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MJ

1. Land Bank of the Philippines vs. Oate, G.R. No. 192371, 713 SCRA 678, January 15, 2014
Case Title : LAND BANK OF THE PHILIPPINES, petitioner, vs. EMMANUEL OATE, respondent.
Case Nature : PETITION for review on certiorari of the decision of the Court of Appeals.
Syllabi Class :Civil Law|Credit Transactions|Interest Rates
Land Bank of the Philippines vs. Oate
G.R. No. 192371, 713 SCRA 678, January 15, 2014
DEL CASTILLO, J.:
FACTS: Respondent Emmanuel C. Oate maintained seven trust accounts with petitioner Land
Bank of the Philippines and each trust account was covered by an Investment Management
Account which authorized Land Bank to invest and reinvest his funds and which obliged Land
Bank to keep an accurate records of all investments, receipts, disbursements and other
transactions of the accounts.
Land Bank however miscredited an amount of P4,000,000.00 to one of the trust account of
Oate and Land Bank demanded the return of said amount but Oate refused. Thereby, Land
Bank applied the outstanding balances of the trust accounts against the indebtedness - the
miscredited amount of Oate. Since the amount of the outstanding balances did not suffice,
Land Bank filed a complaint for sum of money against Oate.
Oate countered that his trust account reached a balance of P229,222,160.25 and
$3,472,683.94 and even applying the miscredited amount with interest, still the bank owes
him P220,999,472.36 on top of his dollar deposits amounting to $3,472,683.94. The RTC
created a board of commissioners for the purpose of examining the trust accounts of Oate.
The Board found that there were withdrawals without withdrawal slips. The trial court
dismissed the complaint and ordered Land Bank to return the amount it applied for the
miscredited amount for it failed to established that the miscredited amount came from the
investments of Philippine Virginia Tobacco Administration and Philippine Virginia Tobacco
Board.
Both parties appealed. The Court of Appeals dismissed the appeal of Land Bank concerning
the miscredited amount while it gave due course to Oates claim for undocumented
withdrawals made by Land Bank against his trust accounts and ordered Land Bank to pay the
same with 12% interest. The Court of Appeals anchored its decision on the Land Banks failure
to observe provisions of Bangko Sentral ng Pilipinas Manual of Regulation for Banks (MORB)
requiring bank to give full disclosure of the services it offered and conduct its dealings with
transparency, as well as to render reports that would sufficiently apprise its clients of the
significant developments in the administration of their accounts.
Land Bank filed a petition for review on certiorari contending that the trust accounts are in
the nature of express trust and not in the nature of regular deposit accounts where 12% is
applicable.
ISSUE: Whether or not Land Bank was duty-bound to keep an accurate record and regularly
apprise their clients of the status of their accounts considering that the MORB which was not
yet in existence at the time of the transactions.

Whether or not the applicable interest rate concerning the return of undocumented
withdrawals is 6% since the trust accounts is in the form of express trust and not that of the
regular deposit accounts.
HELD: On the first issue, yes; Land Bank is duty-bound since even without the MORB, because
the IMAs, the contract between Land Bank and Oate required Land Bank to do so. ON the
second issue, no; the applicable interest rate is 12% since the unilateral offsetting of funds
without legal justification and the undocumented withdrawals are tantamount to forbearance
of money; but such 12% annual interest shall apply only up to June 30, 2013 based on Bangko
Sentral ng Pilipinas Circular No. 799, Series of 2013.
Anent Land Banks contention that the determination of whether the CA erred in retroactively
applying the 2008 MORB poses a legal question, the same deserves scant consideration. True,
the CA included in its ratio decidendi a discussion on the 2008 MORB to give emphasis to the
duties of banks to keep an accurate record and regularly apprise their clients of the status of
their accounts. But the issue of whether Land Bank failed to comply with those duties can be
resolved even without the MORB as the same duties are also imposed on Land Bank by the
IMAs, the contract that primarily governs the parties in this case. As a general rule, a
contract is the law between the parties. Thus, from the moment the contract is perfected,
the parties are bound not only to the fulfilment of what has been expressly stipulated but
also to all consequences which, according to their nature, may be in keeping with good faith,
usage and law. Also, the stipulations of the contract being the law between the parties,
courts have no alternative but to enforce them as they were agreed [upon] and written x x
x.
Based on the factual milieu of this case even without touching on the MORB, we found that
Land Bank still failed to perform its bounden duties to keep accurate records and render
regular accounting. We also found no cogent reason to disturb the other factual findings of
the CA.
Land Banks argument that the lower courts erred in imposing 12% per annum rate of interest
is likewise devoid of merit. The unilateral offsetting of funds without legal justification and
the undocumented withdrawals are tantamount to forbearance of money. In the analogous
case of Estores v. Supangan, we held that [the] unwarranted withholding of the money which
rightfully pertains to [another] amounts to forbearance of money which can be considered as
an involuntary loan. Following Eastern Shipping Lines, Inc. v. Court of Appeals,98therefore,
the applicable rate of interest in this case is 12% per annum. Besides, Land Bank is estopped
from assailing the award of 12% per annum rate of interest. In its Complaint, Land Bank
arrived at P8,222,687.89 as the outstanding indebtedness of Oate by using the same 12% per
annum rate of interest. It was only after the lower courts rendered unfavorable decisions that
Land Bank started to insist that the applicable rate of interest is 6% per annum.
Of equal importance is the determination of when the said 12% per annum rate of interest
should commence.1wphi1Recall that both the RTC and the CA reckoned the running of the
12% per annum rate of interest from June 21, 1991, or the day Land Bank unilaterally applied
the outstanding balance in all of Oates trust accounts, until fully paid. The compounding of
interest, on the other hand, was based on the provision of the IMAs granting Land Bank to
hold, invest and reinvest the Fund and keep the same invested, in your sole discretion,
without distinction between principal and income.

While we find sufficient basis for the compounding of interest, we find it necessary however
to modify the commencement date. In Eastern Shipping, it was observed that the
commencement of when the legal interest should start to run varies depending on the factual
circumstances obtaining in each case. As a rule of thumb, it was suggested that where the
demand is established with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shall begin
to run only from the date the judgment of the court is made (at which time the quantification
of damages may be deemed to have been reasonably ascertained).
In the case at bench, while Oate protested the setting off, no proof was presented that he
formally demanded for the return of the amount so debited prior to the filing of the
Complaint. Quite understandably so because at that time he could not determine with some
degree of certainty the outstanding balances of his accounts as Land Bank neglected on its
duty to keep him updated on the status of his accounts. Land Bank even undertook to furnish
him with the exact computation103 of what remains in his accounts after the set off. But
this never happened until Land Bank initiated the Complaint on September 7, 1992. Oate, on
the other hand, filed his Answer (With Compulsory Counterclaim) on May 26, 1993. In other
words, we cannot reckon the running of the interest prior to the filing of the Complaint or
Oates Counterclaim as no demand prior thereto was made. Neither could the interest
commence to run at the time of filing of any of aforesaid pleadings (as to constitute judicial
demand) since the undocumented withdrawals in the sums of P60,663,488.11 and
US$3,210,222.85, as well as the amount actually debited from all of Oates accounts, were
determined only after the Board submitted its consolidated report on August 16, 2004 or more
than 10 years after Land Bank and Oate filed their Complaint and Answer, respectively. Note
too that while Oate sought to recover the amount of undocumented withdrawals before the
RTC, the same was denied in the latters May 31, 2006 Decision. The RTC granted Oate only
the total amount of funds debited from his trust accounts. It was only when the CA rendered
its December 18, 2009 Decision that Oate was awarded the undocumented withdrawals.
Hence, we find it just and proper to reckon the running of the interest of 12% per annum,
compounded yearly, for the debited amount and undocumented withdrawals on different
dates. The debited amount of P1,471,416.52, shall earn interest beginning May 31, 2006 or
the day the RTC rendered its Decision granting said amount to Oate. As to the undocumented
withdrawals ofP60,663,488.11 and US 3,210,222.85, the legal rate of interest should start to
run the day the CA promulgated its Decision on December 18, 2009.
During the pendency of this case, however, the Monetary Board issued Resolution No. 796
dated May 16, 2013, stating that in the absence of express stipulation between the parties,
the rate of interest in loan or forbearance of any money, goods or credits and the rate
allowed in judgments shall be 6% per annum. Said Resolution is embodied in Bangko Sentral ng
Pilipinas Circular No. 799, Series of 2013, which took effect on July 1, 2013. Hence, the 12%
annual interest mentioned above shall apply only up to June 30, 2013. Thereafter, or starting
July 1, 2013, the applicable rate of interest for both the debited amount and undocumented
withdrawals shall be 6% per annum compounded annually, until fully paid.
MJ
2. Saberon vs. Ventanilla, Jr., G.R. No. 192669, 722 SCRA 287, April 21, 2014
Case Title : RAUL SABERON, JOAN F. SABERON and JACQUELINE SABERON, petitioners, vs.
OSCAR VENTANILLA, JR., and CARMEN GLORIA D. VENTANILLA, respondents.
Case Nature : MOTION FOR RECONSIDERATION of a resolution of the Supreme Court.

Syllabi Class :Civil Law|Land Registration|Sales

Saberon vs. Ventanilla, Jr.


