 for use in the delivery of machinery to its customers, he asked Page 137

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petitioner to look for a vehicle and gave him the amount of P5,000.00 to be deposited as down payment for an Isuzu Elf Van which would be available in about a month. After a month, he himself paid the whole price out of a loan of P140,000.00 which he obtained from his friend Tan Pit Sin. Inasmuch as the receipt for the downpayment was placed in the name of petitioner and since he was still on good terms with him, private respondent allowed the registration of the vehicle in petitioner's name. It was also their understanding that he would keep the van for himself because CLT Industries was not in a position to pay him. Hence, from the time of thepurchase, he had been in possession of the vehicle including the original registration papers thereof, but allowing petitioner from time to time to use the van for deliveries of machinery.

of registration of the motor vehicle was placed in the name of the petitioner although the price thereof was not paid by him but by private respondent. The principle that a trustee who puts a certificate of registration in his name cannot repudiate the trust by relying on the registration is one of the well-known limitations upon a title. A trust, which derives its strength from theconfidence one reposes on another especially between brothers, does not lose that character simply because of what appears in a legal document. WHEREFORE, the instant petition for review is hereby DENIED. GICANO VS GEGATO

FACTS: After hearing, the trial court found for private respondent. Finding no merit in the appeal, the respondent Court of Appeals affirmed the decision of the trial court. ISSUE: WON the Certificate of Registration of the subject motor vehicle is proof of ownership by the petitioner-appellant?

This case concerns a rather large tract of land situated in Hinigaran, Negros Occidental. The land, known as Lot 818, was originally owned by two co-owners in equal shares: (1) Maximo Juanico , married to Rosa Gegato, and (2) Matilde Geolingo , married to Dionisio Mongcal. Their coownership was so set out in their certificate of title. Maximo Juanico died on May 21, 1942, survived by his wife, the aforenamed Rosa Gegato, and three (3) minor children: Presentacion, Resurreccion, and Catalina.

HELD: A certificate of registration of a motor vehicle in one's name indeed creates a strong presumption of ownership. For all practical purposes, the person in whose favor it has been issued is virtually the owner thereof unless proved otherwise. In other words, such presumption is rebuttable by competent proof. The New Civil Code recognizes cases of implied trust other than those enumerated therein. Thus, although no specific provision could be cited to apply to the parties herein, it is undeniable that an implied trust was created when the certificate ARAFAG • HABANA • JALAYAJAY

The other co-owner, Matilde Geolingo, and her husband, Dionisio Mongcal, also died; and their only child, Loreto Mongcal, executed an affidavit adjudicating to herself, as sole heir, her mother's one-half (1/2) share in Lot 818. That share she sold on December 14, 1951 to Rosa Gicano. In virtue thereof, TCT of the original co-owners was cancelled and a new one was issued in the names of (1) Maximo Juanico , married to Rosa Gegato (1/2 share) and (2) Rosa Gicano , married to Gorgonio Geollegue (1/2 share). On August 23, 1952, a document was executed which gave rise to the controversy at bar. Page 138

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That document purported to be a Deed of Sale, or more properly, a deed of dacion en pago de deuda , intended to satisfy a debt of P2,333.33 of the late Maximo Juanico to Rosa Gicano by the conveyance of said Maximo Juanico's one-half (1/2) share in Lot 818. Twenty-three (23) years afterwards, or on February 13, 1976, Rosa Gegato and her daughters, Resurreccion and Catalina, brought an action in the Court of First Instance of Negros Occidental against Rosa Gicano and her husband, Gorgonio Geollegue, to compel the latter to reconvey Lot No. 818 to them and/or pay damages. Rosa Gegato and her daughters alleged that it had never been their intention to transfer the entire one-half (1/2) share in Lot No. 818 to Rosa Gicano in payment of Maximo Juanico's debt in the sum of P2,333.33, but only one-third of the share of the minors in said undivided half of the property; that they discovered the fraud perpetrated on them only in 1975, when they hired a surveyor to partition the property and the latter informed them that title to Lot No. 818 had long since issued solely in the name of Nenita Geollegue, who had purchased it from her mother, Rosa Gegato Geollegue and had in due course obtained title in her name; and that on October 17, 1974, said Nenita Geollegue had mortgaged the lot to the Philippine Commercial and Industrial Bank as security for a loan. Rosa Gicano and her co-defendants filed a motion to dismiss the complaint alleging as grounds therefor, plaintiffs' lack of cause of action, laches, estoppel, and prescription. The Trial Court promulgated an Order dismissing the complaint. The Trial Court's Order was however reversed by the Court of Appeals and the case was remanded with instructions that a full dress trial on the merits be conducted.

ISSUE: WON dismissal of the case was proper? ARAFAG • HABANA • JALAYAJAY

HELD: In the case at bar, Rosa Gegato and her minor children by her deceased husband, Maximo Juanico (said children being represented by their judicial guardian, Ramundo Pundon) had executed a deed of sale and acknowledged it before a notary public which, upon its face, transferred the entirety of Maximo Juanico's right, share and interest in Lot 181 to Rosa Gicano. Now, if it be true that they were deceived into executing that deed of sale by Rosa Gicano, who taking advantage of their ignorance had made them believe that the deed conveyed only 1/3 of the children's share in their inheritance from their father, they certainly had the right to sue Rosa Gicano, and after presenting evidence of the fraud perpetrated upon them, recover so much of the property as they had never intended to transfer, and recover the damages thereby suffered by them. But they certainly did not have all the time in the world to that suit. They had to do it within ten (10) years from the issuance to Rosa Gicano of title to the property on the strength of the supposedly fraudulent deed of sale. They did not file their action within this statutory period. They filed it only after twenty-three (23) years. When filed, their action had already been by prescription. They had slept on their rights. Time eroded their right of action and ultimately erased it, as a sand castle on a shore is slowly and inexorably obliterated by the rising tide. WHEREFORE, the Decision of the Court of Appeals is REVERSED. SPS. CRUZ VS. SPS. FERNANDO December 9, 2005 FACTS: Luis V. Cruz and Aida Cruz (petitioners) are occupants of the front portion of a property located in Bulacan. Spouses Alejandro Fernando, Sr. and Rita Fernando (respondents) filed before the RTC a complaint for accion publiciana against petitioners, demanding the latter to vacate the Page 139

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premises and to pay the amount of P500.00 a month as reasonable rental for the use thereof. Respondents alleged in their complaint that: (1) they are owners of the property, having bought the same from the spouses Clodualdo and Teresita Glorioso (Gloriosos); (2) prior to their acquisition of the property, the Gloriosos offered to sell to petitioners the rear portion of the property but the transaction did not materialize due to petitioners’ failure to exercise their option; (3) the offer to sell is embodied in a Kasunduan; (4) due to petitioners’ failure to buy the allotted portion, respondents bought the whole property from the Gloriosos; and (5) despite repeated demands, petitioners refused to vacate the property. The RTC ruled in favor of the spouses Fernando.

ISSUE: Whether the (Kasunduan) between the parties was a “mere offer to sell,” and not a perfected “Contract of Purchase and Sale”?

HELD: Under Article 1458 of the Civil Code, a contract of sale is a contract by which one of the contracting parties obligates himself to transfer the ownership and to deliver a determinate thing, and the other to pay therefore a price certain in money or its equivalent. Article 1475 of the Code further provides that the contract of sale is perfected at the moment there is 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 form of contracts. In a contract of sale, the title to the property passes to the vendee upon the delivery of ARAFAG • HABANA • JALAYAJAY

the thing sold, as distinguished from a contract to sell where ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. Otherwise stated, in a contract of sale, the vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor until full payment of the price. In the latter contract, payment of the price is a positive suspensive condition, failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective. The Kasunduan provides for the following terms and conditions: (a) that the Gloriosos agreed to sell to petitioners a portion of the property with an area of 213 meters at the price of P40.00 per square meter; (b) that in the title that will be caused to be issued, the aggregate area is 223 square meters with 10 meters thereof serving as right of way; (c) that the right of way shall have a width of 1.75 meters from Lopez Jaena road going towards the back of the lot where petitioners will build their house on the portion of the lot that they will buy; (d) that the expenses for the survey and for the issuance of the title will be divided between the parties with each party giving an amount of no less than P400.00; and (e) that petitioners will definitely relocate their house to the portion they bought or will buy by January 31, 1984. The foregoing terms and conditions show that it is a contract to sell and not a contract of sale. For one, the conspicuous absence of a definite manner of payment of the purchase price in the agreement confirms the conclusion that it is a contract to sell. This is because the manner of payment of the purchase price is an essential element before a valid and binding contract of sale can exist. Although the Civil Code does not expressly state that the minds of the parties must also meet on the terms or manner of payment of the price, the same is needed, otherwise there is no sale. As held in Toyota Shaw, Inc. vs. Court of Appeals, a definite agreement on the manner of Page 140

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payment of the price is an essential element in the formation of a binding and enforceable contract of sale. SPOUSES PINGOL VS. CA and HEIRS OF FRANCISCO DONASCO 226 SCRA 118

FACTS: In 1969, Pingol, the owner of a lot (Lot No. 3223) in Caloocan City, executed a DEED OF ABSOLUTE SALE OF ONE-HALF OF AN UNDIVIDED PORTION OF [his] PARCEL OF LAND in favor of Donasco (private respondent), payable in 6 years. In 1984, Donasco died and was only able to pay P8,369 plus P2,000 downpayment, leaving a balance of P10,161. The heirs of Donasco remained in possession of such lot and offered to settle the balance with Pingol. However, Pingol refused to accept the offer and demanded a larger amount. Thus, the heirs of Donasco filed an action for specific performance (with Prayer for Writ of Prelim. Injunction, because Pingol were encroaching upon Donasco’s lot). Pingol averred that the sale and transfer of title was conditional upon the full payment of Donasco (contract to sell, not contract of sale). With Donasco’s breach of the contract in 1976 and death in 1984, the sale was deemed cancelled, and the heirs’ continuous occupancy was only being tolerated by Pingol.

ISSUES: (1) Whether or not Pingol can refuse to transfer title to Donasco? (2) Whether or not Donasco has the right to quiet title?

HELD:

sell. The acts of the parties, contemporaneous and subsequent to the contract, clearly show that the parties intended an absolute deed of sale; the ownership of the lot was transferred to the Donasco upon its actual (upon Donasco’s possession and construction of the house) and constructive delivery (upon execution of the contract). The delivery of the lot divested Pingol of his ownership and he cannot recover the title unless the contract is resolved or rescinded under Art. 1592 of NCC. It states that the vendee may pay even after the expiration of the period stipulated as long as no demand for rescission has been made upon him either judicially or by notarial act. Pingol neither did so. Hence, Donasco has equitable title over the property. (2) Although the complaint filed by the Donascos was an action for specific performance, it was actually an action to quiet title. A cloud has been cast on the title, since despite the fact that the title had been transferred to them by the execution of the deed of sale and the delivery of the object of the contract, Pingol adamantly refused to accept the payment by Donascos and insisted that they no longer had the obligation to transfer the title. Donasco, who had made partial payments and improvements upon the property, is entitled to bring suit to clear his title against Pingol who refused to transfer title to him. It is not necessary that Donasco should have an absolute title, an equitable title being sufficient to clothe him with personality to bring an action to quiet title. Prescription cannot also be invoked against the Donascos because an action to quiet title to property in ONE’s POSSESSION is imprescriptible. FALLO: Decision appealed from was AFFIRMED by SC. VDA. DE PORTUGAL VS. IAC and HUGO PORTUGAL G.R. No. 73564 March 25, 1988

(1) No. The contract between Pingol and Donasco is a contract of sale and not a contract to ARAFAG • HABANA • JALAYAJAY

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FACTS: Petitioner Cornelia Clanor and her late husband Pascual Portugal were the owners of the parcels of land located in Cavite. Sometime in 1967, Private respond Hugo Portugal, a son of the spouses, borrowed from his mother, Cornelia, the Certificates of title on pretext that he had to use them in securing a loan that he was negotiating. Cornelia delivered the two titles to her son. When Pascual Portugal died in 1974, the other heirs for purposes of executing an extra judicial partition of the properties wished to have all the properties of the spouses collated. Cornelia then asked Hugo for the return of the titles however, Hugo manifested that the said titles no longer exist that the titles are already transferred and registered in his brother’s name—Emilio Portugal. This falsification was triggered by a deed of sale by which the spouses Pascual Portugal and Cornelia Clanor purportedly sold for P8,000.00 the two parcels of land adverted to earlier to their two sons, Hugo and Emiliano. Confronted by his mother of this fraud, Emiliano denied any participation. And to show his good faith, Emiliano caused the reconveyance of the other and which was conveyed to him in the void deed of sale. Hugo, on the other hand, refused to make the necessary restitution thus compelling the petitioners, his mother and his other brothers and sisters, to institute an action for the annulment of the controversial deed of sale and the reconveyance of the title. RTC ruled in favor of Cornelia and declares the deeds inoperative. Appellate court reversed said decision.

ISSUE: Whether the sale is void ab initio?

HELD: ARAFAG • HABANA • JALAYAJAY

We find the petition meritorious. The case at bar is not purely an action for reconveyance based on an implied or constructive trust. Neither is it one for the annullment of a fraudulent contract. A closer scrutiny of the records of the case readily supports a finding that fraud and mistake are not the only vices present in the assailed contract of sale as held by the trial court. More than these, the alleged contract of sale is vitiated by the total absence of a valid cause or consideration. The petitioners in their complaint, assert that they, particularly Cornelia, never knew of the existence of the questioned deed of sale. They claim that they came to know of the supposed sale only after the private respondent, upon their repeated entreaties to produce and return the owner's duplicate copy of the transfer certificate of title covering the two parcels of land, showed to them the controversial deed. And their claim was immeasurably bolstered when the private respondent's co-defendant below, his brother Emiliano Portugal, who was allegedly his co-vendee in the transaction, disclaimed any knowledge or participation therein. If this is so, and this is not contradicted by the decisions of the courts below, the inevitable implication of the allegations is that contrary to the recitals found in the assailed deed, no consideration was ever paid at all by the private respondent. Applying the provisions of Articles 1350, 1352, and 1409 of the new Civil Code in relation to the indispensable requisite of a valid cause or consideration in any contract, and what constitutes a void or inexistent contract, we rule that the disputed deed of sale is void ab initio or inexistent, not merely voidable. And it is provided in Article 1410 of the Civil Code, that '(T)he action or defense for the declaration of the inexistence of a contract does not prescribe. But even if the action of the petitioners is for reconveyance of the parcel of land based on an implied or constructive trust, still it has been seasonably filed. For as heretofore stated, it is now settled that actions of this nature prescribe in ten years, the point of reference being the date of registration of the deed or the date of the issuance of the certificate of titIe over the property. In this Page 142

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case, the petitioner commenced the instant action for reconveyance in the trial court on October 26, 1976, or less than ten years from January 23, 1967 when the deed of sale was registered with the Register of Deeds. Clearly, even on this basis alone, the present action has not yet prescribed.

conveyance. The Court of Appeals certified the case at bar to the Supreme Court for it involves a question purely of law.

FALLO: Petition was partly granted. Both the trial and appellate decisions, reversed.

Was there a contract to buy and sell between the parties or only a unilateral promise to sell?

ISSUE:

SANCHEZ VS. RIGOS 45 SCRA 368 June 1972 HELD: FACTS: In an instrument entitled "Option to Purchase," executed on April 3, 1961, defendantappellant Severina Rigos "agreed, promised and committed ... to sell" to plaintiff-appellee Nicolas Sanchez for the sum of P1,510.00 within two (2) years from said date, a parcel of land situated in the barrios of Abar and Sibot, San Jose, Nueva Ecija. It was agreed that said option shall be deemed "terminated and elapsed," if “Sanchez shall fail to exercise his right to buy the property" within the stipulated period. On March 12, 1963, Sanchez deposited the sum of Pl,510.00 with the CFI of Nueva Ecija and filed an action for specific performance and damages against Rigos for the latter’s refusal to accept several tenders of payment that Sanchez made to purchase the subject land. Defendant Rigos contended that the contract between them was only “a unilateral promise to sell, and the same being unsupported by any valuable consideration, by force of the New Civil Code, is null and void." Plaintiff Sanchez, on the other hand, alleged in his compliant that, by virtue of the option under consideration, "defendant agreed and committed to sell" and "the plaintiff agreed and committed to buy" the land described in the option. The lower court rendered judgment in favor of Sanchez and ordered Rigos to accept the sum Sanchez judicially consigned, and to execute in his favor the requisite deed of ARAFAG • HABANA • JALAYAJAY

The Supreme Court affirmed the lower court’s decision. The instrument executed in 1961 is not a "contract to buy and sell," but merely granted plaintiff an "option" to buy, as indicated by its own title "Option to Purchase." The option did not impose upon plaintiff Sanchez the obligation to purchase defendant Rigos' property. Rigos "agreed, promised and committed" herself to sell the land to Sanchez for P1,510.00, but there is nothing in the contract to indicate that her aforementioned agreement, promise and undertaking is supported by a consideration "distinct from the price" stipulated for the sale of the land. The lower court relied upon Article 1354 of the Civil Code when it presumed the existence of said consideration, but the said Article only applies to contracts in general. However, it is not Article 1354 but the Article 1479 of the same Code which is controlling in the case at bar because the latter’s 2nd paragraph refers to "sales" in particular, and, more specifically, to "an accepted unilateral promise to buy or to sell." Since there may be no valid contract without a cause or consideration, the promisor is not bound by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results in a perfected contract of sale. Upon mature deliberation, the Court reiterates the doctrine laid down in the Atkins case and deemed abandoned or modified the view adhered to in the Southwestern Company case. Page 143

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Whether the Contract of Lease with Option to purchase should be upheld? ENRICO S. EULOGIO VS. SPOUSES CLEMENTE APELES G.R. No. 167884 January 20, 2009

FACTS: The real property in question consists of a house and lot situated at No. 87 Timog Avenue, Quezon City (subject property). In 1979, the spouses Apeles leased the subject property to Arturo Eulogio (Arturo), Enrico’s father. Upon Arturo’s death, his son Enrico succeeded as lessor of the subject property. Enrico used the subject property as his residence and place of business. Enrico was engaged in the business of buying and selling imported cars. On 6 January 1987, the spouses Apeles and Enrico allegedly entered into a Contract of Lease with Option to Purchase involving the subject property. According to the said lease contract, Luz Apeles was authorized to enter into the same as the attorney-in-fact of her husband, Clemente, pursuant to a Special Power of Attorney executed by the latter in favor of the former on 24 January 1979. The contract purportedly afforded Enrico, before the expiration of the three-year lease period, the option to purchase the subject property for a price not exceeding P1.5 Million. Before the expiration of the three-year lease period provided in the lease contract, Enrico exercised his option to purchase the subject property by communicating verbally and in writing to Luz his willingness to pay the agreed purchase price, but the spouses Apeles supposedly ignored Enrico’s manifestation. The RTC rendered a Decision in favor of Enrico. On appeal, the CA reversed the rtc decision.

ISSUE: ARAFAG • HABANA • JALAYAJAY

HELD: An option is a contract by which the owner of the property agrees with another person that the latter shall have the right to buy the former’s property at a fixed price within a certain time. It is a condition offered or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with certain terms and conditions; or which gives to the owner of the property the right to sell or demand a sale. An option is not of itself a purchase, but merely secures the privilege to buy. It is not a sale of property but a sale of the right to purchase. It is simply a contract by which the owner of the property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. He does not sell his land; he does not then agree to sell it; but he does sell something, i.e., the right or privilege to buy at the election or option of the other party. Its distinguishing characteristic is that it imposes no binding obligation on the person holding the option, aside from the consideration for the offer. It is also sometimes called an “unaccepted offer” and is sanctioned by Article 1479 of the Civil Code: Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. The second paragraph of Article 1479 provides for the definition and consequent rights and obligations under an option contract. For an Page 144

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option contract to be valid and enforceable against the promissor, there must be a separate and distinct consideration that supports it. We have painstakingly examined the Contract of Lease with Option to Purchase, as well as the pleadings submitted by the parties, and their testimonies in open court, for any direct evidence or evidence aliunde to prove the existence of consideration for the option contract, but we have found none. The only consideration agreed upon by the parties in the said Contract is the supposed purchase price for the subject property in the amount not exceeding P1.5 Million, which could not be deemed to be the same consideration for the option contract since the law and jurisprudence explicitly dictate that for the option contract to be valid, it must be supported by a consideration separate and distinct from the price. In the present case, it is indubitable that no consideration was given by Enrico to the spouses Apeles for the option contract. The absence of monetary or any material consideration keeps this Court from enforcing the rights of the parties under said option contract. FALLO: Petition is DENIED. SPOUSES ROSARIO VS. PCI LEASING AND FINANCE, INC., G.R. No. 139233, November 11, 2005

FACTS: On April 18, 1994, the spouses Rosario purchased an Isuzu Elf Pick-up Utility vehicle from CarMerchants, Inc. The transaction was covered by a Purchase Agreement whereby the spouses undertook to make a downpayment of P190,000.00 of the total purchase price of P380,000.00. The spouses then applied for a loan with PCI Leasing to pay for the balance of P190,000.00.

ARAFAG • HABANA • JALAYAJAY

Upon approval of their loan application, the spouses Rosario executed a promisory note and undertook to pay the loan on monthly installment. To secure the payment of the loan, they executed a chattel mortgage in favor of PCI over the Isuzu pickup. The motor vehicle was then delivered to the spouses and was registered in their names. Despite demands, the spouses Rosario failed to pay the amortizations on their loan prompting PCI to file a complaint for “Sum of Money with Damages with a Prayer for a Writ of Replevin” which was granted by the court. In their Answer to the complaint, the spouses Rosario alleged that the chattel mortgage they executed in favor of PCI Leasing covering the motor vehicle was in effect a contract of sale of personal property, payable in installments to be governed by Article 1484[13] of the New Civil Code of the Philippines. They further alleged that since PCI Leasing opted to foreclose the chattel mortgage, it was estopped from collecting the balance of their account under the promissory note and chattel mortgage. RTC rendered judgment in favor of PCI. They went on appeal but the CA dismissed the same.

ISSUE: 1. Whether PCI (as an assignee of Car Merchnats, Inc.) is proscribe from collecting the balance of the purchase price of the vehicle? 2. Whether the provisions of Art.1484 of the CC applies to the case at bar? HELD: There is no factual basis for the petitioners’ claim that CarMerchants, Inc. had assigned its rights to collect the balance of the purchase price to the respondent. The fact of the matter is that the petitioners admitted in their petition at bench Page 145

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that they were declared in default and failed to prove such claim. The evidence on record clearly shows that the petitioners secured a loan from the respondent to pay the P190,000.00 balance to CarMerchants, Inc., and even executed a promissory note evidencing their loan in favor of the respondent. The petitioners forthwith executed a chattel mortgage in favor of the respondent over the vehicle as security for the payment of their loan and the interests thereon. It bears stressing that, under Article 1625 of the New Civil Code, an assignment of credit, right or action must appear in a public document to bind third persons. There is no evidence on record to prove that Car Merchants, Inc. executed such a deed, assigning its right to collect the balance of the purchase price of the vehicle from the petitioners; hence, Article 1484 of the New Civil Code does not apply in this case. Even a cursory reading of the respondent’s complaint in the RTC will readily show that the respondent did not allege that it was the assignee of CarMerchants, Inc. insofar as the right to collect the balance of the purchase price of the vehicle from the petitioners was concerned. Neither did the respondent adduce any evidence that it was such assignee. The respondent sued the petitioners for sum of money with prayer for a writ of replevin based on the promissory note and the chattel mortgage executed by the petitioners in its favor. Even assuming that the respondent is the assignee of CarMerchants, Inc. and that Article 1484 of the New Civil Code is applicable, it is not proscribed from suing the petitioners for their unpaid balance. The fact of the matter is that the respondent did not foreclose the chattel mortgage, but opted to sue the petitioners for the balance of their account under the promissory note, with a plea for a writ of replevin. By securing a writ of replevin, the respondent did not thereby foreclose the chattel mortgage.

ARAFAG • HABANA • JALAYAJAY

FALLO: Petition PARTIALLY GRANTED. CA decision AFFIRMED with modifications. PAGTALUNAN VS. VDA. DE MANZANO G.R. No. 147695 September 13, 2007

FACTS: Patricio Pagtalunan entered into a Contract to Sell with private respondent Manzano over a house and lot for P17K, to be paid in installments. P1500 as downpayment upon execution of the Contract P150 as equal monthly installments until the full price is paid. The contract provides that in case of default in the payment of any of the installments for 90 days after its due date, the contract would be automatically rescinded without need of judicial declaration, and that all payments made and all improvements done on the premises by respondent would be considered as rentals for the use and occupation of the property or payment for damages suffered, and respondent was obliged to peacefully vacate the premises and deliver the possession thereof to the vendor. Manzano paid only P12,950. She allegedly stopped paying after December 1979 without any justification or explanation. Pagtalunan asserted that when respondent ceased paying her installments, her status of buyer was automatically transformed to that of a lessee. Therefore, she continued to possess the property by mere tolerance of Patricio and, subsequently, of petitioner. Pagtalunan issued a demand letter for Manzano to vacate the premises of the property.

ISSUE: Whether Pagtalunan may validly rescind the contract to sell on account that the Manzano stopped paying the installments? Page 146

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Partition approved by the Court on 12 January 1965. HELD: NO, the rescission must be notarial. The agreement could not be automatically rescinded since there was delivery to the buyer. A judicial determination of rescission must be secured by petitioner as a condition precedent to convert the possession de facto of respondent from lawful to unlawful. R.A No. 6552, which governs sales of real estate on installment, is applicable in the resolution of this case. Now, it is incumbent upon petitioner to prove that the Contract to Sell had been cancelled in accordance with R.A. No. 6552. R.A. No. 6552, which requires a notarial act of rescission and the refund to the buyer of the full payment of the cash surrender value of the payments on the property. There being no valid cancellation of the Contract to Sell, Manzano has the right to continue occupying the property subject of the Contract to Sell and the dismissal of the unlawful detainer case was proper. But considering that the Contract to Sell was not cancelled by the vendor validly in accordance with R.A. No. 6552 and after 22 years of continuous possession of the property, it is only right and just to allow respondent to pay her arrears and settle the balance of the purchase price, subject to interests. FORNILDA VS. RTC G.R. No. 72306 October 6, 1988

FACTS: The Controverted Parcels of land were part of the estate of the late JulioM. Catolos subject of intestate estate proceedings, wherein Respondent Amonoy acted as counsel for some of the heirs from1959 until 1968 by his own admission. These properties were adjudicated to Alfonso Fornilda and Asuncion M. Pasamba in the Project of ARAFAG • HABANA • JALAYAJAY

On 20 January 1965, or only eight (8) days thereafter, and while he was still intervening in the case as counsel, these properties were mortgaged by petitioners' predecessor-in-interest to Respondent Amonoy to secure payment of the latter's attorney’s fees in the amount of P27,600.00. Since the mortgage indebtedness was not paid, Respondent Amonoy instituted an action for judicial foreclosure of mortgage on 21 January 1970. The mortgage was subsequently ordered foreclosed and auction sale followed where Respondent Amonoy was the sole bidder forP23,600.00. Being short of the mortgage indebtedness, he applied for and further obtained a deficiency judgment. ISSUE: Whether the mortgage constituted on the Controverted Parcels in favor of Respondent Amonoy comes within the scope of the prohibition in Article 1491 of the Civil Code? HELD: YES. The pertinent portions of the said Articles read: Art. 1491.The following persons cannot acquire by purchase even at a public or judicial or auction, either in person or through the mediation of another: xxx xxx xxx (5) Justices, judges, prosecuting attorneys, ... the property and rights in litigation or levied upon on execution before the court within whose junction or territory they exercise their respective functions; this prohibition includes the act of acquitting by assignment and shall apply to lawyers with respect to the property and Page 147

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rights which may be the object of any litigation in which they may take part by virtue of their profession

Under the afore quoted provision, a lawyer is prohibited from acquiring either by purchase or assignment the property or rights involved which are the object of the litigation in which they intervene by virtue of their profession. The prohibition on purchase is all embracing to include not only sales to private individuals but also public or judicial sales at the time the mortgage was executed, therefore, the relationship of lawyer and client still existed, the very relation of trust and confidence sought to be protected by the prohibition, when a lawyer occupies a vantage position to press upon ordictate terms to a harassed client. From the time of the execution of the mortgage in his favor, Respondent Amonoy had already asserted a title adverse to his clients' interests at a time when the relationship of lawyer and client had not yet been severed. Considering that the mortgage contract, entered into in contravention of Article 1491 of the Civil Code is expressly prohibited by law, the same must be held in existent and void ab initio. EDUARDO B. OLAGUER VS. EMILIO PURUGGANAN G.R. No. 158907

event that petitioner was arrested, they would support the petitioner’s family by the continued payment of his salary. Petitioner also executed a Special Power of Attorney (SPA), on 26 May 1979, appointing as his attorneys-in-fact Locsin, Joaquin and Hofileña for the purpose of selling or transferring petitioner’s shares of stock with Businessday On 24 December 1979, petitioner was arrested by the Marcos military by virtue of an Arrest, Search and Seizure Order and detained for allegedly committing arson. During the petitioner’s detention, respondent Locsin ordered fellow respondent Purugganan to cancel the petitioner’s shares in the books of the corporation and to transfer them to respondent Locsin’s name. Respondent Locsin contended that petitioner approached him and requested him to sell, and, if necessary, buy petitioner’s shares of stock in Businessday, to assure support for petitioner’s family in the event that something should happen to him, particularly if he was jailed, exiled or forced to go underground. At the time petitioner was employed with Businessday, respondent Locsin was unaware that petitioner was part of a group, Light-a-Fire Movement, which actively sought the overthrow of the Marcos government through an armed struggle. He denied that he made any arrangements to continue paying the petitioner’s salary in the event of the latter’s imprisonment

FACTS: There are two versions of the story: Petitioner Eduardo B. Olaguer alleges that he was the owner of 60,000 shares of stock of Businessday Corporation (Businessday) . At the time he was employed with the corporation, petitioner with respondents was active in the political opposition against the Marcos dictatorship. Anticipating the possibility that petitioner would be arrested and detained by the Marcos military, Locsin, Joaquin, and Hector Holifeña had an unwritten agreement that, in the ARAFAG • HABANA • JALAYAJAY

The trial court in its Decision, dated 26 July 1995, dismissed the Complaint filed by the petitioner. It ruled that the sale of shares between petitioner and respondent Locsin was valid. The trial court concluded that petitioner had intended to sell the shares of stock to anyone, including respondent Locsin, in order to provide for the needs of his family should he be jailed or forced to go underground; and that the SPA drafted by the petitioner empowered respondent Locsin, and two other agents, to sell the shares for such price and under such terms and conditions that the agents may deem proper. It further found that petitioner Page 148

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consented to have respondent Locsin buy the shares himself. On appeal, the Court of Appeals affirmed the Decision of the trial court that there was a perfected contract of sale.

ISSUE: Whether there was a PERFECTED CONTRACT OF SALE BETWEEN PETITIONER AND MR. LOCSIN OVER THE SHARES?

HELD: YES. Petitioner alleges that the purported sale between himself and respondent Locsin of the disputed shares of stock is void since it contravenes Article 1491 of the Civil Code, which provides that: ART. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another: xxxx (2) Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the principal has been given; x x x. It is, indeed, a familiar and universally recognized doctrine that a person who undertakes to act as agent for another cannot be permitted to deal in the agency matter on his own account and for his own benefit without the consent of his principal, freely given, with full knowledge of every detail known to the agent which might affect the transaction. The prohibition against agents purchasing property in their hands for sale or management is, however, clearly, not absolute. It does not apply where the principal consents to the sale of the property in the hands of the agent or administrator. ARAFAG • HABANA • JALAYAJAY

In the present case, the parties have conflicting allegations. While respondent Locsin averred that petitioner had permitted him to purchase petitioner’s shares, petitioner vehemently denies having known of the transaction. However, records show that petitioner’s position is less credible than that taken by respondent Locsin given petitioner’s contemporaneous and subsequent acts. In 1980, when Fernando returned a stock certificate she borrowed from the petitioner, it was marked “cancelled.” Although the petitioner alleged that he was furious when he saw the word cancelled, he had not demanded the issuance of a new certificate in his name. Instead of having been put on his guard, petitioner remained silent over this obvious red flag and continued receiving, through his wife, payments which totalled to the aggregate amount of the shares of stock valued at par. When the payments stopped, no demand was made by either petitioner or his wife for further payments. From the foregoing, it is clear that petitioner knew of the transaction, agreed to the purchase price of P600,000.00 for the shares of stock, and had in fact facilitated the implementation of the terms of the payment by providing respondent Locsin, through petitioner’s wife, with the information on the bank accounts of his in-laws. Petitioner’s wife and his son even provided receipts for the payments that were made to them by respondent Locsin,[43] a practice that bespeaks of an onerous transaction and not an act of gratuity.

FALLO: Petition was DENIED. NORKIS DISTRIBUTORS INC. VS. CA and NEPALES 193 SCRA 694 February 1991

FACTS: On September 20, 1979, private respondent Alberto Nepales bought from the Norkis Distributors, Inc. (Norkis) in its Bacolod branch a brand new Yamaha Wonderbike motorcycle Model Page 149

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YL2DX with Engine No.L2-329401K Frame No.NL20329401, color maroon, which was then on display in the Norkis showroom. The Branch Manager Avelino Labajo agreed to accept the P7,500.00 price payable by means of a Letter of Guaranty from the Development Bank of the Philippines (DBP), Kabankalan. Hence, credit was extended to Nepales, and as security for the loan, he executed a chattel mortgage on the motorcycle in favor of DBP. Labajo issued the Norkis Sales Invoice No. 0120 perfecting the contract of sale, and Nepales signed the same to conform to the terms of the sale, while the unit remained in Norkis' possession. On November 6, 1979, it was registered under Alberto Nepales’ name in the Land Transportation Commission. On January 22, 1980, the motorcycle was delivered to a certain Julian Nepales who was allegedly the agent of Alberto Nepales but the latter denies it. The record shows, however, that Alberto and Julian Nepales presented the unit to DBP's Appraiser-Investigator Ernesto Arriesta at the DBP offices in Kabankalan, Negros Occidental Branch. On February 3, 1980, the motorcycle met an accident at Binalbagan, Negros Occidental while being driven by a certain Zacarias Payba. The unit was a total wreck, was returned, and stored inside Norkis' warehouse. On March 20, 1980, DBP released the proceeds of private respondent's motorcycle loan to Norkis in the total sum of P7,500. As the price of the motorcycle later increased to P7,828 in March, 1980, Nepales paid the difference of P328 and demanded the delivery of the motorcycle. Norkis failed to deliver the unit, and Nepales filed an action for specific performance with damages in the RTC of Himamaylan, Negros Occidental. Norkis answered that the motorcycle had already been delivered to private respondent before the accident, hence, he should bear the risk of loss or damage as owner of the unit. The lower court ruled in favor of Nepales, and the Court of Appeals affirmed the decision but deleted the award of damages "in the amount of P50.00 a day from February 3, 1980 until payment of the present ARAFAG • HABANA • JALAYAJAY

value of the damaged vehicle." Norkis concedes that there was no "actual" delivery of the vehicle, but insists that there was constructive delivery of the unit upon the issuance of the sales invoice, upon the registration of the unit in Nepales’ name, and upon the issuance of the official receipt.

ISSUE: Who should bear the risk of loss? HELD: Affirming the decision of the Court of Appeals, the Supreme Court reiterated that Article 1496 of the Civil Code which provides that "in the absence of an express assumption of risk by the buyer, the things sold remain at seller's risk until the ownership thereof is transferred to the buyer," is applicable in the case at bar for there was neither an actual nor constructive delivery of the thing sold. The Court of Appeals correctly ruled that the purpose of the execution of the sales invoice dated September 20, 1979 and the registration of the vehicle in the name of Alberto Nepales with the Land Registration Commission was not to transfer the ownership and dominion over the motorcycle to him, but only to comply with the requirements of the DBP for processing private respondent's motorcycle loan. The circumstances in the case itself more than amply rebut the disputable presumption of delivery upon which Norkis anchors its defense to Nepales' action. GAISANO VS. INSURANCE June 8, 2006

FACTS: IMC and Levi Strauss (Phils.) Inc. (LSPI) separately obtained from respondent fire insurance policies with book debt endorsements. Page 150

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The insurance policies provide for coverage on "book debts in connection with ready-made clothing materials which have been sold or delivered to various customers and dealers of the Insured anywhere in the Philippines."

Insurance the P 2 million and the P 500,000 the latter paid to IMC and Levi Strauss.

The policies defined book debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days after the time of the loss covered under this Policy." The policies also provide for the following conditions:

ISSUE/S: 1. WON the CA erred in construing a fire insurance policy on book debts as one covering the unpaid accounts of IMC and LSPI since such insurance applies to loss of the ready-made clothing materials sold and delivered to petitioner

1. Warranted that the Company shall not be liable for any unpaid account in respect of the merchandise sold and delivered by the Insured which are outstanding at the date of loss for a period in excess of six (6) months from the date of the covering invoice or actual delivery of the merchandise whichever shall first occur. 2. Warranted that the Insured shall submit to the Company within twelve (12) days after the close of every calendar month all amount shown in their books of accounts as unpaid and thus become receivable item from their customers and dealers. Gaisano is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, was consumed by fire. Included in the items lost or destroyed in the fire were stocks of ready-made clothing materials sold and delivered by IMC and LSPI. Insurance of America filed a complaint for damages against Gaisano. It alleges that IMC and LSPI were paid for their claims and that the unpaid accounts of petitioner on the sale and delivery of ready-made clothing materials with IMC was P2,119,205.00 while with LSPI it was P535,613.00. The RTC rendered its decision dismissing Insurance's complaint. It held that the fire was purely accidental; that the cause of the fire was not attributable to the negligence of the petitioner. Also, it said that IMC and LSPI retained ownership of the delivered goods and must bear the loss. The CA rendered its decision and set aside the decision of the RTC. It ordered Gaisano to pay ARAFAG • HABANA • JALAYAJAY

Hence this petition.