G.R. No. 192669, 722 SCRA 287, April 21, 2014
MENDOZA, J.:
FACTS: Petitioner Manila Remnant Co., Inc. (MRCI) entered into a contract with A.U. Valencia
& Co. Inc. (AUVC) wherein the AUVC will develop the subdivision owned by MRCI with
authority to manage the sales of lots thereof, to execute contract to sell, and to issue official
receipts.
MRCI and AUVC executed two contracts to sell covering two lots in favor of Oscar C.
Ventanilla, Jr. and Carmen Gloria D. Ventanilla payable for 10 years. Artemio U. Valencia, the
then president of AUVC sold the said lots, holding out himself as president of MRCI, resold the
said lots without consideration to Carlos Crisostomo without the knowledge of the Ventanillas.
Valencia transmitted to MRCI the contract with Crisostomo while keeping the contact with the
Ventanillas. Valencia made it appear that the payment made by the Ventanillas were that of
Crisostomo.
MRCI then terminated its business relationship with AUVC on account of irregularities
discovered in its collection and remittances. AUVC sued MRCI to impugn the abrogation of
their agency agreement before the court of first instance. The court then ordered all lot
buyers to deposit their monthly amortizations with the court. AUVC informed the Ventanillas
that it was still authorized by the trial court to accept payment and it assured Ventanillas
that that said payments would be deposited later in court. For AUVCs failure to forward its
collections to the trial court as ordered, MRCI caused the publication of a notice cancelling
the contracts to sell of some lot buyers including those of Crisostomo in whose name the
payments of the Ventanillas had been credited.
Believing that they already paid P73,122.35 for the two lots, the Ventanillas offered to pay
the balance to MRCI. It was this time that the Ventanillas discovered Valencias deception,
who at that time of discovery was already been removed as president of AUVC. MRCI refused
Ventanillas offer to pay the remainder of the contract price.
The Ventanillas commenced an action for specific performance, annulment of deeds and
damages against MRCI, AUVC, and Crisostomo before the court of first instance. The court
declared that the contract to sell with Ventanillas was valid and subsisting while it annulled
the contract to sell with Crisostomo. The court ordered that the MRCI to execute an absolute
deed of sale in favor of the Ventanillas, free from all liens and encumbrances. The Court of
Appeals affirmed. MRCI then filed before the Supreme Court a petition for certiorari
questioning its solidary liability with AUVC and Crisostomo but not that of the order of
issuance of the absolute deed of sale; thus, the order concerning the issuance of deed of
absolute sale was deemed final and executory.
The Ventanillas moved for the issuance of a writ of execution which the court of first instance
granted and served upon the MRCI. A notice of levy was annotated in the titles of MRCI. MRCI
made a manifestation that it cannot deliver the properties to the Ventanillas since the

properties were already sold to Samuel Marquez thus it offered the Ventanillas reimbursement
of the amount paid by the Ventanillas. The court ordered that the garnishment be made upon
the bank account of MRCI. MRCI appealed the decision of the court with the Court of Appeals
contending that it can still sell the property since the case was still pending in the court. The
Court of Appeals however ruled that the contract to sell entered into by MRCI and Marquez
was not an impediment for the issuance of the garnishment. When the case reached the
Supreme Court, it ruled that the validity of sale to Ventanillas was already final and executory
considering that MRCI only appealed the ruling holding it solidarily liable with the AUVC and
Crisostomo; hence, the portion of the decision ordering MRCI to execute an absolute deed of
sale in their favor had already become final and executory.
However, the execution of the judgment in favor of the Ventanillas was yet far from fruition
as Samuel Cleofe, Register of Deeds for Quezon City revealed to them that MRCI registered a
deed of absolute sale to Marquez who eventually sold the same property to the Saberons,
which conveyance was registered. ROD Cleofe opined that a judicial order for the
cancellation of the titles in the name of the Saberons was essential before he complied with
the writ of execution. Apparently, the notice of levy, through inadvertence, was not carried
over to the title issued to Marquez, the same being a junior encumbrance which was entered
after the contract to sell to Marquez had already been annotated.
So the Ventanillas were constrained to go to court to seek the annulment of the deed of sale
executed between MRCI and Marquez as well as the deed of sale between Marquez and the
Saberons, as the fruits of void conveyances. The trial court ruled in favor of the Ventanillas.
The Court of Appeals likewise affirmed the decision of the trial court ratiocinating that with
respect to involuntary liens, an entry of a notice of levy and attachment in the primary entry
or day book of the Registry of Deeds was considered as sufficient notice to all persons that
the land was already subject to attachment.
ISSUE: Whether or not the registration of the absolute contract of sale will prevail over an
earlier notice of levy though the latter was registered only in the day book of the registry of
deeds.
Whether or not the registration of the notice of levy had produced constructive notice that
would bind third persons despite the failure of the ROD-QC to annotate the same in the
certificates of title.
HELD: On the first issue, no; a levy of a judgment debtor creates a lien, which nothing can
subsequently destroy except the very dissolution of the attachment of the levy itself, Under
no law, not even P.D. No. 1529, is it stated that an attachment shall be discharged upon sale
of the property other than under execution. On the second issue, yes; superiority and
preference in rights were given to the registration of the levy on attachment; although the
notice of attachment had not been noted on the certificate of title, its notation in the book
of entry of the Register of Deeds produced all the effects which the law gave to its
registration or inscription.
It has already been established in the two previous cases decided by the Court that the
contracts to sell executed in favor of the Ventanillas are valid and subsisting. Clearly, it has
been acknowledged, even by MRCI, as can be seen in the latters own choice to only question
their solidary liability in the 1990 case and its failure to assign the same as an error in the
1994 case. In the same vein, the issue on Marquezs title had already been passed upon and

settled in the 1994 case. That he purchased the lots prior to the annotation of the notice of
levy in MRCIs title was of no moment. In fact, the Court explicitly declared that MRCIs
transaction with Marquez cannot prevail over the final and executory judgment ordering
MRCI to execute an absolute deed of sale in favor of the Ventanillas.
These favorable findings prompted the Ventanillas to register the notice of levy on the
properties. The records show that on the strength of a final and executory decision by the
Court, they successfully obtained a writ of execution from the RTC and a notice of levy was
then entered, albeit on the primary entry book only. The contract to sell to Marquez was
registered on May 21, 1991, while the notice of levy was issued ten (10) days later, or on May
31, 1991. In February 1992, MRCI executed the Deed of Sale with Marquez, under whose name
the clean titles, sans the notice of levy, were issued. A year later, or on March 11, 1992, MRCI
registered the deed of sale to Marquez who later sold the same property to the Saberons.
This complex situation could have been avoided if it were not for the failure of ROD Cleofe to
carry over the notice of levy to Marquezs title, serving as a senior encumbrance that might
have dissuaded the Saberons from purchasing the properties.
The Court agrees with the position of the RTC in rejecting ROD Cleofes theory.
Distinctions between a contract to sell and a contract of sale are well-established in
jurisprudence. In a contract of sale, the title to the property passes to the vendee upon the
delivery of the thing sold; in a contract to sell, 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.
It is undeniable, therefore, that no title was transferred to Marquez upon the annotation of
the contract to sell on MRCIs title. As correctly found by the trial court, the contract to sell
cannot be substituted by the Deed of Absolute Sale as a mere conclusion of the previous
contract since the owners of the properties under the two instruments are different.
Considering that the deed of sale in favor of Marquez was of later registration, the notice of
levy should have been carried over to the title as a senior encumbrance.
Corollary to this is the rule that a levy of a judgment debtor creates a lien, which nothing can
subsequently destroy except the very dissolution of the attachment of the levy itself. Prior
registration of the lien creates a preference, since the act of registration is the operative act
to convey and affect the land. Jurisprudence dictates that the said lien continues until the
debt is paid, or the sale is had under an execution issued on the judgment or until the
judgment is satisfied, or the attachment is discharged or vacated in the same manner
provided by law. Under no law, not even P.D. No. 1529, is it stated that an attachment shall
be discharged upon sale of the property other than under execution.
Additionally, Section 59 of P.D. No. 1529 provides that, [i]f, at the time of the transfer,
subsisting encumbrances or annotations appear in the registration book, they shall be carried
over and stated in the new certificate or certificates, except so far as they may be

simultaneously released or discharged. This provision undoubtedly speaks of the ministerial


duty on the part of the Register of Deeds to carry over existing encumbrances to the
certificates of title.
From the foregoing, ROD Cleofes theory that a deed of sale, as a mere conclusion of a
contract to sell, turns into a senior encumbrance which may surpass a notice of levy, has no
leg to stand on. It was, in fact, properly rejected by the courts a quo. Verily, the controversy
at hand arose not from the Ventanillas fault, but from ROD Cleofes misplaced understanding
of his duty under the law.
Surely, the Ventanillas had every right to presume that the Register of Deeds would carry over
the notice of levy to subsequent titles covering the subject properties. The notice was
registered precisely to bind the properties and to serve as caution to third persons who might
potentially deal with the property under the custody of the law. In DBP v. Acting Register of
Deeds of Nueva Ecija,16 the Court ruled that entry alone produced the effect of registration,
whether the transaction entered was a voluntary or involuntary one, so long as the registrant
had complied with all that was required of him for purposes of entry and annotation, and
nothing more remained to be done but a duty incumbent solely on the Register of Deeds.
While the Court is not unmindful that a buyer is charged with notice only of such burdens and
claims as are annotated on the title, the RTC and the CA are both correct in applying the rule
as to the effects of involuntary registration. In cases of voluntary registration of documents,
an innocent purchaser for value of registered land becomes the registered owner, and, in
contemplation of law the holder of a certificate of title, the moment he presents and files a
duly notarized and valid deed of sale and the same is entered in the day book and at the same
time he surrenders or presents the owner's duplicate certificate of title covering the land sold
and pays the registration fees, because what remains to be done lies not within his power to
perform. The Register of Deeds is duty bound to perform it. In cases of involuntary
registration, an entry thereof in the day book is a sufficient notice to all persons even if the
owner's duplicate certificate of title is not presented to the register of deeds. Therefore, in
the registration of an attachment, levy upon execution, notice of lis pendens, and the like,
the entry thereof in the day book is a sufficient notice to all persons of such adverse claim.
MJ
3. Francisco vs. Rojas, G.R. No. 167120, 723 SCRA 423, April 23, 2014
Case Title : RODOLFO V. FRANCISCO, petitioner, vs. EMILIANA M. ROJAS, and the legitimate
heirs of JOSE A. ROJAS, namely: JOSE FERDINAND M. ROJAS II, ROLANDO M. ROJAS, JOSE M.
ROJAS, JR., CARMELITA ROJAS-JOSE, VICTOR M. ROJAS, and LOURDES M. ROJAS, all
represented by JOSE FERDINAND M. ROJAS II, respondents.
Case Nature : PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
Syllabi Class :Civil Law|Reconveyance
Francisco vs. Rojas
G.R. No. 167120, 723 SCRA 423, April 23, 2014
PERALTA, J.:
FACTS: Don Buenaventura Guido owned a 3,181.74-hectare track of land which was left to his
sons Francisco Guido and Hermogenes Guido upon his death. In 1911, a decreto was issued in

the names of the brothers covering the same track of land. On the basis of that decreto, an
original certificate of title was issued in the name of the brothers. In 1933, said original
certificate of title was cancelled and a transfer certificate of title was issued. In 1942,
Francisco and Hermogenes adjudicated among themselves the same track of land and
transferred portion of it to Jose A. Rojas. But the adjudication was formalized by the heirs
of Francisco and Hermogenes only in 1973 when the heirs purportedly executed an extrajudicial settlement of estate with quitclaims.
Alfredo Guido, Sr., representing the heirs of the brother Francisco and Hermogenes, filed a
petition for reconstitution of the transfer certificate of title issued in 1933 and the same was
reconstituted. After the reconstitution, the heirs presented before the registry the extrajudicial settlement of estate with quitclaims executed in 1973. The entire lot was subdivided
into 21 portions and each was issued a transfer of certificate of titles. Thereafter, 14 portions
were exchanged by the heirs for shares of stock of Interport Resources Corporation and the
heirs thereafter ceded the remaining portions to Alfredo Guido, Sr. in exchange of monetary
consideration.
It appeared that around five months after the reconstitution of the transfer certificate issued
in 1933, an application for registration of title over four parcels of land was filed with the
regional trial court by Rosalina, Rodolfo, Carmela and Carmen, all surnamed Francisco. Said
parcels of land were allegedly overlapped with those tracks of covered by the reconstituted
transfer certificate of title. The court then declared the Franciscos as the absolute owners of
said parcels of land and a decree of registration was ordered by the court to be issued by the
Commissioner of Land Registration.
To complicate matters, the Republic of the Philippines, represented by the Solicitor General,
filed a complaint for declaration of nullity of the decreto and of the transfer certificate of
title derived therefrom. The court dismissed the complaint of the Republic.
Thereafter a supplemental report was submitted to LRC by Land Registration Authority
recommending the application of the Franciscos. The regional trial court then directed the
Registry of Deeds to issue certificates of title to the Franciscos but no certificates were
issued. The Rojases learned of the LRC case and filed a petition for certiorari and prohibition.
The Rojases claimed superior rights over the track of land. However, while the petition was
pending, the certificates were subsequently issued in favor of the Franciscos. The Court of
Appeals then declared the order recognizing the Franciscos as absolute owners void since
there had been existing titles when the Franciscos applied for the registration of said track of
land. Thus this petition with the Supreme Court.
ISSUE: Whether or not the Franciscos availed of the proper remedy of land registration
proceeding considering that the subject land was already titled and covered by the Torrens
system.
HELD: No, the Franciscos should have availed of the remedy of reconveyance.
The Franciscos have based their claim to ownership of the subject lots on the alleged fact of
open, continuous, exclusive, and notorious possession and occupation of alienable and
disposable lands of the public domain. Their application represented to the land registration
court that the parcels of land subjects of the case were unregistered and not yet brought
within the coverage of the Torrens system of registration. These are obvious as they filed an

application pursuant to Chapter III (I) of Presidential Decree No. (PD) 1529 (Property
Registration Decree) by following the ordinary registration proceedings for the confirmation of
their title. Specifically, under Section 14 (1) of PD 1529, three requisites must be satisfied: (1)
open, continuous, exclusive, and notorious possession and occupation of the land since June
12, 1945 or earlier; (2) pertains to alienable and disposable land of the public domain, and (3)
under a bona fide claim of ownership.
As the very nature of the action limits the subject matter to alienable and disposable lands of
the public domain, an ordinary registration proceeding cannot be availed of by the Franciscos
in order to establish claims over lands which had already been brought within the coverage of
the Torrens system. Chapter III (I) of PD 1529 does not provide that original registration
proceedings can be automatically and unilaterally converted into a proceeding for the
issuance of new TCT involving parcels of land already registered under the Torrens system.
Certainly, it is improper to make a legal short-cut by implementing the judgment of the land
registration court against the parcels of land in the names of the Rojases and Guidos under
the guise that it is contemplated in Guido.
A land registration court has no jurisdiction to order the registration of land already decreed
in the name of another in an earlier land registration case. Issuance of another decree
covering the same land is, therefore, null and void.
Truly, one of the appropriate legal remedies that should have been availed of by the
Franciscos is an action for reconveyance. Contrary to petitioners declaration, proof of actual
fraud is not required as it may be filed even when no fraud intervened such as when there is
mistake in including the land for registration. In the action for reconveyance, the decree of
registration is highly respected as incontrovertible; what is sought instead is the transfer of
the property wrongfully or erroneously registered in anothers name to its rightful owner or to
the one with a better right.
An action for reconveyance resulting from fraud prescribes four years from the discovery of
the fraud and if it is based on an implied or a constructive trust it prescribes ten (10) years
from the alleged fraudulent registration or date of issuance of the certificate of title over the
property.
However, an action for reconveyance based on implied or constructive trust is imprescriptible
if the plaintiff or the person enforcing the trust is in possession of the property. In effect, the
action for reconveyance is an action to quiet the property title, which does not prescribe.
This Court held in Yared v. Tiongco:
The Court agrees with the CAs disquisition that an action for reconveyance can indeed
be barred by prescription. In a long line of cases decided by this Court, we ruled that
an action for reconveyance based on implied or constructive trust must perforce
prescribe in ten (10) years from the issuance of the Torrens title over the property.
However, there is an exception to this rule. In the case of Heirs of Pomposa Saludares v. Court
of Appeals, the Court reiterating the ruling in Millena v. Court of Appeals, held that there is
but one instance when prescription cannot be invoked in an action for reconveyance, that is,
when the plaintiff is in possession of the land to be reconveyed. In Heirs of Pomposa
Saludares, this Court explained that the Court in a series of cases, has permitted the filing of
an action for reconveyance despite the lapse of more than ten (10) years from the issuance of

title to the land and declared that said action, when based on fraud, is imprescriptible as long
as the land has not passed to an innocent buyer for value. But in all those cases, the common
factual backdrop was that the registered owners were never in possession of the disputed
property. The exception was based on the theory that registration proceedings could not be
used as a shield for fraud or for enriching a person at the expense of another.
In Alfredo v. Borras, the Court ruled that prescription does not run against the plaintiff in
actual possession of the disputed land because such plaintiff has a right to wait until his
possession is disturbed or his title is questioned before initiating an action to vindicate his
right. His undisturbed possession gives him the continuing right to seek the aid of a court of
equity to determine the nature of the adverse claim of a third party and its effect on his title.
The Court held that where the plaintiff in an action for reconveyance remains in possession of
the subject land, the action for reconveyance becomes in effect an action to quiet title to
property, which is not subject to prescription.

MJ
4.Metropolitan Fabrics, Inc. vs. Prosperity Credit Resources, Inc., G.R. No. 154390, 719 SCRA
260, March 17, 2014
Case Title : METROPOLITAN FABRICS, INC. and ENRIQUE ANG, petitioners, vs. PROSPERITY
CREDIT RESOURCES, INC., DOMINGO ANG and CALEB ANG, respondents.
Case Nature : PETITION for review on certiorari of a decision of the Court of Appeals.
Syllabi Class :Civil Law|Contracts|Voidable Contracts|Fraud
Metropolitan Fabrics, Inc. vs. Prosperity Credit Resources, Inc.
G.R. No. 154390, 719 SCRA 260, March 17, 2014
BERSAMIN, J.:
FACTS: Metropolitan Fabrics, Incorporated (MFI), a family corporation and represented by
Enrique Ang, owned a lot which was subdivided into 11 portions pursuant with a loan
agreement with Manphil Investment Corporation whereby the latter will retain 4 portions as
mortgage security.
MFI also sought from Prosper Credit Resource Inc. (PCRI), a family-owned corporation engaged
in money lending and represented by its President Domingo Ang (no blood relation with Enrique
Ang), a loan for the payment of the balance of the cost of its boiler machine.
It appeared as claimed by Vicky, daughter of Enrique, that PCRI issued the loan even prior to
the signing of the promissory notes and mortgage contracts considering that the families of
Enrique and Domingo belonged to the same family association, the Lioc Kui Tong Fraternity.
To return the trust of Domingo for issuing the loan early, Enrique signed the blank promissory
note and mortgage contract forms. Also, Enrique and his daughter Vicky then entrusted to
Domingo and his son Caleb the seven titles of the remaining portions of the lot mentioned
earlier. It will appear that Enrique were given the choice to decide which of the titles will
cover the mortgage to secure the amount of loan and that PRCI will return the remaining
titles. It appeared that three lots were more than sufficient to secure the loan. MFI then

issued 24 checks bearing no dates and amounts and signed by Enrique and his wife Natividad
Africa. MFI also secured additional loan for the payment of real estate tax.
The first check bounced due to insufficient fund. MFI then learned that PCRI filled up the
checks reflecting 35% interest instead of the agreed 24% and the 10-year repayment period
was changed to 2-year period. Due to Vickys protest, PRCI furnished MFI with its copy of the
promissory note and the disclosure statement. Here, MFI learned of the
Vicky claimed that thereafter, parties had various meeting to settle the loan. MFI offered
offsetting the loan by ceding some of their properties or by entitling PCRI to collect rentals
from MFIs tenant Bethlehem Knitting Company.
It will appear later that all seven titles were placed as collateral for their loan. Enrique then
received notice of sheriffs sale auctioning the seven parcels of land. This information brought
Enrique to break down emotionally and physically and be confined for 6 days.
MFI protested the auction sale resulting to the parties to agree that upon full payment of
Winston Wang of the amount for the sale of the three parcels of land PCRI will release the
mortgage. Wang made a down payment which MFI gave PCRI. Wang confronted Vicky
regarding the sale and regarding PCRIs refusal to accept the balance, PCRI contending that
the three parcels of land were already foreclosed with PCRI as the sole bidder.
Later, due to the threat of Atty. Ismael Andres, counsel of Wang, that they will sue PCRI if
they will not accept the balance, PCRI agreed to accept the payment on the conditions given.
Wang paid the balance and which satisfied the principal amount of loan while MFI paid the
expenses incurred by PCRI for foreclosure of the three lots as one of the condition given by
PCRI. PRCI also agreed that the interests on the principal loan will be payable in a year.
MFI was able to raise money but not enough. After agreeing for extension subject to 18%
interest, MFI was again able to raise the amount including the 18% interest but PCRI,
represented by Caleb, refused to accept the amount contending that the agreed interest was
35%. MFI then received demand for them to vacate. This caused again Enriques health to
deteriorate and Enrique was hospitalized.
Vicky filed a complaint for annulment of title and reconveyance with a prayer for moral
damages in the amount of one million for the humiliation they suffered before the Chinese
community considering that Enrique was then the president of the Lioc Kui Tong Fraternity
while Domingo and Caleb were members thereof. Vicky claimed that the 35% interest imposed
by PCRI was exorbitant considering that Manphil only charged 14% and provided 10-year
repayment period with 2-year grace period.
The regional trial court ruled in favor of petitioners. But on appeal, the Court of Appeals
ruled that action for annulment of title and reconveyance based on fraud had already
prescribed or that estoppel had already set in; thus it reversed the decision of the trial court.
The appellate court also considered that it was only Vicky who testified for the plaintiff.
ISSUE: Whether or not the mortgage contract is void and therefore action to assail such
contract is imprescriptible.