2. WON IMC bears the risk of loss because it expressly reserved ownership of the goods by stipulating in the sales invoices that "[i]t is further agreed that merely for purpose of securing the payment of the purchase price the above described merchandise remains the property of the vendor until the purchase price thereof is fully paid." 3. WON petitioner is liable for the unpaid accounts 4. WON it has been established that petitioner has outstanding accounts with IMC and LSPI. HELD: 1. NO. Nowhere is it provided in the questioned insurance policies that the subject of the insurance is the goods sold and delivered to the customers and dealers of the insured. Thus, what were insured against were the accounts of IMC and LSPI with petitioner which remained unpaid 45 days after the loss through fire, and not the loss or destruction of the goods delivered. 2. YES. The present case clearly falls under paragraph (1), Article 1504 of the Civil Code: ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but Page 151

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when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or not, except that: (1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such delivery Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is borne by the buyer. Petitioner bears the risk of loss of the goods delivered. IMC and LSPI had an insurable interest until full payment of the value of the delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for consideration of who bears the risk of loss, in property insurance, one's interest is not determined by concept of title, but whether insured has substantial economic interest in the property. Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured." Parenthetically, under Section 14 of the same Code, an insurable interest in property may consist in: (a) an existing interest; (b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises. Anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction. Indeed, a vendor or seller retains an insurable interest in the property sold so long as he has any interest therein, in other words, so long as he would suffer by its destruction, as where he has a vendor's lien. In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in their ARAFAG • HABANA • JALAYAJAY

Books of Account 45 days after the time of the loss covered by the policies. 3. YES. Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 117432 of the Civil Code is misplaced. As held earlier, petitioner bears the loss under Article 1504 (1) of the Civil Code. Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire. Accordingly, petitioner's obligation is for the payment of money. As correctly stated by the CA, where the obligation consists in the payment of money, the failure of the debtor to make the payment even by reason of a fortuitous event shall not relieve him of his liability. The rationale for this is that the rule that an obligor should be held exempt from liability when the loss occurs thru a fortuitous event only holds true when the obligation consists in the delivery of a determinate thing and there is no stipulation holding him liable even in case of fortuitous event. It does not apply when the obligation is pecuniary in nature. Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation." This rule is based on the principle that the genus of a thing can never perish. An obligation to pay money is generic; therefore, it is not excused by fortuitous loss of any specific property of the debtor. 4. YES. With respect to IMC, the respondent has adequately established its claim. The P 3 m claim has been proven. The subrogation receipt, by itself, is sufficient to establish not only the relationship of respondent as insurer and IMC as the insured, but also the amount paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the insurance claim Respondent's action against petitioner is squarely sanctioned by Article 2207 of the Civil Code which provides: Page 152

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Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. There was no evidence that respondent has been subrogated to any right which LSPI may have against petitioner. Failure to substantiate the claim of subrogation is fatal to petitioner's case for recovery of P535,613.00. LAWYERS COOPERATIVE PUBLISHING VS. PERFECTO April 30, 1965

FACTS:

This unfortunate event was immediately reported by Tabora to the company in a letter he sent on May 20, 1955. On May 23, the company replied and as a token of goodwill it sent to Tabora free of charge volumes 75, 76, 77 and 78 of the Philippine Reports. As Tabora failed to pay he monthly installments agreed upon on the balance of the purchase price notwithstanding the long time that had elapsed, the company demanded payment of the installments due, and having failed, to pay the same, it commenced the present action before the CFI of Manila for the recovery of the balance of the obligation. Defendant, in his answer, pleaded force majeure as a defense. He alleged that the books bought from the plaintiff were burned during the fire that broke out in Naga City on May 15, 1955, and since the loss was due to force majeure he cannot be held responsible for the loss.

Perfecto A. Tabora(buyer) bought from the Lawyers Cooperative Publishing Company(seller) one complete set of American Jurisprudence consisting of 48volumes with 1954 pocket parts, plus one set of American Jurisprudence, General Index, consisting of 4 volumes, for a total price of P1,675.50 which, in addition to the cost of freight of P6.90, makes a total of P1,682.40. Tabora made a partial payment of P300.00, leaving a balance of P1,382.40. The books were duly delivered and receipted for by Tabora on May 15, 1955 in his law office in Naga City.

CFI rendered judgment for the plaintiff. It ordered Tabora to pay the sum of P1,382.40, with legal interest thereon from the filing of the complaint, plus a sum equivalent to 25% of the total amount due as liquidated damages, and the cost of action.

However, a big fire broke out in that locality which destroyed and burned all the buildings standing on one whole block including at the law office and library of Tabora.

YES. Though it was agreed that the title of the ownership of the books should remain with the seller until the purchase shall have been fully pai, it was also expressly agreed upon that the loss or damage after the delivery shall be borne by the buyer. In pursuance of the contract, the ownership of the goods has been retained by the seller merely to secure performance by the of his obligation. Moreover, the goods were at the buyer’s risk from the time of delivery.

As a result, the books bought from the company as above stated, together with Tabora's important documents and papers, were burned during the conflagration. ARAFAG • HABANA • JALAYAJAY

ISSUE: Whether or not respondent Tabora should bear the loss and pay the unpaid purchase price.

HELD:

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Though it was agreed that the title of the ownership of the books should remain with the seller until the purchase price shall have been fully paid, it was also expressly agreed upon that the loss or damage after delivery shall be borne by the buyer. In pursuance of the contract, the ownership of the goods has been retained by the seller merely to secure performance by the buyer of his obligation. Moreover, the goods were at the buyer’s risk from the time of the delivery. It was provided in the contract that "title to and ownership of the books shall remain with the seller until the purchase price shall have been fully paid. Loss or damage to the books after delivery to the buyershall be borne by the buyer."

General Rule: the loss of the object of the contract of sale is borne by the owner, or in case of force majeure the one under obligation to deliver theobject is exempt from liability. BUT, this rule does not apply in this case because the parties clearly agreed to the abovementioned contrary. DURAN VS. IAC G.R. No. L - 64159

FACTS: Petitioner Circe S. Duran owned two (2) parcels of land in Caloocan City which she had purchased from the Moja Estate. She left the Philippines for the US in June 1954 and returned in May 1966. On May 13, 1963, a Deed of Sale of the two lots mentioned above was made in favor of Circe’s mother, Fe S. Duran who, on December 3, 1965, mortgaged the same property to private respondent Erlinda B. Marcelo-Tiangco. When petitioner Circe S. Duran came to know about the ARAFAG • HABANA • JALAYAJAY

mortgage made by her mother, she wrote the Register of Deeds of Caloocan City informing the latter that she had not given her mother any authority to sell or mortgage any of her properties in the Philippines. Failing to get an answer from the registrar, she returned to the Philippines. Meanwhile, when her mother, Fe S. Duran, failed to redeem the mortgage properties, foreclosure proceedings were initiated by private respondent Erlinda B. Marcelo Tiangco and, ultimately, the sale by the sheriff and the issuance of Certificate of Sale in favor of the latter. Petitioner Circe S. Duran claims that the Deed of Sale in favor of her mother Fe S. Duran is a forgery, saying that at the time of its execution in 1963 she was in the United States. On the other hand, the adverse party alleges that the signatures of Circe S. Duran in the said Deed are genuine and, consequently, the mortgage made by Fe S. Duran in favor of private respondent is valid. The appellate court held the same to be genuine because there is the presumption of regularity in the case of a public document and “the fact that Circe has not been able to satisfactorily prove that she was in the United States at the time the deed was executed in 1963. But even if the signatures were a forgery, and the sale would be regarded as void, still it is Our opinion that the Deed of Mortgage is VALID, with respect to the mortgagees, the defendantsappellants. While it is true that under Art. 2085 of the Civil Code, it is essential that the mortgagor be the absolute owner of the property mortgaged, and while as between the daughter and the mother, it was the daughter who still owned the lots, STILL insofar as innocent third persons are concerned the owner was already the mother (Fe S. Duran) inasmuch as she had already become the registered owner. The mortgagee had the right to rely upon what appeared in the certificate of title, and did not have to inquire further. If the rule were otherwise, the efficacy and conclusiveness of Torrens Certificate of Titles would be futile and nugatory. Page 154

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ISSUE: Whether or not Erlinda B. Marcelo-Tiangco was a buyer in good faith and for value? HELD: Good faith, while it is always to be presumed in the absence of proof to the contrary, requires a well-founded belief that the person from whom title was received was himself the owner of the land, with the right to convey it. Otherwise stated, good faith is the opposite of fraud and it refers to the state of mind which is manifested by the acts of the individual concerned. In the case at bar, private respondents, in good faith relied on the certificate of title in the name of Fe S. Duran and as aptly stated by respondent appellate court “[e]ven on the supposition that the sale was void, the general rule that the direct result of a previous illegal contract cannot be valid (on the theory that the spring cannot rise higher than its source) cannot apply here for We are confronted with the functionings of the Torrens System of Registration. The doctrine to follow is simple enough: a fraudulent or forged document of sale may become the ROOT of a valid title if the certificate of title has already been transferred from the name of the true owner to the name of the forger or the name indicated by the forger.” Thus, where innocent third persons relying on the correctness of the certificate of title issued, acquire rights over the property, the court cannot disregard such rights and order the total cancellation of the certificate for that would impair public confidence in the certificate of title. Stated differently, an innocent purchaser for value relying on a torrens title issued is protected. A mortgagee has the right to rely on what appears in the certificate of title and, in the absence of anything to excite suspicion, he is under no obligation to look beyond the certificate and investigate the title of the mortgagor appearing on the face of saidcertificate. ARAFAG • HABANA • JALAYAJAY

Likewise, We take note of the finding and observation of respondent appellate court in that petitioners were guilty of estoppel by laches “in not bringing the case to court within a reasonable period. Antero Gaspar, husband of Circe, was in the Philippines in 1964 to construct the apartment on the disputed lots. This was testified to by Circe herself. In the process of construction, specifically in the matter of obtaining a building permit, he could have discovered that the deed of sale sought to be set aside had been executed on May 13, 1963 (the building permit needed an application by the apparent owner of the land, namely, Circe’s mother, Fe S. Duran). And then again both plaintiffs could have intervened in the foreclosure suit but they did not. They kept silent until almost the last moment when they finally decided, shortly before the sheriff’s sale, to file a third-party claim. Clearly, the plaintiffs can be faulted for their estoppel by laches.” AZNAR VS. YAPDIANGCO FACTS: Theodoro Santos advertised in the newspapers the sale of his Ford Fairlane 500. After the advertisement, a certain de Dios, claiming to be the nephew of Marella, went to the residence of Santos and expressing his uncle’s intent to purchase the car. Since Santos wasn't around, it was Irineo who talked with de Dios. On being informed, Santos advised his son to see Marella, which the son did. Marella expressed his intention to purchase the car. A deed of sale was prepared and Irineo was instructed by his father not to part with the deed and the car without receiving the purchase price from Marella. When irineo and de Dios arrived at the residence of Marella, the latter averred that his money was short and had to borrow from his sister. He then instructed de Dios and Irineo to go the supposed house of the sister to obtain the money with an unidentified person. He also asked Irineo to leave the deed to have his lawyer see it. Relying on the good faith of Marella, Irineo did as requested. Page 155

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FACTS: Upon arriving at the house of Marella’s supposed to be sister, de Dios and the unidentified person then disappeared together with the car. This prompted Santos to report the incident to the authorities. Thereafter, Marella was able to sell the land to Aznar. And while in possession of the car, police authorities confiscated the same. This prompted Aznar to file an action for replevin. ISSUE: Who has better right over the car? HELD: Marella never had title to the car as the car wasn't ever delivered to him. While there was a deed of sale in his favor, he was only able to obtain possession of the car since he stole it from Santos. The applicable law is Article 559. The rule is to the effect that if the owner has lost a thing, or if he has been unlawfully deprived of it, he has a right to recover it, not only from its finder, thief or robber, but also from third persons who may have acquired it in good faith from such finder, thief or robber.

The said article establishes 2 exceptions to the general rule of irrevindicabilty—to wit, the owner has lost the thing or has been unlawfully deprived thereof. In these cases, the possessor cannot retain the thing as against the owner who may recover it without paying any indemnity, except when the possessor acquired it in a public sale. Furthermore, the common law principle that where one of two innocent persons must suffer a fraud perpetrated by another, the law imposes the loss upon the party who, by his misplaced confidence, has enable the fraud to be committed, cannot be applied in this case, which is covered by an express provision of law.

In April 1970, defendant spouses Enrique Castro and Herminio R. Castro (spouse Castro) sold to herein respondent Manuelito Palileo a parcel of unregistered coconut land in Surigao del Norte. The sale is evidenced by a notarized Deed of Absolute Sale, but the deed was not registered in the Registry of Property for unregistered lands in the province of Surigao del Norte. Since the execution of the deed of sale, Palileo who was then employed in Lianga, Surigao del Sur, exercised acts of ownership over the land through his mother Rafaela Palileo, as administratrix or overseer. Manuelito Palileo has continuously paid the real estate taxes on said land from 1971 until the present. In November 1976, the CFI of Manila rendered a judgment was rendered against defendant Enrique T. Castro to pay herein petitioner Radiowealth Finance Company (Radiowealth), the sum of P22,350.35 with interest rate of 16% per annum from November 2, 1975 until fully paid, and upon the finality of the judgment, a writ of execution was issued. The Provincial Sheriff Marietta E. Eviota, through defendant Deputy Provincial Sheriff Leopoldo Risma, levied upon and finally sold at public auction the subject land that defendant Enrique Castro had sold to Palileo in 1970. The said Provincial Sheriff executed a certificate of sale was by the in favor of Radiowealth as the only bidder, and upon expiration of the redemption period, she also executed a deed of final sale. Both documents were registered with the Registry of Deeds. Learning of what happened to the land, Palileo filed an action for recovery of the subject property. The court a quo rendered a decision in favor of Palileo, which the Court of Appeals affirmed.

RADIOWEALTH FINANCE COMPANY VS. PALILEO May 20, 1991 ISSUE: ARAFAG • HABANA • JALAYAJAY

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Who is the rightful owner of the subject property? HELD: The Supreme Court likewise affirmed the appellate court’s decision on this case. There is no doubt that had the subject property been a registered land, this case would have been decided in favor of Radiowealth since it was the company that had its claim first recorded in the Registry of Deeds for it is the act of registration that operates to convey and affect registered land. Therefore, a bonafide purchaser of a registered land at an execution sale acquires a good title as against a prior transferee, if such transfer was unrecorded. However, a different set of rules applies in the case at bar which deals with a parcel of unregistered land. Under Act No. 3344, registration of instruments affecting unregistered lands is "without prejudice to a third party with a better right." The afore quoted phrase has been held by the Supreme Court to mean that the mere registration of a sale in one's favor does not give him any right over the land if the vendor was not anymore the owner of the land having previously sold the same to somebody else even if the earlier sale was unrecorded. Applying this principle, the Court of Appeals correctly held that the execution sale of the unregistered land in favor of petitioner is of no effect because the land no longer belonged to the judgment debtor as of the time of the said execution sale. NUGUID VS. CA March 13, 1989

FACTS: The deceased spouses Victorino and Crisanta dela Rosa were the registered owners of a parcel of land situated in Bataan, and covered by OCT. Victorino dela Rosa (widowed by then) sold one¬ half of the said property to Juliana Salazar for P 95.00. This sale was not registered. Immediately ARAFAG • HABANA • JALAYAJAY

after the sale, Juliana Salazar constructed a house on the lot she purchased. Petitioner spouses caused the registration of a document entitled “Kasulatan ng Partihan at Bilihan.” In this document, Marciana dela Rosa, Victoria Buenaventura, Ernesto Buenaventura, Virgilio Buenaventura, and Felicisimo Buenaventura-all heirs of Victorino and Crisanta dela Rosa- sold to the petitioners the entire area of the property for the sum of P300.00. Subsequently, the OCT was cancelled by the Register of Deeds, and TCT was issued in the names of the petitioners. The private respondents claim that the document is a forged deed. The petitioners assert that the land subject of this case was offered to them for sale by Nicolas dela Rosa who then claimed that he had already purchased the shares of the heirs over the subject property as evidenced by a private document entitled “Kasunduan”. The RTC dismissed the complaint filed by the private respondents, but on appeal, this was reversed by the Court of Appeals. Hence, this petition.

ISSUE: Whether or not the subsequent sale is valid, the petitioner spouses being purchasers in good faith. HELD: YES.The Original Certificate of Title No. 3778 covering the entire property was clean and free from any annotation of an encumbrance, and there was nothing whatsoever to indicate on its face any vice or infirmity in the title of the registered owners-the spouses Victorino and Crisanta dela Rosa. Thus, the petitioners could not have known of the prior sale to Juliana Salazar as, precjsely, ¬it was not registered. The general rule is that if the property sold is registered land, the purchaser in good faith has a right to rely on the certificate of title and is under no duty to go behind it to look for flaws. This notwithstanding, the petitioners did not rely solely upon the certificate Page 157

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of title. They personally inspected the subject property. Undeniably, they found the same to be occupied by two houses, one belonging to a certain Doray dela Rosa and the other to spouses Pedro Guevarra and Pascuala Tolentino, parents of the respondents Guevarras. Upon being informed of the petitioners’ desire to purchase the land, Doray dela Rosa apparently offered to sell her house, which offer was accepted by the petitioners. As regards the spouses Guevarra, we find no reason to disturb the trial court’s finding that they themselves requested that they be allowed to refrain on the property until such time that the petitioners would need the entire premises; and in lieu of rentals to the petitioners, they offered to continue paying the real estate taxes for one-half of the property as this was their arrangement with the previous owners-to which request the petitioners acceded. Evidently, neither Doray dela Rosa nor the spouses Guevarra professed ownership over the portions of land they were occupying; on the contrary, by their actuations they expressly acknowledged that they were not the real owners of the said property. The spouses Guevarra, in particular, made no mention of the prior unregistered sale to their predecessor-ininterest, Juliana Salazar. Thus, when the petitioners registered the sale in their favor with the Register of Deeds, they did so without any knowledge about the prior sale in favor of Juliana Salazar. The petitioners, therefore, had acted in good faith. SPS. TORRECAMPO VS. ALINDOGAN February 28, 2007

FACTS: On May 24, 1997, spouses Jose and Lina Belmes executed a deed of sale to here inrespondents, over Lot No. 5524-H and the house constructed thereon located in Rawis, LegazpiCity. On July 4, 1997, Lina Belmes wrote respondents wherein she delivered the possession of the house ARAFAG • HABANA • JALAYAJAY

and lot to them. However, on July 5, 1997, before they could take the actual possession of the property, the herein petitioners, and spouses Jonathan Lozares and Jocelyn Torrecampo, entered and occupied the premises. As the petitioners refused to vacate the property despite repeated demands, respondent spouses Alindogan filed against them a complaint for recovery for ownership and possession with damages with the RTC of Legazpi City. In their Answer to the complaint, petitioners claimed that on March 25, 1997, spouses Belmes received from them P73,000.00 as advance payment for the sale of the house and lot. On April 8, 1997, petitioners and spouses Belmes executed a "Contract to Buy and Sell" covering the same property. The parties agreed as follows: that the total consideration is P350,000.00; that upon the signing of the contract, petitioners shall pay spouses Belmes P220,000.00; and that the balance of P130,000.00 shall be paid upon the issuance of the certificate of title in the names of petitioners. To complete the agreed partial payment of P220,000.00 mentioned in the contract, petitioners paid spouses Belmes P130,000.00,but the latter refused to accept the amount. Thus, on July 7, 1997, petitioners filed with the RTC, Branch 18, Tabaco, Albay, Civil Case No. T-1914, a Complaint for Specific Performance againstspouses Belmes. On July 14, 2000, the RTC, in Civil Case No. 9421, now before us, rendered aDecision in favor of respondents

ISSUE: Whether or not the Honorable Court of Appeals erred when it declared the respondents as the owners and entitled them to the possession of the lot in question.

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The trial court held that the transaction between petitioners and spouses Belmes is a mere contract to sell. Thus, the latter did not transfer ownership of the house and lot to petitioners. The tenor of the afore-quoted provision of the contract clearly confirms that the transaction between the defendants and the Belmeses was not a contract of sale, as defined by Art. 1458 of the Civil Code. Indeed, the true agreement between petitioners and spouses Belmes is a contract to sell. Not only did the parties denominate their contract as “Contract to Buy and Sell,” but also specified there in that the balance of the purchase price in the amount of ₱130, 000.00 is to be paid by petitioners upon the issuance of a certificate of title. That spouses Belmes have in their possession the certificate of title indicates that ownership of the subject properly did not pass to petitioners. Thus, the petition is denied and the assailed Decision of the Court of Appeals dated November 18, 2002 in CA-G.R. CV No. 68583 Affirmed VDA. DE GURREA VS. SUPLICO April 26, 2006 FACTS: The lot in question situated at 245 Marne Street, San Juan, Metro Manila was originally owned by one of herein plaintiffs’ Attorney-in-Fact, Rosalina Gurrea. That sometime in 1958, Rosalina Gurrea transferred the ownership of said lot to Adelina Gurrea, whose ownership was evidenced by TCT That Adelina Gurrea continued to be the owner of the lot until her death. Thereafter, a special proceeding was instituted to have the will she executed during her lifetime probated and to settle her estate. Ricardo Gurrea, represented by and through his counsel Atty. Enrique Suplico (the defendant), filed an Opposition in Special Proc. No. 7185. In consideration of said representation, Ricardo Gurrea agreed to pay Atty. Suplico "a ARAFAG • HABANA • JALAYAJAY

contingent fee of twenty (20%) of whatever is due me, either real or personal property. During the pendency of the proceedings and upon the oral instructions of Ricardo Gurrea, Atty. Suplico negotiated with the other heirs of Adelina Gurrea regarding the transfer of the piso (apartment building) in Spain to Ricardo Gurrea’s daughter, Juliet Gurrea de Melendres. Ricardo Gurrea further instructed Atty. Suplico not to enter into any settlement with the heirs unless the piso is transferred to his daughter. Finally, the transfer of the piso worth P64,000.00 was executed and the heirs arrived at an amicable settlement regarding the estate of Adelina Gurrea. Hence, Ricardo Gurrea withdrew his Opposition and the heirs then drew up a project of partition which was eventually approved by the probate court. Pursuant to the project of partition, the following properties were adjudicated to Ricardo Gurrea: (1) the whole of the Baguio lot (with assessed value of P26,350.00); (2) the whole of the San Juan lot (with assessed value of P9,630.00); and (3) a parcel of land in Pontevedra, Negros Occidental (with assessed value of P300.00). As payment of his attorney’s fees, Ricardo Gurrea offered the San Juan lot to Atty. Suplico who was initially hesitant to accept the same as the property is occupied by squatters. However, in order not to antagonize his client, Atty. Suplico agreed to Ricardo Gurrea’s proposal with the further understanding that he will receive an additional commission of 5% if he sells the Baguio property. Thereafter, the deed of Transfer of Rights and Interest was drafted. The said deed was presented to Ricardo Gurrea for his signature. That before signing the same, the contents of the deed were first explained to Ricardo Gurrea by Atty. Suplico and Atty. Manuel Pama, the notary public. On August 20, 1975, the deed was finally signed by Ricardo Gurrea at the office of Atty. Pama, in the presence of the latter, Atty. Suplico, Victor Tupas and another person, the last two acting as witnesses. Later, on October 7, 1980, Atty. Suplico registered the deed and obtained a title/TCT to the San Juan property under his name. Ricardo Gurrea died on October 22, 1980. After his death, his heirs Page 159

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instituted a proceeding for the settlement of Ricardo Gurrea’s estate. In the said proceedings, Atty. Suplico filed several claims for unpaid attorney’s fees; however, all were dismissed with finality. Also in the same case, the estate’s administrator, Carlos Gurrea, filed an Inventory of Properties left by the decedent, which did not initially include the property subject of this case. The said lot was included only subsequently in the Amended Inventory.

ISSUE/S:

Plaintiffs and defendant appealed the case to the CA. Plaintiffs-appellants contended that the RTC erred: in upholding the validity of the supposed contract of attorney’s fees between Ricardo and defendantappellant which provided for the payment of attorney’s fees in the form of real property because such an agreement is prohibited by Article 1491 of the Civil Code; in limiting its evaluation of the transfer of rights and interests in defendantappelant’s favor only on the basis of whether the deed evidencing said transfer of rights and interests was forged, without regard to the facts and circumstances surrounding its execution; in not finding that defendant-appellant has been fully paid for all the services he had rendered for Ricardo; in not declaring the payment of the subject lot as attorney’s fees to be unconscionable based on the guidelines for determining attorney’s fees.

3. Whether or not petitioners are entitled to the cancellation of respondent attorney’s title over the property and the reconveyance thereof to herein petitioners?

On February 24, 2000, the CA rendered its Decision affirming, in toto, the judgment of the RTC. The CA maintained the lower court’s ruling that the plaintiffs-appellants failed to present clear and convincing evidence that defendant-appellant defrauded and exerted undue influence on Ricardo in the latter’s execution of the deed of Transfer of Rights and Interest and in consequently transferring his ownership of the San Juan lot in his (defendant-appellant’s) favor; and that based on the evidence, the San Juan lot may be considered as reasonable attorney’s fees for defendantappellant.

ARAFAG • HABANA • JALAYAJAY

1. Whether or not the transfer of rights and interests violative of Article 1491 of the NCC, therefore null and void? 2. Whether or not the supposed contract for attorney’s fees in the form of the manifestation providing for the payment out of the properties in litigation is valid?

HELD: The Court finds the petition meritorious. Anent the first issue, it is necessary to resolve whether the subject property was still the object of litigation at the time the deed of Transfer of Rights and Interest in favor of respondent was executed; and if so, whether the same should be considered null and void for being violative of the provisions of Article 1491 of the Civil Code. Article 1491(5) of the Civil Code provides: 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another: … (5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the Page 160

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object of any litigation in which they may take part by virtue of their profession.

We agree with the petitioners’ undisputed contention that when the deed of Transfer of Rights and Interest was executed, the title over the subject lot was still in the name of Adelina Gurrea and that it was only on October 7, 1980 that the title was transferred in the name of Ricardo. The rule is that as long as the order for the distribution of the estate has not been complied with, the probate proceedings cannot be deemed closed and terminated. The probate court loses jurisdiction of an estate under administration only after the payment of all the debts and the remaining estate delivered to the heirs entitled to receive the same. In the present case, while the subject lot was assigned as Ricardo’s share in the project of partition executed by the heirs of Adelina Gurrea, the title over the subject lot was still in the name of the latter and was not yet conveyed to Ricardo when the Transfer of Rights and Interest was executed. As correctly cited by petitioners, the Court held in Lucero v. Bañaga that: [t]he term "delivery" or tradition has two aspects: (1) the de jure delivery or the execution of deeds of conveyance and (2) the delivery of the material possession (Florendo vs. Foz, 20 Phil. 388, 393). The usual practice is that, if the land to be delivered is in the name of the decedent, the administrator executes a deed, conveying the land to the distributee. That deed, together with the project of partition, the order approving it, the letters of administration and the certification as to the payment of the estate, inheritance and realty taxes, is registered in the corresponding Registry of Deeds. Title would then be issued to the distributee. Thereafter, the administrator or executor places him in material possession of the land if the same is in the custody of the former. ARAFAG • HABANA • JALAYAJAY

It follows that, since at the time of execution of the deed of Transfer of Rights and Interest, the subject property still formed part of the estate of Adelina, and there being no evidence to show that material possession of the property was given to Ricardo, the probate proceedings concerning Adelina’s estate cannot be deemed to have been closed and terminated and the subject property still the object of litigation. Having been established that the subject property was still the object of litigation at the time the subject deed of Transfer of Rights and Interest was executed, the assignment of rights and interest over the subject property in favor of respondent is null and void for being violative of the provisions of Article 1491 of the Civil Code which expressly prohibits lawyers from acquiring property or rights which may be the object of any litigation in which they may take part by virtue of their profession. Article 1409 of the same Code provides, among others, that contracts which are expressly prohibited or declared void by law are considered inexistent and void from the beginning. Anent the second issue, the Court has already held that the said property is still the object of litigation at the time the subject Manifestation and Transfer of Rights and Interest were executed and, thus, may not be acquired by respondent pursuant to the provisions of Article 1491 of the Civil Code. As to the third issue, it follows that respondent’s title over the subject property should be cancelled and the property reconveyed to the estate of Ricardo, the same to be distributed to the latter’s heirs. This is without prejudice, however, to respondent’s right to claim his attorney’s fees from the estate of Ricardo, it being undisputed that he rendered legal services for the latter.

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FACTS: Jerry Moles(petitioner) bought from Mariano Diolosa owner of Diolosa Publishing House a linotype printing machine(secondhand machine). Moles promised Diolosa that will pay the full amount after the loan from DBP worth P50,000.00 will be released. Private respondent on return issued a certification wherein he warrated that the machine was in A-1 condition, together with other express warranties. After the release of the of the money from DBP, Petitioner required the Respondent to accomplish some of the requirements. On which the dependant complied the requirements on the same day. On November 29, 1977, petitioner wrote private respondent that the machine was not functioning properly. The petitioner found out that the said machine was not in good condition as experts advised and it was worth lesser than the purchase price. After several telephone calls regarding the defects in the machine, private respondent sent two technicians to make necessary repairs but they failed to put the machine in running condition and since then the petitioner wan unable to use the machine anymore.

ISSUE/S: 1. Whether there is an implied warranty of its quality or fitness. 2. Whether the hidden defects in the machine is sufficient to warrant a rescission of the contract between the parties.

HELD: 1. It is generally held that in the sale of a designated and specific article sold as second hand, there is no implied warranty as to its quality or ARAFAG • HABANA • JALAYAJAY

fitness for the purpose intended, at least where it is subject to inspection at the time of the sale. On the other hand, there is also authority to the effect that in a sale of second hand articles there may be, under some circumstances, an implied warranty of fitness for the ordinary purpose of the article sold or for the particular purpose of the buyer.

Said general rule, however, is not without exceptions. Article 1562 of our Civil Code, which was taken from the Uniform Sales Act, provides: "Art. 1562. In a sale of goods, there is an implied warranty or condition as to the quality or fitness of the goods, as follows: (1) Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are acquired, and it appears that the buyer relies on the seller's skill or judgment (whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall be reasonably fit for such purpose;"

2. We have to consider the rule on redhibitory defects contemplated in Article 1561 of the Civil Code. A redhibitory defect must be an imperfection or defect of such nature as to engender a certain degree of importance. An imperfection or defect of little consequence does not come within the category of being redhibitory.

As already narrated, an expert witness for the petitioner categorically established that the machine required major repairs before it could be used. This, plus the fact that petitioner never made appropriate use of the machine from the time of purchase until an action was filed, attest to the major defects in said machine, by reason of which the rescission of the contract of sale is sought. The factual finding, therefore, of the trial court that the machine is not reasonably fit for Page 162

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the particular purpose for which it was intended must be upheld, there being ample evidence to sustain the same. At a belated stage of this appeal, private respondent came up for the first time with the contention that the action for rescission is barred by prescription. While it is true that Article 1571 of the Civil Code provides for a prescriptive period of six months for a redhibitory action, a cursory reading of the ten preceding articles to which it refers will reveal that said rule may be applied only in case of implied warranties. The present case involves one with an express warranty. Consequently, the general rule on rescission of contract, which is four years shall apply. Considering that the original case for rescission was filed only one year after the delivery of the subject machine, the same is well within the prescriptive period. This is aside from the doctrinal rule that the defense of prescription is waived and cannot be considered on appeal if not raised in the trial court, and this case does not have the features for an exception to said rule. VILLOSTAS VS. CA

verbally complained about the impurities, dirtiness and bad odor coming out of the unit. Thus, private respondent Electrolux changed the filter of the unit. Petitioner complained for the second and third time when dirty water still came out of the water purifier after the replacement of the filter. It was on the third complaint of petitioner when the service technician gave advise that the filter should be changed every six (6) months costing about P300.00 which was considered to be uneconomical by the former. On December 9, 1986, petitioner sent a letter to the private respondent’s branch manager stating therein her complaint that the actual performance of the carbon filter was only for a month instead of the private respondent’s claim that the replacement of such filter will be only once every six (6) months. The petitioner, citing the above incident as uneconomical, decided to return the unit and demand a refund for the amount paid. Electrolux’s branch manager offered to change the water purifier with another brand or any of its appliance of the unit in her favor. Petitioner did not accept it as she was disappointed with the original unit which did not perform as warranted.

June 26, 1992 FACTS:

ISSUE:

Petitioner Villostas and her husband placed an order for one unit of water purifier from private respondent’s Electrolux sales agents. Private respondent’s sales agents assured petitioner of the very special features of their brand of water purifier. On September 13, 1986, an Electrolux Aqua Guard Water purifier was delivered and installed at petitioner’s residence. Petitioner signed the Sales Order and the Contract of Sale with Reservation of Title in October 1986. A warranty certificate was issued by private respondent which provides that the product will perform efficiently for one full year from date of original purchase. The purchase of said unit was on installment basis under which petitioner would pay the amount of P16,190.00 in 20 monthly installments of P635.00 a month. However, after two (2) weeks, petitioner

Whether or not the petitioner is entitled to rescind the contract on the basis of a violation of the warranty of the article delivered by the respondent HELD:

ARAFAG • HABANA • JALAYAJAY

YES. At the time the Electrolux Aqua Guard water puritier was delivered and installed at petitioner Villostas’ residence a Warranty Certificate was issued by private respondent Electrolux which provides that the product will perform efficiently for one full year from date of original purchase. It clearly expresses warranty regarding the efficiency of the water purifier. On this regard, while it is true that Article 1571 of the Civil Code Page 163

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provides for a prescriptive period of six months for a redhibitory action, a cursory reading of the ten preceding articles to which it refers will reveal that said rule may be applied only in case of implied warranties. The present case involves one with an express warranty. Anent the jurisdictional competence of the Metropolitan Trial Court to order rescission of contract, suffice it to say that the action was initiated by herein private respondent Electrolux when it filed a complaint for collection of a sum of money worth P14,540.00, against petitioner Villostas. Said amount is indubitably within the jurisdiction of the Metropolitan Trial Court since it does not exceed P20,000.00 exclusive of interest and costs but inclusive of damages of whatever (Maceda v. CA, G.R. No. 83545, 176 SCRA 440 [1989]). Moreover, the jurisdiction of the court over the subject matter is determined by the allegations of the complaint irrespective of whether or not the plaintiff is entitled to recover upon all or some of the claims asserted therein (Caparros v. CA, G.R. No. 56803, 170 SCRA 758 [1989]). When the petitioner, therefore, raised rescission of contract in her answer, the court is not divested of its jurisdiction over the case on account of defenses raised by the answer. The court is then merely authorized to receive evidence thereon (Dela Cruz v. Bautista, G.R. No. 39692, 186 SCRA 517, [1990]). Clearly, the jurisdiction of the court cannot be made to depend upon the defenses set up in the answer or upon the motion to dismiss. Otherwise, the question of jurisdiction would depend almost entirely upon the defendant (Caparros v. CA, supra.). SPOUSES UY VS. ARIZA

FACTS: Spouses Uy, petitioners, purchased 200 square meters of the parcel of land from respondents. The contract stipulated that petitioners had the right of choice to designate which portion of the land would be the subject of ARAFAG • HABANA • JALAYAJAY

the sale. Petitioners exercised their right to choose within two to three months from the sale, informing respondents that they have selected and in fact occupied around 200 square meters of a portion of land. petitioners purchased another 200 square meters of the same land with the same option to choose which portion. They selected and occupied an adjoining portion to the lot in their first sale appears that the parcels of land petitioners had chosen and occupied were already titled in the names of the Delgados. However, the parcels of land petitioners had chosen and occupied were already titled in the names of the Delgados. Petitioners were sued for unlawful detainer by the Delgados. Then, petitioners entered into a compromise agreement with the Delgados and surrendered possession of the subject parcels of land. Petitioners compromised the case without giving notice to respondents. Thereafter, petitioners demanded from respondents that they be allowed to choose again from said property. When respondents refused, petitioners filed a case for specific performance with delivery of possession of real property and damages. Petitioners anchored their claim for specific performance on the averment that they could not exercise their right to choose the portion bought from the parcel ofland afore-described because the portion pointed out by the petitioners were already sold and claimed by third persons. Respondents filed their answer and by way of special and affirmative defenses alleged that they had already complied with their obligation to deliver, as petitioners had already chosen and been in possession of the parcels of land they chose. Respondents also faulted petitioners for losing possession of the parcels of land by entering into a compromise agreement with the Delgados on two grounds: first , because respondents have allegedly initiated the necessary legal steps to defend their possessory rights to the disputed land by filing a case for the declaration of nullity of the title of the Delgados, and second , because Page 164

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petitioners failed to interpose a third-party complaint to implead respondents in the unlawful detainer case. The RtC dismissed the complaint. The Ca affirmed the decision of the RtC.

ISSUE: Whether or not the remedy of the petitioners is an action fro enforcement of warranty against eviction?

HELD: Yes. It is a clear case of eviction. The case for specific performance which was filed by petitioners against respondents is not the proper remedy in this case. Rather, said action was purely an afterthought on the part of petitioners when they were eventually evicted from the lots they bought fromrespondents. The facts of the case are very clear. Petitioners bought from respondents a 200 square meter lot which was part of a bigger parcel of land registered in the names of respondents, and which petitioners immediately took possession of. After a year, petitioners again bought from respondents and took possession of the adjacent lot also measuring 200 square meters. Since the sale, petitioners had been in peaceful possession of the lots until they were evicted from the same by third persons claiming to be the owners for the enforcement of warranty against eviction and not one for specific performance. Thus, the action for specific performance filed by petitioners against respondents must necessarily fail. If at all, petitioners may file an action for the enforcement of warranty in case of eviction which every vendor of a parcel of land is enjoined by law to guarantee as provided under Article 1548 of the New Civil Code: Art. 1548. Eviction shall take place whenever by a final judgment based on a ARAFAG • HABANA • JALAYAJAY

right prior to the sale or an act imputable to the vendor, the vendee is deprived of the whole or part of the thing purchased. The vendor shall answer for the eviction even though nothing has been said in the contract on the subject. The contracting parties, however, may increase, diminish or suppress this legal obligation of the vendor.But even if [petitioners] would file an action for the enforcement of warranty in case of eviction against [respondents], We are afraid that the same will not prosper. The records of the case reveal that the unlawful detainer case filed by third persons against [petitioners], which led to the ouster of the latter from the subject lots, was decided by compromise agreement without impleading [respondents] as third-party defendants. It should be stressed that in order for the case to prosper, it is a precondition that the seller must have been summoned in the suit for the eviction of the buyer. This rule is provided under the provisions of Articles 1558 and 1559 of the New Civil Code, to wit: Art. 1558. The vendor shall not be obliged to make good the proper warranty, unless he is summoned in the suit for eviction at the instance of the vendee. Art. 1559. The defendant vendee shall ask, within the time fixed in the Rules of Court for answering the complaint, that the vendor be made a co-defendant. In order that a vendor’s liability for eviction may be enforced, the following requisites must concur – a) there must be a final judgment; b) the purchaser has been deprived of the whole or part of the thing sold; c) said deprivation was by virtue of a right prior to the sale made by the vendor; and d) the vendor has been summoned and made codefendant in the suit for eviction at the instance of the vendee. In the case at bar, the fourth requisite – that of being summoned in the suit for eviction at the instance of the vendee – is not present. Page 165

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DE GUZMAN VS. TOYOTA FACTS: Petitioner purchased from respondent a brand new white Toyota Hi-Lux 2.4 SS double cab motor vehicle, 1996 model, in the amount of P508,000. Petitioner made a down payment of P152,400, leaving a balance of P355,600 which was payable in 36 months with 54% interest. The vehicle was delivered to petitioner two days later. On October 18, 1998, petitioner demanded the replacement of the engine of the vehicle because it developed a crack after traversing Marcos Highway during a heavy rain. Petitioner asserted that respondent should replace the engine with a new one based on an implied warranty. Respondent countered that the alleged damage on the engine was not covered by a warranty. Petitioner filed a complaint for damages against respondent with the RTC. Respondent moved to dismissthe case on the ground that under Article 1571 of the Civil Code, the petitioner’s cause of action had prescribed as the case was filed more than six months from the date the vehicle was sold and/or delivered The RTC dismissed the complaint and affirmed by the CA. Since no warranty card or agreement was attached to the complaint, the contract of sale of the subject pick-up carried an implied warranty that it was free from any hidden faults or defects, or any charge or encumbrance not declared or known to the buyer. The prescriptive period thereof is six (6) months under the Civil Code (Art. 1571). According to the RTC and CA, in the Civil Code, a redhibitory action for violation of an implied warranty against hidden defects prescribes in six (6) months, while if it based on an express warranty[,] the action prescribes in four (4) years. Under RA No. 7394, the implied warranty cannot be more than one (1) year; however, the implied warranty can only be of equal duration to that an express warranty when the implied warranty of merchantability accompanies an express warranty ARAFAG • HABANA • JALAYAJAY

(Art. 68, par. [e]). Therefore, the prescriptive period of two years under Art. 169 does not cover an implied warranty, which is not accompanied by an express warranty. It is applicable to cases where there is an express warranty in the sale of the consumer product. Since the case was filed almost nineteen (19) months from [the] sale and/or delivery. Applying Art. 1571 of Civil Code, the action is barred by prescription because the complaint was filed more than six (6) months after the sale and/or delivery of the vehicle. In addition, the duration of the implied warranty of not more than one (1) year under Art. 68, par (e) of RA No. 7394 has already elapsed. ISSUE: Whether the action of the petitioner has prescribed.? HELD: Petitioner’s argument is erroneous. Article 1495 of the Civil Code states that in a contract of salethe vendor is bound to transfer the ownership of and to deliver the thing that is the object of sale. Corollarily, the pertinent provisions of the Code set forth the available remedies of a buyer against the seller on the basis of a warranty against hidden defects: Art. 1561. The vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by reason of this trade or profession, should have known them. Page 166

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Art. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was not aware thereof. This provision shall not apply if the contrary has been stipulated and the vendor was not aware of the hidden faults or defects in the thing sold. Art. 1571. Actions arising from the provisions of the preceding ten articles shall be barred after six months from the delivery of the thing sold. Under Article 1599 of the Civil Code, once an express warranty is breached, the buyer can accept or keep the goods and maintain an action against the seller for damages. In the absence of an existingexpress warranty on the part of the respondent, as in this case, the allegations in petitioner’s complaint for damages were clearly anchored on the enforcement of an implied warranty against hidden defects, i.e ., that the engine of the vehicle which respondent had sold to him was not defective. By filing a case, petitioner wants to hold respondent responsible for breach of implied warranty for having sold a vehicle with defective engine. Such being the case, petitioner should have exercised this right within six months from the delivery of the thing sold more than nineteen months from the date of the delivery of the motor vehicle, his cause of action had become time-barred. GOODYEAR PHILIPPINES VS. SY

respondent Sy and later sold to Jose Lee. But the Lee filed an action for rescission of contract with damages against Sy because he could not register the vehicle in his name due to the certification from the PNP Regional Traffic Management Office that it was a stolen vehicle and the alarm covering the same was not lifted. Instead, the PNP impounded the vehicle and charged Lee criminally. Petitioner was impleaded as the third party defendant by Sy. A motion to dismiss was filed by petitioner on the twin grounds that the complaint failed to state a cause of action and even if it did, such cause of action was already extinguished. The RTC granted the motion of the petitioner. However, the CA reversed the RTC and reasoned that the Complaint had stated a cause of action. Because petitioner did not make good its warranty in the Deed of Sale: to convey the vehicle to Respondent Anthony Sy free from all liens, encumbrances and legal impediments. The reported hijacking of the vehicle was a legal impediment that prevented its subsequent sale. And also Respondent Sy had a right to protect and a warranty to enforce, while petitioner had the corresponding obligation to honor that warranty. The latter caused the impairment of that right, though, when the vehicle it had sold to him was refused registration, because of the non-lifting of the alert status issued at its instance. That petitioner had to execute all documents necessary to confer a perfect title to him before he could seek recourse to the courts was deemed a ludicrous condition precedent, because it could easily refuse to fulfill that condition in order to obviate the filing of a case against it.

FACTS: ISSUE: The vehicle was originally owned by Goodyear Philippines, which it purchased from Industrial and Transport Equipment, Inc. in 1983. It had been used by the petitioner since been in the service when it was hijacked. This hijacking was reported to the Philippine National Police which issued out an alert alarm on the said vehicle as a stolen one. It was later on recovered and sold to ARAFAG • HABANA • JALAYAJAY

Whether or not petitioner breach the implied warranty against hidden encumbrances?

HELD:

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Petitioner did not brech the implied warranty against hidden encumbrances. Petitioner did not breach the implied warranty against hidden encumbrances. The subject vehicle that had earlier been stolen by a third party was subsequently recovered by the authorities and restored to petitioner, its rightful owner. Whether Sy had knowledge of the loss and subsequent recovery, the fact remained that the vehicle continued to be owned by petitioner, free from any charge or encumbrance whatsoever. The Complaint did not allege that petitioner had a creditor with a legal right to or interest in the subject vehicle. There was no indication either of any debt that was secured by the vehicle. In fact, there was not even any claim, liability or some other right attached to the vehicle that would lessen its value. Its impoundment, as well as the refusal of its registration, was not the hindrance or obstruction in the contemplation of law that the vendor warranted against. Neither of those instances arose from any liability or obligation that could be satisfied by a legal claim or charge on, or property right to -- other than an ownership interest in -- the subject vehicle. Assuming that there was a breach of the implied warranty against hidden encumbrances, notice of the breach was not given to petitioner within a reasonable time. Article 1586 of the Civil Code requirethat notice be given after the breach, of which Sy ought to have known. In his Complaint against petitioner, there was no allegation that respondent had given petitioner the requisite notice. More important, an action for damages for a breach of implied warranties must be brought within six months rom the delivery of the thing sold.The vehicle was understood to have been delivered to Sy when it was placed in his control or possession. Upon execution of the Deed of Sale, control and possession of the vehicle was transferred to respondent. That the vehicle had been delivered is bolstered by the fact thatno contrary allegation was raised in the Third-Party Complaint. Whether the period should be reckoned from the actual or from the constructive ARAFAG • HABANA • JALAYAJAY

delivery through a public instrument, more than six months had lapsed before the filing of the Complaint. Moreover, the argument that there was a breach of the implied warranty against eviction does not hold water, for there was never any final judgment based on either a right prior to the sale; or an act that could be imputed to petitioner and deprive Sy of ownership or possession of the vehicle purchased.

VILLARICA VS. CA

FACTS: Spouses Villarica sold to the spouses Monteverde a lot containing an area of 1,174 squaremeters situated in dvao for the price of P35,000. On the same day, spouses consunji executed another public instrument whereby they granted the spouses Villarica an option to buy the same property within a period of one year for the price of P37,000. The Spouses Consunji registered the absolute deed of sale in consequence of which the proerty was cancelled in the name of spouses Villarica and issued in favor them. The spouses consunji sold the property to Jovito Francisco for the price of P47,000 by means of public instrument of sale. Then the TCT was issued in the name of Jovito Francisco. Spouses Villarica brought an action in the CFI of davao against the Spouses Consunji and Jovito Francisco for the reformation of the instrument of absolute sale into an equitable mortgage as a security from a usurious loan of P28,000 alleging that such was the real intention of the parties. Defendants answered that the deed of absolute sale expressed the real intention of the parties and they also alleged a counterclaim for sums of money borrowed by Spouses Villaricas from the spouses consunjs which were then due and demandable. ISSUE: Page 168

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Whether the instrument is a contract of sale with pacto de retro sale or an option to buy? HELD: The Instrument is a contract of sale with an option to buy. The spouses as the new owners of the property granted the spouses Villaricas an option to buy within the period of one year from the execution of the instrument. Said option to buy is different and distinct from the right to repurchase which must be reserved by the vendor, by stipulation to that effect, in the contract of sale. This is clear from article 1601 of the civil code, which provides: Conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold, with the obligation to comply with the provisions of art 1616 and other stipulation which may have agreed upon. The right of repurchase is not a right granted by the vendor by the vendee in a subsequent instrument but is a right reserved by the vendor in the same instrument of sale as one of the stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can no longer reserve the right to repurchase and any right thereafter granted to the vendor by the vendee in a separate instrument cannot be a right of repurchase but some other right lie the option to buy. Since the instrument granted an option to buy, the extension of the period of one year for the exercise of the option by one month does not fall under no.3 of Art 1602 of Civil code, which provides that: when upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed.

Spanish language, involving three parcels of land, was executed by the private respondent's predecessors-ininterest, Vicente Santiago and his brother, Luis Santiago, in favor of Cirilio Leal the deceased father of some of the petitioners, Pursuant to this "Compraventa," the title over the three parcels of land in the name of the vendors was cancelled and a new one was issued in the name of Cirilo Leal who immediately took possession and exercised ownership over the said lands. When Cirilo died on December 10, 1959, the subject lands were inherited by his six children, who are among the petitioners, and who caused the consolidation and subdivision of the properties among themselves. Between the years 1960 and 1965, the properties were either mortgaged or leased by the petitioners-children of Cirilo Leal. Sometime before the agricultural year 1966-1967, Vicente Santiago approached the petitioners and offered re- repurchase the subject properties. Petitioners, however, refused the offer. Consequently, Vicente Santiago instituted a complaint for specific performance . At the trial, the court a quo rendered its decision,-dismissing the complaint on the ground that the same was still premature considering that there was, as yet, no sale nor any alienation equivalent to a sale. However, It is admitted by both parties that the phrase "they shall not sell to others these three lots but only to the seller Vicente Santiago or to his heirs or successors" is an express prohibition against e sale of the lots described in the "Compraventa" to third persons or strangers to the contract.

ISSUE: IRENEO LEAL vs. IAC FACTS: On March 21, 1941, when a document entitled "Compraventa," written entirely in the ARAFAG • HABANA • JALAYAJAY

Whether or not under the aforequoted paragraph (b) of the "Compraventa" a right of repurchase in favor of the private respondent exist? Page 169

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HELD: No. The law provides that for conventional redemption to take place, the vendor should reserve, in no uncertain terms, the right to repurchase the thing sold. Thus, the right to redeem must be expressly stipulated in the contract of sale in order that it may have legal existence. There can be no express or implied grant of a right to repurchase, nor can we infer, from any word or words in the questioned paragraph, the existence of any such right. The phrase "in case case" of should be construed to mean "should the buyers wish to sell which is the plain and simple import of the words, and not "the buyers should sell," which is clearly a contorted construction of the same phre. The resort to Article 1373 of the Civil Code of the Philippines is erroneous. The subject phrase is patent and unambiguous, hence, it must not be given another interpretation But even assuming that such a right of repurchase is granted under the "Compraventa," the petitioner correctly asserts that the same has already prescribed. Under Art. 1508 of the Civil Code of Spain (Art,. 1606 of the Civil Code of the Philippines), the right to redeem or repurchase, in the absence of an express agreement as to time, shall last four years from the date of the contract. In this case then, the right to repurchase, if it was at four guaranteed under in the "Compraventa," should have been exercise within four years from March 21, 1941 (indubitably the date of execution of the contract), or at the latest in 1945. It is further ruled that the right to repurchase was given birth by the condition precedent provided for in the phrase "siempre y cuando estos ultimos pueden hacer la compra" (when the buyer has money to buy). In other words, it is the respondent court's contention that the right may be exercised only when the buyer has money to buy. If this were so, the second ARAFAG • HABANA • JALAYAJAY

paragraph of Article 1508 would apply — there is agreement as to the time, although it is indefinite, therefore, the right should be exercised within ten years, because the law does not favor suspended ownership. Since the alleged right to repurchase was attempted to be exercised by Vicente Santiago only in 1966, or 25 years from the date of the contract, the said right has undoubtedly expired. SPOUSES BUCE VS. CA . FACTS: Plaintiffs were the registered owners of three parcels of land one of which is situated at Cainta Taytay, Rizal, and the other two situated at Pandacan, Manila, which they mortgaged with Monte de Piedad & Savings Bank to secure a loan of Pl78,953.37. When the loan matured, plaintiffs could not pay, so, the mortgage was foreclosed by the Monte de Piedad & Savings Bank. Plaintiffs sold to the defendants-spouses the afore-mentioned properties, together with all the improvements therein for a consideration of Pl79,000.00, and the transaction is covered by a Deed of Sale. The consideration of the deed of sale was used by plaintiffs to repurchase the foreclosed propertiesfrom the Monte de Piedad & Savings Bank. After the foreclosed properties were repurchased by the plaintiffs, they were simultaneously sold and delivered to the defendants-spouses as previously stated, by virtue of a deed of sale. Plaintiffs filed the case for reformation of the deed of sale with damages. They alleged that although there is an absolute deed of sale, it does not reflect or express the true intention between the parties by reason of fraud and/or inequitable conduct on the part of the defendants, citing article 1369 of the Civil Code.That the amount of P179,000.00, as consideration of the alleged deed of sale, was only a loan extended by defendants to plaintiffs, and that the properties described therein were mortgaged to secure the loan. That the verbal understanding was for plaintiffs to pay a monthly Page 170

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interest of P4,000.00, and that defendants actually paid the amount of P20,000.00 as interest. The trial court dismissed the complaint The plaintiffs appealed to the court of appeals which set aside the trial court's decision, and declared the subject document, denominated as Deed of Sale, as one of real estate mortgage.

things 'sold;" and 4) the vendor paid interest on the supposed consideration of the "sale." From these circumstances it may be fairly inferred that the real intention of the parties was to secure payment of the P179,000 loan extended by the petitioners to the respondent. SANTOS VS. CA

ISSUE: FACTS: Whether or not the contract entered into between the petitioners and private respondent is one of real estate mortgage? HELD: Yes. The consideration of the supposed sale in the amount of P179,000.00 is inadequate. Thus, the most logical conclusion that may be derived from the foregoing is that the P179.000 pesos was, in truth, a loan by the petitioners to the private respondent to enable the latter to redeem his property which was foreclosed by the bank. Besides, had it been the private respondent's real intention to sell rather than to mortgage, we believe that he could have easily found buyers for the properties who would be willing and able to pay a price considerably higher than P179,000.00. Furthermore, it has been satisfactorily proven that from the time of execution of the contract in issue, the realty taxes, for the years 1980 and 1981, on the three properties objects of the "sale', were still paid by the private respondent-apparent vendor. Article 1602, in relation to Article 1604 of the Civil Code finds strong application in the case at hand in the light of the following attendant circumstances: 1) the price of the "sale" was unusually inadequate; 2) the apparent vendor remained in possession of the properties "sold;" 3) the vendor continued to pay the taxes on the ARAFAG • HABANA • JALAYAJAY

Defendants Ferrera and Pedronia were the registered owners of the property in question. The property had been planted to rice for sometime by defendants Nazareths under a tenancy agreement with Romana Aniana Vda. de Ferrera, predecessorin-interest of defendant Ferrera. On February 1, 1971 defendants Ferrera and Pedronia executed a deed of sale over the said property in favor of spouses Apolonia and Ruflno Santos for the sum of P22,000,00. Upon the issuance of a new title in the name of vendees the amount of P16,000.00 was delivered to defendant Ferrera. Simultaneous with the execution of the deed of sale, an -instrument entitled Promise to Sell was executed by the spouses Santos in favor of defendants Ferrera, whereby the former promised to sell back the land in question to the latter for P22,00.00 within a period of six months from February 1, 1971. Defendants Ferrera failed to exercise the right to repurchase the property. Spouses Santos executed a deed of absolute sale covering the property in question in favor of their daughter Felicitacio for P30,000.00. On the same date, Felicitacion and Gregorio Santos executed a promise to sell the property in favor of the Ferreras for P30,000.00 within six months. Notwithstanding, the sale of the property to the Santoses, spouses Ferrera continued in possession of the property thru their tenants, the Nazareths. The Santoses informed the Nazareths that they are the new owners of the property in question and Page 171

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required the latter to pay the rent for the property in question to them but the Nazareths refused to recognize them as the owner of the property and continued to deliver the harvest shares to the Ferreras. Nearly seven years after, plaintiffs, filed an action for breach of warranty and damages against the defendants based on the alleged Deed of Absolute Sale. In defense, the defendants argue that they never intended to sell their land for such an inadequate price and that the transfer certificate of title in favor of Apolonia Santos is null and void, the real contract between the parties being one of equitable mortgage only. The trial court dismissed the complaint and declared that the transaction is merely an equitable mortgage.

document., petitioners executed a separate document, which is the Promise to Sell for the same amount of money. From the time the Deed of Absolute Sale was executed up to the time the action was instituted in court, respondent spouses continued to remain in actual physical possession of the land in dispute, through their tenants Nazareths who were also made respondents. From the foregoing contemporaneous and subsequent acts of the parties, the trial court found that the contract in issue could not be deemed to be an absolute sale. The Court agreed with the trial court's findings. The acts of the parties indicate the presence of an equitable mortgage. Equitable mortgage hasbeen defined as one in which although lacking in some formality, form or words or other requisites demanded by a statute nevertheless reveals the intention of the parties to charge a real property as security for a debt, and contains nothing impossible or contrary to law. The applicable law, as found inthe New Civil Code, provides:

The appellate court affirmed the decision. ISSUE: Whether or not the transaction is merely an equitable mortgage? HELD: Yes. Article 1370 of the New Civil Code provides that; if the terms of contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipula petitions shall control. If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. Article 1371 of the same code further states that; In order to judge the intention of the contracting parties their contemporaneous and subsequent acts shall be principally considered. It is an undisputed fact that respondent spouses were "in dire need of money" to settle certain obligations when they entered into the subject transaction with the petitioners. Simultaneous with the execution of the said ARAFAG • HABANA • JALAYAJAY

Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: (1) When the price of a sale with right to purchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise; (3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (4) When the purchaser retains for himself a part of the purchase price; (5) When the vendor binds himself to pay the taxes on the thing sold; (6) In any other cases where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other Page 172

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obligation. Article 1604 of the same Code, which reads: Art. 1604. The provisions of article 1602 shall also apply to contract purporting to be an absolute sale. Firstly, it was found that the lot in question is located within the town proper ofPasig, Metro Manila, behind the elementary school of Caniogan, Pasig, Metro Manila. Petitioner himself admitted the fact that the subject lot is within the town proper of Pasig, Being so, it could thus easily command a much higher price than P22,000.00, considering further that the same measures about 2,221.86 square meters, more or less. Secondly, it was clearly established that the private respondents, through their tenant, remained in physical possession of the land. Thirdly, the respondent court noted thatthere had always been an extension of the period to repurchase arising from the fact that there were two (2) sets of deed of sale and with a period given to the vendor to repurchase, as seen from the two (2) sets of Promise to Sell. ADORABLE VS INACALA. FACTS: Respondent Inacala was the registered owner of a parcel of land located in barrio Valdefuente, Cabanatuan, Nueva Ecija. On July 1, 1941, through the intervention of Claro Pacis, she executed a deed of sale covering a 15-hectare lot in favor of Arcadio Mendoza for P420.00. The latter thereupon executed a private instrument granting said respondent the option to repurchase the lot for the same consideration within the period of one year from the date of the sale. Mendoza afterwards sold the property to the spouses Eugenio and Margarita Ramos to whom a transfer certificate of title was issued. The petitioners herein, all surnamed Adorable, in turn bought the land from the Ramos spouses, and the corresponding transfer certificate of title was issued. ARAFAG • HABANA • JALAYAJAY

Since the first sale in 1941, Inacala, who had not redeemed the land from Mendoza, never relinquished the possession thereof. It was only in 1951, during the opening of the Pampanga River Irrigation Project, when the petitioners attempted to take physical possession through one Geronimo Fajardo, who leased it from them, that said petitioners were apprised for the first time of Inacala's claim over the lot. ISSUE: Whether or not the deed of sale between respondent Inacala and Mendoza should be given the effect of a mere pacto de retro sale and should be permitted the right to repurchase under Article 1606? HELD: No. The Court of Appeals erred in applying the third paragraph of Article 1606 of the new Civil Code. This provision refers to cases involving a transaction where one of the parties contests or denies that the true agreement is one of sale with right of repurchase. In this case, the sale is expressly with right to repurchase granting respondent Inacala the right to redeem within one year. As this stipulated period has expired without said respondent having redeemed the land in question, the original purchaser, Arcadio Mendoza, had irrevocably acquired ownership over the property in accordance with Article 1509 of the old Civil Code which was in force at the time of the transaction in dispute. BANDONG VS AUSTRIA FACTS: On the 29th of April, 1905, the plaintiffs sold to Antonio Ventenilla, since deceased, a parcel of land for the sum of P350, expressly reserving a right to repurchase under and in accordance with the terms of the deed of sale. Page 173

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The written following stipulation:

contract

contained

the

We also set forth that one of the promises we have made to Don Antonio is that we will repurchase this land at the same price; neither of us make any stipulation as to interest on the money or products of the land, but in the month of March of any year, if we repurchase.The vendors offered to repurchase in the month of March, 1913, but this offer was declined on the ground that the right to repurchase had prescribed. The court was of opinion that the right to repurchase expired at the end of four years from the date of the contract, relying in support of this ruling on the provisions of article 1508 of the Civil Code. In case of stipulation, the period of redemption shall not exceed ten years.

ISSUE: Whether or not the right to repurchase had already prescribed? HELD: No. The statutory limitation upon the right of repurchase to a period of four years is not applicable to the contract under consideration, that limitation being applicable only to cases wherein there is no express agreement touching the date of redemption. The parties having expressly agreed that the vendors should have the right to repurchase in the month of March of any year after the date of the contract, the only statutory limitation placed upon them in the exercise of that right is the limitation found in the second paragraph of article 1508 of the Civil Code cited above, which limits the power of the vendor, even by express agreement, to reserve a right to repurchase for a longer period than ten years. We conclude, therefore, that the ARAFAG • HABANA • JALAYAJAY

provisions of the contractof sale, whereby the parties undertook by express agreement to secure to the vendors a right to repurchase in the month of March of any year after the date of the contract, were valid and binding upon the parties for a period of ten years from the date of the contract but wholly without force and effect thereafter. It is admitted that the vendors offered to repurchase the land in question in the month of March, 1913, less than eight years from the date of the contract. This they had a perfect right to do, and the judgment of the trial court which denies their right to enforce the terms of their contract on the ground that the period of redemption had expired by statutory limitation cannot, therefore, be sustained. BAYQUEN VS. BOLORO FACTS: This is an appeal from the decision of the then Court of First Instance of Abra dismissing the complaint of plaintiffs-appellants against defendant-appellee. On January 16, 1954, appellants sold the land under question to the appellee, reserving their right to repurchase the said land within four (4) years. The plaintiffs-appellants failed to repurchase the land within the four-year period. They now assert their right to repurchase the subject property after more than thirteen (13) years. The trial court ruled that the vendorsappellants have lost their right to repurchase the land under controversy and that by operation of law, ownership of such land had become consolidated in the vendee-appellee. The plaintiffs-appellants appealed the decision, alleging that the trial court erred in holding that there is no dispute between the parties regarding the nature of the purported "deed of sale with right to repurchase" and that actually the transaction is a mortgage. DefendantPage 174

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appellee refutes this by putting up the claim that the fact that the contract is in truth a deed of sale with right to repurchase has been admitted by appellants and the same has been stipulated upon by the parties. ISSUE: Whether or not the transaction is indeed a mortgage? HELD: No. The trial court's finding that the contract is not an equitable mortgage but a deed of sale with right to repurchase is correct. The purchase price as P2,000.00 for a parcel of land, partly riceland and partly pasture land, with an assessed value of P440.00. Based on the size, productivity and accessibility, the price of P2,000.00 for said parcel is adequate. The vendee admittedly took immediate possession after the execution of the contract; no extension of the period of redemption, at or after its expiration, was made. The vendee did not retain any part of the purchase price. The sum of Two Hundred Fifty Pesos (P250.00) claimed by vendorsplaintiffs to be delivered to them is not part of the purchase price retained by the vendee, but merely the excess of the value of the yearly crops over the purchase price resulting from the computation of the plaintiffs. The vendee has declared the property under his name and paid the corresponding real estate taxes, and there is no circumstance by which the Court could fairly infer that the transaction was intended by the parties to secure the payment of a debt or loan. There is no doubt as to the true nature of the transaction and it was, the Court finds, a contract of sale with right to purchase.Besides, not one of the instances enumerated in Article 1602 of the Civil Code (re presumption that the contract is one of equitable mortgage) exists in this case. Appellants also insist that the trial court erred in holding that the ownership over the property in question consolidated by operation of law in the defendantARAFAG • HABANA • JALAYAJAY

appellee immediately after plaintiffs-appellants failed to repurchase the property within four years. The Court had already ruled in Rosario vs. Rosario that where the contract between the parties is admitted and which has been stipulated by the parties to be a deed of sale with right to repurchase, there should be no issue or dispute about the effects thereof that once there is failure to redeem within the stipulated period, ownership thereof becomes vested or consolidated by operation of law on the vendee. Any other interpretation would be violative of the sanctity of the contract between the parties. SPS. JOSE UY VS. CA and TEODORO L. JARDELEZA G.R. No. 109557. November 29, 2000

FACTS: Teodoro Jardeleza, petitioner, filed a petition in the matter of the guardianship of Dr. Ernesto Jardeleza, Sr., upon learning that one piece of real property belonging to the latter spouses was about to be sold. The petitioner averred therein that the present physical and mental incapacity of Dr. Ernesto Jardeleza Sr. prevent him from competently administering his properties, in order to prevent the loss and dissipation of the Jardeleza’s real and personal assets, there was a need for a court-appointed guardian to administer said properties. Gilda Jardeleza, respondent, filed a petition regarding the declaration of incapacity of Dr. Ernesto Jardeleza Sr., assumption of sole powers of administration of conjugal properties and authorization to sell the property. She alleged that her husband’s medical treatment and hospitalization expenses were piling up and that she need to sell one piece of real property and its improvements. She prayed for authorization from the court to sell said property. RTC of Iloilo City rendered its decision, finding that it was convinced that Dr. Ernesto Jardeleza Sr. was truly incapacitated to participate in the administration of the conjugal properties. Page 175

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However, Teodoro filed his opposition to the proceedings being unaware and not knowing that a decision has already been rendered on the case. He also questioned the propriety of the sale of the lot and its improvements thereon supposedly to pay the accumulated financial obligations and hospitalization.

ISSUE: Whether petitioner Gilda L. Jardeleza may assume sole powers of administration of the conjugal property?

HELD: Article 124 of the Family Code provides as follows: “ART. 124. The administration and enjoyment of the conjugal partnership 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.

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.” In regular manner, the rules on summary judicial proceedings under the Family Code govern the proceedings under Article 124 of the Family Code. The situation contemplated is one where the spouse is absent, or separated in fact or has abandoned the other or consent is withheld or cannot be obtained. Such rules do not apply to cases where the non-consenting spouse is incapacitated or incompetent to give consent. In this case, the trial court found that the subject spouse "is an incompetent" who was in comatose or semi-comatose condition, a victim of stroke, cerebrovascular accident, without motor and mental faculties, and with a diagnosis of brain stem infarct. In such case, the proper remedy is a judicial guardianship proceeding under Rule 93 of the 1964 Revised Rules of Court. In the case at bar, the trial court did not comply with the procedure under the Revised Rules of Court. Indeed, the trial court did not even observe the requirements of the summary judicial proceedings under the Family Code. Thus, the trial court did not serve notice of the petition to the incapacitated spouse; it did not require him to show cause why the petition should not be granted. ZOSIMA VERDAD VS. CA

“In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal properties, the other spouse may assume sole powers of administration. These powers do not include the powers of disposition or encumbrance which must have the authority of the court or the written consent of the other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void. However, the transaction shall be construed as a continuing offer on the part of the consenting spouse and the third ARAFAG • HABANA • JALAYAJAY

G.R. No. 109972. April 29, 1996

FACTS: The petitioner, Zosima Verdad, is the purchaser of a 248-square meter residential lot located in Butuan city. Private respondent, Socorro Cordero Vda. de Rosales, seeks to exercise a right of legal redemption over the subject property and traces her title to the late Macaria Atega, her mother-in-law, who died intestate on 08 March 1956. Page 176

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During her lifetime, Macaria contracted two marriages: the first with Angel Burdeos and the second, following the latter’s death, with Canuto Rosales. At the time of her own death, Macaria was survived by her son Ramon A. Burdeos and her grandchild (by her daughter Felicidad A. Burdeos) Estela Lozada of the first marriage and her children of the second marriage, namely, David Rosales, Justo Rosales, Romulo Rosales, and Aurora Rosales. Socorro Rosales is the widow of David Rosales who himself, sometime after Macaria’s death, died intestate without an issue. In an instrument, dated 14 June 1982, the heirs of Ramon Burdeos sold to petitioner Zosima Verdad (their interest on) the disputed lot. Socorro discovered the sale. She sought for the redemption of the property. She tendered the purchase price of P23,000.00 to Zosima. The latter refused to accept the amount for being much less than the lot’s current value of P80,000.00. No settlement having been reached before the Lupong Tagapayapa, private respondents, on 16 October 1987, initiated against petitioner an action for “Legal Redemption with Preliminary Injunction” before the Regional Trial Court of Butuan City. The RTC ruled that the right to redeem the property had already lapsed. On appeal, the CA reversed the lower court’s decision and held that Rosales may redeem the inheritance right.

ISSUE: Whether Socorro Rosales may redeem the property?

HELD: When their interest in the property was sold by the Burdeos heirs to petitioner, a right of redemption arose in favor of private respondents; thus:

ARAFAG • HABANA • JALAYAJAY

“ART. 1619. Legal redemption is the right to be subrogated, upon the same terms and conditions stipulated in the contract, in the place of one who acquires a thing by purchase or dation in payment, or by any other transaction whereby ownership is transmitted by onerous title.” “ART. 1620. A co-owner of a thing may exercise the right of redemption in case the shares of all the other co-owners or of any of them, are sold to a third person. If the price of the alienation is grossly excessive, the redemptioner shall pay only a reasonable one.” We hold that the right of redemption was timely exercised by private respondents. Concededly, no written notice of the sale was given by the Burdeos heirs (vendors) to the co-owners required under article 1623 of the Civil Code – ”ART. 1623. The right of legal preemption or redemption shall not be exercised except within thirty days from the notice in writing by the prospective vendor, or by the vendor, as the case may be. The deed of sale shall not be recorded in the Registry of Property, unless accompanied by an affidavit of the vendor that he has given written notice thereof to all possible redemptioners.” Hence, the thirty-day period of redemption had yet to commence when private respondent Rosales sought to exercise the right of redemption on 31 March 1987, a day after she discovered the sale from the Office of the City Treasurer of Butuan City, or when the case was initiated, on 16 October 1987, before the trial court. The written notice of sale is mandatory. This Court has long established the rule that notwithstanding actual knowledge of a co-owner, the latter is still entitled to a written notice from the selling co-owner in order to remove all uncertainties about the sale, its terms and conditions, as well as its efficacy and status. Page 177

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FALLO: Petition DENIED.

LEASE BPI-FAMILY SAVINGS BANK VS. SPS. ZENAIDA DOMINGO G.R. No. 158676 November 27, 2006 FACTS: Respondent Julian Cruz is the owner of a commercial lot and building located in Novaliches, Quezon City. Sometime in April 1976, he leased out the premises to the Family Savings Bank (FSB). In April 1989, after the Bank of the Philippine Islands (BPI) acquired FSB but before the expiration of the original lease contract between Cruz and FSB, a new lease agreement over the same property was executed, this time between BPI-FSB and Cruz. On February 23, 1989, while the original lease agreement between FSB and Cruz was still subsisting, BPI-FSB subleased the same premises to respondent Benjamin Villa (now deceased), a former Vice President of BPI-FSB. While BPI-FSB apparently did not secure the written consent of Julian Cruz, it appears that the latter was aware of the sublease and acceded to it because he made neither an objection nor a protest thereto. Benjamin Villa occupied and used the premises as a restaurant, operating there at the "Carousel Food House." His restaurant business, however, failed to prosper. Hence, after only about a year of operation, Villa decided to close it down. Mrs. Zenaida Domingo indicated her interested in taking over his restaurant business. Negotiations pushed through and the price of P650,000.00 was agreed upon between the two. Villa, however, informed Mrs. Domingo that as a ARAFAG • HABANA • JALAYAJAY

mere sub lessee under his sublease contract with BPI-FSB, he was prohibited from assigning his rights as a sub lessee. It was, therefore, necessary to rescind his sublease contract with BPI-FSB so that the latter could directly execute a sublease contract with the Domingo spouses. Villa informed the principal lessee BPI-FSB about the arrangement and the latter acceded. On the very same day, Villa vacated the subject premises and turned over the key thereof to the Domingos. The following day - June 27, 1990 - the Domingos went to clean and fix the premises but could not enter because the door was padlocked. Apparently, Julian Cruz, the ownerlessor, preempted the Domingos' in entering the premises. The Domingos thus demanded of Villa either compliance with their contract of sublease or the return of their payment of P650,000.00. Efforts exerted by Villa and BPI-FSB to place the Domingos in possession of the subject premises proved futile due to the refusal of Cruz to open the same.

On account of Villa’s failure to return their total payment of P650,000.00 for the place, the Domingos filed suit in the RTC of Quezon City for a sum of money with damages against both Villa and BPI-FSB. In turn, Villa and BPI-FSB filed their respective third-party complaints against Cruz. Before the RTC, petitioner BPI-FSB denies knowledge of, let alone having anything to do with, the transaction between Villa and the Domingos. It points to the express admission of both the Domingos and Villa that BPI-FSB did not receive any portion of the amount of P650,000.00 as it was Villa alone who received the same from the Domingos. As petitioner further claims, it came to know of such payment only when the case at bar was filed. Not being a privy to the agreement between the Domingos and Villa, petitioner contends that it cannot be found solidarily liable with Villa for the amount. Page 178

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ISSUE: Whether BPI-FSB is solidarily liable with Villa to respondent Domingo?