HELD: No, the mortgage contract, granting that there was fraud, was only voidable and being
as such, the action prescribes in four years from the discovery of fraud which is reckoned
from the time the document was registered in the Register of Deeds in view of the rule that
registration was notice to the whole world.
As the records show, petitioners really agreed to mortgage their properties as security for
their loan, and signed the deed of mortgage for the purpose. Thereafter, they delivered the
TCTs of the properties subject of the mortgage to respondents.
Consequently, petitioners contention of absence of consent had no firm moorings. It
remained unproved. To begin with, they neither alleged nor established that they had been
forced or coerced to enter into the mortgage. Also, they had freely and voluntarily applied for
the loan, executed the mortgage contract and turned over the TCTs of their properties. And,
lastly, contrary to their modified defense of absence of consent, Vicky Angs testimony tended
at best to prove the vitiation of their consent through insidious words, machinations or
misrepresentations amounting to fraud, which showed that the contract was voidable. Where
the consent was given through fraud, the contract was voidable, not void ab initio. This is
because a voidable or annullable contract is existent, valid and binding, although it can be
annulled due to want of capacity or because of the vitiated consent of one of the parties.
With the contract being voidable, petitioners action to annul the real estate mortgage
already prescribed. Article 1390, in relation to Article 1391 of the Civil Code, provides that if
the consent of the contracting parties was obtained through fraud, the contract is considered
voidable and may be annulled within four years from the time of the discovery of the fraud.
The discovery of fraud is reckoned from the time the document was registered in the Register
of Deeds in view of the rule that registration was notice to the whole world. Thus, because
the mortgage involving the seven lots was registered on September 5, 1984, they had until
September 5, 1988 within which to assail the validity of the mortgage. But their complaint
was instituted in the RTC only on October 10, 1991. Hence, the action, being by then already
prescribed, should be dismissed.

MJ
5.Arco Pulp and Paper Co., Inc. vs. Lim, G.R. No. 206806, 727 SCRA 275, June 25, 2014
Case Title : ARCO PULP AND PAPER CO., INC. and CANDIDA A. SANTOS, petitioners, vs. DAN T.
LIM, doing business under the name and style of QUALITY PAPERS & PLASTIC PRODUCTS
ENTERPRISES, respondent.
Case Nature : PETITION for review on certiorari of a decision of the Court of Appeals.
Syllabi Class :Civil Law|Obligations|Rates of Interest
Arco Pulp and Paper Co., Inc. vs. Lim
G.R. No. 206806, 727 SCRA 275, June 25, 2014
LEONEN, J.:
FACTS: Dan T. Lim, doing business under the name of Quality Paper and Plastic Products,
Enterprises, supplied scrap papers, cartons, and other raw materials to Arco Pulp and Paper

Company, Inc. through its Chief Executive Officer and President, Candida A. Santos. The
parties allegedly agreed that Arco would either pay Lim the value of the raw materials or
deliver to him their finished products of equivalent value. Upon delivery of the raw materials,
Arco issued postdated checks which were, on the same day, presented and dishonored, due to
account being closed. On that same day, Arco and Eric Sy entered into a memorandum of
agreement whereby Arco and Sy agreed that the former Arco will deliver finished products to
the latter. The raw materials were to be supplied by the Lim.
Dan Lim demanded payment from Arco but since no payment was made, Lim filed a complaint
for collection of sum of money with prayer for attachment with the regional trial court. The
court dismissed the case holding that there was novation when Arco and Sy entered into
agreement. On appeal, the Court of Appeals reversed the decision of the trial court finding
that there was no novation (no ratiocination was made by the Court and whether it adopted the contention
of Lim) and that there exist an alternative obligation. The court ordered Arco and Santos to
pay the amount due with interest and it also awarded moral damages, exemplary damages,
and attorneys fees. The court justified the award of damages and attorneys fees due to the
bad faith exhibited by Arco Pulp and Paper in not honoring its undertaking.
Arco and Santos filed a petition for review on certiorari contending that the obligation was
novated when Sy became the new debtor to Lim because Lim agreed that the finished
products were to be delivered to Sy (it will appear that instead of Arco paying Lim with the finished
product, Arco is claiming that Lim agreed that supposed payment will delivered to Sy making Sy liable to Lim for
the price of the finished product) . They further contended that there was novation since there was

no alternative obligation. On the other hand, Lim asserted that there was no novation.
ISSUE: Whether or not the agreement of Arco and Lim whereby Arco will pay Lim the value of
the raw materials or will deliver to him finished products of the same value.
Whether or not the obligation between the parties was extinguished by novation when the
Arco and Eric Sy entered into an agreement where Dan Lim will deliver raw materials to Arco
which will use said raw materials to manufacture papers to be delivered to Eric Sy.
Whether or not the award of moral damages, exemplary damages, and attorneys fees is
proper.
Whether or not Candida A. Santos, being its Chief Executive Officer and President, is solidarily
liable with Arco Pulp and Paper Co., Inc.
Whether or not the 12% interest imposed should be proper.
HELD: On the first issue, the obligation is in the alternative. On the second issue, the
memorandum of agreement did not constitute a novation of the original contract since
novation requires that it be clear and unequivocal, it is never presumed; and considering also
that for novation to be valid, the consent of the creditor must also be secured. On the third
issue, moral damages may be awarded because the breach of contract of Arco was in bad
faith when it issued checks being drawn on closed accounts and when it attempted to pass its
obligation to third person without the consent of Lim. Also exemplary damages may be
awarded to serve as deterrent to those who use fraudulent means to evade their liabilities.
Since the award of exemplary damages is proper, attorneys fees and cost of the suit may also
be recovered. On the fourth issue, Santos is solidarily liable with the corporation applying the

doctrine of piercing the corporate veil. On the fifth issue, the interest must be reduced to 6%
following the doctrine laid down in Nacar v. Gallery Frames case.
The rule on alternative obligations is governed by Article 1199 of the Civil Code, which states:
Article 1199. A person alternatively bound by different prestations shall completely
perform one of them.
The creditor cannot be compelled to receive part of one and part of the other
undertaking.
In an alternative obligation, there is more than one object, and the fulfillment of one is
sufficient, determined by the choice of the debtor who generally has the right of election.
The right of election is extinguished when the party who may exercise that option
categorically and unequivocally makes his or her choice known.
The choice of the debtor must also be communicated to the creditor who must receive notice
of it since: The object of this notice is to give the creditor . . . opportunity to express his
consent, or to impugn the election made by the debtor, and only after said notice shall the
election take legal effect when consented by the creditor, or if impugned by the latter, when
declared proper by a competent court.
According to the factual findings of the trial court and the appellate court, the original
contract between the parties was for respondent to deliver scrap papers worth P7,220,968.31
to petitioner Arco Pulp and Paper. The payment for this delivery became petitioner Arco Pulp
and Papers obligation. By agreement, petitioner Arco Pulp and Paper, as the debtor, had the
option to either (1) pay the price or (2) deliver the finished products of equivalent value to
respondent.
The appellate court, therefore, correctly identified the obligation between the parties as an
alternative obligation, whereby petitioner Arco Pulp and Paper, after receiving the raw
materials from respondent, would either pay him the price of the raw materials or, in the
alternative, deliver to him the finished products of equivalent value.
When petitioner Arco Pulp and Paper tendered a check to respondent in partial payment for
the scrap papers, they exercised their option to pay the price. Respondents receipt of the
check and his subsequent act of depositing it constituted his notice of petitioner Arco Pulp
and Papers option to pay.
This choice was also shown by the terms of the memorandum of agreement, which was
executed on the same day. The memorandum declared in clear terms that the delivery of
petitioner Arco Pulp and Papers finished products would be to a third person, thereby
extinguishing the option to deliver the finished products of equivalent value to respondent.
Because novation requires that it be clear and unequivocal, it is never presumed, thus:
In the civil law setting, novatio is literally construed as to make new. So it is deeply
rooted in the Roman Law jurisprudence, the principle novatio non praesumitur
that novation is never presumed. At bottom, for novation tobe a jural reality, its
animus must be ever present, debitum pro debito basically extinguishing the old
obligation for the new one.

There is nothing in the memorandum of agreement that states that with its execution, the
obligation of petitioner Arco Pulp and Paper to respondent would be extinguished. It also does
not state that Eric Sy somehow substituted petitioner Arco Pulp and Paper as respondents
debtor. It merely shows that petitioner Arco Pulp and Paper opted to deliver the finished
products to a third person instead.
The consent of the creditor must also be secured for the novation to be valid:
Novation must be expressly consented to. Moreover, 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.
In this case, respondent was not privy to the memorandum of agreement, thus, his conformity
to the contract need not be secured. This is clear from the first line of the memorandum,
which states:
Per meeting held at ARCO, April 18, 2007, it has been mutually agreed between Mrs.
Candida A. Santos and Mr. Eric Sy. . . .
If the memorandum of agreement was intended to novate the original agreement between
the parties, respondent must have first agreed to the substitution of Eric Sy as his new debtor.
The memorandum of agreement must also state in clear and unequivocal terms that it has
replaced the original obligation of petitioner Arco Pulp and Paper to respondent. Neither of
these circumstances is present in this case.
Petitioner Arco Pulp and Papers act of tendering partial payment to respondent also conflicts
with their alleged intent to pass on their obligation to Eric Sy. When respondent sent his letter
of demand to petitioner Arco Pulp and Paper, and not to Eric Sy, it showed that the former
neither acknowledged nor consented to the latter as his new debtor. These acts, when taken
together, clearly show that novation did not take place. Since there was no novation,
petitioner Arco Pulp and Papers obligation to respondent remains valid and existing.
Petitioner Arco Pulp and Paper, therefore, must still pay respondent the full amount of
P7,220,968.31.
Under Article 2220 of the Civil Code, moral damages may be awarded in case of breach of
contract where the breach is due to fraud or bad faith:
Art. 2220. Willfull injury to property may be a legal ground for awarding moral
damages if the court should find that, under the circumstances, such damages are
justly due. The same rule applies to breaches of contract where the defendant acted
fraudulently or in bad faith.
Moral damages are not awarded as a matter of right but only after the party claiming it
proved that the breach was due to fraud or bad faith. As this court stated:
Moral damages are not recoverable simply because a contract has been breached. They are
recoverable only if the party from whom it is claimed acted fraudulently or in bad faith or in
wanton disregard of his contractual obligations. The breach must be wanton, reckless,
malicious or in bad faith, and oppressive or abusive.
Further, the following requisites must be proven for the recovery of moral damages:
An award of moral damages would require certain conditions to be met, to wit:
(1)first, there must be an injury, whether physical, mental or psychological, clearly