HELD: Yes. We rule and so hold, as did the CA, that neither BPI-FSB nor Villa can escape liability by disclaiming privity to an agreement with the Domingos. The Court cannot give credence to BPI-FSB's posture that it had nothing to do with, nor even had knowledge of, the agreement between Villa and the Domingos. This scenario is far-fetched, what with the fact that BPI-FSB is a party to the sublease contract with the Domingos, and, in pursuance thereof, even executed a deed of rescission of its earlier sublease agreement with Villa. It had also exerted efforts, along with Villa, towards putting the Domingos in possession of the premises by seeking out Cruz. With such a factual backdrop, it is difficult to grasp how BPI-FSB could not have taken part and assured the Domingos of possession of the premises, as found by the two (2) courts below. Indeed, it insults one’s credulity for the petitioner to feign ignorance of the sublease agreement between Villa and the Domingos. In any event, it is clear that BPI-FSB’s failure to put the Domingos in possession of the premises as its sub lessees, in breach of its own contract with them, makes the petitioner solidarily liable with Villa for the amount the Domingos had paid to enjoy the premises. Villa, on the other hand, though not a privy to the second (BPI-FSB – Domingos) sublease contract, had his own contract with the Domingos which he had breached. We refer to the sale by Villa for P650, 000.00, of the goodwill of his restaurant business in the premises and the assignment of all his rights and interests thereon, including the equipment and improvements made thereat. To cap it all, Villa cannot possibly escape ARAFAG • HABANA • JALAYAJAY

liability for said amount as it was he who had received the same and even issued a receipt therefor. To our mind, the CA was correct in affirming the trial court's distinguishing between a sublease and an assignment of rights. In a sublease situation, the lessee (BPI-FSB, in this case) continues to be liable to the lessor (Cruz) for the payment of rent. The sub lessee (the Domingos in this case) pays rent not to the lessor (Cruz) but to the lessee/sublessor (BPI-FSB). On the other hand, in an assignment of rights, the assignee steps into the shoes of the lessee who is thereupon freed from his obligations under the lease because from then on it is the assignee who is liable to the lessor for rental payment. In other words, in an assignment of rights, there is a change of lessor, which is not so in a sublease situation. It is thus understandable why it is not necessary for the lessor to give his consent to a sublease, while in an assignment of rights, it is a necessity for the lessor to require his prior consent. This is for the lessor's own protection. FALLO: CA decision AFFIRMED in all aspects.

NAKPIL VS. MANILA TOWERS DEVELOPMENT CORP. G.R. No. 160886 September 20, 2006

FACTS: A 14-storey high rise building situated in Sta. Cruz, owned by Cheong Kiao Ang, leased the building to about 200 Filipino-Chinese tenants. One of these tenants was Atty. Bonifacio Nakpil who leased Room 204 in the mezzanine floor. He used the unit as his law office. The tenants of the building later formed the House International Building Tenants Association, Inc. (HIBTAI). The property was mortgaged with the Government Service Insurance System (GSIS) as Page 179

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security for a loan Ang had earlier obtained. Upon failure to pay the loan, the GSIS had the real estate mortgage foreclosed and the property sold at public auction, with GSIS as the winning bidder. The latter, in turn, sold the property to the Centertown Marketing Corporation (CMC) which assigned all its rights to its sister-corporation, the Manila Tower Development Corporation (MTDC). The HIBTAI protested, claiming that its members had the priority to buy the property. The tenants refused to pay their rentals and instead remitted them to HIBTAI. About eight (8) years later, an ocular inspection was made by the city office of Manila to determine its safety. The City Engineer and Building Official had ordered the building condemned after inspection. When the MTDC was about to initiate the repairs on the building, the tenants filed several suits against it; this prevented MTDC from complying with the said order. Upon his arrival in the Philippines, Atty. Nakpil filed, on November 5, 1996, a complaint in the Regional Trial Court (RTC) of Manila against the MTDC, seeking for actual, moral, and exemplary damages, attorney's fees, litigation expenses, costs of suit and other reliefs. He alleged that the MTDC, through its agents and representatives and the policemen who accompanied the demolition team, forced the guard to open the gate to the building, and, thereafter, 200 people armed with hammer and crowbars started destroying the mezzanine floor of the building on July 19, 1996. His room was destroyed, the walls and partitions were completely hammered down, and the electricity was cut off. His personal belongings were scattered, thrown away, or stolen. He pointed out that he had been renting the premises and complying with the conditions of the lease since 1965. The MTDC violated his right as lessee to the possession of the premises, unlawfully depriving him of said possession without any lawful authority or court order.

ARAFAG • HABANA • JALAYAJAY

The RTC dismissed the complaint on grounds that Nakpil failed to prove that the building was demolished. ISSUE: Whether or not the MTDC is liable for actual, moral and exemplary damages to Nakpil?

HELD: The petition of the MTDC is meritorious. Article 1654 of the Civil Code enumerates the obligations of the lessor: (1) To deliver the thing which is the object of the contract in such a condition as to render it fit for the use intended; (2) To make on the same during the lease all the necessary repairs in order to keep it suitable for the use for which it has been devoted, unless there is a stipulation to the contrary; (3) To maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire duration of the contract. Failure of the lessor to fulfill any of these obligations will render the lessor liable for damages. In contracts, the obligor (lessor) who acted in good faith is liable for damages that are the material and probable consequence of the breach of the obligation and which the parties have foreseen or could have reasonably foreseen at the time the obligation was contracted. In case of fraud, bad faith, malice or wanton attitude, he shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation. What is evident in the present case is that the disturbance on the leased premises on July 19, 1996 was actually done by the employees under the City Engineer of Manila and the City Building Official on orders of the City Mayor without the participation of the MTDC. It bears stressing that Page 180

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the City Building Official is authorized and mandated under Section 214 of the National Building Code to order the repair, maintenance or demolition of the building found or declared to be dangerous or ruinous, depending upon the degree of danger to life, health, safety and/or well-being of the general public and its occupants as provided in Section 215 thereof. There is no question that the possession by respondent of the leased premises had been disturbed by the attempt of the personnel of the City Building Official to repair and rehabilitate the building due to MTDC's failure to undertake the same. Any act or omission by the lessor which causes a substantial interference with the actual possession of the lessee will constitute a breach of the obligation of quiet enjoyment. In some jurisdictions, the lessor's failure to make repairs or alterations to the leased premises as required by public authorities, particularly those that are substantial and structural in nature, constitutes constructive eviction, which makes the lessor liable for damages. Such conclusion is grounded on the fact that the lessors, in those cases, were obliged to make structural and substantial repairs on the leased property. The same doctrine could very well be applied in our jurisdiction considering that, under our laws, the lessor is likewise obliged to make the necessary repairs on the leased premises which would undoubtedly include those that are structural and substantial in nature. In fact, there may be a constructive eviction if the landlord does a wrongful act or is guilty of any default or neglect whereby the leased premises are rendered unsafe, unfit, or unsuitable for occupancy, in whole, or in substantial part, for the purposes for which they were leased. Assuming that Atty. Nakpil lost any of his personal properties, at the very least, he should have inquired from the office of the City Engineer/City Building Official and requested that they be returned to him.

PARILLA VS. DR. PROSPERO PILAR, G.R. No. 167680 November 30, 2006

FACTS: Petitioner-spouses Samuel and Chinita Parilla and their co-petitioner-son Deodato Parilla, as dealers of Pilipinas Shell Petroleum Corporation (Pilipinas Shell), have been in possession of a parcel of land (the property) located at the poblacion of Bantay, Ilocos Sur which was leased to it by respondent Dr. Prospero Pilar under a 10-year Lease Agreement entered into in 1990. When the lease contract between Pilipinas Shell and respondent expired in 2000, petitioners remained in possession of the property on which they built improvements consisting of a billiard hall and a restaurant. Despite demands to vacate, petitioners and the other occupants remained in the property. Hence, respondent who has been residing in the United States, through his attorneyin-fact filed a complaint for ejectment before the Bantay MTC with prayer for the issuance of a writ of preliminary injunction with damages against petitioners and the other occupants of the property. MTC ordered herein petitioners and their co-defendants and all persons claiming rights under them to vacate the property plus compensation. On appeal, the RTC affirmed the MTC decision.

ISSUE: FALLO: Petition DENIED. ARAFAG • HABANA • JALAYAJAY

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Whether petitioners should be reimbursed for the improvements made thereon?

remove the improvements, even though the principal thing may suffer damage thereby. It appears that the lessor has opted not to reimburse.

HELD:

FALLO: Petition DENIED.

The right of the lessor upon the termination of a lease contract with respect to useful improvements introduced on the leased property by a lessee is covered by Article 1678 which reads: Art. 1678. If the lessee makes, in good faith, useful improvements which are suitable to the use for which the lease is intended, without altering the form or substance of the property leased, the lessor upon the termination of the lease shall pay the lessee one-half of the value of the improvements at that time. Should the lessor refuse to reimburse said amount, the lessee may remove the improvements, even though the principal thing may suffer damage thereby. He shall not; however cause any more impairment upon the property leased than is necessary. Clearly, it is Article 1678 of the New Civil Code which applies to the present case. Petitioners' claim for reimbursement of the alleged entire value of the improvements does not thus lie under Article 1678.Not even for one-half of such alleged value, there being no substantial evidence, e.g., receipts or other documentary evidence detailing costs of construction. Besides, by petitioners' admission, of the structures they originally built ' the billiard hall, restaurant, sari-sari store and a parking lot, only the 'bodega-like sarisari store and the parking lot now exist. At all events, under Article 1678, it is the lessor who is given the option, upon termination of the lease contract, either to appropriate the useful improvements by paying one-half of their value at that time, or to allow the lessee to remove the improvements. This option solely belongs to the lessor as the law is explicit that '[s]hould the lessor refuse to reimburse said amount, the lessee may ARAFAG • HABANA • JALAYAJAY

GO KING VS. GERONIMO G.R. No. L-2126 August 27, 1948

FACTS: Sabino Padilla, owner of some lots on Echague Street, Manila, sought to eject Felipe Aguasin from the premises for his failure to comply with their lease contract whereby Aguasin was enabled to construct thereon some "barongbarongs". Judgment of eviction was in due course rendered, which in time became final and executory. It happened that the structures were occupied by some sub-lessees of Aguasin, Chinese persons operating stores therein; and when the sheriff attempted to comply with the order and to clear the premises they appeared before the municipal court alleging that they had not been made parties to the litigation, and that consequently the eviction order could not be legally enforced as against them, they petitioned for a declaration that said order did not apply to them and their possessions. The judge denied their request. Consequently said sub-lessees instituted this proceeding and requested for a preliminary injunction. After hearing both sides, this Court declined to issue a restraining directive, because it was of the opinion that the order to vacate affected both the lessee and the sub-lessees.

ISSUE: Whether the restraining directives should be issued?

HELD: Page 182

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The order of eviction against the tenant affected the sub-tenants, even if the latter had not been sued in the detainer litigation. That opinion following previous rulings of this Court should be conclusive on the instant controversy. These seem to be no cogent reason in law or logic requiring a different view. The sub-lessees hold the premises subject to the right of the lessee: once that right disappears they have nothing to stand on. Unless they can claim an understanding or relation with the owner in which event the situation would be better than that of mere sub-lessees.

Respondents sued petitioner for damages. Petitioner alleged that private respondent's complaint did not have a cause of action for "there is no such thing in law as an action for damages or a cause of action for damages" and that "the cause of action stated in private respondent's complaint is one of forcible entry and not of damages”.

ISSUE: Whether the contention of petitioner is tenable?

CMS INVESTMENTS VS. IAC and JOSE TAN HELD: FACTS: In 1978, private respondent ( Jose Tan) entered into an oral contract of lease for ten years with the petitioner CMS Investment and Management Corporation. The contract involved a certain parcel of land owned by petitioner situated at Sucat Road , Paranaque Metro Manila. The private respondent constructed therein a building with the agreement that private respondent will pay the lessor the sum of two thousand pesos (P2,000.00) monthly which was later on increased to three thousand pesos (P3,000.00) a month. In 1982 officers for CMS informed the private respondent to vacate the premises. Private respondent "requested the defendant that they cannot leave the premises on said date due to the volume of his business as he has many customers and further informed the defendants that it was their agreement when they just leased the land in question that plaintiff could stay in the premises for not less than ten (10) years from January 24, 1978" However, one day private respondent was shocked and surprised upon arriving at his lumber when he found out that there were several men guarding the premises aided by and under instruction from CMS. ARAFAG • HABANA • JALAYAJAY

There is an action for damages. An action for damages specifically applicable in a lessorlessee relationship is authorized in Article 1659 of the New Civil Code which states that: Art. 1659. If the lessor or the lessee should not comply with the obligations set forth in articles 1654 and 1657, the aggrieved party may ask for the rescission of the contract and indemnification for damages, or only the latter, allowing the contract to remain in force. Article 1657 of the New Civil Code enumerates the duties of lessee, to quote: Art. 1657. The lessee is obliged: (1) To pay the price of the lease according to the terms stipulated; (2) To use the thing leased as a diligent father of a family, devoting it to the use stipulated; and in the absence of stipulation, to that which may be inferred from the nature of the thing leased, according to the custom of the place; (3) To pay the expense for the deed of lease. And Article 1654 of the New Civil Code lists downs the obligations of a lessor, to wit: Page 183

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Art. 1654. The lessor is obliged: (1) To deliver the thing which is the object of the contract in such a condition as to render it fit for the use intended; (2) To make on the same during the lease all the necessary repairs in order to keep it suitable for the use to which it has been devoted, unless there is a stipulation to the contrary: (3) To maintain the lessee in the peaceful land adequate enjoyment of the lease for the entire duration of the contract. It is very clear that Article 1659 of the New Civil Code allows the aggrieved party two remedies: (1) rescission with damages, or (2) damages only "allowing the contract to remain in force." The private respondent opted for the second remedy granted by Article 1659 of the New Civil Code, hence the action for "damages with preliminary mandatory injunction. Section 3 of Article 1654 of the New Civil Code requires that the lessor must "maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire duration of the contract." The act of padlocking the offices of the private respondent in 1982 and the act of enclosing with barbed wire the leased land and the private respondent's offices are a clear violation by the lessor, the petitioners herein, of their third obligation mandated by Section 3 of Article 1659 of the New Civil Code. These acts by the lessor set at naught the duty required of the lessor in the New Civil Code. Article 1659 allows the lessor or the lessee two remedies provided he is the aggrieved party. There is no doubt that the lessee, the private respondent, is the aggrieved party. The duties of the lessee contained in Article 1657 have been complied with by the private respondent. Moreover, the contract of lease entered into by the ARAFAG • HABANA • JALAYAJAY

petitioners and the private respondent was an oral contract for a ten-year period. When the petitioner padlocked and fenced the leased land and private respondent's offices in 1982, only four (4) years from the inception of the contract of lease, with six (6) more years to go in the life of the contract of lease, the private respondent became the aggrieved party. The private respondent was obviously within his rights to file a complaint for "damages with preliminary mandatory injunction." Hence, the lower court's assumption of jurisdiction over the original case was warranted. FALLO: WHEREFORE, THE HEREIN PETITION IS HEREBY DISMISSED. MANUSTRE SYSTEMS VS. CA 179 SCRA 136 FACTS: Mantruste Systems, Inc. (MSI) entered into an interim lease agreement dated August 26, 1986with the Development Bank of the Philippines, the owner of Bayview Plaza Hotel. The agreement provides that MSI would operate the hotel for a minimum of three months or until such time that the said properties are sold to MSI or other third parties by DBP. During the said period, the President issued Proclamation No. 50 entitled Launching a Program for the Expeditious Disposition or Privatization of certain Government Corporations and/or the (acquired) assets thereof and creating a Committee on Privatization and the Asset Privatization Trust. The Bayview Hotel has been one of the identified assets for privatization and it was transferred from DBP to APT ford is position. The DBP notified MSI that it was terminating the interim lease agreement. It has been agreed that 30days from the signing of the Certification, the lease contract will be considered as terminated; the Bayview Hotel will be made available for Page 184

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inspection at all times by other bidders; and said property will be ready for delivery to any new owners 30 days from signing the Certification. A letter granting an extension of 30 days was sent by APT to MSI. This is to allow the latter to wind up affairs and to facilitate a smooth turnover of the facilities to its new owners without necessarily interrupting the hotels regular operation. After 15 days, MSI informed APT that since its lease on the hotel properties has been for more than one year now, its lessee status has taken the character of a long term one. As such MSI as the lessee has acquired certain rights and privileges under the law and equity. It also contends that it has acquired a priority right to purchase said properties above other interested parties. APT, on a reply said that it has not found any stipulation tending to support MSI’s claim and since the Pre-Bidding Conference has been conducted, for APT to consider the request of MSI would not be inconsonance with law, equity and fair play. In the view that MSI has been disqualified from the public bidding, the property was eventually awarded to Makati Agro Trading and La Filipina Uy Gongco Corporation. MSI filed a petition for preliminary injunction with the lower court. The said court granted the petition but the Court of Appeals nullified the lower court’s ruling for being violative to Section 1 of Proclamation No. 50 which provides: "No court or administrative agency shall issue any restraining order or injunction against the trust in connection with the acquisition, sale or disposition of assets transferred to it. Nor shall such order or injunction be issued against any purchaser of assets sold by the Trust to prevent such purchaser from taking possession of any assets purchased by him." The CA rejected the lower court’s opinion that said proclamation is unconstitutional, rather it upheld that it continues to be operative after the affectivity of the 1987 Constitution by virtue of Section 3 Art.XVIII. It also noted that MSI has not ARAFAG • HABANA • JALAYAJAY

been deprived of its property rights since those rights are non-existent and its only property right was the alleged reimbursable advances made to DBP, which it may sue to collect in a separate action. It further held that the issuance of writ of preliminary injunction by the lower court against APT may not be justified as a valid exercise of judicial power for MSI does not have a legally demandable and enforceable right of retention over the said property. The MSI then filed this petition for certiorari with this Court.

ISSUE: Whether the CA erred in holding that MSI’s rights to the property are non-existent except its right to use the refund of its alleged advances; and in not declaring unconstitutional Section 31 of Proclamation No. 50?

HELD: The Court upheld the ruling of the CA. It affirmed the Court of appeals finding that MSI’s claim to a patent contractual right to retain possession of the Bayview Hotel until all its advances are paid is on-existent; and as the right of retention does not exist, neither does the right to the relief demanded. A mere lessee like MSI is not a builder in good faith, hence the right of retention given to a possessor in good faith pending reimbursement of his advances for necessary repairs and useful improvements on another’s property is not available to a lessee whose possession is not that of an owner. The Court stated that it is a settled rule that lessees are not possessor in good faith because they know that their occupancy of the premises continue only during the life of the lease, hence they cannot recover, as a matter of right, the value of their improvements from the lessor, much less retain the premises until they are reimbursed thereof. Page 185

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The Court also ruled that Section 31 of Proclamation No. 50 does not impair the inherent powers of the courts to settle actual controversies which are legally demandable and enforceable and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the government. It also noted that the power of the courts over the other branches and instrumentalities of the government is limited only to the determination of whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction in the exercise of their authority and in the performance of their assigned tasks. There can be no justification on judicial interference in the business of an administrative agency except when it violates citizen’s constitutional rights, or commits a grave abuse of discretion, or acts in excess of, or without jurisdiction. FALLO: The petition is dismissed.

ROMAN CATHOLIC ARCHBISHOP OF MANILA VS. CA and SPS. REYES G.R. No. 111324. July 5, 1996

FACTS: A lease agreement executed by petitionerlessor, the Roman Catholic Archbishop of Manila, and private respondent-lessees, spouses Ernesto and Lorna Reyes on August 1, 1985 over a parcel of land located in Intramuros, Manila. The lease contract provided for a ten-year lease, renewable for another ten years at the option of the lessor. The contract likewise provided for a graduated schedule of rental fees, starting with P4.50 per square meter on the first and second years, increasing up to P6.50 per square meter on the ninth and tenth years. Private respondent lessees were also given the right of pre-emption, with first priority to purchase the property if the owner, herein petitioner, offered it for sale. ARAFAG • HABANA • JALAYAJAY

Intending to have a fire wall constructed, private respondents allegedly had the property relocated. As a result, they discovered that the adjacent owner's concrete fence abutted on and encroached upon 30.96 square meters of the leased property. Private respondents requested petitioner to make adjustments in order to correct the encroachment problem. The spouses Reyes claim that despite repeated follow-up, petitioner has failed to take any action on their demand. Consequently, they decided to withhold rental payments as "leverage" against petitioner and to force the latter to make corrections or adjustments in the area of subject land. In 1989, petitioner offered to sell the parcel of land on a higher terms but private respondent insist that it be sold to them at the prevailing price when the lot was first offered in 1987. No agreement was reached. Private respondent spouses filed an action for specific performance and damages before the RTC. The lower court held that private respondent spouses were indeed obligated to pay rent after having admitted that they deliberately defaulted in payments. Moreover, the law grants the lessee the right to suspend payment of rentals only for the area of the leased property which is not delivered. Petitioner moved to dismiss the appeal on the ground that the case raises only pure questions of law and that respondent appellate court had no jurisdiction over the same.

ISSUE: Whether the petitioner is correct?

contention

of

herein

HELD:

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It is underscored that the lease contract simply gives the plaintiffs a right of pre-emission over the leased premises. There was as yet no definite offer and acceptance as regards the sale of the property. The several communications submitted by the parties clearly established such fact. The parties are still in the process of negotiations; therefore, there is no contract, agreement or undertaking between the parties which can be enforced by this Court (See Article 1305 & 1319, Civil Code). In the absence of a definite offer and unconditional acceptance as to the sale of the property in dispute, as in this case, neither of the parties may sue for specific performance of a non-existent contract. The disputes in the case at bar for specific performance have arisen from the demand to make adjustments on the property where the adjacent owner is alleged to have usurped a part thereof, the exercise of the right of pre-emption and the payment of rental arrearages. A ruling on the issue of encroachment will perforce be determinative of the issue of unpaid rentals. These two points do not arise from two or more causes of action, but from the same cause of action. Hence, this suit does not require multiple appeals. There is no ground for the splitting of appeals in this case, even if it involves an Order granting (and denying) a motion to dismiss and a Partial Judgment granting a motion for judgment on the pleadings. The subject matter covered in the Order and in the Partial Judgment pertains to the same lessor-lessee relationship, lease contract and parcel of land. Splitting appeals in the instant case would, in effect, be violative of the rule against multiplicity of appeals.

ARAFAG • HABANA • JALAYAJAY

PARTNERSHIP

AGAD VS. MABATO FACTS: Petitioner Mauricio Agad claims that he and defendant Severino Mabato are partners in afishpond business to which they contributed P1000 each. As managing partner, Mabato yearly renderedthe accounts of the operations of the partnership. However, for the years 1957-1963, defendant failedto render the accounts despite repeated demands. Petitioner filed a complaint against Mabato to whicha copy of the public instrument evidencing their partnership is attached. Aside from the share of profits (P14,000) and attorney’s fees (P1000), petitioner prayed for the dissolution of the partnership and winding up of its affairs. Mabato denied the existence of the partnership alleging that Agad failed to pay hisP1000 contribution. He then filed a motion to dismiss on the ground of lack of cause of action. The lower court dismissed the complaint finding a failure to state a cause of action predicated upon the theory that the contract of partnership is null and void, pursuant to Art. 1773 of our Civil Code, because an inventory of the fishpond referred in said instrument had not been attached thereto .Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary. Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, Page 187

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if inventory of said property is not made, signed by the parties; and attached to the public instrument.

ISSUE: Whether or not immovable property or real rights have been contributed to the partnership.

HELD: Based on the copy of the public instrument attached in the complaint, the partnership was established to operate a fishpond", and not to "engage in a fishpond business.” Thus, Mabato’scontention that “it is really inconceivable how a partnership engaged in the fishpond business could exist without said fishpond property (being) contributed to the partnership” is without merit. Their contributions were limited to P1000 each and neither a fishpond nor a real right thereto was contributed to the partnership. Therefore, Article 1773 of the Civil Code finds no application in the case at bar. Case remanded to the lower court for further proceedings.

treated the profit as a capital gain and paid an income tax on ½ thereof or about 16K.In April, 1980, or one day before the expiration of the 5yearprescriptive period, the CIR required the four petitioners to pay corporate income tax on the total profit of 134K in addition to individual income tax on their shares thereof. He assessed around 37K as corporate income tax, around 18K as50% fraud surcharge and around 15K as 42% accumulated interest, or a total of 71K. Moreover, he also considered the share of the profits of each petitioner in the sum of about 33K as a " taxable in full (not a mere capital gain of which ½is taxable) and required them to pay deficiency income taxes aggregating P56,707.20 including the 50% fraud surcharge and the accumulated interest. Thus, the petitioners are being held liable for deficiency income taxes and penalties totaling about 127K on their profit of 134K, in addition to the tax on capital gains already paid. The Commissioner acted on the theory that the four petitioners had formed an unregistered partnership or joint venture within the meaning of Sections 24 (a) and 84 (b) of the Tax Code. The petitioners contested the assessments. Two judges of the Tax Court sustained the same. Hence, the instant appeal.

OBILLOS VS. CIR

ISSUE:

FACTS:

Whether or not the petitioners have formed a partnership?

On March 2, 1973, Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd. On two lots located at Greenhills. The next day he transferred his rights to his four children, the petitioners, to enable them to build their residences. The company sold the two lots to petitioners for around P178Kon March 13. Seemingly, the Torrens titles issued to them would show that they were co-owners of the two lots. After having held the two lots for more than a year, the petitioners resold them to the Walled City Securities Corporation and Olga Cruz Canada for around 313K. They derived from the sale a total profit of about 134K or 33K for each of them. They ARAFAG • HABANA • JALAYAJAY

HELD: NO. The judgment of the Tax Court is reversed and set aside. The assessments are cancelled. The court held that it is error to consider the petitioners as having formed a partnership under Art. 1767 of the Civil Code simply because they allegedly contributed 178K to buy the two lots, resold the same and divided the profit among themselves. To regard the petitioners as having formed a taxable unregistered partnership would result in oppressive taxation and confirm the dictum that the power to tax involves the power to Page 188

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destroy. That eventuality should be obviated. As testified by Jose Obillos, Jr., they had no such intention. They were co-owners pure and simple. To consider them as partners would obliterate the distinction between a co-ownership and a partnership. The petitioners were not engaged in any joint venture by reason of that isolated transaction. Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible to build their residences on the lots because of the high cost of construction, then they had no choice but to resell the same to dissolve the co-ownership. The division of the profit was merely incidental to the dissolution of the co-ownership which was in the nature of things a temporary state. It had to be terminated sooner or later. Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived". There must be an unmistakable intention to form a partnership or joint venture. The Court went on to compare the instant case to other cases like Reyes vs. Commissioner of Internal Revenue, 24 SCRA198, where father and son purchased a lot and building, entrusted the administration of the building to an administrator and divided equally the net income, and from Evangelista vs. Collector of Internal Revenue, 102 Phil. 140,where the three Evangelista sisters bought four pieces of real property which they leased to various tenants and derived rentals there from. Clearly, the petitioners in these two cases had formed an unregistered partnership. These cases are different from the case at bar. In the instant case, what the Commissioner should have investigated was whether the father donated the two lots to the petitioners and whether he paid the donor's tax (See Art.1448, Civil Code. PASCUAL Vs. CIR October 18, 1988

ARAFAG • HABANA • JALAYAJAY

FACTS: Petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and on they bought another three (3)parcels of land from Juan Roque. The first two parcels of land were sold by petitioners in 1968to Marenir Development Corporation, while the threeparcels of land were sold by petitioners to Erlinda Reyes and Maria Samson. Petitioners realized a net profit in the sales and they paid thecorresponding capital gains taxes by availing of the taxamnesties granted at the time. However, in a letter of then Acting BIR Commissioner Efren I.Plana, petitioners were assessed and required to pay a total amount of P107,101.70 as alleged deficiency corporate income taxes for the years 1968 and 1970 (the years of sales). Petitioners protested the said assessment in a letter asserting that they had availed of tax amnesties way back in1974. COMMISSIONER: that in the years 1968 and 1970, petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint venture taxable as a corporation under Section 20(b) and its income was subject to the taxes prescribed under Section 24, both of the National Internal Revenue Code that the unregistered partnership was subject to corporate income tax as distinguished from profits derived from the partnership by them which is subject to individual income tax; and that the availment of tax amnesty under P.D. No. 23, as amended, by petitioners relieved petitioners of their individual income tax liabilities but did not relieve them from the tax liability of the unregistered partnership. Hence, the petitioners were required to pay the deficiency income tax assessed. CTA: affirmed the decision and action taken by respondent commissioner with costs against petitioners.

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In a separate dissenting opinion, Associate Judge Constante Roaquin stated that considering the circumstances of this case, although there might in fact be a co-ownership between the petitioners, there was no adequate basis for the conclusion that they thereby formed an unregistered partnership which made "hem liable for corporate income tax under the Tax Code.

ISSUE: Whetehr or not petitioners formed an unregistered partnership subject to corporate income tax?

HELD: NO. The basis of the subject decision of the respondent court is the ruling of this Court in Evangelista. EVANGELISTA CASE: Petitioners borrowed a sum of money from their father which together with their own personal funds they used in buying several real properties. They appointed their brother to manage their propertieswith full power to lease, collect, rent, issue receipts ,etc. They had the real properties rented or leased to various tenants for several years and they gained net profits from the rental income. Thus, the Collector of Internal Revenue demanded the payment of income tax on a corporation, among others, from them. The essential elements of a partnership are namely: (a) an agreement to contribute money, property or industry to a common fund; and (b)intent to divide the profits among contracting parties are present There is evidence that petitioners entered into agreement to contribute money, property ARAFAG • HABANA • JALAYAJAY

the no an or

industry to a common fund, and that they intended to divide the profits among themselves. Respondent commissioner and/ or his representative just assumed these conditions to be present on the basis of the fact that petitioners purchased certain parcels of land and became coowners thereof. There was a series of transactions where petitioners purchased twenty-four (24) lots showing that the purpose was not limited to the conservation or preservation of the common fund or even the properties acquired by them. The character of habituality peculiar to business transactions engaged in for the purpose of gain was present. Petitioners bought two(2) parcels of land in1965. They did not sellthe same nor make any improvements thereon.In 1966, they bought another three (3)parcels of land from oneseller. It was only 1968When they sold the two(2) parcels of land afterwhich they did not make any additional ornew purchase. Theremaining three (3)parcels were sold bythem in 1970. Thetransactions wereisolated. The characterof habituality peculiarto business transactionsfor the purpose of gainwas not present.Properties were leased out totenants for several years. Thebusiness was under themanagement of one of thepartners. Such conditionexisted for over fifteen (15)yearsNo properties wereleased Evangelista case relied upon by the CAis not similar to the case at bar and was incorrectly used.

Concurring opinion of Mr. Justice Angelo Bautista in Evangelista he said:I wish however to make the following observation Article 1769of the new Civil Code lays down the rule for determining whena transaction should be deemed a partnership or a coownership. Said article paragraphs 2 and 3, provides; (2) Co-ownership or co-possession does not itself establish a partnership, whether such coowners or co-possessors do or donot share any profits made by the use of the property; (3) Thesharing of gross returns does not of itself Page 190

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establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from whichthe returns are derived;From the above it appears that the fact that those who agree to form a co- ownership share or do not share any profits made by the use of the property held incommon does not convert their venture into a partnership. Or the sharing of the gross returns does not of itself establish a partnership whether or not the persons sharing therein have a joint or common right or interest in the property. This only means that, aside from the circumstance of profit, the presenceof other elements constituting partnership is necessary, suchas the clear intent to form a partnership, the existence of a juridical personality different from that of the individual partners, and the freedom to transfer or assign any interest inthe property by one with the consent of the others It is evident that an isolated transaction whereby two or more personscontribute funds to buy certain real estate for profit in theabsence of other circumstances showing a contrary intentioncannot be considered a partnership.

formed an unregistered partnershipwhich is thereby liable for corporate income tax, as therespondent commissioner proposes.

The sharing of returns does not in itself establish apartnership whether or not the persons sharing therein havea joint or common right or interest in the property. Theremust be a clear intent to form a partnership, the existence of a juridical personality different from the individual partners,and the freedom of each party to transfer or assign the wholeproperty.

FACTS:

In the present case, there is clear evidence of co-ownershipbetween the petitioners. There is no adequate basis tosupport the proposition that they thereby formed anunregistered partnership. The two isolated transactionswhereby they purchased properties and sold the same a fewyears thereafter did not thereby make them partners. Theyshared in the gross profits as co- owners and paid theircapital gains taxes on their net profits and availed of the taxamnesty thereby. Under the circumstances, they cannot beconsidered to have ARAFAG • HABANA • JALAYAJAY

And even assuming for the sake of argument that suchunregistered partnership appears to have been formed, since there is no such existing unregistered partnership with adistinct personality nor with assets that can be held liable forsaid deficiency corporate income tax, then petitioners can beheld individually liable as partners for this unpaid obligationof the partnership . However, as petitioners have availed of the benefits of tax amnesty as individual taxpayers in thesetransactions, they are thereby relieved of any further taxliability arising therefrom

LITONJUA JR. VS. LITONJUA SR. December 13, 2005

Aurelio and Eduardo are brothers. In 1973, Aurelio alleged that Eduardo entered into a contract of partnership with him. Aurelio showed as evidence a letter sent to him by Eduardo that the latter is allowing Aurelio to manage their family business (if Eduardo’s away) and in exchange thereof he will be giving Aurelio P1 million or 10% equity, whichever is higher. A memorandum was subsequently made for the said partnership agreement. The memorandum this time stated that in exchange of Aurelio, who just got married, retaining his share in the family business (movie theatres, shipping and land development) and some other immovable properties, he will be given P1 Million or 10% equity in all these businesses and those to be subsequently acquired by them whichever is greater.

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In 1992 however, the relationship between the brothers went sour. And so Aurelio demanded an accounting and the liquidation of his share in the partnership. Eduardo did not heed and so Aurelio sued Eduardo.

contributed to the partnership an inventory shall be had and attached to the contract.

ISSUE:

ORTEGA VS. CA 245 SCRA 529 Whether or not there exists a partnership? FACTS:

HELD: No. The partnership is void and legally nonexistent. The documentary evidence presented by Aurelio, i.e. the letter from Eduardo and the Memorandum, did not prove partnership. The 1973 letter from Eduardo on its face, contains typewritten entries, personal in tone, but is unsigned and undated. As an unsigned document, there can be no quibbling that said letter does not meet the public instrumentation requirements exacted under Article 1771 (how partnership is constituted) of the Civil Code. Moreover, being unsigned and doubtless referring to a partnership involving more than P3,000.00 in money or property, said letter cannot be presented for notarization, let alone registered with the Securities and Exchange Commission (SEC), as called for under the Article 1772 (capitalization of a partnership) of the Code. And inasmuch as the inventory requirement under the succeeding Article 1773 goes into the matter of validity when immovable property is contributed to the partnership, the next logical point of inquiry turns on the nature of Aurelio’s contribution, if any, to the supposed partnership. The Memorandum is also not a proof of the partnership for the same is not a public instrument and again, no inventory was made of the immovable property and no inventory was attached to the Memorandum. Article 1773 of the Civil Code requires that if immovable property is ARAFAG • HABANA • JALAYAJAY

Ortega, then a senior partner in the law firm Bito, Misa, and Lozada withdrew in said firm.He filed with SEC a petition for dissolution and liquidation of partnership. The hearing officer rendered decision ruling that Petitioner’s withdrawal from the law firm Bito, Misa & Lozada did not dissolve the said law partnership. Accordingly, the petitioner and respondents are hereby enjoined to abide by the provisions of the Agreement relative to the matter governing the liquidation of the shares of any retiring or withdrawing parner in the partnership of interest. SEC en banc ruled that withdrawal of Misa from the firm had dissolved the partnership.Reason: since it is partnership at will, the law firm could be dissolved by any partner atanytime, such as by withdrawal therefrom, regardless of good faith or bad faith, since nopartner can be forced to continue in the partnership against his will. During the pendency of the case,Atty. Bito and Atty Lozada both died. The death of the two partners, as well as the admission of new partners, in the law firm prompted Atty. Misa to renew hi application for recievership

ISSUE:

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1. WON the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo)is a partnership at will? 2. WON the withdrawal of Misa dissolved the partnership regardlessof his good or bad faith?

The SC denied the petition. TEODORO DE LOS REYES vs. VICENTE LUKBAN G.R. No. 10695, December 15, 1916

FACTS: HELD: 1. Yes. The partnership agreement of the firm provides that ”[t]he partnership shallcontinue so long as mutually satisfactory and upon the death or legal incapacity of one of the partners, shall be continued by the surviving partners.” 2. Yes. Any one of the partners may, at his sole pleasure, dictate a dissolution of thepartnership at will (e.g. by way of withdrawal of a partner). He must, however, act in goodfaith, not that the attendance of bad faith can prevent the dissolution of the partnership butthat it can result in a liability for damages. A partnership that does not fix its term is a partnership at will. That the law firm “Bito, Misa & Lozada,” and now “Bito, Lozada, Ortega and Castillo,” is indeed such a partnership. The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to choose with whom a person wishes to associate himself is the very foundation and essence of the partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each partner’s capability to give it, and the absence of a cause for dissolution provided by law itself. The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated in the carrying on, as might be distinguished from the winding up of, the business. Upon its dissolution, the partnership continues and its legal personality is retained until the complete winding up of its business culminating in its termination. ARAFAG • HABANA • JALAYAJAY

Teodoro delos Reyes brought a suit in the Court of First Instanceof Manila against Vicente Lukban and Espiridion Borja to recover fromthem payment for the merchandise they bought on credit by the firmLukban & Borja from the plaintiff's ship supply store named La Industria. A judgment was rendered, on which the defendant firm wasordered to pay the sum of P1,086.65 with interest thereon amounting toP1,102.95. Esperidion Borja paid P522.69. Teodoro delos Reyes later onbrought a suit against Lukban & Borja to recover the sum of P853, theremaining unpaid balance plus legal interest.Defendant Lukban contended that he is not liable, he was merelyan industrial partner in the firm and it was Borja who furnished thecapital. As it was proven on trial that the partnership has no moreremaining property, as it is already insolvent, the court rendered judgmentholding Borja and Lukban jointly and severally liable to pay the sum toplaintiff delos Reyes.

ISSUE: Is a creditor entitled to collect individually from the partners theamount of the debt that the dissolved partnership owed at the time of itsdissolution?

HELD: Yes. The creditor has the right to recover from the partners thereof in the manner provided by Art. 127 of the Code of Commerce (nowgoverned by Art. 1816 of the Civil Code of the Philippines). Art. 127 of the Code of Commerce Page 193

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provides:"All the members of the general copartnership, be they or be theynot managing partners of the same, are personally and severally liablewith all their properties for the results of the transactions made in thename and for the account of the partnership, under the signature of thelatter, and by the person authorized to make use thereof" With respect to the first assignment of error, the contents of the writ and the return of the execution of the final judgment rendered in the said case No. 3759 show that the dissolved partnership of Lukban & Borja had absolutely no property whatever of its own. Had any property whatever of the said partnership still remained, the defendant Lukban would have pointed it out inorder to avoid being obliged to pay in solidum all the balance of the sum which the firm was sentenced to pay by the said final judgment of October 19, 1905. He did not do so because the firm of Lukban & Borja no longer had any kind of property or credits, as shown by the document setting forth the agreement made by and between several creditors of the said firm, a third party named Ramon Tinsay and the former partner of the firm, Espiridion Borja, in which document it appears that the firm Lukban & Borja owed four creditors, among them the plaintiff De los Reyes, the total sum of P10,165.01 and these creditors with some difficulty succeeded in collecting the sum of P5,000 through a transaction with the said Ramon Tinsay who paid this last amount for the account of the partner Espiridion Borja. It appears that the latter paid to the creditor De los Reyes the aforementioned sum of P522.69, on account of the firm's debt to Teodoro de los Reyes, a debt which was recognized in the said judgment of October 19, 1905. The attachment, or recourse to the property, the lack of which proceeding was complained of, is a proceeding that was resorted to when attempt was made to execute the final judgment rendered against the partnership of Lukban & Borja, which proceeding gave negative results; therefore, if the requirement of article 237 of the Code of Commerce must be complied with by the creditor it is evident that it has already been done for the ARAFAG • HABANA • JALAYAJAY

defendant Lukban was unable to show that the partnership to which he belonged actually possessed any more assets. With respect to the second assignment of error, if Teodoro de los Reyes is entitled to collect individually from the partners Lukban and Borja the amount of the debt that the dissolved partnership owed at the time of its dissolution, it is unquestionable that such a right has given rise to the corresponding right of action to demand the payment of the debt from the partners individually, or from each of them, by the insolvency of the partnership, inasmuch as they are personally and severally liable with all their property for the results of the operations of the partnership which they conducted. Article 127 of the Code of Commerce provides: All the member of the general copartnership, be they or be they not managing partners of the same, are personally and severally liable with all their property for the results of the transactions made in the name and for the account of the partnership, under the signature of the latter, and by a person authorized to make use thereof. MUNASQUE VS. CA G.R. No. L-39780 November 11, 1985

FACTS: Munasque (petitioner) entered into a partnership with Galan under the registered name“Galan and Associates” as Contractor. They entered into a written contract withrespondent Tropical for remodeling the latter’s Cebu branch building. Under the contract,the project totaled 25,000 to be paid in installments; 7, 000 upon signing and 6, 000 every15 working days.Tropical made the first payment by check in the name of Munasque. Munasque indorsedthe check in favor of Galan to enable Galan to deposit it in the bank and pay for thematerials and labor used in the project. Page 194

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However, Galan allegedly spent P6, 183.37 for his personal use. When the second check came, Munasque refused to indorse it again toGalan.Galan informed Tropical of the misunderstanding between him and Munasque as partners. Hence upon second payment, Tropical changed the name of the payee on thesecond check from Munasque to “Galan and Associates” which enabled Galan to encashthe second check.Meanwhile, the construction was continued through Munasque’s sole efforts by incurringdebts from various suppliers. The construction work was finished ahead of schedule withthe total expenditure reaching P 34, 000 (note yung contract nila 25k lang). Munasque filed a complaint for payment of sum of money and damages against Galan,Tropical, and Tropical’s Cebu branch manager Pons. Cebu Southern Hardware Companyand Blue Diamond Glass Palace intervened in the case for the credit which they extendedto the partnership of Munasque and Galan for the construction project.Both trial court and Court of Appeals absolved respondents Tropical and its Cebumanager, Pons, from any liability. TC held Galvan and Munasque “jointly and severally”liable to its creditors which decision was modified by CA and held them “jointly” liable. ISSUES: Whether the obligation of Munasque and Galan is joint or solidary?

liable solidarily with the partnership for everything chargeable to the partnership under Articles 1822 and 1823.” While the liability of the partners are merely joint in transactions entered into by the partnership, a third person who transacted withsaid partnership can hold the partners solidarily liable for the whole obligation if the caseof the third person falls under Articles 1822 and 1823. The obligation is solidary because the law protects him, who in good faith relied upon theauthority of a partner, whether such authority is real or apparent.Tropical had every reason to believe that a partnership existed between Munasque andGalan and no fault or error can be imputed against it for making payments to “Galan andAssociates” because as far as it was concerned, Galan was a true partner with realauthority to transact in behalf of the partnership it was dealing with (because in the first place they entered into a duly registered partnership name and secondly, Munasqueendorsed the first check payment to Galan). This is even more true in the cases of theintervenors who supplied materials on credit to the partnership. Thus, it is but fair that theconsequences of any wrongful act committed by any of the partners therein should beanswered solidarily by all the partners and the partnership as a whole.However, as between Munasque and Galan, Galan must reimburse Munasque for the payments made to the intervenors as it was satisfactorily established that Galan acted in bad faith in his dealings with Munasque as a partner.

HELD: Solidary.While it is true that under Article 1816 of CC, “All partners, including industrial ones,shall be liable pro rate with all their property and after all the partnership assets have beenexhausted, for the contracts which may be entered into the name and for account of the partnership, under its signature and by a person authorized to act for the partnership.xxx”, this provision should be construed together with Article 1824 which provides that:“All partners are ARAFAG • HABANA • JALAYAJAY

AGENCY DOLES VS. ANGELES G.R. No. 149353 June 26, 2006 FACTS: Ma. Aura Angeles, respondent filed with the RTC a complaint for Specific Performance with Damages against Jocelyn Doles. Respondent Page 195

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alleged that petitioner was indebted to the former in the concept of a personal loan amounting to P405,430.00 representing the principal amount and interest; that on October 5, 1996, by virtue of a Deed of Absolute Sale, petitioner, as seller, ceded to respondent, as buyer, a parcel of land, as well as the improvement theron, with an area of 42 square meters located in Camella Towhomes Sorrente in Bacoor Cavite, in order to satisfy her personal loan with respondent; that this property was mortgaged to National Home Mortgage Finance Corporation to secure petitioner’s loan in the sum of P337, 050 with that entity; that as a condition for the foregoing sale, respondent shall assume the undue balance of the mortgage and pay the monthly amortization of P4,748.11 for the remainder of the 25 years which began on September 3, 1994; that upon verification with the NHMFC, respondent learned that petitioner had incurred arrearages amounting to P26,744.09, inclusive of penalties and interest; that upon informing teh petitioner of her arrears, petitioner, deneied that she incurred them and refused to pay the same; that despite repeated demend, petitioner refused to cooperate with respondent to execute the necessary documents and other formalities required to effect the transfer of title over the property; that petitioner collected rent over the property fort he month of January 1997 and refused to remit the proceed to responden; and that respondent suffered damages as a result and was forced to litigat. Petitioner, then defendant, while admitting some allegations in the Compliant, denied that she borrowed money from respondent, and averred that from June to September 1995, she reffered her friends to respondent whom she knew to be engaged in the business of lending money in exchange for personal checks through her capitalist Arsenio Pua. She alleged that her friends borrowed money from respondent and issued personal checks in payment of the loan; that the checks bounced for insufficient fund and the she could no longer locate them.

ARAFAG • HABANA • JALAYAJAY

That because of this, respondent became furious and threatened petitioner that he will file a criminal complaint.

RALLOS V YANGCO FACTS: Yangco sent Rallos a letter inviting the latter to be the consignor in buying and selling leaf tobacco and other native products. Terms and conditions were also contained in the letter. * Accepting the invitation, Rallos proceeded to do a considerable business with Yangco trhough the said Collantes, as his factor, sending to him as agent for Yangco a good deal of produce to be sold on commission. * Rallos sent to the said Collantes, as agent for Yangco, 218 bundles of tobacco in the leaf to be sold on commission, as had been other produce previously. * The said Collantes received said tobacco and sold it for the sum of P1,744. The charges for such sale were P206.96, leaving in the hands of said Collantes the sum of 1,537.08 belonging to Rallos. This sum was, apparently, converted to his own use by said agent. * It appears, however, that prior to the sending of said tobacco Yangco had severed his relations with Collantes and that the latter was no longer acting as his factor. This fact was not known to Rallos; and it is conceded in the case that no notice of any kind was given by Yangco of the termination of the relations between Yangco and his agent, Collantes. * Yangco thus refused to pay the said sum upon demand of Rallos, placing such refusal upon the ground that at the time the said tobacco was Page 196

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received and sold by Collantes, he was acting personally and not as agent of Yangco.

respondent’s photograph leaflets containing the slate of partycandidates sample ballots poll watcher identification cards, and stickers.Given the urgency and limited time to do the job order, petitioner availed of the services andfacilities of Metro Angeles Printing and of St. Joseph Printing Press, owned by his daughterJennifer Gozun and mother Epifania Macalino Gozun, respectively

ISSUE: W/N Collantes is an agent of Yangco. If so, Yangco as principal must refund to Rallos the said sum brought by the sale of the produce?

HELD: Yes. Yangco, as principal is liable. Having advertised the fact that Collantes was his agent and having given special notice to Rallos of that fact, and having given them a special invitation to deal with such agent, it was the duty of Yangco on the termination of the relationship of the principal and agent to give due and timely notice thereof to Rallos.

Meanwhile, on March 31, 1995, respondent’s sister -in-law, Lilian Soriano (Lilian) obtained frompetitioner "cash advance" of P253,000 allegedly for the allowances of poll watchers who were attending a seminar and for other related expenses. Lilian acknowledged on petitioner’s 1995 diaryreceipt of the amount. ISSUE: W/N Lilian R. Soriano was authorized by the respondent to receive the cash advancefrom the petitioner in the amount of P253,000.00?

HELD: Failing to do so, he is responsible to them for whatever goods may been in good faith and without negligence sent to the agent without knowledge, actual or constructive, of the termination of such relationship. JESUS M. GOZUN VS. JOSE MERCADO G.R. No. 167812 December 19, 2006 FACTS: In the local elections of 1995, respondent vied for the gubernatorial post in Pampanga. Upon respondent’s request, petitioner, owner of JMG Publishing House, a printing shop located in San Fernando, Pampanga, submitted to respondent draft samples and price quotation of campaign materials. By petitioner’s claim, respondent’s wife had told him that respondent already approved his price quotation and that he could start printing the campaign materials, hence, he did print campaignmaterials like posters bearing ARAFAG • HABANA • JALAYAJAY

By the contract of agency a person binds himself to render some service or to dosomething in representation or on behalf of another, with the consent or authority of the latter Contracts entered into in the name of another person by one who has been given no authority orlegal representation or who has acted beyond his powers are classified as unauthorized contractsand are declared unenforceable, unless they are ratified. Generally, the agency may be oral, unless the law requires a specific form. However, a specialpower of attorney is necessary for an agent to, as in this case, borrow money, unless it be urgentand indispensable for the preservation of the things which are under administration. Page 197

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Sincenothing in this case involves the preservation of things under administration, a determination of whether Soriano had the special authority to borrow money on behalf of respondent is in order.It is a general rule in the law of agency that, in order to bind the principal by a mortgage on realproperty executed by an agent, it must upon its face purport to be made, signed and sealed in thename of the principal, otherwise, it will bind the agent only. It is not enough merely that the agent was in fact authorized to make the mortgage, if he has not acted in the name of theprincipal. ANGELEES VS. PNR

Consequently, the spouses Angeles demanded the refund of the amount ofP96,000.00. The PNR, however, refused to pay, alleging that as per delivery receipt duly signed by Lizette, 54.658 metric tons of unserviceable rails had already been withdrawn which, at P2,100.00 per metric ton, were worth P114,781.80, an amount that exceeds the claim for refund. On August 10, 1988, the spouses Angeles filed suit against the PNR and its corporate ecretary, Rodolfo Flores, among others, for specific performance and damages before the Regional Trial Court of Quezon City. In it, they prayed that PNR be directed to deliver 46 metric tons of scrap/unserviceable rails and to pay them damages and attorney's fees.

FACTS: On May 5, 1980, the respondent Philippine National Railways (PNR) informed a certain Gaudencio Romualdez that it has accepted the latter’s offer to buy, on an "AS IS, WHERE IS" basis, the PNR’s scrap/unserviceable rails located in Del Carmen and Lubao, Pampanga at P1,300.00 and P2,100.00 per metric ton, respectively, for the total amount of P96,600.00. After paying the stated purchase price, Romualdez addressed a letter to Atty. Cipriano Dizon, PNR’s Acting Purchasing Agent.

On April 16, 1996, the trial court, on the postulate that the spouses Angeles are not the real parties-in-interest, rendered judgment dismissing their complaint for lack of cause of action. As held by the court, Lizette was merely a representative of Romualdez in the withdrawal of scrap or unserviceable rails awarded to him and not an assignee to the latter's rights with respect to the award. On appeal, the decision of the trail court was affirmed by the Court of Appeals, hence, this petition. ISSUE:

The Lizette R. Wijanco mentioned in the letter was Lizette Wijanco- Angeles, petitioner's now deceased wife. That very same day – May 26, 1980 – Lizette requested the PNR to transfer the location of withdrawal for the reason that the scrap/unserviceable rails located in Del Carmen and Lubao, Pampanga were not ready for hauling. The PNR granted said request and allowed Lizette to withdraw scrap/unserviceable rails in Murcia, Capas and San Miguel, Tarlac instead. However, the PNR subsequently suspended the withdrawal in view of what it considered as documentary discrepancies coupled by reported pilferages of over P500,000.00 worth of PNR scrap properties in Tarlac. ARAFAG • HABANA • JALAYAJAY

Whether or not Lizette Angeles was an assignee.

HELD: No. Where agency exists, the third party's (in this case, PNR's) liability on a contract is to the principal and not to the agent and the relationship of the third party to the principal is the same as that in a contract in which there is no agent. Normally, the agent has neither rights nor liabilities as against the third party. He cannot thus sue or be sued on the contract. Since a contract may be violated only by the Page 198

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parties thereto as against each other, the real party-in-interest, either as plaintiff or defendant in an action upon that contract must, generally, be a contracting party. The legal situation is, however, different where an agent is constituted as an assignee. In such a case, the agent may, in his own behalf, sue on a contract made for his principal, as an assignee of such contract. The rule requiring every action to be prosecuted in the name of the real party-ininterest recognizes the assignment of rights of action and also recognizes that when one has a right assigned to him, he is then the real party-ininterest and may maintain an action upon such claim or right. Upon scrutiny of the subject Romualdez's letter to Atty. Cipriano Dizon dated May 26,1980, it is at once apparent that Lizette was to act just as a "representative" of Romualdez in the "withdrawal of rails," and not an assignee. If Lizette was without legal standing to sue and appear in this case, there is more reason to hold that her petitioner husband, either as her conjugal partner or her heir, is also without such standing. Petitioner makes much of the fact that the terms "agent" or "attorney-in-fact" were no tused in the Romualdez letter a foretasted. It bears to stress, however, that the words "principal" and "agent," are not the only terms used to designate the parties in an agency relation. The agent may also be called an attorney, proxy, delegate or, as here, representative. It cannot be over emphasized that Romualdez's use of the active verb "authorized," instead of "assigned," indicated an intent on his part to keep and retain his interest in the subject matter. Stated a bit differently, he intended to limit Lizette’s role in the scrap transaction to being the representative of his interest therein. A power of attorney is only but an instrument in writing by which a person, as ARAFAG • HABANA • JALAYAJAY

principal, appoints another as his agent and confers upon him the authority to perform certain specified acts on behalf of the principal. The written authorization itself is the power of attorney, and this is clearly indicated by the fact that it has also been called a "letter of attorney." Its primary purpose is not to define the authority of the agent as between himself and his principal but to evidence the authority of the agent to third parties with whom the agent deals. The letter under consideration is sufficient to constitute a power of attorney. Except as may be required by statute, a power of attorney is valid although no notary public intervened in its execution. A power of attorney must be strictly construed and pursued. The instrument will beheld to grant only those powers which are specified therein, and the agent may neither go beyond nor deviate from the power of attorney. Contextually, all that Lizette was authorized to do was to withdraw the unserviceable/scrap railings. Allowing her authority to sue therefor, especially in her own name, would be to read something not intended, let alone written in the Romualdez letter. SIASAT VS. IAC Facts: Respondent Teresita Nacianceno succeeded in convincing officials of the then Department of Education and Culture, hereinafter called Department, to purchase without public bidding, one million pesos worth of national flags for the use of public schools throughout the country. When Nacianceno was informed by the Chief of the Budget Division of the Department that the purchase orders could not be released unless a formal offer to deliver the flags in accordance with the required specifications was first submitted for approval, she contacted the owners of the United Flag Industry on September 17, 1974. The next day, after the transaction was discussed, a document was drawn up with the following words “This is to formalize our agreement for you to represent United Flag Industry to deal with any entity or organization, Page 199

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private or government in connection with the marketing of our products-flags and all its accessories. For your service, you will be entitled to a commission of thirty (30%) percent”. The letter was signed by Mr. Primitivo Siasat, owner and general manager of United Flag Industry. After the first delivery of 7,399 flags, respondent’s authority was revoked by petitioner. Siasat, after receiving the payment of P469,980.00 on October 23, 1974 for the first delivery, tendered the amount of P23,900.00 or five percent (5%) of the amount received, to the respondent as payment of her commission. The latter allegedly protested. She refused to accept the said amount insisting on the 30% commission agreed upon. The respondent was prevailed upon to accept the same, however, because of the assurance of the petitionersthat they would pay the commission in full after they delivered the other half of the order. The respondent states that she later on learned that petitioner Siasat had already received payment for the second delivery of 7,833 flags. When she confronted the petitioners, they vehemently denied receipt of the payment, at the same time claiming that the respondent had no participation whatsoever with regard to the second delivery of flags and that the agency had already been revoked. An action to recover her commissions was filed by the respondent. The trial court and the court of appeals both decided in favor of the respondent. Hence, this appeal.

Issue: Whether or not respondent Nacianceno is entitled to the commission as agent of United Flag Industry.

One does not have to undertake a close scrutiny of the document embodying the agreement between the petitioners and the respondent to deduce that the 'latter was instituted as a general agent. Indeed, it can easily be seen by the way general words were employed in the agreement that no restrictions were intended as to the manner the agency was to be carried out or in the place where it was to be executed. The power granted to the respondent was so broad that it practically covers the negotiations leading to,and the execution of, a contract of sale of petitioners' merchandise with any entity or organization. The petitioners' evidence does not necessarily prove that there were two separate transactions. The document is a general indorsement made by Secretary Manuel for the purchase of the national flags for public schools. It contains no reference to the number of flags to be ordered or the amount of funds to be released. If the contracts were separate and distinct from one another, the whole or at least a substantial part of the government's supply procurement process would have been repeated. In this case, what were issued were mere indorsements for the release of funds and authorization for the next purchase. Since only one transaction was involved, we deny the petitioners' contention that respondent Nacianceno is not entitled to the stipulated commission on the second delivery because of the revocation of the agency effected after the first delivery. The revocation of agency could not prevent the respondent from earning her commission because as the trial court opined, it came too late, the contract of sale having been already perfected and partly executed. VELOSO VS CA

Facts: Held: The Court ruled in the affirmative.

ARAFAG • HABANA • JALAYAJAY

Petitioner Francisco Veloso alleged that he was the absolute owner of the subject property and he never authorized anybody, not even his wife, to sell it. He alleged that he was in possession Page 200

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of the title but when his wife, Irma, left for abroad, he found out that his copy was missing. He then verified with the Registry of Deeds of Manila and there he discovered that his title was already cancelled in favor ofdefendant Aglaloma Escario. The transfer of property was supported by a General Power of Attorney dated November 29, 1985 and Deed of Absolute Sale, dated November 2, 1987, executed by Irma Veloso, wife of the petitioner and appearing as his attorney-in-fact, and defendant Aglaloma Escario.

Issue: Whether or not there was a valid sale of the property. Held:

attorney in fact may execute a valid sale. An instrument may be captioned as "special power of attorney" but if the powers granted are couched in general terms without mentioning any specific power to sell or mortgage or to do other specific acts of strict dominion, then in that case only acts of administration may be deemed conferred. The Court found however, that the basis presented by the petitioner was inadequate to sustain his allegation of forgery. Mere variance of the signatures cannot be considered as conclusive proof that the same were forged. Forgery cannot be presumed. Petitioner, however, failed to prove his allegation and simply relied on the apparent difference of the signatures. His denial had not established that the signature on the power of attorney was not his.

The Court ruled in the affirmative. An examination of the records showed that the assailed power of attorney was valid and regular on its face. It was notarized and as such, it carries the evidentiary weight conferred upon it with respect to its due execution. While it is true that it was denominated as a general power of attorney, the general power of attorney had expressly authorized the agent or attorney in fact the power to sell the subject property. The special power of attorney can be included in the general power when it is specified therein the act or transaction for which the special power is required. Whether the instrument be denominated as "general power of attorney" or "special power of attorney", what matters is the extent of the power or powers contemplated upon the agent or attorney in fact. If the power is couched in general terms, then such power cannot go beyond acts of administration. However, where the power to sell is specific, it not being merely implied, much less couched in general terms, there can not be any doubt that the ARAFAG • HABANA • JALAYAJAY

The Court agrees with the conclusion of the lower court that private respondent was an innocent purchaser for value. Respondent Aglaloma relied on the power of attorney presented by petitioner's wife, Irma. Being the wife of the owner and having with her the title of the property, there was no reason for the private respondent not to believe in her authority. Moreover, the power of attorney was notarized and as such, carried with it the presumption of its due execution. Thus, having had no inkling on any irregularity and having no participation thereof, private respondent was a buyer in good faith. It has been consistently held that a purchaser in good faith is one who buys property of another, without notice that some other person has a right to, or interest in such property and pays a full and fair price for the same, at the time of such purchase, or before he has notice of the claim or interest of some other person in the property. CUISON VS CA Facts: Page 201

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Petitioner Kue Cuison is a sole proprietorship engaged in the purchase and sale of newsprint, bond paper and scrap, with places of business at Baesa, Quezon City, and Sto. Cristo, Binondo, Manila. From December 4, 1979 to February 15, 1980, private respondent delivered various kinds of paper products amounting to P297,487.30 to a certain Lilian Tan of LT Trading. The deliveries were made by respondent pursuant to orders allegedly placed by Tiu Huy Tiac who was then employed in the Binondo office of petitioner. It was likewise pursuant to Tiac's instructions that the merchandise was delivered to Lilian Tan. Upon delivery, Lilian Tan paid for the merchandise by issuing several checks payable to cash at the specific request of Tiu Huy Tiac. In turn, Tiac issued nine (9) postdated checks to private respondent as payment for the paper products. Unfortunately, sad checks were later dishonored by the drawee bank. Thereafter, private respondent made several demands upon petitioner to pay for the merchandise in question, claiming that Tiu Huy Tiac was duly authorized by petitioner as the manager of his Binondo office, to enter into the questioned transactions with private respondent and Lilian Tan. Petitioner denied any involvement in the transaction entered into by Tiu Huy Tiac and refused to pay private respondent the amount corresponding to the selling price of the subject merchandise. Left with no recourse, private respondent filed an action against petitioner for the collection ofP297,487.30 representing the price of the merchandise. The petitioner ruled in favor of the petitioner but the trial court’s decision was subsequently reversed by the Court of Appeals. Hence, this petition.

Issue: Whether or not Tiu Huy Tiac possessed the required authority from petitioner sufficient to hold the latter liable for the disputed transaction. ARAFAG • HABANA • JALAYAJAY

Held: The Court ruled in the affirmative. It is a well-established rule that one who clothes another with apparent authority as his agent and holds him out to the public as such cannot be permitted to deny the authority of such person to act as his agent, to the prejudice of innocent third parties dealing with such person in good faith and in the honest belief that he is what he appears to be (Macke, et al, v. Camps, 7 Phil. 553 (1907]; Philippine National Bank. v Court of Appeals, 94 SCRA 357 [1979]). From the facts and the evidence on record, there is no doubt that this rule obtains. The petition must therefore fail. It is evident from the records that by his own acts and admission, petitioner held out Tiu Huy Tiac to the public as the manager of his store in Sto. Cristo, Binondo, Manila. More particularly, petitioner explicitly introduced Tiu Huy Tiac to Bernardino Villanueva, respondent's manager, as his (petitioner's) branch manager as testified to by Bernardino Villanueva. Secondly, Lilian Tan, who has been doing business with petitioner for quite a while, also testified that she knew Tiu Huy Tiac to be the manager of petitioner's Sto. Cristo, Binondo branch. This general perception of Tiu Huy Tiac as the manager of petitioner's Sto. Cristo store is even made manifest by the fact that Tiu Huy Tiac is known in the community to be the "kinakapatid" (godbrother) of petitioner. In fact, even petitioner admitted his close relationship with Tiu Huy Tiac when he said that they are "like brothers" ( Rollo , p. 54). There was thus no reason for anybody especially those transacting business with petitioner to even doubt the authority of Tiu Huy Tiac as his manager in the Sto. Cristo Binondo branch. Rural Bank v. Court of Appeals

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Ederlinda Gallardo, wife of Daniel Manzo, executed a special power of attorney inf avor of Rufino S. Aquino authorizing him to “secure a loan from any bank for any amount or otherwise mortgage a property in las pinas”. Aquino executed a Deed of Real Estate in favor of Rural Bank(referred herein as the Bank) for the payment ofloans and advances obtained by the mortgagor totaling php 350,000 with 14% interestrate. Gallardo and Manzo filed an action against Rufino and the Bank because Aquino allegedly left his residence in Bulacan and that the plaintiffs were allegedly surprised to discover that the property was mortgaged to pay personal loans obtained by Aquino from the Bank solely for personal use and benefit of Aquino. Plaintiffs allege that Aquino, in the real estate mortgage, appointed the Bank as attorney in fact and incase of judicial foreclosure as receiver with corresponding power to sell and that although without any express authority from Gallardo, Aquino waived the former’s rights under Section 12, Rule 39 of the Rules of Court. The trial court issued a TRO against the Bank. Aquino in his defense said that plaintiff authorized him to mortgage her property to the Bank in order to liquidate herphp350,000 obligation to him. The trial court issued a judgment in favor of the Bankbut the Court of Appeals reversed.

Issue: Whether or not the Deed of Real Estate Mortgage executed by Aquino to the Bank is valid.

Held:

without any indication that he was signing for and in behalf of the property owner, Gallarado, bound himself alone in his personal capacity as a debtor of the Bank and not as the agent or attorney in fact of Galalrdo. The Court of Appeals further observed that the deed of mortgage was executed on August 26, 1981 therein clearly stipulating that it was being executed "as security for the payment of certain loans, advances or other accommodation obtained by the Mortgagor from the Mortgagee in the total sum of Three Hundred Fifty Thousand Pesos only (P350,000.00)" although at the time no such loan or advance had been obtained. The promissory notes were dated August 31, September 23 and October 26, 1981 which were subsequent to the execution of the deed of mortgage. The appellant is correct in claiming that the defendant Rural Bank should not have agreed to extend or constitute the mortgage on the properties of Gallardo who had no existing indebtedness with it at the time. Under the facts the defendant Rural Bank appeared to have ignored the representative capacity of Aquino and dealt with him and his wife in their personal capacities. Said appellee Rural Bank also did not conduct an inquiry on whether the subject loans were to benefit the interest of the principal (plaintiff Gallardo) rather than that of the agent although the deed of mortgage was explicit that the loan was for purpose of the bangus and sugpo production of defendant Aquino. In effect, with the execution of the mortgage under the circumstances and assuming it to be valid but because the loan taken was to be used exclusively for Aquino's business in the "bangus" and "sugpo" production, Gallardo in effect becomes a surety who is made primarily answerable for loans taken by Aquino in his personal capacity in the event Aquino defaults in such payment. Under Art. 1878 of the Civil

No. Aquino’s act of signing the Deed of Real Estate Mortgage in his name alone as mortgagor, ARAFAG • HABANA • JALAYAJAY

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Code, to obligate the principal as a guarantor or surety, a special power of attorney is required. No such special power of attorney for Gallardo to be a surety of Aquino had been executed.

CREDIT TRANSACTIONS

SPOUSES FLORENDO VS. CA and LAND BANK G.R. No. 101771 December 17, 1996

repeated demands, (petitioners) were forced to file the instant suit for Injunction and Damages; That, just the same, despite (respondent bank's) demands that (petitioners) pay the increased interest or increased monthly installments, they (petitioners) have faithfully paid and discharged their loan obligations, more particularly the monthly payment of the original stipulated installment of P1,248.72. Disregarding (respondent bank's) repeated demand for increased interest and monthly installment, (petitioners) are presently up-to-date in the payments of their obligations under the original contracts (Housing Loan Agreement, Promissory Note and Real Estate Mortgage) with (respondent bank); ISSUE:

FACTS: Petitioner Gilda Florendo (was) an employee of (Respondent Bank) from May 17, 1976 until August 16, 1984 when she voluntarily resigned. However, before her resignation, she applied for a housing loan of P148,000.00, payable within 25 years from (respondent bank's) Provident Fund on July 20, 1983; That the loan . . . was actually given to (petitioner) Gilda Florendo, . . ., in her capacity as employee of (respondent bank); That on March 19, 1985, (respondent bank) increased the interest rate on (petitioner's) loan from 9% per annum to 17%, the said increase to take effect on March 19, 1985; That the details of the increase are embodied in (Landbank's) ManCom Resolution No. 85-08 dated March 19, 1985, . . . , and in a PF (Provident Fund) Memorandum Circular (No. 85-08, Series of 1985), . . That (petitioners) protested the increase, thereafter, (respondent bank) kept on demanding that (petitioner) pay the increased interest or the new monthly installments based on the increased interest rate, but Plaintiff just as vehemently maintained that the said increase is unlawful and unjustifiable. Because of (respondent bank's) ARAFAG • HABANA • JALAYAJAY

May a bank unilaterally raise the interest rate on a housing loan granted an employee, by reason of the voluntary resignation of the borrower? HELD: It will not be amiss to point out that the unilateral determination and imposition of increased interest rates by the herein respondent bank is obviously violative of the principle of mutuality of contractsordained in Article 1308 of the Civil Code. In order that obligations arising from contracts may have the force of law between the parties, there must be mutuality between the parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties, is void. Hence, even assuming that the . . . loan agreement between the PNB and the private respondent gave the PNB a license (although in fact there was none) to increase the interest rate at will during the term of the loan, that license would have been null and void for being violative of the principle of mutuality essential in contracts. It would have invested the loan agreement with the character of a contract of Page 204

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adhesion, where the parties do not bargain on equal footing, the weaker party's (the debtor) participation being reduced to the alternative "to take it or leave i.” Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and imposition.

made, and thus the escalation provision could not be legally applied and enforced as against herein petitioners.

The respondent bank tried to sidestep this difficulty by averring that petitioner Gilda Florendo as a former bank employee was very knowledgeable concerning respondent bank's lending rates and procedures, and therefore, petitioners were "on an equal footing" with respondent bank as far as the subject loan contract was concerned. That may have been true insofar as entering into the original loan agreement and mortgage contract was concerned. However, that does not hold true when it comes to the determination and imposition of escalated rates of interest as unilaterally provided in the ManCom Resolution, where she had no voice at all in its preparation and application. To allay fears that respondent bank will inordinately be prejudiced by being stuck with this "sweetheart loan" at patently concessionary interest rates, which according to respondent bank is the "sweetest deal" anyone could obtain and is an act of generosity considering that in 1985 lending rates in the banking industry were peaking well over 30% p.a., we need only point out that the bank had the option to impose in its loan contracts the condition that resignation of an employeeborrower would be a ground for escalation. The fact is it did not. Hence, it must live with such omission. And it would be totally unfair to now impose said condition, not to mention that it would violate the principle of mutuality of consent in contracts. It goes without saying that such escalation ground can be included in future contracts — not to agreements already validly entered into. Let it be clear that this Court understands respondent bank's position that the concessional interest rate was really intended as a means to remunerate its employees and thus an escalation due to resignation would have been a valid stipulation. But no such stipulation was in fact

SEBASTIAN SIGA-AN VS. ALICIA VILLANUEVA G.R. No. 173227 January 20, 2009

ARAFAG • HABANA • JALAYAJAY

FACTS: Respondent alleged that she was a businesswoman engaged in supplying office materials and equipments to the Philippine Navy Office (PNO) located at Fort Bonifacio, Taguig City, while petitioner was a military officer and comptroller of the PNO from 1991 to 1996. Respondent claimed that sometime in 1992, petitioner approached her inside the PNO and offered to loan her the amount of P540,000.00. Since she needed capital for her business transactions with the PNO, she accepted petitioner’s proposal. The loan agreement was not reduced in writing. Also, there was no stipulation as to the payment of interest for the loan. On 31 August 1993, respondent issued a check worth P500,000.00 to petitioner as partial payment of the loan. On 31 October 1993, she issued another check in the amount of P200,000.00 to petitioner as payment of the remaining balance of the loan. Petitioner told her that since she paid a total amount of P700,000.00 for theP540,000.00 worth of loan, the excess amount of P160,000.00 would be applied as interest for the loan. Not satisfied with the amount applied as interest, petitioner pestered her to pay additional interest. Petitioner threatened to block or disapprove her transactions with the PNO if she would not comply with his demand. As all her transactions with the PNO were subject to the approval of petitioner as comptroller of the PNO, and fearing that petitioner might block or unduly influence the payment of her vouchers in the PNO, she conceded. Thus, she paid additional amounts in cash and checks as interests Page 205

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for the loan. She asked petitioner for receipt for the payments but petitioner told her that it was not necessary as there was mutual trust and confidence between them. According to her computation, the total amount she paid to petitioner for the loan and interest accumulated toP1,200,000.00. Since she paid petitioner a total amount of P1,200,000.00 for the P540,000.00 worth of loan, and upon being advised by her lawyer that she made overpayment to petitioner, she sent a demand letter to petitioner asking for the return of the excess amount of P660,000.00. Petitioner, despite receipt of the demand letter, ignored her claim for reimbursement. The RTC rendered a Decision holding that respondent made an overpayment of her loan obligation to petitioner and that the latter should refund the excess amount to the former. It ratiocinated that respondent’s obligation was only to pay the loaned amount of P540,000.00, and that the alleged interests due should not be included in the computation of respondent’s total monetary debt because there was no agreement between them regarding payment of interest. It concluded that since respondent made an excess payment to petitioner in the amount of P660,000.00 through mistake, petitioner should return the said amount to respondent pursuant to the principle of solutio indebiti. The RTC also ruled that petitioner should pay moral damages for the sleepless nights and wounded feelings experienced by respondent.

ISSUE: THE RTC AND THE CA ERRED IN RULING THAT NO INTEREST WAS DUE TO PETITIONER. THE RTC AND THE CA ERRED IN APPLYING THE PRINCIPLE OF SOLUTIO INDEBITI?