sustained by the claimant; (2) second, there must be culpable act or omission
factually established; (3) third, the wrongful act or omission of the defendant is the
proximate cause of the injury sustained by the claimant; and (4) fourth, the award of
damages is predicated on any of the cases stated in Article 2219 of the Civil Code.
Here, the injury suffered by respondent is the loss of P7,220,968.31 from his business. This
has remained unpaid since 2007. This injury undoubtedly was caused by petitioner Arco Pulp
and Papers act of refusing to pay its obligations.
When the obligation became due and demandable, petitioner Arco Pulp and Paper not only
issued an unfunded check but also entered into a contract with a third person in an effort to
evade its liability. This proves the third requirement.
As to the fourth requisite, Article 2219 of the Civil Code provides that moral damages may be
awarded in the following instances:
Article 2219. Moral damages may be recovered in the following and analogous cases:
(1) A criminal offense resulting in physical injuries;
(2) Quasi-delicts causing physical injuries;
(3) Seduction, abduction, rape, or other lascivious acts;
(4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest;
(6) Illegal search;
(7) Libel, slander or any other form of defamation;
(8) Malicious prosecution;
(9) Acts mentioned in Article 309;
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and
35.
Breaches of contract done in bad faith, however, are not specified within this enumeration.
When a party breaches a contract, he or she goes against Article 19 of the Civil Code, which
states:
Article 19. Every person must, in the exercise of his rights and in the performance of
his duties, act with justice, give everyone his due, and observe honesty and good
faith.
Persons who have the right to enter into contractual relations must exercise that right with
honesty and good faith. Failure to do so results in an abuse of that right, which may become
the basis of an action for damages. Article 19, however, cannot be its sole basis:
Article 19 is the general rule which governs the conduct of human relations. By itself,
it is not the basis of an actionable tort. Article 19 describes the degree of care
required so that an actionable tort may arise when it is alleged together with Article
20 or Article 21.
Article 20 and 21 of the Civil Code are as follows:
Article 20. Every person who, contrary to law, wilfully or negligently causes damage to
another, shall indemnify the latter for the same.
Article 21.Any person who wilfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for the
damage.

To be actionable, Article 20 requires a violation of law, while Article 21 only concerns with
lawful acts that are contrary to morals, good customs, and public policy:
Article 20 concerns violations of existing law as basis for an injury. It allows recovery
should the act have been willful or negligent. Willful may refer to the intention to do
the act and the desire to achieve the outcome which is considered by the plaintiff in
tort action as injurious. Negligence may refer to a situation where the act was
consciously done but without intending the result which the plaintiff considers as
injurious.
Article 21, on the other hand, concerns injuries that may be caused by acts which are
not necessarily proscribed by law. This article requires that the act be willful, that is,
that there was an intention to do the act and a desire to achieve the outcome. In
cases under Article 21, the legal issues revolve around whether such outcome should
be considered a legal injury on the part of the plaintiff or whether the commission of
the act was done in violation of the standards of care required in Article 19.
When parties act in bad faith and do not faithfully comply with their obligations under
contract, they run the risk of violating Article 1159 of the Civil Code:
Article 1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.
Article 2219, therefore, is not an exhaustive list of the instances where moral damages may
be recovered since it only specifies, among others, Article 21. When a party reneges on his or
her obligations arising from contracts in bad faith, the act is not only contrary to morals, good
customs, and public policy; it is also a violation of Article 1159. Breaches of contract become
the basis of moral damages, not only under Article 2220, but also under Articles 19 and 20 in
relation to Article 1159.
Moral damages, however, are not recoverable on the mere breach of the contract. Article
2220 requires that the breach be done fraudulently or in bad faith. In Adriano v. Lasala:
To recover moral damages in an action for breach of contract, the breach must be
palpably wanton, reckless and malicious, in bad faith, oppressive, or abusive. Hence,
the person claiming bad faith must prove its existence by clear and convincing
evidence for the law always presumes good faith.
Bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose
or some moral obliquity and conscious doing of a wrong, a breach of known duty through
some motive or interest or ill will that partakes of the nature of fraud. It is, therefore, a
question of intention, which can be inferred from ones conduct and/or contemporaneous
statements.
Since a finding of bad faith is generally premised on the intent of the doer, it requires an
examination of the circumstances in each case.
When petitioner Arco Pulp and Paper issued a check in partial payment of its obligation to
respondent, it was presumably with the knowledge that it was being drawn against a closed
account. Worse, it attempted to shift their obligations to a third person without the consent
of respondent.

Petitioner Arco Pulp and Papers actions clearly show a dishonest purpose or some moral
obliquity and conscious doing of a wrong, a breach of known duty through some motive or
interest or ill will that partakes of the nature of fraud. Moral damages may, therefore, be
awarded.
Exemplary damages may also be awarded. Under the Civil Code, exemplary damages are due
in the following circumstances:
Article 2232. In contracts and quasi-contracts, the court may award exemplary
damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or
malevolent manner.
Article 2233. Exemplary damages cannot be recovered as a matter of right; the court
will decide whether or not they should be adjudicated.
Article 2234. While the amount of the exemplary damages need not be proven, the
plaintiff must show that he is entitled to moral, temperate or compensatory damages
before the court may consider the question of whether or not exemplary damages
should be awarded.
In Tankeh v. Development Bank of the Philippines, we stated that:
The purpose of exemplary damages is to serve as a deterrent to future and subsequent
parties from the commission of a similar offense.
The case of People v. Ranteciting People v. Dalisay held that:
Also known as punitive or vindictive damages, exemplary or corrective damages are
intended to serve as a deterrent to serious wrong doings, and as a vindication of undue
sufferings and wanton invasion of the rights of an injured or a punishment for those
guilty of outrageous conduct. These terms are generally, but not always, used
interchangeably. In common law, there is preference in the use of exemplary damages
when the award is to account for injury to feelings and for the sense of indignity and
humiliation suffered by a person as a result of an injury that has been maliciously and
wantonly inflicted, the theory being that there should be compensation for the hurt
caused by the highly reprehensible conduct of the defendantassociated with such
circumstances as willfulness, wantonness, malice, gross negligence or recklessness,
oppression, insult or fraud or gross fraudthat intensifies the injury. The terms
punitive or vindictive damages are often used to refer to those species of damages
that may be awarded against a person to punish him for his outrageous conduct. In
either case, these damages are intended in good measure to deter the wrongdoer and
others like him from similar conduct in the future.
The requisites for the award of exemplary damages are as follows:
(1) they may be imposed by way of example in addition to compensatory damages, and
only after the claimant's right to them has been established;
(2) that they cannot be recovered as a matter of right, their determination depending
upon the amount of compensatory damages that may be awarded to the claimant; and
(3) the act must be accompanied by bad faith or done in a wanton, fraudulent,
oppressive or malevolent manner.

Business owners must always be forthright in their dealings. They cannot be allowed to renege
on their obligations, considering that these obligations were freely entered into by them.
Exemplary damages may also be awarded in this case to serve as a deterrent to those who use
fraudulent means to evade their liabilities.
Since the award of exemplary damages is proper, attorneys fees and cost of the suit may also
be recovered.
As a general rule, directors, officers, or employees of a corporation cannot be held personally
liable for obligations incurred by the corporation. However, this veil of corporate fiction may
be pierced if complainant is able to prove, as in this case, that (1) the officer is guilty of
negligence or bad faith, and (2) such negligence or bad faith was clearly and convincingly
proven.
Here, petitioner Santos entered into a contract with respondent in her capacity as the
President and Chief Executive Officer of Arco Pulp and Paper. She also issued the check in
partial payment of petitioner corporations obligations to respondent on behalf of petitioner
Arco Pulp and Paper. This is clear on the face of the check bearing the account name, Arco
Pulp & Paper, Co., Inc. Any obligation arising from these acts would not, ordinarily, be
petitioner Santos personal undertaking for which she would be solidarily liable with
petitioner Arco Pulp and Paper.
We find, however, that the corporate veil must be pierced.
According to the Court of Appeals, petitioner Santos was solidarily liable with petitioner Arco
Pulp and Paper, stating that:
In the present case, We find bad faith on the part of the [petitioners] when they
unjustifiably refused to honor their undertaking in favor of the [respondent]. After the
check in the amount of 1,487,766.68 issued by petitioner Santos was dishonored for
being drawn against a closed account, [petitioner] corporation denied any privity with
[respondent]. These acts prompted the [respondent] to avail of the remedies provided
by law in order to protect his rights.
We agree with the Court of Appeals. Petitioner Santos cannot be allowed to hide behind the
corporate veil. When petitioner Arco Pulp and Papers obligation to respondent became due
and demandable, she not only issued an unfunded check but also contracted with a third
party in an effort to shift petitioner Arco Pulp and Papers liability. She unjustifiably refused
to honor petitioner corporations obligations to respondent. These acts clearly amount to bad
faith. In this instance, the corporate veil may be pierced, and petitioner Santos may be held
solidarily liable with petitioner Arco Pulp and Paper.
In view, however, of the promulgation by this court of the decision dated August 13, 2013 in
Nacar v. Gallery Frames, the rate of interest due on the obligation must be modified from 12%
per annum to 6% per annum from the time of demand.
Nacar effectively amended the guidelines stated in Eastern Shipping v. Court of Appeals, and
we have laid down the following guidelines with regard to the rate of legal interest:
To recapitulate and for future guidance, the guidelines laid down in the case of
Eastern Shipping Linesare accordingly modified to embody BSP-MB Circular No. 799, as
follows:

I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or quasi-delicts is breached, the contravenor can be held
liable for damages. The provisions under Title XVIII on Damages of the Civil
Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
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 6% 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. No
interest, however, shall be adjudged on unliquidated claims or damages,
except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is
made judicially or extrajudicially (Art. 1169, Civil Code), but when such
certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment
of the court is made (at which time the quantification of damages may
be deemed to have been reasonably ascertained). The actual base for
the computation of legal interest shall, in any case, be on the amount
finally adjudged.
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 6% per annum from
such finality until its satisfaction, this interim period being deemed to
be by then an equivalent to a forbearance of credit.
And, in addition to the above, judgments that have become final and
executory prior to July 1, 2013, shall not be disturbed and shall
continue to be implemented applying the rate of interest fixed therein.
According to these guidelines, the interest due on the obligation of P7,220,968.31 should now
be at 6% per annum, computed from May 5, 2007, when respondent sent his letter of demand
to petitioners. This interest shall continue to be due from the finality of this decision until its
full satisfaction.
MJ
6.Mendoza vs. Gomez, G.R. No. 160110, 726 SCRA 505, June 18, 2014
Case Title : MARIANO C. MENDOZA and ELVIRA LIM, petitioners, vs. SPOUSES LEONORA J.
GOMEZ and GABRIEL V. GOMEZ, respondents.