HELD: ARAFAG • HABANA • JALAYAJAY

Interest is a compensation fixed by the parties for the use or forbearance of money. This is referred to as monetary interest. Interest may also be imposed by law or by courts as penalty or indemnity for damages. This is called compensatory interest. The right to interest arises only by virtue of a contract or by virtue of damages for delay or failure to pay the principal loan on which interest is demanded.1 Article 1956 of the Civil Code, which refers to monetary interest, specifically mandates that no interest shall be due unless it has been expressly stipulated in writing. As can be gleaned from the foregoing provision, payment of monetary interest is allowed only if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for the payment of interest was reduced in writing. The concurrence of the two conditions is required for the payment of monetary interest. Thus, we have held that collection of interest without any stipulation therefor in writing is prohibited by law. It appears that petitioner and respondent did not agree on the payment of interest for the loan. Neither was there convincing proof Petitioner’s reliance on respondent’s alleged admission in the Batas Pambansa Blg. 22 cases that they had agreed on the payment of interest at the rate of 7% deserves scant consideration. In the said case, respondent merely testified that after paying the total amount of loan, petitioner ordered her to pay interest. Respondent did not categorically declare in the same case that she and respondent made an express stipulation in writing as regards payment of interest at the rate of 7%. As earlier discussed, monetary interest is due only if there was anexpress stipulation in writing for the payment of interest. There are instances in which an interest may be imposed even in the absence of express stipulation, verbal or written, regarding payment of interest. Article 2209 of the Civil Code states that if the obligation consists in the payment of a sum of money, and the debtor incurs delay, a legal interest Page 206

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of 12% per annum may be imposed as indemnity for damages if no stipulation on the payment of interest was agreed upon. Likewise, Article 2212 of the Civil Code provides that interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent on this point. All the same, the interest under these two instances may be imposed only as a penalty or damages for breach of contractual obligations. It cannot be charged as a compensation for the use or forbearance of money. In other words, the two instances apply only to compensatory interest and not to monetary interest. The case at bar involves petitioner’s claim for monetary interest. Second Issue: Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there has been no stipulation therefor, the provisions of the Civil Code concerning solutio indebiti shall be applied. Article 2154 of the Civil Code explains the principle of solutio indebiti. Said provision provides that if something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. In such a case, a creditor-debtor relationship is created under a quasi-contract whereby the payor becomes the creditor who then has the right to demand the return of payment made by mistake, and the person who has no right to receive such payment becomes obligated to return the same. The quasi-contract of solutio indebiti harks back to the ancient principle that no one shall enrich himself unjustly at the expense of another. The principle of solutio indebiti applies where (1) a payment is made when there exists no binding relation between the payor, who has no duty to pay, and the person who received the payment; and (2) the payment is made through mistake, and not through liberality or some other cause. We have held that the principle of solutio indebiti applies in case of erroneous payment of undue interest. ARAFAG • HABANA • JALAYAJAY

It was duly established that respondent paid interest to petitioner. Respondent was under no duty to make such payment because there was no express stipulation in writing to that effect. There was no binding relation between petitioner and respondent as regards the payment of interest. The payment was clearly a mistake. Since petitioner received something when there was no right to demand it, he has an obligation to return it. When an obligation, not constituting a loan or forbearance of money is breached, an interest on the amount of damages awarded may be imposed at the rate of 6% per annum. We further declared that when the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether it is a loan/forbearance of money or not, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed equivalent to a forbearance of credit. In the present case, petitioner’s obligation arose from a quasi-contract of solutio indebiti and not from a loan or forbearance of money. Thus, an interest of 6% per annum should be imposed on the amount to be refunded as well as on the damages awarded and on the attorney’s fees, to be computed from the time of the extra-judicial demand up to the finality of this Decision. In addition, the interest shall become 12% per annum from the finality of this Decision up to its satisfaction. FALLO: CA decision AFFIRMED

CRISOSTOMO ALCARAZ VS. CA G.R. No. 152202 FACTS: Private respondent, Equitable Credit Card Network, Inc. (Equitable), is a company engaged in the business of extending credit Page 207

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accommodations/facilities through the use of the credit cards issued to its clientele.

Whether petitioner is not required to pay the interest of his credit card?

In May 1995, private respondent Equitable issued a credit card to petitioner Crisostomo Alcaraz. The petitioner through the use of the said credit card secured cash advances and purchased goods and services on credit. Thus, the petitioner accumulated unpaid credit with private respondent and despite the receipt of several demand letters, failed to pay his outstanding obligations.

HELD:

Private respondent Equitable sought the payment of the accumulated outstanding balance including interest of 2.5% per month as well as a monthly late penalty/surcharge of 1.5% for the peso account, and 1.5% monthly interest and 1% late penalty/surcharge per month for the dollar account until full payment thereof as provided in the “Terms and Conditions Governing the Issuance and Use of Equitable Visa Card” (hereinafter referred to as the Terms and Conditions). The private respondent also prayed for liquidated damages of 25% of the total amount of both accounts and attorney’s fees at the same rate allegedly also in accordance with the Terms and Conditions. Private respondent Equitable claims petitioner Alcaraz has an accumulated outstanding balance of US$8,970.54 in his dollar account as of February 18, 1999, and P192,500.00 on his peso account as of February 28, 1999 inclusive of interest and surcharges. The petitioner admitted he had made use of the credit card issued in his name by private respondent Equitable, but contested the amount of his liability. Petitioner alleged that he was issued the credit card as an “honorary member.” As such, he was not required to submit any application or sign any document prior to the issuance of the card and he was entitled to pay on an installment basis without any interest. He denied signing the document Terms and Conditions Governing the Issuance and Use of Equitable Visa Card. ISSUE: ARAFAG • HABANA • JALAYAJAY

The private respondent maintains that the above stipulation is a standard clause printed at the back of each credit card that it issued and that the Agreement mentioned therein refers to the Terms and Conditions which governs the use of the credit card as contained in private respondent Equitable’s standard application form. Thus, by signing the back of the credit card, petitioner Alcaraz has explicitly consented to the Terms and Conditions including the applicable interests, service fees, attorney’s fees and liquidated damages in the event of nonpayment within the period stated in the statements of account regularly sent every month to the petitioner. It is, however, undeniable that petitioner Alcaraz accumulated unpaid obligations both in his peso and dollar accounts through the use of the credit card issued to him by private respondent Equitable. As such, petitioner Alcaraz is liable for the payment thereof. Since the provisions of the Terms and Conditions are inapplicable to petitioner Alcaraz, the legal interest on obligations consisting of loan or forbearance of money shall apply, to wit: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. .... 3. When the judgment of the court awarding a sum of money becomes final Page 208

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and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. In the present case, the records reveal that the principal amount of the obligation on the peso account of the subject credit card as of March 17, 1996 isP81,000.00, while the dollar account of the same credit card has an unpaid balance of $4,397.34 exclusive of any interests, penalties and other charges as of March 3, 1996. The extrajudicial demand for payment for the dollar account was made on June 25, 1996 by virtue of a letter sent to and duly received by the petitioner. The June 25, 1996 demand letter was, however, silent on the unpaid balance on the peso account. The records likewise reveal that it was only on October 5, 1996 that private respondent Equitable may be deemed to have extrajudicially demanded payment of the outstanding obligation of petitioner Alcaraz on his peso account. Hence, it is only from the aforesaid dates that the legal rate of interest shall apply on the dollar and peso accounts, respectively, until full payment thereof.

It appears from the record that on August 2, 1933, the Treasurer of the United States for the United States Veterans Bureau issued a Warrant in the amount of $361, payable to the order of Francisco Sabectoria Bacos. Paulino Gullas and Pedro Lopez signed as endorsers of this check. Thereupon it was cashed by the Philippine National Bank. Subsequently the treasury warrant was dishonored by the Insular Treasurer. At that time the outstanding balance of Attorney Gullas on the books of the bank was P509. Against this balance he had issued certain checks which could not be paid when the money was sequestered by the On August 20, 1933, Attorney Gullas left his residence for Manila. The bank on learning of the dishonor of the treasury warrant sent notices by mail to Mr. Gullas which could not be delivered to him at that time because he was in Manila. The bank applied the outstanding balances in the current account of Atty. Gullas with PNB to part for the payment of the foregoing checks.

ISSUES: (1)Whether PNB has the right to apply a deposit to the debt of depositor to the bank? (2) Whether Gullas is entitled to damages?

DEPOSIT HELD: PAULINO GULLAS VS. PHILIPPINE NATIONAL G.R. No. L-43191 November 13, 1935

FACTS: The parties to the case are Paulino Gullas and PNB. The first named is a member of the Philippine Bar, resident in the City of Cebu. The second named is a banking corporation with a branch in the same city. Attorney Gullas has had a current account with the bank. ARAFAG • HABANA • JALAYAJAY

The Civil Code contains provisions regarding compensation (set off) and deposit. (Articles 1195 et seq., 1758 et seq. The portions of Philippine law provide that compensation shall take place when two persons are reciprocally creditor and debtor of each other (Civil Code, article 1195). In his connection, it has been held that the relation existing between a depositor and a bank is that of creditor and debtor. Starting, therefore, from the premise that the Philippine National Bank had with respect to Page 209

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the deposit of Gullas a right of set off, we next consider if that remedy was enforced properly. The fact we believe is undeniable that prior to the mailing of notice of dishonor, and without waiting for any action by Gullas, the bank made use of the money standing in his account to make good for the treasury warrant. At this point recall that Gullas was merely an indorser and had issued in good faith.

Gullas had no means of protection, and have finally determined that the amount should be P250.

GUINGONA VS. FLAMINIANO As to a depositor who has funds sufficient to meet payment of a check drawn by him in favor of a third party, it has been held that he has a right of action against the bank for its refusal to pay such a check in the absence of notice to him that the bank has applied the funds so deposited in extinguishment of past due claims held against him. The decision cited represents the minority doctrine, for on principle it would seem that notice is not necessary to a maker because the right is based on the doctrine that the relationship is that of creditor and debtor. However this may be, as to an indorser the situation is different, and notice should actually have been given him in order that he might protect his interests. We accordingly are of the opinion that the action of the bank was prejudicial to Gullas. But to follow up that statement with others proving exact damages is not so easy. For instance, for alleged libelous articles the bank would not be primarily liable. The same remark could be made relative to the loss of business which Gullas claims but which could not be traced definitely to this occurrence. Also Gullas having eventually been reimbursed lost little through the actual levy by the bank on his funds. On the other hand, it was not agreeable for one to draw checks in all good faith, then, leave for Manila, and on return find that those checks had not been cashed because of the action taken by the bank. That caused a disturbance in Gullas' finances, especially with reference to his insurance, which was injurious to him. All facts and circumstances considered, we are of the opinion that Gullas should be awarded nominal damages because of the premature action of the bank against which ARAFAG • HABANA • JALAYAJAY

FACTS: From March 1979 to March 1981, Clement David made several investments with the National Savings and Loan Association. On March 21, 1981, the bank was placed under receivership by the Bangko Sentral. Upon David’s request, petitioners Guingona and Martin issued a joint promissory note, absorbing the obligations of the bank. On July 17, 1981, they divided the indebtedness. David filed a complaint for estafa and violation of Central Bank Circular No. 364 and related regulations regarding foreign exchange transactions before the Office of the City Fiscal of Manila. Petitioners filed the herein petition for prohibition and injunction with a prayer for immediate issuance of restraining order and/or writ of preliminary injunction to enjoin the public respondents to proceed with the preliminary investigation on the ground that the petitioners’ obligation is civil in nature.

ISSUE: 1. Whether the contract between NSLA and David is a contract of depositor a contract of loan, which answer determines whether the City Fiscal has the jurisdiction to file a case for estafa? 2. Whether there was a violation of Central Bank Circular No. 364?

HELD:

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1) When private respondent David invested his money on nine. and savings deposits with the aforesaid bank, the contract that was perfected was a contract of simple loan or mutuum and not a contract of deposit. Hence, the relationship between the private respondent and the Nation Savings and Loan Association is that of creditor and debtor; consequently, the ownership of the amount deposited was transmitted to the Bank upon the perfection of the contract and it can make use of the amount deposited for its banking operations, such as to pay interests on deposits and to pay withdrawals. While the Bank has the obligation to return theamount deposited, it has, however, no obligation to return or deliver the same money that was deposited. And, the failure of the Bank to return the amount deposited will not constitute estafa through misappropriation punishable under Article 315, par. l(b) of the Revised Penal Code, but it will only give rise to civil liability over which the public respondents have no jurisdiction. But even granting that the failure of the bank to pay the time and savings deposits of private respondent David would constitute a violation of paragraph 1(b) of Article 315 of the Revised Penal Code, nevertheless any incipient criminal liability was deemed avoided, because when the aforesaid bank was placed under receivership by the Central Bank, petitioners Guingona and Martin assumed the obligation of the bank to private respondent David, thereby resulting in the novation of the original contractual obligation arising from deposit into a contract of loan and converting the original trust relation between the bank and private respondent David into an ordinary debtor-creditor relation between the petitioners and private respondent. Consequently, the failure of the bank or petitioners Guingona and Martin to pay the deposits of private respondent would not constitute a breach of trust but would merely be a failure to pay the obligation as a debtor. Moreover, while it is true that novation does not extinguish criminal liability, it may however, prevent the rise of criminal liability as long as it occurs prior to the filing of the criminal ARAFAG • HABANA • JALAYAJAY

information in court. In the case at bar, there is no dispute that petitioners Guingona and Martin executed a promissory note on June 17, 1981 assuming the obligation of the bank to private respondent David; while the criminal complaint for estafa was filed on December 23, 1981 with the Office of the City Fiscal. Hence, it is clear that novation occurred long before the filing of the criminal complaint with the Office of the City Fiscal. Consequently, as aforestated, any incipient criminal liability would be avoided but there will still be a civil liability on the part of petitioners Guingona and Martin to pay the assumed obligation. (2) Petitioner Guingona merely accommodated the request of the Nation Savings and loan Association in order to clear the bank draft through his dollar account because the bank did not have a dollar account. Immediately after the bank draft was cleared, petitioner Guingona authorized Nation Savings and Loan Association to withdraw the same in order to be utilized by the bank for its operations. It is safe to assume that the U.S. dollars were converted first into Philippine pesos before they were accepted and deposited in Nation Savings and Loan Association, because the bank is presumed to have followed the ordinary course of the business which is to accept deposits in Philippine currency only, and that the transaction was regular and fair, in the absence of a clear and convincing evidence to the contrary. In conclusion, considering that the liability of the petitioners is purely civil in nature and that there is no clear showing that they engaged in foreign exchange transactions, We hold that the public respondents acted without jurisdiction when they investigated the charges against the petitioners. Consequently, public respondents should be restrained from further proceeding with the criminal case for to allow the case to continue, even if the petitioners could have appealed to the Ministry of Justice, would work great injustice to petitioners and would render meaningless the proper administration of justice.

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SPS.REYES VS. BPI FAMILY SAVINGS BANK G.R. Nos. 149840-41 March 31, 2006 FACTS: On March 24, 1995, the Reyes spouses executed a real estate mortgage on their property in Iloilo City in favor of respondent BPI Family Savings Bank, Inc. (BPI-FSB) to secure a P15M loan of Transbuilders Resources and Development Corporation (Transbuilders). The mortgage contract between petitioners and BPI-FSB provided, among others: When Transbuilders failed to pay its P15M loan within the stipulated period of one year, the bank restructured the loan through a promissory note executed by Transbuilders in its favor. The pertinent provisions of the promissory note stated that: 1. The proceeds of the Note shall be applied to loan account no. 21108336 2. The new obligation of Transbuilders to respondent Bank for fifteen million (P15,000,000.00) shall be paid in twenty (20) quarterly installments commencing on September 28, 1996 and at an interest rate of eighteen (18%) per annum. Petitioners aver that they were not informed about the restructuring of Transbuilders’ loan. In fact, when they learned of the new loan agreement sometime in December 1996, they wrote BPI-FSB requesting the cancellation of their mortgage and the return of their certificate of title to the mortgaged property. They claimed that the new loan novated the loan agreement of March 24, 1995. Because the novation was without their knowledge and consent, they were allegedly released from their obligation under the mortgage. When BPI-FSB refused to cancel the mortgage, petitioners filed separate petitions for mandamus and prohibition with the Regional Trial Court (RTC) of Manila to compel the bank to return their certificate of title and cancel the mortgage. BPIFSB, on the other hand, instituted extrajudicial ARAFAG • HABANA • JALAYAJAY

foreclosure proceedings against petitioners in Iloilo City after Transbuilders defaulted in its payments. The Manila RTC dismissed petitioners’ actions for mandamus and prohibition. Their appeal to the Court of Appeals was likewise dismissed. ISSUE: Whether there was a novation of the mortgage loan contract between petitioners and BPI-FSB that would result in the extinguishment of petitioners’ liability to the bank? HELD: Novation is defined as the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which terminates the first, either by changing the object or principal conditions, or by substituting the person of the debtor, or subrogating a third person in the rights of the creditor. Article 1292 of the Civil Code on novation further provides: Article 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. The cancellation of the old obligation by the new one is a necessary element of novation which may be effected either expressly or impliedly. While there is really no hard and fast rule to determine what might constitute sufficient change resulting in novation, the touchstone, however, is irreconcilable incompatibility between the old and the new obligations. Thus, the well-settled rule is that, with respect to obligations to pay a sum of money, the obligation is not novated by an instrument that expressly recognizes the old, changes only the terms of payment, adds other obligations not Page 212

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incompatible with the old ones, or the new contract merely supplements the old one. BPI-FSB and Transbuilders only extended the repayment term of the loan from one year to twenty quarterly installments at 18% interest per annum. There was absolutely no intention by the parties to supersede or abrogate the old loan contract secured by the real estate mortgage executed by petitioners in favor of BPI-FSB. In fact, the intention of the new agreement was precisely to revive the old obligation after the original period expired and the loan remained unpaid. The novation of a contract cannot be presumed. In the absence of an express agreement, novation takes place only when the old and the new obligations are incompatible on every point. Moreover, under the real estate mortgage executed by them in favor of BPI-FSB, petitioners undertook to secure the P15M loan of Transbuilders to BPI-FSB "and other credit accommodations of whatever nature obtained by the Borrower/Mortgagor." While this stipulation proved to be onerous to petitioners, neither the law nor the courts will extricate a party from an unwise or undesirable contract entered into with all the required formalities and with full awareness of its consequences. Petitioners voluntarily executed the real estate mortgage on their property in favor of BPI-FSB to secure the P15M loan of Transbuilders. They cannot now be allowed to repudiate their obligation to the bank after Transbuilders’ default. While petitioners’ liability was written in fine print and in a contract prepared by BPI-FSB, it has been the consistent holding of this Court that contracts of adhesion are not invalid per se. On numerous occasions, we have upheld the binding effects of such contracts.

CENTRAL BANK VS. CITYTRUST BANKING CORPORATION G.R. No. 141835 February 4, 2009 FACTS: ARAFAG • HABANA • JALAYAJAY

Citytrust furnished petitioner with the names and corresponding signatures of five of its officers authorized to sign checks and serve as drawers and indorsers for its account as well as those authorized to withdraw, sign receipts and perform other transactions on its behalf. Petitioner later issued security identification cards to the roving tellers one of whom was "Rounceval Flores" (Flores). On July 15, 1977, Flores presented for payment to petitioner’s Senior Teller Iluminada dela Cruz (Iluminada) two Citytrust checks of even date, payable to Citytrust, one in the amount of P850,000 and the other in the amount ofP900,000, both of which were signed and indorsed by Citytrust’s authorized signatorydrawers. After the checks were certified by petitioner’s Accounting Department, Iluminada verified them, prepared the cash transfer slip on which she affixed her signature, stamped the checks with the notation "Received Payment" and asked Flores to, as he did, sign on the space above such notation. Instead of signing his name, however, Flores signed as "Rosauro C. Cayabyab" – a fact Iluminada failed to notice. More than a year and nine months later, Citytrust, alleging that the checks were already cancelled because they were stolen, demanded petitioner to restore the amounts covered thereby to its demand deposit account. Petitioner did not heed the demand, however. Citytrust later filed a complaint for estafa, with reservation on the filing of a separate civil action, against Flores. Flores was convicted. Citytrust thereafter filed before the Regional Trial Court (RTC) of Manila a complaint for recovery of sum of money with damages against petitioner which it alleged erred in encashing the checks and in charging the proceeds thereof to its account, despite the lack of authority of "Rosauro C. Cayabyab." Page 213

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ISSUE: Whether Citytrust should be liable solely for the loss? HELD: The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan. Article 1980 of the Civil Code expressly provides that "x x x savings x x x deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan." There is a debtor-creditor relationship between the bank and its depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. The savings deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties. The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of Republic Act No. 8791 ("RA 8791"), which took effect on 13 June 2000, declares that the State recognizes the "fiduciary nature of banking that requires high standards of integrity and performance." This new provision in the general banking law, introduced in 2000, is a statutory affirmation of Supreme Court decisions, starting with the 1990 case of Simex International v. Court of Appeals, holding that "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." This fiduciary relationship means that the bank’s obligation to observe "high standards of integrity and performance" is deemed written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. Article 1172 of the ARAFAG • HABANA • JALAYAJAY

Civil Code states that the degree of diligence required of an obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a good father of a family. Section 2 of RA 8791 prescribes the statutory diligence required from banks – that banks must observe "high standards of integrity and performance" in servicing their depositors. Citytrust’s failure to timely examine its account, cancel the checks and notify petitioner of their alleged loss/theft should mitigate petitioner’s liability, in accordance with Article 2179 of the Civil Code which provides that if the plaintiff’s negligence was only contributory, the immediate and proximate cause of the injury being the defendant’s lack of due care, the plaintiff may recover damages, but the courts shall mitigate the damages to be awarded. For had Citytrust timely discovered the loss/theft and/or subsequent encashment, their proceeds or part thereof could have been recovered. FALLO: CA decision AFFIRMED with MODIFICATION, in that petitioner and Citytrust should bear the loss on a 60-40 ratio.

GUARANTY

TRADERS INSURANCE VS. DY ENG BIOK 104 PHIL 806 FACTS: Dy Eng Giok was a provincial sales agent of Distillery corporation, with the responsibility of remitting sales proceeds to the principal corporation. He has a running balance and to satisfy payment, a surety bond was issued with petitioner as guarantor, whereby they bound themselves liable to the distillery corporation. More purchases was made by Dy Eng Giok and he was able to pay for these additional purchases. Nonetheless, the payment Page 214

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was first applied to his prior payables. A remaining balance still is unpaid. Thus, an action was filed against sales agent and surety company. Judgment was rendered in favor of the corporation.

ISSUE: Whether surety should answer for debts outside the guaranty?

HELD: The remittances of Dy Eng Giok should first be applied to the obligation first contracted by him and covered by the surety agreement. First, in the absence of express stipulation, a guaranty or suretyship operates prospectively and not retroactively. It only secures the debts contracted after the guaranty takes effect. To apply the payment to the obligations contracted before the guaranty would make the surety answer for debts outside the guaranty. The surety agreement didn't guarantee the payment of any outstanding balance due from the principal debtor but only he would turn out the sales proceeds to the Distileria and this he has done, since his remittances exceeded the value of the sales during the period of the guaranty. Second, since the Dy Eng Biok’s obligations prior to the guaranty were not covered, and absent any express stipulation, any prior payment made should be applied to the debts that were guaranteed since they are to be regarded as the more onerous debts.

SPOUSES TAN TOHVS. SOLID BANK CORPORATION G.R. No. 154183. August 7, 2003 FACTS:

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Respondent Solid Bank agreed to extend an “omnibus line” credit facility worth 10 M in facvor of respondent First Business Paper Corporation (FBPC). The terms and conditions were stipulated in a “letter-advise” of the bank where a stipulation of a “continuing guaranty for any and all amounts signed by the Spouses Toh and Ng Li.” The Continuing Guaranty set forth no maximum limit on the indebtedness that respondent FBPC may incur and for which the sureties may be liable, stating that the credit facility “covers any and all existing indebtedness of, and such other loans and credit facilities which may hereafter be granted to FIRST BUSINESS PAPER CORPORATION.” The surety also contained a de facto acceleration clause if “default be made in the payment of any of the instruments, indebtedness, or other obligation” guaranteed by petitioners and respondents. So as to strengthen this security, the Continuing Guaranty waived rights of the sureties against delay or absence of notice or demand on the part of respondent Bank, and gave future consent to the Bank’s action to “extend or change the time payment, and/or the manner, place or terms of payment,” including renewal, of the credit facility or any part thereof in such manner and upon such terms as the Bank may deem proper without notice to or further assent from the sureties. On 13 January 1994 respondent Bank received information that respondent-spouses Kenneth Ng Li and Ma. Victoria Ng Li had fraudulently departed from their conjugal home. On 14 January 1994 the Bank served a demand letter upon FBPC and petitioner Luis Toh invoking the acceleration clause in the trust receipts of FBPC and claimed payment for P10,539,758.68 as unpaid overdue accounts on the letters of credit plus interests and penalties within twenty-four (24) hours from receipt thereof. The Bank also invoked the Continuing Guaranty executed by petitionerspouses Luis Toh and Vicky Tan Toh who were the only parties known to be within national jurisdiction to answer as sureties for the credit facility of FBPC.

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Petitioner-spouses however could not be certain whether to deny or admit the due execution and authenticity of the Continuing Guaranty. They could only allege that they were made to sign papers in blank and the Continuing Guaranty could have been one of them. The RTC found that petitioners “voluntarily affixed their signature[s]” on the Continuing Guaranty and were thus “at some given point in time willing to be liable under those forms,” although it held that petitioners were not bound by the surety contract since the letters of credit it was supposed to secure were opened long after petitioners had ceased to be part of FBPC. The appellate court modified the Decision of the trial court and held that by signing the Continuing Guaranty, petitioner-spouses became solidarily liable with FBPC to pay respondent Bank the amount of P10,539,758.68 as principal with twelve percent (12%) interest per annum from finality of the judgment until completely paid.

ISSUE: Whether Spouses Toh as a guarantor for FBPC are solidarily liable to pay respondent Bank?

HELD: This Court holds that the Continuing Guaranty is a valid and binding contract of petitioner-spouses as it is a public document that enjoys the presumption of authenticity and due execution. Although petitioners as appellees may raise issues that have not been assigned as errors by respondent Bank as party-appellant, i.e., unenforceability of the surety contract, we are bound by the consistent finding of the courts a quo that petitioner-spouses Luis Toh and Vicky Tan Toh “voluntarily affixed their signature[s]” on the surety agreement and were thus “at some given point in time willing to be liable under those forms.”In the absence of clear, convincing and ARAFAG • HABANA • JALAYAJAY

more than preponderant evidence to the contrary, our ruling cannot be otherwise. Insofar as petitioners stipulate in the Continuing Guaranty that respondent Bank “may at any time, or from time to time, in [its] discretion x x x extend or change the time payment,” this provision even if understood as a waiver is confined per se to the grant of an extension and does not surrender the prerequisites therefor as mandated in the “letter-advise.” In other words, the authority of the Bank to defer collection contemplates only authorized extensions, that is, those that meet the terms of the “letter-advise.” Certainly, while the Bank may extend the due date at its discretion pursuant to the Continuing Guaranty, it should nonetheless comply with the requirements that domestic letters of credit be supported by fifteen percent (15%) marginal deposit extendible three (3) times for a period of thirty (30) days for each extension, subject to twenty-five percent (25%) partial payment per extension. This reading of the Continuing Guaranty is consistent with Philippine National Bank v. Court of Appeals that any doubt on the terms and conditions of the surety agreement should be resolved in favor of the surety. Furthermore, the assurance of the sureties in the Continuing Guaranty that “[n]o act or omission of any kind on [the Bank’s] part in the premises shall in any event affect or impair this guaranty” must also be read “strictissimi juris” for the reason that petitioners are only accommodation sureties, i.e., they received nothing out of the security contract they signed. Thus said, the acts or omissions of the Bank conceded by petitioners as not affecting nor impairing the surety contract refer only to those occurring “in the premises,” or those that have been the subject of the waiver in the Continuing Guaranty, and stretch to no other. Stated otherwise, an extension of the period for enforcing the indebtedness does not by itself bring about the discharge of the sureties unless the extra time is Page 216

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not permitted within the terms of the waiver, i.e., where there is no payment or there is deficient settlement of the marginal deposit and the twentyfive percent (25%) consideration, in which case the illicit extension releases the sureties. Under Art. 2055 of the Civil Code, the liability of a surety is measured by the terms of his contract, and while he is liable to the full extent thereof, his accountability is strictly limited to that assumed by its terms. The foregoing extensions of the letters of credit made by respondent Bank without observing the rigid restrictions for exercising the privilege are not covered by the waiver stipulated in the Continuing Guaranty. Evidently, they constitute illicit extensions prohibited under Art. 2079 of the Civil Code, “[a]n extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty.” This act of the Bank is not mere failure or delay on its part to demand payment after the debt has become due, as was the case in unpaid five (5) letters of credit which the Bank did not extend, defer or put off, but comprises conscious, separate and binding agreements to extend the due date, as was admitted by the Bank itself. As a result of these illicit extensions, petitionerspouses Luis Toh and Vicky Tan Toh are relieved of their obligations as sureties of respondent FBPC under Art. 2079 of the Civil Code. Further, we note several suspicious circumstances that militate against the enforcement of the Continuing Guaranty against the accommodation sureties. Firstly, the guaranty was executed more than thirty (30) days from the original acceptance period as required in the “letter-advise.” Thereafter, barely two (2) days after the Continuing Guaranty was signed, corporate agents of FBPC were replaced on 12 May 1993 and other adjustments in the corporate structure of FBPC ensued in the month of June 1993, which the Bank did not investigate although such were made known to it. The consequence of these omissions is to discharge the surety, petitioners herein, under Art. 2080 of ARAFAG • HABANA • JALAYAJAY

the Civil Code, or at the very least, mitigate the liability of the surety up to the value of the property or lien released. Finally, the foregoing omission or negligence of respondent Bank in failing to safekeep the security provided by the marginal deposit and the twenty-five percent (25%) requirement results in the material alteration of the principal contract, i.e., the “letter-advise,” and consequently releases the surety. This inference was admitted by the Bank through the testimony of its lone witness that “[w]henever this obligation becomes due and demandable, except when you roll it over, (so) there is novation there on the original obligations.” As has been said, “if the suretyship contract was made upon the condition that the principal shall furnish the creditor additional security, and the security being furnished under these conditions is afterwards released by the creditor, the surety is wholly discharged, without regard to the value of the securities released, for such a transaction amounts to an alteration of the main contract.”

FALLO: Petition GRANTED.

TOTANES VS. CHINA BANKING CORPORATION January 19, 2009 FACTS: Petitioner and Manuel Antiquera (Antiquera) maintained their individual savings and current accounts with respondent in the latter’s Legaspi City Branch. Petitioner and Antiquera, in conspiracy with respondent’s branch manager Ronnie Lou Marquez (Marquez), allegedly engaged in what is commonly known in banking as "kiting operation," by manipulating the handling and operations of their deposit accounts. Petitioner and Antiquera, likewise, effected transfers of funds to each other’s accounts by drawing checks from their respective current accounts and depositing the Page 217

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same with the other’s accounts by way of debit and credit memos, all in connivance with Marquez, to make it appear that their respective accounts were sufficiently funded, when in truth and in fact, they were not. On July 9, 1986, Antiquera duly executed and delivered Promissory Note No. 2081 in favor of the respondent, whereby he promised to pay the latter on July 16, 1986, the sum of P150,000.00 with 24% interest per annum until fully paid. On July 29, 1986, Antiquera executed Promissory Note No. 2099 for another P150,000.00, payable on August 5, 1986, with the same rate of interest. Antiquera agreed in both promissory notes that he would pay an additional amount by way of penalty, equivalent to 1/10 of 1% per day of the total amount due from date of default until full payment. To secure the aforesaid obligations, a surety agreement form was executed and signed by Antiquera as principal and the petitioner as surety. As surety, petitioner bound himself to pay jointly and severally with Antiquera, the latter’s obligation with the respondent. His liability, however, was limited to P300,000.00, plus interest. For the alleged acts of defraudation committed by Antiquera, Marquez and the petitioner; and for failure of Antiquera to pay his obligations covered by the promissory notes, respondent instituted a complaint for sum of money with damages. Antiquera and the petitioner were declared in default, hence, ex parte hearings ensued. The RTC rendered decision in favour of respondent but dismissed the case against petitioner. The CA upon appeal sustained the validity of the continuing surety agreement signed by petitioner. The suretyship, according to the CA, was not limited to a single transaction; rather, it contemplated a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. ARAFAG • HABANA • JALAYAJAY

ISSUE:

Whether or not the petitioner may be held jointly and severally liable with Antiquera for the latter’s unsettled obligation with the respondent?

HELD: YES. Petitioner’s liability was based on the surety agreement he executed and signed freely and voluntarily. He, however, argues that said agreement was not perfected because the principal obligation, which is the credit line, did not materialize. As such, being a stranger to any contract entered into by Antiquera with the respondent, he should not be held liable. From the terms of the contract, it appears that petitioner jointly and severally undertook, bound himself and warranted to the respondent "the prompt payment of all overdrafts, promissory notes, discounts, letters of credit, drafts, bills of exchange, and other obligations of every kind and nature, including trust receipts and discounts of drafts, bills of exchange, promissory notes, etc. x x x for which the Principal(s) may now be indebted or may hereafter become indebted to the Creditor." The fact that the contract of suretyship was signed by the petitioner prior to the execution of the promissory note does not negate the former’s liability. The contract entered into by the petitioner is commonly known as a continuing surety agreement. Of course, a surety is not bound to any particular principal obligation until that principal obligation is born. But there is no theoretical or doctrinal impediment for us to say that the suretyship agreement itself is valid and binding even before the principal obligation intended to be secured thereby is born, any more than there would be in saying that obligations which are subject to a condition precedent are valid and binding before the occurrence of the condition precedent. Page 218

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Comprehensive or continuing surety agreements are, in fact, quite commonplace in present day financial and commercial practice. A bank or financing company which anticipates entering into a series of credit transactions with a particular company, normally requires the projected principal debtor to execute a continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of transactions with its creditor; with such suretyship agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor. As surety, petitioner’s liability is joint and several. He does not insure the solvency of the debtor, but rather the debt itself. Suretyship arises upon the solidary binding of a person – deemed the surety – with the principal debtor, for the purpose of fulfilling an obligation. The prestation is not an original and direct obligation for the performance of the surety’s own act, but merely accessory or collateral to the obligation contracted by the principal. Although a surety contract is secondary to the principal obligation, the liability of the surety is direct, primary and absolute, or equivalent to that of a regular party to the undertaking. A surety becomes liable for the debt and duty of the principal obligor even without possessing a direct or personal interest in the obligations constituted by the latter.

DIZON VS. SUNTAY September 1972

FACTS: Lourdes Suntay is the owner of a 3-carat diamond ring valued at P5,500. She and Clarita Sison entered into a transaction wherein the ring would be sold on commission. Clarita received the ring and issued a receipt. After some time, Lourdes made demands for the return of the ring but the latter refused to comply. When Lourdes insisted on the return, Clarita gave her the pawnshop ticket which is the receipt of the pledge and she found out that 3 days after the ring was received by Clarita, it was pledged by Melia Sison, the niece of Clarita’s husband in connivance with Clarita with the pawnshop of Dominador Dizon for P2,600. Lourdes then filed an estafa case. She then asked Dominador Dizon for the return of the ring pledged but refused to return the ring thus the case filed by Lourdes. The CFI issued a writ of replevin so Lourdes was able to have possession of the ring during the pendency of the case. The CFI also ruled in her favor which was affirmed by the CA on appeal. Thus, the case at bar.

ISSUE: WHEREFORE, premises considered, the petition is DENIED for lack of merit. The Decision of the Court of Appeals dated June 26, 2007 and its Resolution dated September 19, 2007, in CA-G.R. CV No. 68795, are AFFIRMED. SO ORDERED.

PLEDGE AND MORTGAGE

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Whether or not the CA erred in ruling that Lourdes has a right to possession of the ring?

HELD: NO. It reiterated the ruling in de Garcia v. CA, that the controlling provision is Art. 559 of the CC which states that the possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who has lost any movable Page 219

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or has been unlawfully deprived thereof may recover it from the person in possession of the same. If the possessor of a movable lost of which the owner has been unlawfully deprived, has acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid there for. Lourdes, being unlawfully deprived of her ring thus she has a right to recover it from the current possessor. Dizon is engaged in a business where presumably ordinary prudence would require him to inquire whether or not an individual who is offering the jewelry by pledge is entitled to do so. The principle of estoppel cannot help him at all. Since there was no precaution availed of, perhaps because of the difficulty of resisting opportunity for profit, he only has himself to blame and should be the last to complain if the right of the true owner of the jewelry should be recognized.

DOCTRINE: Pledge of Immovable An owner of a movable unlawfully pledged by another is not estopped from recovering possession. Where the owner delivered the diamond ring solely for sale on commission but the seller instead pawned it without authority, the owner is not stopped form pursuing an action against the pawnshop.

UY TONG VS. CA FACTS : Petitioners Uy Tong and Kho Po Giok (SPOUSES) used to be the owners of Apartment together with the leasehold right over the land on which the building stands. The land is registered in the name of Ligaya Investments, Inc.. It appears ARAFAG • HABANA • JALAYAJAY

that Ligaya Investments, Inc. owned the building which houses the apartment units but sold said apartment and leased a portion of the land in which the building stands to the SPOUSES. Spouses purchased from private respondent Bayanihan Automotive, Inc. (BAYANIHAN) 7 units of motor vehicles. The transaction was evidenced by a written "Agreement" wherein stated that if the vendee fails to pay, the vendor shall become automatically the owner of the apartment. Spouses failed to pay the balance of the purchased, due to this Bayanihan filed an action for specific performance.The trial court rendered a judgment in favor of Bayanihan ordering the defendant to pay the balance to the plaintiff and in the event of failure to do so , they are hereby to execute the deed of absolute sale and or the assignment of the leasehold right. An order for execution pending appeal was issued by the trial court and a deed of assignment was executed by the Spouses over the apartment together with the leasehold right over the land on which the building stands. Notwithstanding the execution of the deed of assignment the SPOUSES remained in possession of the premises. Despite the expiration of the said period, the SPOUSES failed to surrender possession of the premises in favor of BAYANIHAN. This prompted BAYANIHAN to file an ejectment case against them. This action was however dismissed on the ground that BAYANIHAN was not the real party in interest, not being the owner of the building. After demands to vacate the subject apartment made by BAYANIHAN's counsel was again ignored by the SPOUSES, an action for recovery of possession with damages was filed. The case was decided in favor of bayanihan. Not satisfied with this decision, the SPOUSES appealed to the Court of Appeals. The respondent Court of Appeals affirmed in toto the decision appealed from. A motion for reconsideration of the said decision was denied by the respondent Court.

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Whether or not the deed of assignment is null and void because it is in the nature of a pactumcommissorium and/or was borne out of the same.

HELD : The prohibition on pactum commissorium stipulations is provided for by Article 2088 of the Civil Code: Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of the same. Any stipulation to the contrary is null and void. The aforequoted provision furnishes the two elements for pactum commissorium to exist: (1) that there should be a pledge or mortgage wherein a property is pledged or mortgaged by way of security for the payment of the principal obligation; and (2) that there should be a stipulation for an automatic appropriation by the creditor of the thing pledged or mortgaged in the event of nonpayment of the principal obligation within the stipulated period. A perusal of the terms of the questioned agreement evinces no basis for the application of the pactum commissorium provision. First, there is no indication of 'any contract of mortgage entered into by the parties. It is a fact that the parties agreed on the sale and purchase of trucks. Second, there is no case of automatic appropriation of the property by BAYANIHAN. When theSPOUSES defaulted in their payments of the second and third installments of the trucks they purchased, BAYANIHAN filed an action in court for specific performance. The trial court rendered favorable judgment for BAYANIHAN and ordered the SPOUSES to pay the balance of their obligation and in case of failure to do so, to execute a deed of assignment over the property involved in this case. ARAFAG • HABANA • JALAYAJAY

The SPOUSES elected to execute the deed of assignment pursuant to said judgment. Clearly, there was no automatic vesting of title on BAYANIHAN because it took the intervention of the trial court to exact fulfillment of the obligation, which, by its very nature is ". . anathema to theconcept of pacto commissorio [Northern Motors, Inc. v. Herrera, G.R. No. L32674, February 22,1973, 49 SCRA 392]. And even granting that the original agreement between the parties had thebadges of pactum commissorium, the deed of assignment does not suffer the same fate as this was executed pursuant to a valid judgment. This being the case, there is no reason to impugn the validity of the said deed of assignment.

ACME Shoe Rubber vs. CA August 22, 1996

FACTS: On 27 June 1978 - Chua Pac (general manager) of Acme Shoe, Rubber & Plastic Corporation executed in behalf of Acme, a chattel mortgage in favour of Producers Bank of the Philippines. This is to secure a corporate loan of P3M. The Chattel mortgage had a provision that: (c) If the MORTGAGOR, his heirs, executors or administrators shall well and truly perform the full obligation or obligations above-stated according to the terms thereof, then this mortgage shall be null and void. . . .In case the MORTGAGOR executes subsequent promissory note or notes either as a renewal of the former note, as an extension thereof, or as a new loan, or is given any other kind of accommodations such as overdrafts, letters of credit, acceptances and bills of exchange, releases of import shipments on Trust Receipts, etc., this mortgage shall also stand as security for the payment of the said promissory note or notes Page 221

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and/or accommodations without the necessity of executing a new contract and this mortgage shall have the same force and effect as if the said promissory note or notes and/or accommodations were existing on the date thereof. This mortgage shall also stand as security for said obligations and any and all other obligations of the MORTGAGOR to the MORTGAGEE of whatever kind and nature, whether such obligations have been contracted before, during or after the constitution of this mortgage. The loan of P3M paid. Obtained another loan in 1981 P2.7M and was also paid. On 10 and 11 January 1984, bank again obtained loan of P1M in 4 promissory notes of 250K each. Due to financial constraints, the loan was not settled at maturity. Bank applied for extrajudicial foreclosure of chattel mortgage. Acme filed action for injunction however RTCulti mately dismissed complaint and ordered foreclosure saying Acme was bound by stipulations. CA dismissed appeal and affirmed RTC.

ISSUE: Whether or not it is valid and effective to have a clause in a chattel mortgage that extends its coverage to obligations yet to be contracted or incurred?

HELD: NO. RTC and CA decisions set aside.Chattel mortgage can cover only obligations existing at the time mortgage is constituted [Act 1508 Chattel Mortgage Law]. While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred obligations so long as these future debts are accurately described, a chattel mortgage, however, can only cover obligations existing at the time the mortgage is constituted Although a promise expressed in a chattel mortgage to include debts that are yet to be contracted can be a binding commitment that can ARAFAG • HABANA • JALAYAJAY

be compelled upon, the security itself, however, does not come into existence or arise until after a chattel mortgage agreement covering the newly contracted debt is executed either by concluding a fresh chattel mortgage or by amending the old contract conformably with the form prescribed by the Chattel Mortgage Law. Refusal on the part of the borrower to execute the agreement so as to cover the afterincurred obligation can constitute an act of default on the part of the borrower of the financing agreement whereon the promise is written but, of course, the remedy of foreclosure can only cover the debts extant at the time of constitution and during the life of the chattel mortgage sought to be foreclosed. Affidavit of Good Faith requirement makes it obvious that the obligation is current. A chattel mortgage, as hereinbefore so intimated, must comply substantially with the form prescribed by the Chattel Mortgage Law itself. Sec 5 thereof requires an affidavit of good faith. If this is not appended to the agreement chattel mortgage would still be valid between the parties (not against third persons acting in good faith ), The fact, however, that the statute has provided that the parties to the contract must execute an oath that (the) mortgage is made for the purpose of securing the obligation specified in the conditions thereof, and for no other purpose, and that the same is a just and valid obligation, and one not entered into for the purpose of fraud makes it obvious that the debt referred to in the law is a current, not an obligation that is yet merelycontemplated. In the chattel mortgage here involved, the only obligation specified in the chattel mortgagecontract was the P3,000,000.00 loan which petitioner corporation later fully paid. Sec 3 of the Chattel Mortgage Law, the payment of the obligation automatically rendered the chattelmortgage void or terminated. A mortgage that contains a stipulation in regard to future advances in the creditwill take effect only Page 222

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from the date the same are made and not from the date of the mortgage.

not comply with the requirement of giving written notices to all possible redemptioners, neither did Manuel Roxas inform her about the foreclosure.

ISSUE: ROXAS VS. CA Whether the foreclosure and the auction sale is null and void. FACTS: Petitioner Blanca Consuelo Roxas is the owner of a parcel of land. she executed a special powerof attorney appointing her brother, the late Manuel Roxas, as her attorney-in-fact for the purpose ofapplying for an agricultural loan with private respondent Rural Bank of Dumalag, Inc. using said land ascollateral. Armed with said special power of attorney, Manuel Roxas applied for, was granted andreceived an agricultural loan in the amount of P2,000.00 from private respondent on December 26, 1969. As security for the loan, he executed the corresponding real estate mortgage over the subject land. private respondent foreclosed the real estate mortgage for failure to pay the loan on maturity. On January7, 1974, the subject land was sold at public auction to private respondent, being the highest bidder forP3,009.37. For failure to exercise the right of redemption, private respondent consilidated its ownershipover the subject land. On October 4, 1982, possession thereof was taken from Jennifer Roxas, daughter of Manuel Roxas. Petitioner filed a complaint for cancellation of foreclosure of mortgage and annulment ofauction sale against private respondent. Petitioner claimed that Manuel Roxas never informed her about the approval of the loan. When the loan matured, she did not received any demand for payment fromprivate respondent nor was there any information from Manuel Roxas about the maturity of the loan. Theforeclosure did ARAFAG • HABANA • JALAYAJAY

HELD: Yes. Section 5 of R.A. No. 720, as amended by R.A. No. 5939, provides that notices of foreclosureshould be posted in at least three (3) of the most conspicuous public places in the municipality and barriowhere the land mortgaged is situated . In the case at bar, the Certificate of Posting which was executedby the sheriff states that he posted three (3) copies of the notice of public auction sale in three (3)conspicuous public places in the municipality of Panay, where the subject land was situated and in like manner in Roxas City, where the public auction sale took place. It is beyond despute that there was afailure to publish the notices of auction sale as required by law. Section provides further that proof ofpublication shall be accomplished by an affidavit of the sheriff or officer conducting the foreclosure sale. In this case, the sheriff executed a certificate of posting, which is not the affidavit required by law. Therationale behind this is simple: an affidavit is a sworn statement in writing. Strict compliance with theaforementioned provisions is mandated.

CERNA VS. CA G.R. No. L-48359 March 30, 1993 FACTS: Page 223

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Celerina Delgado and Conrad Leviste entered into a loan agreement which was evidenced by a promissory note in the amount of P17,500 with 12% interest per annum. On the same date, Delgado executed a chattel mortagage over a Willy’s jeep owned by him. And acting as the attorney-in-fact of herein petitioner, Manolo Cerna, he also mortgage a “Taunus” car owned by the latter. The period lapsed without Delgado paying the loan. This prompted Leviste to file a collection suit against Delgado and petitioner as solidary debtors. Herein petitioner filed his first Motion to Dismiss on the ground that since Leviste already opted to collect on the note, he could no longer foreclose the mortgage. Petitioner filed with the CA a special civil action for certiorari, mandamus and prohibition with preliminary injunction. The CA denied the petition. Petitioner filed his second Motion to Dismiss in the Trial Court but was dismissed.

ISSUE: 1. Whether the petitioner and Delgado are solidary debtors? 2. Whether the filing of the collection case is deemed an abandonment of the security of the chattel mortgage?

HELD: 1. NO. Only Delgado signed the promissory note and accordingly, he was the only one bound by the contract of loan. Nowhere did it appear in the promissory note that petitioner was a codebtor. The law is clear that “contracts take effect only between the parties..” The law provides that there is solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. There is also no legal provision nor jurisprudence in our ARAFAG • HABANA • JALAYAJAY

jurisdiction which makes third person who secures the fulfilment of another’s obligation by mortgaging his own property to be solidarily bound with the principal debtor. 2. YES. A mortgagee who files a suit for collection abandons the remedy of foreclosure of the chattel mortagage constituted over the personal property as a security for the debt of value of the promissory note which he seeks to recover in the said collection suit. The reason for this rule is that: when, however, the mortagee elects to file a suit for collection, not foreclosure, thereby abandoning the chattel mortgage as basis for relief, he clearly manifest his lack of desire to go after the mortgaged property as security for the promissory note.

NORTHERN MOTORS VS. COQUIA G.R. No. L-40018 August 29, 1975 FACTS: Manila Yellow Taxicab Co.,Inc., in May and June 1974 purchases on isntallment plan from Northern Motors Inc., 200 Holden Torana cars at the price of P28,250 for each car. It made a downpayment of P1,00 on each car. It executed mortagages on the cars in favour of Northern Motors, Inc. As a security for the promissory notes covering the balance of the price. The notes and the chattel mortgages for 172 cars were assigned to Filinvest Credit Corporation. Tropical Commercial Co. Inc. In civil Case obtained a judgement for P167, 311.27 against Manila Yello Taxicab. Part of the judgment or the sum of P110,000 was eventually assigned to Honesto Ong for an unspecified valuable consideration. To justify the judgment credit, the sheriff levied upon taxicabs of which eight were mortgage to Northern Motors and 12 to Filinvest under the assignment already mentioned. Northern Motors and Filinvest filed the corresponding third party claims with the sheriff. Tropical Commercial Inc., posted indemnity bonds. Page 224

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On the same day, at 2pm, the cars were sold at public auction although there was an alleged agreement that the cars would be sold at 4pm. Later, the lower court cancelled the indemnity bonds without notice to the third party claimants. An additional levy on 35 taxicabs to satisfy the unpaid balance of the judgments. Of those 35 taxicabs, 7 were mortgage to Northern Motors while 28 were mortgaged to Filinvest. Again, they filed a third party claims.

FACTS: Petitioner Makati Leasing and Finance Corporation discounted and assigned several recievables with private respondent Wearever Textiles under a Recievable Purchase Agreement in order to obtain financial accommodations from the latter. To secure the collection of the recievables assigned, private respondent executed a Chattel Mortgage over certain raw materials invebtory as well as machinery described as an Artos Aero Dryer Stentering Range.

ISSUE: Whether the act of the sheriff is proper?

HELD: Respondent Sheriff is directed to deliver to Northern Motors (a) the proceeds of the execution sale held on December 18, 1974 for the 8 taxicabs mortgaged to it less the expenses of execution and (b) the 7 taxicabs which were levied upon by him and which are also mortgaged to the corporation. Respondent Honesto Ong is held solidarily liable with manila Yellow Taxicab for the mortgage obligations secured by the 8 mortagaged taxicabs which were sold at the execution sale, less the proceeds of the sale. The chattel mortgagee may file a third-party calim, even before there is a breach of mortgage because, as already noted, the recording of the mortage gives him the symbolical possession of the mortgaged chattel which was construed as equivalent to the actual delivery of possession to the creditor and because of what a judgment of a chattel mortgage can attach is only the equity or right of redemption and, to effectuate the attachment levy is not requisite that the mortgaged chattel itself be seized by the sheriff.

MAKATI LEASING VS. WEAREVER TEXTILE 122 SCRA 296 ARAFAG • HABANA • JALAYAJAY

Upon private respondent’s default, petitioner filed for extrajudiacial foreclosure of the properties mortgaged to it. However, the Deputy Sheriff failed to gain entry into private respondent’s premises and was not able to seize the machinery. Petitioner thereafter filed a complaint for judicial foreclosure with the lower court. The lower court issued a writ of seizure, but was subsequently restrained when private respondent filed an MR. After several incidents, the lower court ordered the enforcement of the writ of seizure and to break open premises of private respondent to enforce said writ. Private respondents motion for reconsideration was denied. The sheriff then removed the main drive motor of the subject machinery. The CA set aside the Orders of the lower court and ordered the return of the drive motor seized by the sheriff, after reluing that the machinery in suit cannot be subject of repliven, much less of a chattel mortgage, because it is real property pursuant to Article 415 of the NCC, the same being attached to the ground by means of bolts and the only way to remove it from respondents plant would be to drill out or destroy the concrete floor, the reason why all that the sheriff could do to enforce the writ was to take the main drive motor of said machinery. The appellate court rejected petitioner’s argument that private respondent is stopped from caliming that the machine is real property by constituting a chattel mortagage. Page 225

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ISSUE: Whether or not the machinery in suit is real or personal property?

HELD: The machinery in this case is considered as personal property. When petitioner returned the subject motor drive and considering that petitioner has reserved its right to question the propriety of the Court of Appeals' decision, the contention of private respondent that this petition has been mooted by such return may not be sustained. With regard to the machinery, a similar, if not Identical issue was raised in Tumalad v. Vicencio:Although there is no specific statement referring to the subject house as personal property, yet by ceding,selling or transferring a property by way of chattel mortgage defendants-appellants could only have meantto convey the house as chattel, or at least, intended to treat the same as such, so that they should not now be allowed to make an inconsistent stand by claiming otherwise. If a house of strong materials may be considered as personal property for purposes of executinga chattel mortgage thereon as long as the parties to the contract so agree and no innocent third party willbe prejudiced thereby, there is absolutely no reason why a machinery, which is movable in its nature andbecomes immobilized only by destination or purpose, may not be likewise treated as such. This is reallybecause one who has so agreed is estopped from denying the existence of the chattel mortgage.It must be pointed out that the characterization of the subject machinery as chattel by the privaterespondent is indicative of intention and impresses upon the property the character determined by theparties. It is ARAFAG • HABANA • JALAYAJAY

undeniable that the parties to a contract may by agreement treat as personal property thatwhich by nature would be real property, as long as no interest of third parties would be prejudicedthereby. As aptly pointed out by petitioner and not denied by the respondent, the status of the subjectmachinery as movable or immovable was never placed in issue before the lower court and the Court ofMoreover, even granting that the charge is true, such fact alone does not render a contract void ab initio,but can only be a ground for rendering said contract voidable, or annullable pursuant to Article 1390 of the new Civil Code, by a proper action in court.

ASSOCIATED INSURANCE VS. IYA

FACTS: Spouses Adriano Valino and Lucia Valino were the owners and possessors of a house of strong materials in Caloocan, Rizal which they purchased on installment basis from the Philippine Realty Corporation. OnNovember 6, 1951, to enable her to purchase on credit rice from the NARIC, Lucia filed a bond in the sumof P11,000.00 subscribed by the Associated Insurance and Surety Co., Inc., and as counter-guaranty forit, the spouses Valino executed an alleged chattel mortgage on the house in favor of the surety company, which was duly registered with the Chattel Mortgage Register of Rizal. At the time of this saidundertaking, the parcel of land on which the house is erected was still registered in the name of thePhilippine Realty Corporation. Having completed payment on the purchase price of the lot, the Valinoswere able to secure a certificate of title in their name. Subsequently, however, the Valinos, to secure Page 226

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payment of an indebtedness in the amount of P12,000.00, executed a real estate mortgage over theproperty in favor of Isabel Iya, which was duly registered and annotated at the back of the certificate of title. On the other hand, as Lucia failed to satisfy her obligation to the NARIC, the surety company was compelled to pay the same pursuant to the undertaking of the bond. In turn, the surety company demanded reimbursement from the spouses Valino, and when they failed to do so, the companyforeclosed the chattel mortgage over the house. As a result thereof, a public sale was conducted by theProvincial Sheriff of Rizal wherein the property was awarded to the surety company for P8,000.00. Thesurety company then caused the said house to be declared in its name for tax purposes.The surety company learned of the existence of the real estate mortgage over the lot together with theimprovements thereon so it instituted a civil case against Adriano and Lucia Valino and Isabel Iya for theexclusion of the residential house from the real estate mortgage in favor of defendant Iya and thedeclaration and recognition of plaintiff's right to ownership over the same.Defendant Isabel Iya alleged, that in virtue of the real estate mortgage executed by her co-defendants, she acquired a real right overthe lot and the house constructed thereon and that the auction sale allegedly conducted was null and voidfor non-compliance with the form required by law. Isabel Iya then filed a civil action against the Valinos and the surety company stating that pursuant to the contract of mortgage executed by the spouses Valino, the latter undertook to pay a loan of P12,000.00 with interest at 12% per annum, which indebtedness was payable in 4 years, extendible for one year, thatdefault in the payment of the interest would entitle the mortgagee to foreclose the same even before thelapse of the 4-year period and as defendant spouses had failed to pay the interest for more than 6months, plaintiff prayed that defendants pay the sum of P12,000.00 with ARAFAG • HABANA • JALAYAJAY

interest thereon at 12% per annum from March 25, 1953, until fully paid; for an additional sum equivalent to 20% of the total obligationas damages. Defendant Surety Company insisted on its right over the building. The two cases were jointly heard upon agreement of the parties, after which the Court rendered judgment holding that the chattel mortgage in favor of the Associated Insurance and Surety Co., Inc., was preferredand superior over the real estate mortgage subsequently executed in favor of Isabel Iya. It was ruled thatas the Valinos were not yet the registered owner of the land on which the building in question wasconstructed at the time the first encumbrance was made, the building then was still a personality and a chattel mortgage over the same was proper. However, as the mortgagors were already the owner of theland at the time the contract with Isabel Iya was entered into, the building was transformed into a realproperty and the real estate mortgage created thereon was likewise adjudged as proper.

ISSUE: Whether or not Iya’s encumbrance should be given preference over the claim of the surety company?

HELD: A building certainly cannot be divested of its character of a realty by the fact that the land on which it is constructed belongs to another. To hold it the other way, the possibility is not remote that it would result inconfusion, for to cloak the building with an uncertain status made dependent on the ownership of theland, would create a situation where a permanent fixture changes its nature or character as the ownershipof the land changes hands. In the case at bar, as personal properties could only be the subject of achattel mortgage and as obviously the structure in question is not one, Page 227

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the execution of the chattelmortgage covering said building is clearly invalid and a nullity. While it is true that said document wascorrespondingly registered in the Chattel Mortgage Register of Rizal, this act produced no effectwhatsoever for where the interest conveyed is in the nature of a real property, the registration of thedocument in the registry of chattels is merely a futile act.

A mortgage creditor who purchases real properties at an extrajudicial foreclosure sale thereof by virtue of a chattel mortgage constituted in his favor, which mortgage has been declared null and void with respect to said real properties, acquires no right thereto by virtue of said sale.

REPUBLIC VS. PERALTA

apparently still in customs custody so far as the record before this Court goes. The trial court held that the aboveenumerated claims of USTC and FOITAF for separation pay of their respective members embodied in final awards of the National Labor Relations Commission were to be preferred over the claims of the Bureau of Customs and the Bureau of Internal Revenue. The Solicitor General, in seeking the reversal of the questioned Orders, argues that Article 110 of the Labor Code is not applicable as it speaks of "wages," a term which he asserts does not include the separation pay claimed by the Unions. Issue: Whether or not the separation pay sought in this case should be preferred over the claims of the Bureau of Customs and the BIR.

Facts:

Ruling:

In the voluntary insolvency proceedings commenced in May 1977 by private respondent Quality Tobacco Corporation (the "Insolvent"), the following claims of creditors were filed: (i) P2,806,729.92, by the USTC Association of Employees and workers Union-PTGWO USTC as separation pay for their members. This amount plus an additional sum of P280,672.99 as attorney's fees had been awarded by the National Labor Relations Commission in NLRC Case No. RB-IV9775-77. (ii) P53,805.05 by the Federacion de la Industria Tabaquera y Otros Trabajadores de Filipinas ("FOITAF), as separation pay for their members, an amount similarly awarded by the NLRC in the same NLRC Case.(iii) P1,085,188.22 by the Bureau of Internal Revenue for tobacco inspection fees covering the period 1 October 1967 to 28 February 1973; (iv) P276,161.00 by the Bureau of Customs for customs duties and taxes payable on various importations by the Insolvent. These obligations appear to be secured by surety bonds. Some of these imported items are

For the specific purposes of Article 110 and in the context of insolvency termination or separation pay is reasonably regarded as forming part of the remuneration or other money benefits accruing to employees or workers by reason of their having previously rendered services to their employer; as such, they fall within the scope of "remuneration or earnings — for services rendered or to be rendered —Article 110 must be read in relation to the provisions of the Civil Code concerning the classification, concurrence andpreference of credits, which provisions find particular application in insolvency proceedings where the claims of all creditors, preferred or nonpreferred, may be adjudicated in a binding manner. Those provisions may be seen to classify credits against a particular insolvent into three general categories, namely:

ARAFAG • HABANA • JALAYAJAY

(a) special preferred credits listed in Articles 2241 and 2242, Page 228

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(b) ordinary preferred credits listed in Article 2244; and (c) common credits under Article 2245. Articles 2241 and 2242 jointly with Articles 2246 to 2249 establish a two-tier order of preference. The first tier includes only taxes, duties and fees due on specific movable or immovable property. All other special preferred credits stand on the same second tier to be satisfied, pari passu and pro rata, out of any residual value of the specific property to which such other credits relate. Credits which are specially preferred because they constitute liens (tax or non-tax) in turn, take precedence over ordinary preferred credits so far as concerns the property to which the liens have attached. The specially preferred credits must be discharged first out of the proceeds of the property to which they relate, before ordinary preferred creditors may lay claim to any part of such proceeds. In contrast with Articles 2241 and 2242, Article 2244 creates no liens on determinate property which followsuch property. What Article 2244 creates are simply rights in favor of certain creditors to have the cash and other assets of the insolvent applied in a certain sequence or order of priority. A. Claim of the Bureau of Customs for Unpaid Customs Duties and TaxesClearly, the claim of the Bureau of Customs for unpaid customs duties and taxes enjoys the status of a specially preferred credit under Article 2241, No. 1, of the Civil Code only in respect of the articles importation of which by the Insolvent resulted in the assessment of the unpaid taxes and duties, and which are still in the custody or subject to the control of the Bureau of Customs. Customs duties and taxes which remain unsatisfied after levy upon the imported articles on which such duties and taxes are due, would have to be paid out of the Insolvent's "free property" in accordance with the order of preference embodied in Article 2244 of the Civil Code. Such unsatisfied customs duties and taxes would fall within Article 2244, No. ARAFAG • HABANA • JALAYAJAY

9, of the Civil Code and hence would be ninth in priority. B. Claims of the Bureau of Internal Revenue for Tabacco Inspection Fees — Tobacco inspection fees are specifically mentioned as one of the miscellaneous taxes imposed under the National Internal Revenue Code. Tobacco inspection fees are collected both for purposes of regulation and control and for purposes of revenue generation. Tobacco inspection fees, in other words, are imposed both as a regulatory measure and as a revenue-raising measure. It follows that the claim of the Bureau of Internal Revenue for unpaid tobacco inspection fees constitutes a claim for unpaid internal revenue taxes which gives rise to a tax lien upon all the properties and assets, movable and immovable, of the Insolvent as taxpayer. Clearly, this tax claim must be given preference over any other claim of any other creditor, in respect of any and all properties of the Insolvent. C. Claims of the Unions for Separation Pay of Their Members — Article 110 of the Labor Code does not purport to create a lien in favor of workers or employees for unpaid wages either upon all of the properties or upon any particular property owned by their employer. Claims for unpaid wages do not therefore fall at all within the category of specially preferred claims established under Articles 2241 and 2242 of the Civil Code, except to the extent that such claims for unpaid wages are already covered by Article 2241, number 6 or by Article 2242, number 3. To the extent that claims for unpaid wages fall outside the scope of Article 2241, number 6 and 2242, number 3, they would come within the ambit of the category of ordinary preferred credits under Article 2244. Page 229

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Applying Article 2241, number 6 to the instant case, the claims of the Unions for separation pay oftheir members constitute liens attaching to the processed leaf tobacco, cigars and cigarettes and other products produced or manufactured by the Insolvent, but not to other assets owned by the Insolvent. And even in respect of such tobacco and tobacco products produced by the Insolvent, the claims of the Unions may be given effect only after the Bureau of Internal Revenue's claim for unpaid tobacco inspection fees shall have been satisfied out of the products so manufactured by the Insolvent. It is frequently said that taxes are the very lifeblood of government. The effective collection of taxes is a task of highest importance for the sovereign. It is critical indeed for its own survival. It follows that language of a much higher degree of specificity than that exhibited in Article 110 of the Labor Code is necessary to set aside the intent and purpose of the legislator that shines through the precisely crafted provisions of the Civil Code. Thus, very substantial effect may be given to the provisions of Article 110 without grievously distorting the framework established in the Civil Code by holding, as we so hold, that Article 110 of the Labor Code has modified Article 2244 of the Civil Code in two respects: (a) firstly, by removing the one year limitation found in Article 2244, number 2; and (b) secondly, by moving up claims for unpaid wages of laborers or workers of the Insolvent from second priority to first priority in the order of preference established I by Article 2244. Accordingly, and by way of recapitulating the application of Civil Code and Labor Code provisions to the facts herein, the trial court should inventory the properties of the Insolvent so as to determine specifically: (a) whether the assets of the Insolvent before the trial court includes stocks of processed or manufactured tobacco products; and (b) whether the Bureau of Customs still has in its custody or control articles imported by the ARAFAG • HABANA • JALAYAJAY

Insolvent and subject to the lien of the government for unpaid customs duties and taxes. WHEREFORE, this case is hereby remanded to the trial court for further proceedings in insolvency compatible with the rulings set forth above.

GLAN PEOPLE’S LUMBER VS. IAC

FACTS: Engineer Orlando T. Calibo, Agripino Roranes, and Maximo Patos were on the jeep owned by the Bacnotan Consolidated Industries, Inc., with Calibo at the wheel, as it approached from the South Lizada Bridge going towards the direction of Davao City at about 1:45 in the afternoon of July 4, 1979. At about that time, the cargo track loaded with cement bags, GI sheets, plywood, driven by defendant Paul Zacarias, coming from the opposite direction of Davao City and bound for Glan, South Cotabato, had just crossed said bridge. At about 59 yards after crossing the bridge, the cargo truck and the jeep collided as a consequence of which Engineer Calibo died while Roranes and Patos sustained physical injuries. Zacarias was unhurt. A case for damages was filed by the surviving spouse and children of the late Engineer Calibo. The defendants' answer however alleged that the lumber and hardware business was exclusively owned by George Y. Lim, this being evidenced by the Certificate of Registration issued by the Bureau of Domestic Trade, that Fabio S. Agad was not a co-owner thereof but merely employed as a bookkeeper and Felix Lim had no connection with said business, he being a child only eight years of age. The Court dismissed the complaint (and defendants' counterclaim) for insufficiency of evidence. It likewise dismissed the third-party Page 230

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complaint presented by the defendants against the insurer of the truck. The circumstances leading to the Court's conclusion are as follows: that moments before its collission with the truck being operated by Zacarias, the jeep of the deceased Calibo was "zigzagging”; that ther were skid marks left by the truck's tires at the scene, and none by the jeep; and that the jeep had onimpact fallen on its right side is indication that it was running at high speed. Under the circumstances, according to the Court, given "the curvature of the road and the descending grade of the jeep's lane, it was negligence on the part of the driver of the jeep, Engr. Calibo, for not reducing his speed upon sight of the truck and failing to apply the brakes as he got within collision range with the truck." The Court of Appeals reversed the Trial Court. It found Zacarias to be negligent because the truck driven by him occupied the lane of the jeep when the collision occurred, and although Zacarias saw the jeep from a distance of about 150 meters, he did not drive his truck back to his lane in order to avoid collision with the oncoming jeep. The Appellate Court opined that Zacarias' negligence gave rise to the presumption of negligence on the part of his employer, and their liability is both primary and solidary.

ISSUE: Whether or not the defendant is negligent in this case and should be liable for the death of the victim and other damages caused by the accident.

HELD: The appealed judgment is reversed. Although it was not disputed that the truck overrode the painted stripe by twenty-five (25) ARAFAG • HABANA • JALAYAJAY

centimeters it was still at least eleven (11) centimeters away from its side of the true center line of the road and well inside its own lane when the accident occurred. By this same reckoning, since it was unquestionably the jeep that rammed into the stopped truck, it may also be deduced that the jeep was at the time travelling beyond its own lane and intruding into the lane of the truck by at least the same 11-centimeter width of space. It being also shown that the accident happened at or near the point of the truck's approach to a curve, which called for extra precautions against driving too near the shoulder, it could hardly be accounted negligent on the part of its driver to intrude temporarily into the opposite lane in order to insure his vehicle's safety. Being well within his own lane, Zacarias had no duty to swerve out of the jeep's way as said Court would have had him do. And even supposing that he was in fact partly inside the opposite lane, coming to a full stop with the jeep still thirty (30) meters away cannot be considered an unsafe or imprudent action, there also being uncontradicted evidence that the jeep was "zigzagging" and hence no way of telling in which direction it would go as it approached the truck. Also clearly erroneous is the finding of the Intermediate Appellate Court that Zacarias had no driver's license at the time. The traffic accident report attests to the proven fact that Zacarias voluntarily surrendered to the investigating officers his driver's license, valid for 1979, that had been renewed just the day before the accident, on July 3, 1979. The evidence not only acquits Zacarias of any negligence in the matter; there are also quite a few significant indicators that it was rather Engineer Calibo's negligence that was the proximate cause of the accident. There is moreover more than a suggestion that Calibo had been drinking shortly before theaccident. The decision of the Trial Court adverts to further testimony of Esparcia to the effect that three of Calibo's companions at the beach party he was driving Page 231

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home from when the collision occurred, who, having left ahead of him went to the scene when they heard about the accident, had said that there had been a drinking spree at the party. The doctrine of the last clear chance provides as valid and complete a defense to accident liability today as it did when invoked and applied in the 1918 case of Picart vs. Smith, supra, which involved a similar state of facts. Since said ruling clearly applies to exonerate petitioner Zacarias and his employer (and co-petitioner) George Lim, an inquiry into whether or not the evidence supports the latter's additional defense of due diligence in the selection and supervision of said driver is no longer necessary and wig not be undertaken.

AFRICA VS. CALTEX FACTS: In the afternoon of March 18, 1948, a fire broke out at the Caltex service station at the corner of Antipolo St. and Rizal Avenue, Manila. It started while gasoline was being hosed from a tank truck into the underground storage, right at the opening of the receiving tank where the nozzle of the hose was inserted. The fire spread to and burned several houses. The owners, among them petitioner spouses Africa and heirs of Ong, sued respondents Caltex Phil., Inc., the alleged owner of the station, and Mateo Boquiren, the agent in charge of its operation, for damages. The CFI and CA found that the petitioners failed to prove negligence of the respondents, and that there was due care in the premises and with respect to the supervision of their employees.

ISSUE: Whether or not, without proof as to the cause and origin of the fire, the doctrine of res ipsa loquitur should apply so as to presume negligence on the part of the respondents. ARAFAG • HABANA • JALAYAJAY

HELD: Yes. Res ipsa loquitur literally means “the thing or transaction speaks for itself.” For the doctrine of res ipsa loquitur to apply, the following requisites should be present: (a) the accident is of a kind which ordinarily does not occur in the absence of someone's negligence; (b) it is caused by an instrumentality within the exclusive control of the defendant or defendants; and (c) the possibility of contributing conduct which would make the plaintiff responsible is eliminated. In the case at bar, the gasoline station, with all its appliances, equipment and employees, was under the control of respondents. A fire occurred therein and spread to and burned the neighboring houses. The persons who knew or could have known how the fire started were respondents and their employees, but they gave no explanation thereof whatsoever. It is a fair and reasonable inference that the incident happened because of want of care. The negligence of the employees was the proximate cause of the fire, which in the ordinary course of things does not happen. Therefore, the petitioners are entitled to the award for damages. DULAY VS COURT OF APPEALS FACTS: On December 7, 1988, an altercation between Benigno Torzuela and Atty. Napoleon Dulay occurred at the "Big Bang Sa Alabang," Alabang Village, Muntinlupa as a result of which Benigno Torzuela, the security guard on duty at the said carnival, shot and killed Atty. Napoleon Dulay. Petitioner Maria Benita A. Dulay, widow of the deceased Napoleon Dulay, in her own behalf and in behalf of her minor children, filed an action for damages against Benigno Torzuela and private respondents Safeguard and/or Superguard, alleged employers of defendant Torzuela. Respondent Superguard filed a Motion to Dismiss on the ground that the complaint does not state a valid cause of action. Superguard claimed that Torzuela's Page 232

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act of shooting Dulay was beyond the scope of his duties, and that since the alleged act of shooting was committed with deliberate intent (dolo), the civil liability therefor is governed by Article 100of the Revised Penal Code. Superguard further alleged that a complaint for damages based on negligence under Article 2176 of the New Civil Code, such as the one filed by petitioners, cannot lie, since the civil liability under Article 2176 applies only to quasi-offenses under Article 365 of the Revised Penal Code. In addition, the respondent argued that petitioners' filing of the complaint is premature considering that the conviction of Torzuela in a criminal case is a condition sine qua non for the employer's subsidiary liability. Respondent Safeguard also filed a motion praying that it be excluded as defendant on the ground that defendant Torzuela is not one of its employees. Petitioners opposed both motions, stating that their cause of action against the private respondents is based on their liability under Article 2180 of the New Civil Code. Respondent judge declared that the complaint was one for damages founded on crimes punishable under Articles 100 and 103 of the Revised Penal Code as distinguished from those arising from, quasi-delict.

ISSUES: (1) Whether or not Torzuela' s act of shooting Napoleon Dulay constitutes a quasi-delict actionable under Article 2176 of the New Civil Code; (2) Whether or not Article 33 of the New Civil Code applies only to injuries intentionally committed; and (3) Whether or not the liability or respondents is subsidiary under the Revised Penal Code.

HELD: ARAFAG • HABANA • JALAYAJAY

(1) Yes. Article 2176 of the New Civil Code provides that “whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties is called a quasi-delict and is governed by the provisions of this Chapter.” Contrary to the theory of private respondents, there is no justification for limiting the scope of Article 2176 of the Civil Code to acts or omissions resulting from negligence. Wellentrenched is the doctrine that article 2176 covers not only acts committed with negligence, but also acts which are voluntary and intentional. (2) No. The term "physical injuries" in Article 33 has already been construed to include bodily injuries causing death. It is not the crime of physical injuries defined in the Revised Penal Code. It includes not only physical injuries but also consummated, frustrated, and attempted homicide. Although in the Marcia case, it was held that no independent civil action may be filed under Article 33 where the crime is the result of criminal negligence, it must be noted, however, that Torzuela, the accused in the case at bar, is charged with homicide, not with reckless imprudence, whereas the defendant in Marcia was charged with reckless imprudence. Therefore, in this case, a civil action based on Article 33 lies. (3) No. Under Article 2180 of the New Civil Code, when an injury is caused by the negligence of the employee, there instantly arises a presumption of law that there was negligence on the part of the master or employer either in the selection of the servant or employee, or in supervision over him after selection or both. The liability of the employer under Article 2180 is direct and immediate; it is not conditioned upon prior recourse against the negligent employee and a prior showing of the insolvency of such employee. Therefore, it is incumbent upon the private respondents to prove that they exercised the diligence of a good father of a family in the selection and supervision of their employee. Page 233

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award of actual, moral and exemplary damages were given to the respondents. Hence, this petition.