Case Nature : PETITION for review on certiorari of a decision of the Court of Appeals, Special
Fourth Division.
Syllabi Class :Civil Law|Quasi-Delicts|Damages|Interest Rates|Moratory Interests
Mendoza vs. Gomez
G.R. No. 160110, 726 SCRA 505, June 18, 2014
PEREZ, J.:
FACTS: An Isuzu Elf truck owned by respondent Leonora J. Gomez and driven by Antenojenes
Perez, was hit by a Mayamy Transportation bus registered under the name of petitioner Elvira
Lim and driven by petitioner Mariano C. Mendoza. As a result of the incident, respondent
Perez including Melchor V. Anla, Romeo J. Banca, and Jimmy Repisada, who were aboard the
bus, sustained injuries. An information for reckless imprudence resulting in damage to
property and multiple physical injuries was filed against Mendoza. Respondents filed a
separate complaint against Mendoza and Lim seeking actual damages, compensation for lost
income, moral damages, exemplary damages, attorneys fees and costs of the suit.
According to PO1 Melchor F. Rosales, investigating officer of the case, investigating officer of
the case, the Mayamy bus, while traversing the opposite lane, intruded on the lane occupied
by the Isuzu truck. He also reported that Mendoza tried to escape by speeding away.
Lim on the other hand claimed that though the bus was registered under her name, it was
actually owned by SPO1 Cirilo Enriquez and was attached with Mayamy Transportation
Company under the kabit system.
The trial court disposed the case ordering Mendoza and Lim to pay for the repair of damaged
Isuzu truck, for the unrealized income of the respondents, and for the award of moral
damages and exemplary damages. On appeal, the Court of Appeals deleted payment for the
unrealized income of the respondents.
ISSUE: Whether or not the real owner of the vehicle, Enriquez, is liable for the negligent act
of the driver considering that the registered owner is Lim.
Whether or not there is basis for the award of lost income.
Whether or not there is basis for the grant of moral damages where the respondents did not
suffer physical injuries and the award of exemplary damages when there is no showing that
the act of driver is characterized by gross negligence nor the act of the driver to escape
constitute gross negligence.
Whether or not the award of attorneys fee, cost of litigation, and interest are proper.
HELD: On the first issue, as to third person, Lim is to be held liable being the registered
owner of the vehicle since of one the principal purposes of motor vehicles legislation is
identification of the vehicle and of the operator, in case of accident. As to the second issue,
for failure of the injured person to substantiate their claim for lost income, the same cannot
be awarded. As to the third issue, for failure of the parties to allege nor offer any evidence of
besmirched reputation or physical, mental or psychological suffering incurred by them; moral

damages cannot be awarded. However, since it was shown that the driver of Mayamy bus
violated a traffic law which caused the accident and being grossly negligent, the award of
exemplary damage is in order. As to the last issue, the trial court failed to state the reason
for the award of attorneys fee, it should be allowed; as to cost of litigation, as a general
rule, should be awarded to the prevailing party as a matter of right; as to the interest,
Generally, interest is allowed as a matter of right for failure to pay liquidated claims when
due; for unliquidated claims, however, interest cannot be recovered upon unliquidated claims
or damages, except when the demand can be established with reasonable certainty.
The first question to address, then, is whether or not Mendozas negligence was duly proven.
Negligence is defined as the failure to observe for the protection of the interests of another
person, that degree of care, precaution and vigilance which the circumstances justly demand,
whereby such other person suffers injury.
As found by the RTC, and affirmed by the CA, Mendoza was negligent in driving the subject
Mayamy bus, as demonstrated by the fact that, at the time of the collision, the bus intruded
on the lane intended for the Isuzu truck. Having encroached on the opposite lane, Mendoza
was clearly in violation of traffic laws. Article 2185 of the Civil Code provides that unless
there is proof to the contrary, it is presumed that a person driving a motor vehicle has been
negligent if at the time of the mishap, he was violating any traffic regulation. In the case at
bar, Mendozas violation of traffic laws was the proximate cause of the harm.
The evidence on record shows that before the collision, the Isuzu truck was in its rightful
lane, and was even at a stop, having been flagged down by a security guard of St. Ignatius
Village. The mishap occurred when the Mayamy bus, travelling at a fast speed as shown by
the impact of the collision, and going in the opposite direction as that of the Isuzu truck,
encroached on the lane rightfully occupied by said Isuzu truck, and caused the latter to spin,
injuring Perez, Anla, Banca, and Repisada, and considerably damaging the Isuzu truck.
Having settled the fact of Mendozas negligence, then, the next question that confronts us is
who may beheld liable. According to Manresa, liability for personal acts and omissions is
founded on that indisputable principle of justice recognized by all legislations that when a
person by his act or omission causes damage or prejudice to another, a juridical relation is
created by virtue of which the injured person acquires a right to be indemnified and the
person causing the damage is charged with the corresponding duty of repairing the damage.
The reason for this is found in the obvious truth that man should subordinate his acts to the
precepts of prudence and if he fails to observe them and causes damage to another, he must
repair the damage. His negligence having caused the damage, Mendoza is certainly liable to
repair said damage.
Additionally, Mendozas employer may also be held liable under the doctrine of vicarious
liability or imputed negligence. Under such doctrine, a person who has not committed the act
or omission which caused damage or injury to another may nevertheless be held civilly liable
to the latter either directly or subsidiarily under certain circumstances. In our jurisdiction,
vicarious liability or imputed negligence is embodied in Article 2180 of the Civil Code and the
basis for damages in the action under said article is the direct and primary negligence of the
employer in the selection or supervision, or both, of his employee.
In the case at bar, who is deemed as Mendozas employer? Is it Enriquez, the actual owner of
the bus or Lim, the registered owner of the bus?

In Filcar Transport Services v. Espinas, we held that the registered owner is deemed the
employer of the negligent driver, and is thus vicariously liable under Article 2176, in relation
to Article 2180, of the Civil Code. Citing Equitable Leasing Corporation v. Suyom, the Court
ruled that in so far as third persons are concerned, the registered owner of the motor vehicle
is the employer of the negligent driver, and the actual employer is considered merely as an
agent of such owner. Thus, whether there is an employer-employee relationship between the
registered owner and the driver is irrelevant in determining the liability of the registered
owner who the law holds primarily and directly responsible for any accident, injury or death
caused by the operation of the vehicle in the streets and highways.
As early as Erezo v. Jepte, the Court, speaking through Justice Alejo Labrador summarized the
justification for holding the registered owner directly liable, to wit:
x x x The main aim of motor vehicle registration is to identify the owner so that if any
accident happens, or that any damage or injury is caused by the vehicles on the public
highways, responsibility therefore can be fixed on a definite individual, the registered
owner. Instances are numerous where vehicle running on public highways caused
accidents or injuries to pedestrians or other vehicles without positive identification of
the owner or drivers, or with very scant means of identification. It is to forestall these
circumstances, so inconvenient or prejudicial to the public, that the motor vehicle
registration is primarily ordained, in the interest of the determination of persons
responsible for damages or injuries caused on public highways.
One of the principal purposes of motor vehicles legislation is identification of the vehicle
and of the operator, in case of accident; and another is that the knowledge that means of
detection are always available may act as a deterrent from lax observance of the law and of
the rules of conservative and safe operation. Whatever purpose there may be in these
statutes, it is subordinate at the last to the primary purpose of rendering it certain that the
violator of the law or of the rules of safety shall not escape because of lack of means to
discover him. The purpose of the statute is thwarted, and the displayed number becomes a
snare and delusion, if courts will entertain such defenses as that put forward by appellee in
this case. No responsible person or corporation could be held liable for the most outrageous
acts of negligence, if they should be allowed to place a middleman between them and the
public, and escape liability by the manner in which they recompense their servants.
Generally, when an injury is caused by the negligence of a servant or 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 (culpa in eligiendo) or in the
supervision over him after the selection (culpa vigilando), or both. The presumption is juris
tantum and not juris et de jure; consequently, it may be rebutted. Accordingly, the general
rule is that if the employer shows to the satisfaction of the court that in the selection and
supervision of his employee he has exercised the care and diligence of a good father of a
family, the presumption is overcome and he is relieved of liability.
However, with the enactment of the motor vehicle registration law, the defenses available
under Article 2180 of the Civil Code - that the employee acts beyond the scope of his assigned
task or that it exercised the due diligence of a good father of a family to prevent damage
are no longer available to the registered owner of the motor vehicle, because the motor
vehicle registration law, to a certain extent, modified Article 2180.

As such, there can be no other conclusion but to hold Lim vicariously liable with Mendoza.
This does not mean, however, that Lim is left without any recourse against Enriquez and
Mendoza. Under the civil law principle of unjust enrichment, the registered owner of the
motor vehicle has a right to be indemnified by the actual employer of the driver; and under
Article 2181 of the Civil Code, whoever pays for the damage caused by his dependents or
employees may recover from the latter what he has paid or delivered in satisfaction of the
claim.
In the case at bar, the RTC, basing on the receipts submitted by respondents and which
receipts petitioners had the opportunity to examine, found that the total repairs on the Isuzu
truck amounted to P142,757.40, and that the full hospitalization and medical expenses of
Perez, Anla, Banca, and Repisada amounted to P11,267.35. As such, these are the amounts
that respondents are entitled to as actual and compensatory damages.
Although respondents alleged in their complaint that the damage to their Isuzu truck caused
them the loss of a daily income of P1,000.00, such claim was not duly substantiated by any
evidence on record, and thus cannot be awarded in their favor.
In prayers for moral damages, however, recovery is more an exception rather than the rule.
Moral damages are not meant to be punitive but are designed to compensate and alleviate
the physical suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and similar harm unjustly caused to a
person. To be entitled to such an award, the claimant must satisfactorily prove that he has
suffered damages and that the injury causing it has sprung from any of the cases listed in
Articles 2219 and 2220 of the Civil Code. Moreover, the damages must be shown to be the
proximate result of a wrongful act or omission. The claimant must thus establish the factual
basis of the damages and its causal tie with the acts of the defendant.
In fine, an award of moral damages calls for the presentation of 1) evidence of besmirched
reputation or physical, mental or psychological suffering sustained by the claimant; 2)a
culpable act or omission factually established; 3) proof that the wrongful act or omission of
the defendant is the proximate cause of the damages sustained by the claimant; and 4) the
proof that the act is predicated on any of the instances expressed or envisioned by Article
2219 and Article 2220 of the Civil Code.
A review of the complaint and the transcript of stenographic notes yields the pronouncement
that respondents neither alleged nor offered any evidence of besmirched reputation or
physical, mental or psychological suffering incurred by them.
In Kierulf v. CA, we observed that this Court cannot remind the bench and the bar often
enough that in order that moral damages may be awarded, there must be pleading and proof
of moral suffering, mental anguish, fright and the like. Citing Francisco v. GSIS, the Court held
that there must be clear testimony on the anguish and other forms of mental suffering. Thus,
if the plaintiff fails to take the witness stand and testify as to his social humiliation, wounded
feelings and anxiety, moral damages cannot be awarded.
Moreover, respondents were not able to show that their claim properly falls under Articles
2219 and 2220 of the Civil Code. Respondents cannot rely on Article 2219 (2) of the Civil Code
which allows moral damages in quasi-delicts causing physical injuries because in physical