ISSUE : CUSTODIO VS. COURT OF APPEALS 253 SCRA 483

Whether or not the award of damages is proper?

FACTS : HELD : Respondents owned a parcel of land wherein a two-door apartment was erected. Said property was surrounded by other immovables owned by petitioners, spouses Custodio and spouses Santos. As an access to P. Burgos Street from the subject property, there are two possible passageways. The first passageway is approximately one meter wide and is about 20 meters distant from Mabasa's residence to P. Burgos Street. Such path is passing in between the previously mentioned row of houses. The second passageway is about 3 meters in width and length from plaintiff Mabasa's residence to P. Burgos Street; it is about 26 meters. In passing thru said passageway, a less than a meter wide path through the septic tank and with 5-6 meters in length, has to be traversed. Petitioners constructed an adobe fence in the first passageway making it narrower in width. Said adobe fence was first constructed by defendants Santoses along their property which is also along the first passageway. Defendant Morato constructed her adobe fence and even extended said fence in such a way that the entire passageway was enclosed. As a result, the tenants left the apartment because there was no longer a permanent access to the public street. Respondents then filed an action for the grant of an easement of right of way. The trial court ordered the petitioner to give respondents a permanent access to the public street and that in turn, the respondent will pay a sum of Php 8,000.00 to the petitioner as an indemnity for the permanent use of the passageway. On appeal by the respondent to the CA, the decision of the trial court was affirmed, such that a right of way and an ARAFAG • HABANA • JALAYAJAY

No. To warrant the recovery of damages, there must be both a right of action for a legal wrong inflicted by the defendant, and damage resulting to the plaintiff therefrom. Wrong without damage, or damage without wrong, does not constitute a cause of action, since damages are merely part of the remedy allowed for the injury caused by a breach or wrong. There is a material distinction between damages and injury. Injury is the illegal invasion of a legal right; damage is the loss, hurt, or harm which results from the injury, and damages are the recompense or compensation awarded for the damage suffered. Thus, there can be damage without injury in those instances in which the loss or harm was not the result of a violation of a legal duty. These situations are often called damnum absque injuria . In order that a plaintiff may maintain an action for the injuries of which he complains, he must establish that such injuries resulted from a breach of duty which the defendant owed to the plaintiff. There must be a concurrence of injury to the plaintiff and legal responsibility by the person causing it. In the instant case, although there was damage, there was no legal injury. Contrary to the claim of respondents, petitioners could not be said to have violated the principle of abuse of right. In order that the principle of abuse of right provided in Article 21 of the Civil Code can be applied, it is essential that the following requisites concur: (1) The defendant should have acted in a manner that is contrary to morals, good customs or public policy; (2) The acts should be willful; and (3) There Page 234

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was damage or injury to the plaintiff. The act of petitioners in constructing a fence within their lot is a valid exercise of their right as owners, hence not contrary to morals, good customs or public policy. The law recognizes in the owner the right to enjoy and dispose of a thing, without other limitations than those established by law. It is within the right of petitioners, as owners, to enclose and fence their property. Article 430 of the Civil Code provides that “(e)very owner may enclose or fence his land or tenements by means of walls, ditches, live or dead hedges, or by any other means without detriment to servitudes constituted thereon.” At the time of the construction of the fence, the lot was not subject to any servitudes. There was no easement of way existing in favor of private respondents, either by law or by contract. The fact that respondents had no existing right over the said passageway is confirmed by the very decision of the trial court granting a compulsory right of way in their favor after payment of just compensation. It was onlythat decision which gave private respondents the right to use the said passageway after payment of the compensation and imposed a corresponding duty on petitioners not to interfere in the exercise of said right. The proper exercise of a lawful right cannot constitute a legal wrong for which an action will lie, although the act may result in damage to another, for no legal right has been invaded. One may use any lawful means to accomplish a lawful purpose and though the means adopted may cause damage to another, no cause of action arises in the latter's favor. An injury or damage occasioned thereby is damnum absque injuria . The courts can give no redress for hardship to an individual resulting from action reasonably calculated to achieve a lawful means.

TORTS AND DAMAGES

LIBI VS. IAC 214 SCRA 16

FACTS: Julie Ann Gotiong and Wendell Libi were a sweetheart until the former broke up with the latter after she found out the Wendell was irresponsible and sadistic. Wendell wanted reconciliation but was not granted by Julie so it prompted him to resort to threats. One day, there were found dead from a single gunshot wound each coming from the same gun. The parents of Julie herein private respondents filed a civil case against the parents of Wendell to recover damages. Trial court dismissed the complaint for insufficiency of evidence but was set aside by CA.

ISSUE: WON the parents should be held liable for such damages?

HELD: The subsidiary liability of parents for damages caused by their minor children imposed under Art 2180 of the Civil Code and Art. 101 of Revised Penal Code covered obligations arising from both quasi-delicts and criminal offenses. The court held that the civil liability of the parents for quasi-delict of their minor children is primary and not subsidiary and that responsibility shall cease when the persons can prove that they observe all the

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diligence of a good father of a family to prevent damage. However, Wendell’s mother testified that her husband owns a gun which he kept in a safety deposit box inside a drawer in their bedroom. Each of the spouses had their own key. She likewise admitted that during the incident, the gun was no longer in the safety deposit box. Wendell could not have gotten hold of the gun unless the key was left negligently lying around and that he has free access of the mother’s bag where the key was kept. The spouses failed to observe and exercise the required diligence of a good father to prevent such damage.

HELD: Petition Denied. The SC agrees with the CA’s conclusion that the cause of action in the case at bar is found on quasi-delict under Article 1146 of the CC which prescribes in four years and not on breach of warranty under article 1562 of the same code. This is supported by the allegations in the complaint which makes reference to the reckless and negligent manufacture of "adulterated food items intended to be sold for public consumption."

COCA-COLA VS. CA and MS. LYDIA GERONIMO G.R. No. 110295 October 18, 1993

CITY OF MANILA VS. TEOTICO 22 SCRA 267

FACTS:

FACTS:

Private respondent was the proprietress of Kindergarten Wonderland Canteen in Dagupan City. In August 1989, some parents of the students complained to her that the Coke and Sprite soft drinks sold by her contained fiber-like matter and other foreign substances. She brought the said bottles for examination to DOH and it was found out that the soft drinks “are adulterated.” As a result, her per day sales of soft drinks severely plummeted that she had to close her shop on 12 December 1989 for losses. She demanded damages from petitioner before the RTC which dismissed the same on motion by petitioner based on the ground of Prescription. On appeal, the CA annulled the orders of the RTC.

In January 1958, at about 8pm, Teotico was about to board a jeepney in P. Burgos, Manila when he fell into an uncovered manhole. This caused injuries upon him. Thereafter he sued for damages under Article 2189 of the Civil Code the City of Manila, the mayor, the city engineer, the city health officer, the city treasurer, and the chief of police. CFI Manila ruled against Teotico. The CA, on appeal, ruled that the City of Manila should pay damages to Teotico. The City of Manila assailed the decision of the CA on the ground that the charter of Manila states that it shall not be liable for damages caused by the negligence of the city officers in enforcing the charter; that the charter is a special law and shall prevail over the Civil Code which is a general law; and that the accident happened in national highway.

ISSUE: ISSUE: WON the action for damages by the proprietress against the soft drinks manufacturer should be treated as one for breach of implied warranty under article 1561 of the CC which prescribes after six months from delivery of the thing sold?

ARAFAG • HABANA • JALAYAJAY

Whether or not the City of Manila is liable in the case at bar? HELD: YES. It is true that in case of conflict, a special law prevails over a general law; that the charter of Manila is a special law and that the Civil Page 236

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Code is a general law. However, looking at the particular provisions of each law concerned, the provision of the Manila Charter exempting it from liability caused by the negligence of its officers is a general law in the sense that it exempts the city from negligence of its officers in general. There is no particular exemption but merely a general exemption. On the other hand, Article 2189 of the Civil Code provides a particular prescription to the effect that it makes provinces, cities, and municipalities liable for the damages caused to a certain person by reason of the “…defective condition of roads, streets, bridges, public buildings, and other-public works under their control or supervision.” The allegation that the incident happened in a national highway was only raised for the first time in the City’s motion for reconsideration in the Court of Appeals, hence it cannot be given due weight. At any rate, even though it is a national highway, the law contemplates that regardless if whether or not the road is national, provincial, city, or municipal, so long as it is under the City’s control and supervision, it shall be responsible for damages by reason of the defective conditions thereof. In the case at bar, the City admitted they have control and supervision over the road where Teotico fell when the City alleged that it has been doing constant and regular inspection of the city’s roads, P. Burgos included. PROPRIETORS OF BUILDING, FACTORY ETC.GUILATCO VS. CITY OF DAGUPAN FACTS: Gilatco, (Court Interpreter) was about to board a tricycle at a sidewalk when at Perez Blvd whenshe accidentally fell into a manhole causing her right leg to be fractured. Perez Blvd is a National Roadunder the control and supervision of City of Dagupan.Such manhole is partially covered by a flowerpot leaving a gaping hole about 2 ft long and 1½feet wide.She was hospitalized, operated on

and confined. She had been deprived of income. She sued for damages. ISSUE: WON Control or supervision over a national road by the City of Dagupan exists which makes City liable under Art 2189? HELD: YES. Art 2189 says : Provinces, cities and municipalities shall be liable for damages for the death of, or injuries, suffered by, any person by reason of the defective conditions of roads, streets, bridges, publicbuildings, and other public works, under their control and supervision.Thus, it is not even necessary that such defective road or street belongs to the City.In the case at bar, the control and supervision of the national road exists and is provided for in thecharter of Dagupan. It provided that the laying out, construction and improvement of streets, avenues andalleys and sidewalks, and regulation of the use thereof, may be legislated by the Municipal Board.Such control and supervision is exercised through the City Engineer Tangco, who aside from hisofficial capacity as City Engineer, was also Ex Officio Highway Engineer, Ex Officio City Engineer of Bureau of Public Works, and Building Official and received compensation for these functions. The function of supervision over streets, public buildings and public works, pertaining through theCity Engineer is coursed through a Maintenance Foreman and a Maintenance Engineer. Although thesetwo officials are employees of the Nat’l Gov’t, they are detailed with the City of Dagupan and hencereceive instruction and supervision from the city through the City Engineer.Hence the City is liable. GOTESCO INVESTMENT CORPORATION VS. GLORIA E. CHATTO G.R. No. L-87584 June 16, 1992 FACTS:

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Gloria A. Chatto with her 15-year old daughter went to petitioners’s theater to see a movie. They bougt balcony tickets but were unable to find seats. Hardly 10 minutes after entering the theater, the ceiling of its balcony collapsed. Shocked and hurt, plaintiffs managed to crawl under the fallen ceiling. As soon as they were able to get out to the street, they walked the nearby FEU hospital where they were confined and treated. The following day, they transferred to the UST hospital. Due to continuing pain in the neck, headache and dizziness, plaintiff went to Illinois, USA in July 1982 for further treatment (Exh "E"). She was treated at the Cook County Hospital in Chicago, Illinois. She stayed in the U.S. for about three (3) months during which time she had to return to the Cook County Hospital five (5) or, six (6) times. It has been established thru the uncontradicted testimony of Mrs. Chatto that during the chaos and confusion at the theater she lost a pair of earrings worth P2,500 and the sum of P1,000.00 in cash contained in her wallet which was lost; and that she incurred the following expenses: P500.00 as transportation fare from Cebu City to Manila on the first leg of her trip to the United States; P350.00 for her passport; and P46,978.00 for her expense relative to her treatment in the United States, including the cost of a round-trip ticket (P11,798.00) hospital and medical bills and other attendant expenses. The total is P51,328.00, which is more than the sum of P49,050.00 claimed in the complaint, hence should be reduced accordingly. The herein petitioner now claims that the collapse was due to a force majeure. ISSUE: Whether petitioner is liable for damages? HELD: ARAFAG • HABANA • JALAYAJAY

Petitioner could have easily discovered the cause of the collapse if indeed it were due to force majeure. To Our mind, the real reason why Mr. Ong could not explain the cause or reason is that either he did not actually conduct the investigation or that he is, as the respondent Court impliedly held, incompetent. He is not an engineer, but an architect who had not even passed the government's examination. Verily, post-incident investigation cannot be considered as material to the present proceedings. What is significant is the finding of the trial court, affirmed by the respondent Court, that the collapse was due to construction defects. There was no evidence offered to overturn this finding. The building was constructed barely four (4) years prior to the accident in question. It was not shown that any of the causes denominates as force majeure obtained immediately before or at the time of the collapse of the ceiling. Such defects could have been easily discovered if only petitioner exercised due diligence and care in keeping and maintaining the premises. But as disclosed by the testimony of Mr. Ong, there was no adequate inspection of the premises before the date of the accident. His answers to the leading questions on inspection disclosed neither the exact dates of said. inspection nor the nature and extent of the same. That the structural designs and plans of the building were duly approved by the City Engineer and the building permits and certificate of occupancy were issued do not at all prove that there were no defects in the construction, especially as regards the ceiling, considering that no testimony was offered to prove that it was ever inspected at all. It is settled that: The owner or proprietor of a place of public amusement impliedly warrants that the premises, appliances and amusement devices are safe for the purpose for which they are designed, the doctrine being subject to no other exception or qualification than that he does not contract against unknown defects not Page 238

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discoverable by ordinary or reasonable means. This implied warranty has given rise to the rule that: Where a patron of a theater or other place of public amusement is injured, and the thing that caused the injury is wholly and exclusively under the control and management of the defendant, and the accident is such as in the ordinary course of events would not have happened if proper care had been exercised, its occurrence raises a presumption or permits of an inference of negligence on the part of the defendant. That presumption or inference was not overcome by the petitioner. FALLO: Petition DENIED for lack of merit.

METRO MANILA TRANSPORT VS. CA & COL. SABALBURO August 1, 2002

FACTS: Last December 24 1986 Florentina Sabalburo and her companions were making their way to Baclaran to buy foodstuffs for Noche Buena. Florentina Sabalburo and her companions waited for the traffic light to turn red so that they could cross the street to take a ride to Baclaran. Upon crossing the street during the red light, Florentina Sabalburo was hit by a fast moving MMTC bus, driven by Apolinario Ajoc. Ms. Sabalburo was then taken by the driver and conductress of the MMTC bus to San Juan de Dios hospital. The victim was not able to regain consciousness and she succumbed to her injuries on January 03, 1987. The Trial court decided in favor of Sabalburo et. al and ordered MMTC to pay damages. MMTC then appealed the case to the Court of Appeals which affirmed the ARAFAG • HABANA • JALAYAJAY

decision

of

the

trial

court.

ISSUE: Whether or not MMTC is liable to pay damages to private respondent?

HELD: YES. According to the S.C. both courts are correct in awarding damages to the plaintiff. Even though MMTC argues that the proximate cause of the victim’s death is her negligence thus requesting the court to apply Art 2179 of the civil code, instead of Art 2176, the S.C upheld the findings of the trial courts that the driver and MMTC had been negligent in its duties and it is this negligence that led to the death of the victim thus showing that Art 2176 is the more applicable provision in thiscase. Also MMTC is liable for the death of the victim due to Art 2180 of the civil code, wherein the obligation imposed by Article 2176 is demandable not only for one’s own acts or omissions-, but also for those of persons for whom one is responsible. It should be shown that whenever an employee’s negligence causes damage or injury to another, there instantly arises a presumption juris tantum that there was negligence on the part of the employer, either in the selection of the employee (culpa in eligiendo) or the supervision over him after the selection (culpa in vigilando). Hence, to escape solidary liability for a quasi-delict committed by his employee, an employer must rebut the presumption by presenting convincing proof that in the selection and supervision of his employee, he has exercised the care and diligence of a good father of a family. In the present case, petitioner MMTC failed to rebut the presumption of negligence on its part.

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Obligations and Contracts Terms: ISSUE: CULPA AQUILIANA- refers to acts or omissions which cause damage to another, there being fault or negligence on the part of the defendant, who is obliged by law to pay for the damages done.

Art 2176 of the Civil Code is applied if there’s no pre-existing contractual relation between the parties. Although the Supreme Court has already held that a quasi- delict can occur even if there is a contractual relation, since the act that lead to the breaking a contract may also be a tort

GELUZ VS. CA July 20, 1961

FACTS: Nita Villanueva came to know the defendant (Antonio Geluz) for the first time in 1948-- thru her aunt. In 1950, she became pregnant by her present husband before they were legally married. During to conceal her pregnancy from her parent, she had herself aborted by def. After the marriage with the plaintiff., she again became pregnant. As she was employed in the COMELEC and her pregnancy proved to be inconvenient, she had herself aborted again by def. in Oct 1953. Less than 2 years later, she again became pregnant. On 2/21/55, she again repaired to the defendant’s clinic. Nita was again aborted of a 2-month old foetus, in consideration of the sum of P50.It is the third and last abortion that constitutes plaintiff’s basis in filing this action and award of damages. The CA and the trial court predicated the award of damages upon the provisions of the initial par. of Art. 2206 of the NCC. ARAFAG • HABANA • JALAYAJAY

Whether or not award of damages is proper in this case?

RULING: NO. This award, we believe, to be error for the said art., in fixing an award for the death of a person, does not cover the case of an unborn foetus that is not endowed with personality. Parents of unborn foetus cannot sue for damages on its behalf. A husband of a woman who voluntarily procured her abortion could not recover damages from the physician who caused the same. (1) Since an action for pecuniary damages on account of personal injury or death pertains primarily to the injured, no such right of action could derivatively accrue to the parents or heirs of an unborn child. In fact, even if a cause of action did accrue on behalf of the unborn child, the same was extinguished by its pre-natal death, since no transmission to anyone can take place from one that lacked juridical personality (or juridical capacity, as distinguished from capacity to act). It is no answer to invoke the provisional personality of a conceived child (conceptus pro nato habetur) under Article 40 of the Civil Cod, because that same article expressly limits such provisional personality by imposing the condition that the child should be subsequently born alive: "provided it be born later with the condition specified in the followingarticle." In the present case, there is no dispute that the child was dead when separated from its mother's womb.(2) This is not to say that the parents are not entitled to collect any damages at all. But such damages must be those inflicted directly upon them, as distinguished from the injury or violation of the rights of the deceased, his right to life and physical integrity. Because the parents cannot expect either help, support or Page 240

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services from an unborn child, they would normally be limited to moral damages for the illegal arrest of the normal development of the spes hominis that was the foetus, i.e., on account of distress and anguish attendant to its loss, and the disappointment of their parental expectations (Art. 2217, CC), as well as to exemplary damages, if the circumstances should warrant them (Art. 2230,CC). But in this case, there is no basis for an award of moral damages, evidently because the husband's indifference to the previous abortions clearly indicates that he was unconcerned with the frustration of his parental hopes and affection. Art. 41. For civil purposes, the foetus is considered born if it is alive at the time it is completely delivered from the mother’s womb. However, if the foetus had an intrauterine life of less than seven months, it is not deemed born if it dies within twenty-four hours after its complete delivery from the maternal womb

SPOUSES FLORES VS. SPOUSES PINEDA November 14, 2008

FACTS: Teresita Pineda (Teresita) was a 51 y/o unmarried woman living in Sto. Domingo, Nueva Ecija. Teresita consulted her townmate, Dr. Fredelicto Flores, regarding her medical condition (general body weakness, loss of appetite, frequent urination and thirst, and on-and-off vaginal bleeding) Dr. Fredelicto initially interviewed the patient and asked the history of her monthly period to analyze the probable cause of the vaginal bleeding. Dr. Fredelicto advised the patient to return the following week or to go the United Doctors Medical Center (UDMC) in Quezon City for a general check-up. He suspected that her other symptoms might be due to diabetes and told her to continue her medications. ARAFAG • HABANA • JALAYAJAY

Teresita did not return the next week as advised. When her condition persisted, she went to further consult Dr. Flores at his UDMC clinic on April 28, 1987. To get there she traveled for at least 2 hours from Nueva Ecija to Quezon City with her sister, Lucena Pineda. They arrived at UDMC at around 11:15 am. Lucena later testified that her sister was then so weak that she had to lie down on the couch of the clinic while they waited for Dr. Fredelicto to arrive. When Dr. Fredelicto arrived, he did a routine check-up and ordered Teresita’s admission to the hospital. In the admission slip, he directed the hospital staff to prepare the patient for an “on call” D&C operation to be performed by his wife, Dr. Felicisma Flores (Dr. Felicisma). Teresita was brought to her hospital room at around 12 noon; hospital staff took her blood and urine samples for the lab tests which Dr. Fredelicto ordered. Teresita was taken to the operating room at 2:40 pm of the same day. It was only then that she met Dr. Felicisma, an ob-gyn. The 2 doctors (Dr. Felicisma and Dr. Fredelicto) conferred on the patient’s medical condition. The resident physician and the medical intern gave Dr. Felicisma their own briefings. Dr. Felicisma also interviewed and conducted an internal vaginal examination of the patient which lasted for about 15 minutes. Dr. Felicisma then called the laboratory for the results of the patient’s tests. At that time, only the results for the blood sugar (10.67 mmol/L), uric acid determination, cholesterol determination, and CBC (109 g/L) were available. Based on these preparations, Dr. Felicisma proceeded with the D&C operation with Dr. Fredelicto administering the general anesthesia. The D&C operation lasted for about 10-15 minutes. By 3:40 pm, Teresita was wheeled back to her room. A day after the operation (April 29, 1987), Teresita was subjected to an ultrasound Page 241

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examination as a confirmatory procedure. Results showed that she had an enlarged uterus and myoma uteri. Dr. Felicisma, however, advised Teresita that she could spend her recovery period at home. Still feeling weak, Teresita opted for hospital confinement. Teresita’s complete lab exam results came only on April 29, 1987. Teresita’s urinalysis showed a 3+ indicating that the sugar in her urine was very high. She was then placed under the care of Dr. Amado Jorge, an internist. By April 30, 1987, Teresita’s condition had worsened. She experienced difficulty breathing and was rushed to the ICU. Further tests confirmed that she was suffering from DM Type II. Insulin was administered to the patient, but the medication might have arrived too late. Due to complications induced by diabetes, Teresita died in the morning of May 6, 1987.

pecuniary loss the respondents suffered. The loss was presented in terms of the hospital bills and expenses the respondents incurred on account of Teresita’s confinement and death. The court affirmed the award of actual damages of P36,000.00 representing the hospital expenses the patient incurred. In addition to the award for actual damages, the respondent heirs of Teresita are likewise entitled to P50,000.00 as death indemnity pursuant to Article 2206 of the Civil Code which states that “the amount of damages for death caused by a xxx quasi-delict shall be at least three thousand pesos, even though there may have been mitigating circumstances xxx” Moral damages are designed to compensate the claimant for the injury suffered, that is, for the mental anguish, serious anxiety, wounded feelings which the respondents herein must have surely felt with the unexpected loss of their daughter. They affirmed the appellate court’s award of P400,000.00 by way of moral damages to the respondents.

ISSUE: Whether the decision to proceed with the D&C operation was an honest mistake of judgment OR one amounting to negligence

Medical Negligence Case – type of claim to redress a wrong committed by a medical professional that has caused bodily harm or the death of a patient. 4 Elements in a Medical Negligence Case: 1. Duty 2. Breach 3. Injury 4. Proximate Causation

HELD: The court did not find the petition meritorious. Both the trial and the appellate court awarded actual damages as compensation for the ARAFAG • HABANA • JALAYAJAY

They similarly affirmed the grant of exemplary damages. Because of the petitioner spouses’ negligence in subjecting Teresita to an operation without first recognizing and addressing her diabetic condition, the appellate court awarded exemplary damages to the respondents in the amount of P100,000.00. · VILLANUEVA VS. UCPB March 7, 2000

FACTS: Sometime in December 1978, Hermenegildo Villanueva, father of [herein Petitioner] Hector C. Villanueva, applied for and was granted a loan by [Respondent] United Coconut Planters’ Bank (UCPB), Dumaguete City Branch, which at that time was managed by one Bobby Cafe. The loan was for the alleged purpose Page 242

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of agricultural coconut production and for processing under the Coconut Production Loan Program. As security therefor, Hermenegildo Villanueva mortgaged to the bank a parcel of land registered in his name located at Mauban, Quezon. In the course of a bank audit, certain fraud, anomalies and irregularities were discovered in the application, processing and granting of said loan prompting UCPB to conduct further investigation on the matter. After due inquiry, the [respondent] bank found and concluded that [petitioner], together with his father, Hermenegildo Villanueva, Bobby Cafe (UCPB Dumaguete City Branch Manager) and a certain Reynaldo Ramos, confederated and conspired with each other in perpetrating the fraud, anomalies and irregularities to the detriment of the bank. On June 8, 1979, UCPB, through its counsel, filed the following criminal complaints against petitioner: with the Office of the City Fiscal (now Prosecutor) of Dumaguete City, to wit: 1. violation of Section 77 of the General Banking Act, Republic Act (RA) No. 337, as amended by Presidential Decree (PD) No. 71, in relation to Central Bank Circular No. 517, Series of 1976, and Section 87 of the General Banking Act 2. violation of Section 87-A-2(d) of the General Banking Act, RA No. 337, as amended by PD No. 71 3. violation of Section 87-A-1 (c) of the General Banking Act, RA No. 337, as amended by PD No. 71 4. violation of Section 87-A-2(b) of the General Banking Act, RA No. 337, as amended by PD No. 71 5. violation of Articles 315(2)(a) and 316(2) of the Revised Penal Code 6. violation of Section 87-A-1(d) and Section 87-A2(a) of the General Banking Act, RA No. 337, as amended by PD No. 71 ARAFAG • HABANA • JALAYAJAY

The RTC rendered judgment against petitioners. In view of his acquittal in the criminal cases, Hector Villanueva filed a complaint for damages on the ground of alleged malicious prosecution with the Regional Trial Court of Dumaguete City against [respondent bank], which was docketed as Civil Case No. 172-B and raffled to Branch [44] of the court. The complaint alleged, among others, that [petitioner] is a respectable member of the community, a professional, a member of various civic organizations, a businessman, and a political leader; that the filing of the criminal cases against him by [respondent bank] was done with malice which resulted in the undue maligning, blackening x x x of his integrity, honesty and good reputation, as well as adversely affecting his political career and business dealings, for which [petitioner] prayed that [respondent bank] be held liable to him for the amount [of] P200,000.00 in actual damages, P6,000,000.00 in moral damages, P2,000,000.00 in exemplary damages, P1,000,000.00 in nominal damages, and P800,000.00 in attorney’s fees, as well as P5,000.00 charge per court appearance. The Court of Appeals however, ruled that the petitioner had failed to prove the elements of malicious prosecution. First, even if the respondent bank filed the six criminal Complaints against the petitioner, it was not the prosecutor but merely the complainant. The prosecution of those criminal cases was left solely to the discretion and control of the city fiscal. Second, the prosecutor acted with probable cause. The Resolution of the city fiscal of Dumaguete clearly showed petitioner’s participation in the alleged crimes and the reasons why the accused was probably guilty as charged. Third, the petitioner also failed to establish malice behind the filing of the criminal Complaints. The adverse result of an action does not by itself make the prosecution thereof wrongful; neither does it subject the actor to payment of damages. The law does not impose a penalty on the right to litigate. Hence, this Petition. Page 243

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ISSUE:

WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution AFFIRMED. Costs against petitioner.

Whether or not there was malicious prosecution in the instant case?

DOCTRINE:

HELD: The Petition has no merit. The respondent bank filed the criminal Complaints for violations of the General Banking Act in its honest belief that these charges were meritorious. There is no credible evidence to show that it was impelled by a desire to unjustly vex, annoy and inflict injury on the petitioner. Before these cases were referred to the city fiscal, it had even conducted its own investigation with the assistance of the National Bureau of Investigation. Malicious prosecution requires proof that the prosecution was prompted by a sinister design to vex and humiliate the plaintiff. The respondent bank had neither a "bone to pick" with the petitioner nor a "previous dealing with petitioner that could have prompted the respondent bank to turn the tables on him. Resort to judicial processes, by itself, is not evidence of ill will, as the mere act of filing a criminal complaint does not make the complainant liable for malicious prosecution.3[22] There must be proof that the suit was prompted by legal malice -- an inexcusable intent to injure, oppress, vex, annoy or humiliate. A contrary rule would discourage peaceful recourse to the courts and unjustly penalize the exercise of a citizen’s right to litigate. Where the action is filed in good faith, no penalty should be imposed thereon.

ARAFAG • HABANA • JALAYAJAY

A suit for malicious prosecution cannot prosper unless the plaintiff satisfactorily proves that the earlier criminal action lacked probable cause and was filed, by a sinister design, mainly to injure, vex, annoy or humiliate. An acquittal, by itself, does not necessarily prove the absence of probable cause in the criminal information or complaint. Upon the other hand, the complainant cannot escape liability merely on the ground that it was the fiscal who prosecuted the proceedings in court.

INHELDER CORPORATION VS. CA May 30, 1983

FACTS: What commenced the instant proceedings is a case (hereinafter referred to as the DAMAGECASE) instituted by private respondents (hereinafter referred to as the PANGANIBANS), residents ofCalapan, Oriental Mindoro, against petitioner (hereinafter referred to as INHELDER), domiciled inMandaluyong, Rizal, before the Court of First Instance of Oriental Mindoro (hereinafter referred to as the MINDORO COURT). The Complaint alleged that INHELDER had filed a case (hereinafter referred to asthe COLLECTION CASE) against the PANGANIBANS before the Municipal Court of Mandaluyong, Rizal(hereinafter referred to as MANDALUYONG COURT), which was subsequently dismiss; that theCOLLECTION CASE (Civil Case No. 5582), was clearly unfounded, - and that the PANGANIBANS were entitled, as against INHELDER, to quantified damages totalling P169,550.00. Page 244

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As will be seen, the complaint of the PANGANIBANS was essentially for actual andcompensatory damages, moral damages and exemplary damages, based on the alleged clearlyunfounded COLLECTION CASE. After declaring INHELDER in default in the DAMAGE CASE, the MINDORO COURT renderedjudgment in favor of the PANGANIBANS. On appeal, the Appellate Court reduced the total damagesawarded to the PANGANIBANS from P212,650.00 to P41,550.00 by modifying the judgment of the MINDORO COURT

ISSUE: Whether or not the complaint constitutes malicious prosecution and whether or not damages can be awarded as a result thereon.

HELD: The Supreme Court does not agree. Neither may it be said that the COLLECTION CASE was malicious. Malicious prosecution, to bethe basis of a suit, requires the elements of malice and want of probable cause. There must be proof that the prosecution was prompted by a sinister design to vex and humiliate a person, and that it was initiateddeliberately knowing that the charge was false and groundless.

In the present case, there is no evidence on record, clearly establishing these two elements.Although there may be want of probable cause, there is no proof that petitioner deliberately initiated theCOLLECTION CASE knowing that the same was false and groundless. It should also be stressed that the mere filing of a suit does not render a person liable formalicious prosecution should he be ARAFAG • HABANA • JALAYAJAY

unsuccessful. The law could not have meant to impose a penalty onthe right to litigate. Sound principles of justice and public policy demand that persons shall have free resort to Courts of law for redress of wrongs and vindication of their rights without fear of later on standingtrial for damages should their actions lose ground. It may not be amiss to remind Trial Courts to guard against the award of exorbitant damages thatare way out of proportion to the environmental circumstances of a case and which, time and again, thisCourt has reduced or eliminated. Judicial discretion granted to the Courts in the assessment of damagesmust always be exercised with balanced restraint and measured objectivity. GERALDEZ VS. CA February 23, 1994 FACTS: An action for damages by reason of contractual breach was filed by petitioner Lydia L. Geraldez against private respondent Kenstar Travel Corporation. Sometime in October 1989, Petitioner came to know about private respondent from numerous advertisements in newspapers of general circulation regarding tours in Europe. She then contacted private respondent by phone and the latter sent its representative, who gave her the brochure for the tour and later discussed its highlights. The European tours offered were classified into four, and petitioner chose the classification denominated as "VOLARE 3" covering a 22-day tour of Europe for S2,990.00. She paid the total equivalent amount of P190,000.00 charged by private respondent for her and her sister, Dolores. Petitioner claimed that, during the tour, she was very uneasy and disappointed when it turned out that, contrary to what was stated in the brochure, there was no European tour manager for their group of tourists, the hotels in which she and the group stayed were not first-class, the UGC Leather Factory which was specifically added as a highlight of the tour was not visited, and the Filipino lady Page 245

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tour guide by private respondent was a first timer, that is, she was performing her duties and responsibilities as such for the first time.

manager and the visit to the leather factory, it is indubitably liable for damages to petitioner.

ISSUE: Whether or not the respondent company committed fraud in order for the petitioner to enter into the contract.

HELD: This fraud or dolo, which is present or employed at the time of birth or perfection of a contract, may either be dolo causante or dolo incidente. The first, or causal fraud referred to in Article 1338, are those deceptions or misrepresentations of a serious character employed by one party and without which the other party would not have entered into the contract. Dolo incidente, or incidental fraud which is referred to in Article 1344, are those, which are not serious in character and without which the other party would still have entered into the contract. Dolo causante determines or is the essential cause of the consent, while dolo incidente refers only to some particular or accident of the obligations. The effects of dolo causante are the nullity of the contract and the indemnification of damages, and dolo incidente also obliges the person employing it to pay damages. In either case, whether private respondent has committed dolo causante or dolo incidente by making misrepresentations in its contracts with petitioner and other members of the tour group, which deceptions became patent in the light of after-events when, contrary to its representations, it employed an inexperienced tour guide, housed the tourist group in substandard hotels, and reneged on its promise of a European tour ARAFAG • HABANA • JALAYAJAY

RCPI vs.CA March 13, 1991 FACTS: A social condolence telegram sent through the facilities of the RADIO COMMUNICATIONS OF THE PHILIPPINES, INC (RCPI). The condolence telegram was correctly transmitted as far as the written text was concerned. However, the condolence message as communicated and delivered to the addressees was typewritten on a “Happy Birthday” card and placed inside a “Christmasgram” envelope. The RCPI’s defense is that it ran out of social forms and envelope for condolence telegrams. The trial court rendered judgment in favor of the respondents Timans which was affirmed in toto by the CA. RCPI now submits assignment of errors regarding the award of damages and attorney’s fees against it.

ISSUE: WON RCPI is liable for breach of contract and negligence as decided by the 2 courts?

HELD: , The decision appealed from is AFFIRMED in toto YES. The SC fully agrees with the appellate court’s endorsement of the trial court’s conclusion that RCPI, a corporation dealing in Page 246

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telecommunications and offering its services to the public, is engaged in a business affected with public interest. As such, it is bound to exercise that degree of diligence expected of it in the performance of its obligation. One of RCPI’s main arguments is that despite the fact that there was “error” in the social form and envelope used, it asserts that there was no showing that it has any motive to cause harm or damage on private respondents: In the present case, it is self-evident that a telegram of condolence is intended and meant to convey a message of sorrow and sympathy. It seems out of this world, therefore, to place that message of condolence in a birthday card and deliver the same in a Christmas envelope for such acts of carelessness and incompetence not only render violence to good taste and common sense, they depict a bizarre presentation of the sender’s feelings. The findings of the respondent court are persuasive. . . When plaintiffs placed an order for transmission of their social condolence telegram, defendant did not inform the plaintiff of the exhaustion of such social condolence forms. Defendant-appellant accepted through its authorized agent or agency the order and received the corresponding compensation therefor. …. Gross negligence or carelessness can be attributed to defendant-appellant in not supplying its various stations with such sufficient and adequate social condolence forms when it held out to the public … the availability of such social condolence forms and accepted for a fee the transmission of messages on said forms. Knowing that there are no such forms as testified to by its Material Control Manager and entering into a contract for the transmission of messages in such forms, defendant-appellant committed acts of bad faith, fraud or malice. . . .

the ordinary form, the text of the message is typed on plain newsprint paper. On the other hand, a social telegram is placed in a special form with the proper decorations and embellishments to suit the occasion and the message and delivered in an envelope matching the purpose of the occasion and the words and intent of the message. The sender pays a higher amount for the social telegram than for one in the ordinary form. It is clear, therefore, that when the message was being prepared, it committed a breach of contract as well as gross negligence. It could not have been faulted had it delivered the message in the ordinary form and reimbursed the difference in the cost to the private respondents.

NOTES: It was not unexpected that because of this unusual incident, which caused much embarrassment and distress to respondent Timan, he suffered nervousness and hypertension resulting in his confinement for three days at a hospital. The petitioner argues that “a court cannot rely on speculation, conjectures or guess work as to the fact and amount of damages, but must depend on the actual proof that damages had been suffered and evidence of the actual amount. In other words, RCPI insists that there is no causal relation of the illness suffered by Mr. Timan with the foul-up caused by the petitioner. But that is a question of fact. The findings of fact of the trial court and the respondent court concur in favor of the private respondents. We are bound by such findings—that is the general rule wellestablished by a long line of cases. Nothing has been shown to convince us to justify the relaxation of this rule in the petitioner’s favor. On the contrary, these factual findings are supported by substantial evidence on record.

Anyone who avails of the facilities of a telegram company like RCPI can choose to send his message in the ordinary form or in a social form. In ARAFAG • HABANA • JALAYAJAY

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