injuries, moral damages are recoverable only by the injured party, and in the case at bar,
herein respondents were not the ones who were actually injured.
In B.F. Metal (Corp.) v. Sps. Lomotan, et al., the Court, in a claim for damages based on quasidelict causing physical injuries, similarly disallowed an award of moral damages to the owners
of the damaged vehicle, when neither of them figured in the accident and sustained injuries.
Our jurisprudence sets certain conditions when exemplary damages may be awarded: First,
they may be imposed by way of example or correction only in addition, among others, to
compensatory damages, and cannot be recovered as a matter of right, their determination
depending upon the amount of compensatory damages that may be awarded to the claimant.
Second, the claimant must first establish his right to moral, temperate, liquidated or
compensatory damages. Third, the wrongful act must be accompanied by bad faith, and the
award would be allowed only if the guilty party acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.
In motor vehicle accident cases, exemplary damages may be awarded where the defendants
misconduct is so flagrant as to transcend simple negligence and be tantamount to positive or
affirmative misconduct rather than passive or negative misconduct. In characterizing the
requisite positive misconduct which will support a claim for punitive damages, the courts
have used such descriptive terms as willful, wanton, grossly negligent, reckless, or malicious,
either alone or in combination.
Our jurisprudence sets certain conditions when exemplary damages may be awarded: First,
they may be imposed by way of example or correction only in addition, among others, to
compensatory damages, and cannot be recovered as a matter of right, their determination
depending upon the amount of compensatory damages that may be awarded to the claimant.
Second, the claimant must first establish his right to moral, temperate, liquidated or
compensatory damages. Third, the wrongful act must be accompanied by bad faith, and the
award would be allowed only if the guilty party acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.
In motor vehicle accident cases, exemplary damages may be awarded where the defendants
misconduct is so flagrant as to transcend simple negligence and be tantamount to positive or
affirmative misconduct rather than passive or negative misconduct. In characterizing the
requisite positive misconduct which will support a claim for punitive damages, the courts
have used such descriptive terms as willful, wanton, grossly negligent, reckless, or malicious,
either alone or in combination.
In Bao v. Bachelor Express, Inc., et al., where an erring bus, in the process of overtaking a
jeepney, also encroached on the opposite lane, and consequently collided with a dump truck,
the Court held the driver of the bus grossly negligent and affirmed the award of exemplary
damages.
From the very opening sentence of Article 2208 of the Civil Code, it is clearly intended to
retain the award of attorneys fees as the exception in our law, as the general rule remains
that attorneys fees are not recoverable in the absence of a stipulation thereto, the reason
being that it is not sound policy to set a premium on the right to litigate.
As such, in Spouses Agustin v. CA, we held that, the award of attorneys fees being an
exception rather than the general rule, it is necessary for the court to make findings of facts

and law that would bring the case within the exception and justify the grant of such award.
Thus, the reason for the award of attorneys fees must be stated in the text of the courts
decision; otherwise, if it is stated only in the dispositive portion of the decision, the same
must be disallowed on appeal.
In the case at bar, the RTC Decision had nil discussion on the propriety of attorneys fees, and
it merely awarded such in the dispositive. The CA Decision, on the other hand, merely stated
that the award of attorneys fees is merited as such is allowed when exemplary damages are
awarded.50 Following established jurisprudence, however, the CA should have disallowed on
appeal said award of attorneys fees as the RTC failed to substantiate said award.
Costs of suit. The Rules of Court provide that, generally, costs shall be allowed to the
prevailing party as a matter of course, thus:
Section 1. Costs ordinarily follow results of suit.- Unless otherwise provided in these
rules, costs shall be allowed to the prevailing party as a matter of course, but the
court shall have power, for special reasons, to adjudge that either party shall pay the
costs of an action, or that the same be divided, as may be equitable. No costs shall be
allowed against the Republic of the Philippines, unless otherwise provided by law.
In the present case, the award of costs of suit to respondents, as the prevailing party, is in
order.
Interests. Interest by way of damages has been defined as interest allowed in actions for
breach of contractor tort for the unlawful detention of money already due. This type of
interest is frequently called moratory interest. Interest as a part of damage, is allowed, not
by application of arbitrary rules, but as a result of the justice of the individual case and as
compensation to the injured party.
The legal provision on interests in quasi-delicts is Article 2211 of the Civil Code which
provides that in crimes and quasi-delicts, interest as part of the damage, may, in a proper
case, be adjudicated in the discretion of the court.
Generally, interest is allowed as a matter of right for failure to pay liquidated claims when
due. For unliquidated claims, however, Article 2213 of the Civil Code provides that interest
cannot be recovered upon unliquidated claims or damages, except when the demand can be
established with reasonable certainty.
In the case at bar, although the award of exemplary damages is unliquidated in the sense that
petitioners cannot know for sure, before judgment, the exact amount that they are required
to pay to respondents, the award of actual or compensatory damages, however, such as the
truck repairs and medical expenses, is arguably liquidated in that they can be measured
against a reasonably certain standard. Moreover, justice would seem to require that the delay
in paying for past losses which can be made reasonably certain should be compensated
through an award of interest.

MJ
7. Sps. Peralta vs. Heirs of Bernardina Abalon, G.R. No. 183448, 727 SCRA 477, June 30, 2014

Case Title : HEIRS OF BERNARDINA ABALON, represented by MANSUETO ABALON, petitioners,


vs. MARISSA ANDAL, LEONIL ANDAL, ARNEL ANDAL, SPOUSES DOMINADOR and OFELIA PERALTA,
and HEIRS of RESTITUTO RELLAMA, represented by his children ALEX, IMMANUEL, JULIUS and
SYLVIA, all surnamed RELLAMA, respondents.
Case Nature : PETITIONS for review on certiorari of a decision of the Court of Appeals
Seventeenth Division.
Syllabi Class :Civil Law|Donations|Donations Mortis Causa
Sps. Peralta vs. Heirs of Bernardina Abalon
G.R. No. 183448, 727 SCRA 477, June 30, 2014
SERENO, CJ:
FACTS: Bernardina Abalon owned a piece of land which was fraudulently transferred to
Restituto Rellama thru a deed of absolute sale. Restituto then subdivided the subject property
into three and sold them separately to the first to spouses Dominador and Ofelia Peralta, the
second to Eduardo Lotivio who eventually transferred to Marissa Andal, Arnel Andal, and
Leonil Andal; the third portion was likewise sold to Marissa, Leonil and Arnel Andal.
Certificates of title were issued concerning these three portions of the lot.
Petitioners Mansueta Abalon and Amelia Abalon, nephew and niece of Bernardina Abalon, filed
an action against Rellama, Spouses Peralta, and the Andals, alleging that they were heirs of
Bernadina and that the deed of sale was a forgery. They further alleged that Bernardina even
leased the property to Godofredo Bellen. They alleged that Rellama only presented photocopy
of the deed of sale and that the issuance of the second duplicate owners copy was fabricated
since the first was not lost but in the hands of Bernardina which was passed to the petitioners
upon her death.
The trial court ruled in favor of the petitioners. Spouses Peralta and the Andals appealed the
decision. The Court of Appeals found that spouses Peralta was in bad faith when they bought
the property and relying merely on photocopy of the title but found the Andals as buyers in
good faith. Thus separate petitions for review on certiorari were filed by the petitioners and
spouses Peralta.
ISSUE: Whether or not a forged instrument may become the root of a valid title in the hands
of an innocent purchaser for value, even if the true owner thereof has been in possession of
the genuine title, which is valid and has not been cancelled.
HELD: Yes, though the established rule is that a forged deed is generally null and cannot
convey title; the exception thereto, pursuant to Section 55 of the Land Registration Act,
denotes the registration of titles from the forger to the innocent purchaser for value.
It is well-established in our laws and jurisprudence that a person who is dealing with a
registered parcel of land need not go beyond the face of the title. A person is only charged
with notice of the burdens and claims that are annotated on the title. This rule, however,
admits of exceptions, which we explained in Clemente v. Razo:
Any buyer or mortgagee of realty covered by a Torrens certificate of title, in the
absence of any suspicion, is not obligated to look beyond the certificate to investigate

the titles of the seller appearing on the face of the certificate. And, he is charged with
notice only of such burdens and claims as are annotated on the title.
We do acknowledge that the rule thus enunciated is not cast in stone. For, indeed, there are
exceptions thereto. Thus, in Sandoval vs. CA, we made clear the following:
The aforesaid principle admits of an unchallenged exception: that a person dealing
with registered land has a right to rely on the Torrens certificate of title and to
dispense with the need of inquiring further except when the party has actual
knowledge of facts and circumstances that would impel a reasonably cautious man to
make such inquiry or when the purchaser has knowledge of a defect or the lack of title
in his vendor or of sufficient facts to induce a reasonably prudent man to inquire into
the status of the title of the property in litigation. The presence of anything which
excites or arouses suspicion should then prompt the vendee to look beyond the
certificate and investigate the title of the vendor appearing on the face of said
certificate. One who falls within the exception can neither be denominated an
innocent purchaser for value nor a purchaser in good faith; and hence does not merit
the protection of the law.
Thus, the determination whether one is a buyer in good faith or can be considered an
innocent purchaser for value becomes imperative. Section 55 of the Land Registration Act
provides protection to an innocent purchaser for value by allowing him to retain the parcel of
land bought and his title is considered valid. Otherwise, the title would be cancelled and the
original owner of the parcel of land is allowed to repossess it.
Jurisprudence has defined an innocent purchaser for value as one who buys the property of
another without notice that some other person has a right to or interest therein and who then
pays a full and fair price for it at the time of the purchase or before receiving a notice of the
claim or interest of some other persons in the property. Buyers in good faith buy a property
with the belief that the person from whom they receive the thing is the owner who can
convey title to the property. Such buyers do not close their eyes to facts that should put a
reasonable person on guard and still claim that they are acting in good faith.
After executing the Deed of Sale with Bernardina Abalon under fraudulent circumstances,
Rellama succeeded in obtaining a title in his name and selling a portion of the property to the
Andals, who had no knowledge of the fraudulent circumstances involving the transfer from
Abalon to Rellama. In fact, the Decisions of the RTC and the CA show no factual findings or
proof that would rebut the presumption in favor of the Andals as buyers in good faith. Thus,
the CA correctly considered them as buyers in good faith and upheld their title.
The records of the RTC and the CA have a finding that when Rellama sold the properties to
the Andals, it was still in his name; and there was no annotation that would blight his clean
title. To the Andals, there was no doubt that Rellama was the owner of the property being
sold to them, and that he had transmissible rights of ownership over the said property. Thus,
they had every right to rely on the face of his title alone.
The established rule is that a forged deed is generally null and cannot convey title, the
exception thereto, pursuant to Section 55 of the Land Registration Act, denotes the
registration of titles from the forger to the innocent purchaser for value. Thus, the qualifying
point here is that there must be a complete chain of registered titles. This means that all the
transfers starting from the original rightful owner to the innocent holder for value and that

includes the transfer to the forger must be duly registered, and the title must be properly
issued to the transferee. Contrary to what the Abalons would like to impress on us, Fule and
Torres do not present clashing views. In Fule, the original owner relinquished physical
possession of her title and thus enabled the perpetrator to commit the fraud, which resulted
in the cancellation of her title and the issuance of a new one. The forged instrument
eventually became the root of a valid title in the hands of an innocent purchaser for value.
The new title under the name of the forger was registered and relied upon by the innocent
purchaser for value. Hence, it was clear that there was a complete chain of registered titles.
On the other hand in Torres, the original owner retained possession of the title, but through
fraud, his brother-in-law secured a court order for the issuance of a copy thereof. While the
title was in the name of the forger, the original owner annotated the adverse claim on the
forged instrument. Thus, before the new title in the name of the forger could be transferred
to a third person, a lien had already been annotated on its back. The chain of registered titles
was broken and sullied by the original owners annotation of the adverse claim. By this act,
the mortgagee was shown to be in bad faith.
In the instant case, there is no evidence that the chain of registered titles was broken in the
case of the Andals. Neither were they proven to have knowledge of anything that would make
them suspicious of the nature of Rellamas ownership over the subject parcel of land. Hence,
we sustain the CAs ruling that the Andals were buyers in good faith. Consequently, the
validity of their title to the parcel of the land bought from Rellama must be upheld.
As for Spouses Peralta, we sustain the ruling of the CA that they are indeed buyers in bad
faith. The appellate court made a factual finding that in purchasing the subject property,
they merely relied on the photocopy of the title provided by Rellama. The CA concluded that
a mere photocopy of the title should have made Spouses Peralta suspicious that there was
some flaw in the title of Rellama, because he was not in possession of the original copy. This
factual finding was supported by evidence.
MJ
8.Quintos vs. Nicolas, G.R. No. 210252, 726 SCRA 482, June 16, 2014
Case Title : VILMA QUINTOS, represented by her Attorney-in-Fact FIDEL I. QUINTOS, JR.;
FLORENCIA I. DANCEL, represented by her Attorney-in-Fact FLOVY I. DANCEL; and CATALINO L.
IBARRA, petitioners, vs. PELAGIA I. NICOLAS, NOLI L. IBARRA, SANTIAGO L. IBARRA, PEDRO L.
IBARRA, DAVID L. IBARRA, GILBERTO L. IBARRA, HEIRS OF AUGUSTO L. IBARRA, namely:
CONCHITA R., IBARRA, APOLONIO IBARRA, and NARCISO IBARRA, and the spouses RECTO
CANDELARIO and ROSEMARIE CANDELARIO, respondents.
Case Nature : PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
Syllabi Class :Civil Law|Laches|Words and Phrases
Quintos vs. Nicolas
G.R. No. 210252, 726 SCRA 482, June 16, 2014
VELASCO, JR., J.:
FACTS: Spouses Bienvenido and Escolastica Ibarra were the owners of a 281 sqm. parcel of
land. When the spouses died, the land were later on owned by their ten children, petitioners

Vilma Quintos, Florencia Dancel, and Catalino Ibarra, and respondents Pelagia Nicolas, Noli
Ibarra, Santiago Ibarra, Pedro Ibarra, David Ibarra, Gilberto Ibarra, and Augusto Ibarra.
Respondent siblings filed a partition against the petitioners but were dismissed for the
parties failure to appear. For failure to secure a favorable result in the partition case,
respondent siblings executed a deed of adjudication which resulted to the cancellation of the
transfer certificate of title in the name of the deceased spouses and the issuance of a transfer
certificate of title in the name of the ten siblings. The respondents then sold their undivided
7/10 share to spouses Recto and Rosemarie Candelario. It also appeared that prior to the sale
of property, the respondent leased the subject property to Avico Lending Investor Co.
Petitioners then filed a complaint for quieting of title averring that the subject lot was
bequeathed to them by their parents. Despite admission by the respondents that petitioners
did not participate in the execution of the deed of adjudication and the agreement of
subdivision was falsified, the trial court dismissed the complaint for quieting of title and
declared that the spouses Candelario were the owner of the 7/10 portions. The court also
ordered the partitioning of the lot among the petitioners and the spouses Candelario. On
appeal, the Court of Appeals denied the appeal. Thus this petition.
ISSUE: Whether or not the respondents counterclaim for partition is already barred by laches
or res judicata considering that an earlier partition was dismissed due to fault of the
respondents. Laches does not set in since the respondents continued to exercise right of
ownership when they leased said property.
HELD: No, the law does not favor co-ownership; thus res judicata does not apply to partition
although there can still be res judicata in partition cases concerning the same parties and the
same subject matter once the respective shares of the co-owners have been determined with
finality by a competent court with jurisdiction or if the court determines that partition is
improper for co-ownership does not or no longer exists.
In the case at bar, respondent siblings admit that they filed an action for partition docketed
as Civil Case No. 02-52, which the RTC dismissed through an Order dated March 22, 2004 for
the failure of the parties to attend the scheduled hearings. Respondents likewise admitted
that since they no longer appealed the dismissal, the ruling attained finality. Moreover, it
cannot be disputed that the subject property in Civil Case No. 02-52 and in the present
controversy are one and the same, and that in both cases, respondents raise the same action
for partition. And lastly, although respondent spouses Candelario were not party-litigants in
the earlier case for partition, there is identity of parties not only when the parties in the case
are the same, but also between those in privity with them, such as between their successorsin-interest.
In advancing their claim, petitioners cite Rule 17, Sec. 3 of the Rules of Court, to wit:
Section 3. Dismissal due to fault of plaintiff. If, for no justifiable cause, the plaintiff
fails to appear on the date of the presentation of his evidence in chief on the
complaint, or to prosecute his action for an unreasonable length of time, or to comply
with these Rules or any order of the court, the complaint may be dismissed upon
motion of the defendant or upon the courts own motion, without prejudice to the
right of the defendant to prosecute his counterclaim in the same or in a separate
action. This dismissal shall have the effect of an adjudication upon the merits, unless
otherwise declared by the court.

The afore-quoted provision enumerates the instances when a complaint may be dismissed due
to the plaintiff's fault: (1) if he fails to appear on the date for the presentation of his
evidence in chief on the complaint; (2) if he fails to prosecute his action for an unreasonable
length of time; or (3) if he fails to comply with the Rules or any order of the court. The
dismissal of a case for failure to prosecute has the effect of adjudication on the merits, and is
necessarily understood to be with prejudice to the filing of another action, unless otherwise
provided in the order of dismissal. Stated differently, the general rule is that dismissal of a
case for failure to prosecute is to be regarded as an adjudication on the merits and with
prejudice to the filing of another action, and the only exception is when the order of
dismissal expressly contains a qualification that the dismissal is without prejudice. In the case
at bar, petitioners claim that the Order does not in any language say that the dismissal is
without prejudice and, thus, the requirement that the dismissal be on the merits is present.
Truly, We have had the occasion to rule that dismissal with prejudice under the above-cited
rule amply satisfies one of the elements of res judicata. It is, thus, understandable why
petitioners would allege res judicata to bolster their claim. However, dismissal with prejudice
under Rule 17, Sec. 3 of the Rules of Court cannot defeat the right of a co-owner to ask for
partition at any time, provided that there is no actual adjudication of ownership of shares
yet. Pertinent hereto is Article 494 of the Civil Code, which reads:
Article 494. No co-owner shall be obliged to remain in the co-ownership. Each coowner may demand at any time the partition of the thing owned in common, insofar as
his share is concerned.
Nevertheless, an agreement to keep the thing undivided for a certain period of time,
not exceeding ten years, shall be valid. This term may be extended by a new
agreement.
A donor or testator may prohibit partition for a period which shall not exceed twenty
years. Neither shall there be any partition when it is prohibited by law. No prescription
shall run in favor of a co-owner or co-heir against his co-owners or co-heirs so long as
he expressly or impliedly recognizes the co-ownership.
From the above-quoted provision, it can be gleaned that the law generally does not favor the
retention of co-ownership as a property relation, and is interested instead in ascertaining the
co-owners specific shares so as to prevent the allocation of portions to remain perpetually in
limbo. Thus, the law provides that each co-owner may demand at any time the partition of
the thing owned in common.
Between dismissal with prejudice under Rule 17, Sec. 3 and the right granted to co-owners
under Art. 494 of the Civil Code, the latter must prevail. To construe otherwise would
diminish the substantive right of a co-owner through the promulgation of procedural rules.
Such a construction is not sanctioned by the principle, which is too well settled to require
citation, that a substantive law cannot be amended by a procedural rule. This further finds
support in Art. 496 of the New Civil Code, viz:
Article 496.Partition may be made by agreement between the parties or by judicial
proceedings. Partition shall be governed by the Rules of Court insofar as they are
consistent with this Code.
This is not to say, however, that the action for partition will never be barred by res judicata.
There can still be res judicata in partition cases concerning the same parties and the same

subject matter once the respective shares of the co-owners have been determined with
finality by a competent court with jurisdiction or if the court determines that partition is
improper for co-ownership does not or no longer exists.
As correctly appreciated by the lower courts, respondents cannot be said to have neglected
to assert their right over the subject property. They cannot be considered to have abandoned
their right given that they filed an action for partition sometime in 2002, even though it was
later dismissed. Furthermore, the fact that respondent siblings entered into a Contract of
Lease with Avico Lending Investor Co. over the subject property is evidence that they are
exercising rights of ownership over the same.